EX-99.2 3 h03256exv99w2.htm EXHIBIT 99.2

Exhibit 99.2

Exhibit 99.2

KT CORPORATION AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2008
AND INDEPENDENT AUDITORS’ REPORT

Independent Auditors’ Report

English Translation of a Report Originally Issued in Korean

To the Board of Directors and Stockholders of
KT Corporation:

We have audited the accompanying consolidated balance sheets of KT Corporation and subsidiaries (the “Company”) as of December 31, 2007 and 2008, and the related consolidated statements of income, changes in equity and cash flows for the years then ended (all expressed in Korean won). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. However, we did not audit the financial statements for the year ended December 31, 2008 of KT Freetel Co., Ltd. (“KTF”), which statements reflect total assets constituting 30.06% of the consolidated total assets as of December 31, 2008 and total revenues constituting 36.55% of the consolidated operating revenues for the year ended December 31, 2008. Those financial statements were audited by other auditor whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for KTF, is based solely on the report of the other auditor.

We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company at December 31, 2007 and 2008, and the results of its operations, the changes in its equity and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the Republic of Korea.

Accounting principles and auditing standards and their application in practice vary among countries. The accompanying 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 audit such consolidated financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report and the accompanying consolidated financial statements are for use by those knowledgeable about Korean accounting principles and auditing standards and their application in practice.

March 19, 2009

Notice to Readers

This report is effective as of March 19, 2009, the auditors’ report date. Certain subsequent events or circumstances may have occurred between the auditors’ report date and the time the auditors’ report is read. Such events or circumstances could significantly affect the accompanying consolidated financial statements and may result in modification to the auditors’ report.

2

KT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2007 AND 2008

		In millions of Korean won
		2007				2008
ASSETS
CURRENT ASSETS :
Cash and cash equivalents (Notes 2, 17 and 32)		W	1,384,985			W	1,890,918
Short-term investment assets (Notes 3, 6 and 17)			460,170				417,138
Accounts receivable—trade, less allowance for doubtful accounts of W484,279 million in 2007 and W482,242 million in 2008 (Notes 2, 12, 17, 18 and 33)			2,621,035				3,014,687
Loans, less allowance for doubtful accounts of W2,887 million in 2007 and W4,142 million in 2008 (Notes 2, 5 and 17)			215,945				292,884
Current finance lease receivables, less allowance for doubtful accounts of W563 million in 2007 and W2,355 million in 2008 (Notes 2, 15 and 30)			78,103				180,954
Accounts receivable—other, less allowance for doubtful accounts of W93,561 million in 2007 and W109,312 million in 2008 (Notes 2, 12 and 17)			176,317				202,872
Accrued revenues			13,684				21,413
Advance payments			67,272				73,962
Prepaid expenses			54,918				99,214
Prepaid income taxes			1,411				1,518
Guarantee deposits (Note 17)			9,414				1,382
Current derivative instruments assets (Notes 2 and 34)			696				201,709
Current deferred income tax assets (Notes 2 and 27)			259,525				249,941
Inventories (Notes 2, 4 and 30)			299,104				424,841
Other current assets			220				393
Total Current Assets			5,642,799				7,073,826

(Continued)

3

KT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
AS OF DECEMBER 31, 2007 AND 2008

		In millions of Korean won
		2007				2008
ASSETS
NON-CURRENT ASSETS :
Available-for-sale securities (Notes 2 and 6)			83,352				74,744
Equity method investment securities (Notes 2 and 7)			234,582				353,347
Held-to-maturity securities (Notes 2 and 6)			244				8,077
Long-term loans to employees			107,675				85,969
Long-term financial instruments (Note 3)			2,864				44
Other investment assets (Note 9)			41,478				23,819
Property and equipment, net (Notes 2, 8, 9, 10, 15 and 30)			15,288,002				15,188,631
Intangible assets, net (Notes 2 and 11)			1,735,323				1,474,238
Leasehold rights and deposits (Notes 2 and 17)			347,217				352,655
Long-term accounts receivable—trade, less allowance for doubtful accounts of W10,601 million in 2007 and W13,320 million in 2008 (Notes 2, 12 and 18)			144,804				282,162
Long-term loans, less allowance for doubtful accounts of W3,028 million in 2007 and W7,734 million in 2008 (Notes 2 and 5)			145,967				253,445
Non-current finance lease receivables, less allowance for doubtful accounts of W860 million in 2007 and W3,642 million in 2008 (Notes 2, 15 and 30)			137,827				290,799
Non-current deferred income tax assets (Notes 2 and 27)			91,429				235,514
Long-term accounts receivable—other (Notes 2 and 12)			36,171				17,260
Non-current derivative instruments assets (Notes 2 and 34)			3,681				302,689
Other non-current assets			83,470				121,385
Total Non-current Assets			18,484,086				19,064,778
TOTAL ASSETS		W	24,126,885			W	26,138,604

(Continued)

4

KT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
AS OF DECEMBER 31, 2007 AND 2008

		In millions of Korean won
		2007				2008
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES :
Accounts payable—trade (Notes 12, 17 and 18)		W	1,020,487			W	833,818
Short-term borrowings (Note 17)			225,970				274,306
Accounts payable—other (Notes 12, 15, 17 and 18)			1,441,686				1,475,873
Advance receipts			87,442				119,356
Withholdings (Note 17)			200,744				228,517
Accrued expenses (Notes 17 and 18)			483,596				528,004
Income taxes payable (Note 2)			303,096				151,794
Current portion of bonds and long-term borrowings (Notes 2, 12, 13 and 17)			1,019,802				1,439,960
Unearned revenue			7,807				9,170
Key money deposits (Notes 17 and 18)			101,360				127,689
Current derivative instruments liabilities (Notes 2 and 34)			132,325				13,619
Current accrued provisions (Notes 2 and 14)			47,417				38,815
Other current liabilities			6,889				107
Total Current Liabilities			5,078,621				5,241,028
NON-CURRENT LIABILITIES :
Bonds (Notes 2, 13 and 17)			5,842,827				7,662,663
Long-term borrowings in Korean won (Notes 2, 12 and 13)			110,935				146,813
Long-term borrowings in foreign currency (Notes 2, 13 and 17)			19,709				137,249
Provisions for severance indemnities (Note 2)			514,991				507,819
Refundable deposits for telephone installation (Note 16)			840,962				781,525
Long-term accounts payable—trade (Note 12)			—				16,856
Long-term accounts payable—other (Notes 2, 12 and 15)			469,255				317,101
Long-term deposits received			42,257				93,800
Non-current accrued provisions (Notes 2 and 14)			25,420				85,146
Non-current deferred income tax liabilities (Notes 2 and 27)			1,896				2,734
Non-current derivative instruments liabilities (Notes 2 and 34)			—				6,777
Other non-current liabilities			42,246				51,195
Total Non-current Liabilities			7,910,498				9,809,678
Total Liabilities			12,989,119				15,050,706

(Continued)

5

KT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
AS OF DECEMBER 31, 2007 AND 2008

		In millions of Korean won
		2007				2008
LIABILITIES AND STOCKHOLDERS’ EQUITY
EQUITY :
Common Stock (Notes 1 and 19)			1,560,998				1,560,998
Capital Surplus :
Additional paid-in capital			1,440,258				1,440,258
Other capital surplus			519				375
Total Capital Surplus			1,440,777				1,440,633
Capital Adjustments :
Treasury stock (Note 23)			(3,825,688	)			(3,824,881	)
Stock options (Notes 2 and 22)			8,880				8,880
Other share-based payments (Notes 2 and 22)			1,022				1,420
Other capital adjustments			(168,143	)			(180,155	)
Total Capital Adjustments			(3,983,929	)			(3,994,736	)
Accumulated Other Comprehensive Income (Note 21) :
Gain on translation of foreign operations (Note 2)			2,471				11,083
Loss on translation of foreign operations (Note 2)			(13,195	)			(4,887	)
Unrealized gain on valuation of available-for-sale securities (Notes 2 and 6)			10,644				4,813
Unrealized loss on valuation of available-for-sale securities (Notes 2 and 6)			—				(4,345	)
Unrealized gain on valuation of derivatives (Notes 2 and 34)			2,024				11,136
Unrealized loss on valuation of derivatives (Notes 2 and 34)			—				(13,710	)
Increase in equity of associates (Notes 2 and 7)			2,766				10,369
Decrease in equity of associates (Notes 2 and 7)			(4,568	)			(3,580	)
Total Accumulated Other Comprehensive Income			142				10,879
Retained earnings			9,843,775				9,814,115
Equity attributable to equity holders of the parent			8,861,763				8,831,889
Minority Interest			2,276,003				2,256,009
Total Stockholders’ Equity			11,137,766				11,087,898
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		W	24,126,885			W	26,138,604

See accompanying notes to consolidated financial statements

6

KT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2008

		In millions of Korean won
		2007				2008
OPERATING REVENUES (Notes 2, 18, 24, 25 and 35)		W	18,660,082			W	19,644,543
OPERATING EXPENSES (Notes 2, 18, 26, 35 and 36)			16,914,741				18,216,781
OPERATING INCOME			1,745,341				1,427,762
NON-OPERATING REVENUES :
Interest income			155,862				151,563
Dividend income			583				1,060
Foreign currency transaction gain			7,508				67,475
Foreign currency translation gain (Note 2)			8,626				40,668
Equity in income of associates (Notes 2 and 7)			24,285				16,061
Gain on breach of contracts			1,821				1,555
Gain on disposal of useless materials			25,328				—
Gain on disposal of short-term investment assets			2,094				446
Gain on valuation of short-term investment assets			1,085				537
Gain on disposal of available-for-sale securities (Note 6)			9,664				3,996
Reversal of impairment losses of available-for-sale securities (Note 2)			76				—
Gain on disposal of equity method investment securities			1,832				1
Gain on disposal of property and equipment			29,459				5,391
Gain on disposal of intangible assets			221				1,000
Reversal of accrued provisions (Note 14)			50,945				4,069
Amortization of negative goodwill (Notes 2 and 11)			518				65
Gain on settlement of derivatives (Note 2)			9,778				17,183
Gain on valuation of derivatives (Notes 2 and 34)			40,140				650,680
Other non-operating revenues			118,157				92,157
Total Non-operating Revenues			487,982				1,053,907

(Continued)

7

KT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2008

		In millions of Korean won
		2007				2008
NON-OPERATING EXPENSES :
Interest expense			466,461				481,629
Other bad debt expense (Note 2)			4,473				22,355
Foreign currency transaction loss			13,064				63,422
Foreign currency translation loss (Note 2)			15,819				802,452
Equity in loss of associates (Notes 2 and 7)			8,407				28,386
Loss on disposal of equity method investment securities			549				137
Loss on impairment of equity method investment securities (Notes 2 and 7)			—				2,654
Donations			89,563				79,544
Loss on disposal of short-term investment assets			—				1,004
Loss on valuation of short-term investment assets			—				1,841
Loss on disposal of available-for-sale securities (Note 6)			828				250
Loss on impairment of available-for-sale securities (Notes 2 and 6)			1,809				3,826
Loss on impairment of investment assets			6,855				2,677
Loss on disposal of property and equipment			94,775				94,308
Loss on impairment of property and equipment (Notes 2 and 8)			7,990				20,676
Loss on disposal of intangible assets			535				1,653
Loss on impairment of intangible assets (Notes 2 and 11)			9,178				17,435
Loss on disposal of accounts receivable—trade			492				582
Loss on settlement of derivatives (Note 2)			11,381				9,665
Loss on valuation of derivatives (Notes 2 and 34)			15,542				10,936
Other non-operating expenses			37,839				155,088
Total Non-operating Expenses			785,560				1,800,520
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE			1,447,763				681,149
INCOME TAX EXPENSE ON CONTINUING OPERATIONS (Note 27)			356,799				167,859
NEWLY INCLUDED SUBSIDIARY’S NET LOSS BEFORE ACQUISITION			5,810				—
INCOME FROM CONTINUING OPERATIONS			1,096,774				513,290
INCOME FROM DISCONTINUING OPERATIONS (Note 28)			74,204				—
NET INCOME		W	1,170,978			W	513,290
Attributable to :
EQUITY HOLDERS OF THE PARENT		W	1,056,227			W	449,810
MINORITY INTERESTS			114,751				63,480
		W	1,170,978			W	513,290
NET INCOME PER SHARE (Note 29)(*)
Basic income per share from continuing operations (in Korean won)		W	4,754			W	2,217
Basic net income per share (in Korean won)		W	5,112			W	2,217
Diluted income per share from continuing operations (in Korean won)		W	4,754			W	2,217
Diluted net income per share (in Korean won)		W	5,112			W	2,217
(*)Income per share attributable to the equity holders of the parent

See accompanying notes to consolidated financial statements

8

KT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2008

														Other
		Common				Capital				Capital				comprehensive				Retained				Minority
(In millions of Korean won)		stock				surplus				adjustments				Income (loss)				earnings				interests				Total
Balance as of January 1, 2007 (as reported)		W	1,560,998			W	1,292,475				(W3,817,717	)		(W	5,772	)		W	9,400,068			W	2,267,252			W	10,697,304
Cumulative effect of changes in accounting policies			—				148,435				(148,435	)			—				—				—				—
As restated			1,560,998				1,440,910				(3,966,152	)			(5,772	)			9,400,068				2,267,252				10,697,304
Dividends			—				—				—				—				(416,191	)			(56,583	)			(472,774	)
Retained earnings after appropriations			—				—				—				—				8,983,877				2,210,669				10,224,530
Net income for the year			—				—				—				—				1,056,227				114,751				1,170,978
Acquisition of treasury stock			—				—				(196,329	)			—				—				—				(196,329	)
Disposal of treasury stock			—				—				884				—				—				—				884
Retirement of treasury stock			—				—				196,329				—				(196,329	)			—				—
Offset of loss on disposal of treasury stock			—				(133	)			—				—				—				—				(133	)
Acquisition of subsidiaries’ stock			—				—				(1,152	)			—				—				(365	)			(1,517	)
Increase in subsidiaries’ capital stock			—				—				212				—				—				1,916				2,128
Acquisition of subsidiaries’ treasury stock			—				—				(392	)			—				—				(620	)			(1,012	)
Appropriation of subsidiaries’ treasury stock			—				—				(14,489	)			—				—				(79,582	)			(94,071	)
Changes in consolidated entities			—				—				(3,302	)			(20,688	)			—				25,096				1,106
Stock options			—				—				25				—				—				—				25
Other share-based payment			—				—				1,022				—				—				—				1,022
Other capital adjustments			—				—				(585	)			—				—				(687	)			(1,272	)
Gain on translation of foreign operations			—				—				—				55				—				—				55
Loss on translation of foreign operations			—				—				—				19,240				—				2,896				22,136
Unrealized gain on valuation of available-for-sale securities			—				—				—				2,496				—				1,668				4,164
Unrealized gain on valuation of derivatives			—				—				—				2,024				—				—				2,024
Increase in equity of associates			—				—				—				(975	)			—				261				(714	)
Decrease in equity of associates			—				—				—				3,762				—				—				3,762
Balance as of December 31, 2007		W	1,560,998			W	1,440,777				(W3,983,929	)		W	142			W	9,843,775			W	2,276,003			W	11,137,766

(Continued)

9

KT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2008

														Other
		Common				Capital				Capital				comprehensive				Retained				Minority
(In millions of Korean won)		stock				surplus				adjustments				Income (loss)				earnings				interests				Total
Balance as of January 1, 2008 (as reported)		W	1,560,998			W	1,272,634				(W3,815,786	)		W	142			W	9,843,775			W	2,276,003			W	11,137,766
Cumulative effect of changes in accounting policies (Note 2)			—				168,143				(168,143	)			—				1,711				2,141				3,852
As restated			1,560,998				1,440,777				(3,983,929	)			142				9,845,486				2,278,144				11,141,618
Dividends			—				—				—				—				(407,374	)			(1,896	)			(409,270	)
Retained earnings after appropriations			—				—				—				—				9,438,112				2,276,248				10,732,348
Net income for the year			—				—				—				—				449,810				63,480				513,290
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	)
Acquisition of subsidiaries’ stock			—				—				(944	)			—				—				(210	)			(1,154	)
Increase in subsidiaries’ capital stock			—				—				2,439				—				—				13,428				15,867
Acquisition of subsidiaries’ treasury stock			—				—				158				—				—				140				298
Appropriation of subsidiaries’ treasury stock			—				—				(14,651	)			—				—				(112,298	)			(126,949	)
Changes in consolidated entities			—				—				—				—				—				14,964				14,964
Other share-based payment			—				—				398				—				—				—				398
Other capital adjustments			—				—				986				—				—				221				1,207
Gain on translation of foreign operations			—				—				—				8,612				—				4,947				13,559
Loss on translation of foreign operations			—				—				—				8,308				—				3,471				11,779
Unrealized gain on valuation of available-for-sale securities			—				—				—				(5,831	)			—				(3,108	)			(8,939	)
Unrealized loss on valuation of available-for-sale securities			—				—				—				(4,345	)			—				(3,200	)			(7,545	)
Unrealized gain on valuation of derivatives			—				—				—				9,112				—				262				9,374
Unrealized loss on valuation of derivatives			—				—				—				(13,710	)			—				(4,660	)			(18,370	)
Increase in equity of associates			—				—				—				7,603				—				2,351				9,954
Decrease in equity of associates			—				—				—				988				—				(27	)			961
Balance as of December 31, 2008		W	1,560,998			W	1,440,633				(W3,994,736	)		W	10,879			W	9,814,115			W	2,256,009			W	11,087,898

See accompanying notes to consolidated financial statements.

10

KT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2008

		In millions of Korean won
		2007				2008
CASH FLOWS FROM OPERATING ACTIVITIES :
Net income		W	1,170,978			W	513,290
Expenses not involving cash payments :
Share-based payment			1,239				1,922
Accrued severance indemnities			359,473				362,342
Depreciation			3,225,887				3,264,291
Amortization			430,623				438,544
Provision for doubtful accounts			69,790				150,583
Interest expense			27,942				45,581
Other bad debt expense			3,539				22,355
Foreign currency translation loss			15,810				801,357
Equity in loss of associates			6,268				28,386
Loss on disposal of equity method investment securities			549				137
Loss on impairment of equity method investment securities			—				2,654
Loss on disposal of short-term investment assets			—				1,004
Loss on valuation of short-term investment assets			—				1,841
Loss on disposal of available-for-sale securities			603				250
Loss on impairment of available-for-sale securities			1,809				3,826
Loss on impairment of investment assets			139				2,677
Loss on disposal of property and equipment			94,604				94,308
Loss on impairment of property and equipment			7,990				20,676
Loss on disposal of intangible assets			535				1,653
Loss on impairment of intangible assets			8,957				17,435
Loss on valuation of derivatives			15,542				10,936
Other non-operating expenses			15,943				16,935
Sub-total			4,287,242				5,289,693
Income not involving cash receipts :
Interest income			6,380				20,964
Foreign currency translation gain			8,279				40,490
Equity in income of associates			24,250				16,061
Gain on disposal of short-term investment assets			2,052				446
Gain on valuation of short-term investment assets			1,085				537
Gain on disposal of available-for-sale securities			9,479				3,996
Reversal of impairment losses of available-for-sale securities			76				—
Gain on disposal of equity method investment securities			1,832				1
Gain on disposal of property and equipment			29,382				5,391
Gain on disposal of intangible assets			221				1,000
Amortization of negative goodwill			518				65
Gain on valuation of derivatives			40,140				650,680
Other non-operating revenues			4,373				2,780
Sub-total			(128,067	)			(742,411	)

(Continued)

11

KT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2008

		In millions of Korean won
		2007				2008
Changes in assets and liabilities related to operating activities:
Accounts receivable—trade			(463,325	)			(367,263	)
Loans			(228,022	)			(71,188	)
Current finance lease receivables			75,577				78,103
Accounts receivable—other			123,167				20,460
Accrued revenues			(2,538	)			(7,676	)
Advance payments			(25,946	)			(6,919	)
Prepaid expenses			(12,522	)			(44,282	)
Prepaid income taxes			(223	)			(107	)
Guarantee deposits			(7,195	)			8,026
Derivative instruments, net			(3,381	)			166
Deferred income tax, net			(45,506	)			(126,811	)
Other current assets			(77	)			(173	)
Inventories			(65,106	)			(131,305	)
Leasehold rights and deposits			(36,349	)			(3,804	)
Long-term accounts receivable—trade			97,729				(253,257	)
Long-term loans			(7,326	)			(113,229	)
Non-current finance lease receivables			(109,895	)			(299,257	)
Long-term accounts receivable—other			(26,910	)			(8,146	)
Other non-current assets			(8,778	)			(19,536	)
Accounts payable—trade			239,238				(262,733	)
Accounts payable—other			(242,595	)			(160,717	)
Advance receipts			(30,293	)			31,905
Withholdings			25,650				26,901
Accrued expenses			67,302				44,402
Income taxes payable			(86,281	)			(152,286	)
Unearned revenue			2,512				1,363
Key money deposits			4,049				77,868
Accrued provisions			(29,931	)			18,500
Other current liabilities			(1,143	)			(6,782	)
Payment of severance indemnities			(103,955	)			(220,800	)
Deposits for severance indemnities			(132,471	)			(148,848	)
Contribution to National Pension Fund			(51	)			122
Refundable deposits for telephone installation			(66,145	)			(59,437	)
Long-term accounts payable—trade			—				30,794
Long-term accounts payable—other			—				(24,833	)
Other non-current liabilities			35,153				8,949
Sub-total			(1,065,587	)			(2,141,830	)
Net Cash Provided by Operating Activities			4,264,566				2,918,742

(Continued)

12

KT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2008

		In millions of Korean won
		2007				2008
CASH FLOWS FROM INVESTING ACTIVITIES :
Cash inflows from investing activities :
Decrease in short-term investment assets			182,501				544,946
Disposal of available-for-sale securities			1,183,121				614,822
Decrease in equity method investment securities			10,807				1,047
Disposal of equity method investment securities			—				1,580
Collection of held-to-maturity securities			252				65
Collection of long-term loans to employees			25,736				10,001
Disposal of long-term financial instruments			—				2,819
Decrease in other investment assets			3,480				5,630
Disposal of land			15,246				9,222
Disposal of buildings			4,791				17,650
Disposal of structures			17				4,674
Disposal of machinery			68,889				4,665
Disposal of vehicles			16,536				665
Disposal of other property and equipment			13,978				19,463
Disposal of construction-in-progress			10				26
Increase of contribution for construction			76,625				74,228
Disposal of intangible assets			706				17,013
Sub-total			1,602,695				1,328,516
Cash outflows for investing activities :
Acquisition of short-term investment assets			61,397				343,115
Acquisition of available-for-sale securities			989,112				714,831
Acquisition of equity method investment securities			7,220				123,371
Acquisition of assets and liabilities of consolidated subsidiaries			124,384				55,655
Acquisition of held-to-maturity securities			5				13,988
Increase in long-term loans to employees			25,451				50,421
Increase in long-term financial instruments			18				11
Increase in other investment assets			19,826				6,245
Acquisition of land			1,424				225
Acquisition of buildings			3,398				38,787
Acquisition of structures			122				482
Acquisition of machinery			65,188				67,543
Acquisition of vehicles			990				33,161
Acquisition of other property and equipment			258,167				134,534
Acquisition of construction-in-progress			3,306,356				3,087,737
Acquisition of intangible assets			188,995				189,772
Sub-total			(5,052,053	)			(4,859,878	)
Net Cash Used in Investing Activities			(3,449,358	)			(3,531,362	)

(Continued)

13

KT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2008

		In millions of Korean won
		2007				2008
CASH FLOWS FROM FINANCING ACTIVITIES :
Cash inflows from financing activities :
Increase in short-term borrowings			49,601				455,117
Issuance of bonds			777,981				2,405,577
Increase in long-term borrowings			100,104				1,374,480
Inflows from capital transactions of consolidated entities			2,128				7,951
Sub-total			929,814				4,243,125
Cash outflows for financing activities :
Repayment of short-term borrowings			—				412,579
Payment of accounts payable—other			118,470				29,764
Repayment of current portion of bonds and long-term borrowings			1,353,689				2,146,790
Repayment of long-term borrowings			132				697
Repayment of bonds			5,000				—
Payment of dividends			472,774				409,270
Acquisition of treasury stock			196,329				73,807
Outflows from capital transactions of consolidated entities			151,666				118,868
Sub-total			(2,298,060	)			(3,191,775	)
Net Cash Provided by (Used in) Financing Activities			(1,368,246	)			1,051,350
EFFECT OF CHANGES IN CONSOLIDATED ENTITIES			108,992				48,482
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS			462				18,721
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			(443,584	)			505,933
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR			1,828,569				1,384,985
CASH AND CASH EQUIVALENTS AT END OF THE YEAR		W	1,384,985			W	1,890,918

See accompanying notes to consolidated financial statements

14

KT CORPORATION AND SUBSIDIAIRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2008

1. ORGANIZATION AND DESCRIPTION OF THE BUSINESS

	a.		Parent
			KT Corporation (“KT”) 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, KT became a government invested institution regulated by the Korean Commercial Code and KT’s shares were listed on the Korea Exchange (formerly, “Korea Stock Exchange”) on December 23, 1998. KT 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, KT 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 December 31, 2008.
			KT’s shares as of December 31, 2008 are owned as follows:

						Ownership
		Number of shares				percentage (%)
Employee Stock Ownership Association			13,184,421				4.82	%
National Pension Service			15,555,428				5.69	%
Others			173,295,447				63.35	%
Treasury stock			71,500,404				26.14	%
Total			273,535,700				100.00	%

Prior to 1991, KT 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 SK Broadband, 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, KT commercialized the Wireless Broadband Internet (“WiBro”) service in 2006 and launched new products such as mixed products which combine certain previous services and Internet Contests On Demand (“ICOD”) services under the new brand name “MegaTV” in 2007.

15

	b.		Consolidated Subsidiaries
			The consolidated financial statements included the subsidiaries of which KT is the largest stockholder with more than 30% of ownership interests. The consolidated subsidiaries as of December 31, 2008 are as follows:

Year of

Year of

obtaining

Financial

Subsidiary

incorporation

control

Primary business

Location

year end

KT Powertel Co., Ltd. (“KTP”)

1985

1985

Trunk radio system business

Korea

Dec.31

KT Networks Corporation (“KTN”)

1986

1986

Group telephone management

Korea

Dec.31

KT Linkus Co., Ltd. (“KTL”)

1988

1988

Public telephone maintenance

Korea

Dec.31

KT Hitel Co., Ltd. (“KTH”)

1991

1992

Data communication

Korea

Dec.31

KT Submarine Co., Ltd. (“KTSC”)

1995

1995

Submarine cable construction and maintenance

Korea

Dec.31

KT Freetel Co., Ltd. (“KTF”)

1997

1997

PCS business

Korea

Dec.31

KT Commerce Inc. (“KTC”)

2002

2002

B2C, B2B service

Korea

Dec.31

KTF Technologies Inc. (“KTFT”)

2001

2002

PCS handset development

Korea

Dec.31

KT Internal Venture Fund No.2

2003

2003

Investment fund

Korea

Feb.28

KTF M Hows Co., Ltd. (“KTF M Hows”)

2004

2004

Mobile marketing

Korea

Dec.31

KT Rental Co., Ltd. (“KTR”)

2005

2005

Rental service

Korea

Dec.31

Sidus FNH Corporation (“Sidus FNH”)

2005

2005

Movie production

Korea

Dec.31

Sidus FNH Benex Cinema Investment Fund

2006

2006

Movie investment fund

Korea

Dec.31

KT Capital Co., Ltd. (“KT Capital”)

2006

2006

Financing service

Korea

Dec.31

Telecop Service Co., Ltd. (“TSC”)

2006

2006

Security service

Korea

Dec.31

Olive Nine Co., Ltd. (“Olive Nine”)

1999

2006

Broad casting production

Korea

Dec.31

KTF M&S Co., Ltd. (“KTF M&S”)

2007

2007

PCS distribution

Korea

Dec.31

KT FDS Co., Ltd. (“KT FDS”)

1990

2007

Software development and system integration

Korea

Dec.31

KTF Music Corporation (“KTF Music” formerly, Bluecord Technology Co., Ltd.)

1991

2007

Semiconductor and telecommunication equipment manufacture

Korea

Dec.31

Doremi Media Co., Ltd. (“Doremi Media”)

1997

2007

Recording device (magneto-optical disk) and music disc manufacture

Korea

Dec.31

Nasmedia, Inc. (“Nasmedia”)

2000

2008

Online advertisement

Korea

Dec.31

Sofnics, Inc.(“Sofnics”)

2008

2008

Software development and sales

Korea

Dec.31

JungBoPremiumEdu Co., Ltd. (“JB Edu”)

2008

2008

Online education business

Korea

Dec.31

KT New Business Fund No. 1

2008

2008

Investment fund

Korea

Dec.31

KT DataSystems Co., Ltd. (“KTDS”)

2008

2008

System integration and maintenance

Korea

Dec.31

Korea Telecom America, Inc. (“KTAI”)

1993

1993

Foreign telecommunication business

America

Dec.31

New Telephone Company, Inc. (“NTC”)

1993

1998

Foreign telecommunication business

Russia

Dec.31

Korea Telecom Japan Co., Ltd. (“KTJ”)

1999

1999

Foreign telecommunication business

Japan

Dec.31

Korea Telecom China Co., Ltd. (“KTCC”)

2003

2003

Foreign telecommunication business

China

Dec.31

PT. KTF Indonesia

2005

2005

Foreign telecommunication business

Indonesia

Dec.31

Super iMax

2007

2007

Wireless high speed internet business

Uzbekistan

Dec.31

East Telecom

2003

2007

Fixed line telecommunication business

Uzbekistan

Dec.31

KTSC Investment Management B.V.

2007

2007

Management of investment in Super iMax and East Telecom

Netherlands

Dec.31

16

Details of investments in subsidiaries as of December 31, 2007 and 2008 are as follows (in millions of Korean won):

		2007												2008
		Number of								Ownership				Number of								Ownership
Subsidiary		shares				Net asset				percentage (%)				shares				Net asset				percentage (%)
KTP			7,771,418				64,304				44.9	%			7,771,418				70,514				44.9	%
KTN			2,000,000				52,794				100.0	%			2,000,000				57,020				100.0	%
KTL			2,941,668				8,603				93.8	%			2,941,668				598				93.8	%
KTH			22,750,000				173,003				65.9	%			22,750,000				179,672				65.9	%
KTSC			1,617,000				59,304				36.9	%			1,617,000				55,980				36.9	%
KTF (Note 1)			102,129,938				4,339,440				53.0	%			102,129,938				4,365,849				54.3	%
KTC (Note 2)			1,400,000				6,864				100.0	%			1,400,000				7,897				100.0	%
KTFT			1,090,962				53,876				74.9	%			1,090,962				25,098				74.9	%
KT Internal Venture Fund No.2			5,000				5,518				94.3	%			5,000				5,516				94.3	%
KTF M Hows (Note 3)			510,000				5,969				51.0	%			510,000				6,273				51.0	%
KTR			6,800,000				48,315				100.0	%			6,800,000				54,872				100.0	%
Sidus FNH (Note 4)			2,297,000				17,571				51.0	%			2,297,000				13,490				51.0	%
Sidus FNH Benex Cinema Investment Fund (Note 5)			130				29,892				43.3	%			130				24,243				43.3	%
KT Capital (Note 6)			20,200,000				100,042				100.0	%			20,200,000				103,199				100.0	%
TSC (Note 7)			4,644,376				11,524				93.8	%			5,850,455				26,445				90.1	%
Olive Nine (Note 8)			8,750,000				19,150				19.2	%			9,250,000				14,213				19.5	%
KTF M&S (Note 9)			4,000,000				82,226				100.0	%			4,000,000				33,103				100.0	%
KT FDS			400,000				2,452				100.0	%			400,000				160				100.0	%
KTF Music (formerly, Bluecord Technology Co., Ltd.) (Note 10)			8,326,507				23,579				35.3	%			8,326,507				20,678				35.3	%
Doremi Media (Note 11)			321,211				4,059				64.2	%			321,211				4,054				64.2	%
Nasmedia (Note 12)			—				—				—				1,767,516				26,138				50.0	%
Sofnics (Note 13)			—				—				—				120,000				719				60.0	%
JB Edu (Note 14)			—				—				—				240,000				4,224				54.6	%
KT New Business Fund No. 1 (Note 15)			—				—				—				110				11,230				100.0	%
KTDS (Note 16)			—				—				—				2,400,000				12,527				100.0	%
KTAI			6,000				2,937				100.0	%			6,000				4,236				100.0	%
NTC			5,309,189				156,728				80.0	%			5,309,189				208,736				80.0	%
KTJ			12,856				830				100.0	%			12,856				3,615				100.0	%
KTCC			—				947				100.0	%			—				1,999				100.0	%
PT. KTF Indonesia (Note 17)			198,000				476				99.0	%			198,000				141				99.0	%
Super iMax (Note 18)			—				1				60.0	%			—				10,182				100.0	%
East Telecom (Note 18)			—				20,075				51.0	%			—				30,354				85.0	%
KTSC Investment Management B.V. (Note 18)			108				24				60.0	%			82,614				59,645				60.0	%

(Note 1)		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 53.0% to 54.3% as of December 31, 2008.
(Note 2)		KTC is owned 19.0% by KT and 81.0% by KTH, respectively.
(Note 3)		KTF M Hows is owned 51.0% by KTF.
(Note 4)		Sidus FNH is owned 35.7% by KT and 15.3% by KTF, respectively.
(Note 5)		Sidus FNH Benex Cinema Investment Fund is owned 13.3% by KT, 6.7% by KTF, 3.3% by KTH and 20.0% by Sidus FNH, respectively.
(Note 6)		On December 1, 2006, KTR was spun off into KTR and KT Capital.
(Note 7)		During the year ended December 31, 2008, TSC, which was spun off from the KTL on November 14, 2006, issued new shares and accordingly, KT’s ownership interest in TSC has decreased from 93.8% to 90.1% as of December 31, 2008.

17

(Note 8)		As KT holds rights to appoint the majority of the members of the board of directors of Olive Nine, it is determined that Olive Nine is controlled by KT and included in the consolidated subsidiaries. In addition, KT’s ownership interest in Olive Nine increased from 19.2% to 19.5% at December 31, 2008 according to the conversion of convertible bonds and purchase of additional shares.
(Note 9)		KTF M&S is owned 100.0% by KTF.
(Note 10)		KTF Music (formerly, Bluecord Technology Co., Ltd.) is owned 35.3% by KTF.
(Note 11)		Doremi Media is owned 64.2% by KTF Music (formerly, Bluecord Technology Co., Ltd.).
(Note 12)		During the year ended December 31, 2008, KT obtained 50.0% ownership interest plus one share of Nasmedia for W26,055 million.
(Note 13)		During the year ended December 31, 2008, KT obtained 60.0% ownership interest of Sofnics for W600 million.
(Note 14)		During the year ended December 31, 2008, KT obtained 54.6% ownership interest of JB Edu for W6,000 million.
(Note 15)		During the year ended December 31, 2008, KT and KT Capital obtained 90.9% and 9.1% ownership interests for W10,000 million and W1,000 million, respectively, of KT New Business Fund No. 1, respectively.
(Note 16)		During the year ended December 31, 2008, KT and KTF obtained 80.0% and 20.0% ownership interests for W9,600 million and W2,400 million of KTDS, respectively.
(Note 17)		PT. KTF Indonesia is owned 99.0% by KTF.
(Note 18)		During the year ended December 31, 2008, KT additionally invested in KTSC Investment Management B.V. cash of W15,009 million and in-kind contribution of W15,836 million which consists of the shares of Super iMax and East Telecom totaling W1,321 million and W14,515 million, respectively, together with other stockholder on a proportionate basis. As a result, KTSC Investment Management B.V. obtained 100.0% ownership interest of Super iMax and 85.0% ownership interest of East Telecom, respectively.

18

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

	a.		Basis of Financial Statement Presentation
			KT and its domestic subsidiaries maintain their official accounting records in Korean won and prepare 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 KT and subsidiaries (the “Company”) that conform to financial accounting standards and accounting principles in the Republic of Korea may not conform to generally accepted accounting principles in other countries. Accordingly, these consolidated financial statements are intended for use by those who are informed about Korean accounting principles and practices. The accompanying 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 or cash flows, is not presented in the accompanying consolidated financial statements.
			The accompanying consolidated financial statements were authorized by KT’s management on March 16, 2009.
	b.		Adoption of Statements of Korea Accounting Standards (“SKAS”)
			Through December 31, 2008, Korea Accounting Institute and Financial Supervisory Service have issued and revised various Korea accounting standards and the following is a summary of major changes, which are newly adopted by the Company.

Accounting Standards				Key Requirements
SKAS No. 25		“Consolidated Financial Statements”		l		If negative consolidated capital surplus is incurred, it is first charged to related consolidated capital surplus, and remaining amount is recorded as a consolidated capital adjustment.
Opinion on Application of Accounting Standards 06-2, “Accounting for Recognition of Deferred Tax Related to Investments on a Subsidiary”				l		Temporary differences related to investments in subsidiary, equity method investee or joint venture are not classified by origin but are treated as a lump-sum difference in considering whether to recognize deferred tax assets or liabilities. However, temporary differences arising from certain transactions under SKAS No. 16, such as elimination of inter-company transactions through equity method, shall be separately treated in the same way as they are recognized in the consolidated financial statements.

As a result of the adoption of the accounting standards, the Company’s total assets at the beginning of 2008 and as of December 31, 2008 increased by W3,852 million and W7,933 million, respectively, and net income for the year ended December 31, 2008 increased by W2,196 million, even though there was no impact on the net income for the year ended December 31, 2007.

19

	c.		Cash and Cash Equivalents
			Cash and cash equivalents includes cash, substitute securities including checks issued by others, and checking accounts, ordinary deposits and financial instruments, which can be easily converted into cash and whose value changes due to changes in interest rates are not material, with maturities (or date of redemption) of three months or less upon acquisition.
	d.		Allowance for Doubtful Accounts
			An allowance for doubtful accounts is provided to cover estimated losses on receivables (account receivable—trade, account receivable—other, loans and other), based on collection experience and analysis of the collectability of individual outstanding receivables.
	e.		Inventories
			Inventories, which consist mainly of supplies for telecommunication facilities and PCS handsets for sales, are stated at the acquisition cost, with cost determined using the moving average method, except for goods-in-transit and land for construction for which cost are determined using the specific identification method. During the year, perpetual inventory systems are used to value inventories, which are adjusted to physical inventory counts performed at the end of the year. When the market value of inventories (net realizable value for merchandise and current replacement cost for supplies) is less than the carrying value, carrying value is stated at the lower of cost or market. The lower of cost or market method is applied by group of inventories and loss on inventory valuation is presented as a deductive item from inventories and charged to operating expenses. However, when the circumstances that previously caused inventories to be written down below cost no longer exist and the new market value of inventories subsequently recovers, the valuation loss is reversed to the extent of the original valuation loss and the reversal is deducted from operating expenses.
	f.		Securities (excluding the equity method investment securities)
			Debt and equity securities are initially stated at the market value of consideration given for acquisition (market value of securities acquired if market value of consideration given is not available) plus incidental costs attributable to the acquisition of the securities and are classified into trading, available-for-sale, and held-to-maturity securities depending on the purpose and nature of acquisition. Trading securities are presented as short-term investments while available-for-sale securities and held-to-maturity securities are presented as short-term investments or long-term investment securities depending on their nature in the balance sheet. The moving average method for equity securities and the specific identification method for debt securities are used to determine the cost of securities for the calculation of gain (loss) on disposal of those securities.

	—		Trading securities
			Securities that are bought and held principally for the purpose of selling them in the near term with active and frequent buying and selling, including securities which consist of a portfolio of securities with the clear objective of generating profits on short-term differences in price, are classified as trading securities. Trading securities are recorded at their fair value and unrealized gains or losses from trading securities are recorded as gain (loss) on valuation of trading securities included in non-operating revenues (expenses).
	—		Held-to-maturity securities
			Debt securities that have fixed or determinable payments with a fixed maturity are classified as held-to-maturity securities only if the Company has both the positive intent and ability to hold those securities to maturity. Debt securities, whose maturity dates are due within one year from the balance sheet date, are classified as current assets.

20

			After initial recognition, held-to-maturity securities are stated at amortized cost in the balance sheet. When held-to-maturity securities are measured at amortized costs, the difference between their acquisition cost and face value is amortized using the effective interest rate method and the amortization is included in the cost and interest income.
			When the possibility of not being able to collect the principal and interest of held-to-maturity securities according to the terms of the contracts is highly likely, the difference between the recoverable amount (the present value of expected cash flows using the effective interest rate upon acquisition of the securities) and book value are recorded as loss on impairment of held-to-maturity securities included in non-operating expenses and the held-to-maturity securities are stated at the recoverable amount after impairment loss. If the value of impaired securities subsequently recovers and the recovery can be objectively related to an event occurring after the impairment loss was recognized, the reversal of impairment loss are recorded as reversal of impairment loss on held-to-maturity securities included in non-operating revenues. However, the resulting carrying amount after the reversal of impairment loss shall not exceed the amortized cost that would have been measured, at the date of the reversal, if no impairment loss were recognized.
	—		Available-for-sale securities
			Debt and equity securities that do not fall under the classifications of trading or held-to-maturity securities are categorized and presented as available-for-sale securities included in investment assets. However, if an available-for-sale security matures or it is certain that such security will be disposed of within one year from the balance sheet date, it is classified as a current asset.
			Available-for-sale securities are recorded at fair value. Unrealized gain or loss from available-for-sale securities are presented as gain or loss on valuation of available-for-sale securities included in accumulated other comprehensive income of stockholders’ equity. In addition, accumulated gain or loss on valuation of available-for-sale securities are reflected in either gain or loss on disposal of available-for-sale securities or loss on impairment of available-for-sale securities upon disposal or recognition of impairment of the securities. However, available-for-sale equity securities that are not marketable and whose fair value cannot be reliably measured are recorded at acquisition cost.
			When there is objective evidence that the available-for-sale securities are impaired and the recoverable amount is lower than the cost (amortized cost for debt securities) of the available-for-sale securities, an impairment loss is recognized as loss on impairment of available-for-sale securities of non-operating expenses and the related unrealized gain or loss remaining in stockholders’ equity is adjusted to the impairment loss. If the value of impaired securities subsequently recovers and the recovery can be objectively related to an event occurring after the impairment loss was recognized, the reversal of impairment loss can be recognized up to the previously recorded impairment loss as a reversal of loss on impairment of available-for-sale securities included in non-operating revenues. However, if the fair value increases after the impairment loss is recognized but does not relate to the recovery of impairment loss as described above, the increase in fair value is recorded in stockholders’ equity.
	—		Reclassification of securities
			Trading securities should not be reclassified to other categories of securities. However, when those securities can no longer be held for sale in the near-term to generate profits from short-term price differences, the trading securities can be reclassified as available-for-sale or held-to-maturity securities. When those securities are no longer traded in an active market, such securities are reclassified as available-for-sale securities.
			When trading securities are reclassified to other categories, the fair value (latest market value) as of the date of the reclassification becomes new acquisition cost of the security and the security’s unrealized holding gain or loss through the date of the reclassification should be recorded in non-operating revenues or expenses.

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	g.		Equity Method Investment Securities
			Investments in equity securities of companies, over which the Company exercises significant influence, are reported using the equity method of accounting.

	—		Accounting for changes in the equity of the investee
			Under the equity method of accounting, the Company records changes in its proportionate equity of the net assets of the investee depending on the nature of the underlying changes in the investee as follows; (i) “equity in income (loss) of associates” in the non-operating revenues (expense) for net income (loss) of the investee; (ii) “increase (decrease) in retained earnings of associates” in the retained earnings for changes in beginning retained earnings of the investee; (iii) “increase (decrease) in equity of associates” in the accumulated other comprehensive income (loss) for other changes in stockholders’ equity of the investee.
			When the equity method investee’s unappropriated retained earnings carried over from prior period changes due to significant error corrections, the Company records the changes in equity as “equity in income (loss) of associates” included in the non-operating revenues (expenses) unless the impact of the changes on the Company’s consolidated financial statements is significant. If the changes results from the changes in accounting policies of the equity method investee, they are reflected in the unappropriated retained earnings carried over from prior period in accordance with SKAS on changes in accounting policy and errors corrections. When the investee declares cash dividends, the dividends to be received are deducted directly from equity method investment securities.
	—		Treatment of investment difference
			Difference between the acquisition cost and the Company’s proportionate equity in the fair value of net assets of the investee upon acquisition (“Investment difference”) are considered as (negative) goodwill and accounted for in accordance with accounting standards for business combination. The goodwill portion which is amortized over useful lives (4~10 years) on a straight line method and the negative goodwill portion which is amortized over the weighted average useful lives of depreciable non-monetary assets of the investee are included in “equity in income (loss) of associates”.
			When the Company’s equity interest in the investee increases due to an increase (or decrease) in contributed capital with (or without) consideration, the changes in the Company’s proportionate equity in the investee is accounted for as investment difference. If the Company’s equity interest decreases, the changes are accounted for as “gain (loss) on disposal of the equity method investment securities”.
	—		Difference between the fair value and book value of net assets of the investee
			Upon acquisition of the equity method investment securities, the Company’s proportionate shares in the differences between the fair values and book values of the identifiable assets and liabilities of the investee are amortized/reversed and included in “equity in income (loss) of associates” in accordance with the investee’s methods of accounting for the assets and liabilities.
	—		Elimination of unrealized gain or loss from intercompany transactions
			The Company’s proportionate share in the gain (loss) arising from transactions between the Company and the investee, which remains in the book value of assets held as of balance sheet date is considered unrealized gain (loss) and adjusted to equity method investment securities.

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	—		Impairment loss on equity method investment securities
			When there is objective evidence that the equity method investment securities are impaired and the recoverable amount is lower than the carrying amount of the equity method investment securities, an impairment loss is recognized as “loss on impairment of equity method investment securities” included in non-operating expenses and shall first reduce the unamortized investment difference, if any. When the recoverable amount is recovered after the recognition of impairment loss, the reversal of impairment loss can be recognized as income up to the previously recorded impairment loss. The book value of the equity method investment securities after the reversal of the impairment loss cannot exceed the book value calculated as if the impairment loss had not been originally recognized. The reversal of the impairment loss recognized against the unamortized investment difference is not allowed.
	—		Translation of financial statements of overseas investees
			For overseas investees whose financial statements are prepared in foreign currencies, the equity method of accounting is applied after assets and liabilities are translated in accordance with the accounting treatments for the translation of the financial statements of overseas’ subsidiaries for consolidated financial statements. The Company’s proportionate share of the difference between assets net of liabilities and stockholders’ equity after translation into Korean won is accounted for as “increase (decrease) in equity of associates” included in the accumulated other comprehensive income (loss).

	h.		Property and Equipment
			Property and equipment are stated at cost (acquisition cost or manufacturing cost plus expenditures directly related to preparing the asset ready for use), except for those contributed by the government and stated at amounts revalued on January 1, 1982, and assets acquired from investment in kind, by donation or free of charge in other ways are stated at fair value as an acquisition cost. Expenditures after acquisition or completion that increase future economic benefit in excess of the most recently assessed capability level of the asset are capitalized; other expenditures are charged to expense as incurred. Borrowing costs in relation to the manufacture, purchase, construction or development of assets are charged to current operations.
			Depreciation is computed by the declining-balance method (except for buildings, structures, underground access to cable tunnels, and concrete and steel telephone poles that are depreciated using the straight-line method) based on the following useful lives of the related units of property and equipment and the accumulated depreciation and impairment are directly deducted from the related assets.

		Useful lives (years)
Buildings		5-60
Structures		5-40
Machinery and equipment:
Underground access to cable tunnels, and concrete and steel telephone poles		20-40
Machinery		3-15
Other		6-15
Vehicles		3-10
Tools, furniture and fixtures		2-20

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			When the expected future cash flow from use or disposal of the property and equipment is lower than the carrying amount due to obsolescence, physical damage and other, the carrying amount is adjusted to the recoverable amount (the higher of net sales price or value in use) and the difference is recognized as an impairment loss. The Company recorded loss on impairment of property and equipment totaling W7,990 million and W20,676 million for the years ended December 31, 2007 and 2008, respectively. Meanwhile, when the recoverable amount subsequently exceeds the carrying amount of the impaired asset, the excess is recorded as a reversal of impairment loss to the extent that the reversed asset does not exceed the carrying amount before previous impairment as adjusted by depreciation. There was no reversal of impairment loss for the years ended December 31, 2007 and 2008.
	i.		Intangible Assets
			Intangible assets are initially recognized at acquisition cost (purchase cost plus expenditures directly related to preparing the asset ready for use) and subsequently presented at amortized cost using the straight-line method, with amortization beginning when the asset is available for use. Meanwhile, rights to utilize buildings and facilities and copyrights are amortized over 30 or 50 years since the Company has contractual or lawful exclusive rights to them.
			Intangible assets are amortized based on the following useful lives:

		Useful lives (years)
Research and development cost		2-6
Goodwill and negative goodwill		4-10
Software		3-6
Industrial rights		5-10
Frequency usage rights		5.75 from the date of service commencement or 13
Other intangible assets		10-50

Research related costs are generally expensed as operating expenses. Development costs which meet certain requirements and from which future economic benefit is certain are capitalized as intangible assets and the amortization over the estimated useful lives is recorded as operating expenses. Development costs associated with new telecommunication businesses such as Integrated Customer Information System (ICIS) and Broadband Integrated Services Digital Network (B-ISDN) and software such as Integrated Logistics Information System, Information Superhighway and Enterprise Resource Planning (ERP) are accounted for as intangible assets.

The Company was elected as a WiBro business provider on January 20, 2005 and paid W125,800 million to the Korea Communications Commission (the “KCC”) in exchange for the usage right to frequency range of 2331.5~2358.5 Mhz obtained on March 30, 2005. The rights have a contractual life of 7 years from the grant date and are amortized over the remaining contractual life commencing from June 30, 2006 when commercial service was initiated.

On December 15, 2000, KTF acquired the license to provide third generation mobile services utilizing 2GHz frequency band (“IMT-2000 service”) for which a total payment of W1,300 billion is to be paid to KCC as a license fee. KTF paid W650 billion out of the total license fee on March 20, 2001 and the remaining balance of W650 billion is required to be paid including interest for five years from 2007 to 2011 of which W90 billion and W110 billion was paid in 2007 and 2008, respectively.

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Future payment schedule of the license fees as of December 31, 2008 is as follows (in millions of Korean won):

Year ending December 31,
2009			W	130,000
2010				150,000
2011				170,000
Total			W	450,000

			The Company tests for impairment of intangible assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the recoverable amount of the assets. When the recoverable amount (the higher of net sales price or value in use) of intangible assets is significantly lower than the carrying amount due to obsolescence, and other, the difference is recognized as an impairment loss. When the recoverable amount subsequently exceeds the carrying amount of the impaired asset, the excess is recorded as a reversal of impairment loss to the extent that the reversed asset does not exceed the carrying amount before the previous impairment as adjusted for amortization. The Company recorded loss on impairment of intangible assets totaling W9,178 million and W17,435 million for the years ended December 31, 2007 and 2008, respectively. There was no reversal of impairment loss for the years ended December 31, 2007 and 2008.
			Goodwill, which represents the excess of the acquisition cost over the fair value of net identifiable assets acquired related to entities that are being consolidated, is amortized on a straight-line basis over a reasonable period. However, if the recoverable amount is significantly lower than the book value, an impairment loss on goodwill is charged against current earnings. Negative goodwill, which represents the excess of the fair value of net identifiable assets acquired over the acquisition cost, is recorded as a contra account (reduction) to intangible assets. For the years ended December 31, 2007 and 2008, the amortization of goodwill of W138,405 million and W145,154 million is included in operating expenses and the reversal of negative goodwill of W518 million and W65 million is included in non-operating revenues.
	j.		Government Subsidies and Others
			Government subsidies and contributions for construction granted for the purpose of acquisition of certain assets are recorded as a deduction from the assets granted or other assets acquired for the temporary use of the assets granted. When the related assets are acquired, they are recorded as a deduction from the acquired assets and offset against the depreciation of the acquired assets over their useful lives. In addition, government subsidies and contributions for construction without any repayment obligation is offset against the related expenses for which they are intended to compensate, however, if there is no matching expense, they are recorded as operating or non-operating revenue depending on whether they are directly related to the Company’s principal operating activities. Government subsidies and contributions for construction with a repayment obligation are recorded as a liability.
	k.		Present Value Discount for Assets and Liabilities
			Receivables or payables from long-term installment transactions, long-term loans/borrowings or the other similar transactions are stated at present value which is determined by discounting total amounts receivable or payable in the future using the effective interest rate, if the nominal value is significantly different from the present value. The discount or premium resulting from the determination of present value should be reported in the balance sheet as a direct deduction from or addition to the nominal value of the related receivables or payables and the amortization by the effective interest rate method is included in the period income (loss).

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	l.		Translation of Assets and Liabilities Denominated in Foreign Currency
			Transactions denominated in foreign currencies are recorded in Korean won translated at the exchange rate prevailing on the transaction date and the resulting gain (loss) from foreign currency transactions is included in non-operating revenues (expenses). Monetary assets and liabilities denominated in foreign currency are translated into Korean won at the Base Rates announced by Seoul Money Brokerage Services, Ltd. on the balance sheet dates, which were, for US dollars, W938.2: USD 1 and W1,257.5: USD 1 at December 31, 2007 and 2008, respectively, and the resulting gain (loss) from foreign currency translation is included in non-operating revenues (expenses).

	m.		Convertible and Exchangeable Bonds
			The proceeds from issuance of convertible bonds are allocated between the conversion right and the debt issued. When additional amount is paid upon maturity to guarantee certain yield rate, the redemption premium is recognized as an addition to the convertible bonds and the conversion right, which represents the difference between the issue price of the convertible bonds and the present value of normal bonds, is accounted for as capital surplus. The redemption premium, the conversion right and the expenses incurred for the issuance of the bonds are adjusted to the bonds and amortized to interest expense using the effective interest rate method over the redemption period of the convertible bonds.

	n.		Provisions for Severance Indemnities
			In accordance with KT and its domestic subsidiaries’ policies, all employees with more than one year of service are entitled to receive lump-sum severance payments upon termination of their employment, based on their current rates of salary and length of service. The accrual for severance indemnities is computed as if all employees were to terminate at the balance sheet dates and amounted to W1,566,313 million and W1,708,640 million for the years ended December 31, 2007 and 2008, respectively.
			The Company has insured a portion of its obligations for severance indemnities by making deposits, that will be directly paid to employees, with Samsung Life Insurance and other and records them as deposits for severance insurance deposits which is directly deducted from the accrued severance indemnities.

	o.		Provisions
			The Company recognizes a provision for a liability with uncertain timing or amount when (1) there is a present obligation of the Company arising from past events, (2) it is highly likely that an outflow of resources will be required to settle the obligation, and (3) the amount for the settlement of the obligation can be reliably measured.
			If there is a significant difference between the nominal value and present value of such provision, the provision is stated at the present value of the expenditures expected to be required to settle the obligation.

	p.		Derivative Instruments
			The Company records rights and obligations arising from derivative instruments in assets and liabilities, which are stated at fair value. Gains and losses that result from the changes in the fair value of derivative instruments are recognized in current earnings. However, for derivative instruments that cash flow hedge accounting applies to, the effective portion of the gain or loss on the derivatives instruments are recorded as gain (loss) on valuation of derivatives included in the accumulated other comprehensive income (loss).

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	q.		Share-based Payment
			The Company’s share-based payment transactions are accounted for in accordance with SKAS No.22 “Share-based Payment” which is effective from fiscal year beginning on or after December 31, 2007. As allowed in the transition clause of SKAS No. 22, for employee stock options granted before January 1, 2008, the Company accounts for them in accordance with Interpretation No. 39-35 “Accounting for Stock Options”.

	(i)		Stock Options
			The Company has granted stock options to its executive officers and directors prior to January 1, 2008, and for equity-settled stock options, the Company records compensation expenses which are allocated over the period in which the options vest with the corresponding credit to the capital adjustments. When the options are exercised with the issuance of new shares, the difference between the exercise price plus the stock option cost recorded in the capital adjustments account and the par value of the new shares issued, is recorded as additional paid-in capital. In the event the Company grants stock options based on cash-settled share-based payment, the Company records compensation expenses which are allocated over the period in which the options vest with the corresponding liability recorded.
			When stock options are forfeited because the specified vesting requirements are not satisfied, previously recognized compensation costs are reversed to earnings and the corresponding capital adjustments or liabilities are reversed as well. When stock options expire unexercised, previously recognized compensation costs and corresponding capital adjustments are reversed to capital surplus.

	(ii)		Other Share-based Payment
			Other share-based payments granted on or after January 1, 2007 are measured as below:
			For equity-settled share-based payment transactions, the Company measures the goods or services received, and the corresponding increase in equity (capital adjustments), directly, at the fair value of the goods or services received, unless that fair value cannot be estimated reliably. If the entity cannot estimate reliably the fair value of the goods or services received, the Company measures the value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted.
			For cash-settled share-based payment transactions, the Company measures the goods or services acquired and the liability incurred at the fair value of the liability. Until the liability is settled, the Company re-measures the fair value of the liability at each reporting date and at the date of settlement, with any changes in value recognized in profit or loss for the period.
			For share-based payment transactions in which the terms of the arrangement provide either the Company or the supplier of goods or services with a choice of whether the Company settles the transaction in cash or by issuing equity instruments, the Company is required to account for that transaction, or the components of that transaction, as a cash-settled share-based payment transaction if, and to the extent that, the Company has incurred a liability to settle in cash (or other assets), or as an equity-settled share-based payment transaction if, and to the extent that, no such liability has been incurred.

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	r.		Accounting for Leases
			A lease is classified as a finance lease or an operating lease depending on the extent of transfer to the Company of the risks and rewards incidental to ownership. If a lease meets any one of the following criteria, it is accounted for as a finance lease:

The lease transfers ownership of the asset to the lessee by the end of the lease term;

The lessee has the option to purchase the asset at a bargain price and it is certain that the option will be exercised;

The lease term is for the major part (75% or more) of the economic life of the asset even if title is not transferred;

At the date of lease commencement the present value of the minimum lease payments amounts to at least substantially all (90% or more) of the fair value of the leased asset; or

The leased assets are of such a specialized nature that only the Company can use them without major modifications.

All other leases are treated as operating leases.

	(i)		Lessees
			For operating leases, lease payments excluding guaranteed residual value are recognized as an expense on a straight-line basis over the lease term and contingent rent is expensed as incurred. Finance leases are recognized as assets and liabilities at the lower of fair value of the leased property or the present value of the minimum lease payments discounted using the implicit interest rate of the lessor (or the Company’s incremental borrowing rate if the implicit interest rate is not practicable to determine). Any initial direct costs incurred by the Company are added to the amount recognized as an asset. The depreciation policy for depreciable leased assets is consistent with that for the similar depreciable assets that are owned by the Company. Annual minimum lease payments excluding guaranteed residual value is allocated to interest expense, which is calculated using the effective interest rate, and finance lease repayment amount. Contingent rent relating to finance are charged as expenses in the periods in which they are incurred, however, if the amount is material it is allocated to principal and interest, respectively, over the remaining lease term.

	(ii)		Lessors
			For operating leases, lease payments on a lease contract are recognized as other revenues on a straight-line basis over the lease term. For finance leases, lessors are required to present finance lease assets as receivables in balance sheets, at an amount equal to the fair value of the leased property at the inception of lease and required to recognize the lease payments received as repayment of the finance lease receivables and interest income.

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	s.		Revenue Recognition
			The Company’s service revenues, which include revenues derived from telephone services, internet services and data services, are recognized on a service-rendered basis. In connection with such services, KCC and other government entities have extensive authority to regulate the Company’s fees. Rates for local call, interconnection and broadband internet access services provided by the Company should be approved by KCC. As for other telecommunication services, the related rates are just required to be reported to KCC.
			The Company recognizes sales on PCS handsets when these are delivered to the dealers. In addition, the Company’s construction revenue is recognized by reference to the percentage of completion of the contract which is calculated by the ratio of the actual contract costs incurred to date to the estimated total contract costs. As for subscribed construction-type contracts, the Company recognizes revenue using the percentage-of-completion method only for the subscribed portion.
			Meanwhile, the Company recognizes sales revenues on a gross basis when the Company is the primary obligor in the transactions with customers and if the Company merely acts as an agent for the buyer or seller from whom it earns a commission, then the sales revenues are recognized on a net basis.
			Total consideration for combined services is allocated to each service in proportion to its fair value and the allocated amount is recognized as revenue according to revenue recognition policy for the service.

	t.		Income Taxes
			When the Company recognizes deferred income tax assets or liabilities for the temporary differences between the carrying amount of an asset and liability and tax base, a deferred income tax liability for taxable temporary difference is fully recognized except to the extent in accordance with income tax related SKAS while a deferred tax asset for deductible temporary difference is recognized to the extent that it is almost certain that taxable profit will be available against which the deductible temporary difference can be utilized. Deferred income tax asset (liability) is classified as current or non-current asset (liability) depending on the classification of related asset (liability) in the balance sheet. Deferred income tax asset (liability) which does not relate to specific asset (liability) account in the balance sheet such as deferred income tax asset recognized for tax loss carryforwards is classified as current or non-current asset (liability) depending on the expected reversal period. Deferred income tax assets and liabilities in the same tax jurisdiction and in the same current or non-current classification are presented on a net basis. Current and deferred income tax expense are included in income tax expense in the statement of operations and additional income taxes or tax refunds for the prior periods are included in income tax expense for the current period when recognized. However, income taxes resulting from transactions or events, which were directly recognized in stockholders’ equity in current or prior periods, or business combinations are directly adjusted to equity account or goodwill (or negative goodwill).

	u.		Use of Estimates
			The Company’s management uses reasonable estimates and assumptions in preparing the accompanying non-consolidated financial statements in accordance with accounting principles generally accepted in the Republic of Korea. The estimates and assumptions can change according to additional experience, changes in circumstances, new information and other and may be different from actual results.

	v.		Elimination of Inter-Company Unrealized Gain/Loss
			Unrealized gains and losses included in the inventories, property and equipment and other which were acquired by transactions amongst KT and subsidiaries are fully eliminated using the gross margin ratio of the transactions and the gains and losses on disposal.

29

	w.		Translation of Overseas Subsidiaries’ Financial Statements
			For overseas subsidiaries whose financial statements are prepared in foreign currencies, assets and liabilities are translated at the exchange rate at the consolidated balance sheet date and statement of income items are translated at the average exchange rate for the respective fiscal period. Net translation adjustments are recorded as gain (loss) on translation of foreign operations included in the accumulated other comprehensive income.

	x.		Changes in Consolidated Entities
			For the year ended December 31, 2008, Nasmedia, Sofnics, JB Edu, KT New Business Fund No.1 and KTDS are newly acquired in 2008 and included in the consolidation.

	y.		Reclassifications of Prior Year Financial Statements
			Certain reclassifications have been made in prior year financial statements to conform to classifications used in the current period. Such reclassifications did not have an effect on the net assets and net income of the Company as of and for the year ended December 31, 2007.

3. RESTRICTED DEPOSITS

Details of restricted deposits as of December 31, 2007 and 2008 are as follows (in millions of Korean won):

				2007				2008				Description
Short-term investment assets		Time deposits		W	1,904			W	24,687			Guarantee deposits and others
Long-term financial instruments		Checking account deposit			61				44			Checking account deposit and others
Total				W	1,965			W	24,731

4. INVENTORIES

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

		2007												2008
						Lower of cost or				Valuation								Lower of cost or				Valuation
		Cost				market value				allowance				Cost				market value				allowance
Merchandise		W	284,313			W	250,028				(W34,285	)		W	413,448			W	386,595				(W26,853	)
Supplies			35,169				30,538				(4,631	)			27,008				25,547				(1,461	)
Other			18,538				18,538				—				12,699				12,699				—
		W	338,020			W	299,104				(W38,916	)		W	453,155			W	424,841				(W28,314	)

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5. LOANS

Loans as of December 31, 2007 and 2008 are summarized as follows (in millions of Korean won):

a. Loans

		2007				2008
Factoring receivables		W	5,459			W	9,074
Allowance for doubtful accounts			(27	)			(63	)
Loans			173,840				256,010
Deferred incidental expense (revenue) of loans			(95	)			(88	)
Allowance for doubtful accounts			(1,157	)			(2,773	)
Accounts receivable—loans			315				994
Allowance for doubtful accounts			(2	)			(12	)
Loans for installment credit			37,408				29,891
Deferred incidental expense (revenue) of loans			(10	)			(10	)
Allowance for doubtful accounts			(1,472	)			(1,285	)
Accounts receivable—loans for installment credit			1,915				1,155
Allowance for doubtful accounts			(229	)			(9	)
Total — loans		W	218,832			W	297,026
Total — allowance for doubtful accounts			(W2,887	)			(W4,142	)

b. Long-term loans

		2007				2008
Factoring receivables		W	6,463			W	2,770
Allowance for doubtful accounts			(32	)			(19	)
Loans			89,818				207,647
Deferred incidental expense (revenue) of loans			(543	)			(2,876	)
Allowance for doubtful accounts			(592	)			(4,760	)
Loans for installment credit			50,489				49,936
Deferred incidental expense (revenue) of loans			768				334
Allowance for doubtful accounts			(2,199	)			(2,493	)
New technology financial investment assets			2,000				1,000
Allowance for doubtful accounts			(205	)			(400	)
New technology financial loans			—				2,368
Allowance for doubtful accounts			—				(62	)
Total — long-term loans		W	148,995			W	261,179
Total — allowance for doubtful accounts			(W3,028	)			(W7,734	)

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6. SECURITIES

Securities as of December 31, 2007 and 2008 are summarized as follows (in millions of Korean won):

a. Short-term investment assets

		2007				2008
Short-term financial instruments		W	305,540			W	243,649
Short-term loans to employee			104,057				43,456
Beneficiary certificates			46,085				39,696
Available-for-sale securities (Equity securities)			3,064				82,071
Available-for-sale securities (Debt securities)			1,419				2,171
Held-to-maturity securities			5				6,095
Total		W	460,170			W	417,138

b. Available-for-sale securities

i) Equity securities

		2007
		Percentage of				Acquisition				Fair value or net				Book				Unrealized gains
		ownership (%)				cost				book value				value				(losses) (Note 1)
Current assets:
Beneficiary certificates						W	563			W	973			W	973			W	410
Infravalley, lnc.			3.8	%			200				2,091				2,091				1,891
Sub total							763				3,064				3,064				2,301
Non-current assets:
Krtnet Corp.			7.4	%			1,954				4,122				4,122				2,168
GaeaSoft Corp.			2.0	%			533				756				756				223
Zakang, Inc.			0.0	%			300				5				5				(295	)
Geotel Corp.			7.8	%			1,143				4,322				4,322				3,179
PT.Mobile-8			2.3	%			10,069				10,508				10,508				439
Solid Technologies, Inc.			4.7	%			590				4,120				4,120				3,530
EST Soft Corp.			14.2	%			1,650				5,062				5,062				3,412
Ongamenet Co., Ltd.			11.4	%			1,061				4,831				4,831				3,645
Cape Industries Ltd.			0.1	%			125				226				226				101
Bixolon Co., Ltd.			0.0	%			11				9				9				(2	)
Sesil Corporation.			0.4	%			199				225				225				26
Zmos Technology, Inc. (Note 2)			8.6	%			1,872				506				1,872				—
Shinhan Venture Capital Co., Ltd. (Note 2)			0.0	%			1,800				900				900				—
Korea Information Certificate Authority, Inc. (Note 2)			9.3	%			2,000				1,891				2,000				—
KM Credit Information, Inc.(Note 2)			6.4	%			1,202				—				—				—
Korea Software Financial Cooperative (“KSFC”) (Note 2)			1.1	%			1,160				1,315				1,160				—
Digitalinside Co., Ltd. (Note 2)			10.2	%			499				766				499				—
Vacom Wireless, Inc. (Note 2)			16.8	%			1,880				1,122				641				—
CXP, Inc. (Note 2)			12.1	%			1,200				8				50				—
CEC Mobile (Note 2)			16.7	%			4,456				—				—				—
Korea Smart Card Co., Ltd. (Note 2)			0.7	%			326				90				24				—

32

		2007
		Percentage of				Acquisition				Fair value or net				Book				Unrealized gains
		ownership (%)				cost				book value				value				(losses) (Note 1)
Metrix Corporation, Inc. (Note 2)			2.0	%			200				25				14				—
Wiz Communication Co., Ltd. (Note 2)			18.4	%			490				823				490				—
MIC2001-4TG Venture (Note 2)			5.0	%			350				350				350				—
Korea Telecommunications Operators Association (“KTOA”) (Note 2)			9.9	%			689				689				689				—
Prime Venture Capital Corp. (Note 2)			2.7	%			1,000				194				—				—
DirectMedia Co., Ltd. (Note 2)			12.5	%			435				309				248				—
Ncerti Co., Ltd. (Note 2)			19.9	%			328				407				328				—
ICO Global Communication Ltd. (Note 2)			0.2	%			617				—				—				—
Softbank Korea Co., Ltd. (Note 2)			6.7	%			1,406				959				959				—
Binext CT Financial Cooperative (Note 2)			15.0	%			1,500				1,454				1,500				—
Entaz Co., Ltd. (Note 2)			10.1	%			1,000				828				1,000				—
Luxpia Co., Ltd. (Note 2)			6.0	%			1,000				1,000				1,000				—
Paramount Music Co., Ltd. (Note 2)			48.9	%			1,000				368				1,000				—
Neighbor Systems Co., Ltd. (Note 2)			10.4	%			525				451				525				—
Digital Multimedia Interactive Co., Ltd. (Note 2)			8.0	%			495				229				495				—
Beneficiary certificates							14,730				14,325				14,325				(405	)
Others (Note 2)							30,743				13,524				15,299				—
Sub total							90,538				76,719				79,554				16,021
Total						W	91,301			W	79,783			W	82,618			W	18,322

		2008
		Percentage of				Acquisition				Fair value or net				Book				Unrealized gains
		ownership (%)				cost				book value				value				(losses) (Note 1)
Current assets:
Beneficiary certificates						W	82,000			W	82,071			W	82,071			W	71
Non-current assets:
Krtnet Corp.			7.4	%			1,954				1,832				1,832				(122	)
GaeaSoft Corp.			2.0	%			533				282				282				(251	)
Zakang Inc.			0.0	%			300				1				1				(299	)
PT.Mobile-8			2.3	%			10,069				2,322				2,322				(7,747	)
Solid Technologies, Inc.			4.7	%			590				1,602				1,602				1,012
EST Soft Corp.			14.2	%			1,650				4,435				4,435				2,785
Ongamenet Co., Ltd.			11.4	%			1,186				4,474				4,474				3,288
Bixolon Co., Ltd.			0.0	%			11				7				7				(4	)
Sesil Corporation.			0.2	%			199				137				137				(62	)
Dalsvyaz Primorye			0.3	%			688				3				3				(685	)
Zmos Technology, Inc. (Note 2)			9.9	%			1,872				—				—				—
Shinhan Venture Capital Co., Ltd. (Note 2)			0.0	%			1,800				900				900				—
Korea Information Certificate Authority, Inc. (Note 2)			9.3	%			2,000				2,242				2,000				—
KM Credit Information, Inc.(Note 2)			2.1	%			1,202				—				—				—
Korea Software Financial Cooperative (“KSFC”) (Note 2)			0.9	%			1,000				1,229				1,000				—
Digitalinside Co., Ltd. (Note 2)			7.2	%			499				—				—				—
Vacom Wireless, Inc. (Note 2)			16.8	%			1,880				1,516				641				—
CXP, Inc. (Note 2)			12.1	%			1,200				1				50				—
CEC Mobile (Note 2)			16.7	%			4,456				—				—				—
Wiz Communication Co., Ltd. (Note 2)			7.5	%			200				609				200				—
Korea Telecommunications Operators Association (“KTOA”) (Note 2)			0.0	%			689				689				689				—

33

		2008
		Percentage of				Acquisition				Fair value or net				Book				Unrealized gains
		ownership (%)				cost				book value				value				(losses) (Note 1)
Prime Venture Capital Corp. (Note 2)			2.7	%			1,000				186				—				—
ICO Global Communication Ltd. (Note 2)			0.2	%			617				—				—				—
Softbank Korea Co., Ltd. (Note 2)			6.7	%			1,406				959				959				—
Binext CT Financial Cooperative (Note 2)			15.0	%			1,500				1,409				1,500				—
Entaz Co., Ltd. (Note 2)			8.7	%			1,000				919				1,000				—
Luxpia Co., Ltd. (Note 2)			6.0	%			1,000				1,000				1,000				—
Neighbor Systems Co., Ltd. (Note 2)			10.4	%			525				453				525				—
Beneficiary certificates							12,431				11,815				11,815				(616	)
Others (Note 2)							50,097				28,267				32,543				—
Sub total							103,554				67,289				69,917				(2,701	)
Total						W	185,554			W	149,360			W	151,988				(W2,630	)

(Note 1)		The amounts are not adjusted for the tax effects and minority interests in consolidated subsidiaries.
(Note 2)		Investments in equity securities above, which are recorded at book value of W31,043 million and W43,007 million for the years ended December 31, 2007 and 2008, respectively, do not have readily determinable fair values and therefore are stated at cost. In addition, if the estimated recoverable amount of the securities below their acquisition cost and such difference is not deemed recoverable, write-downs of the individual securities are recorded to reduce the carrying value.

For the year ended December 31, 2008, the Company disposed of its investments in Geotel Corp. and other investments and recognized gross gains and losses on disposal of available-for-sale securities amounting to W3,996 million and W250 million, respectively. As the estimated recoverable amount of the investment in Zmos Technology, Inc., Digitalinside Co., Ltd. and other investments fell below the acquisition cost and such difference is not deemed recoverable, the Company recognized an impairment loss amounting to W3,826 million for the year ended December 31, 2008.

ii) Debt securities

				2007
						Amortized				Fair				Unrealized gains
				Maturity		cost				value				(losses) (Note)
Current assets:
Government and public bonds		National and local governments		2008		W	929			W	929			W	—
Convertible bonds		DreamWiz, Inc.		2008			490				490				—
Sub total							1,419				1,419				—
Non-current assets:
Government and public bonds		National and local governments		2009~2013			208				208				—
Convertible bonds		Borazon Co., Ltd.		2009			600				600				—
		Neurons, lnc.		2009			650				650				—
		ImageClick Corporation.		2009			400				400				—
Bonds with warrant		Nexscien Co., Ltd.		2010			1,940				1,940				—
Sub total							3,798				3,798				—
Total						W	5,217			W	5,217			W	—

34

				2007
						Amortized				Fair				Unrealized gains
				Maturity		cost				value				(losses) (Note)
Current assets:
Government and public bonds		National and local governments		2009		W	121			W	121			W	—
Financial bonds of small and medium enterprise		Industrial Bank of Korea		2009			1,000				1,000				—
Convertible bonds		Neurons, lnc.		2009			650				650				—
		ImageClick Corporation.		2009			400				400				—
Sub total							2,171				2,171				—
Non-current assets:
Government and public bonds		National and local governments		2010~2019			115				115				—
Convertible bonds		Lifecord international Co., Ltd.		2011			2,800				2,800				—
		Foosung Co., Ltd.		2011			2,000				1,820				(180	)
Bonds with warrant		Samyoung connect Co., Ltd.		2010			92				92				—
Sub total							5,007				4,827				(180	)
Total						W	7,178			W	6,998				(W180	)

(Note) The amounts are not adjusted for the tax effects and minority interests in consolidated subsidiaries.

iii) Changes in Unrealized Gains (Losses)

		2007								2008
		Equity securities				Debt securities				Equity securities				Debt securities
Balance at beginning of period		W	15,449			W	519			W	18,322			W	—
Realized gains on disposal of securities, net			(1,074	)			(519	)			(5,587	)			—
Changes in unrealized gains (losses), net			3,947				—				(15,365	)			(180	)
Balance at end of period		W	18,322			W	—				(W2,630	)			(W180	)

The amounts are not adjusted for the tax effects and minority interests in consolidated subsidiaries.

d. Held-to-maturity Securities

				2007
						Amortized				Book
				Maturity		cost				value
Current assets:
Government and public bonds		National and local governments		2008		W	5			W	5
Sub total							5				5
Non-current assets:
Government and public bonds		National and local governments		2009~2012			84				84
Subordinated bonds		Shinhan Bank		2009			100				100
Asset backed securities		DCIF 1 Co., Ltd.		2009			60				60
Sub total							244				244
Total						W	249			W	249

35

				2007
						Amortized				Book
				Maturity		cost				value
Current assets:
Government and public bonds		National and local governments		2009		W	9			W	9
Commercial paper		IBK Capital Corporation		2009			1,030				1,030
		Lotte Engineering & Construction Co., Ltd.		2009			4,956				4,956
Subordinated bonds		Shinhan Bank		2009			100				100
Sub total							6,095				6,095
Non-current assets:
Government and public bonds		National and local governments		2011			77				77
Asset backed securities		New Generation Securitization Specialty Co., Ltd.		2010~2014			8,000				8,000
Sub total							8,077				8,077
Total						W	14,172			W	14,172

7. EQUITY METHOD INVESTMENT SECURITIES

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

a. Details of Equity Method Investment Securities

		2007
						Percentage
		Number of				of ownership				Acquisition				Equity in net								Market
		shares				(%)				cost				asset value				Book value				value
Korea Telephone Directory Co., Ltd. (“KTD”)			1,360,000				34.0	%		W	6,800			W	8,085			W	8,085			W	—
Korea Information Technology Fund			100				33.3	%			100,000				110,826				110,826				—
KBSi Co., Ltd.			952,000				32.4	%			4,760				3,408				3,408				—
eNtoB Corp.			880,000				27.5	%			5,000				6,725				7,039				—
Korea Digital Satellite Broadcasting Co., Ltd. (“KDB”)			22,706,000				23.0	%			195,976				3,036				24,892				—
Sky Life Contents Fund			45				22.5	%			4,500				4,997				4,997				—
Kiwoom Investment Co., Ltd.(formerly, “Korea IT Venture Partners Inc.”)			1,800,000				20.2	%			9,000				7,147				7,147				—
Goodmorning F Co., Ltd. (Note 3)			114,000				19.0	%			254				1,151				1,151				—
CURD (formerly, “Korea New Realty Development and Construction Co., Ltd.”) (Note 3)			266,000				19.0	%			506				3,788				3,788				—
Korea Information Data Corp. (“KID”) (Note 3)			760,000				19.0	%			3,800				13,541				13,541				—
Korea Information Service Corp. (“KIS”) (Note 3)			570,000				19.0	%			2,850				10,792				10,792				—
Korea Seoul Contact all Co., Ltd. (Note 3)			45,600				19.0	%			228				271				271				—
Korea Service and Communication Co., Ltd. (Note 3)			45,600				19.0	%			228				274				274				—
Korea Call Center Co., Ltd. (Note 3)			45,600				19.0	%			228				266				266				—
TMWorld Co., Ltd. (Note 3)			45,600				19.0	%			228				294				294				—
Ubiquitous Marketing Service and Communication Co., Ltd. (“UMS&C”) (Note 3)			45,600				19.0	%			228				275				275				—

36

		2007
						Percentage
		Number of				of ownership				Acquisition				Equity in net								Market
		shares				(%)				cost				asset value				Book value				value
Exdell Corporation (Note 3)			38,000				19.0	%			190				177				177				—
Information Technology Service Bukbu Corporation (Note 3)			38,000				19.0	%			190				190				190				—
Information Technology Solution Nambu Corporation (Note 3)			38,000				19.0	%			190				190				190				—
Information Technology Solution Seobu Corporation (Note 3)			38,000				19.0	%			190				190				190				—
Information Technology Solution Busan Corporation (Note 3)			38,000				19.0	%			190				190				190				—
Information Technology Solution Jungbu Corporation (Note 3)			38,000				19.0	%			190				190				190				—
Information Technology Solution Honam Corporation (Note 3)			38,000				19.0	%			190				190				190				—
Information Technology Solution Daegu Corporation (Note 3)			38,000				19.0	%			190				190				190				—
MOS facilities Co., Ltd. (formerly, “Mostech Co., Ltd.”) (Note 3)			200,000				17.9	%			5,000				316				3,016				—
Korea Telecom Philippines, Inc. (“KTPI”)			744,476				100.0	%			2,481				—				—				—
Mongolian Telecommunications (“MTC”)			10,348,111				40.0	%			3,450				10,020				10,020				41,491
KTF-CJ Music Contents Investment Fund (formerly, “Centurion Music 1”) (Note 4)			50				50.0	%			5,000				5,011				5,011				—
KTF-DoCoMo Mobile Investment Fund			45				45.0	%			4,500				4,491				4,491				—
Boston Film Fund (Note 4)			800				39.0	%			8,000				7,149				7,149				—
Harex InfoTech Inc.			225,000				21.2	%			3,375				417				1,183				—
Olive Nine Entertainment Co., Ltd. (Note 5)			140,000				67.7	%			4,200				(629	)			659				—
The Contents Entertainment (Note 5)			30,500				50.8	%			1,754				158				1,578				—
Olive Nine Creative Co., Ltd.			40,000				42.9	%			200				218				218				—
Tourtainment Inc.			15,000				24.6	%			150				34				34				—
Music City China Co., Ltd. (Note 5)			—				100.0	%			144				—				—				—
Doremi Music Publishing Co., Ltd. (Note 5)			10,000				100.0	%			200				237				217				—
Bluecord Corp. (Note 5)			3,000,000				100.0	%			2,778				1,684				1,611				—
PARANGOYANGI (Note 5)			4,000,000				100.0	%			2,900				58				58				—
Music City Media Co., Ltd. (Note 5)			208,000				94.6	%			1,040				(527	)			—				—
Dooristar Co., Ltd.			980,000				49.0	%			1,500				230				112				—
Oscar ent. Co., Ltd.			7,865				49.0	%			650				417				417				—
Netcom			156				26.5	%			90				90				90				—
TPS (Note 5)			—				100.0	%			164				164				164				—
ETN (Note 5)			—				100.0	%			1				1				1				—
Total										W	383,683			W	205,922			W	234,582

37

		2008
						Percentage
		Number of				of ownership				Acquisition				Equity in net								Market
		shares				(%)				cost				asset value				Book value				value
Company K Movie Asset Fund No. 1 (Notes 1 and 4)			90				60.0	%		W	9,000			W	8,803			W	8,803			W	—
KT-Global New Media Fund (Note 1)			600				50.0	%			6,000				5,817				5,817				—
Korea Telephone Directory Co., Ltd. (“KTD”)			1,360,000				34.0	%			6,800				8,358				8,358				—
Metropol Property LLC (Note 1)			—				34.0	%			1,739				434				1,776				—
Korea Information Technology Fund			100				33.3	%			100,000				110,909				110,909				—
KBSi Co., Ltd.			952,000				32.4	%			4,760				4,679				4,679				—
eNtoB Corp. (Note 2)			970,000				30.3	%			6,050				8,187				8,740				—
Korea Digital Satellite Broadcasting Co., Ltd. (“KDB”)			22,706,000				23.3	%			195,976				22,000				32,928				—
Sky Life Contents Fund			45				22.5	%			4,500				3,737				3,737				—
Everyshow (Note 1)			300,000				21.3	%			1,500				1,226				1,226				—
Kiwoom Investment Co., Ltd.(formerly, “Korea IT Venture Partners Inc.”)			1,800,000				20.2	%			9,000				6,953				6,953				—
Goodmorning F Co., Ltd. (Note 3)			114,000				19.0	%			254				1,460				1,460				—
CURD (formerly, “Korea New Realty Development and Construction Co., Ltd.”) (Note 3)			266,000				19.0	%			506				8,369				8,369				—
Korea Information Data Corp. (“KID”) (Note 3)			760,000				19.0	%			3,800				13,666				13,666				—
Korea Information Service Corp. (“KIS”) (Note 3)			570,000				19.0	%			2,850				12,812				12,812				—
Korea Seoul Contact all Co., Ltd. (Note 3)			45,600				19.0	%			228				327				327				—
Korea Service and Communication Co., Ltd. (Note 3)			45,600				19.0	%			228				341				341				—
Korea Call Center Co., Ltd. (Note 3)			45,600				19.0	%			228				332				332				—
TMWorld Co., Ltd. (Note 3)			45,600				19.0	%			228				320				320				—
Ubiquitous Marketing Service and Communication Co., Ltd. (“UMS&C”) (Note 3)			45,600				19.0	%			228				293				293				—
Exdell Corporation (Note 3)			38,000				19.0	%			190				218				218				—
Information Technology Service Bukbu Corporation (Note 3)			38,000				19.0	%			190				225				225				—
Information Technology Solution Nambu Corporation (Note 3)			38,000				19.0	%			190				221				221				—
Information Technology Solution Seobu Corporation (Note 3)			38,000				19.0	%			190				222				222				—
Information Technology Solution Busan Corporation (Note 3)			38,000				19.0	%			190				246				246				—
Information Technology Solution Jungbu Corporation (Note 3)			38,000				19.0	%			190				295				295				—
Information Technology Solution Honam Corporation (Note 3)			38,000				19.0	%			190				248				248				—
Information Technology Solution Daegu Corporation (Note 3)			38,000				19.0	%			190				218				218				—
MOS facilities Co., Ltd. (formerly, “Mostech Co., Ltd.”) (Note 3)			200,000				17.9	%			5,000				41				41				—
Wooridul Entertainment Investment Fund-1 (Note 1)			1,600				20.0	%			1,600				1,529				1,529				—
Mongolian Telecommunications (“MTC”)			10,348,111				40.0	%			3,450				13,289				13,289				12,806
KTC Media Contents Investment Fund No.1 (Notes 1 and 5)			45				81.8	%			4,500				4,510				4,510				—
KTF-CJ Music Contents Investment Fund (formerly, “Centurion Music 1”) (Note 4)			50				50.0	%			5,000				5,038				5,038				—
KTF-DoCoMo Mobile Investment Fund			45				45.0	%			4,500				4,439				4,439				—
Boston Film Fund (Note 4)			800				39.0	%			8,000				4,281				4,281				—
Harex InfoTech Inc.			225,000				21.2	%			3,375				248				631				—

38

		2008
						Percentage
		Number of				of ownership				Acquisition				Equity in net								Market
		shares				(%)				cost				asset value				Book value				value
U-Mobile (Notes 1 and 3)			62,601,493				16.5	%			96,700				33,102				82,663				—
Shinhan-KTF Mobilecard Co., Ltd. (Note 1)			199,999				50.0	%			1,000				708				708				—
Olive Nine Entertainment Co., Ltd. (Note 5)			140,000				67.7	%			4,200				(1,074	)			—				—
The Contents Entertainment (Note 5)			30,500				50.8	%			1,754				3				950				—
Olive Nine Creative Co., Ltd.			40,000				42.9	%			200				150				150				—
Music City China Co., Ltd. (Note 5)			—				100.0	%			144				—				—				—
Doremi Music Publishing Co., Ltd. (Note 5)			10,000				100.0	%			200				(7	)			—				—
PARANGOYANGI (Note 5)			4,000,000				100.0	%			2,900				(303	)			—				—
Music City Media Co., Ltd. (Note 5)			208,000				94.6	%			1,040				(688	)			—				—
Dooristar Co., Ltd.			980,000				49.0	%			1,500				(398	)			—				—
Oscar ent. Co., Ltd.			7,865				49.0	%			650				384				384				—
D&G Star Co., Ltd. (Note 5)			52,000				70.3	%			260				190				190				—
Paramount Music Co., Ltd.			7,848				48.9	%			1,000				313				313				—
Onestone Communication Co., Ltd. (Notes 5 and 6)			100,000				100.0	%			1,159				263				206				—
Netcom			156				26.5	%			90				80				80				—
TPS (Note 5)			—				100.0	%			164				205				205				—
ETN (Note 5)			—				100.0	%			1				1				1				—
Total										W	503,782			W	287,220			W	353,347

(Note 1)		In 2008, the Company acquired 60.0% ownership interest of Company K Movie Asset Fund No.1 for W9,000 million, 50.0% ownership interest of KT-Global New Media Fund for W6,000 million, 34.0% ownership interest of Metropol Property LLC for W1,739 million, 21.3% ownership interest of Everyshow for W1,500 million, 20.0% ownership interest of Wooridul Entertainment Investment Fund-1 for W1,600 million, 81.8% ownership interest of KTC Media Contents Investment Fund No.1 for W4,500 million, 16.5% ownership interest of U-Mobile for W96,700 million and 50.0% ownership interest of Shinhan-KTF Mobilecard Co., Ltd. for W1,000 million, respectively.
(Note 2)		The Company’s ownership interest in eNtoB Corp. increased from 27.5% to 30.3% as of December 31, 2008 due to the additional acquisition of ownership interest.
(Note 3)		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 4)		The Company is the largest stockholder of these companies with more than 30% ownership interest. However, since the Company has no control over these companies, these investments are accounted for using the equity method.
(Note 5)		The unlisted company whose total assets as of December 31 of the prior year are less than W7,000 million is excluded from the consolidation.
(Note 6)		Nasmedia is newly included in the consolidation in 2008 and its investment in Onestone Communication Co., Ltd. is accounted for using the equity method.

39

	b.		Changes in Carrying Amount Resulting from the Equity Method
			Changes in carrying amount resulting from the equity method of accounting for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):

		2007
						Equity in				Increase
						income				(decrease) in
		January 1,				(loss)				equity of				Other increase				December 31,
		2007				(Note 4)				associates				(decrease)				2007
KTD (Note 1)		W	7,867			W	219			(W	1	)		W	—			W	8,085
Korea Information Technology Fund			101,609				7,802				1,647				(232	)			110,826
KBSi Co., Ltd.			2,810				598				—				—				3,408
eNtoB Corp. (Note 1)			5,112				720				7				1,200				7,039
KDB (Note 1)			16,455				7,676				761				—				24,892
Sky Life Contents Fund			5,050				(53	)			—				—				4,997
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
CURD (formerly, “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
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 Bukbu 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
MOS facilities Co., Ltd. (formerly, “Mostech Co., Ltd.”) (Note 1)			4,186				(1,170	)			—				—				3,016
Pivotec Co., Ltd.			6,299				38				(3,359	)			(2,978	)			—
MTC (Note 1)			9,321				1,233				52				(586	)			10,020
KTF-CJ Music Contents Investment Fund (formerly, “Centurion Music 1”) (Note 1)			5,025				(14	)			—				—				5,011
KTF-DoCoMo Mobile Investment Fund (Note 1)			—				(9	)			—				4,500				4,491
Boston Film Fund (Note 1)			8,014				(865	)			—				—				7,149
Harex InfoTech Inc.			1,902				(719	)			—				—				1,183
Olive Nine Entertainment Co., Ltd.			833				(1,071	)			—				897				659
The Contents Entertainment			2,133				(555	)			—				—				1,578
Olive Nine Creative Co., Ltd.			249				(31	)			—				—				218
Tourtainment Inc.			134				(100	)			—				—				34
Music City China Co., Ltd. (Notes 1 and 3)			—				—				—				—				—
Doremi Music Publishing Co., Ltd. (Note 1)			—				—				—				217				217
Bluecord Corp. (Note 1)			—				—				—				1,611				1,611
PARANGOYANGI (Note 1)			—				—				—				58				58
Music City Media Co., Ltd. (Notes 1 and 3)			—				—				—				—				—
Dooristar Co., Ltd. (Note 1)			—				—				—				112				112
Oscar ent. Co., Ltd. (Note 1)			—				—				—				417				417
Netcom			—				—				—				90				90
TPS			—				—				—				164				164
ETN			—				—				—				1				1
Total		W	211,156			W	17,982			(W	732	)		W	6,176			W	234,582

40

		2008
						Equity in				Increase
						income				(decrease) in
		January 1,				(loss)				equity of				Other increase				December 31,
		2008				(Note 4)				associates				(decrease)				2008
Company K Movie Asset Fund No. 1		W	—			(W	197	)		W	—			W	9,000			W	8,803
KT-Global New Media Fund (Note 1)			—				(183	)			—				6,000				5,817
KTD (Note 1)			8,085				273				—				—				8,358
Metropol Property LLC (Note 1)			—				(12	)			49				1,739				1,776
Korea Information Technology Fund			110,826				2,506				(1,696	)			(727	)			110,909
KBSi Co., Ltd.			3,408				1,271				—				—				4,679
eNtoB Corp. (Note 1)			7,039				655				(4	)			1,050				8,740
KDB (Note 1)			24,892				1,527				6,183				326				32,928
Sky Life Contents Fund			4,997				(1,260	)			—				—				3,737
Everyshow			—				(274	)			—				1,500				1,226
Kiwoom Investment Co., Ltd. (formerly, “Korea IT Venture Partners Inc.”) (Note 1)			7,147				64				(258	)			—				6,953
Goodmorning F Co., Ltd.			1,151				314				(5	)			—				1,460
CURD (formerly, “KNRDC”)			3,788				4,631				(50	)			—				8,369
KID			13,541				353				—				(228	)			13,666
KIS (Note 1)			10,792				2,191				—				(171	)			12,812
Korea Seoul Contact all Co., Ltd.			271				56				—				—				327
Korea Service and Communication Co., Ltd.			274				67				—				—				341
Korea Call Center Co., Ltd.			266				66				—				—				332
TMWorld Co., Ltd.			294				26				—				—				320
UMS&C			275				18				—				—				293
Exdell Corporation (Note 1)			177				41				—				—				218
Information Technology Service Bukbu Corporation			190				35				—				—				225
Information Technology Solution Nambu Corporation			190				31				—				—				221
Information Technology Solution Seobu Corporation (Note 1)			190				32				—				—				222
Information Technology Solution Busan Corporation			190				56				—				—				246
Information Technology Solution Jungbu Corporation			190				105				—				—				295
Information Technology Solution Honam Corporation			190				58				—				—				248
Information Technology Solution Daegu Corporation			190				28				—				—				218
MOS facilities Co., Ltd. (formerly, “Mostech Co., Ltd.”) (Notes 1 and 2)			3,016				(1,047	)			—				(1,928	)			41
Wooridul Entertainment Investment Fund-1 (Note 1)			—				(71	)			—				1,600				1,529
MTC (Note 1)			10,020				1,520				2,397				(648	)			13,289
KTC Media Contents Investment Fund No.1 (Note 1)			—				10				—				4,500				4,510
KTF-CJ Music Contents Investment Fund (formerly, “Centurion Music 1”)			5,011				27				—				—				5,038
KTF-DoCoMo Mobile Investment Fund			4,491				(52	)			—				—				4,439
Boston Film Fund			7,149				(2,868	)			—				—				4,281
Harex InfoTech Inc.			1,183				(552	)			—				—				631
U-Mobile			—				(19,699	)			5,662				96,700				82,663
Shinhan-KTF Mobilecard Co., Ltd.			—				(292	)			—				1,000				708
Olive Nine Entertainment Co., Ltd. (Note 3)			659				(659	)			—				—				—
The Contents Entertainment			1,578				(628	)			—				—				950
Olive Nine Creative Co., Ltd.			218				(68	)			—				—				150
Tourtainment Inc. (Note 5)			34				(5	)			—				(29	)			—
Music City China Co., Ltd. (Notes1 and 3)			—				—				—				—				—
Doremi Music Publishing Co,, Ltd. (Notes 1 and 3)			217				(217	)			—				—				—
Bluecord Corp. (Notes 1 and 3)			1,611				109				—				(1,720	)			—
PARANGOYANGI (Notes 1 and 3)			58				(58	)			—				—				—
Music City Media Co., Ltd. (Notes 1 and 3)			—				—				—				—				—
Dooristar Co., Ltd. (Notes 1 and 3)			112				(112	)			—				—				—
Oscar ent. Co., Ltd. (Note 1)			417				(33	)			—				—				384

41

		2008
						Equity in				Increase
						income				(decrease) in
		January 1,				(loss)				equity of				Other increase				December 31,
		2008				(Note 4)				associates				(decrease)				2008
D&G Star Co., Ltd. (Notes 1 and 2)			—				(42	)			—				232				190
Paramount Music Co., Ltd. (Note 2)			—				—				—				313				313
Onestone Communication Co., Ltd. (Notes 1 and 2)			—				(25	)			—				231				206
Netcom			90				(32	)			—				22				80
TPS			164				—				—				41				205
ETN			1				—				—				—				1
Total		W	234,582			(W	12,316	)		W	12,278			W	118,803			W	353,347

(Note 1)		These securities were accounted for using the equity method of accounting based on unaudited financial statements as of and for the year ended December 31, 2008 as the audited financial statements on these companies could not be obtained by the Company’s year-end closing. In order to verify the reliability of such unaudited financial statements, the Company has performed the following procedures and found no significant exceptions:
		i)		Obtain the unaudited 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 unaudited 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 unaudited and audited financial statements.
(Note 2)		For the year ended December 31, 2008, the Company recognized impairment loss on investment difference totaling W2,654 million due to the decline in the recoverable amount of MOS facilities Co., Ltd. (formerly, Mostech Co., Ltd.) and other three equity method investments.
(Note 3)		The Company discontinued the equity method of accounting since the book values of the investments in Olive Nine Entertainment Co., Ltd. and other six equity method investments are below zero due to accumulated deficit.
(Note 4)		Equity income (loss) until the date of acquisition from the newly consolidated entities in 2008 was excluded. Meanwhile, in accordance with the SKAS No. 24 “Preparation and Presentation of Financial Statements II (Financial Industry)”, equity income amounting to W9 million recognized by KT Capital is reclassified as operating revenue.
(Note 5)		As the Company lost significant influence on investment in equity securities of Tourtainment Inc. during the year ended December 31, 2008, such securities were transferred to available-for-sale securities

42

	c.		Changes in Investment Difference
			Changes in investment differences from equity method investment securities for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):

		2007																				2008
		January 1,																December 31,,				January 1,												Impairment				December 31,
Affiliate		2007				Increase				Amortization				Other				2007				2008				Increase				Amortization				loss				2008
Metropol Property LLC		W	—			W	—			W	—			W	—			W	—			W	—			W	1,491			(W	149	)		W	—			W	1,342
eNtoB Corp.			—				346				(32	)			—				314				314				316				(77	)			—				553
KDB			33,413				—				(11,557	)			—				21,856				21,856				—				(10,928	)			—				10,928
MOS facilities (formerly, “Mostech Co., Ltd.”)			3,471				—				(771	)			—				2,700				2,700				—				(772	)			(1,928	)			—
Harex InfoTech Inc.			1,149				—				(383	)			—				766				766				—				(383	)			—				383
U-Mobile			—				—				—				—				—				—				58,307				(8,746	)			—				49,561
OliveNine Entertainment Co., Ltd.			1,932				—				(644	)			—				1,288				1,288				—				(644	)			—				644
The Contents Entertainment			1,876				—				(456	)			—				1,420				1,420				—				(473	)			—				947
Doremi Music Publishing Co., Ltd.			—				—				—				(23	)			(23	)			(23	)			—				8				—				(15	)
D&G Star Co., Ltd.			—				—				—				—				—				—				28				—				(28	)			—
Paramount Music Co., Ltd.			—				—				—				—				—				—				687				—				(687	)			—
Total		W	41,841			W	346			(W	13,843	)		(W	23	)		W	28,321			W	28,321			W	60,829			(W	22,164	)		(W	2,643	)		W	64,343

	d.		Elimination of Unrealized Gains (Losses)
			Unrealized gains (losses) arising from intercompany transactions, which are eliminated, as of December 31, 2008 are nil.
	e.		Cumulative Changes in the Company’s Equity in Net Asset Value of The Investee’s not Recognized
			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 December 31, 2007 and 2008 are as follows (in millions of Korean won):

		2007				2008
Olive Nine Entertainment Co., Ltd.		W	—			(W	1,074	)
Doremi Music Publishing Co., Ltd.			—				(7	)
PARANGOYANGI			—				(303	)
Music City Media Co., Ltd.			(527	)			(688	)
Dooristar Co., Ltd.			—				(398	)
Total		(W	527	)		(W	2,470	)

43

f. Condensed Financial Information of The Investees (in millions of Korean won):

		2007
		Total				Total								Net
		assets				liabilities				Revenue				income (loss)
KTD		W	62,967			W	39,190			W	43,570			W	643
Korea Information Technology Fund			332,476				—				33,644				22,712
KBSi Co., Ltd.			18,429				7,904				26,227				1,845
eNtoB Corp.			64,311				39,728				563,278				3,014
KDB			513,708				341,515				387,393				38,199
Sky Life Contents Fund			22,716				505				469				(236	)
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
CURD (formerly, “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 Bukbu 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				—				—				—
MOS facilities Co., Ltd. (formerly, “Mostech Co., Ltd.”)			7,501				5,735				19,879				(2,222	)
KTPI			208				112,751				20				(13,481	)
MTC			32,149				7,100				28,229				3,081
KTF-CJ Music Contents Investment Fund (formerly, “Centurion Music 1”)			10,133				112				—				8
KTF-DoCoMo Mobile Investment Fund			10,083				104				—				(20	)
Boston Film Fund			18,832				513				1,319				(2,215	)
Harex InfoTech Inc.,			3,544				1,573				5,626				(1,589	)
Olive Nine Entertainment Co., Ltd.			770				1,702				1,284				630
The Contents Entertainment			1,275				964				3,046				193
Olive Nine Creative Co., Ltd.			675				165				2				(70	)
Tourtainment Inc.			219				79				157				(404	)
Doremi Music Publishing Co., Ltd.			251				14				179				(32	)
Bluecord Corp.			5,003				3,323				1,685				(690	)
PARANGOYANGI			856				798				2,789				(279	)
Music City Media Co., Ltd.			556				1,114				1,322				92
Dooristar Co., Ltd.			998				529				533				(218	)
Oscar ent. Co., Ltd.			1,129				278				1,606				250

44

		2008
		Total				Total								Net
		assets				liabilities				Revenue				income (loss)
Company K Movie Asset Fund No. 1		W	14,671			W	—			W	—			(W	329	)
KT-Global New Media Fund			11,654				19				—				(365	)
KTD			62,779				38,198				44,325				804
Metropol Property LLC			1,310				33				847				403
Korea Information Technology Fund			332,724				—				19,742				7,518
KBSi Co., Ltd.			21,638				7,188				31,526				3,926
eNtoB Corp.			79,327				52,189				756,983				2,635
KDB			508,039				287,103				386,958				31,225
Sky Life Contents Fund			16,798				189				795				(5,602	)
Everyshow			6,301				538				1,359				(1,287	)
Kiwoom Investment Co., Ltd.(formerly, “Korea IT Venture Partners Inc”)			34,651				177				6,146				316
Goodmorning F Co., Ltd.			12,476				4,791				54,851				1,654
CURD (formerly, “KNRDC”)			83,655				39,607				67,241				24,374
KID			103,117				31,191				211,410				2,020
KIS			94,355				26,921				149,293				11,654
Korea Seoul Contact all Co., Ltd.			6,420				4,700				43,581				296
Korea Service and Communication Co., Ltd.			4,860				3,064				31,584				354
Korea Call Center Co., Ltd.			4,893				3,144				29,851				349
TMworld Co., Ltd.			4,487				2,803				30,386				257
UMS&C			4,737				3,196				31,121				94
Exdell Corporation			2,331				1,186				11,280				215
Information Technology Service Bukbu Corporation			4,802				3,619				11,802				183
Information Technology Solution Nambu Corporation			5,593				4,430				13,954				162
Information Technology Solution Seobu Corporation			4,782				3,612				12,430				170
Information Technology Solution Busan Corporation			5,095				3,799				11,182				296
Information Technology Solution Jungbu Corporation			5,600				4,045				12,569				555
Information Technology Solution Honam Corporation			4,872				3,567				11,907				305
Information Technology Solution Daegu Corporation			3,324				2,175				6,690				148
MOS facilities Co., Ltd. (formerly, “Mostech Co., Ltd.”)			6,892				6,661				21,135				(1,535	)
Wooridul Entertainment Investment Fund-1			7,594				1				68				(407	)
MTC			40,992				7,769				28,167				3,799
KTC Media Contents Investment Fund No.1			5,591				79				91				12
KTF-CJ Music Contents Investment Fund (formerly, “Centurion Music 1”)			10,126				50				621				(10	)
KTF-DoCoMo Mobile Investment Fund			10,378				515				416				(116	)
Boston Film Fund			11,482				513				345				(7,408	)
Harex InfoTech Inc.			2,252				1,082				2,798				(801	)
U-Mobile			307,425				106,809				27,314				(66,379	)
Shinhan-KTF Mobilecard Co., Ltd.			1,509				93				34				(584	)
Olive Nine Entertainment Co., Ltd.			251				1,837				1,384				(653	)
The Contents Entertainment			752				747				1,937				(305	)
Olive Nine Creative Co., Ltd.			548				198				53				(160	)
Doremi Music Publishing Co., Ltd.			17				24				39				26
PARANGOYANGI			408				711				572				(355	)
Music City Media Co., Ltd.			464				1,089				639				19
Dooristar Co., Ltd.			243				586				24				182
Oscar ent. Co., Ltd.			895				213				807				(82	)
D&G Star Co., Ltd.			235				815				879				(632	)
Onestone Communication Co., Ltd.			397				133				—				(38	)

45

8. PROPERTY AND EQUIPMENT

a. Changes in property and equipment for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):

		2007
						Acquisition cost
						(including
		January 1,				capital								Depreciation				Impairment				Others				December 31,
		2007				expenditures)				Disposal				(Note 1)				loss				(Note 2)				2007
Land (Note 3)		W	1,208,244			W	1,424			(W	3,471	)		W	—			W	—			W	48,982			W	1,255,179
Buildings (Note 3)			3,245,655				3,398				(10,744	)			(138,362	)			—				152,090				3,252,037
Structures			246,597				122				(1,642	)			(19,657	)			—				20,010				245,430
Machinery			9,508,929				65,188				(149,797	)			(2,767,946	)			(4,931	)			2,850,166				9,501,609
Vehicles			13,830				990				(3,581	)			(4,667	)			—				3,255				9,827
Others			551,991				258,167				(23,896	)			(295,255	)			(3,059	)			127,028				614,976
Construction- in-progress			392,183				3,306,356				(209	)			—				—				(3,289,386	)			408,944
		W	15,167,429			W	3,635,645			(W	193,340	)		(W	3,225,887	)		(W	7,990	)		(W	87,855	)		W	15,288,002

		2008
						Acquisition cost
						(including
		January 1,				capital												Impairment				Others				December 31,
		2008				expenditures)				Disposal				Depreciation				loss				(Note 2)				2008
Land (Note 3)		W	1,255,179			W	225			(W	6,175	)		W	—			W	—			W	40,001			W	1,289,230
Buildings (Note 3)			3,252,037				38,787				(26,905	)			(146,589	)			—				298,587				3,415,917
Structures			245,430				482				(8,188	)			(19,079	)			—				11,031				229,676
Machinery			9,501,609				67,543				(83,732	)			(2,778,108	)			(20,521	)			2,686,282				9,374,073
Vehicles			9,827				33,161				(670	)			(9,328	)			—				1,616				34,606
Others			614,976				134,534				(20,592	)			(311,187	)			(155	)			132,126				549,702
Construction- in-progress			408,944				3,087,737				(20	)			—				—				(3,201,234	)			295,427
		W	15,288,002			W	3,362,469			(W	145,282	)		(W	3,264,291	)		(W	20,676	)		(W	31,591	)		W	15,188,631

(Note 1)		Depreciation until the date of acquisition of the newly consolidated entities in 2007 was excluded.
(Note 2)		Others mainly consist of the transfers from construction-in-progress to machinery, increase in contribution for construction, increase due to changes in consolidated entities and reclassifications.
(Note 3)		Certain portion of lands and buildings were pledged as collateral relating to short-term and long-term borrowings and certain lease contracts. The maximum pledged amount as of December 31, 2008 was W65,726 million.

46

9. STANDARD VALUE OF LAND

The standard value of land declared by the government as of December 31, 2007 and 2008 are as follows (in millions of Korean won):

a. Land

						2007								2008
Entities						Book value				Standard value				Book value				Standard value
KT		Metropolitan District (including the head office)				W	597,041			W	3,555,541			W	627,905			W	3,885,826
		Busan District					106,726				455,810				108,483				458,029
		Jeonnam District					91,997				225,623				92,470				223,596
		Daegu District					117,920				315,398				118,659				322,979
		Chungnam District					49,695				181,661				50,329				185,977
		Jeonbuk District					48,192				113,220				47,939				113,395
		Kangwon District					44,970				97,931				44,738				99,650
		Chungbuk District					31,430				99,375				31,844				99,053
		Jeju District					15,508				32,651				15,826				32,916
Sub-total							1,103,479				5,077,210				1,138,193				5,421,421
KTF							119,032				160,748				118,742				181,810
Others (Domestic)							32,091				44,780				31,522				44,509
Others (Oversea) (Note)							577			(Note)					773			(Note)
Total						W	1,255,179			W	5,282,738			W	1,289,230			W	5,647,740

(Note) As of December 31, 2007 and 2008, no standard value of land declared in overseas subsidiaries is available.

b. Investment property

2007

2008

Entities

Account

Book value

Standard value

Book value

Standard value

TSC

Other Investment assets

W

1,336

W

1,109

W

1,336

W

1,162

47

10. CONTRIBUTION FOR CONSTRUCTION

Changes in contribution for construction which was used in the acquisition of property and equipment for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):

		2007
		January 1,																December 31,
		2007				Increase				Decrease				Transfer				2007
Buildings		W	2,732			W	—			(W	1,337	)		W	911			W	2,306
Structures			1,402				—				(170	)			285				1,517
Machinery			98,371				—				(43,037	)			55,977				111,311
Others			1,490				—				(1,038	)			1,085				1,537
Construction-in-progress			70,163				76,625				—				(58,258	)			88,530
Total		W	174,158			W	76,625			(W	45,582	)		W	—			W	205,201

		2008
		January 1,																December 31,
		2008				Increase				Decrease				Transfer				2008
Buildings		W	2,306			W	—			(W	221	)		W	103			W	2,188
Structures			1,517				—				(175	)			165				1,507
Machinery			111,311				—				(45,196	)			53,196				119,311
Others			1,537				—				(1,370	)			1,619				1,786
Construction-in-progress			88,530				74,228				—				(55,083	)			107,675
Total		W	205,201			W	74,228			(W	46,962	)		W	—			W	232,467

11. INTANGIBLE ASSETS

a. Changes in intangible assets for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):

		2007
										Reversal
		January 1,								(Amortization)				Impairment								December 31,
		2007				Increase				(Note)				loss				Others				2007
Goodwill		W	488,650			W	—			(W	138,405	)		W	—			W	21,255			W	371,500
Negative goodwill			(518	)			—				518				—				—				—
Frequency usage rights			1,040,878				—				(115,417	)			—				1,320				926,781
Development costs			208,625				113,902				(115,370	)			(324	)			1,327				208,160
Industrial rights			7,918				3,196				(1,764	)			—				6				9,356
Software			105,198				31,451				(32,807	)			(1,216	)			1,653				104,279
Others			108,840				40,446				(26,860	)			(7,417	)			238				115,247
Total		W	1,959,591			W	188,995			(W	430,105	)		(W	8,957	)		W	25,799			W	1,735,323

48

		2008
		January 1,								Reversal				Impairment								December 31,
		2008				Increase				(Amortization)				loss				Others				2008
Goodwill		W	371,500			W	—			(W	145,154	)		(W	16,078	)		W	18,126			W	228,394
Negative goodwill			—				—				65				—				(65	)			—
Frequency usage rights			926,781				1,005				(115,649	)			—				—				812,137
Development costs			208,160				100,118				(114,345	)			—				(140	)			193,793
Industrial rights			9,356				2,324				(1,825	)			—				348				10,203
Software			104,279				37,298				(36,436	)			(322	)			1,328				106,147
Others			115,247				49,027				(25,135	)			(1,035	)			(14,540	)			123,564
Total		W	1,735,323			W	189,772			(W	438,479	)		(W	17,435	)		W	5,057			W	1,474,238

(Note) Amortization until the date of acquisition of the newly consolidated entities in 2007 was excluded.

			The Company’s research and ordinary development expenses amounted to W291,010 million and W283,147 million for the years ended December 31, 2007 and 2008, respectively.
	b.		Details of goodwill and negative goodwill as of December 31, 2007 and 2008 are as follows (in millions of Korean won):

		2007
		January 1,								Reversal
		2007				Increase				(Amortization)				December 31, 2007
KTF		W	455,397			W	—			(W	130,113	)		W	325,284
Sidus FNH			15,498				—				(3,875	)			11,623
Oilve Nine			17,755				—				(3,551	)			14,204
KTFT			(518	)			—				518				—
KT FDS			—				5,772				(866	)			4,906
KTF Music (formerly, Bluecord Technology Co., Ltd.)			—				11,206				—				11,206
East Telecom			—				4,277				—				4,277
Total		W	488,132			W	21,255			(W	137,887	)		W	371,500

		2008
		January 1,								Reversal				Impairment				December 31,
		2008				Increase				(Amortization)				loss				2008
KTF		W	325,284			W	—			(W	130,114	)		W	—			W	195,170
Sidus FNH			11,623				—				(3,874	)			(5,425	)			2,324
Oilve Nine			14,204				—				(3,551	)			(10,653	)			—
KT FDS			4,906				—				(1,154	)			—				3,752
KTF Music (formerly, Bluecord Technology Co., Ltd.)			11,206				—				(2,241	)			—				8,965
East Telecom			4,277				1,508				(1,157	)			—				4,628
Nasmedia			—				14,436				(2,654	)			—				11,782
Sofnics			—				(65	)			65				—				—
JB Edu			—				2,182				(409	)			—				1,773
Total		W	371,500			W	18,061			(W	145,089	)		(W	16,078	)		W	228,394

49

12. PRESENT VALUE OF ASSETS AND LIABILITIES

Assets and liabilities measured at present value as of December 31, 2007 and 2008 are as follows (in millions of Korean won):

		2007
		Discount rate		Collection		Nominal				Present
Accounts		(%)		period		value				value				Discount
Accounts receivable—trade		5.33~7.04		2008		W	302,946			W	299,466			W	3,480
Accounts receivable—other		5.38~8.85		2008			18,738				17,718				1,020
Long-term accounts receivable—trade		5.33~7.04		2009~2025			126,955				99,504				27,451
Long-term accounts receivable—other		5.38~8.85		2009~2011			38,438				36,171				2,267
Accounts payable—other		9.93		2008			110,000				108,920				1,080
Current portion of long-term bonds and borrowings		4.23~7.45		2008			1,020,464				1,020,444				20
Long-term accounts payable—other		9.93		2009~2011			456,972				413,260				43,712
Long-term borrowings		7.35		2009~2015			4,256				3,126				1,130

		2008
		Discount rate		Collection				Nominal				Present
Accounts		(%)		period				value				value				Discount
Accounts receivable—trade		5.23~7.9			2009			W	553,806			W	537,973			W	15,833
Accounts receivable—other		5.23~8.85			2009				32,831				31,204				1,627
Long-term accounts receivable—trade		5.23~7.9			2010~2025				335,044				287,706				47,338
Long-term accounts receivable—other		5.23~8.85			2010~2011				17,144				16,466				678
Accounts payable—trade		5.91~10.36			2009				15,178				13,417				1,761
Accounts payable—other		5.23~5.83			2009				134,200				132,757				1,443
Long-term accounts payable—trade		5.91~10.36			2010~2018				23,583				16,856				6,727
Long-term accounts payable—other		6.78~9.93			2010~2011				323,292				300,430				22,862
Long-term borrowings		5.23~8.85			2010~2015				3,564				2,693				871

50

13. LONG-TERM DEBT

	a.		Bonds
			Bonds as of December 31, 2007 and 2008 are summarized as follows (in millions of Korean won and thousands of foreign currencies):

		2007
														Interest rate
Company		Type		Issue date		Amount				Maturity		Repayment method		per annum
KT		MTNP notes (Note 1)		6/24/2004		W (USD	562,920 600,000)			6/24/2014		Payable in full at maturity			5.88	%
		MTNP notes (Note 1)		9/7/2004		W (USD	93,820 100,000)			9/7/2034		Payable in full at maturity			6.50	%
		MTNP notes (Note 1)		7/15/2005		W (USD	375,280 400,000)			7/15/2015		Payable in full at maturity			4.88	%
		MTNP notes (Note 1)		5/3/2006		W (USD	187,640 200,000)			5/3/2016		Payable in full at maturity			5.88	%
		Euro bonds		4/11/2007		W (USD	187,640 200,000)			4/11/2012		Payable in full at maturity			5.13	%
		The 130th Public bond		1/19/2001		W	50,000			1/19/2008		Payable in full at maturity			7.28	%
		The 132nd Public bond		2/9/2001			70,000			2/9/2011		Payable in full at maturity			7.68	%
		The 133rd Public bond		2/12/2001			50,000			2/12/2008		Payable in full at maturity			6.78	%
		The 138th Public bond		2/28/2001			100,000			2/28/2008		Payable in full at maturity			7.45	%
		The 154th Public bond		7/31/2002			220,000			7/31/2009		Payable in full at maturity			6.70	%
		The 156th Public bond		9/30/2002			180,000			9/30/2009		Payable in full at maturity			6.35	%
		The 158th Public bond		4/30/2003			220,000			4/30/2008		Payable in full at maturity			5.29	%
		The 159th Public bond		10/27/2003			300,000			10/27/2013		Payable in full at maturity			5.39	%
		The 160th Public bond		11/24/2003			200,000			11/24/2010		Payable in full at maturity			5.45	%
		The 161st Public bond		12/23/2003			230,000			12/23/2010		Payable in full at maturity			5.61	%
		The 162nd Public bond		2/27/2004			320,000			2/27/2011		Payable in full at maturity			5.52	%
		The 163rd Public bond		3/30/2004			170,000			3/30/2014		Payable in full at maturity			5.51	%
		The 164th Public bond		6/21/2004			260,000			6/21/2011		Payable in full at maturity			5.22	%
		The 165-1st Public bond		8/26/2004			130,000			8/26/2011		Payable in full at maturity			4.22	%
		The 165-2nd Public bond		8/26/2004			140,000			8/26/2014		Payable in full at maturity			4.44	%
		The 166-1st Public bond		3/21/2005			220,000			3/21/2010		Payable in full at maturity			4.37	%
		The 166-2nd Public bond		3/21/2005			100,000			3/21/2012		Payable in full at maturity			4.57	%
		The 167-1st Public bond		4/20/2005			100,000			4/20/2012		Payable in full at maturity			4.59	%
		The 167-2nd Public bond		4/20/2005			100,000			4/20/2015		Payable in full at maturity			4.84	%
		The 168-1st Public bond		6/21/2005			240,000			6/21/2012		Payable in full at maturity			4.43	%
		The 168-2nd Public bond		6/21/2005			90,000			6/21/2015		Payable in full at maturity			4.66	%
		The 169th Public bond		4/3/2007			140,000			4/3/2012		Payable in full at maturity			5.01	%
KTP		Private bond		5/3/2006			8,333			3/3/2009		Payable in installments			6.32	%
		Private bond		12/15/2006			9,300			12/15/2008		Payable in full at maturity			6.25	%
KTN		The 18th Private bond		3/31/2005			5,000			3/31/2008		Payable in full at maturity			5.29	%
		Public bond		4/17/2007			10,000			4/17/2010		Payable in full at maturity			5.29	%
KTF		The 44th Public bond		2/19/2004			360,000			2/19/2009		Payable in full at maturity			5.66	%
		The 45th Public bond		3/15/2004			320,000			3/15/2008		Payable in full at maturity			5.24	%
		The 47-1st Public bond		7/12/2004			230,000			7/13/2009		Payable in full at maturity			4.95	%
		The 47-2nd Public bond		7/12/2004			70,000			7/12/2011		Payable in full at maturity			5.32	%
		The 48th Public bond		2/15/2005			200,000			2/15/2010		Payable in full at maturity			5.31	%

51

		2007
														Interest rate
Company		Type		Issue date		Amount				Maturity		Repayment method		per annum
KTR		The 16th Private bond		1/4/2005			750			1/4/2008		Payable in installments			4.39	%
		The 19-1st Public bond		5/10/2005			40,000			5/10/2008		Payable in full at maturity			4.23	%
		The 19-2nd Public bond		5/10/2005			10,000			5/10/2010		Payable in full at maturity			4.69	%
		The 21-1~5th Private bond		6/15/2005			4,000			6/15/2008		Payable in installments			4.58	%
		The 22nd Private bond		8/31/2005			2,500			8/31/2008		Payable in installments			4.95	%
		The 23rd Public bond		9/14/2005			30,000			9/14/2008		Payable in full at maturity			5.02	%
		The 10th Public bond		6/18/2007			40,000			6/18/2010		Payable in full at maturity			5.70	%
		The 11th Private bond		12/6/2007			20,000			12/6/2010		Payable in full at maturity			6.85	%
KT Capital		The 1st Private bond		3/16/2007			30,000			3/16/2010		Payable in full at maturity			5.42	%
		The 2nd Private bond		4/16/2007			20,000			4/16/2010		Payable in full at maturity			5.56	%
		The 3rd Private bond		4/19/2007			20,000			4/19/2008		Payable in full at maturity			5.59	%
		The 4th Public bond		5/30/2007			40,000			5/30/2010		Payable in full at maturity			5.70	%
		The 5th Private bond		6/29/2007			20,000			6/29/2010		Payable in full at maturity			5.67	%
		The 6-1st Public bond		8/3/2007			20,000			8/3/2009		Payable in full at maturity			5.64	%
		The 6-2nd Public bond		8/3/2007			30,000			8/3/2010		Payable in full at maturity			5.72	%
		The 7-1st Public bond		8/31/2007			30,000			8/31/2009		Payable in full at maturity			5.99	%
		The 7-2nd Public bond		8/31/2007			20,000			8/31/2010		Payable in full at maturity			6.05	%
		The 8th Private bond		9/28/2007			30,000			9/28/2010		Payable in full at maturity			6.26	%
		The 9-1st Public bond		10/18/2007			30,000			10/18/2009		Payable in full at maturity			6.37	%
		The 9-2nd Public bond		10/18/2007			20,000			10/18/2010		Payable in full at maturity			6.44	%
		The 10th Public bond		11/12/2007			50,000			11/12/2008		Payable in full at maturity			6.26	%
		The 11th Public bond		12/27/2007			20,000			12/27/2010		Payable in full at maturity		CD(91D)+ 1.39%
Olive Nine		The 5th Private convertible bond (Note 2)		2/17/2006			3,000			2/17/2009		Payable in full at maturity			10.00	%
KTF Music (formerly, Bluecord Technology Co., Ltd.)		The 2nd Private bond with warrant (Note 3)		9/2/2005			2,100			9/2/2008		Payable in full at maturity			7.11	%
		Total				W	6,782,283
Less current portion							(910,316	)
Long-term portion							5,871,967
Conversion right adjustment							(277	)
Repayment premium							695
Discount on bonds							(29,558	)
		Net				W	5,842,827

52

2008

Interest rate

Company

Type

Issue date

Amount

Maturity

Repayment method

per annum

KT

MTNP notes (Note 1)

6/24/2004

W (USD

754,500 600,000)

6/24/2014

Payable in full at maturity

5.88

%

MTNP notes (Note 1)

9/7/2004

W (USD

125,750 100,000)

9/7/2034

Payable in full at maturity

6.50

%

MTNP notes (Note 1)

7/15/2005

W (USD

503,000 400,000)

7/15/2015

Payable in full at maturity

4.88

%

MTNP notes (Note 1)

5/3/2006

W (USD

251,500 200,000)

5/3/2016

Payable in full at maturity

5.88

%

Euro bonds

4/11/2007

W (USD

251,500 200,000)

4/11/2012

Payable in full at maturity

5.13

%

FR notes

9/11/2008

W (USD

251,500 200,000)

9/11/2013

Payable in full at maturity

4.32

%

The 132nd Public bond

2/9/2001

W

70,000

2/9/2011

Payable in full at maturity

7.68

%

The 154th Public bond

7/31/2002

220,000

7/31/2009

Payable in full at maturity

6.70

%

The 156th Public bond

9/30/2002

180,000

9/30/2009

Payable in full at maturity

6.35

%

The 159th Public bond

10/27/2003

300,000

10/27/2013

Payable in full at maturity

5.39

%

The 160th Public bond

11/24/2003

200,000

11/24/2010

Payable in full at maturity

5.45

%

The 161st Public bond

12/23/2003

230,000

12/23/2010

Payable in full at maturity

5.61

%

The 162nd Public bond

2/27/2004

320,000

2/27/2011

Payable in full at maturity

5.52

%

The 163rd Public bond

3/30/2004

170,000

3/30/2014

Payable in full at maturity

5.51

%

The 164th Public bond

6/21/2004

260,000

6/21/2011

Payable in full at maturity

5.22

%

The 165-1st Public bond

8/26/2004

130,000

8/26/2011

Payable in full at maturity

4.22

%

The 165-2nd Public bond

8/26/2004

140,000

8/26/2014

Payable in full at maturity

4.44

%

The 166-1st Public bond

3/21/2005

220,000

3/21/2010

Payable in full at maturity

4.37

%

The 166-2nd Public bond

3/21/2005

100,000

3/21/2012

Payable in full at maturity

4.57

%

The 167-1st Public bond

4/20/2005

100,000

4/20/2012

Payable in full at maturity

4.59

%

The 167-2nd Public bond

4/20/2005

100,000

4/20/2015

Payable in full at maturity

4.84

%

The 168-1st Public bond

6/21/2005

240,000

6/21/2012

Payable in full at maturity

4.43

%

The 168-2nd Public bond

6/21/2005

90,000

6/21/2015

Payable in full at maturity

4.66

%

The 169th Public bond

4/3/2007

140,000

4/3/2012

Payable in full at maturity

5.01

%

The 170th Public bond

1/11/2008

W (JPY

174,236 12,500,000)

1/11/2011

Payable in full at maturity

1.45

%

The 171st Public bond

2/28/2008

100,000

2/28/2013

Payable in full at maturity

5.41

%

The 172-1st Public bond

3/31/2008

W (USD

62,875 50,000)

3/31/2011

Payable in full at maturity

4.20

%

The 172-2nd Public bond

3/31/2008

W (USD

138,325 110,000)

3/31/2012

Payable in full at maturity

4.30

%

The 173-1st Public bond

8/6/2008

W

100,000

8/6/2013

Payable in full at maturity

6.49

%

The 173-2nd Public bond

8/6/2008

100,000

8/6/2018

Payable in full at maturity

6.62

%

The 174-1st Public bond

12/19/2008

100,000

12/19/2010

Payable in full at maturity

5.34

%

The 174-2nd Public bond

12/19/2008

130,000

12/19/2011

Payable in full at maturity

5.56

%

KTP

The 4th Private bond

5/3/2006

1,667

3/3/2009

Payable in installments

6.66

%

KTN

Public bond

4/17/2007

10,000

4/17/2010

Payable in full at maturity

5.29

%

Public bond

7/24/2008

5,000

7/24/2011

Payable in full at maturity

6.82

%

KTF

The 44th Public bond

2/19/2004

360,000

2/19/2009

Payable in full at maturity

5.66

%

The 47-1st Public bond

7/12/2004

230,000

7/13/2009

Payable in full at maturity

4.95

%

The 47-2nd Public bond

7/12/2004

70,000

7/12/2011

Payable in full at maturity

5.32

%

The 48th Public bond

2/15/2005

200,000

2/15/2010

Payable in full at maturity

5.31

%

53

2008

Interest rate

Company

Type

Issue date

Amount

Maturity

Repayment method

per annum

KTF

The 49th Public bond

2/25/2008

W (USD

220,063 175,000)

2/25/2011

Payable in full at maturity

3.66

%

The 50th Public bond

4/28/2008

W (JPY

97,572 7,000,000)

4/28/2011

Payable in full at maturity

2.48

%

The 51-1st Public bond

6/20/2008

W (USD

119,463 95,000)

6/20/2011

Payable in full at maturity

3.13

%

The 51-2nd Public bond

6/20/2008

W

70,000

6/20/2013

Payable in full at maturity

6.41

%

The 52-1st Public bond

8/4/2008

100,000

8/4/2011

Payable in full at maturity

6.20

%

The 52-2nd Public bond

8/4/2008

100,000

8/4/2013

Payable in full at maturity

6.64

%

The 53-1st Public bond

12/1/2008

20,000

12/1/2010

Payable in full at maturity

8.23

%

The 53-2nd Public bond

12/1/2008

180,000

12/1/2011

Payable in full at maturity

8.36

%

KTR

Public bond (the 19-2nd)

5/10/2005

10,000

5/10/2010

Payable in full at maturity

4.69

%

The 10th Public bond

6/18/2007

40,000

6/18/2010

Payable in full at maturity

5.70

%

The 11th Private bond

12/6/2007

20,000

12/6/2010

Payable in full at maturity

6.85

%

The 12th Public bond

5/23/2008

20,000

5/23/2011

Payable in full at maturity

6.39

%

The 13-1st Public bond

10/2/2008

20,000

10/2/2009

Payable in full at maturity

8.05

%

The 13-2nd Public bond

10/2/2008

10,000

4/2/2010

Payable in full at maturity

8.30

%

KT Capital

The 1st Private bond

3/16/2007

30,000

3/16/2010

Payable in full at maturity

5.80

%

The 2nd Private bond

4/16/2007

20,000

4/16/2010

Payable in full at maturity

5.94

%

The 4th Public bond

5/30/2007

40,000

5/30/2010

Payable in full at maturity

5.70

%

The 5th Private bond

6/29/2007

20,000

6/29/2010

Payable in full at maturity

5.67

%

The 6-1st Public bond

8/3/2007

20,000

8/3/2009

Payable in full at maturity

5.64

%

The 6-2nd Public bond

8/3/2007

30,000

8/3/2010

Payable in full at maturity

5.72

%

The 7-1st Public bond

8/31/2007

30,000

8/31/2009

Payable in full at maturity

5.99

%

The 7-2nd Public bond

8/31/2007

20,000

8/31/2010

Payable in full at maturity

6.05

%

The 8th Private bond

9/28/2007

30,000

9/28/2010

Payable in full at maturity

6.26

%

The 9-1st Public bond

10/18/2007

30,000

10/18/2009

Payable in full at maturity

6.37

%

The 9-2nd Public bond

10/18/2007

20,000

10/18/2010

Payable in full at maturity

6.44

%

The 11th Public bond

12/27/2007

20,000

12/27/2010

Payable in full at maturity

CD(91D)+ 1.39%

The 12-1st Public bond

1/23/2008

30,000

1/23/2009

Payable in full at maturity

7.50

%

The 12-2nd Public bond

1/23/2008

30,000

7/23/2009

Payable in full at maturity

7.60

%

The 13-1st Public bond

2/21/2008

30,000

2/21/2010

Payable in full at maturity

6.33

%

The 13-2nd Public bond

2/21/2008

30,000

2/21/2011

Payable in full at maturity

6.48

%

The 14-1st Public bond

3/28/2008

10,000

3/28/2010

Payable in full at maturity

6.37

%

The 14-2nd Public bond

3/28/2008

10,000

3/28/2011

Payable in full at maturity

6.47

%

The 15th Private bond

4/21/2008

20,000

4/21/2010

Payable in full at maturity

MOR(3M)+ 1.28%

The 16-1st Public bond

4/30/2008

60,000

1/30/2010

Payable in full at maturity

6.33

%

The 16-2nd Public bond

4/30/2008

10,000

4/30/2011

Payable in full at maturity

6.46

%

The 17-1st Public bond

5/30/2008

30,000

11/30/2009

Payable in full at maturity

6.71

%

The 17-2nd Public bond

5/30/2008

20,000

11/30/2009

Payable in full at maturity

6.66

%

The 17-3rd Public bond

5/30/2008

50,000

5/30/2013

Payable in full at maturity

7.14

%

The 18-1st Public bond

6/23/2008

30,000

12/23/2009

Payable in full at maturity

7.00

%

The 18-2nd Public bond

6/23/2008

40,000

6/23/2010

Payable in full at maturity

7.12

%

The 18-3rd Public bond

6/23/2008

20,000

6/23/2011

Payable in full at maturity

7.22

%

The 18-4th Public bond

6/23/2008

10,000

6/23/2013

Payable in full at maturity

7.55

%

54

2008

Interest rate

Company

Type

Issue date

Amount

Maturity

Repayment method

per annum

KT Capital

The 19-1st Public bond

9/11/2008

40,000

9/11/2009

Payable in full at maturity

7.68

%

The 19-2nd Public bond

9/11/2008

10,000

3/11/2010

Payable in full at maturity

7.80

%

The 19-3rd Public bond

9/11/2008

20,000

9/11/2010

Payable in full at maturity

7.93

%

The 19-4th Public bond

9/11/2008

10,000

9/11/2010

Payable in full at maturity

CD(91D)+ 2.10%

The 20th Public bond

10/27/2008

10,000

10/27/2009

Payable in full at maturity

8.98

%

The 21st Public bond

11/26/2008

30,000

11/26/2009

Payable in full at maturity

9.10

%

Total

W

9,016,951

Less current portion

(1,311,667

)

Long-term portion

7,705,284

Discount on bonds

(42,621

)

Net

W

7,662,663

(Note 1)		As of December 31, 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)		Details of convertible bonds without guarantee are as follows :

		Issued amount (in Korean won)		:		W4,000 million
		Stated interest rate (%)		:		3%
		Guaranteed yield rate (%)		:		10%
		Conversion price (in Korean won)		:		W1,584 per share
		Convertible period		:		February 17, 2007 ~ February 16, 2009
		Number of total convertible shares		:		2,525,252 shares
		Converted shares		:		631,313 shares
		Unconverted shares		:		1,893,939 shares

		On January 7, 2008, above convertible notes were fully converted to 1,893,939 of common shares at W1,584 per share.
(Note 3)		Details of bonds with warrants are as follows :

		Issued amount (in Korean won)		:		W3,000 million
		Stated interest rate (%)		:		7.11 %
		Exercise price (in Korean won)		:		W4,518 per share
		Exercise period		:		September 3, 2006 ~ August 2, 2008
		Number of total exercisable shares		:		664,010 shares
		Exercised shares		:		—
		Unexercised shares		:		664,010 shares
		Others		:		Subject to request by the holders, certain portion of the bonds are early redeemable before maturity; up to 10% of issued amount at one year after 1st anniversary of issuance and 20% of issued amount at the interest payment date after 2nd anniversary of issuance. W900 million of the issued amount was early redeemed through December 31, 2008.

Above bonds are to be repaid in full in 2009 and the remaining balance of W2,100 million was reclassified as current liabilities as of December 31, 2008.

55

	b.		Long-term Borrowings in Korean Won
			Long-term borrowings in Korean won as of December 31, 2007 and 2008 are as follows (in millions of Korean won):

		2007								2008
		Maturity		Interest rate						Maturity		Interest rate
		date		per annum		Amount				date		per annum		Amount
Informatization Promotion Fund		2008~2012		4.72~5.39%		W	47,365			2009~2013		4.86~6.28%		W	35,869
Inter-Korean Cooperation Fund		2026		2.00%			5,665			2026		2.00%			6,415
Facility and working capital loans		2008~2015		6.02~7.60%			82,356			2009~2015		5.00~8.12%			79,611
General purpose loans		2009~2010		5.74~6.19%			52,132			2009~2011		5.74~7.01%			74,034
Commercial papers		2008		6.33~6.45%			30,000			2011		6.55~6.71%			30,000
Total							217,518								225,929
Less Current portion							(105,453	)							(78,245	)
Long-term portion							112,065								147,684
Less present value discount							(1,130	)							(871	)
Net						W	110,935							W	146,813

			Above Informatization Promotion Funds are repayable in installments for three years after two year grace period and Inter-Korean Cooperation Fund is repayable in installments for thirteen years after seven year grace period.
	c.		Long-term Borrowings in Foreign Currency
			Long-term borrowings in foreign currency as of December 31, 2007 and 2008 are as follows (in millions of Korean won and thousands of foreign currencies):

		2007
						Amount
				Interest rate		Foreign				Korean won
Company		Maturity date		per annum (%)		currencies				equivalent
NTC		2008		Libor+3.50		RUB	16,364			W	942
NTC		2009		Libor+3.50		RUB	32,728				1,883
KT Capital		2008~2010		Libor+0.99		USD	23,000				21,579
Total						RUB	49,092
						USD	23,000				24,404
Less current portion						(RUB	16,364	)
						(USD	4,000	)			(4,695	)
Net						RUB	32,728
						USD	19,000			W	19,709

56

		2008
						Amount
				Interest rate		Foreign				Korean won
Company		Maturity date		per annum (%)		currencies				equivalent
KT Submarine		2013		Libor+1.70		USD	28,800			W	36,216
KTF		2010~2011		4.87~5.77		USD	100,000				125,750
KT Capital		2010		Libor+0.99		USD	19,000				23,893
NTC		2010		Libor+3.50		RUB	29,380				1,260
				14.00		RUB	2,877				123
East Telecom		2011		16.50		SUM	890,000				810
						USD	147,800
						RUB	32,257
Total						SUM	890,000				188,052
Less current portion						(USD	40,400	)			(50,803	)
						USD	107,400
						RUB	32,257
Net						SUM	890,000			W	137,249

	d.		Repayment Schedule
			Repayment schedule of the Company’s long-term debt as of December 31, 2008 is as follows (in millions of Korean won):

		Bonds
Year ending		In local				In foreign								Borrowings in				Borrowings in
December 31,		currency				currency				Sub total				local currency				foreign currency				Total
2009		W	1,311,667			W	—			W	1,311,667			W	78,245			W	50,803			W	1,440,715
2010			1,490,000				—				1,490,000				63,710				78,594				1,632,304
2011			1,255,000				774,209				2,029,209				68,789				46,583				2,144,581
2012			580,000				389,825				969,825				5,238				8,048				983,111
2013			730,000				251,500				981,500				1,519				4,024				987,043
Thereafter			600,000				1,634,750				2,234,750				8,428				—				2,243,178
Total		W	5,966,667			W	3,050,284			W	9,016,951			W	225,929			W	188,052			W	9,430,932

57

14. PROVISIONS

Changes in provisions for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):

		2007
		January 1,				Increase				Decrease												December 31,
		2007				(Note 7)				Reversal				Use				Other, net				2007
Current portion:
Litigation (Note 1)		W	4,991			W	34,269			(W	4,970	)		(W	1,441	)		W	—			W	32,849
KT members points (Note 2)			1,402				1,600				—				(1,251	)			—				1,751
Let’s 010 call bonus points (Note 5)			497				—				—				(535	)			4,370				4,332
Sales warranty (Note 3)			3,505				10,549				—				(8,642	)			—				5,412
Others			305				2,902				(12	)			(122	)			—				3,073
Sub total			10,700				49,320				(4,982	)			(11,991	)			4,370				47,417
Non-current portion:
KT points (Note 4)			72,693				—				(44,097	)			(8,509	)			—				20,087
Let’s 010 call bonus points (Note 5)			17,758				—				(829	)			(5,492	)			(6,800	)			4,637
Others			1,617				133				(1,037	)			(17	)			—				696
Sub total			92,068				133				(45,963	)			(14,018	)			(6,800	)			25,420
Total		W	102,768			W	49,453			(W	50,945	)		(W	26,009	)		(W	2,430	)		W	72,837

		2008
		January 1,								Decrease												December 31,
		2008				Increase				Reversal				Use				Other, net				2008
Current portion:
Litigation (Note 1)		W	32,849			W	18,748			(W	1	)		(W	32,024	)		W	—			W	19,572
KT members points (Note 2)			1,751				257				(1,045	)			(282	)			—				681
KT points (Note 4)			—				—				—				(5,414	)			10,188				4,774
Let’s 010 call bonus points (Note 5)			4,332				—				—				(4,493	)			5,665				5,504
Sales warranty (Note 3)			5,412				8,623				—				(8,736	)			—				5,299
Others			3,073				5,908				(7	)			(5,989	)			—				2,985
Sub total			47,417				33,536				(1,053	)			(56,938	)			15,853				38,815
Non-current portion:
KT points (Note 4)			20,087				—				(2,800	)			—				(10,188	)			7,099
Let’s 010 call bonus points (Note 5)			4,637				6,137				—				—				(5,665	)			5,109
Asset retirement obligation (Note 6)			—				20,382				—				—				51,151				71,533
Others			696				925				(216	)			—				—				1,405
Sub total			25,420				27,444				(3,016	)			—				35,298				85,146
Total		W	72,837			W	60,980			(W	4,069	)		(W	56,938	)		W	51,151			W	123,961

58

(Note 1)		The amount recognized as the litigation provision is the estimate of payments required to settle the obligation.
(Note 2)		The Company recorded provisions for the KT members’ points, for VIP customers of the fixed-line or mobile telephone users who are entitled to receive certain goods and other benefits with W25,000 per person.
(Note 3)		KTFT, a subsidiary, recorded sales warranty provisions based on the estimated warranty cost for the products sold. Sales warranty provisions are calculated in proportion to cost of goods sold based on the historical defect experiences.
(Note 4)		The amount recognized as the call bonus points represents the estimate of payments for KT 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 provided to its PCS subscribers who are entitled to receive certain goods and other benefits from the Company.
(Note 6)		When the Company is responsible for restoration of leased facility after termination of the lease contract, the present value of expected future expenditure for the restoration is recorded as a liability.
(Note 7)		Amount until the date of acquisition of the newly consolidated entities in 2007 was excluded.

59

15. LEASE

	a.		Lessees
			Property and equipment acquired through lease arrangements with GE Capital and others as of December 31, 2007 and 2008 are as follows:

	1)		Finance Lease
			Property and equipment acquired through finance lease arrangements with GE Capital as of December 31, 2007 and 2008 are as follows (in millions of Korean won):

		2007				2008
Acquisition cost		W	66,965			W	67,208
Accumulated depreciation			(44,482	)			(53,596	)
Net balance		W	22,483			W	13,612
Depreciation		W	14,742			W	8,852

Annual future lease payments of such leases as of December 31, 2008 are as follows (in millions of Korean won):

Year ending December 31,		Lease payment
2009		W	11,038
2010~2013			7,588
Total			18,626
Less amounts representing interest			(1,139	)
Principal amount			17,487
Less current portion			(10,185	)
Net		W	7,302

	2)		Operating Lease
			Annual future lease payments of operating lease arrangements with HP Financial Co., Ltd. and others as of December 31, 2008 are as follows (in millions of Korean won):

Year ending December 31,		Lease payment
2009		W	1,040
2010			184
Total		W	1,224

60

b. Lessors

	1)		Finance Lease
			The present values of minimum lease payments and gross investments in the leased assets provided by the Company as of December 31, 2008 are as follows (in millions of Korean won):

Year ending December 31,		Lease payment
2009		W	185,312
2010~2013			290,552
Thereafter			5,608
Total			481,472
Less amounts representing interest			(3,722	)
Principal amount			477,750
Less current portion			(183,309	)
Net		W	294,441

	2)		Operating Lease
			Annual future lease receipts from operating lease arrangements to be recognized by the Company as of December 31, 2008 are as follows (in millions of Korean won):

Year ending December 31,		Lease payment
2009		W	36,556
2010~2013			27,218
Total		W	63,774

16. REFUNDABLE DEPOSITS FOR TELEPHONE INSTALLATION

Through September 15, 1998, the Company received deposits for telephone installation in accordance with the Korea Public Telecommunication Business Law. Such deposits (which are reflected as a liability) are to be refunded without interest to the telephone subscribers upon termination of service.

Beginning on September 15, 1998, the Company allowed customers to choose between alternative plans for basic telephone service. Under such plans, customers were permitted the option to either place fully refundable deposits or pay a reduced non-refundable service initiation fee. Effective April 15, 2001, all new customers are required to pay a non-refundable service initiation fee.

61

17. ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

Significant assets and liabilities denominated in foreign currencies (excluding those held by overseas subsidiaries) as of December 31, 2007 and 2008 are summarized as follows (in millions of Korean won and thousands of foreign currencies):

		2007								2008
		Foreign				Korean won				Foreign				Korean won
		currencies				equivalent				currencies				equivalent
Assets:
Cash and cash equivalents		USD	18,346			W	17,211			USD	26,124			W	32,851
		JPY	12,067				101			JPY	20,278				282
Short-term investment assets		USD	15,327				14,380			USD	15,327				19,273
Accounts receivable — trade		USD	168,404				157,996			USD	164,536				206,905
		JPY	6,898				57			JPY	178,880				2,493
		SDR	19,033				28,187			SDR	17,623				34,301
		EUR	286				395			EUR	486				864
Loans		USD	23,000				21,579			USD	49,000				61,618
Accounts receivable — other		USD	506				476			USD	2,975				3,741
			—				—			JPY	2,139				30
Guarantee deposits		USD	557				523			USD	557				700
Deposits provided		USD	24				22			USD	10				12
		USD	226,164							USD	258,529
		JPY	18,965							JPY	201,297
		SDR	19,033							SDR	17,623
Total assets		EUR	286			W	240,927			EUR	486			W	363,070
Liabilities:
Accounts payable — trade		USD	158,782			W	148,969			USD	135,049			W	169,824
		JPY	107,080				892			JPY	134,945				1,882
		SDR	16,350				24,213			SDR	12,413				24,160
		EUR	123				170			EUR	468				831
		AUD	112				92			AUD	17				15
Accounts payable — other		USD	18,180				17,057			USD	2,227				2,800
		JPY	507,945				4,233				—				—
		GBP	194				363			GBP	1				2
		KWD	4				13				—				—
		EUR	540				745			EUR	25				44
			—				—			CNY	6				1
			—				—			HKD	17				3
		USD	25,067				23,517			USD	2,601				3,271
Short-term borrowings		JPY	267,296				2,227			JPY	58,587				817
Withholdings		USD	39				37			USD	215				271
Accrued expenses		USD	524				492			USD	1,470				1,849
		EUR	15				21			EUR	15				26
Current portion of bonds and long-term borrowings			—				—			USD	6,400				8,048
Key money deposits			—				—			USD	14				18
Bonds and long-term borrowings		USD	1,523,000				1,428,879			USD	2,271,400				2,856,286
			—				—			JPY	19,500,000				271,808
		USD	1,725,592							USD	2,419,376
		SDR	16,350							SDR	12,413
		EUR	678							EUR	508
		AUD	112							AUD	17
		JPY	882,321							JPY	19,693,532
		GBP	194							GBP	1
		KWD	4								—
			—							CNY	6
Total liabilities			—			W	1,651,920			HKD	17			W	3,341,956

62

18. TRANSACTIONS AND BALANCES WITH RELATED PARTIES

KT’s significant account balances with related parties as of December 31, 2007 and 2008 are summarized as follows (in millions of Korean won):

Related party		Account				2007				2008
Subsidiary:
KTF		Receivables				W	47,850			W	52,750
		Payables					188,701				172,700
		Key money deposits received					23,988				21,392
KTH		Receivables					777				1,320
		Accrued expenses					12,943				12,046
KTN		Receivables					7,351				5,413
		Payables					45,508				42,912
KTL		Receivables					681				99
		Payables					20,408				24,188
KTFT		Receivables					629				2,496
		Payables					13,010				11,117
KTC		Receivables					1,844				2,010
		Payables					15,298				19,403
KTR		Receivables					1,077				60
		Payables					58,912				56,128
KTP		Receivables					776				1,225
		Payables					50				1,474
KT Capital		Receivables					4				1
		Payables					3,823				42,074
KTDS		Receivables					—				5
		Payables					—				27,864
Others		Receivables					3,933				3,275
		Payables					8,379				4,203
Equity method investee:
KDB		Receivables					6,944				6,453
		Payables					7,682				7,308
KID		Receivables					1,074				1,269
		Payables					15,763				14,700
CURD (formerly, “KNRDC”)		Receivables					33				1
		Payables					11,486				4,415
KIS		Receivables					18				570
		Payables					12,211				8,514
Goodmorning F Co., Ltd.		Payables					8,267				7,266
eNtoB Corp.		Payables					17,198				10,585
Korea Seoul Contact all Co., Ltd.		Payables					3,482				4,829
Korea Service and Communication Co., Ltd.		Payables					2,768				3,247
Korea Call Center Co., Ltd.		Payables					2,395				3,231
TMworld Co., Ltd.		Payables					2,364				3,217
UMS&C		Payables					2,582				3,075
Information Technology Service Bukbu Corporation		Payables					—				3,854
Information Technology Solution Nambu Corporation		Payables					—				4,606
Information Technology Solution Seobu Corporation		Payables					—				3,777
Information Technology Solution Busan Corporation		Payables					—				4,321
Information Technology Solution Jungbu Corporation		Payables					—				4,310
Information Technology Solution Honam Corporation		Payables					—				3,713
Information Technology Solution Daegu Corporation		Payables					—				2,567
Other		Receivables					14				738
		Payables					1,110				3,289
		Receivables				W	73,005			W	77,685
Total		Payables				W	478,328			W	536,325

63

Significant transactions between KT and its related parties for the years ended December 31, 2007 and 2008 are summarized as follows (in millions of Korean won):

Related party		Transactions				Account				2007				2008
Subsidiary:
KTF		Leased line charges and other				Operating revenue				W	451,668			W	443,880
		Purchase of PCS networks and other				Operating expense					761,299				756,002
KTH		Leased line charges and other				Operating revenue					5,071				10,935
		Commission and other				Operating expense					46,510				45,396
KTN		Leased line charges and other				Operating revenue					38,663				38,970
		Cost of system integration (“SI”), network integration business and other				Operating expense					147,994				178,408
KTL		Leased line charges and other				Operating revenue					1,710				1,311
		Commissions and other				Operating expense					86,188				79,428
KTFT		Telecommunication revenue and other				Operating revenue					3,327				2,347
		Cost of goods sold and other				Operating expense					88,443				52,847
KTC		Telecommunication revenue and other				Operating revenue					1,027				1,912
		Commissions and other				Operating expense					24,226				22,573
KTR		Telecommunication revenue and other				Operating revenue					2,600				2,232
		Commissions and other				Operating expense					42,991				44,917
KTP		Telecommunication revenue and other				Operating revenue					12,655				10,716
		Commissions and other				Operating expense					1,071				946
KT Capital		Telecommunication revenue and other				Operating revenue					45				87
		Interest expense of lease and other				Operating expense					88				2,129
KTDS		Telecommunication revenue and other				Operating revenue					—				3,106
		Commissions and other				Operating expense					—				55,101
Other		Telecommunication revenue and other				Operating revenue					11,043				12,815
		Commissions and other				Operating expense					23,722				26,116
Equity method investee:
KDB		SI revenue and other				Operating revenue					86,363				77,414
		Commission and other				Operating expense					5,497				1,822
KID		Rent and other				Operating revenue					12,419				14,051
		Commission and other				Operating expense					95,117				91,034
Goodmorning F Co., Ltd.		Telecommunication revenue and other				Operating revenue					494				487
		Commission and other				Operating expense					47,789				42,830
CURD (formerly, “KNRDC”)		Telecommunication revenue and other				Operating revenue					773				459
		Commission and other				Operating expense					38,773				23,008
KIS		Telecommunication revenue and other				Operating revenue					18,064				17,298
		Commission and other				Operating expense					68,892				50,403
eNtoB Corp.		Commission and other				Operating expense					129,802				110,753
MOS facilities (formerly, “Mostech”)		Telecommunication revenue and other				Operating revenue					207				342
		Commission and other				Operating expense					13,387				8,107
Korea Seoul Contact all Co., Ltd.		Commission and other				Operating expense					37,184				41,426
Korea Service and Communication Co., Ltd.		Commission and other				Operating expense					30,428				30,761
Korea Call Center Co., Ltd.		Commission and other				Operating expense					27,460				28,965
TMworld Co., Ltd.		Commission and other				Operating expense					26,983				29,478
UMS&C		Commission and other				Operating expense					26,434				29,921
Information Technology Service Bukbu Corporation		Commission and other				Operating expense					—				11,802
Information Technology Solution Nambu Corporation		Commission and other				Operating expense					—				13,954
Information Technology Solution Seobu Corporation		Commission and other				Operating expense					—				12,430
Information Technology Solution Busan Corporation		Commission and other				Operating expense					—				11,282
Information Technology Solution Jungbu Corporation		Commission and other				Operating expense					—				12,569
Information Technology Solution Honam Corporation		Commission and other				Operating expense					—				11,907
Information Technology Solution Daegu Corporation		Commission and other				Operating expense					—				6,690
Other		Telecommunication revenue and other				Operating revenue					3,020				8,218
		Commission and other				Operating expense					2,261				16,413
Total						Revenues				W	649,149			W	646,580
						Expenses				W	1,772,539			W	1,849,418

64

Compensation to KT’s key management personnel for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):

		2007				2008				Description
Benefits		W	19,397			W	20,203			Salaries, bonuses and other allowances, retirement benefits, medical benefits and other
Share-based payment			1,047				1,420			Stock grants and others
Total		W	20,444			W	21,623

KT considers its 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.

Significant account balances amongst subsidiaries as of December 31, 2007 and 2008 are as follows (in millions of Korea won):

Creditor		Debtor				Account				2007				2008
KTFT		KTF				Accounts receivable—trade				W	92,269			W	59,902
KTR		KTP				Long-term accounts receivable—trade and others					31,303				29,164
Other											35,066				68,261
						Total				W	158,638			W	157,327

Significant transactions amongst subsidiaries for the years ended December 31, 2007 and 2008 are as follows (in millions of Korea won):

Seller		Purchaser				2007				2008
KTFT		KTF				W	358,150			W	304,361
KTF		KTF M&S					137,602				398,556
Other							163,213				412,795
		Total				W	658,965			W	1,115,712

As of December 31, 2008, the Company has provided guarantees for related parties as follows (in millions of Korean won):

Guarantor

Guarantee

Description

Amount

KTN

KTR

Guarantee for loan

W

10,352

KTF Music

Music City Media

Joint liability on guarantee for borrowings

61

Olive Nine

Olive Nine Entertainment

Joint liability on guarantee for borrowings

34

Total

W

10,447

65

19. COMMON STOCK AND CAPITAL SURPLUS

As of December 31, 2008, the Company’s number of shares authorized are 1,000,000,000 shares with par value of W5,000 per share.

As of December 31, 2008 and 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 W1,560,998 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 December 31, 2008 and 2007, respectively. Therefore, the common stock amount differs from the amount resulting from multiplying the number of shares issued by W5,000 par value of common stock.

20. RETAINED EARNINGS RESTRICTED IN USE

Retained earnings appropriated to the legal reserve cannot be used as cash dividends under the applicable laws and regulations. The Korean Commercial Code requires the Company to appropriate an amount equal to at least 10% of the cash dividend amount to a legal reserve at the end of the year for each accounting period until the reserve equals 50% of stated capital. The legal reserve may be used to reduce a deficit or may be transferred to capital.

In accordance with the relevant tax laws, the Company is allowed to appropriate a reserve for technology and human resource development to recognize certain tax deductible benefits through the early recognition of future expenditures for tax purposes. This reserve used for its original purpose and the remaining balance after use are restored to retained earnings and may be used for dividends in accordance with the relevant tax laws.

21. COMPREHENSIVE INCOME

Comprehensive income for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):

Description		2007				2008
Net income		W	1,170,978			W	513,290
Cumulative effect of changes in accounting policies			—				3,852
Other comprehensive income (loss):
Gain on translation of foreign operations			55				13,559
Loss on translation of foreign operations (Tax effect: W5,005 million for 2007 and (W3,632) million for 2008)			22,136				11,779
Unrealized gain on available-for-sale securities (Tax effect: W1,189 million for 2007 and W2,988 million for 2008)			4,164				(8,939	)
Unrealized loss on available-for-sale securities (Tax effect: W1,872 million for 2008)			—				(7,545	)
Increase in equity of associates (Tax effect: (W2,789) million for 2007 and W3,779 million for 2008)			(714	)			9,954
Decrease in equity of associates (Tax effect: (W4,942) million for 2007 and (W6,517) million for 2008)			3,762				961
Unrealized gain on valuation of derivatives (Tax effect: (W768) million for 2007 (W2,288) million for 2008)			2,024				9,374
Unrealized loss on valuation of derivatives (Tax effect: W4,989 million for 2008)			—				(18,370	)
Comprehensive income		W	1,202,405			W	527,915
Attributable to : Equity holders of the parent		W	1,082,829			W	462,258
Minority interests			119,576				65,657
		W	1,202,405			W	527,915

66

22. SHARE-BASED PAYMENT

KT 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 December 31, 2008		300,415		3,000		—		40,000		—
Number of additional shares related to business performance as of December 31, 2008		71,217		—		—		3,153		—
Number of shares expected to be exercised		371,632		3,000		—		43,153		—
Fair value (in Korean won)		W22,364		W12,443		W10,926		W12,322		W10,530
Total compensation cost (in millions of Korean won)		W8,311		W38		W—		W531		W—
Exercise price (in Korean won)		W70,000		W57,000		W65,000		W54,600		W50,400
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.

KT 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%

67

Of total compensation costs calculated using the fair value method, the compensation costs recognized through December 31, 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		W	10,602			W	453			W	1,160			W	749			W	586			W	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 already recognized but expired			—				—				—				—				—				—
Compensation costs to be reflected in the current period			—				—				—				—				—				—
Compensation costs recognized in the current period			—				—				—				—				—				—
Compensation costs to be recognized after the current period			—				—				—				—				—				—

Details of stock grants to directors including chief executive officer after January 1, 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 upon grant		23,925 shares		29,481 shares
Vesting Conditions		Service condition: one year Non-market performance condition:		Service condition: one year Non-market performance condition:
		achievement of performance		achievement of performance
Fair value per option (in Korean won)		W42,706		W48,160
Total compensation costs (in Korean won)		W1,022million		W1,420million
Estimated exercise date		March 29, 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 for the year ended December 31, 2008 as follows (in millions of Korean won):

		1st grant				2nd grant
Total compensation costs		W	1,022			W	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			—				1,420
Compensation costs to be recognized after the current period		W	—			W	—

68

23. TREASURY STOCK

Changes in KT’s treasury stock for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won except for share data):

		2007
		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			W	3,733,861				4,425,000			W	196,329				(16,645	)			(W884	)			(4,425,000	)			(W196,329	)			70,256,407			W	3,732,977
Indirect purchase through trust agreement and other			1,259,170				92,711				—				—				—				—				—				—				1,259,170				92,711
			71,532,222			W	3,826,572				4,425,000			W	196,329				(16,645	)			(W884	)			(4,425,000	)			(W196,329	)			71,515,577			W	3,825,688

		2008
		January 1, 2008								Increase								Disposal								Retirement								December 31, 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			W	3,732,977				1,666,700			W	73,807				(15,173	)			(W807	)			(1,666,700	)			(W73,807	)			70,241,234			W	3,732,170
Indirect purchase through trust agreement and other			1,259,170				92,711				—				—				—				—				—				—				1,259,170				92,711
			71,515,577			W	3,825,688				1,666,700			W	73,807				(15,173	)			(W807	)			(1,666,700	)			(W73,807	)			71,500,404			W	3,824,881

Above treasury stocks are expected to be used for the stock compensation to the Company’s directors and employees, swap with KTF stocks in the expected merger with KTF and other purposes.

24. OPERATING REVENUES

Operating revenues for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):

		2007				2008
Internet services		W	2,497,897			W	2,678,513
Data communication services			1,270,607				1,335,728
Telephone services			5,592,349				5,199,711
PCS services			5,874,610				6,261,045
PCS handsets sales			2,323,828				2,867,216
Other			1,100,791				1,302,330
Total		W	18,660,082			W	19,644,543

69

25. CONSTRUCTION CONTRACTS

Details of construction contracts as of December 31, 2007 and 2008 are as follows (in millions of Korean won):

		2007
		Beginning contract								Recognized as				Ending contract
		balance				Increase				revenue (Note)				balance
Jungja Dong, Suwon		W	27,158			W	37			(W	26,916	)		W	279
Sungsu Dong, Seoul			116,967				1,600				(54,731	)			63,836
Bugae Dong, Incheon			184,179				6,260				(33,347	)			157,092
Total		W	328,304			W	7,897			(W	114,994	)		W	221,207

		2008
		Beginning contract								Recognized as				Ending contract
		balance				Increase				revenue (Note)				balance
Jungja Dong, Suwon		W	279			W	—			(W	279	)		W	—
Sungsu Dong, Seoul			63,836				—				(50,308	)			13,528
Bugae Dong, Incheon			157,092				—				(78,220	)			78,872
Sungsu-dong, Seoul (factory building)			—				64,689				(212	)			64,477
Total		W	221,207			W	64,689			(W	129,019	)		W	156,877

(Note) These revenues are classified as other in operating revenues.

70

26. OPERATING EXPENSES

Operating expenses for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):

		2007				2008
Salaries and wages		W	2,242,295			W	2,281,587
Share-based payment			1,251				1,922
Severance indemnities			360,476				362,342
Employee welfare			528,902				567,878
Travel			38,568				31,725
Communications			76,983				58,981
Electric and water charges			245,231				248,848
Taxes and dues			195,874				200,287
Supplies			37,765				37,541
Publications			6,281				5,215
Rent			226,327				249,827
Depreciation			3,193,591				3,214,325
Amortization			408,611				415,393
Repairs			288,715				207,332
Maintenance			322,364				373,006
Automobile maintenance			30,637				20,337
Insurance			23,157				30,003
Commissions			1,147,640				1,489,471
Advertising			274,450				221,779
Education and training			31,331				29,432
Praise and reward			11,168				12,707
Research			238,722				235,508
Development			52,288				47,639
Interconnection charges			1,200,373				1,234,474
Cost of services			776,782				525,527
International settlement payment			216,962				263,464
Cost of goods sold			1,911,897				2,367,211
Promotion			749,029				1,079,580
Sales commission			1,902,106				2,129,674
Provision for doubtful accounts			71,502				150,583
Other			145,747				163,380
Sub-total			16,957,025				18,256,978
Less : transfer to other accounts			(42,284	)			(40,197	)
		W	16,914,741			W	18,216,781

71

27. INCOME TAX EXPENSE

a. Components of income tax expense for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):

		2007				2008
Current income tax expense (including additional income taxes and tax refunds)		W	402,254			W	294,620
Changes in deferred income tax assets and liabilities related to temporary differences (including tax loss and credits carryforwards) (Note)			(45,506	)			(126,811	)
Income tax expense directly reflected in stockholders’ equity			51				50
Income tax expense		W	356,799			W	167,859

(Note) Changes in deferred income tax assets and liabilities related to temporary differences (in millions of Korean won):

		2007				2008
Ending deferred income tax assets		W	349,058			W	482,721
Beginning deferred income tax assets			(305,856	)			(349,058	)
Changes in deferred income tax assets (liabilities) directly added to (deducted from) stockholders’ equity			2,304				(3,000	)
Other			—				(3,852	)
Changes in deferred income tax assets		W	45,506			W	126,811

b. An explanation of the relationship between income tax expense and income from continuing operations before income tax expense for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):

		2007				2008
Income from continuing operations before income tax expense		W	1,447,763			W	681,149
Income tax expense at statutory income tax rate (For 2007 : Less than W100 million: 14.3% Over         W100 million: 27.5%  For 2008 : Less than W200 million: 12.1% Over         W200 million: 27.5%)			398,123				187,285
Differences (Note)			(41,324	)			(19,426	)
Income tax expense on continuing operations		W	356,799			W	167,859
Effective tax rates			24.64	%			24.64	%
(Note) Differences :
Non-temporary difference		W	18,704			W	25,412
Changes in deferred income tax assets (liabilities) unrecognized related to equity method investment securities			37,987				91,072
Tax credit			(121,159	)			(203,070	)
Additional income tax and tax refund for prior periods			30,545				(4,377	)
Tax rate changes			—				72,839
Other			(7,401	)			(1,302	)
		(W	41,324	)		(W	19,426	)

72

c. Changes in temporary differences, including tax loss and credits carryforwards, and deferred income tax assets (liabilities) for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):

		2007
						Final tax																Deferred income tax assets
						return																(liabilities)
		January 1,				amount												December 31,
		2007				(Note 1)				Increase				Decrease				2007				Current				Non-current
(Deductible temporary differences)
Allowance for doubtful accounts		W	490,318			W	419,703			W	—			(W	61,625	)		W	358,078			W	92,990			W	5,480
Inventories			42,972				42,256				—				(7,277	)			34,979				9,619				—
Derivative instruments			158,962				158,746				5,975				—				164,721				45,298				—
Available-for-sale securities			18,941				19,009				—				(5,727	)			13,282				—				3,653
Equity method investment securities			1,301,777				1,301,777				118,542				(19,496	)			1,400,823				—				385,226
Contribution for construction			176,404				176,404				29,204				—				205,608				—				56,542
Accrued expenses			238,753				246,775				51,146				—				297,921				81,928				—
Provisions			102,768				113,234				—				(29,315	)			83,919				19,275				3,802
Provision for severance indemnities			772,554				775,962				232,432				—				1,008,394				—				277,309
Refundable deposits for telephone installation			56,851				56,851				—				(2,851	)			54,000				—				14,850
Other			19,173				111,793				37,789				—				149,582				(19,583	)			60,720
Sub total			3,379,473			W	3,422,510			W	475,088			(W	126,291	)			3,771,307				229,527				807,582
Not recognized as deferred income tax assets (Note 2)			(1,417,575	)															(1,559,920	)			(3,320	)			(425,659	)
Recognized as deferred income tax assets			1,961,898																2,211,387				226,207				381,923
Tax rate (Note 3)			27.5	%															27.5	%
Deferred income tax assets			539,522																608,130				226,207				381,923

73

		2007
						Final tax																Deferred income tax assets
						return																(liabilities)
		January 1,				amount												December 31,
		2007				(Note 1)				Increase				Decrease				2007				Current				Non-current
(Taxable temporary differences)
Accrued interest income		(W	5,305	)		(W	5,589	)		(W	527	)		W	—			(W	6,116	)		(W	1,682	)		W	—
Equity method investment securities			(82,043	)			(82,043	)			(40,026	)			—				(122,069	)			—				(33,569	)
Depreciation			(96,013	)			(98,339	)			—				60,105				(38,234	)			—				(10,515	)
Deposits for severance indemnities			(746,828	)			(749,807	)			(220,946	)			—				(970,753	)			—				(266,956	)
Derivative instruments			—				—				(2,792	)			—				(2,792	)			—				(768	)
Reserve for technology and human resource development			(320,000	)			(320,000	)			—				106,667				(213,333	)			—				(58,667	)
Sub total			(1,250,189	)		(W	1,255,778	)		(W	264,291	)		W	166,772				(1,353,297	)			(1,682	)			(370,475	)
Not recognized as deferred income tax liabilities (Note 2)			82,043																122,069				—				33,569
Recognized as deferred income tax liabilities			(1,168,146	)															(1,231,228	)			(1,682	)			(336,906	)
Tax rate (Note 3)			27.5	%															27.5	%
Deferred income tax liabilities			(321,240	)															(338,588	)			(1,682	)			(336,906	)
(Tax loss carryforwards)
Total loss carryforwards			70,143																67,377				—				18,529
Not recognized as deferred income tax assets (Note 4)			—																(38,428	)			—				(10,568	)
Recognized as deferred income tax assets			70,143																28,949				—				7,961
Tax rate (Note 3)			27.5	%															27.5	%
Deferred income tax assets			19,289																7,961				—				7,961
(Tax credit carryforwards)
Total tax credit			101,695																111,456				—				111,456
Not recognized as deferred income tax assets			(16,905	)															(22,991	)			—				(22,991	)
Recognized as deferred income tax assets			84,790																88,465				35,000				36,555
Deferred income tax assets			68,285																71,555				35,000				36,555
Deferred income tax assets, net		W	305,856															W	349,058			W	259,525			W	89,533

74

		2008
						Final tax																Deferred income tax assets
						return																(liabilities)
		January 1,				amount												December 31,
		2008				(Note 1)				Increase				Decrease				2008				Current				Non-current
(Deductible temporary differences)
Allowance for doubtful accounts		W	358,078			W	457,474			W	253,716			(W	213,518	)		W	497,672			W	113,861			W	5,994
Inventories			34,979				137,182				20,435				(137,225	)			20,392				628				3,915
Derivative instruments			164,721				38,474				11,729				(22,701	)			27,502				6,655				—
Available-for-sale securities			13,282				24,462				15,105				(230	)			39,337				—				8,840
Equity method investment securities			1,400,823				1,532,097				239,810				(7,022	)			1,764,885				—				388,275
Contribution for construction			205,608				205,610				27,496				—				233,106				—				51,283
Accrued expenses			297,921				149,058				212,483				(138,951	)			222,590				53,825				—
Provisions			83,919				88,036				139,193				(44,673	)			182,556				35,845				7,577
Provision for severance indemnities			1,008,394				1,019,900				151,580				(19,177	)			1,152,303				—				253,508
Refundable deposits for telephone installation			54,000				54,000				—				(3,068	)			50,932				—				11,205
Other			149,582				275,449				983,596				(118,633	)			1,140,412				56,751				199,485
Sub total			3,771,307			W	3,981,742			W	2,055,143			(W	705,198	)			5,331,687				267,565				930,082
Not recognized as deferred income tax assets (Note 2)			(1,559,920	)															(1,861,675	)			(16,330	)			(395,012	)
Recognized as deferred income tax assets			2,211,387																3,470,012				251,235				535,070
Tax rate (Note 3)			27.5	%															24.2%, 22	%
Deferred income tax assets			608,130																786,305				251,235				535,070

75

		2008
						Final tax																Deferred income tax assets
						return																(liabilities)
		January 1,				amount												December 31,
		2008				(Note 1)				Increase				Decrease				2008				Current				Non-current
(Taxable temporary differences)
Accrued interest income		(W	6,116	)		(W	8,750	)		(W	5,959	)		W	3,057			(W	11,652	)		(W	2,674	)		(W	124	)
Equity method investment securities			(122,069	)			(229,851	)			(82,002	)			2,517				(309,336	)			—				(68,055	)
Depreciation			(38,234	)			(31,906	)			—				8,311				(23,595	)			—				(5,191	)
Deposits for severance indemnities			(970,753	)			(980,981	)			(136,824	)			5,959				(1,111,846	)			—				(244,640	)
Derivative instruments			(2,792	)			(9,126	)			(497,413	)			22				(506,517	)			(40,974	)			(74,184	)
Reserve for technology and human resource development			(213,333	)			(213,333	)			—				106,666				(106,667	)			(25,813	)			—
Sub total			(1,353,297	)		(W	1,473,947	)		(W	722,198	)		W	126,532				(2,069,613	)			(69,461	)			(392,194	)
Not recognized as deferred income tax liabilities (Note 2)			122,069																119,892				—				26,377
Recognized as deferred income tax liabilities			(1,231,228	)															(1,949,721	)			(69,461	)			(365,817	)
Tax rate (Note 3)			27.5	%															24.2%, 22	%
Deferred income tax liabilities			(338,588	)															(435,278	)			(69,461	)			(365,817	)
(Tax loss carryforwards)
Total loss carryforwards			67,377																223,560				—				49,183
Not recognized as deferred income tax assets (Note 4)			(38,428	)															(220,869	)			—				(48,591	)
Recognized as deferred income tax assets			28,949																2,691				—				592
Tax rate (Note 3)			27.5	%															24.2%, 22	%
Deferred income tax assets			7,961																592				—				592
(Tax credit carryforwards)
Total tax credit			111,456																153,193				75,116				78,077
Not recognized as deferred income tax assets			(22,991	)															(22,091	)			(6,949	)			(15,142	)
Recognized as deferred income tax assets			88,465																131,102				68,167				62,935
Deferred income tax assets			71,555																131,102				68,167				62,935
Deferred income tax assets, net		W	349,058															W	482,721			W	249,941			W	232,780

76

(Note 1)		Tax effects from true-up for prior year tax return arising from temporary difference and non-temporary differences were adjusted in deferred income tax assets and current earnings, respectively. Changes in temporary difference resulting from tax investigation in the current period were adjusted in final tax return amount.
(Note 2)		The Company did not recognize deferred income tax assets of W381,489 million related to the tax effects of deductible temporary differences from equity in losses since it was not almost certain that the Company would be able to realize the related tax benefits in the foreseeable future. The Company also did not recognize deferred income tax liabilities totaling W26,377 million since it is almost certain that the differences will not reverse in the foreseeable future given that the Company is able to control the timing of reversal of the temporary difference and the investees have not declared dividends in the past 5 years. Meanwhile, certain subsidiaries including KTR did not recognize deferred income tax assets amounting to W29,853 million which resulted from the tax effects of deductible temporary differences of W128,473 million in excess of taxable differences and future taxable income.
(Note 3)		Tax rate is the enacted marginal tax rate which is expected to apply to taxable income in the periods in which the deferred income tax liability or asset is expected to be settled or realized
(Note 4)		Certain subsidiaries including TSC did not recognize deferred income tax assets amounting to W48,591 million which resulted from the tax effects of tax loss carryforwards of W220,869 million in excess of taxable differences and future taxable income. Meanwhile, the tax loss carryforwards will be expired through 2013.

d. Deferred income tax assets (liabilities) and income tax benefits (expenses) added to (deducted from) stockholders’ equity as of December 31, 2007 and 2008 are as follows (in millions of Korean won):

		2007								2008
		Income tax				Deferred income tax				Income tax				Deferred income tax
		expense				assets (liabilities)				expense				assets (liabilities)
Gain on disposal of treasury stock (capital surplus)		(W	196	)		W	—			(W	144	)		W	—
Other capital adjustment			—				(5,956	)			—				(4,147	)
Gain on translation of foreign operations			—				—				—				—
Loss on translation of foreign operations			—				5,005				—				1,373
Gain on valuation of available-for-sale securities			—				(3,218	)			—				(230	)
Loss on valuation of available-for-sale securities			—				—				—				1,872
Gain on valuation of derivatives for cash flow hedge			—				(768	)			—				(3,056	)
Loss on valuation of derivatives for cash flow hedge			—				—				—				4,989
Increase in equity of associates			—				(3,791	)			—				(12	)
Decrease in equity of associates			—				7,688				—				1,171
Total		(W	196	)		(W	1,040	)		(W	144	)		W	1,960

77

28. INCOME FROM DISCONTINUING OPERATIONS

Korea Telecom Venture Fund No.1 (the “Fund”) and KTPI are excluded from the consolidation as of December 31, 2007. The Fund and KTPI’s net income (loss) for the year ended December 31, 2007 is reclassified into income (loss) from discounting operations as follows (in millions of Korean won):

		2007
		Fund No.1				KTPI				Total
Operating and non-operating Income (loss) from discontinuing operations		W	388			(W	38,727	)		(W	38,339	)
Reversal of cumulative loss from discontinuing operations (Note 1)			—				112,543				112,543
Income (loss) from discontinuing operations (Note 2)		W	388			W	73,816			W	74,204

(Note 1)		Since future outflows of economic resources from the cumulative loss totaling W112,543 million of KTPI are not expected, the cumulative loss was reversed as income.
(Note 2)		There were no tax effects for income (loss) from discontinuing operations for the year ended December 31, 2007.

29. INCOME PER SHARE

The Company’s net income per share for the years ended December 31, 2007 and 2008 are computed as follows (in millions of Korean won, except for per share data):

a. Basic Income Per Share From Continuing Operations

		2007				2008
Income from continuing operations		W	982,093			W	449,810
Weighted average number of common shares outstanding			206,599,294				202,891,015
Basic income per share from continuing operations (in Korean won)		W	4,754			W	2,217

b. Basic Income Per Share From Discontinuing Operations

		2007				2008
Income from discontinuing operations		W	74,134			W	—
Weighted average number of common shares outstanding			206,599,294				202,891,015
Basic income per share from discontinuing operations (in Korean won)		W	358			W	—

c. Basic Net Income Per Share

		2007				2008
Net income		W	1,056,227			W	449,810
Weighted average number of common shares outstanding			206,599,294				202,891,015
Basic net income per share (in Korean won)		W	5,112			W	2,217

78

d. Diluted Income Per Share From Continuing Operations

		2007				2008
Income from continuing operations		W	982,093			W	449,810
Adjusted income from continuing operations			982,093				449,810
Adjusted weighted average number of common shares outstanding			206,599,294				202,891,015
Number of shares with dilutive effects			—				—
Diluted income per share from continuing operations (in Korean won)		W	4,754			W	2,217

e. Diluted Income Per Share From Discontinuing Operations

		2007				2008
Income from discontinuing operations		W	74,134			W	—
Adjusted income from discontinuing operations			74,134				—
Weighted average number of common shares outstanding			206,599,294				202,891,015
Number of shares with dilutive effects			—				—
Diluted income per share from discontinuing operations (in Korean won)		W	358			W	—

f. Diluted Net Income Per Share

		2007				2008
Net income		W	1,056,227			W	449,810
Adjusted net income			1,056,227				449,810
Adjusted weighted average number of common shares outstanding			206,599,294				202,891,015
Number of shares with dilutive effects			—				—
Diluted net income per share (in Korean won)		W	5,112			W	2,217

Meanwhile, basic net income per share is computed on the basis of the weighted-average number of common shares outstanding which is adjusted to include the number of common shares outstanding at the beginning of the years (208,095,178 shares and 203,686,823 shares as of January 1, 2007 and 2008, respectively) and treasury stock acquired for the years ended December 31, 2007 and 2008 (1,495,884 shares and 795,808 shares for the years ended December 31, 2007 and 2008, 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.

79

(Note)  Potential common shares as of December 31, 2008 are as follows:

Par value

Issue date

Maturity date

Exercisable Period

Common shares to be issued

2007

2008

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

Stock grant

(Note 4)

March, 29, 2007

March 27, 2008

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

23,925

—

Stock grant

(Note 4)

March, 27, 2008

March 27, 2009

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

—

29,481

Total

441,710

447,266

(Note 1)		Exercise price of W70,000 per common share.
(Note 2)		Exercise price of W57,000 per common share.
(Note 3)		Exercise price of W54,600 per common share.
(Note 4)		Shares to be given subject to performance

30. INSURANCE

As of December 31, 2008, certain assets are insured with Samsung Fire and Marine Insurance Co., Ltd. and other insurance companies as follows (in millions of Korean won):

		Risk covered				Coverage
Finance lease receivables		Movables package				W	219,740
Inventories		Theft and fire					70,000
Buildings		Fire and other					1,404,341
Structures		Property package					59,728
Machinery		Property package and other					1,400,511
Vessel(vehicles)		Vessel and other					68,094
Others		Fire and other					138,352
Total						W	3,360,766

80

31. DIVIDENDS

Details of KT’s dividends for common stocks for the years ended December 31, 2007 and 2008 are as follows:

a. Dividends (in Korean won and shares) :

		2007				2008
Dividends per share (dividend ratio)		W	2,000 (40%)			W	1,120 (22.4%)
Number of shares outstanding (Note)			203,686,823				202,035,296
Dividend (in million of Korean won)		W	407,374			W	226,280

(Note) 71,515,577 shares and 71,500,404 shares of treasury stock as of December 31, 2007 and 2008, respectively, are excluded.

b. Dividend Payout Ratios (in millions of Korean won) :

		2007				2008
Dividends		W	407,374			W	226,280
Net income (Equity holders of the parent)			1,056,227				449,810
Payout ratio			38.57	%			50.31	%

c. Dividend Yield Ratios (in Koran won) :

		2007				2008
Dividends per share		W	2,000			W	1,120
Stock price at the end of the year			48,900				37,500
Dividend yield ratio			4.09	%			2.99	%

32. STATEMENTS OF CASH FLOWS

The statements of cash flows have been presented using the indirect method. Significant non-cash transactions for the years ended December 31, 2007 and 2008 are detailed as follows (in millions of Korean won):

		2007				2008
Construction in progress transferred to property and equipment and other accounts		W	3,122,246			W	3,080,337

81

33. COMMITMENTS AND CONTINGENCIES

	a.		Legal Matters
			On May 25, 2005, the Fair Trade Commission (“FTC”) imposed a fine of W116,168 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 W24,258 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 December 31, 2008, the Company has appealed certain portion of the fine imposed by the FTC amounting to W113,048 million to the Supreme Court. However, the final result of this appeal cannot be presently determined.
			The Company is also in various litigations as a defendant in other cases as of December 31, 2008. The Company accrued W19,572 million as provisions related to the litigation as of December 31, 2008. However, the final results of these litigations cannot be presently determined.
	b.		Commitments with Financial Institutions
			As of December 31, 2008, major commitments with local financial institutions are as follows (in millions of Korean won and thousands of foreign currencies)

Commitment		Amount				Related companies
Bank overdraft			W1,071,000			KT, KTF, KTR, TSC, KT Capital and KTDS
Commercial paper issuance			248,000			KT, TSC and KT Capital
Collateralized loan on accounts receivable — trade			615,000			KT and KTDS
Note discount			10,000			KTL
Letters of credit			USD 106,638			KT, KTSC, KTR and KT Capital
Working capital loans			USD 2,000			KTSC
Collection for foreign currency denominated checks			USD 1,000			KT
Guarantee agreements in foreign currency			USD 75			KTSC
Local credit agreements			W910,000			KTF
Corporate bonds			20,000			TSC
General loans			5,000			TSC
			W2,879,000
Total			USD 109,713

Guarantee

Financial institution

Limit

Used amount

Related companies

Performance guarantee for construction

Korea Eximbank Korea Eximbank

USD 2,175 SAR 735

USD 2,175 SAR 735

KT KT

Korea Software Financial Cooperative and others

W271,930

W271,930

KT, KTN, KTSC, KT Capital, Nasmedia, KT FDS and KTF M Hows

General guarantee

Korea Exchange Bank

USD 1,000

USD 30

KT

Korea Exchange Bank and Korea Eximbank

W1,513

W1,413

KT and KTN

Foreign currency guarantee for International financing

Kookmin Bank

USD 25,000

USD 25,000

KT

Foreign currency payment guarantee

Kookmin Bank

USD 7,735

USD 7,735

KT

Warranty performance guarantee agreements

Seoul Guarantee Insurance

W3,689

W3,689

KT, KT FDS, KTF M Hows and Nasmedia

Loss on sale of accounts receivable from the transfer of those receivables amounted to W582 million for the year ended December 31, 2008, and accounts receivable sold but not matured as of December 31, 2008 are W1,218 million.

82

	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 (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, 2008, 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 Woori Investment & Securities Co., Ltd.
			On December 27, 2005, the Company and JPMorgan Chase Bank, N.A. entered into a “Put and Call Combination” contract based on the shares of Korea Digital Satellite Broadcasting (“KDB”), an equity method investee, and the contract expired on December 26, 2008.
			On December 26, 2008, the Company and Woori Investment & Securities Co., Ltd. which acquired KDB shares from JP Morgan Whitefriars Inc. entered into a “Put and Call Combination” contract based on the shares of KDB. Under this contract, during the period from December 26, 2009 to December 26, 2011, KT has the option to acquire 9,200,000 shares of KDB that were purchased by Woori Investment & Securities Co., Ltd. on December 26, 2008, and Woori Investment & Securities Co., Ltd. has the option to exercise the put option on such KDB shares to KT on December 26, 2011. The exercise price under the contract for both KT and Woori Investment & Securities Co., Ltd. is W46,000 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 onetime 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.

34. DERIVATIVE INSTRUMENTS

For the years ended December 31, 2007 and 2008, the Company entered into various derivative instruments contracts with financial institutions. Details of these derivative contracts are as follows:

Type of transaction		Financial institution		Description
Interest rate swap		Merrill Lynch and others		Exchange fixed interest rate for variable interest rate for a specified period
Currency swap		Merrill Lynch and 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 others		Exchange foreign currency fixed (variable) swaps interest rate for local currency variable (fixed) interest
Currency forward		Kookmin Bank and others		Exchange a specified currency at the agreed exchange rate at a specified date
Put Option		PT. Mobile-8		A contract giving the right to sell an underlying security at a specified price

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The assets and liabilities recorded relating to the outstanding contracts as of December 31, 2007 and 2008 are as follows (in millions of Korean won and thousands of foreign currencies):

		2007
		Fair value
						Assets				Assets				Liabilities
Type of transaction		Contract amount				(Current)				(Non-Current)				(Current)
Interest rate swap			W486,540			W	493			W	—			W	3,944
		USD 100,000
Currency swap (Note)		USD 220,000					—				1,710				2,833
Combined interest rate currency swap		USD 715,165					105				—				125,548
Currency forward		JPY 325,000					98				—				—
Put Option			—				—				1,971				—
			W486,540
		USD 1,035,165
Total		JPY 325,000				W	696			W	3,681			W	132,325

		2008
		Fair value
						Assets				Assets				Liabilities				Liabilities
Type of transaction		Contract amount				(Current)				(Non-Current)				(Current)				(Non-Current)
Interest rate swap			W307,240
		USD 100,000				W	—			W	—			W	13,610			W	2,031
Currency swap (Note)		USD 220,000					14,793				57,334				—				—
Combined interest rate currency swap (Note)		USD 1,430,000					172,376				245,355				—				—
		JPY 19,500,000
Currency forward		USD 35,201
		JPY 20,000					—				—				9				4,746
Put Option			—				14,540				—				—				—
			W307,240
		USD 1,785,201
Total		JPY 19,520,000				W	201,709			W	302,689			W	13,619			W	6,777

(Note) Details of the foreign currency swap contracts to which cash flow hedge accounting is applied as of December 31, 2007 and 2008 are as follows (in millions of Korean won and thousands of foreign currencies):

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Type of Transaction

Contract date

Maturity date

Contract amount

Fair value — assets (Non-current )

2007

2008

Currency swap (Notes 1 and 2)

April 4, 2007

April 11, 2012

USD 150,000

W

1,710

W

57,046

October 6, 2008

April 11, 2012

USD 50,000

—

288

Combined interest rate currency swap (Note 2)

January 4, 2008

January 11, 2011

JPY 12,500,000

—

62,636

February 12, 2008

February 25, 2011

USD 70,000

—

20,210

February 13, 2008

February 25, 2011

USD 35,000

—

10,066

February 13, 2008

February 25, 2011

USD 30,000

—

8,500

February 14, 2008

February 25, 2011

USD 20,000

—

5,831

February 14, 2008

February 25, 2011

USD 20,000

—

5,893

March 3, 2008

December 13, 2010

USD 70,000

—

20,744

March 20, 2008

March 31, 2011

USD 50,000

—

11,917

March 20, 2008

March 31, 2012

USD 110,000

—

27,043

April 18, 2008

April 28, 2011

JPY 4,000,000

—

15,914

April 21, 2008

April 28, 2011

JPY 3,000,000

—

12,370

June 11, 2008

June 20, 2011

USD 50,000

—

8,790

June 11, 2008

June 20, 2011

USD 15,000

—

2,666

June 13, 2008

June 20, 2011

USD 30,000

—

4,807

July 1, 2008

April 2, 2011

USD 30,000

—

5,181

September 2, 2008

September 11, 2013

USD 200,000

—

22,787

USD 930,000

Total

JPY 19,500,000

W

1,710

W

302,689

(Note 1)		Among financial institutions with which the Company entered into foreign currency swap contracts totaling USD 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 W9,891 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 W1,382 million of unrealized derivative gain included in accumulated other comprehensive income as of December 31, 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 December 31, 2008, the gain and loss on valuation of the swap contract amounting to W11,136 million and W13,710 million, net of income tax effect, are included in accumulated other comprehensive income and for the year ended December 31, 2008, the gain on valuation of the swap contract totaling W322,560 million is recognized in current operations as a result of foreign currency translation loss from foreign currency bonds. In applying cash flow hedge accounting, the Company hedges its exposures to cash flow fluctuation until September 11, 2013. Approximately W3,433 million of net derivative gain included in accumulated other comprehensive income at December 31, 2008 is expected to be reclassified into current operations within 12 months from that date.

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The valuation gains and losses on the derivative contracts for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):

		2007
																										Valuation gain (B/S)
		Valuation gain (P/L)												Valuation loss (P/L)												(Note 2)
Type of Transaction		For trading				For hedging				Total				For trading				For hedging				Total				For hedging
Interest rate swap		W	1,973			W	—			W	1,973			W	10,823			W	—			W	10,823			W	—
Currency swap			—				2,280				2,280				4,719				—				4,719				2,792
Combined interest rate currency swap			35,313				—				35,313				—				—				—				—
Currency forwards			98				—				98				—				—				—				—
Put Option			476				—				476				—				—				—				—
Total		W	37,860			W	2,280			W	40,140			W	15,542			W	—			W	15,542			W	2,792

		2008
																										Valuation gain (B/S)
		Valuation gain (P/L)												Valuation loss (P/L) (Note 1)												(Note 2)
Type of Transaction		For trading				For hedging				Total				For trading				For hedging				Total				For hedging
Interest rate swap		W	—			W	—			W	—			W	10,798			W	—			W	10,798			W	—
Currency swap			17,626				54,905				72,531				—				97				97				11,708
Combined interest rate currency swap			297,925				267,655				565,580				—				—				—				(22,146	)
Currency forwards			—				—				—				6,088				—				6,088				—
Put Option			12,569				—				12,569				—				—				—				—
Total		W	328,120			W	322,560			W	650,680			W	16,886			W	97			W	16,983			(W	10,438	)

(Note 1)		In accordance with the SKAS No. 24 “Preparation and Presentation of Financial Statements II (Financial Industry)”, the loss on valuation of currency forwards amounting to W4,746 million and loss on valuation of interest rate swap amounting to W1,301 million recognized in KT Capital are classified as operating expense.
(Note 2)		The amounts are before adjustment of deferred income tax which shall be directly reflected to equity.

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35. SEGMENT INFORMATION

The Company has two major reportable segments, fixed-line telecommunication services and PCS services. Fixed-line telecommunication services include telephone services, internet services, data communication services and leased line services. PCS services include IMT-2000 services, and submarine cable construction and maintenance, intercommunication system management are all included in other segment.

Details of each segment for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):

		2007
		Fixed-line
		telecom																				Consolidated
		services				PCS services				Other				Sub-total				Elimination				amount
Total sales		W	11,936,381			W	7,293,321			W	1,839,503			W	21,069,205			(W	2,409,123	)		W	18,660,082
Internal sales			(491,440	)			(719,384	)			(1,198,299	)			(2,409,123	)			2,409,123				—
Net sales		W	11,444,941			W	6,573,937			W	641,204			W	18,660,082			W	—			W	18,660,082
Operating income		W	1,433,722			W	440,900			W	74,173			W	1,948,795			(W	203,454	)		W	1,745,341
Total assets		W	17,950,064			W	7,460,705			W	2,382,708			W	27,793,477			(W	3,666,592	)		W	24,126,885

		2008
		Fixed-line
		telecom																				Consolidated
		services				PCS services				Other				Sub-total				Elimination				amount
Total sales		W	11,784,835			W	8,346,220			W	2,426,572			W	22,557,627			(W	2,913,084	)		W	19,644,543
Internal sales			(538,965	)			(1,166,162	)			(1,207,957	)			(2,913,084	)			2,913,084				—
Net sales		W	11,245,870			W	7,180,058			W	1,218,615			W	19,644,543			W	—			W	19,644,543
Operating income		W	1,113,389			W	454,381			W	23,823			W	1,591,593			(W	163,831	)		W	1,427,762
Total assets		W	18,684,922			W	8,056,122			W	3,179,646			W	29,920,690			(W	3,782,086	)		W	26,138,604

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	b.		Information by Industry
			Assets and liabilities by industry as of December 31, 2007 and 2008 are as follows (in millions of Korean won):

		2007												2008
										Consolidated												Consolidated
		Non-financial				Financial				amount				Non-financial				Financial				amount
Assets:
Current assets
Quick assets		W	5,072,971			W	270,724			W	5,343,695			W	6,105,052			W	543,933			W	6,648,985
Inventories			299,104				—				299,104				424,841				—				424,841
Sub-total			5,372,075				270,724				5,642,799				6,529,893				543,933				7,073,826
Non-current assets
Investments			458,048				12,147				470,195				510,807				35,193				546,000
Property and equipment			15,211,550				76,452				15,288,002				15,142,938				45,693				15,188,631
Intangible assets			1,735,295				28				1,735,323				1,474,099				139				1,474,238
Other			727,044				263,522				990,566				1,342,091				513,818				1,855,909
Sub-total			18,131,937				352,149				18,484,086				18,469,935				594,843				19,064,778
Total assets		W	23,504,012			W	622,873			W	24,126,885			W	24,999,828			W	1,138,776			W	26,138,604
Liabilities:
Current liabilities		W	4,914,796			W	163,825			W	5,078,621			W	4,787,070			W	453,958			W	5,241,028
Non-current liabilities			7,544,424				366,074				7,910,498				9,173,005				636,673				9,809,678
Total liabilities		W	12,459,220			W	529,899			W	12,989,119			W	13,960,075			W	1,090,631			W	15,050,706

Results of operations by industry for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):

		2007												2008
										Consolidated												Consolidated
		Non-financial				Financial				amount				Non-financial				Financial				amount
Operating revenues		W	18,630,403			W	29,679			W	18,660,082			W	19,536,181			W	108,362			W	19,644,543
Operating expenses			16,898,066				16,675				16,914,741				18,111,907				104,874				18,216,781
Operating income			1,732,337				13,004				1,745,341				1,424,274				3,488				1,427,762
Non-operating revenues			486,628				1,354				487,982				1,053,885				22				1,053,907
Non-operating expenses			772,507				13,053				785,560				1,800,449				71				1,800,520
Income from continuing operations before income tax expense			1,446,458				1,305				1,447,763				677,710				3,439				681,149
Income tax expense on continuing operations			356,454				345				356,799				166,419				1,440				167,859
Newly included subsidiary’s net loss before acquisition			5,810				—				5,810				—				—				—
Income from continuing operations			1,095,814				960				1,096,774				511,291				1,999				513,290
Income from discontinuing operations			74,204				—				74,204				—				—				—
Net income		W	1,170,018			W	960			W	1,170,978			W	511,291			W	1,999			W	513,290

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36. VALUE ADDED INFORMATION

Value added information included in operating expenses for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):

		2007				2008
Salaries and wages		W	2,242,295			W	2,281,587
Share-based payment			1,239				1,922
Severance indemnities			359,473				362,342
Employee welfare			528,902				567,878
Rent			226,327				249,827
Depreciation			3,225,887				3,264,291
Amortization			430,623				438,544
Taxes and dues			195,874				200,287
Total		W	7,210,620			W	7,366,678

37. EMPLOYEE WELFARE

Employee welfare through various plans spent by the Company for the years ended December 31, 2007 and 2008 totaled W528,902 million and W567,878 million, respectively.

Meanwhile, the Company donates cash to Employee Welfare Foundation each year. The related expenses recognized for the years ended December 31, 2007 and 2008 amounted to W84,500 million and W74,300 million, respectively.

38. SUBSEQUENT EVENT

	a.		KT Merger with KTF
			On January 20, 2009, KT’s board of directors resolved the merge, with KTF. The expected date of merger is May 18, 2009.

	b.		Foreign Currency Exchangeable Bond
			On January 20, 2009, the Company entered into the Purchase Agreement with NTT DoCoMo, Inc. to issue foreign currency exchangeable bonds as follows (in millions of Korean won, thousands of USD):

Total issue amount :		W344,409 (USD 253,261)
Shares to be exchanged :		KT common stocks or KT ADRs
Exchange price per share (in Korean won):		W40,743
Period of exercise :		May 19, 2009 through May 12, 2014
Maturity date of bond :		May 12, 2014
Interest rate at maturity :		2.024%
Interest payment method :		Payable twice a year in arrear (every six months)
Repayment method :		Lump-sum payment on maturity date
Subscription date :		May 13, 2009
Subscription method :		Certain potion of the KTF shares owned by NTT DoCoMo, Inc. will be offered to KT in exchange for the issued bond amount

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	c.		Retirement of Treasury Stock
			The board of directors of the Company resolved to retire 13,124,000 shares of treasury stocks, which will be acquired during the period from March 10, 2009 to June 9, 2009, by charging against retained earnings. Meanwhile, the Company expects that the total amount of W500,024 millions will be spent for the acquisition.

90