EX-99.1 2 dex991.htm NON CONSOLIDATED FINANCIAL STATEMENT AND INDEPENDENT ACCOUNTANTS' REVIEW REPORT

Non Consolidated Financial Statement and Independent Accountants' Review Report

EXHIBIT 99-1 : NON-CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 AND INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

KT CORPORATION

NON-CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

AND INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

Independent Accountants’ Review Report

English Translation of a Report Originally Issued in Korean

To the Stockholders and Board of Directors of

KT Corporation:

We have reviewed the accompanying non-consolidated balance sheet of KT Corporation (the “Company”) as of September 30, 2008, the non-consolidated statements of income for the three months and nine months ended September 30, 2008 and 2007 and changes in equity and cash flows for the nine months ended September 30, 2008 and 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to issue a report on these financial statements based on our review. We did not review the financial statements for the three months and nine months ended September 30, 2008 of KT Freetel Co., Ltd. (“KTF”), a 54.25% owned investee as of September 30, 2008, in which the equity method investment security reflects 13.77% of the Company’s total assets as of September 30, 2008. Those financial statements were reviewed by other accountants whose report has been furnished to us, and our report, insofar as it relates to the amounts included for the equity method of accounting of the investment in KTF, is based solely on the report of the other accountants.

We conducted our reviews in accordance with standards for review of interim financial statements in the Republic of Korea. Those standards require that we plan and perform the review to obtain moderate assurance as to whether the non-consolidated financial statements are free of material misstatement. A review is limited primarily to inquiries of company personnel and analytical procedures applied to financial data, and this provides less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.

Based on our reviews and the report of the other accountants, nothing has come to our attention that causes us to believe that the non-consolidated financial statements referred to above are not presented fairly, in all material respects, in conformity with accounting principles generally accepted in the Republic of Korea.

We have previously audited, in accordance with auditing standards generally accepted in the Republic of Korea, the non-consolidated balance sheet of the Company as of December 31, 2007, and the related non-consolidated statements of income, appropriations of retained earnings, changes in equity and cash flows for the year then ended (not presented herein); and in our report dated January 30, 2008, we expressed an unqualified opinion on those non-consolidated financial statements. The accompanying balance sheet as of December 31, 2007, which is comparatively presented, does not differ in material respects from such audited non-consolidated balance sheet, except for the effects of the adjustments set forth in Note 2 to the non-consolidated financial statements.

Accounting principles and review standards and their application in practice vary among countries. The accompanying non-consolidated financial statements are not intended to present the financial position, results of operations, changes in equity and cash flows in accordance with accounting principles and practices generally accepted in countries other than the Republic of Korea. In addition, the procedures and practices utilized in the Republic of Korea to review such non-consolidated financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report and the accompanying non-consolidated financial statements are for use by those knowledgeable about Korean accounting principles and review standards and their application in practice.

November 10, 2008

Notice to Readers

This report is effective as of November 10, 2008, the accountants’ review report date. Certain subsequent events or circumstances may have occurred between the accountants’ review report date and the time the accountants’ review report is read. Such events or circumstances could significantly affect the accompanying non-consolidated financial statements and may result in modification to the accountants’ review report.

49

KT CORPORATION

NON-CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2008 AND DECEMBER 31, 2007

(Unaudited)

ASSETS		September 30, 2008			December 31, 2007
		(In millions of Korean won)
CURRENT ASSETS :
Cash and cash equivalents		(Won)	1,120,741		(Won)	921,197
Short-term investment assets (Note 3)			241,256			307,982
Accounts receivable – trade, less allowance for doubtful accounts of (Won)292,556 million in 2008 and (Won)249,008 million in 2007 (Note 11)			1,673,029			1,636,545
Accounts receivable – other, less allowance for doubtful accounts of (Won)85,546 million in 2008 and (Won)72,073 million in 2007 (Note 11)			113,942			150,390
Accrued revenues			8,508			6,358
Advance payments			31,835			13,442
Prepaid expenses			111,735			29,743
Guarantee deposits			1,332			950
Current portion of derivative instruments assets (Note 20)			61,133			352
Current portion of deferred income tax assets			104,580			121,349
Inventories (Note 4)			148,017			122,103
Other current assets			31			1
Total Current Assets			3,616,139			3,310,412
NON-CURRENT ASSETS :
Available-for-sale securities (Note 5)			18,916			14,164
Equity method investment securities (Notes 2 and 6)			3,477,685			3,378,153
Long-term loans			20,722			66,263
Other investment assets			18,535			—
Property and equipment, net (Note 7)			10,450,746			10,448,618
Intangible assets, net (Note 8)			374,490			439,738
Long-term accounts receivable – trade			45,856			41,716
Leasehold rights and deposits			87,437			84,210
Non-current derivative instruments assets (Note 20)			131,231			1,710
Non-current deferred income tax assets (Note 2)			152,418			31,114
Exclusive memberships			60,813			58,652
Long-term accounts receivable – other			12,731			36,171
Long-term prepaid expenses			10,374			6,261
Total Non-current Assets			14,861,954			14,606,770
TOTAL ASSETS		(Won)	18,478,093		(Won)	17,917,182

(Continued)

50

KT CORPORATION

NON-CONSOLIDATED BALANCE SHEETS (CONTINUED)

AS OF SEPTEMBER 30, 2008 AND DECEMBER 31, 2007

(Unaudited)

LIABILITIES AND EQUITY		September 30, 2008			December 31, 2007
		(In millions of Korean won)
CURRENT LIABILITIES :
Accounts payable – trade (Note 11)		(Won)	657,986		(Won)	769,861
Accounts payable – other (Note 11)			711,612			817,121
Advance receipts			55,476			55,105
Withholdings			60,019			66,092
Accrued expenses (Note 11)			469,079			297,628
Income taxes payable			123,398			255,292
Current portion of bonds and long-term borrowings (Note 9)			411,592			437,958
Unearned revenue			4,493			1,146
Key money deposits (Note 11)			110,686			121,963
Derivative instruments liabilities (Note 20)			11,191			132,281
Current portion of accrued provisions (Notes 10 and 19)			33,398			36,894
Total Current Liabilities			2,648,930			2,991,341
NON-CURRENT LIABILITIES :
Bonds (Note 9)			5,425,914			4,589,288
Long-term borrowings (Note 9)			29,632			26,582
Provisions for severance indemnities			507,002			447,912
Accrued provisions (Note 10)			7,828			20,677
Refundable deposits for telephone installation			808,775			841,356
Long-term accounts payable – other (Note 11)			116,897			109,868
Long-term advance receipts			4,924			5,605
Long-term deposits received			33,839			24,660
Total Non-current Liabilities			6,934,811			6,065,948
Total Liabilities			9,583,741			9,057,289

(Continued)

51

KT CORPORATION

NON-CONSOLIDATED BALANCE SHEETS (CONTINUED)

AS OF SEPTEMBER 30, 2008 AND DECEMBER 31, 2007

(Unaudited)

LIABILITIES AND EQUITY		September 30, 2008				December 31, 2007
		(In millions of Korean won)
EQUITY :
Common Stock (Notes 1 and 12)			1,560,998				1,560,998
Capital Surplus (Notes 2 and 6)			1,257,116				1,272,634
Capital Adjustments :
Treasury stock (Note 15)			(3,824,881	)			(3,825,688	)
Stock options (Note 14)			8,880				8,880
Stock grants (Note 14)			1,065				1,022
Total Capital Adjustments			(3,814,936	)			(3,815,786	)
Accumulated Other Comprehensive Income :
Unrealized gain on valuation of available-for-sale securities (Note 5)			958				2,559
Increase in equity of associates (Note 6)			39,414				11,565
Decrease in equity of associates (Note 6)			(2,692	)			(16,966	)
Unrealized gain on valuation of derivatives (Note 20)			13,728				2,024
Unrealized loss on valuation of derivatives (Note 20)			(541	)			—
Total Accumulated Other Comprehensive Income (Notes 2 and 13)			50,867				(818	)
Retained Earnings (Note 2)			9,840,307				9,842,865
Total Equity			8,894,352				8,859,893
TOTAL LIABILITIES AND EQUITY		(Won)	18,478,093			(Won)	17,917,182

See accompanying notes to non-consolidated financial statements

52

KT CORPORATION

NON-CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(Unaudited)

		Three months ended September 30, 2008			Nine months ended September 30, 2008			Three months ended September 30, 2007			Nine months ended September 30, 2007
		(In millions of Korean won)
OPERATING REVENUES (Notes 11 and 16)		(Won)	2,913,475		(Won)	8,909,529		(Won)	2,958,306		(Won)	8,940,036
OPERATING EXPENSES (Notes 11 and 17)			2,584,047			7,879,438			2,640,386			7,690,071
OPERATING INCOME			329,428			1,030,091			317,920			1,249,965
NON-OPERATING REVENUES :
Interest income			22,341			66,288			24,311			75,787
Foreign currency transaction gain			16,086			27,651			992			2,568
Foreign currency translation gain			14,570			32,091			10,451			16,329
Equity in income of associates (Note 6)			23,153			65,097			13,616			49,079
Dividend income			—			80			2			2
Gain on breach of contracts			134			565			402			1,108
Gain on disposal of useless materials			6,868			17,090			7,246			15,815
Gain on disposal of available-for-sale securities			—			10			—			—
Gain on disposal of equity method investment securities			—			—			383			383
Gain on disposal of property and equipment			1,017			3,011			919			14,409
Reversal of accrued provisions (Note 10)			1,384			5,422			1,782			50,993
Reversal of allowance for doubtful accounts			—			—			43,308			9,450
Gain on settlement of derivatives			1,051			5,957			3,561			7,922
Gain on valuation of derivatives (Note 20)			207,119			311,554			15,482			22,030
Other non-operating revenue			9,310			28,603			13,876			71,824
Total Non-operating Revenue			303,033			563,419			136,331			337,699
NON-OPERATING EXPENSES :
Interest expense			78,821			237,223			77,253			235,243
Other bad debt expense			12,237			17,328			—			—
Foreign currency transaction loss			10,409			17,816			1,051			3,472
Foreign currency translation loss			290,117			486,469			1,573			2,304
Equity in loss of associates (Note 6)			—			83,202			10,747			21,221
Donations			20,407			62,649			25,929			53,787
Loss on disposal of available-for-sale securities			—			—			—			520
Loss on disposal of equity method investment securities			—			—			549			549
Loss on disposal of property and equipment			6,697			30,924			5,776			22,551
Loss on impairment of property and equipment (Note 7)			970			991			4,457			4,457
Loss on disposal of intangible assets			5			484			—			161
Loss on impairment of intangible assets			—			—			3,692			7,066
Loss on settlement of derivatives			846			3,944			2,857			8,517
Loss on valuation of derivatives (Note 20)			3,669			5,704			2,847			10,219
Other non-operating expense			9,376			56,644			3,176			29,233
Total Non-operating Expenses			433,554			1,003,378			139,907			399,300
(Continued)

53

KT CORPORATION

NON-CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)

FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(Unaudited)

		Three months ended September 30, 2008			Nine months ended September 30, 2008			Three months ended September 30, 2007			Nine months ended September 30, 2007
		(In millions of Korean won)
INCOME BEFORE INCOME TAX EXPENSE			198,907			590,132			314,344			1,188,364
INCOME TAX EXPENSE			37,510			114,130			56,974			314,001
NET INCOME (Note 2)		(Won)	161,397		(Won)	476,002		(Won)	257,370		(Won)	874,363
NET INCOME PER SHARE (Notes 2 and 18)
Basic and diluted net income per share (in Korean won)		(Won)	798		(Won)	2,343		(Won)	1,250		(Won)	4,217

See accompanying notes to non-consolidated financial statements

54

KT CORPORATION

NON-CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(Unaudited)

		Common stock			Capital surplus				Capital adjustments				Other comprehensive Income (loss)				Retained earnings				Total
		(In millions of Korean won)
Balance as of January 1, 2007 (as reported)		(Won)	1,560,998		(Won)	1,440,910			(Won)	(3,817,717	)		(Won)	10,978			(Won)	9,353,911			(Won)	8,549,080
A change in accounting policy (Note 2)			—			(153,657	)			—				(23,076	)			119,506				(57,227	)
As restated			1,560,998			1,287,253				(3,817,717	)			(12,098	)			9,473,417				8,491,853
Dividends			—			—				—				—				(416,190	)			(416,190	)
Retained earnings after appropriations			—			—				—				—				9,057,227				8,075,663
Net income for the period			—			—				—				—				874,363				874,363
Acquisition of treasury stock			—			—				(91,518	)			—				—				(91,518	)
Disposal of treasury stock			—			—				884				—				—				884
Retirement of treasury stock			—			—				91,518				—				(91,518	)			—
Offset of loss on disposal of treasury stock			—			(133	)			—				—				—				(133	)
Other capital surplus			—			(2,575	)			—				—				—				(2,575	)
Stock options			—			—				25				—				—				25
Other share-based payment			—			—				766				—				—				766
Unrealized gain on valuation of available-for-sale securities			—			—				—				(348	)			—				(348	)
Increase in equity of associates			—			—				—				(2,701	)			—				(2,701	)
Decrease in equity of associates			—			—				—				5,225				—				5,225
Gain on valuation of derivatives for cash flow hedge			—			—				—				2,285				—				2,285
Balance as of September 30, 2007		(Won)	1,560,998		(Won)	1,284,545			(Won)	(3,816,042	)		(Won)	(7,637	)		(Won)	9,840,072			(Won)	8,861,936

55

KT CORPORATION

NON-CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Continued)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(Unaudited)

		Common stock			Capital surplus				Capital adjustments				Other comprehensive Income				Retained earnings				Total
		(In millions of Korean won)
Balance as of January 1, 2008 (as reported)		(Won)	1,560,998		(Won)	1,440,777			(Won)	(3,815,786	)		(Won)	7,771			(Won)	9,699,015			(Won)	8,892,775
A change in accounting policy (Note 2)			—			(168,143	)			—				(8,589	)			146,471				(30,261	)
As restated			1,560,998			1,272,634				(3,815,786	)			(818	)			9,845,486				8,862,514
Dividends			—			—				—				—				(407,374	)			(407,374	)
Retained earnings after appropriations			—			—				—				—				9,438,112				8,455,140
Net income for the period			—			—				—				—				476,002				476,002
Acquisition of treasury stock			—			—				(73,807	)			—				—				(73,807	)
Disposal of treasury stock			—			—				807				—				—				807
Retirement of treasury stock			—			—				73,807				—				(73,807	)			—
Offset of loss on disposal of treasury stock			—			(144	)			—				—				—				(144	)
Other capital surplus			—			(15,374	)			—				—				—				(15,374	)
Other share-based payment			—			—				43				—				—				43
Unrealized gain on valuation of available-for-sale securities			—			—				—				(1,601	)			—				(1,601	)
Increase in equity of associates			—			—				—				27,849				—				27,849
Decrease in equity of associates			—			—				—				14,274				—				14,274
Gain on valuation of derivatives for cash flow hedge			—			—				—				11,704				—				11,704
Loss on valuation of derivatives for cash flow hedge			—			—				—				(541	)			—				(541	)
Balance as of September 30, 2008		(Won)	1,560,998		(Won)	1,257,116			(Won)	(3,814,936	)		(Won)	50,867			(Won)	9,840,307			(Won)	8,894,352

See accompanying notes to non-consolidated financial statements

56

KT CORPORATION

NON-CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(Unaudited)

		Nine months ended September 30,
		2008				2007
		(In millions of Korean won)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		(Won)	476,002			(Won)	874,363
Expenses not involving cash payments:
Share-based payment			1,065				792
Provision for severance indemnities			205,018				257,406
Depreciation			1,459,235				1,437,635
Amortization			122,888				116,232
Provision for doubtful accounts			78,943				—
Interest expense			3,436				3,059
Other bad debt expense			17,328				—
Foreign currency translation loss			486,469				2,299
Equity in loss of associates			83,202				21,221
Loss on disposal of available-for-sale securities			—				520
Loss on disposal of equity method investment securities			—				549
Loss on disposal of property and equipment			30,924				22,551
Loss on impairment of property and equipment			991				4,457
Loss on disposal of intangible assets			484				161
Loss on impairment of intangible assets			—				7,066
Loss on valuation of derivatives			5,704				10,219
Other non-operating expense			2,191				4,140
Sub-total			2,497,878				1,888,307
Income not involving cash receipts:
Interest income			3,122				3,878
Foreign currency translation gain			31,405				16,329
Equity in income of associates			65,097				49,079
Gain on disposal of available-for-sale securities			10				—
Gain on disposal of equity method investment securities			—				383
Gain on disposal of property and equipment			3,011				14,409
Reversal of allowance for doubtful accounts			—				9,450
Gain on valuation of derivatives			311,554				22,030
Sub-total			(414,199	)			(115,558	)

(Continued)

57

KT CORPORATION

NON-CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(Unaudited)

		Nine months ended September 30,
		2008			2007
		(In millions of Korean won)
Changes in assets and liabilities related to operating activities:
Accounts receivable – trade		(83,479	)		(313,003	)
Accounts receivable – other		31,303			13,811
Accrued revenues		(2,149	)		(4,755	)
Advance payments		(18,392	)		(6,240	)
Prepaid expenses		(81,992	)		(65,947	)
Guarantee deposits		(382	)		835
Derivative instruments assets		352			1,669
Other current assets		(30	)		55
Inventories		(25,970	)		(4,488	)
Long-term accounts receivable – trade		(8,672	)		(489	)
Leasehold rights and deposits		(3,227	)		(3,811	)
Deferred income tax assets		(118,512	)		2,389
Exclusive memberships		(2,162	)		(997	)
Long-term accounts receivable – other		24,171			763
Long-term prepaid expenses		(4,113	)		896
Accounts payable – trade		(138,545	)		(12,617	)
Accounts payable – other		(109,094	)		(296,965	)
Advance receipts		370			(19,214	)
Withholdings		(6,487	)		2,405
Accrued expenses		171,452			256,585
Income taxes payable		(131,839	)		(69,273	)
Unearned revenue		3,347			4,166
Key money deposits		(11,276	)		(20,737	)
Derivative instruments liabilities		(389	)		(4,629	)
Payment of severance indemnities		(145,927	)		(139,723	)
Accrued provisions		(16,345	)		(42,730	)
Refundable deposits for telephone installation		(32,581	)		(49,389	)
Deferred income tax liabilities		—			(16,896	)
Long-term advance receipts		(681	)		(684	)
Long-term deposits received		9,179			18,314
Sub-total		(702,070	)		(770,699	)
Net Cash Provided by Operating Activities		1,857,611			1,876,413

(Continued)

58

KT CORPORATION

NON-CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(Unaudited)

		Nine months ended September 30,
		2008			2007
		(In millions of Korean won)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash inflows from investing activities:
Decrease in short-term investment assets		206,948			83,056
Disposal of available-for-sale securities		10			2,457
Decrease in equity method investment securities		6,531			64,240
Collection of long-term loans		7,642			16,966
Decrease in other investment assets		—			208
Disposal of property and equipment		30,166			49,851
Increase of contribution for construction		53,748			47,795
Sub-total		305,045			264,573
Cash outflows for investing activities:
Increase in short-term investment assets		102,323			91,297
Acquisition of available-for-sale securities		6,960			—
Acquisition of equity method investment securities		84,447			9,008
Acquisition of property and equipment		1,559,364			1,352,727
Acquisition of intangible assets		58,124			76,427
Sub-total		(1,811,218	)		(1,529,459	)
Net Cash Used in Investing Activities		(1,506,173	)		(1,264,886	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash inflows from financing activities:
Issuance of bonds		777,292			324,144
Increase in long-term borrowings		10,935			12,918
Sub-total		788,227			337,062

(Continued)

59

KT CORPORATION

NON-CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(Unaudited)

		Nine months ended September 30,
		2008				2007
		(In millions of Korean won)
Cash outflows for financing activities:
Payment of accounts payable – other			24,875				18,768
Repayment of current portion of bond and long-term borrowings			434,065				553,533
Payment of dividends			407,374				416,190
Acquisition of treasury stock			73,807				91,517
Sub-total			(940,121	)			(1,080,008	)
Net Cash Used in Financing Activities			(151,894	)			(742,946	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			199,544				(131,419	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD			921,197				1,036,765
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD		(Won)	1,120,741			(Won)	905,346

See accompanying notes to non-consolidated financial statements

60

KT CORPORATION

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

1. ORGANIZATION AND DESCRIPTION OF THE BUSINESS

KT Corporation (the “Company”) commenced operations on January 1, 1982 through the segregation of specified operations from the Korean Ministry of Information and Communication (the “MIC”) for the purpose of contributing to the convenience in national life and improvement of public welfare through rational management of the public telecommunication business and improvement of telecommunication technology under the Korea Telecom Act.

Upon the announcements of the Government-Invested Enterprises Management Basic Act and the Privatization Law, as of October 1, 1997, the Company became a government invested institution regulated by the Korean Commercial Code and the Company’s shares were listed on the Korea Exchange (formerly “Korea Stock Exchange”) on December 23, 1998. The Company issued 24,282,195 additional shares on May 29, 1999 and issued American Depository Shares (“ADS”), representing these new shares and government-owned shares on the New York Stock Exchange and the London Exchange. On July 2, 2001, additional ADS representing 55,502,161 government-owned shares were issued.

In 2002, the Company acquired its 60,294,575 government-owned shares according to the government’s privatization plan for government-owned companies and there is no government-owned share as of September 30, 2008.

Prior to 1991, the Company was the only telecommunication service provider in Korea. Since then, several new providers have entered the markets, as licensed by the MIC; an international call service by LG Dacom, the second telecommunication service provider, in December 1991, and local call service by Hanaro Telecom, the second local call provider, in 1999. Onse Telecom also entered a long-distance call service after its international call service. The entry of these new providers into the markets resulted in severe competition in fixed-line telephone services and high speed internet services in which large growth is not expected in the future. In order to develop new business areas, the Company commercialized the Wireless Broadband Internet (“WiBro”) service in 2006 and launched new products such as mixed products which combine certain previous services and Internet Contents On Demand (“ICOD”) services under the new brand name “MegaTV” in 2007.

61

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company maintains its official accounting records in Korean won and prepares statutory financial statements in the Korean language (Hangul) in conformity with the accounting principles generally accepted in the Republic of Korea. Certain accounting principles applied by the Company that conform with financial accounting standards and accounting principles in the Republic of Korea may not conform with generally accepted accounting principles in other countries. Accordingly, these financial statements are intended for use by those who are informed about Korean accounting principles and practices. The accompanying non-consolidated financial statements have been condensed, restructured and translated into English with certain expanded descriptions from the Korean language financial statements. Certain information included in the Korean language financial statements, but not required for a fair presentation of the Company’s financial position, results of operations, changes in equity including retained earnings or cash flows, is not presented in the accompanying non-consolidated financial statements.

The accompanying non-consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the Republic of Korea. Except for the matters described below, the significant accounting policies for the accompanying non-consolidated interim financial statements are the same as those for the 2007 annual financial statements.

The Company restated the prior period financial statements in accordance with the amendment to Statements of Korea Accounting Standards (“SKAS”) No. 15 “Investments in Associates”, and also made adjustment directly to retained earnings in accordance with the amendment to the Korea Accounting Institute (“KAI”) Opinion 06-2 “Deferred Income Taxes on Investments in Subsidiaries, Associates and Interests in Joint Ventures”. However, in connection with the Company’s adoption of SKAS No. 15, the Company restated only the 2007 financial statements as allowed by the transition clause of the amendment but did not restate the financial statements before 2007. Meanwhile, significant changes in the current period financial statements due to such amendments are summarized as follows (in millions of Korean won):

		Before amendment			After amendment
Balance sheet as of September 30, 2008
Equity method investment securities		(Won)	3,499,933		(Won)	3,477,685
Deferred income tax assets (non-current)			152,210			152,418
Other capital surplus included in capital surplus			373			(183,142	)
Accumulated other comprehensive income			44,085			50,867
Retained earnings			9,685,613			9,840,307
Statement of income for the nine months ended September 30, 2008
Net income		(Won)	467,781		(Won)	476,002
Basic net income per share from continuing operations (in Korean won)			2,302			2,343
Basic net income per share (in Korean won)			2,302			2,343

62

Significant changes in the prior period financial statements due to such amendments are summarized as follows (in millions of Korean won):

		Before amendment			After amendment
Balance sheet as of December 31, 2007
Equity method investment securities		(Won)	3,411,035		(Won)	3,378,153
Capital surplus			519			(167,642	)
Accumulated other comprehensive income			7,771			(818	)
Retained earnings			9,699,015			9,842,865
Statement of income for the nine months ended September 30, 2007
Net income		(Won)	852,769		(Won)	874,363
Basic net income per share from continuing operations (in Korean won)			4,113			4,217
Basic net income per share (in Korean won)			4,113			4,217

Certain reclassifications in prior period financial statements have been made to conform to the classifications in the current period for the purpose of ease of comparison. Such reclassifications did not have an effect on the net assets as of December 31, 2007 or net income for the three and nine months ended September 30, 2007.

Transactions or accounting events related to significant changes in the financial position or the results of operations arising after December 31, 2007 are mainly disclosed in the notes to the accompanying non-consolidated financial statements.

3. RESTRICTED DEPOSITS

Details of restricted deposits included in short-term investment assets as of September 30, 2008 and December 31, 2007 are as follows (in millions of Korean won):

		September 30, 2008			December 31, 2007			Description
Short-term investment assets		(Won)	933		(Won)	381		Restricted for research and development
			17,305			—		Money trust accounts
Total		(Won)	18,238		(Won)	381

63

4. INVENTORIES VALUATION

Inventory valuations as of September 30, 2008 and December 31, 2007 are summarized as follows (in millions of Korean won):

		September 30, 2008									December 31, 2007
		Acquisition cost			Lower of cost or market value			Valuation allowance			Acquisition cost			Lower of cost or market value			Valuation allowance
Merchandise		(Won)	144,438		(Won)	125,434		(Won)	19,004		(Won)	110,129		(Won)	90,621		(Won)	19,508
Supplies			15,916			14,645			1,271			20,880			17,077			3,803

5. AVAILABLE-FOR-SALE SECURITIES

Available-for-sale securities as of September 30, 2008 and December 31, 2007 are all equity securities and are summarized as follows (in millions of Korean won):

		September 30, 2008
		Percentage of ownership (%)		Acquisition cost			Fair value			Net asset value			Book value (Note 1)			Unrealized gains (losses) (Note 2)
K-3-I Co., Ltd.		12.50		(Won)	300		(Won)	—		(Won)	115		(Won)	300		(Won)	—
Korea Information Certificate Authority, Inc.		9.27			2,000			—			2,118			2,000			—
Polytech Adventure Town, Inc.		6.67			200			—			135			200			—
ICO Global Communications Ltd.		0.18			617			—			—			—			—
Daegu Football Club		1.84			300			—			88			300			—
Kookmin Credit Information, Inc.		2.07			1,202			—			—			—			—
Solitech Co., Ltd.		4.70			590			1,912			—			1,912			1,322
Vissem Electronics Co., Ltd. (formerly, “Samjin Information & Communications Co., Ltd.”)		0.02			15			—			2			15			—
Korea Software Financial Cooperative		0.87			1,000			—			1,196			1,000			—
Russia-Japan-Korea Cable System		10.00			307			—			—			—			—
Information and Communication Financial Cooperative		0.01			16			—			19			16			—
Korea Electric Engineers Association		0.11			20			—			22			20			—
Binext CT Financial Cooperative		15.00			1,500			—			1,423			1,500			—
Korea Specialty Contractor Financial Cooperative Fund		0.00			61			—			59			61			—
MBC-ESS Sports Co., Ltd.		8.96			1,800			—			732			1,800			—
Amicus Wireless Technology Ltd.		3.61			960			—			—			960			—
ZMOS Technology, Inc.		9.86			1,872			—			342			1,872			—
Translink Capital Partners I, L.P. (Note 3)		12.50			5,222			—			2,021			5,222			—
Sovik Contents Investment Fund (Note 3)		6.52			1,304			—			1,306			1,304			—
Pacren Walden Ventures Parallel VI-KT, L.P. (Notes 3 and 4)		99.01			434			—			434			434			—
Total				(Won)	19,720		(Won)	1,912		(Won)	10,012		(Won)	18,916

64

		December 31, 2007
		Percentage of ownership (%)		Acquisition cost			Fair value			Net asset value			Book Value (Note 1)			Unrealized gains (losses) (Note 2)
K-3-I Co., Ltd.		12.50		(Won)	300		(Won)	—		(Won)	132		(Won)	300		(Won)	—
Korea Information Certificate Authority, Inc.		9.27			2,000			—			1,891			2,000			—
Polytech Adventure Town, Inc.		6.67			200			—			142			200			—
ICO Global Communications Ltd.		0.18			617			—			—			—			—
Daegu Football Club		1.84			300			—			101			300			—
Kookmin Credit Information, Inc.		6.42			1,202			—			—			—			—
Solitech Co., Ltd.		4.70			590			4,120			—			4,120			3,530
Vissem Electronics Co., Ltd. (formerly, “Samjin Information & Communications Co., Ltd.”)		0.02			15			—			2			15			—
Korea Software Financial Cooperative		0.93			1,000			—			1,135			1,000			—
Russia-Japan-Korea Cable System		10.00			307			—			—			—			—
Information and Communication Financial Cooperative		0.01			16			—			19			16			—
Korea Electric Engineers Association		0.11			20			—			22			20			—
Binext CT Financial Cooperative		15.00			1,500			—			1,454			1,500			—
Korea Specialty Contractor Financial Cooperative Fund		0.00			61			—			59			61			—
MBC-ESS Sports Co., Ltd.		8.96			1,800			—			1,160			1,800			—
Amicus Wireless Technology Ltd.		4.43			960			—			169			960			—
Opensolution Co., Ltd.		8.97			—			—			—			—			—
ZMOS Technology, Inc.		9.86			1,872			—			506			1,872			—
Total				(Won)	12,760		(Won)	4,120		(Won)	6,792		(Won)	14,164

65

(Note 1)		Investments in equity securities above, except Solitech Co., Ltd., do not have readily determinable fair values and therefore are stated at cost. In addition, if the estimated recoverable amount of the securities is below their acquisition cost and such difference is not deemed recoverable, write-downs of the individual securities are recorded to reduce the carrying value.
(Note 2)		The amounts are not adjusted for deferred income tax arising from the unrealized gain (loss).
(Note 3)		During the nine months ended September 30, 2008, the Company obtained 12.50% ownership interest of Translink Capital Partners I, L.P. for (Won)5,222 million, 6.52% ownership interest of Sovik Contents Investment Fund for (Won)1,304 million and 99.01% ownership interest of Pacren Walden Ventures Parallel VI-KT, L.P. for (Won)434 million, respectively.
(Note 4)		Although the Company’s ownership interest in this company is 99.01%, it is an entrusted asset in substance. The Company concludes that it has no significant influence over this investee and classifies this investment as an available-for-sale security.

Changes in unrealized gain (loss) on available-for-sale securities for the nine months ended September 30, 2008 and the year ended December 31, 2007 are summarized as follows (in millions of Korean won):

		September 30, 2008 (9 months)				December 31, 2007 (12 months)
Balance at beginning of the period		(Won)	3,530			(Won)	6,050
Changes in unrealized gain (loss), net			(2,208	)			(2,520	)
Net balance at end of the period			1,322				3,530
Income tax effect			(364	)			(971	)
Balance at end of the period		(Won)	958			(Won)	2,559

66

6. EQUITY METHOD INVESTMENT SECURITIES

Investments in securities accounted for using the equity method as of September 30, 2008 and December 31, 2007 are summarized as follows (in millions of Korean won):

		September 30, 2008
		Number of shares		Percentage of ownership (%)		Acquisition cost			Equity in net asset value			Book value			Market value
KT Networks Corporation (“KTN”)		2,000,000		100.00		(Won)	23,458		(Won)	54,822		(Won)	54,822		(Won)	—
KT Rental Co., Ltd. (“KTR”)		6,800,000		100.00			34,419			55,399			55,279			—
KT Capital Co., Ltd.		20,200,000		100.00			101,000			104,795			104,795			—
KT FDS Co., Ltd. (formerly “Korea FDS Co., Ltd.”)		400,000		100.00			9,008			1,226			5,266			—
KT Internal Venture Fund No. 2		5,000		94.34			5,000			5,167			5,167			—
KT Linkus Co., Ltd. (“KTL”)		2,941,668		93.82			24,502			2,667			2,600			—
KT New Business Fund No. 1 (Note 1)		100		90.91			10,000			10,120			10,120			—
Telecop Service Co., Ltd. (“TSC”)		4,644,376		93.82			26,359			9,054			9,054			—
KT DataSystems Co., Ltd. (Note 1)		1,920,000		80.00			9,600			9,241			9,241			—
KT Hitel Co., Ltd. (“KTH”)		22,750,000		65.94			67,780			118,113			118,193			153,108
Sofnics Inc. (Note 1)		120,000		60.00			600			451			451			—
JungBoPremiumEdu Co., Ltd. (Note 1)		240,000		54.50			6,000			3,284			5,193			—
KT Freetel Co., Ltd. (“KTF”) (Note 2)		102,129,938		54.25			3,821,386			2,320,484			2,544,868			3,033,259
Nasmedia, Inc. (Note 3)		1,767,516		50.00			26,055			12,768			25,286			—
KT Powertel Co., Ltd. (“KTP”)		7,771,418		44.85			55,135			31,151			31,151			—
KT Submarine Co., Ltd. (“KTSC”)		1,617,000		36.92			8,085			21,585			21,585			13,211
Sidus FNH Co.		1,607,900		35.70			19,599			5,773			11,875			—
Olive Nine Co., Ltd. (Notes 4 and 6)		9,250,000		19.48			23,155			3,462			15,003			10,083
KT Commerce, Inc. (“KTC”) (Note 5)		266,000		19.00			1,330			1,403			1,393			—
Sidus FNH Benex Cinema Investment Fund (Note 5)		40		13.33			4,000			4,097			4,097			—
KTF Technologies, Inc. (“KTFT”) (Note 5)		56,000		3.85			366			1,385			544			—
Korea Telecom America, Inc. (“KTAI”)		6,000		100.00			4,783			3,842			3,842			—
Korea Telecom China Co., Ltd. (“KTCC”)		—		100.00			1,245			1,737			1,737			—
Korea Telecom Japan Co., Ltd. (“KTJ”)		12,856		100.00			6,586			1,797			1,797			—
New Telephone Company (“NTC”)		5,309,189		79.96			33,064			179,439			179,439			—
KTSC Investment Management B.V. (Note 7)		82,614		60.00			30,860			42,006			42,006			—
Company K Movie Asset Fund No. 1 (Note 1)		54		60.00			5,400			5,405			5,405			—
KT-Global New Media Fund (Note 1)		600		50.00			6,000			5,862			5,862			—
Korea Telecom Directory Co., Ltd. (“KTD”)		1,360,000		34.00			6,800			8,441			8,441			—
Metropol Property LLC (Note 8)		—		34.00			1,739			2,063			2,063			—
KBSi Co., Ltd.		952,000		32.38			4,760			4,345			4,345			—
Korea Information Technology Fund (“KITF”)		70		23.33			70,000			79,033			79,033			—
Sky Life Contents Fund		45		22.50			4,500			4,177			4,177			—
Everyshow (Note 1)		300,000		21.28			1,500			1,309			1,309			—
Korea Digital Satellite Broadcasting Co., Ltd. (“KDB”)		20,770,000		21.00			185,274			20,569			34,229			—
Kiwoom Investment Co., Ltd. (formerly, “Korea IT Venture Partners Inc.”)		1,800,000		20.17			9,000			7,485			7,485			—
Goodmorning F Co., Ltd. (Note 4)		114,000		19.00			254			1,460			1,460			—
Korea New Realty Development and Construction Co., Ltd. (formerly, “KT Realty Development and Management Co., Ltd.”) (“KNRDC”) (Note 4)		266,000		19.00			506			7,317			7,317			—
Korea Information Data Corp. (“KID”) (Note 4)		760,000		19.00			3,800			14,166			14,166			—

67

		September 30, 2008
		Number of shares		Percentage of ownership (%)		Acquisition cost			Equity in net asset value			Book Value			Market value
Korea Information Service Corp. (“KIS”) (Note 4)		570,000		19.00			2,850			12,861			12,861		—
Korea Seoul Contact all Co., Ltd. (Note 4)		45,600		19.00			228			262			262		—
Korea Service and Communication Co., Ltd. (Note 4)		45,600		19.00			228			296			296		—
Korea Call Center Co., Ltd. (Note 4)		45,600		19.00			228			296			296		—
TMworld Co., Ltd. (Note 4)		45,600		19.00			228			324			324		—
Ubiquitous Marketing Service and Communication Co., Ltd. (“UMS&C”) (Note 4)		45,600		19.00			228			279			279		—
Exdell Corporation (Note 4)		38,000		19.00			190			240			240		—
Information Technology Service Kangbuk Corporation (Note 4)		38,000		19.00			190			211			211		—
Information Technology Solution Nambu Corporation (Note 4)		38,000		19.00			190			216			216		—
Information Technology Solution Seobu Corporation (Note 4)		38,000		19.00			190			217			217		—
Information Technology Solution Busan Corporation (Note 4)		38,000		19.00			190			217			217		—
Information Technology Solution Jungbu Corporation (Note 4)		38,000		19.00			190			160			160		—
Information Technology Solution Honam Corporation (Note 4)		38,000		19.00			190			199			199		—
Information Technology Solution Daegu Corporation (Note 4)		38,000		19.00			190			196			196		—
Mostech Co., Ltd. (Note 4)		200,000		17.93			5,000			124			2,245		—
Wooridul Entertainment Investment Fund-1 (Notes 1 and 5)		1,391		17.39			1,391			1,371			1,371		—
eNtoB Corp. (Note 5)		500,000		15.63			2,500			4,043			4,043		—
Mongolian Telecommunications (“MTC”)		10,348,111		40.00			3,450			13,956			13,956		24,318
Total						(Won)	4,670,759		(Won)	3,202,368		(Won)	3,477,685

68

		December 31, 2007
		Number of shares		Percentage of ownership (%)		Acquisition cost			Equity in net asset value				Book value			Market value
KT Networks Corporation (“KTN”)		2,000,000		100.00		(Won)	23,458		(Won)	52,900			(Won)	52,900		(Won)	—
KT Rental Co., Ltd. (“KTR”)		6,800,000		100.00			34,419			48,315				48,207			—
KT Capital Co., Ltd.		20,200,000		100.00			101,000			100,043				100,043			—
KT FDS Co., Ltd. (formerly “Korea FDS Co., Ltd.”)		400,000		100.00			9,008			2,453				7,359			—
KT Internal Venture Fund No. 2		5,000		94.34			5,000			5,205				5,205			—
KT Linkus Co., Ltd. (“KTL”)		2,941,668		93.82			24,502			8,136				8,040			—
Telecop Service Co., Ltd. (“TSC”)		4,644,376		93.82			26,359			10,847				10,847			—
KT Hitel Co., Ltd. (“KTH”)		22,750,000		65.94			67,780			114,082				114,403			167,213
KT Freetel Co., Ltd. (“KTF”)		102,129,938		52.99			3,821,386			2,299,615				2,620,185			3,099,644
KT Powertel Co., Ltd. (“KTP”)		7,771,418		44.85			55,135			28,837				28,837			—
KT Submarine Co., Ltd. (“KTSC”)		1,617,000		36.92			8,085			21,933				21,933			14,424
Sidus FNH Co.		1,607,900		35.70			19,599			6,273				14,409			—
Olive Nine Co., Ltd. (Note 4)		8,750,000		19.20			22,000			3,676				17,880			20,169
KT Commerce, Inc. (“KTC”) (Note 5)		266,000		19.00			1,330			1,305				1,264			—
Sidus FNH Benex Cinema Investment Fund (Note 5)		40		13.33			4,000			3,985				3,985			—
KTF Technologies, Inc. (“KTFT”) (Note 5)		56,000		3.85			366			2,073				1,623			—
Korea Telecom America, Inc. (“KTAI”)		6,000		100.00			4,783			2,937				2,937			—
Korea Telecom China Co., Ltd. (“KTCC”)		—		100.00			1,245			946				946			—
Korea Telecom Philippines, Inc. (“KTPI”) (Note 9)		744,476		100.00			2,481			(112,543	)			—			—
Korea Telecom Japan Co., Ltd. (“KTJ”)		12,856		100.00			6,586			830				830			—
New Telephone Company (“NTC”)		5,309,189		79.96			33,064			125,326				125,326			—
KTSC Investment Management B.V.		108		60.00			15			15				15			—
Super iMax		—		60.00			1,321			1				1,321			—
East Telecom		—		51.00			14,515			10,238				14,515			—
Korea Telecom Directory Co., Ltd. (“KTD”)		1,360,000		34.00			6,800			8,085				8,085			—
KBSi Co., Ltd.		952,000		32.38			4,760			3,408				3,408			—
Korea Information Technology Fund (“KITF”)		70		23.33			70,000			77,578				77,578			—
Sky Life Contents Fund		45		22.50			4,500			4,997				4,997			—
Korea Digital Satellite Broadcasting Co., Ltd. (“KDB”)		20,770,000		21.00			185,274			3,036				24,892			—
Kiwoom Investment Co., Ltd. (formerly, “Korea IT Venture Partners Inc.”)		1,800,000		20.17			9,000			7,147				7,147			—
Goodmorning F Co., Ltd. (Note 4)		114,000		19.00			254			1,151				1,151			—
Korea New Realty Development and Construction Co., Ltd. (formerly, “KT Realty Development and Management Co., Ltd.”) (“KNRDC”) (Note 4)		266,000		19.00			506			3,788				3,788			—
Korea Information Data Corp. (“KID”) (Note 4)		760,000		19.00			3,800			13,541				13,541			—

69

		December 31, 2007
		Number of shares		Percentage of ownership (%)		Acquisition cost			Equity in net asset value			Book value			Market value
Korea Information Service Corp. (“KIS”) (Note 4)		570,000		19.00			2,850			10,792			10,792		—
Korea Seoul Contact all Co., Ltd. (Note 4)		45,600		19.00			228			271			271		—
Korea Service and Communication Co., Ltd. (Note 4)		45,600		19.00			228			274			274		—
Korea Call Center Co., Ltd. (Note 4)		45,600		19.00			228			266			266		—
TMworld Co., Ltd. (Note 4)		45,600		19.00			228			294			294		—
Ubiquitous Marketing Service and Communication Co., Ltd. (“UMS&C”) (Note 4)		45,600		19.00			228			275			275		—
Exdell Corporation (Note 4)		38,000		19.00			190			177			177		—
Information Technology Service Kangbuk Corporation (Note 4)		38,000		19.00			190			190			190		—
Information Technology Solution Nambu Corporation (Note 4)		38,000		19.00			190			190			190		—
Information Technology Solution Seobu Corporation (Note 4)		38,000		19.00			190			190			190		—
Information Technology Solution Busan Corporation (Note 4)		38,000		19.00			190			190			190		—
Information Technology Solution Jungbu Corporation (Note 4)		38,000		19.00			190			190			190		—
Information Technology Solution Honam Corporation (Note 4)		38,000		19.00			190			190			190		—
Information Technology Solution Daegu Corporation (Note 4)		38,000		19.00			190			190			190		—
Mostech Co., Ltd. (Note 4)		200,000		17.93			5,000			316			3,016		—
eNtoB Corp. (Note 5)		500,000		15.63			2,500			3,841			3,841		—
Mongolian Telecommunications (“MTC”)		10,348,111		40.00			3,450			10,020			10,020		41,491
Total						(Won)	4,588,791		(Won)	2,888,015		(Won)	3,378,153

70

(Note 1)		During the nine months ended September 30, 2008, the Company obtained 90.91% ownership interest of KT New Business Fund No. 1 for (Won)10,000 million, 80.00% ownership interest of KT DataSystems Co., Ltd. for (Won)9,600 million, 60.00% ownership interest of Sofnics lnc. for (Won)600 million, 54.50% ownership interest of JungBoPremiumEdu Co., Ltd. for (Won)6,000 million, 60.00% ownership interest of Company K Movie Asset Fund No. 1 for (Won)5,400 million, 50.00% ownership interest of KT-Global New Media Fund for (Won)6,000 million, 21.28% ownership interest of Everyshow for (Won)1,500 million and 17.39% ownership interest of Wooridul Entertainment Investment Fund-1 for (Won)1,391 million respectively.
(Note 2)		KTF purchased 4,448,000 shares of treasury stock for retirement by a charge against its retained earnings. As a result, the Company’s equity ownership interest in KTF increased from 52.99% as of December 31, 2007 to 54.25% as of September 30, 2008. The resulting difference in the Company’s equity in the investee totaling (Won)14,651 million was included in other capital surplus.
(Note 3)		During the nine months ended September 30, 2008, the Company obtained 50% plus one share ownership interest of Nasmedia Inc. for (Won)26,055 million.
(Note 4)		Although the Company’s ownership in these companies is less than 20%, the Company has significant influence over these companies through the participation in these companies’ various management decisions. As a result, the Company accounts for these investments using the equity method.
(Note 5)		Although the Company’s ownership in these companies is less than 20%, the ownership percentages including subsidiaries’ ownership in these companies are over 20%. As a result, the Company accounts for these investments using the equity method.
(Note 6)		The Company’s ownership interest in Olive Nine Co., Ltd. increased from 19.20% at December 31, 2007 to 19.48% at September 30, 2008 according to the conversion of convertible bonds and purchase of additional shares. The resulting difference in the Company’s equity in the investee totaling (Won)441 million was included in other capital surplus.
(Note 7)		During the nine months ended September 30, 2008, the Company additionally invested in KTSC Investment Management B.V. cash of (Won)15,009 million and in-kind contribution of (Won)15,836 million which consists of the shares of Super iMax and East Telecom totaling (Won)1,321 million and (Won)14,515 million, respectively, together with other stockholder on a proportionate basis.
(Note 8)		During the nine months ended September 30, 2008, the Company obtained 34.00% ownership interest of Metropol Property LLC, located in Uzbekistan, for (Won)1,739 million.
(Note 9)		The Company’s board of directors and KTPI’s shareholders meeting resolved to dissolve KTPI on October 25, 2007 and December 28, 2007, respectively, and is currently being liquidated.

71

Changes in carrying amount resulting from the equity method of accounting for the nine months ended September 30, 2008 and the year ended December 31, 2007 are as follows (in millions of Korean won):

		September 30, 2008 (9 months)
		January 1, 2008			Equity in income (loss)				Increase (decrease) in equity of associates				Other capital surplus				Other increase (decrease)				September 30, 2008
KTN		(Won)	52,900		(Won)	1,922			(Won)	—			(Won)	—			(Won)	—			(Won)	54,822
KTR			48,207			7,071				1				—				—				55,279
KT Capital Co., Ltd.			100,043			4,666				86				—				—				104,795
KT FDS Co., Ltd. (formerly, “Korea FDS Co., Ltd.”) (Note 1)			7,359			(2,093	)			—				—				—				5,266
KT Internal Venture Fund No. 2 (Note 1)			5,205			(38	)			—				—				—				5,167
KTL			8,040			(5,440	)			—				—				—				2,600
KT New Business Fund No.1 (Note 1)			—			120				—				—				10,000				10,120
TSC			10,847			(1,793	)			—				—				—				9,054
KT DataSystems Co., Ltd. (Note 1)			—			(359	)			—				—				9,600				9,241
KTH			114,403			3,511				279				—				—				118,193
Sofnics Inc. (Note 1)			—			(149	)			—				—				600				451
JungBoPremiumEdu Co., Ltd. (Note 1)			—			(807	)			—				—				6,000				5,193
KTF			2,620,185			(62,052	)			26				(15,705	)			2,414				2,544,868
Nasmedia, Inc. (Note 1)			—			(769	)			—				—				26,055				25,286
KTP			28,837			2,314				—				—				—				31,151
KTSC			21,933			183				(127	)			—				(404	)			21,585
Sidus FNH Co. (Note 1)			14,409			(2,534	)			—				—				—				11,875
Olive Nine Co., Ltd. (Note 1)			17,880			(3,595	)			4				(441	)			1,155				15,003
KTC			1,264			134				(5	)			—				—				1,393
Sidus FNH Benex Cinema Investment Fund (Note 1)			3,985			112				—				—				—				4,097
KTFT			1,623			(1,068	)			(11	)			—				—				544
KTAI (Note 1)			2,937			106				799				—				—				3,842
KTCC (Note1)			946			384				407				—				—				1,737
KTJ (Note 1)			830			550				417				—				—				1,797
NTC (Note 1)			125,326			28,510				30,683				—				(5,080	)			179,439
KTSC Investment Management B.V. (Note 1)			15			(526	)			11,672				—				30,845				42,006
Super iMax (Note 1)			1,321			—				—				—				(1,321	)			—
East Telecom (Note 1)			14,515			—				—				—				(14,515	)			—
Company K Movie Asset Fund No. 1 (Note 1)			—			5				—				—				5,400				5,405
KT-Global New Media Fund (Note 1)			—			(138	)			—				—				6,000				5,862
KTD (Note 1)			8,085			356				—				—				—				8,441
Metropol Property LLC (Note 1)			—			74				250				—				1,739				2,063
KBSi Co., Ltd. (Note 1)			3,408			937				—				—				—				4,345
KITF (Note 1)			77,578			1,669				(214	)			—				—				79,033
Sky Life Contents Fund (Note 1)			4,997			(820	)			—				—				—				4,177
Everyshow (Note 1)			—			(191	)			—				—				1,500				1,309
KDB (Note 1)			24,892			3,022				6,315				—				—				34,229
Kiwoom Investment Co., Ltd. (formerly, “Korea IT Venture Partners Inc.”) (Note 1)			7,147			485				(147	)			—				—				7,485
Goodmorning F Co., Ltd. (Note 1)			1,151			313				(4	)			—				—				1,460
KNRDC (Note 1)			3,788			3,529				—				—				—				7,317
KID (Note 1)			13,541			853				—				—				(228	)			14,166
KIS (Note 1)			10,792			2,240				—				—				(171	)			12,861

72

		September 30, 2008 (9 months)
		January 1, 2008			Equity in income (loss)				Increase (decrease) in equity of associates				Other capital surplus				Other increase (decrease)				September 30, 2008
Korea Seoul Contact all Co., Ltd. (Note 1)			271			(9	)			—				—				—				262
Korea Service and Communication Co., Ltd. (Note 1)			274			22				—				—				—				296
Korea Call Center Co., Ltd. (Note 1)			266			30				—				—				—				296
TMworld Co., Ltd. (Note 1)			294			30				—				—				—				324
UMS&C (Note 1)			275			4				—				—				—				279
Exdell Corporation (Note 1)			177			63				—				—				—				240
Information Technology Service Kangbuk Corporation (Note 1)			190			21				—				—				—				211
Information Technology Solution Nambu Corporation (Note 1)			190			26				—				—				—				216
Information Technology Solution Seobu Corporation (Note 1)			190			27				—				—				—				217
Information Technology Solution Busan Corporation (Note 1)			190			27				—				—				—				217
Information Technology Solution Jungbu Corporation (Note 1)			190			(30	)			—				—				—				160
Information Technology Solution Honam Corporation (Note 1)			190			9				—				—				—				199
Information Technology Solution Daegu Corporation (Note 1)			190			6				—				—				—				196
Mostech Co., Ltd. (Note 1)			3,016			(771	)			—				—				—				2,245
Wooridul Entertainment Investment Fund-1 (Note 1)			—			(20	)			—				—				1,391				1,371
eNtoB Corp. (Note 1)			3,841			203				(1	)			—				—				4,043
MTC (Note 1)			10,020			1,563				3,021				—				(648	)			13,956
Total		(Won)	3,378,153		(Won)	(18,105	)		(Won)	53,451			(Won)	(16,146	)		(Won)	80,332			(Won)	3,477,685

73

		December 31, 2007 (12 months)
		January 1, 2007			Equity in income (loss)				Increase (decrease) in equity of associates				Other increase (decrease)				December 31, 2007
KTN		(Won)	50,840		(Won)	2,060			(Won)	—			(Won)	—			(Won)	52,900
KTR			40,535			7,672				—				—				48,207
KT Capital Co., Ltd.			99,573			359				111				—				100,043
KT FDS Co., Ltd. (formerly, “Korea FDS Co., Ltd.”)			—			(1,649	)			—				9,008				7,359
KT Internal Venture Fund No. 2 (Note 1)			5,144			61				—				—				5,205
KTL			6,875			1,165				—				—				8,040
TSC			24,810			(13,963	)			—				—				10,847
Korea Telecom Venture Fund No. 1			12,862			(295	)			(19	)			(12,548	)			—
KTH			107,453			2,228				4,722				—				114,403
KTF			2,707,823			(10,133	)			(16,227	)			(61,278	)			2,620,185
KTP			27,653			1,184				—				—				28,837
KTSC			18,686			3,768				(521	)			—				21,933
Sidus FNH Co.			16,949			(2,541	)			1				—				14,409
Olive Nine Co., Ltd.			22,000			(4,377	)			257				—				17,880
KTC			862			406				(4	)			—				1,264
Sidus FNH Benex Cinema Investment Fund			4,013			(28	)			—				—				3,985
KTFT			—			1,246				11				366				1,623
KTAI			2,806			104				27				—				2,937
KTCC			813			65				68				—				946
KTPI			—			—				—				—				—
KTJ			—			625				205				—				830
NTC (Note 1)			93,581			21,732				11,918				(1,905	)			125,326
KTSC Investment Management B.V. (Note 1)			—			—				—				15				15
Super iMax (Note 1)			—			—				—				1,321				1,321
East Telecom (Note 1)			—			—				—				14,515				14,515
KTD (Note 1)			7,867			219				(1	)			—				8,085
KBSi Co., Ltd.			2,810			598				—				—				3,408
KITF			71,128			5,531				1,151				(232	)			77,578
Sky Life Contents Fund			5,050			(53	)			—				—				4,997
KDB (Note 1)			16,455			7,676				761				—				24,892
Kiwoom Investment Co., Ltd. (formerly, “Korea IT Venture Partners Inc.”) (Note 1)			9,204			(1,668	)			160				(549	)			7,147
Goodmorning F Co., Ltd.			826			324				1				—				1,151
KNRDC			2,375			1,413				—				—				3,788
KID			12,230			1,463				—				(152	)			13,541
KIS			8,382			2,524				—				(114	)			10,792
Korea Seoul Contact all Co., Ltd.			228			43				—				—				271

74

		December 31, 2007 (12 months)
		January 1, 2007			Equity in income (loss)				Increase (decrease) in equity of associates				Other increase (decrease)				December 31, 2007
Korea Service and Communication Co., Ltd.			228			46				—				—				274
Korea Call Center Co., Ltd.			228			38				—				—				266
TMworld Co., Ltd.			228			66				—				—				294
UMS&C			228			47				—				—				275
Exdell Corporation (Note 1)			—			(13	)			—				190				177
Information Technology Service Kangbuk Corporation (Note 1)			—			—				—				190				190
Information Technology Solution Nambu Corporation (Note 1)			—			—				—				190				190
Information Technology Solution Seobu Corporation (Note 1)			—			—				—				190				190
Information Technology Solution Busan Corporation (Note 1)			—			—				—				190				190
Information Technology Solution Jungbu Corporation (Note 1)			—			—				—				190				190
Information Technology Solution Honam Corporation (Note 1)			—			—				—				190				190
Information Technology Solution Daegu Corporation (Note 1)			—			—				—				190				190
Mostech Co., Ltd. (Note 1)			4,186			(1,170	)			—				—				3,016
eNtoB Corp.			3,363			471				7				—				3,841
Pivotec Co., Ltd.			6,299			38				(3,359	)			(2,978	)			—
MTC (Note 1)			9,321			1,233				52				(586	)			10,020
Total		(Won)	3,403,914		(Won)	28,515			(Won)	(679	)		(Won)	(53,597	)		(Won)	3,378,153

75

(Note 1)		These securities were accounted for using the equity method of accounting based on unreviewed financial statements as of and for the nine months ended September 30, 2008 as the reviewed financial statements on these companies could not be obtained. In order to verify the reliability of such unreviewed financial statements, the Company has performed the following procedures and found no significant exceptions:
		i)		Obtain the unreviewed financial statements signed by the investee’s chief executive officer and statutory auditor.
		ii)		Identified whether the major transactions or accounting events, including those disclosed to public by the investee, which were acknowledged by the Company are properly reflected in the unreviewed financial statements.
		iii)		Identify the major accounting issues under discussion between the investee and its external auditors and the investee’s plan to resolve such issues.
		iv)		Analyze the effect of potential difference between the unreviewed and audited financial statements.

Changes in investment differences from the equity method investment securities for the nine months ended September 30, 2008 and the year ended December 31, 2007 are as follows (in millions of Korean won):

		September 30, 2008 (9 months)																December 31, 2007 (12 months)
Affiliate		January 1, 2008			Increase			Amortization			Other				September 30, 2008			January 1, 2007			Increase			Amortization			December 31, 2007
KT FDS Co., Ltd.		(Won)	4,906		(Won)	—		(Won)	866		(Won)	—			(Won)	4,040		(Won)	—		(Won)	5,772		(Won)	866		(Won)	4,906
JungBoPremiumEdu Co., Ltd.			—			2,182			273			—				1,909			—			—			—			—
KTF			325,284			—			97,585			—				227,699			455,313			—			130,029			325,284
Nasmedia, Inc.			—			14,436			1,918			—				12,518			—			—			—			—
Sidus FNH Co.			8,136			—			2,034			—				6,102			10,848			—			2,712			8,136
Olive Nine Co., Ltd.			14,204			—			2,663			—				11,541			17,755			—			3,551			14,204
Super iMax			1,320			—			—			(1,320	)			—			—			1,320			—			1,320
East Telecom			4,277			—			—			(4,277	)			—			—			4,277			—			4,277
KDB			21,856			—			8,196			—				13,660			33,413			—			11,557			21,856
Mostech Co., Ltd.			2,700			—			579			—				2,121			3,471			—			771			2,700
Total		(Won)	382,683		(Won)	16,618		(Won)	114,114		(Won)	(5,597	)		(Won)	279,590		(Won)	520,800		(Won)	11,369		(Won)	149,486		(Won)	382,683

76

Details of unrealized gains (losses) arising from intercompany transactions, which are eliminated, as of September 30, 2008 and December 31, 2007 are as follows (in millions of Korean won):

		September 30, 2008											December 31, 2007
Company		Inventories			Property and equipment and intangible assets				Total				Inventories			Property and equipment and intangible assets				Total
KTR		(Won)	120		(Won)	—			(Won)	120			(Won)	108		(Won)	—			(Won)	108
KTL			—			67				67				—			96				96
KTH			—			(80	)			(80	)			—			(321	)			(321	)
KTF			1,234			2,081				3,315				2,035			2,679				4,714
KTC			—			10				10				—			41				41
KTFT			841			—				841				450			—				450
Total		(Won)	2,195		(Won)	2,078			(Won)	4,273			(Won)	2,593		(Won)	2,495			(Won)	5,088

Cumulative changes in the Company’s equity in net asset value of the investees not recognized due to the discontinuance of the equity method of accounting as of September 30, 2008 are nil.

The condensed financial information of the investees as of and for the nine months ended September 30, 2008 and as of and for the year ended December 31, 2007 are as follows (in millions of Korean won):

		September 30, 2008 (9 months)
		Total assets			Total liabilities			Revenue			Net income (loss)
KTN		(Won)	159,899		(Won)	105,199		(Won)	281,729		(Won)	1,906
KTR			296,263			240,863			76,149			7,084
KT Capital Co., Ltd.			1,273,827			1,169,031			77,902			4,666
KT FDS Co., Ltd. (formerly, “Korea FDS Co., Ltd.”)			9,627			8,401			21,513			(1,227	)
KT Internal Venture Fund No. 2			5,477			—			—			54
KTL			68,274			65,500			60,063			(5,829	)
KT New Business Fund No .1			11,208			76			—			132
TSC			105,049			95,451			107,010			(1,927	)
KT DataSystems Co., Ltd.			29,425			17,873			19,734			(449	)
KTH			198,395			19,279			95,606			5,691
Sofnics Inc.			851			100			—			(358	)
JungBoPremiumEdu Co., Ltd.			6,605			585			—			(980	)
KTF			7,892,620			3,614,862			6,395,979			62,672
Nasmedia, Inc.			56,476			30,939			9,846			2,882

77

		September 30, 2008 (9 months)
		Total assets		Total liabilities		Revenue		Net income (loss)
KTP		154,436		84,974		84,520		5,159
KTSC		104,748		46,402		57,779		412
Sidus FNH Co.		21,934		5,764		11,518		(1,401	)
Olive Nine Co., Ltd.		41,809		24,038		26,006		(4,823	)
KTC		35,183		27,790		35,504		554
Sidus FNH Benex Cinema Investment Fund		30,882		151		—		839
KTFT		152,266		116,251		294,021		(17,586	)
KTAI		6,538		2,697		5,933		106
KTCC		2,167		430		2,022		383
KTJ		14,707		12,911		12,733		549
NTC		245,536		21,136		98,182		35,731
KTSC Investment Management B.V.		65,008		80		84		(877	)
Company K Movie Asset Fund No. 1		9,008		—		—		8
KT-Global New Media Fund		12,172		447		—		(276	)
KTD		65,959		41,133		27,510		551
Metropol Property LLC		6,067		—		218		218
KBSi Co., Ltd.		19,720		6,303		23,497		2,893
KITF		338,711		—		—		7,153
Sky Life Contents Fund		18,714		150		616		466
Everyshow		7,814		1,661		417		(897	)
KDB		503,529		281,660		289,493		26,789
Kiwoom Investment Co., Ltd. (formerly, “Korea IT Venture Partners Inc.”)		37,391		281		5,445		3,245
Goodmorning F Co., Ltd.		14,267		6,582		41,057		1,646
KNRDC		70,114		31,604		49,547		18,575
KID		106,196		31,640		159,446		5,518
KIS		93,143		25,455		109,475		11,908
Korea Seoul Contact all Co., Ltd.		5,937		4,556		30,555		(43	)
Korea Service and Communication Co., Ltd.		4,651		3,091		23,775		117
Korea Call Center Co., Ltd.		5,592		4,033		21,077		160
TMworld Co., Ltd.		4,507		2,920		21,365		159
UMS&C		4,643		3,175		22,600		21
Exdell Corporation		2,322		1,058		8,880		335
Information Technology Service Kangbuk Corporation		5,458		4,346		36,260		111
Information Technology Solution Nambu Corporation		6,437		5,298		39,229		139
Information Technology Solution Seobu Corporation		6,644		5,504		37,371		140
Information Technology Solution Busan Corporation		6,295		5,154		35,513		141
Information Technology Solution Jungbu Corporation		3,586		2,745		29,313		(159	)
Information Technology Solution Honam Corporation		6,568		5,520		28,339		48
Information Technology Solution Daegu Corporation		3,409		2,375		20,621		34
Mostech Co., Ltd.		7,913		7,226		14,632		(930	)
Wooridul Entertainment Investment Fund-1		7,885		—		—		(115	)
eNtoB Corp.		68,662		42,788		553,008		1,352
MTC		44,394		9,505		22,104		4,341

78

		December 31, 2007 (12 months)
		Total assets			Total liabilities			Revenue			Net income (loss)
KTN		(Won)	154,739		(Won)	101,946		(Won)	337,819		(Won)	2,005
KTR			331,082			282,767			119,659			7,692
KT Capital Co., Ltd.			630,173			530,130			31,154			359
KT FDS Co., Ltd. (formerly, “Korea FDS Co., Ltd.”)			11,364			8,911			25,353			(1,434	)
KT Internal Venture Fund No. 2			5,578			60			133			65
KTL			76,704			68,102			96,942			866
TSC			97,687			86,163			128,297			(14,922	)
KTH			194,822			21,819			122,890			3,868
KTF			7,460,705			3,121,265			7,293,321			244,144
KTP			157,581			93,277			106,903			2,640
KTSC			68,980			9,677			33,236			10,168
Sidus FNH Co.			27,439			9,868			22,603			478
Olive Nine Co., Ltd.			41,588			22,437			35,173			(4,305	)
KTC			19,957			13,093			39,432			1,997
Sidus FNH Benex Cinema Investment Fund			30,043			151			1,150			(209	)
KTFT			164,591			110,714			455,996			2,645
KTAI			5,162			2,226			7,542			104
KTCC			1,002			56			1,588			65
KTPI			208			112,751			20			(13,481	)
KTJ			4,671			3,841			5,219			864
NTC			172,679			15,951			106,591			27,177
KTSC Investment Management B.V.			25			—			—			—
Super iMax			1			—			—			—
East Telecom			25,388			5,313			9,345			6,020
KTD			62,967			39,190			43,570			643
KBSi Co., Ltd.			18,429			7,904			26,227			1,845
KITF			332,476			—			33,644			22,712
Sky Life Contents Fund			22,716			505			469			(236	)
KDB			513,708			341,515			387,393			38,199
Kiwoom Investment Co., Ltd. (formerly, “Korea IT Venture Partners Inc.”)			35,609			173			3,979			(7,690	)
Goodmorning F Co., Ltd.			16,988			10,927			56,842			1,707
KNRDC			46,034			26,100			62,074			7,435
KID			99,632			28,363			194,977			7,862
KIS			82,373			25,571			143,024			13,409
Korea Seoul Contact all Co., Ltd.			4,989			3,565			37,876			224
Korea Service and Communication Co., Ltd.			4,150			2,708			31,015			243
Korea Call Center Co., Ltd.			4,070			2,671			27,523			199
TMworld Co., Ltd.			3,799			2,371			26,995			348
UMS&C			4,255			2,808			26,691			247
Exdell Corporation			1,020			90			200			(70	)
Information Technology Service Kangbuk Corporation			1,000			—			—			—
Information Technology Solution Nambu Corporation			1,000			—			—			—
Information Technology Solution Seobu Corporation			1,000			—			—			—
Information Technology Solution Busan Corporation			1,000			—			—			—
Information Technology Solution Jungbu Corporation			1,000			—			—			—
Information Technology Solution Honam Corporation			1,000			—			—			—
Information Technology Solution Daegu Corporation			1,000			—			—			—
Mostech Co., Ltd.			7,501			5,735			19,879			(2,222	)
eNtoB Corp.			64,311			39,728			563,278			3,014
MTC			32,149			7,100			28,229			3,081

79

7. PROPERTY AND EQUIPMENT

Property and equipment as of September 30, 2008 and December 31, 2007 are summarized as follows (in millions of Korean won):

		September 30, 2008				December 31, 2007
Property and Equipment, at cost		(Won)	38,263,568			(Won)	37,532,007
Less accumulated depreciation			(27,585,518	)			(26,877,161	)
Less accumulated impairment loss			(1,032	)			(1,027	)
Less contribution of construction			(226,272	)			(205,201	)
Net		(Won)	10,450,746			(Won)	10,448,618

Changes in property and equipment for the nine months ended September 30, 2008 and the year ended December 31, 2007 are as follows (in millions of Korean won):

		September 30, 2008 (9 months)
		January 1, 2008			Acquisition cost (including capital expenditures)			Disposal				Depreciation				Impairment loss				Others (Note)				September 30, 2008
Land		(Won)	1,103,479		(Won)	—		(Won)	(3,680	)		(Won)	—			(Won)	—			(Won)	2,893			(Won)	1,102,692
Buildings			2,921,588			120			(24,207	)			(97,070	)			—				172,861				2,973,292
Structures			168,131			15			(7,223	)			(11,089	)			—				2,719				152,553
Machinery			5,820,762			6,193			(21,488	)			(1,275,118	)			(991	)			1,075,991				5,605,349
Vehicles			4,162			—			(10	)			(1,439	)			—				191				2,904
Others			176,126			15,751			(1,471	)			(74,519	)			—				45,241				161,128
Construction- in-progress			254,370			1,537,285			—				—				—				(1,338,827	)			452,828
Total		(Won)	10,448,618		(Won)	1,559,364		(Won)	(58,079	)		(Won)	(1,459,235	)		(Won)	(991	)		(Won)	(38,931	)		(Won)	10,450,746
		December 31, 2007 (12 months)
		January 1, 2007			Acquisition cost (including capital expenditures)			Disposal				Depreciation				Impairment loss				Others (Note)				December 31, 2007
Land		(Won)	1,060,530		(Won)	16		(Won)	(3,211	)		(Won)	—			(Won)	—			(Won)	46,144			(Won)	1,103,479
Buildings			2,913,906			21			(9,194	)			(125,603	)			—				142,458				2,921,588
Structures			171,845			—			(569	)			(15,722	)			—				12,577				168,131
Machinery			5,806,329			21,723			(96,744	)			(1,776,575	)			(4,447	)			1,870,476				5,820,762
Vehicles			5,559			—			(46	)			(2,497	)			—				1,146				4,162
Others			182,042			27,404			(675	)			(114,422	)			—				81,777				176,126
Construction- in-progress			257,873			2,173,293			—				—				—				(2,176,796	)			254,370
Total		(Won)	10,398,084		(Won)	2,222,457		(Won)	(110,439	)		(Won)	(2,034,819	)		(Won)	(4,447	)		(Won)	(22,218	)		(Won)	10,448,618

(Note) Others consist mainly of transfers from construction-in-progress to machinery, an increase (decrease) in contribution for construction and reclassifications.

80

8. INTANGIBLE ASSETS

Changes in intangible assets for the nine months ended September 30, 2008 and the year ended December 31, 2007 are as follows (in millions of Korean won):

		September 30, 2008 (9 months)
		January 1, 2008			Increase			Amortization				Others				September 30, 2008
Industrial rights		(Won)	4,759		(Won)	913		(Won)	(707	)		(Won)	—			(Won)	4,965
Development costs			201,798			39,963			(80,070	)			(119	)			161,572
Software			86,863			16,571			(20,699	)			(365	)			82,370
Frequency usage rights			91,142			—			(16,417	)			—				74,725
Others			55,176			677			(4,995	)			—				50,858
Total		(Won)	439,738		(Won)	58,124		(Won)	(122,888	)		(Won)	(484	)		(Won)	374,490

		December 31, 2007 (12 months)
		January 1, 2007			Increase			Amortization				Impairment loss				Others				December 31, 2007
Industrial rights		(Won)	4,342		(Won)	1,389		(Won)	(972	)		(Won)	—			(Won)	—			(Won)	4,759
Development costs			193,544			111,401			(102,662	)			—				(485	)			201,798
Software			87,954			24,353			(25,431	)			—				(13	)			86,863
Frequency usage rights			113,031			—			(21,889	)			—				—				91,142
Others			71,911			5,019			(10,245	)			(7,066	)			(4,443	)			55,176
Total		(Won)	470,782		(Won)	142,162		(Won)	(161,199	)		(Won)	(7,066	)		(Won)	(4,941	)		(Won)	439,738

The components of intangible assets as of September 30, 2008 and December 31, 2007 are as follows (in millions of Korean won):

		September 30, 2008
		Acquisition cost			Accumulated amortization				Accumulated impairment loss				Book value
Industrial rights		(Won)	13,289		(Won)	(8,324	)		(Won)	—			(Won)	4,965
Development costs			595,200			(433,628	)			—				161,572
Software			203,927			(121,557	)			—				82,370
Frequency usage rights			125,800			(51,075	)			—				74,725
Others			132,712			(74,788	)			(7,066	)			50,858
Total		(Won)	1,070,928		(Won)	(689,372	)		(Won)	(7,066	)		(Won)	374,490

		December 31, 2007
		Acquisition cost			Accumulated amortization				Accumulated impairment loss				Book value
Industrial rights		(Won)	12,375		(Won)	(7,616	)		(Won)	—			(Won)	4,759
Development costs			559,303			(357,505	)			—				201,798
Software			192,311			(105,448	)			—				86,863
Frequency usage rights			125,800			(34,658	)			—				91,142
Others			132,035			(69,793	)			(7,066	)			55,176
Total		(Won)	1,021,824		(Won)	(575,020	)		(Won)	(7,066	)		(Won)	439,738

The Company’s research and ordinary development expenses amounted to (Won)173,413 million and (Won)171,512 million for the nine months ended September 30, 2008 and 2007, respectively.

81

9. BONDS AND LONG-TERM BORROWINGS

a. Bonds

Bonds as of September 30, 2008 and December 31, 2007 are summarized as follows (in thousands of U.S. dollars and millions of Japanese yen and Korean won):

		September 30, 2008
Type		Issue date		Amount				Maturity (Note 2)		Interest rate per annum
MTNP notes (Note 1)		6/24/2004		(Won) USD	712,620 (600,000	)		6/24/2014		5.88	%
MTNP notes (Note 1)		9/7/2004		(Won) USD	118,770 (100,000	)		9/7/2034		6.50	%
MTNP notes (Note 1)		7/15/2005		(Won) USD	475,080 (400,000)			7/15/2015		4.88	%
MTNP notes (Note 1)		5/3/2006		(Won) USD	237,540 (200,000	)		5/3/2016		5.88	%
Euro bonds		4/11/2007		(Won) USD	237,540 (200,000	)		4/11/2012		5.13	%
FR notes		9/11/2008		(Won) USD	237,540 (200,000	)		9/11/2013		4.32	%
The 132nd Public bond		2/9/2001		(Won)	70,000			2/9/2011		7.68	%
The 154th Public bond		7/31/2002			220,000			7/31/2009		6.70	%
The 156th Public bond		9/30/2002			180,000			9/30/2009		6.35	%
The 159th Public bond		10/27/2003			300,000			10/27/2013		5.39	%
The 160th Public bond		11/24/2003			200,000			11/24/2010		5.45	%
The 161st Public bond		12/23/2003			230,000			12/23/2010		5.61	%
The 162nd Public bond		2/27/2004			320,000			2/27/2011		5.52	%
The 163rd Public bond		3/30/2004			170,000			3/30/2014		5.51	%
The 164th Public bond		6/21/2004			260,000			6/21/2011		5.22	%
The 165-1st Public bond		8/26/2004			130,000			8/26/2011		4.22	%
The 165-2nd Public bond		8/26/2004			140,000			8/26/2014		4.44	%
The 166-1st Public bond		3/21/2005			220,000			3/21/2010		4.37	%
The 166-2nd Public bond		3/21/2005			100,000			3/21/2012		4.57	%
The 167-1st Public bond		4/20/2005			100,000			4/20/2012		4.59	%
The 167-2nd Public bond		4/20/2005			100,000			4/20/2015		4.84	%
The 168-1st Public bond		6/21/2005			240,000			6/21/2012		4.43	%
The 168-2nd Public bond		6/21/2005			90,000			6/21/2015		4.66	%
The 169th Public bond		4/3/2007			140,000			4/3/2012		5.01	%
The 170th Public bond		1/11/2008		JPY	143,028 (12,500	)		1/11/2011		1.45	%
The 171st Public bond		2/28/2008			100,000			2/28/2013		5.41	%
The 172-1st Public bond		3/31/2008		USD	59,385 (50,000	)		3/31/2011		4.20	%
The 172-2nd Public bond		3/31/2008		USD	130,647 (110,000	)		3/31/2012		4.30	%
The 173-1st Public bond		8/6/2008			100,000			8/6/2013		6.49	%
The 173-2nd Public bond		8/6/2008			100,000			8/6/2018		6.62	%
Total					5,862,150
Less current portion (not including discounts on bonds of (Won)248 million)					(400,000	)
Long-term portion					5,462,150
Discount on bonds					(36,236	)
Net				(Won)	5,425,914

82

		December 31, 2007
Type		Issue date		Amount				Maturity (Note 2)		Interest rate per annum
MTNP notes (Note 1)		6/24/2004		(Won) USD	562,920 (600,000	)		6/24/2014		5.88	%
MTNP notes (Note 1)		9/7/2004		(Won) USD	93,820 (100,000	)		9/7/2034		6.50	%
MTNP notes (Note 1)		7/15/2005		(Won) USD	375,280 (400,000	)		7/15/2015		4.88	%
MTNP notes (Note 1)		5/3/2006		(Won) USD	187,640 (200,000	)		5/3/2016		5.88	%
Euro bonds		4/11/2007		(Won) USD	187,640 (200,000	)		4/11/2012		5.13	%
The 130th Public bond		1/19/2001		(Won)	50,000			1/19/2008		7.28	%
The 132nd Public bond		2/9/2001			70,000			2/9/2011		7.68	%
The 133rd Public bond		2/12/2001			50,000			2/12/2008		6.78	%
The 138th Public bond		2/28/2001			100,000			2/28/2008		7.45	%
The 154th Public bond		7/31/2002			220,000			7/31/2009		6.70	%
The 156th Public bond		9/30/2002			180,000			9/30/2009		6.35	%
The 158th Public bond		4/30/2003			220,000			4/30/2008		5.29	%
The 159th Public bond		10/27/2003			300,000			10/27/2013		5.39	%
The 160th Public bond		11/24/2003			200,000			11/24/2010		5.45	%
The 161st Public bond		12/23/2003			230,000			12/23/2010		5.61	%
The 162nd Public bond		2/27/2004			320,000			2/27/2011		5.52	%
The 163rd Public bond		3/30/2004			170,000			3/30/2014		5.51	%
The 164th Public bond		6/21/2004			260,000			6/21/2011		5.22	%
The 165-1st Public bond		8/26/2004			130,000			8/26/2011		4.22	%
The 165-2nd Public bond		8/26/2004			140,000			8/26/2014		4.44	%
The 166-1st Public bond		3/21/2005			220,000			3/21/2010		4.37	%
The 166-2nd Public bond		3/21/2005			100,000			3/21/2012		4.57	%
The 167-1st Public bond		4/20/2005			100,000			4/20/2012		4.59	%
The 167-2nd Public bond		4/20/2005			100,000			4/20/2015		4.84	%
The 168-1st Public bond		6/21/2005			240,000			6/21/2012		4.43	%
The 168-2nd Public bond		6/21/2005			90,000			6/21/2015		4.66	%
The 169th Public bond		4/3/2007			140,000			4/3/2012		5.01	%
Total					5,037,300
Less current portion (not including discounts on bonds of (Won)62 million)					(420,000	)
Long-term portion					4,617,300
Discount on bonds					(28,012	)
Net				(Won)	4,589,288

(Note 1)		As of September 30, 2008, the Company has issued notes in the amount of USD 1,300 million with fixed interest rates under Medium Term Note Program (“MTNP”) registered in the Singapore Stock Exchange, which allows issuance of notes up to USD 2,000 million and the unused balance under the program is USD 700 million.
(Note 2)		All the bonds are repayable in full at maturity.

83

b. Long-term Borrowings in Korean Won

Long-term borrowings in Korean won as of September 30, 2008 and December 31, 2007 are as follows (in millions of Korean won):

		Maturity date		Interest rate per annum			September 30, 2008				December 31, 2007
Informatization Promotion Fund		3/15/2008		4.88	%		(Won)	—			(Won)	2,200
		12/15/2008		4.60	%			717				2,867
		3/15/2009		5.10	%			3,800				9,500
		3/15/2010		5.61	%			5,000				7,500
		6/15/2010		5.61	%			3,535				5,050
		3/15/2012		5.32	%			11,820				11,820
		3/15/2013		5.32	%			10,935				—
Inter-Korean Cooperation Fund		7/11/2026		2.00	%			1,920				1,920
		7/11/2026		2.00	%			1,847				1,847
		7/11/2026		2.00	%			1,098				1,098
		7/11/2026		2.00	%			800				800
Total								41,472				44,602
Less current portion								(11,840	)			(18,020	)
Net							(Won)	29,632			(Won)	26,582

Above Informatization Promotion Funds are repayable in installments for three years after two year grace period and Inter-Korean Cooperation Funds are repayable in installments for thirteen years after seven year grace period.

c. Repayment Schedule

Repayment schedule of the Company’s bonds and long-term borrowings as of September 30, 2008 is as follows (in millions of Korean won):

Year ending September 30,		Bonds
		In local currency			In foreign currency			Sub-total			Borrowings in local currency			Total
2009		(Won)	400,000		(Won)	—		(Won)	400,000		(Won)	11,840		(Won)	411,840
2010			220,000			—			220,000			8,944			228,944
2011			1,210,000			202,413			1,412,413			7,585			1,419,998
2012			580,000			368,187			948,187			5,615			953,802
2013			200,000			237,540			437,540			1,823			439,363
Thereafter			900,000			1,544,010			2,444,010			5,665			2,449,675
Total		(Won)	3.510,000		(Won)	2,352,150		(Won)	5,862,150		(Won)	41,472		(Won)	5,903,622

84

10. PROVISIONS

Changes in provisions for the nine months ended September 30, 2008 and the year ended December 31, 2007 are as follows (in millions of Korean won):

		September 30, 2008 (9 months)
		January 1, 2008			Increase			Decrease								Other				September 30, 2008
								Reversal				Use
Current portion:
Litigation (Note 1)		(Won)	32,849		(Won)	10,192		(Won)	(1	)		(Won)	(19,866	)		(Won)	—			(Won)	23,174
KT members point (Note 2)			1,751			229			(1,043	)			(175	)			—				762
Provision for loss from system integration (“SI”) business (Note 3)			2,294			5,598			—				(3,490	)			—				4,402
Call bonus points (Note 4)			—			—			—				(3,563	)			8,276				4,713
Let’s 010 call bonus points (Note 5)			—			—			—				(158	)			505				347
Sub-total			36,894			16,019			(1,044	)			(27,252	)			8,781				33,398
Non-current portion:
Call bonus points (Note 4)			20,087			—			(4,378	)			—				(8,276	)			7,433
Let’s 010 call bonus points (Note 5)			590			310			—				—				(505	)			395
Sub-total			20,677			310			(4,378	)			—				(8,781	)			7,828
Total		(Won)	57,571		(Won)	16,329		(Won)	(5,422	)		(Won)	(27,252	)		(Won)	—			(Won)	41,226
					December 31, 2007 (12 months)
					January 1, 2007							Decrease								December 31, 2007
								Increase				Reversal				Use
Current portion:
Litigation (Note 1)					(Won)	4,991		(Won)	34,269			(Won)	(4,970	)		(Won)	(1,441	)		(Won)	32,849
KT members point (Note 2)						1,402			1,600				—				(1,251	)			1,751
Provision for loss from system integration (“SI”) business (Note 3)						—			2,294				—				—				2,294
Sub-total						6,393			38,163				(4,970	)			(2,692	)			36,894
Non-current portion:
Call bonus points (Note 4)						72,693			—				(44,097	)			(8,509	)			20,087
Let’s 010 call bonus points (Note 5)						1,494			—				(829	)			(75	)			590
Sub-total						74,187			—				(44,926	)			(8,584	)			20,677
Total					(Won)	80,580		(Won)	38,163			(Won)	(49,896	)		(Won)	(11,276	)		(Won)	57,571

(Note 1) The amount recognized as the litigation provision is the estimate of payments required to settle the obligation.

85

(Note 2)		The Company recorded provisions for the KT members points with which VIP customers of the fixed-line or mobile telephone users are entitled to receive certain goods and other benefits up to (Won)25,000 per person.
(Note 3)		The estimated losses on the SI business in progress were recognized as the provision.
(Note 4)		The amount recognized as the call bonus points represents the estimate of payments for call bonus points which are provided to fixed-line customers based on the usage of the services. Once certain criteria are met, customers are entitled to receive certain goods and other benefits from the Company. Such provision is reviewed at each balance sheet date and adjusted to reflect the current best estimate when new estimates are necessary as a result of changes in circumstances, which were used as the bases for such estimates, or an acquisition of new information or additional experience on the usage rate, the expiration of points and others.
(Note 5)		The Company recorded provision for the Let’s 010 (KT-PCS) call bonus points with which its PCS subscribers are entitled to receive certain goods and other benefits from the Company.

11. TRANSACTIONS AND BALANCES WITH RELATED PARTIES

The list of subsidiaries of the Company as of September 30, 2008 is as follows:

Type of control		Subsidiaries
Direct control		KTF, KTH, KTSC, KTP, KTN, KTL, TSC, KTR, KT Capital Co., Ltd., Sidus FNH Co., Olive Nine Co., Ltd., KT FDS Co., Ltd. (formerly, “Korea FDS Co., Ltd.”), KT DataSystems Co., Ltd., Nasmedia, lnc., Sofnics Inc., JungBoPremiumEdu Co., Ltd., KT Internal Venture Fund No.2, Sidus FNH Benex Cinema Investment Fund, KT New Business Fund No.1, KTAI, NTC, KTJ, KTCC and KTSC Investment Management B.V.
Indirect control through KTF		KTFT, KTF M Hows Co., Ktd, KTF M&S Co., Ltd, KTF Music Corporation (formerly, “Bluecord Technology Co., Ltd”), Doremi media Co., Ltd and PT. KTF Indonesia
Indirect control through KTH		KTC
Indirect control through KTSC Investment Management B.V.		East Telecom and Super iMax

86

Significant account balances with related parties as of September 30, 2008 and December 31, 2007 are summarized as follows (in millions of Korean won):

Related party		Account		September 30, 2008			December 31, 2007
Subsidiary:
KTF		Receivables		(Won)	57,634		(Won)	47,850
		Payables			185,644			212,689
KTH		Receivables			3,088			777
		Accrued expenses			9,162			12,943
KTN		Receivables			5,523			7,351
		Payables			27,315			45,508
KTL		Receivables			95			681
		Payables			15,433			20,408
KTFT		Receivables			1,650			629
		Payables			5,880			13,010
KTC		Receivables			2,450			1,844
		Payables			10,958			15,298
KTR		Receivables			263			1,077
		Payables			56,688			58,912
Others		Receivables			6,033			4,713
		Payables			54,867			12,252
Equity method investee:
KDB		Receivables			10,472			6,944
		Payables			6,008			7,682
KID		Receivables			3,640			1,074
		Payables			844			15,763
KNRDC		Receivables			2			33
		Payables			1,430			11,486
KIS		Receivables			565			18
		Payables			8,411			12,211
Goodmorning F Co., Ltd.		Payables			5,816			8,267
eNtoB Corp.		Payables			5,208			17,198
Korea Seoul Contact all Co., Ltd.		Payables			4,037			3,482
Korea Service and Communication Co., Ltd.		Payables			3,116			2,768
Korea Call Center Co., Ltd.		Payables			2,639			2,395
TMworld Co., Ltd.		Payables			2,987			2,364
UMS&C		Payables			3,377			2,582
Other		Receivables			1,586			14
		Payables			3,962			1,110
Total		Receivables		(Won)	93,001		(Won)	73,005
		Payables		(Won)	413,782		(Won)	478,328

87

Significant transactions with related parties for the three months and nine months ended September 30, 2008 and 2007 are summarized as follows (in millions of Korean won):

Related party		Transactions		Account		Three months ended September 30, 2008			Nine months ended September 30, 2008			Three months ended September 30, 2007			Nine months ended September 30, 2007
Subsidiary:
KTF		Leased line charges and other		Operating revenue		(Won)	116,231		(Won)	343,520		(Won)	110,275		(Won)	338,114
		Purchase of PCS networks and other		Operating expense			176,904			562,087			201,196			578,254
		Interest income		Non-operating revenue			7			7			19			146
KTH		Leased line charges and other		Operating revenue			3,785			8,707			1,304			3,518
		Commission and other		Operating expense			9,384			29,765			14,139			31,508
KTN		Leased line charges and other		Operating revenue			15,322			30,305			9,448			28,096
		Cost of system integration (“SI”), network integration business and other		Operating expense			25,390			92,731			35,221			97,983
KTL		Leased line charges and other		Operating revenue			207			837			398			1,270
		Commission and other		Operating expense			17,833			53,912			20,092			63,315
KTFT		Telecommunication revenue and other		Operating revenue			959			1,934			1,100			2,650
		Cost of goods sold and other		Operating expense			6,317			41,549			15,080			71,914
KTC		Telecommunication revenue and other		Operating revenue			263			871			76			677
		Commission and other		Operating expense			4,442			18,012			5,035			17,824
KTR		Telecommunication revenue and other		Operating revenue			552			1,474			1,061			1,266
		Commission and other		Operating expense			11,150			33,850			12,169			31,339
Other		Telecommunication revenue and other		Operating revenue			6,306			16,471			6,121			19,416
		Commission and other		Operating expense			16,184			28,890			7,618			17,372

88

Related party		Transactions		Account		Three months ended September 30, 2008			Nine months ended September 30, 2008			Three months ended September 30, 2007			Nine months ended September 30, 2007
Equity method investee:
KDB		SI revenue and other		Operating revenue			14,095			42,263			21,995			63,963
		Commission and other		Operating expense			735			1,795			1,108			3,703
KID		Rent and other		Operating revenue			6,141			19,845			3,084			9,068
		Commission and other		Operating expense			24,505			71,977			25,695			70,763
Goodmorning F Co., Ltd.		Telecommunication revenue and other		Operating revenue			85			347			126			368
		Commission and other		Operating expense			13,241			32,030			11,212			29,618
KNRDC		Telecommunication revenue and other		Operating revenue			91			409			271			587
		Commission and other		Operating expense			8,963			16,003			19,281			37,501
KIS		Telecommunication revenue and other		Operating revenue			2,414			12,314			3,330			13,356
		Commission and other		Operating expense			11,699			41,935			18,030			58,743
eNtoB Corp.		Commission and other		Operating expense			19,395			83,764			23,057			81,853
Korea Seoul Contact all Co., Ltd.		Commission and other		Operating expense			7,708			28,394			6,338			23,668
Korea Service and Communication Co., Ltd.		Commission and other		Operating expense			4,394			20,284			5,351			21,648
Korea Call Center Co., Ltd.		Commission and other		Operating expense			4,211			18,624			7,329			20,631
TMworld Co., Ltd.		Commission and other		Operating expense			7,032			21,257			6,981			20,068
UMS&C		Commission and other		Operating expense			10,043			21,663			6,659			19,033
Other		Telecommunication revenue and other		Operating revenue			2,065			5,947			994			1,439
		Commission and other		Operating expense			79,810			225,246			7,644			8,996
Total				Revenues		(Won)	168,523		(Won)	485,251		(Won)	159,602		(Won)	483,934
				Expenses		(Won)	459,340		(Won)	1,443,768		(Won)	449,235		(Won)	1,305,734

89

Compensation to key management personnel of the Company for the nine months ended September 30, 2008 and 2007 are as follows (in millions of Korean won):

		For the three months ended September 30, 2008			For the nine months ended September 30, 2008			For the three months ended September 30, 2007			For the nine months ended September 30, 2007			Description
Benefits		(Won)	5,046		(Won)	15,686		(Won)	6,593		(Won)	16,439		Salaries, bonuses, other allowances, retirement benefits, medical benefits and other
Share-based payment			355			1,065			256			792		Stock grants and others
Total		(Won)	5,401		(Won)	16,751		(Won)	6,849		(Won)	17,231

The Company considers management of vice president or higher, who have the authority and responsibility for planning, operation and control and are in charge of business or division unit, and non-permanent directors as key management personnel.

12. COMMON STOCK

As of September 30, 2008, the Company’s number of shares authorized are 1,000,000,000 shares with par value of (Won)5,000 per share.

As of September 30, 2008 and December 31, 2007, the number of shares issued by the Company are 273,535,700 and 275,202,400 shares, respectively, and the common stock amounted to (Won)1,560,998 million. As allowed by the Securities Exchange Law, the Company retired 38,663,959 and 36,997,259 treasury shares by charges against retained earnings through September 30, 2008 and December 31, 2007, respectively. Therefore, the common stock amount differs from the amount resulting from multiplying the number of shares issued by (Won)5,000 par value of common stock.

90

13. COMPREHENSIVE INCOME

Comprehensive income for the three months and nine months ended September 30, 2008 and 2007 are as follows (in millions of Korean won):

Description		Three months ended September 30, 2008				Nine months ended September 30, 2008				Three months ended September 30, 2007				Nine months ended September 30, 2007
Net income		(Won)	161,397			(Won)	476,002			(Won)	257,370			(Won)	874,363
Cumulative effect of a change in accounting policy			—				2,621				—				—
Other comprehensive income:
Unrealized gain on available-for-sale securities (Tax effect: (Won)512 million and (Won)607 million for the three months and nine months ended September 30, 2008, and ((Won)50) million and (Won)132 million for the three months and nine months ended September 30, 2007)			(1,352	)			(1,601	)			130				(348	)
Increase in equity of associates (Tax effect: ((Won)2,470) million and ((Won)3,053) million for the three months and nine months ended September 30, 2008, and (Won)2 million and (Won)1,002 million for the three months and nine months ended September 30, 2007)			13,301				27,849				(1,420	)			(5,276	)
Decrease in equity of associates (Tax effect: ((Won)466) million and ((Won)2,321) million for the three months and nine months ended September 30, 2008 and ((Won)919) million and ((Won)1,958) million for the three months and nine months ended September 30, 2007)			(4,730	)			14,274				2,356				5,225
Unrealized gain on valuation of derivatives (Tax effect: ((Won)2,296) million and ((Won)4,439) million for the three months and nine months ended September 30, 2008, and ((Won)867) million and ((Won)867) million for the three months and nine months ended September 30, 2007)			6,054				11,704				2,285				2,285
Unrealized loss on valuation of derivatives (Tax effect: ((Won)181) million and (Won)205 million for the three months and nine months ended September 30, 2008, and nil for the three months and nine months ended September 30, 2007)			477				(541	)			—				—
Comprehensive income		(Won)	175,147			(Won)	530,308			(Won)	260,721			(Won)	876,249

91

14. SHARE-BASED PAYMENT

The Company granted stock options to its executive officers and directors through 2006 in accordance with the stock option plan approved by its board of directors of which details are as follows:

		1st grant			2nd grant			3rd grant			4th grant			5th grant
Grant date			Dec. 26, 2002			Sep. 16, 2003			Dec. 12, 2003			Feb. 4, 2005			Apr. 28, 2005
Grantee			Executives			Outside directors			Executives			Executives			Executives
Number of basic allocated shares upon grant			460,000			36,400			80,000			50,800			45,700
Number of additional shares related to business performance upon grant			220,000			—			40,000			20,000			20,000
Number of shares expected to be exercised upon grant			562,958			36,400			106,141			60,792			55,692
Number of settled or forfeited shares			191,326			33,400			106,141			10,800			65,700
Number of allocated shares as of September 30, 2008			300,415			3,000			—			40,000			—
Number of additional shares related to business performance as of September 30, 2008			71,217			—			—			3,153			—
Number of shares expected to be exercised			371,632			3,000			—			43,153			—
Fair value (in Korean won)		(Won)	22,364		(Won)	12,443		(Won)	10,926		(Won)	12,322		(Won)	10,530
Total compensation cost (in millions of Korean won)		(Won)	8,311		(Won)	38		(Won)	—		(Won)	531		(Won)	—
Exercise price (in Korean won)		(Won)	70,000		(Won)	57,000		(Won)	65,000		(Won)	54,600		(Won)	50,400
Exercise period			Dec.27, 2004 ~Dec. 26, 2009			Sep.17, 2005 ~Sep.16, 2010			Dec.13, 2005 ~Dec.12, 2010			Feb. 5, 2007 ~Feb. 4, 2012			Apr. 29, 2007 ~Apr. 28, 2012
Valuation method			Fair value method			Fair value method			Fair value method			Fair value method			Fair value method

Upon exercise, the Company can elect one of the following settlement methods; an issuance of new shares, a provision of treasury stocks or cash settlement (cash and provision of treasury stocks) subject to its circumstances.

The Company adopted the fair value method to measure compensation costs based on the following valuation assumptions and methods are as follows:

		1st grant		2nd grant		3rd grant		4th grant		5th grant
Risk free interest rate		5.46%		4.45%		5.09%		4.43%		4.07%
Expected duration		4.5 years to 5.5 years		4.5 years		4.5 years to 5.5 years		4.5 years to 5.5 years		4.5 years to 5.5 years
Expected volatility		49.07% ~ 49.90%		34.49%		31.26% ~ 33.90%		33.41% ~ 42.13%		33.51% ~ 35.92%
Expected dividend yield ratio		1.10%		1.57%		1.57%		5.86%		5.86%

92

Of total compensation costs calculated using the fair value method, the compensation costs recognized through September 30, 2008 are as follows (in millions of Korean Won):

		1st grant				2nd grant				3rd grant				4th grant				5th grant				Total
Total compensation costs before adjustment		(Won)	10,602			(Won)	453			(Won)	1,160			(Won)	749			(Won)	586			(Won)	13,550
Total compensation costs cancelled			(2,291	)			(415	)			(1,160	)			(218	)			(586	)			(4,670	)
Total compensation costs after adjustment			8,311				38				—				531				—				8,880
Compensation costs recognized in prior periods			(8,311	)			(38	)			—				(531	)			—				(8,880	)
Compensation costs to be recognized		(Won)	—			(Won)	—			(Won)	—			(Won)	—			(Won)	—			(Won)	—

Details of stock grants to directors including chief executive officer from 2007 are as follows:

		1st grant		2nd grant
Grant date		March 29, 2007		March 27, 2008
Grantee		Registered directors		Registered directors
Estimated number of shares granted		23,925 shares		29,481 shares
Vesting conditions		Service condition: one year Non-market performance condition: achievement of performance		Service condition: one year Non-market performance condition: achievement of performance
Fair value per option (in Korean won)		(Won)42,706		(Won)48,160
Total compensation costs (in Korean won)		(Won)1,022 million		(Won)1,420 million
Estimated exercise date (exercise date)		March 27, 2008		March 27, 2009
Valuation method		Fair value method		Fair value method

Above compensation costs were calculated based on the fair value method and charged to current operations until September 30, 2008 as follows (in millions of Korean won):

		1st grant				2nd grant
Total compensation costs		(Won)	1,022			(Won)	1,420
Compensation costs recognized in prior periods			(1,022	)			—
Compensation costs to be reflected in the current period			—				1,420
Compensation costs recognized in the current period			—				(1,065	)
Compensation costs to be recognized after the current period		(Won)	—			(Won)	355

93

15. TREASURY STOCK

Changes in treasury stock for the nine months ended September 30, 2008 and the year ended December 31, 2007 are as follows (in millions of Korean won except for share data):

		September 30, 2008 (9 months)
		January 1, 2008					Increase					Disposal							Retirement							September 30, 2008
		Number of shares		Amount			Number of shares		Amount			Number of shares			Amount				Number of shares			Amount				Number of shares		Amount
Direct purchase by the Securities and Exchange Act		70,256,407		(Won)	3,732,977		1,666,700		(Won)	73,807		(15,173	)		(Won)	(807	)		(1,666,700	)		(Won)	(73,807	)		70,241,234		(Won)	3,732,170
Indirect purchase through trust agreement and other		1,259,170			92,711		—			—		—				—			—				—			1,259,170			92,711
Total		71,515,577		(Won)	3,825,688		1,666,700		(Won)	73,807		(15,173	)		(Won)	(807	)		(1,666,700	)		(Won)	(73,807	)		71,500,404		(Won)	3,824,881

		December 31, 2007 (12 months)
		January 1, 2007					Increase					Disposal							Retirement							December 31, 2007
		Number of shares		Amount			Number of shares		Amount			Number of shares			Amount				Number of shares			Amount				Number of shares		Amount
Direct purchase by the Securities and Exchange Act		70,273,052		(Won)	3,733,861		4,425,000		(Won)	196,329		(16,645	)		(Won)	(884	)		(4,425,000	)		(Won)	(196,329	)		70,256,407		(Won)	3,732,977
Indirect purchase through trust agreement and other		1,259,170			92,711		—			—		—				—			—				—			1,259,170			92,711
Total		71,532,222		(Won)	3,826,572		4,425,000		(Won)	196,329		(16,645	)		(Won)	(884	)		(4,425,000	)		(Won)	(196,329	)		71,515,577		(Won)	3,825,688

Above treasury stocks are expected to be used for the stock compensation to the Company’s directors and employees and other purposes.

94

16. OPERATING REVENUES

Operating revenues for the three months and nine months ended September 30, 2008 and 2007 are as follows (in millions of Korean won):

		Three months ended September 30, 2008			Nine months ended September 30, 2008			Three months ended September 30, 2007			Nine months ended September 30, 2007
Internet connection		(Won)	534,080		(Won)	1,602,034		(Won)	529,498		(Won)	1,585,504
Internet application			156,548			411,636			105,567			294,557
Data communication			419,802			1,235,164			404,943			1,219,662
Fixed-line telephone			970,220			3,009,628			1,026,516			3,120,256
LM (Note)			340,633			1,063,271			387,789			1,205,085
PCS			364,606			1,213,320			363,502			1,143,259
System integration			57,652			171,094			70,437			184,555
Real estate			63,408			182,661			63,511			167,850
Other operating revenue			6,526			20,721			6,543			19,308
Operating revenue		(Won)	2,913,475		(Won)	8,909,529		(Won)	2,958,306		(Won)	8,940,036

(Note) This represents revenue arising form the calls from fixed-line phone to mobile phone.

95

17. OPERATING EXPENSES

Operating expenses for the three months and nine months ended September 30, 2008 and 2007 are as follows (in millions of Korean won):

		Three months ended September 30, 2008				Nine months ended September 30, 2008				Three months ended September 30, 2007				Nine months ended September 30, 2007
Salaries and wages		(Won)	445,053			(Won)	1,385,001			(Won)	513,555			(Won)	1,416,932
Share-based payment			355				1,065				256				792
Provision for severance indemnities			49,761				205,018				89,673				257,406
Employee welfare			114,684				345,418				111,499				338,746
Travel			4,595				16,318				6,478				21,909
Communications			5,177				32,625				13,944				41,049
Utilities			59,090				138,009				52,187				126,906
Taxes and dues			48,510				128,870				40,932				114,599
Supplies			4,507				17,676				7,758				22,001
Rent			18,677				52,924				17,114				57,158
Depreciation			524,871				1,429,775				507,567				1,407,217
Amortization			35,776				108,475				34,615				103,508
Repairs and maintenance			125,628				369,029				133,738				370,957
Automobile maintenance			6,190				17,194				5,062				14,032
Commissions			182,503				526,776				168,539				501,543
Advertising			17,153				66,355				26,646				82,636
Education and training			6,113				16,925				9,841				23,848
Research and development			59,428				173,413				62,975				171,512
Interconnection charges			183,950				545,167				195,671				591,382
Cost of services			182,700				537,953				184,419				499,116
Commissions for system integration service			55,658				162,515				63,450				177,504
International call settlement			54,714				173,347				53,576				142,413
Cost of goods sold			128,282				477,972				128,920				496,398
Promotion			64,877				213,144				45,176				142,600
Sales commission			174,603				633,457				157,738				547,533
Provision for doubtful accounts			22,714				78,943				—				—
Other			19,069				55,858				19,172				51,821
			2,594,638				7,909,222				2,650,501				7,721,518
Less transfer to other accounts			(10,591	)			(29,784	)			(10,115	)			(31,447	)
Operating expense		(Won)	2,584,047			(Won)	7,879,438			(Won)	2,640,386			(Won)	7,690,071

96

18. NET INCOME PER SHARE

The Company’s net income per share for the three months and nine months ended September 30, 2008 and 2007 are computed as follows (in millions of Korean won, except for per share data):

a. Basic Net Income Per Share

		Three months ended September 30, 2008			Nine months ended September 30, 2008			Three months ended September 30, 2007			Nine months ended September 30, 2007
Net income		(Won)	161,397		(Won)	476,002		(Won)	257,370		(Won)	874,363
Weighted average number of common shares outstanding			202,156,751			203,178,392			205,814,831			207,326,709
Basic net income per share(in Korean won)		(Won)	798		(Won)	2,343		(Won)	1,250		(Won)	4,217

Basic net income per share, which include the effects of the restatement as discussed in Note 2, for the three months ended March 31, 2008 and 2007, for the six months ended June 30, 2008 and 2007 and for the year ended December 31, 2007 are (Won)756, (Won)1,818, (Won)1,545, (Won)2,967 and (Won)4,753, respectively.

b. Diluted Net Income Per Share

		Three months ended September 30, 2008			Nine months ended September 30, 2008			Three months ended September 30, 2007			Nine months ended September 30, 2007
Net income		(Won)	161,397		(Won)	476,002		(Won)	257,370		(Won)	874,363
Adjusted net income		(Won)	161,397		(Won)	476,002		(Won)	257,370		(Won)	874,363
Weighted average number of common shares outstanding			202,156,751			203,178,392			205,814,831			207,326,709
Number of shares with dilutive effects (Note)			—			—			—			—
Diluted net income per share (in Korean won)		(Won)	798		(Won)	2,343		(Won)	1,250		(Won)	4,217

Diluted net income per share, which include the effects of the restatement as discussed in Note 2, for the three months ended March 31, 2008 and 2007, for the six months ended June 30, 2008 and 2007 and for the year ended December 31, 2007 are (Won)756, (Won)1,818, (Won)1,545, (Won)2,967 and (Won)4,753, respectively.

For the purpose of calculating diluted net income per share, all dilutive potential common shares were added to net income attributable to common share holders and the weighted average number of shares outstanding, respectively. Diluted net income per share is calculated by dividing adjusted net income by the weighted average number of common shares and all dilutive potential common shares. Stock options and other share-based payments have no dilutive effect and are excluded from the calculation of diluted net income per share.

97

(Note) Potential common shares as of September 30, 2008 and December 31, 2007 are as follows:

Par value

Issue date

Maturity date

Exercisable Period

Common shares to be issued

September 30, 2008

December 31, 2007

Stock option

(Note 1)

December 26, 2002

December 26, 2009

Increase in the number of exercisable shares by 1/3 every year after two years from grant date

371,632

371,632

Stock option

(Note 2)

September 16, 2003

September 16, 2010

From 2 years after grant date till maturity date

3,000

3,000

Stock option

(Note 3)

February 4, 2005

February 4, 2012

Increase in the number of exercisable shares by 1/3 every year after two years from grant date

43,153

43,153

Other share-based payment

(Note 4)

March, 29, 2007

March 27, 2008

On maturity date, subject to the resolution of board of directors

—

23,925

Other share-based payment

(Note 4)

March, 27, 2008

March 27, 2009

On maturity date, subject to the resolution of board of directors

29,481

—

Total

447,266

441,710

(Note 1)		Exercise price of (Won)70,000 per common share.
(Note 2)		Exercise price of (Won)57,000 per common share.
(Note 3)		Exercise price of (Won)54,600 per common share.
(Note 4)		Shares to be given subject to performance.

98

19. COMMITMENTS AND CONTINGENCIES

a. Legal Matters

On May 25, 2005, the Fair Trade Commission (“FTC”) imposed a fine of (Won)116,168 million to the Company related to local telephone services and leased line services for internet cafes. On September 14, 2005, the FTC imposed an additional fine of (Won)24,258 million to the Company related to domestic and international long-distance services. The Company expensed these fines for the year ended December 31, 2005. As of September 30, 2008, except for a fine of (Won)8,094 million imposed to the Company related to international long-distance services and leased line services for Internet cafes, the Company has appealed certain portion of the fine imposed by the FTC amounting to (Won)132,332 million to the Supreme Court. However, the final result of this appeal cannot be presently determined.

The Company is also in various litigation as a defendant in other cases of which claim amounts totaled (Won)26,122 million (77 cases) as of September 30, 2008. The Company accrued (Won)23,174 million as provisions related to the litigation as of September 30, 2008. However, the final result of this litigation cannot be presently determined.

b. Commitments with Financial Institutions

As of September 30, 2008, major commitments with local financial institutions are as follows (in millions of Korean won and thousands of foreign currencies):

Commitment		Financial institution		Limit
Bank overdraft		Kookmin Bank		(Won)	500,000
		Shinhan Bank			100,000
		Woori Bank			350,000
				(Won)	950,000
Commercial paper		Korea Exchange Bank		(Won)	100,000
Collateralized loan on accounts receivable – trade		Kookmin Bank		(Won)	300,000
		Shinhan Bank			50,000
		Woori Bank			100,000
		NH bank			100,000
		Industrial Bank of Korea			150,000
				(Won)	700,000
Letters of credit		Korea Exchange Bank		USD	5,000
		Shinhan Bank		USD	8
				USD	5,008
Collection for foreign currency denominated checks		Korea Exchange Bank		USD	1,000

99

As of September 30, 2008, guarantees received from financial institutions are as follows (in millions of Korean won and thousands of foreign currencies):

Guarantee		Financial institution		Limit			Used amount
Performance guarantee for construction		Export-Import Bank of Korea		USD	1,885		USD	1,885
				SAR	735		SAR	735
		Korea Software Financial Cooperative and others		(Won)	159,420		(Won)	159,420
		Seoul Guarantee Insurance			40,439			40,439
		Sub total		(Won)	199,859		(Won)	199,859
				USD	1,885		USD	1,885
				SAR	735		SAR	735
General guarantee		Korea Exchange Bank		USD	1,000		USD	40
				(Won)	300		(Won)	200
Total				(Won)	200,159		(Won)	200,059
				USD	2,885		USD	1,925
				SAR	735		SAR	735

c. Shareholders’ Agreement between KT and NTT DoCoMo

In December 2005, KTF and NTT DoCoMo Inc. (“DoCoMo”) entered into a strategic alliance. As part of this strategic alliance, DoCoMo acquired a 10% equity interest in KTF for total proceeds of (Won)563,766 million (20,176,309 shares). In addition, on December 26, 2005, KT and DoCoMo entered into a shareholders’ agreement related to shares of KTF. Under the shareholders’ agreement, DoCoMo has the right to put its 20,176,309 shares for the acquisition amount plus interests to KT if an agreed target network coverage for W-CDMA service within Korea is not met by December 31, 2008. However, as of August 3, 2007, KTF reached the target network coverage mentioned above, and the right of DoCoMo to put its shares to KT has been now extinguished.

d. Put and Call Combination Contract with JPMorgan Chase Bank

On December 27, 2005, the Company and JPMorgan Chase Bank entered into a “Put and Call Combination” contract based on the shares of Korea Digital Satellite Broadcasting (“KDB”), an equity method investee. Under this contract, during the period from December 29, 2007 to December 29, 2008, KT has the option to acquire 9,200,000 shares of KDB that were purchased by JP Morgan Whiterfriars Inc. on December 28, 2005. Otherwise, JPMorgan Chase Bank has the option to exercise the put option on such KDB shares to KT on December 29, 2008. The exercise price under the contract for both KT and JPMorgan Chase Bank is (Won)46,000 million.

e. Payment of a Handset Subsidy to PCS or WiBro Users

According to the provisions of the Telecommunications Business Law (“TBL”), the Company has provided a one time handset subsidy to eligible mobile phone users, who have subscribed to the Company’s service or any other mobile carriers for 18 consecutive months, within the next two years from March 27, 2006 to March 26, 2008.

Above handset subsidy program was terminated effective March 27, 2008, however the Company currently provides a variety of handset subsidy programs to PCS or WiBro subscribers according to its operation policy and sets forth the programs in details in the service agreement. The handset subsidy provided by the Company is expensed as incurred.

100

20. DERIVATIVES

For the nine months ended September 30, 2008 and the year ended December 31, 2007, the Company entered into various derivatives contracts with financial institutions. Details of these derivatives contracts are as follows:

Type of transaction		Financial institution		Description
Interest rate swaps		Merrill Lynch and 5 others		Exchange fixed interest rate for variable interest rate for a specified period
Currency swaps		Merrill Lynch and 3 others		Exchange foreign currency cash flow for local currency cash flow local currency cash flow for a specified period
Combined interest rate currency swap		Merrill Lynch and 9 others		Exchange foreign currency fixed (variable) swaps interest rate for local currency variable (fixed) interest

The assets and liabilities recorded relating to the outstanding contracts as of September 30, 2008 and December 31, 2007 are as follows (in thousands of U.S. dollars and Japanese yen, and millions of Korean won):

		September 30, 2008
					Fair value
Type of transaction		Contract amount			Assets (Current)			Assets (Non-current)			Liabilities (Current)
Interest rate swap		(Won) USD	231,240 100,000		(Won)	—		(Won)	—		(Won)	9,215
Currency swap (Note)		USD	170,000			4,796			43,104			—
Combined interest rate currency swap (Note)		USD	1,060,000
		JPY	12,500,000			56,337			88,127			1,976
		(Won) USD	231,240 1,330,000
Total		JPY	12,500,000		(Won)	61,133		(Won)	131,231		(Won)	11,191
		December 31, 2007
					Fair value
Type of transaction		Contract amount			Assets (Current)			Assets (Non-current)			Liabilities (Current)
Interest rate swap		(Won) USD	451,240 100,000		(Won)	352		(Won)	—		(Won)	3,900
Currency swap (Note)		USD	220,000			—			1,710			2,833
Combined interest rate currency swap		USD	700,000			—			—			125,548
Total		(Won) USD	451,240 1,020,000		(Won)	352		(Won)	1,710		(Won)	132,281

(Note) Details of the currency swap and combined interest rate currency swap contracts to which cash flow hedge accounting is applied as of September 30, 2008 and December 31, 2007 are as follows (in thousands of U.S. dollars and Japanese yen and millions of Korean won):

101

Type of transaction

Contract date

Maturity date

Contract amount

Fair value (Non-current)

September 30, 2008

December 31, 2007

Currency swap (Notes 1 and 2)

April 4, 2007

April 11, 2012

USD

150,000

(Won)

43,104

(Won)

1,710

Combined interest rate currency swap (Note 2)

January 4, 2008

January 11, 2011

JPY

12,500,000

35,182

—

March 20, 2008

March 31, 2011

USD

50,000

11,375

—

March 20, 2008

March 31, 2012

USD

110,000

24,268

—

September 2, 2008

September 11, 2013

USD

200,000

17,302

—

Total

USD JPY

510,000 12,500,000

(Won)

131,231

(Won)

1,710

(Note 1)		Among financial institutions with which the Company entered into foreign currency swap contracts totaling US$200 million in 2007, Lehman Brothers Holdings, Inc. (“Lehman”) filed for Chapter 11 bankruptcy with the United States Bankruptcy Court during the third quarter of 2008. Lehman’s bankruptcy filing caused the Company to discontinue its cash flow hedge accounting for foreign exchange swap contracts with Lehman totaling USD 50 million and accordingly the related derivative asset balance amounting to KRW 9,891 million was adjusted to the fair value and reclassified into accounts receivable – other while the difference between the carrying amount and the fair value was expensed as incurred. However, the Company concluded that the occurrence of the related forecasted transaction is still expected to be probable and (Won)1,382 million of unrealized derivative gain included in accumulated other comprehensive income as of September 30, 2008 will be reclassified into current operations in the periods in which the hedged forecasted transaction affects earnings.
(Note 2)		Above foreign currency swap contracts are to hedge the risk of variability of future cash flows from foreign currency bonds and as of September 30, 2008, the gain and loss on valuation of the swap contract amounting to (Won)13,728 million and (Won)541 million, net of income tax effect, are included in accumulated other comprehensive income and for the nine months ended September 30, 2008, the gain on valuation of the swap contract totaling (Won)124,016 million is recognized in current operations as a result of foreign currency translation gain from foreign currency bonds. In applying cash flow hedge accounting, the Company hedges its exposures to cash flow fluctuation until April 11, 2013. Approximately (Won)4,383 million of net derivative gain included in accumulated other comprehensive income at September 30, 2008 is expected to be reclassified into current operations within 12 months from that date.

102

The valuation gains and losses on the derivatives contracts for nine months ended September 30, 2008 and 2007 are as follows (in millions of Korean won):

		September 30, 2008 (9 months)
		Valuation gain									Valuation loss									Valuation gain (loss) (Note)
Type of Transaction		For trading			For hedging			Total			For trading			For hedging			Total			For hedging
Interest rate swap		(Won)	—		(Won)	—		(Won)	—		(Won)	5,704		(Won)	—		(Won)	5,704		(Won)	—
Currency swap			7,629			45,815			53,444			—			—			—			5,470
Combined interest rate currency swap			179,909			78,201			258,110			—			—			—			9,926
Total		(Won)	187,538		(Won)	124,016		(Won)	311,554		(Won)	5,704		(Won)	—		(Won)	5,704		(Won)	15,396
		September 30, 2007 (9 months)
		Valuation gain									Valuation loss									Valuation gain (loss) (Note)
Type of Transaction		For trading			For hedging			Total			For trading			For hedging			Total			For hedging
Interest rate swap		(Won)	1,380		(Won)	—		(Won)	1,380		(Won)	5,637		(Won)	—		(Won)	5,637		(Won)	—
Currency swap			44			—			44			3,362			1,220			4,582			3,152
Combined interest rate currency swap			20,606			—			20,606			—			—			—			—
Total		(Won)	22,030			—		(Won)	22,030		(Won)	8,999		(Won)	1,220		(Won)	10,219		(Won)	3,152

(Note) The amounts are before adjustment of deferred income tax, which shall be directly reflected to equity, are included in equity.

103