Edgar Filing: SK TELECOM CO LTD

(As of December 31, 2015)

(Unit: in millions of Won)

Aggregate Amount Paid

Dong Hyun Jang

Inside director

Form 6-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

FOR THE MONTH OF SEPTEMBER 2016

COMMISSION FILE NUMBER 333-04906

SK Telecom Co., Ltd.

(Translation of registrant’s name into English)

Euljiro 65 (Euljiro2-ga), Jung-gu

Seoul 04539, Korea

(Address of principal executive offices)

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

Form 20-F x Form 40-F ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ¨

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

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

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

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

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

SEMI-ANNUAL BUSINESS REPORT

(From January 1, 2016 to June 30, 2016)

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

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

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

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

I.	COMPANY OVERVIEW

Company Overview

The Company’s semi-annual business report for the six months ended June 30, 2016 includes the following consolidated subsidiaries:


Name	Date of Establishment	Principal Business	Total Assets as of Dec. 31, 2015 (millions of Won)		Material Subsidiary*
SK Telink Co., Ltd.	Apr. 9, 1998	Telecommunication services and satellite broadcasting services		309,955	Material
M&Service Co., Ltd.	Feb. 10, 2000	Online information services		89,452	Material
SK Communications Co., Ltd.	Sep. 19, 1996	Internet portal and other Internet information services		152,496	Material
Stonebridge Cinema Fund	Sep. 30, 2005	Investment partnership		7,797
SK Broadband Co., Ltd.	Sep. 5, 1997	Fixed-line telecommunication services, multimedia and IPTV services		3,291,707	Material
K-net Culture and Contents Venture Fund	Nov. 24, 2008	Investment partnership		13,169
Hwaitec Focus Investment Partnership 2	Dec. 24, 2008	Investment partnership		18,249
Open Innovation Fund	Dec. 22, 2008	Investment partnership		19,455
PS&Marketing Co., Ltd.	Apr. 3, 2009	Sale of telecommunication devices		509,580	Material
Service Ace Co., Ltd.	Jul. 1, 2010	Customer center management services		65,424
Service Top Co., Ltd.	Jul. 1, 2010	Customer center management services		61,897
Network O&S Co., Ltd.	Jul. 1, 2010	Network maintenance services		77,426	Material
SK Planet Co., Ltd.	Oct. 1, 2011	Telecommunication and platform services		2,406,988	Material
Neosnetworks Co., Ltd.	Jun. 12, 2008	Security system services		68,361
Iriver Ltd.	Jul. 12, 2000	Audio device manufacturing		65,405
Entrix Co., Ltd.	July 1, 2015	Telecommunication (Cloud) services		30,876
SK Telecom China Holdings Co., Ltd.	Jul. 12, 2007	Investment (holding company)		37,748
SK Global Healthcare Business Group, Ltd.	Sep. 14, 2012	Investment (SPC)		25,768
Iriver Enterprise Ltd.	Jan. 14, 2014	Management of Chinese subsidiary		4,289
Iriver China Co., Ltd.	Jun 24, 2004	Electronic device manufacturing		4,394
DongGuan Iriver Electronics Co., Ltd.	Jul. 6, 2006	Electronic device manufacturing		23
SK Planet Japan, K.K.	Mar. 14, 2012	Digital contents sourcing services		5,068
groovers Japan Co. Ltd.	Feb. 25, 2015	Contents and information distribution		1,540
SKT Vietnam PTE., Ltd.	Apr. 5, 2000	Telecommunication services		4,523
SK Planet Global PTE, LTD.	Aug. 4, 2012	Digital contents sourcing services		1,570
SKP Global Holdings PTE, LTD.	Aug. 10, 2012	Investment (holding company)		28,320


Name	Date of Establishment	Principal Business	Total Assets as of Dec. 31, 2015 (millions of Won)		Material Subsidiary*
SKT Americas, Inc.	Dec. 29, 1995	Information collection and management consulting services		51,138
SK Planet America LLC	Jan. 27, 2012	Digital contents sourcing services		380,141	Material
Shopkick Management Company, Inc.	Oct. 9, 2014	Investment		306,248	Material
Shopkick, Inc.	Jun. 1, 2009	Mileage based e-commerce application development		25,388
SK TechX Co., Ltd.	Mar. 1, 2016	Telecommunication and platform services		—	Material
Onestore Co., Ltd.	Mar. 1, 2016	Contents distribution		—	Material
SK Telecom Innovation Fund, L.P.	Jan. 15, 2016	Investment		—
Iriver America Inc.	May 1, 2005	Wholesale and retail		—
Iriver Inc.	Feb. 15, 2007	North America marketing and sales		4,160
YTK Investment Ltd.	Jul. 1, 2010	Investment		16,318
Atlas Investment	Jun. 24, 2011	Investment		77,750	Material
SK Telecom China Fund I L.P.	Sep. 14, 2011	Investment		20,901

Material Subsidiary means a subsidiary with total assets of Won 75 billion or more as of the end of the latest fiscal year or, with respect to SK TechX Co., Ltd. (“SK TechX”) and Onestore Co., Ltd. (“Onestore”), which were established in 2016, a subsidiary with total assets of Won 75 billion or more as of the end of June 30, 2016.

During 2016, Technology Innovation Partners, L.P. changed its name to SK Telecom Innovation Fund, L.P.

Changes in subsidiaries during 2016 are set forth below.


Change	Name	Remarks
Additions	SK TechX Co., Ltd.	Split from SK Planet Co., Ltd. and newly established
Additions	Onestore	Split from SK Planet Co., Ltd. and newly established

Exclusions	Commerce Planet Co. Ltd.	Merged into SK Planet Co., Ltd.

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

B.	Date of Incorporation: March 29, 1984

C.	Location of Headquarters

(1)

Address: 65 Euljiro, Jung-gu, Seoul, Korea

(2)

Phone: +82-2-6100-2114

(3)

Website: http://www.sktelecom.com

D.	Major Businesses

(1)

Wireless business

The Company provides wireless telecommunications services, characterized by its competitive strengths in handheld devices, affordable pricing, network coverage and an extensive contents library. We continue to maintain our reputation as the unparalleled premium network operator in the LTE market on the basis of our technological leadership and network management technology.

The Company plans to increase its profitability by strengthening its retention policy, which is the fundamental basis of competitiveness for telecommunication companies in this data-intensive era. The Company will lead the information and communication technology (“ICT”) trend by providing products through which customers can have a distinctive experience and by providing innovative services to transition to service-based competition.

In the business-to-business (“B2B”) area, the Company is striving to strengthen its solutions business as well as its existing leased line business. In the area of healthcare, the Company achieved several tangible milestones: point-of-care diagnostic devices manufactured by a company of which the Company is the largest shareholder received approval from the U.S. Food and Drug Administration; the Company entered the Chinese healthcare market; and the Company was the first Korean company to export medical information systems. The Company plans to continue to find and develop new growth businesses in healthcare in the mid- to long-term. The Company also plans to seek out new growth engines in existing businesses, including the intelligence business, by utilizing its technologies relating to big data.

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

(2)

Fixed-line business

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

(3)

Other businesses

The Company is a leading player in the Korean e-commerce industry with 11th Street, an e-commerce platform service that connects various sellers and purchasers through its online and mobile platforms, and “Shocking Deal,” a mobile commerce curation service. In the online-to-offline (“O2O”) area, the Company is a leading player and continues to expand its market power with OK Cashbag, Korea’s largest loyalty mileage program, Syrup, which offers smart shopping services utilizing its network of business partners and information technology such as big data, Syrup Store, which provides integrated marketing solutions to business partners and other Syrup-related services such as gifticon, Syrup Table and Syrup Order.

In the advertising business area, the Company is engaged in advertisement production, promotion services and research and consulting services as a business idea creator to substantively help businesses increase their value in a rapidly evolving business environment.

In the global business area, the Company has expanded its e-commerce business globally to Turkey, Indonesia and Malaysia and has rapidly grown into one of the leading market players in these regions. The Company intends to continue its efforts to secure the market leading position in these markets.

In the location-based services business area, the Company provides real time traffic information and various local information through its T-Map Navigation service. In the digital contents business area, the Company provides high-quality digital contents in its leading mobile contents marketplace, Onestore.

In the media business area, the Company provides the optimum environment for subscribers to access multimedia contents according to personal taste and preference through “oksusu,” available on various digital devices such as personal computers and mobile devices.

The Company provides integrated Internet portal services through NATE and instant messaging services through NATE-ON. In the mobile internet service business area, the Company provides portal-based services and Cymera, which is a camera application. In the portal service business area, key sources of revenue are display advertising, search engine-based advertising, and contents and other services. Display advertising consists of image, video and flash-based multimedia advertising carried on NATE and NATE-ON and aims to give greater exposure to the advertiser’s brand name to the public. The increased effectiveness of online media as an advertising outlet has resulted in a greatly expanded advertiser base, and the increasing variety in the format of advertising has contributed to the growth of display advertising. Search engine-based advertising refers to the type of advertising that embeds advertisements within search results produced by searches of certain keywords on the NATE portal site. Search engine-based advertising has a certain appeal to small and medium-sized advertisers.

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

E.	Credit Ratings

(1)

Corporate bonds


Credit rating date	Subject of rating	Credit rating	Credit rating entity (Credit rating range)	Rating classification
April 11, 2013	Corporate bond	AAA	Korea Ratings	Current rating
April 11, 2013	Corporate bond	AAA	Korea Investors Service, Inc.	Current rating
April 11, 2013	Corporate bond	AAA	NICE Investors Service Co., Ltd.	Current rating
April 11, 2013	Corporate bond	AAA	Korea Ratings	Regular rating
April 11, 2013	Corporate bond	AAA	Korea Investors Service, Inc.	Regular rating
April 11, 2013	Corporate bond	AAA	NICE Investors Service Co., Ltd.	Regular rating
April 22, 2014	Corporate bond	AAA	Korea Ratings	Regular rating
April 22, 2014	Corporate bond	AAA	Korea Investors Service, Inc.	Regular rating
April 22, 2014	Corporate bond	AAA	NICE Investors Service Co., Ltd.	Regular rating
April 22, 2014	Corporate bond	AAA	Korea Ratings	Current rating
April 22, 2014	Corporate bond	AAA	Korea Investors Service, Inc.	Current rating
April 22, 2014	Corporate bond	AAA	NICE Investors Service, Co., Ltd.	Current rating
October 15, 2014	Corporate bond	AAA	Korea Ratings	Current rating
October 15, 2014	Corporate bond	AAA	Korea Investors Service, Inc.	Current rating
October 15, 2014	Corporate bond	AAA	NICE Investors Service, Co., Ltd.	Current rating
February 9, 2015	Corporate bond	AAA	Korea Ratings	Current rating
February 9, 2015	Corporate bond	AAA	Korea Investors Service, Inc.	Current rating
February 9, 2015	Corporate bond	AAA	NICE Investors Service, Co., Ltd.	Current rating
May 21, 2015	Corporate bond	AAA	Korea Ratings	Regular rating
May 27, 2015	Corporate bond	AAA	Korea Investors Service, Inc.	Regular rating
June 10, 2015	Corporate bond	AAA	NICE Investors Service, Co., Ltd	Regular rating
July 6, 2015	Corporate bond	AAA	Korea Ratings	Current rating
July 6, 2015	Corporate bond	AAA	Korea Investors Service, Inc.	Current rating
July 6, 2015	Corporate bond	AAA	NICE Investors Service, Co., Ltd.	Current rating
October 26, 2015	Corporate bond	AAA	Korea Ratings	Current rating
October 26, 2015	Corporate bond	AAA	Korea Investors Service, Inc.	Current rating
October 26, 2015	Corporate bond	AAA	NICE Investors Service, Co., Ltd.	Current rating
February 19, 2016	Corporate bond	AAA	Korea Ratings	Current rating
February 19, 2016	Corporate bond	AAA	Korea Investors Service, Inc.	Current rating
February 19, 2016	Corporate bond	AAA	NICE Investors Service, Co., Ltd.	Current rating
May 19, 2016	Corporate bond	AAA	Korea Ratings	Current rating
May 20, 2016	Corporate bond	AAA	Korea Investors Service, Inc.	Current rating
May 20, 2016	Corporate bond	AAA	NICE Investors Service, Co., Ltd.	Current rating

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

(2)

Commercial paper (“CP”)


Credit rating date	Subject of rating	Credit rating	Credit rating entity (Credit rating range)	Rating classification
April 11, 2013	CP	A1	Korea Ratings	Current rating
April 11, 2013	CP	A1	Korea Investors Service, Inc.	Current rating
April 11, 2013	CP	A1	NICE Investors Service Co., Ltd.	Current rating


Credit rating date	Subject of rating	Credit rating	Credit rating entity (Credit rating range)	Rating classification
November 29, 2013	CP	A1	Korea Ratings	Regular rating
December 18, 2013	CP	A1	Korea Investors Service, Inc.	Regular rating
December 20, 2013	CP	A1	NICE Investors Service Co., Ltd.	Regular rating
April 22, 2014	CP	A1	Korea Ratings	Current rating
April 22, 2014	CP	A1	Korea Investors Service, Inc.	Current rating
April 22, 2014	CP	A1	NICE Investors Service Co., Ltd.	Current rating
October 15, 2014	CP	A1	Korea Ratings	Regular rating
October 15, 2014	CP	A1	Korea Investors Service, Inc.	Regular rating
October 15, 2014	CP	A1	NICE Investors Service Co., Ltd.	Regular rating
May 21, 2015	CP	A1	Korea Ratings	Current rating
May 27, 2015	CP	A1	Korea Investors Service, Inc.	Current rating
June 10, 2015	CP	A1	NICE Investors Service Co., Ltd.	Current rating
January 19, 2016	Short-term bond	A1	Korea Ratings	Current rating
January 19, 2016	Short-term bond	A1	Korea Investors Service, Inc.	Current rating
January 19, 2016	Short-term bond	A1	NICE Investors Service Co., Ltd.	Current rating
April 27, 2016	CP	A1	Korea Ratings	Current rating
April 27, 2016	Short-term bond	A1	Korea Ratings	Current rating
May 11, 2016	CP	A1	Korea Investors Service, Inc.	Current rating
May 11, 2016	Short-term bond	A1	Korea Investors Service, Inc.	Current rating
May 12, 2016	CP	A1	NICE Investors Service Co., Ltd.	Current rating
May 12, 2016	Short-term bond	A1	NICE Investors Service Co., Ltd.	Current rating

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

(3)

International credit ratings


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

*	On August 9, 2013, Moody’s Investors Service raised the outlook on the Company’s rating from A3 (Negative) to A3 (Stable).

*	On November 4, 2015, S&P lowered the outlook on the Company’s rating from A- (Positive) to A- (Stable).

Company History

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

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

June 2015: Consummation of the comprehensive share exchange transaction (the “Share Exchange”) through which the Company acquired all of the shares of SK Broadband that it did not otherwise own in exchange for its treasury shares such that SK Broadband became a wholly-owned subsidiary of the Company.

April 2016: The spin-off and merger of the location-based services business and the mobile phone verification services business of SK Planet Co., Ltd.

A.	Location of Headquarters

•

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

•

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

•

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

•

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

•

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

B.	Significant Changes in Management

At the 29th General Meeting of Shareholders held on March 22, 2013, Dae Sik Cho was elected as an inside director and Dae Shick Oh was elected as an independent director and member of the audit committee of the Company’s board of directors. At the 30th General Meeting of Shareholders held on March 21, 2014, Jae Hoon Lee was elected as an independent director and Jae Hyeon Ahn was elected as an independent director and member of the audit committee of the Company’s board of directors. At the 31st General Meeting of Shareholders held on March 20, 2015, Dong Hyun Jang was elected as an inside director. At the 32nd General Meeting of Shareholders held on March 18, 2016, Dae Sik Cho was re-elected as an inside director and Dae Shick Oh was re-elected as an independent director and member of the audit committee of the Company’s board of directors.

C.	Change in Company Name

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

D.	Mergers, Acquisitions and Restructuring

(1)

Spin-off

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


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

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


(in millions of Won)
	Before the spin-off (As of September 30, 2011)		After the spin-off (As of October 1, 2011)
Description	SK Telecom Co., Ltd.		SK Telecom Co., Ltd.		SK Planet Co., Ltd.
Total Assets		19,400,114		19,084,651		1,545,537

Total Liabilities		7,673,828		7,358,365		315,463

Total Shareholders’ Equity		11,726,286		11,726,286		1,230,074

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


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

•

Changes in shareholding, including majority shareholder

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

•

Appraisal rights of shareholders

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

•

Protection of creditors

In accordance with Article 530-9 Paragraph 1, both SK Telecom and SK Planet will be jointly and severally liable for the payment of all obligations of SK Telecom incurred prior to the spin-off.

•

Allocation of new shares

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

(2)

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

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

(3)

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

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

(4)

Acquisition of shares of PS&Marketing

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

(5)

Disposition of shares of iHQ Inc.

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

(6)

Acquisition of shares of Neosnetworks Co., Ltd. (“Neosnetworks”)

In order to acquire a new growth engine, the Company acquired a controlling stake in Neosnetworks, a building security company, with the purchase of 31,310 shares (a 66.7% equity interest) of Neosnetworks. on April 2, 2014. The Company acquired an additional 50,377 shares in Neosnetworks in April 2015 through a rights offering, resulting in an increase of its ownership to 83.9%.

(7)

Acquisition of shares of Iriver

On August 13, 2014, the Company purchased 10,241,722 shares (a 39.3% equity interest) of Iriver Ltd. (“Iriver”) from Vogo-Rio Investment Holdings Co., Ltd. and KGF-Rio Limited in order to foster application development and smartphone accessories as part of the Company’s growth engines. The Company holds a 48.9% equity interest of Iriver by acquiring additional shares in its rights offering. The Company does not hold a majority of the voting rights of Iriver but the Company has concluded that it has effective control, as it holds significantly more voting rights than any other shareholder or any organized group of shareholders.

(8)

Acquisition of shares of Shopkick, Inc. (“Shopkick”)

On October 10 2014, SK Planet America LLC, a subsidiary of the Company, acquired (through its 95.2%-owned subsidiary Shopkick Management Company, Inc.) a 100.0% ownership interest in Shopkick, a developer of a shopping app for mobile devices that provides benefits to customers for visiting stores, in order to penetrate the mobile commerce market in the United States. In the first half of 2016, SK Planet America LLC acquired all remaining shares of Shopkick Management Company, Inc.

(9)

Disposition of Shenzen E-Eye shares

In 2014, the Company entered into an agreement to dispose of its equity interest in Shenzen E-eye in order to focus its business portfolio on high-growth business areas in the Chinese ICT market. The sale was completed on March 23, 2015.

(10)

Disposition of a portion of KEB Hana Card shares

On April 3, 2015, the Company sold 27,725,264 shares (10.4% out of the 25.4% equity interest the Company held prior to the sale) of KEB Hana Card Co., Ltd. to Hana Financial Group in cash. With the proceeds of such sale (Won 180 billion), the Company acquired equity interests in Hana Financial Group on April 17, 2015 through participation in a rights offering by Hana Financial Group. The Company plans to maintain its strategic alliance and pursue opportunities to create synergies with, Hana Financial Group.

(11)

SK Broadband - Comprehensive Share Exchange

On March 20, 2015, the Company’s board of directors resolved to approve the Share Exchange.

•

Share Exchange ratio: Shareholders of one common share of SK Broadband were allotted 0.0168936 common shares of SK Telecom

•

Shares exchanged: 2,471,883 registered common shares of SK Telecom

•

Date of Share Exchange agreement: March 23, 2015

•

Record date: April 6, 2015

•

Announcement date for the proceeding of the Share Exchange as a small-scale share swap: April 6, 2015

•

Meeting of board of directors for approval of the Share Exchange: May 6, 2015

•

Date of the Share Exchange: June 9, 2015

(12)

Establishment of Entrix Co., Ltd.

In the first three quarters of 2015, SK Planet spun off its cloud streaming division and established Entrix Co., Ltd. The Company exchanged 1,300,000 shares of SK Planet for 1,300,000 shares of Entrix at the time of the spin-off and later acquired an additional 2,857,000 shares by participating in the recapitalization.

(13)

Additional capital raise by NanoEnTek Inc.

In the first three quarters of 2015, the Company acquired 1,090,155 shares through the additional capital raise by NanoEnTek.

(14)

Reclassification of Packet One Networks’ accounts

In 2015, the Company reclassified its investments in Packet One from investments in associates and joint ventures to assets classified as held for sale as the Company no longer had significant control over Packet One. The difference between the book value and the fair value of Won 37.4 billion at the time of reclassification was recognized as impairment loss.

(15)

Acquisition of shares of SK Communications Co., Ltd. (“SK Communications”)

On October 1, 2015, the Company became the largest shareholder of SK Communications with a 64.54% equity interest through dividends in kind from SK Planet of 26,523,815 shares and the purchase of 1,506,130 shares over-the-counter.

(16)

Acquisition of shares of CJ HelloVision Co., Ltd. (“CJ HelloVision”)

On November 2, 2015, the Company’s board of directors resolved to approve the acquisition of CJ HelloVision’s shares from CJ O Shopping Co., Ltd. (“CJ O Shopping”) and on the same day, entered into a share purchase agreement with CJ O Shopping. In addition, on November 2, 2015, SK Broadband’s board of directors resolved to approve the merger of SK Broadband with CJ HelloVision and on the same day, entered into a merger agreement with CJ HelloVision and the closing of the merger was conditioned upon receipt of regulatory approval from relevant authorities. On July 25, 2016, the Company notified CJ O Shopping of the termination of the share purchase agreement and SK Broadband notified CJ HelloVision of the termination of the merger agreement, as the Korea Fair Trade Commission on July 18, 2016 denied approval of the proposed merger, which was a closing condition to the consummation of the merger.

(17)

Tender offer of shares of CJ HelloVision

From November 2, 2015 to November 23, 2015, the Company purchased 6,671,933 shares of CJ Hellovision in a tender offer for up to 10,000,000 shares, paying Won 12,000 per share. Through this tender offer, the Company acquired an 8.61% equity interest in CJ HelloVision.

(18)

Establishment of SK TechX Co., Ltd. and Onestore

In the first half of 2016, SK Planet spun off its platform business and T Store business and established SK TechX and Onestore. The Company exchanged 12,323,905 shares of SK Planet for 6,323,905 shares of SK TechX and 6,000,000 shares of Onestore at the time of the spin-off. The Company later acquired an additional 4,409,600 shares of Onestore at a purchase price of Won 22 billion by participating in the follow-on rights offering. The Company did not participate in the subsequent follow-on rights offering and as of June 30, 2016, the Company has a 65.5% interest in Onestore.

(19)

Spin-off and merger of SK Planet’s location-based services business and mobile phone verification services business

Through the merger of SK Planet’s location-based services business and mobile phone verification services business into SK Telecom, the Company seeks to provide a solid base for continued growth, especially in the next generation platform business, and SK Planet plans to further concentrate its resources on its commerce business. The spin-off and merger was effective as of April 5, 2016 and was registered as of April 7, 2016. SK Planet is a wholly-owned subsidiary of the Company, and as the Company did not issue any new shares in connection with the merger, there was no change in the share ownership of the Company.

[SK Broadband]

(1)

Mergers among Subsidiaries and Affiliates

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

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

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

On July 29, 2015, the board of directors of SK Broadband approved the acquisition of SK Planet’s Hoppin business through a spin-off and subsequent merger transaction pursuant to Article 530-2 of the Korean Commercial Code, with both SK Broadband and SK Planet remaining as existing companies. The spin-off and subsequent merger were effective as of September 1, 2015, and on the same day, SK Broadband issued 2,501,125 new common shares resulting from the merger, allotting 0.0349186 common shares of SK Broadband per one common share of SK Planet to SK Telecom, SK Planet’s sole shareholder.

(2)

Share Exchange

On March 20, 2015, the board of directors of SK Broadband resolved to approve the Share Exchange. The Share Exchange was approved at the extraordinary meeting of shareholders held on May 6, 2015. Subsequent to the Share Exchange, the Company became the parent company of SK Broadband with 100% ownership and remained a listed corporation on the KRX KOSPI Market, and SK Broadband became a wholly-owned subsidiary of the Company and was delisted from the KRX KOSDAQ Market. There was no change in the share ownership interest of the Company’s existing shareholders or the Company’s management in connection with the Share Exchange.

•

Share Exchange ratio: Shareholders of one common share of SK Broadband were allotted 0.0168936 common shares of SK Telecom

•

Shares exchanged: 2,471,883 registered common shares of SK Telecom

•

Date of Share Exchange agreement: March 23, 2015

•

Record date: April 6, 2015

•

Announcement date for the proceeding of the Share Exchange as a small-scale share swap: April 6, 2015

•

Meeting of board of directors for approval of the Share Exchange: May 6, 2015

•

Date of the Share Exchange: June 9, 2015

(3)

Merger with CJ HelloVision

On November 2, 2015, SK Broadband’s board of directors resolved to approve the merger of SK Broadband with CJ HelloVision such that CJ HelloVision would be the surviving entity and SK Broadband would be the non-surviving entity. The largest shareholder of the merged entity would be SK Telecom with an equity interest of 78.35%. On February 26, 2016, the entry into the merger agreement was resolved as proposed by SK Broadband’s shareholders.

On July 25, 2016, SK Broadband notified CJ HelloVision of the termination of the merger agreement, as the Korea Fair Trade Commission on July 18, 2016 denied approval of the proposed merger, which was a closing condition to the consummation of the merger. On July 27, 2016, SK Broadband’s board of directors resolved to terminate the merger agreement as proposed. Subsequently, the merger agreement is no longer effective and all procedures related to the merger, including the issuance of new shares, were terminated.

[SK Planet]

As of February 1, 2013, SK Planet merged with SK Marketing & Company, a company providing e-commerce and advertising services. In connection with this merger, SK Planet issued 12,927,317 of its common stock to SK Telecom, which was a shareholder of SK Marketing & Company.

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

On May 29, 2015, the board of directors of SK Planet resolved to spin off its cloud streaming division on July 1, 2015 in order to strengthen its business capabilities and expand overseas. The spin-off ratio was 0.9821740 for the surviving company to 0.0178260 for the newly-established company, and the capital reduction ratio was 1.7825968%.

On July 29, 2015, the board of directors of SK Planet resolved to spin off its Hoppin business, which was merged into SK Broadband on September 1, 2015, in order to unify capabilities within the business and maximize synergies to improve its competitive power in the Korean and international mobile media market. SK Planet issued 2,501,125 new common shares in connection with this transaction, and the merger ratio between SK Planet and SK Broadband was 0.0349186:1.

On December 29, 2015, the board of directors of SK Planet resolved to merge Commerce Planet Co., Ltd., its wholly-owned subsidiary, into SK Planet to generate synergies by uniting capabilities to promote its commerce business. The merger was effective as of February 1, 2016, and SK Planet did not issue any new shares in connection with the merger.

Effective as of March 1, 2016, SK Planet spun off its platform business and T Store business in order to enhance the competitiveness of each business for future growth.

Effective as of April 5, 2016, SK Planet spun off its location-based services business and mobile phone verification services business and merged them into the Company in order to further concentrate its resources on its commerce business.

[SK Communications]

(1)

Disposition of shares of SK i-media

Pursuant to the resolution of its board of directors on October 17, 2011, SK Communications sold all of the shares of SK i-media Co., Ltd. it owns to LK Media Tec Co., Ltd. for Won 1 million of cash.

(2)

Disposition of shares of U-Land

Pursuant to the resolution of its board of directors on December 21, 2011, SK Communications sold all of the shares of U-Land Co., Ltd. (a 29.85% equity interest) it owns to SK Planet for Won 10 million.

(3)

Disposition of the Cyworld service

Pursuant to the resolution of its board of directors on March 6, 2014, SK Communications sold its Cyworld service and certain related assets to Cyworld Co., Ltd. for Won 2.8 billion on April 8, 2014.

(4)

Disposition of shares of Service-In

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

(5)

Change in the largest shareholder

On September 24, 2015, SK Telecom and SK Planet entered into a share transfer agreement to transfer all of the shares of SK Communications held by SK Planet to SK Telecom. The agreement became effective on October 1, 2015, making SK Telecom the largest shareholder of SK Communications.

[PS&Marketing]

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

[M&Service]

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

[Neosnetworks]

On March 31, 2015, Neos Networks acquired the unmanned electronic security business of Joeun Safe to expand its unmanned security business. The acquisition cost, which had been reported on January 5, 2015 as Won 19.4 billion, was subject to adjustment depending on the customer transfer rate. The final acquisition cost was determined to be Won 16.9 billion. Joeun Safe was spun off from its parent company Joeun System in 2006 and has the fourth largest market share in the Korean unmanned security industry. Upon this acquisition, it is expected that the Company will quickly expand into the unmanned security market.

[Iriver]

(1)

Merger of Iriver CS Co., Ltd. (“Iriver CS”)

Pursuant to the resolution of its board of directors on November 18, 2014, Iriver decided to merge with Iriver CS, its wholly-owned subsidiary, with Iriver as the surviving entity. The merger was completed based on the merger ratio of 1:0 with no capital increase. The merger and merger registration were completed on January 31, 2015 and February 2, 2015, respectively.

(2)

New Establishment of groovers Japan Co. Ltd. (“groovers Japan”)

On February 25, 2015, Iriver newly established its overseas subsidiary, groovers Japan, for the purpose of strengthening new business opportunities in Japan.

E.	Other Important Matters related to Management Activities

[SK Telecom]

(1)

Issuance of bonds

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

On October 28, 2014, the Company issued three tranches of fixed-rate unsecured bonds in the principal amounts of Won 160 billion (with an annual interest rate of 2.53% and a maturity date of October 28, 2019), Won 150 billion (with an annual interest rate of 2.66% and a maturity date of October 28, 2021), and Won 190 billion (with an annual interest rate of 2.82% and a maturity date of October 28, 2024).

On February 26, 2015, the Company issued three tranches of fixed-rate unsecured bonds in the principal amounts of Won 100 billion (with an annual interest rate of 2.40% and a maturity date of February 26, 2022, Won 150 billion (with an annual interest rate of 2.49% and a maturity date of February 26, 2025), and Won 50 billion (with an annual interest rate of 2.61% and a maturity date of February 26, 2030).

On July 17, 2015, the Company issued four tranches of fixed-rate unsecured bonds in the principal amounts of Won 90 billion (with an annual interest rate of 1.89% and a maturity date of July 17, 2018), Won 70 billion (with an annual interest rate of 2.66% and a maturity date of July 17, 2025), Won 90 billion (with an annual interest rate of 2.82% and a maturity date of July 17, 2030), and Won 50 billion (with an annual interest rate of 3.40% and a maturity date of July 17, 2030).

On November 30, 2015, the Company issued four tranches of fixed-rate unsecured bonds in the principal amounts of Won 80 billion (with an annual interest rate of 2.073% and a maturity date of November 30, 2018), Won 100 billion (with an annual interest rate of 2.550% and a maturity date of November 30, 2025), Won 70 billion (with an annual interest rate of 2.749% and a maturity date of November 30, 2035), and Won 50 billion (with embedded options, an annual interest rate of 3.100% and a maturity date of November 30, 2030).

On March 4, 2016, the Company issued four tranches of fixed-rate unsecured bonds in the principal amounts of Won 70 billion (with an annual interest rate of 1.651% and a maturity date of March 4, 2019), Won 100 billion (with an annual interest rate of 1.802% and a maturity date of March 4, 2021), Won 90 billion (with an annual interest rate of 2.077% and a maturity date of March 4, 2026), and Won 80 billion (with an annual interest rate of 2.243% and a maturity date of March 4, 2036).

On June 3, 2016, the Company issued four tranches of fixed-rate unsecured bonds in the principal amounts of Won 50 billion (with an annual interest rate of 1.621% and a maturity date of June 3, 2019), Won 50 billion (with an annual interest rate of 1.709% and a maturity date of June 3, 2021), Won 120 billion (with an annual interest rate of 1.973% and a maturity date of June 3, 2026), and Won 50 billion (with an annual interest rate of 2.172% and a maturity date of June 3, 2031).

(2)

Issuance of hybrid securities

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

(3)

Conversion of convertible notes

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

[SK Broadband]

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

Total Number of Shares

A.	Total Number of Shares


(As of June 30, 2016)			(Unit: in shares)
	Share type
Classification	Common shares		Preferred shares		Total		Remarks
I. Total number of authorized shares		220,000,000		—		220,000,000		—

II. Total number of shares issued to date		89,278,946		—		89,278,946		—

III. Total number of shares retired to date		8,533,235		—		8,533,235		—

a. reduction of capital		—		—		—		—
b. retirement with profit		8,533,235		—		8,533,235		—
c. redemption of redeemable shares		—		—		—		—
d. others		—		—		—		—

IV. Total number of shares (II-III)		80,745,711		—		80,745,711		—

V. Number of treasury shares		10,136,551		—		10,136,551		—
VI. Number of shares outstanding (IV-V)		70,609,160		—		70,609,160		—

B.	Treasury Shares

(1)

Acquisitions and dispositions of treasury shares


(As of June 30, 2016)										(Unit: in shares)
				At the		Changes
Acquisition methods			Type of shares	beginning of period		Acquired (+)		Disposed (-)		Retired (-)		At the end of period
Acquisition pursuant to the Financial Investment Services and Capital Markets Act of Korea (“FSCMA”)	Direct acquisition	Direct acquisition from market	Common shares		10,136,551		—		—		—		10,136,551
		Direct acquisition from market	Preferred shares		—		—		—		—		—
		Direct over- the-counter acquisition	Common shares		—		—		—		—		—
		Direct over- the-counter acquisition	Preferred shares		—		—		—		—		—
		Tender offer	Common shares		—		—		—		—		—
		Tender offer	Preferred shares		—		—		—		—		—
		Sub-total	Common shares		10,136,551		—		—		—		10,136,551
		Sub-total	Preferred shares		—		—		—		—		—
	Acquisition through trust and other agreements	Held by trustee	Common shares		—		—		—		—		—
		Held by trustee	Preferred shares		—		—		—		—		—
		Held in actual stock	Common shares		—		—		—		—		—
		Held in actual stock	Preferred shares		—		—		—		—		—
		Sub-total	Common shares		—		—		—		—		—
		Sub-total	Preferred shares		—		—		—		—		—
Other acquisition			Common shares		—		—		—		—		—
			Preferred shares		—		—		—		—		—

Total			Common shares		10,136,551		—		—		—		10,136,551

			Preferred shares		—		—		—		—		—

Status of Voting Rights


(As of June 30, 2016)		(Unit: in shares)
Classification		Number of shares		Remarks
Total shares (A)	Common share		80,745,711		—
	Preferred share		—		—
Number of shares without voting rights (B)	Common share		10,136,551		Treasury shares
	Preferred share		—		—
Shares without voting rights pursuant to the Company’s articles of incorporation (the “Articles of Incorporation”) (C)	Common share		—		—
	Preferred share		—		—
Shares with restricted voting rights pursuant to Korean law (D)	Common share		—		—
	Preferred share		—		—
Shares with reestablished voting rights (E)	Common share		—		—
	Preferred share		—		—
The number of shares with exercisable voting rights (F = A - B - C - D + E)	Common share		70,609,160		—
	Preferred share		—		—

Dividends and Others

A.	Dividends

(1)

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

•

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

(2)

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

(3)

Distribution of cash dividends was approved during the 31st General Meeting of Shareholders held on March 20, 2015.

•

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

(4)

Distribution of interim dividends of Won 1,000 was approved during the 378th Board of Directors’ Meeting on July 23, 2015.

(5)

Distribution of cash dividends was approved during the 32nd General Meeting of Shareholders held on March 18, 2016.

•

Distribution of cash dividends per share of Won 9,000 (exclusive of an interim dividend of Won 1,000) was approved.

(6)

Distribution of interim dividends of Won 1,000 was approved during the Board of Directors’ Meeting on July 28, 2016.

B.	Dividends for the Last Three Fiscal Years


(Unit: in millions of Won, except per share values and percentages)
Classification		As of and for the 6 months ended June 30, 2016		As of and for the year ended December 31, 2015		As of and for the year ended December 31, 2014
Par value per share (Won)			500		500		500
(Consolidated)Net income			861,982		1,518,604		1,801,178
Net income per share (Won)			12,089		20,988		25,154

Total cash dividend			70,609		708,111		666,802

Total stock dividends			—		—		—

(Consolidated) Percentage of cash dividend to available income (%)			0.8		46.6		37
Cash dividend yield ratio (%)	Common share		0.5		4.6		3.5
	Preferred share		—		—		—
Stock dividend yield ratio (%)	Common share		—		—		—
	Preferred share		—		—		—
Cash dividend per share (Won)	Common share		1,000		10,000		9,400
	Preferred share		—		—		—
Stock dividend per share (share)	Common share		—		—		—
	Preferred share		—		—		—

*	Net income per share means basic net income per share. The cash dividend per share amounts include the respective interim cash dividend per share amounts.

II.

BUSINESS

Business Overview

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

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


Classification	Company name	Description of business
Wireless	SK Telecom Co., Ltd.	Wireless voice and data telecommunications services via digital wireless networks

	PS&Marketing Co., Ltd.	Sale of fixed-line and wireless telecommunications products through wholesale, retail and online distribution channels

	Network O&S Co., Ltd.	Maintenance of switching stations

Fixed-line	SK Broadband Co., Ltd.	High-speed Internet, TV, telephone, commercial data and other fixed-line services and management of the transmission system for online digital contents Various media-related services, such as channel management, including video on demand, and mobile IPTV services

	SK Telink Co., Ltd.	International wireless direct-dial “00700” services, pre-paid international card calling services, voice services using Internet protocol and Mobile Virtual Network Operator (“MVNO”) services

Other business	SK Planet Co., Ltd.	Various platform services such as 11th Street, Syrup, OK Cashbag in the commerce area

	SK TechX Co., Ltd.	Develop and supply system software for SK Telecom

	Onestore Co., Ltd.	Operate app store

	SK Communications Co., Ltd.	Integrated portal services through NATE and instant messaging services through NATE-ON

	M&Service Co., Ltd.	System software development, distribution and technical support services and other online information services

	SK Planet America LLC	System software development, distribution and investments

	Shopkick Management Company, Inc.	System software development, distribution and investments

	Atlas Investment	Investments

[Wireless Business]

A.	Industry Characteristics

The Korean mobile communication market is considered to have reached its maturation stage with more than a 100% penetration rate. However, the Korean mobile communications market continues to improve in the quality of services with the help of advances in network-related technology and the development of highly advanced LTE-A, LTE and 3G smartphones which enable the provision of convergence services for multimedia contents, mobile commerce, telematics, new media and other related services. In addition, through the commercialization of LTE network in July 2011 and LTE-A network in June 2013, B2B businesses, such as the corporate “connected workforce” business which can directly contribute to an enhancement in productivity, are expected to grow rapidly. In the first half of 2014, wideband LTE-A service was commercialized and on December 29, 2014, tri-band LTE-A service with a maximum speed of 300 Mbps was also commercialized. Such achievements were the building blocks towards the Company’s LTE penetration reaching 68.7% as of June 30, 2016.

B.	Growth Potential


				(Unit: in 1,000 persons)
		As of June 30, 2016		As of December 31,
Classification		As of June 30, 2016		2015		2014		2013
Number of subscribers	SK Telecom		26,528		26,250		26,468		26,286
	Others (KT, LGU+)		27,184		26,765		26,125		25,909
	MVNO		6,397		5,921		4,584		2,485

	Total		60,109		58,936		57,177		54,680

*	Source: Wireless subscriber data from the Ministry of Science, ICT and Future Planning (“MSIP”) as of June 30, 2016.

C.	Domestic and Overseas Market Conditions

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

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

(Unit: in percentages)

Classification

As of June 30,
2016

As of December 31,

2015

2014

2013

Mobile communication services

49.3

49.4

50.2

50.0

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

D.	Business Overview and Competitive Strengths

The Company is seeking to transform itself from a telecommunications service provider into a comprehensive ICT service provider. It has continued to innovate the scope of its services and achieved strong growth in subscribers amid fierce competition and rate cuts. As a result, for the six months ended June 30, 2016, the Company recorded Won 8.5 trillion in revenue and Won 0.8 trillion in operating income on a consolidated basis and Won 6.2 trillion in revenue and Won 0.9 trillion in operating income on a separate basis.

In particular, the number of subscribers subscribing to “Band Data” plans, which was launched in the second quarter of 2015, has continued to steadily increase in 2016, which in turn led to an increase in data usage. The success of Luna, a smartphone launched in September 2015 that was designed to run exclusively on the Company’s networks, led to the launch of various other relatively low-priced devices and became an example of successfully targeting a niche market.

By continuing to be innovative in developing core competencies, the Company has more firmly established its position as the market leader in wireless telecommunications. The competitive environment of the wireless telecommunications industry has become more focused on retention. For the six months ended June 30, 2016, the average monthly churn rate was 1.5%, a record low since 2004 when the mobile number portability system was first introduced. The number of subscribers (including MVNO subscribers) as of June 30, 2016 was 29.2 million, an increase of approximately 230,000 from the previous quarter. In particular, the number of smartphone subscribers as of June 30, 2016 was 21.3 million, an increase of approximately 310,000 from the previous quarter, propelled by 20.0 million LTE subscribers, solidifying the Company’s market leadership. In addition, as of June 30, 2016, the number of subscribers for products targeted towards second devices such as the T Kids’ phone – Joon and T Outdoor reached 890,000, which the Company believes shows a level of demand that can potentially lead to growth of the lifestyle enhancement platform.

Following the launch of commercial LTE services in July 2011, the Company became the first telecommunications service provider in the world to launch commercial wideband LTE-A services in June 2014. In December 2014, the Company launched tri-band LTE-A services. By launching various high quality services utilizing the LTE-A and wideband LTE networks such as group video conference call services and full high definition mobile IPTV streaming services, the Company plans to provide an innovative user experience, enhance customer satisfaction and increase profitability.

The Company has proved that it has superior network quality compared to its competitors according to the Korea Communications Commission quality evaluations. The Company has also proved to be the leader in Korea’s top three customer satisfaction indices: according to the National Customer Satisfaction Index, Korean Customer Satisfaction Index and Korean Standard Service Quality Index, the Company has continued to hold the leading position for 19 years, 18 years and 17 years, respectively.

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

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

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

[Fixed-line Business]

A.	Industry Characteristics

As subscribers to various bundled wireless and fixed-line products continue to increase, the IPTV business is evolving to satisfy diverse customer needs for media services through differentiated service offerings, including mobile IPTV, bundled wireless and IPTV products and ultra-high definition broadcasting services for smart televisions. In the Korean pay TV market, analog cable broadcasting is increasingly being replaced with digital broadcasting and IPTV is the fastest growing digital broadcasting platform. While it is currently expected that there will be a decline in the number of subscribers switching from cable TV to IPTV, the Company believes that it will need to aggressively increase its subscriber base by providing differentiated services on its IPTV platform. In addition, with the maturity of the residential market and the changing trends of broadcasting consumption towards mobile platforms, the Company believes that giga and ultra-high definition broadcasting services and mobile media services will be important competitive factors. In the future, the Company believes that there will be rapid evolution towards a broadband network stemming from increased demand for giga and ultra-high definition broadcasting services and cloud services and the government is likely to promote the development of the next-generation ICT industry through various policies and regulations.

B.	Growth Potential


(Unit: in 1,000 persons for high-speed Internet and fixed-line telephone, in 1,000 terminals for IPTV)
		As of June 30,		As of December 31,
Classification		2016		2015		2014
Fixed-line Subscribers	High-speed Internet		20,314		20,025		19,199
	Fixed-line telephone		15,998		16,341		16,939
	IPTV (real-time)		10,992		10,992		9,670

*	Source: MSIP website.

*	The number of IPTV subscribers was taken from data announced by the MSIP on May 18, 2016 and the number of IPTV subscribers as of December 31, 2015 and June 30, 2016 shown above is the average number of subscribers for the last six months of 2015.

C.	Cyclical Nature and Seasonality

High-speed Internet, fixed-line telephone and IPTV services are mature markets that are comparatively less sensitive to cyclical economic changes as such services have become more of a necessity and the market has matured. The telecommunications services market overall is not expected to be particularly affected by economic downturns due to the low income elasticity of demand for telecommunication services.

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


	(Unit: in percentages)
	As of June 30, 2016		As of December 31,
Classification	As of June 30, 2016		2015		2014
High-speed Internet (including resales)		25.3		25.1		25.1
Fixed-line telephone (including Voice over Internet Protocol (“VoIP”))		17.0		17.1		17.0
IPTV		30.5		30.5		29.2

*	Source: MSIP website.

*	With respect to Internet telephone, the market share was calculated based on market shares among the Company, KT and LG U+ and is based on the number of IP phone subscribers.

*	The number of IPTV subscribers was taken from data announced by the MSIP on May 18, 2016 and the IPTV market shares as of December 31, 2015 and June 30, 2016 was calculated using the average number of subscribers for the last six months of 2015.

D.	Business Overview and Competitive Strengths

In 1999, the Company was the first in the world to commence commercial ADSL services. On the back of its premium technology and enhanced competitiveness achieved through bundled products, it is currently expanding subscriber base across all of its businesses, including broadband Internet, telephone and IPTV. In particular, SK Broadband has positioned itself to focus on corporate customer services and IPTV services as key strategic areas for mid- to long-term growth, exploiting opportunities in new ICT-based businesses that have led to revenue growth, and providing differentiated contents in its IPTV business by securing popular programming which includes exclusive children’s channels and live broadcasts of Major League Baseball games. In addition, the Company has reinforced its leadership in the ultra-high definition broadcasting market by launching ultra-high definition services that require no set-top boxes in April 2014 and by commercializing ultra-high definition set-top boxes for the first time in Korea in September 2014. Furthermore, the Company was the first in the industry to adopt solutions to upgrade full high definition to ultra-high definition, and the Company also strengthened the line-up of ultra-high definition contents by securing access to diverse contents provided by Sony and NBC Universal. Moreover, the Company provides the greatest number of channels in full high definition in the IPTV market due to its recent upgrade of all 130 live high definition channels to full high definition. The Company has also been selected by the government as the lead trial operator of gigabit (“GiGA”) Internet service to promote the discovery of new technologies and services related to the expansion of GiGA coverage within the hybrid fiber-coaxial network and provide GiGA Wi-Fi and other services. Furthermore, the Company has solidified its technological leadership by setting a worldwide precedent for providing “super” 8K ultra-high definition broadcasting service, which has resolution four times as high as the pre-existing 4K ultra-high definition broadcasting service in the IPTV industry.

SK Telink, a provider of international telecommunications service, has been able to establish itself as a market leader as a result of its affordable pricing, proactive marketing and the quality of its services. It launched a mobile phone-based international calling service under the brand name “00700” in 1998, creating a new niche market within the long-distance telephony market that was otherwise dominated by existing service providers. In 2003, SK Telink was designated a common carrier for international calling services, which allowed the Company to expand its international calling services to fixed-line international calling services. In 2005, SK Telink obtained a license to operate VoIP services and local calling value-added services to develop into a versatile fixed-line telecommunications service provider. SK Telink plans to strategically target the convergence of wireless and fixed-line telecommunications and strengthen its existing business, including international and long-distance calling services, value-added services for local calling and B2B services, and video conference call services while aiming to satisfy the diverse needs of customers by providing quality solutions at reasonable prices.

[Other Business]

A.	Industry Characteristics

As the number of smartphones distributed in Korea exceeds 40 million, the growth in various mobile devices has spurred the rise of the service provider with a strong platform business as the leader in the ICT market. It is becoming increasingly important to enhance competitiveness by building a platform with large data capacity to handle the increase in data transmission.

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

In order to move beyond the saturated wireless telecommunications market and plan for new future opportunities, the Company is aiming to transform itself into a next-generation platform service provider. The Company plans to actively develop a portfolio of services on its growth platforms using its leading position in the ICT business as a foundation to overcome boundaries between industries. In particular, the Company intends to maximize synergies between various business areas and overcome the limitations on growth in the wireless telecommunications market through its three growth platforms, comprising its Internet of Things (“IoT”) solutions platform, lifestyle enhancement platform and advanced media platform. The Company intends to expand its competitive strengths in the residential market, based on its media offerings through its advanced media platform, to also develop its IoT solutions and lifestyle enhancement platforms. The Company also intends to continue to seek business opportunities for its growth businesses such as its healthcare and B2B solutions businesses and integrate them with its growth platforms.

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

B.	Growth Potential

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

C.	Domestic and Overseas Market Conditions

(1)

Commerce markets

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

(2)

Digital contents

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

(3)

Media

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

D.	Business Overview and Competitive Strengths

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

(1)

Commerce

11th Street, an online marketplace, has continued its growth through effective marketing and customer satisfaction. Despite its later entry into the online commerce market (launched in 2008) which was already divided between Auction and G-Market, it is leading the domestic e-commerce market and is also rapidly growing in the mobile commerce market and has established itself as the domestic market leader in this market. Growth plans involving overseas joint ventures based on 11th Street’s business expertise have resulted in the successful launch of an open online commerce market in Turkey in partnership with Doğuş Group in March 2013. In Indonesia, an open market platform was successfully launched through a joint venture established in July 2013 with PT XM Axiata Tbk, a wireless telecommunications company in Indonesia. In October 2014, SK Planet and Celcom Axiata Berhad, which is a leading telecommunications service provider in Malaysia, established a joint venture, Celcom Planet, and launched online commerce services tailored to the Malaysian market in April 2015 and is actively engaged in operating such business.

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

OK Cashbag is a point-based loyalty marketing program which has grown to become a top-tier loyalty marketing program since its inception in 1999. Customers have access to increased benefits through accumulation of loyalty reward points and partner companies use OK Cashbag as a marketing resource. As Korea’s largest loyalty mileage program, OK Cashbag maintains a leading position in the industry. The Company is continuing to develop its service in light of market conditions and customers’ needs to enhance its customers’ perception of point value and is reviewing and pursuing various plans to develop OK Cashbag into a service that goes beyond a mileage program that leverages the key competitiveness of OK Cashbag such as its platform and partnership network.

(2)

Location-based services

T-Map Navigation provides map, local information, real-time traffic information and navigation services. T-Map Navigation is one of the leading location-based service platforms in Korea. By entering the Online to Offline service area with T map Taxi, T map Public Transportation and others, the Company is expanding its mobile platform foundation that connects day to day life. The Company is also providing “infotainment” systems to commercial vehicle businesses as well as providing localized content on its products, such as region-specific information and advertisements. The Company plans to further develop the T-Map Navigation platform by initiating open application programming interface-based services, providing services to more diverse types of devices and providing local area-based services.

(3)

Digital contents

Onestore, an application platform launched in 2016 through a joint venture between SK Telecom, KT, LG U+ and Naver’s app store, plans to widen its services to tablets and navigation devices. The Company intends to further develop Onestore into a personalized gateway and mobile playground through expansion of the scope of serviceable devices, reinforcement of digital content offerings and enhancement of search services, among other things.

(4)

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

The Company’s instant messenger service, “Nate-On,” had a market share of 20.6% in the instant messenger market in Korea with 3.2 million net users during the month of June 2016. The Company’s Internet search portal service, “Nate,” had a page-view market share of 3.8% as of June 30, 2016. (Source: Korean Click, based on fixed-line access)

Major Products & Services

A.	Updates on Major Products and Services


(Unit: in millions of Won and percentages)
Business	Major Companies	Item	Major Trademarks	Consolidated Sales Amount (ratio)
Wireless	SK Telecom Co., Ltd., PS&Marketing Co., Ltd., Network O&S Co., Ltd.	Mobile communication service, wireless data service, ICT service	T, Band Data and others		6,499,445 (77	%)
Fixed-line	SK Broadband Co., Ltd., SK Telink Co., Ltd.	Fixed-line phone, high speed Internet, data and network lease service	B tv , 00700 international call, 7Mobile and others		1,329,664 (16	%)
Other	SK Planet Co., Ltd., SK TechX Co., Ltd., Onestore Co., Ltd., SK Communications Co., Ltd., M&Service Co., Ltd., SKP America, LLC, Shopkick Mgmt. Co., Ltd.	Internet portal service and e-commerce	OK Cashbag, NATE, Onestore and others		666,643 (7	%)

Total					8,495,752 (100	%)

[Wireless Business]

As of June 30, 2016, based on the Company’s standard monthly subscription plan, the basic service fee was Won 11,000 and the usage fee was Won 1.8 per second.

[Fixed-line Business]

SK Broadband provides broadband Internet access service, telephony, TV, corporate data services and other services for both individual and corporate customers. As of June 30, 2016, broadband Internet and TV services comprised 57.8% of SK Broadband’s revenue, telephony service 16.0%, corporate data services 24.8% and other telecommunications services 1.4%. Price fluctuations in the different services provided by SK Broadband are due to discounts provided for long term contracts, changes in equipment costs and competition between companies.

[Other Business]

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


Business	Item	Major Trademarks
Platform	ICT services, new media services, advertisement services, telecommunications sales, e-commerce and others	Syrup, Onestore, 11th Street, T Map, OK Cashbag and others

Advertisement (Display, Search)	Online advertisement services	Nate, Nate-On

Contents and others	Pay content sales and other services	Nate, Nate-On

Investment Status

[Wireless Business]

A.	Investment in Progress

(Unit: in 100 millions of Won)

Business

Classification

Investment
period

Subject of
investment

Investment effect

Expected
investment
amount

Amount
already
invested

Future
investment

Network/Common

Upgrade/
New installation

Six months
ended June 30,
2016

Network,
systems and
others

Capacity increase and quality improvement; systems improvement

21,000

3,125

—

Total

21,000

3,125

—

*	On July 28, 2016, the Company’s board of directors resolved to increase its 2016 capital expenditure budget from Won 20 trillion to Won 21 trillion.

B.	Future Investment Plan

(Unit: in 100 millions of Won)

Expected investment amount

Expected investment for each year

Business

Asset type

Amount

2016

2017

2018

Investment effect

Network/Common

Network, systems and others

21,000

To be determined

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

Total

21,000

To be determined

[Fixed-line Business]

A.	Investment in Progress

For the six months ended June 30, 2016, the Company spent Won 239.7 billion for capital expenditures as set out below, including the investment of Won 103.4 billion to expand subscriber networks. In 2016, the Company expects to spend additional amounts to strengthen the competitiveness of its advanced media and IoT solutions platforms; however, the overall capital expenditure amount is expected to be similar to 2015 through efficient management of investments.

(Unit: in 100 millions of Won)

Business

Classification

Investment
period

Subject of
investment

Investment effect

Amount
already
invested

Future
investment

High-speed Internet

Upgrade/
New
installation

Six months
ended June 30,
2016

Backbone
and
subscriber
network /
others

Expand subscriber networks and facilities

1,091

To be determined

Telephone

Television

571

Corporate Data

Increase leased-line and integrated information system

328

Others

Expand networks and required space

406

Total

2,397

Revenues


(Unit: in millions of Won)
Business	Sales type		Item		For the six months ended June 30, 2016		For the year ended December 31, 2015		For the year ended December 31, 2014
Wireless		Services	Mobile communication	Export		8,900		15,035		6,773
				Domestic		6,490,545		13,254,243		13,521,108

				Subtotal		6,499,445		13,269,278		13,527,881

Fixed-line		Services	Fixed-line, B2B data, High-speed Internet, TV	Export		53,926		94,387		63,608
				Domestic		1,275,738		2,400,186		2,386,312

				Subtotal		1,329,664		2,494,573		2,449,920

Other		Services	Display and Search ad., Content	Export		21,340		53,622		20,798
				Domestic		645,303		1,319,261		1,165,199

				Subtotal		666,643		1,372,883		1,185,997

Total				Export		84,166		163,044		91,179
				Domestic		8,411,586		16,973,690		17,072,619

				Total		8,495,752		17,136,734		17,163,798


(Unit: in millions of Won)
For the six months ended June 30, 2016	Wireless		Fixed		Other			Sub total		Internal transaction			After consolidation
Total sales		7,292,918		1,629,570		928,512			9,851,000		(1,355,248	)		8,495,752

Internal sales		793,473		299,906		261,869			1,355,248		(1,355,248	)		—
External sales		6,499,445		1,329,664		666,643			8,495,752		—			8,495,752
Operating income (loss)		920,427		64,388		(175,324	)		809,491		—			809,491
Profit (loss) for the period		—		—		—			—		—			1,100,874

Total assets		23,836,373		3,680,610		2,865,977			30,382,960		(1,853,570	)		28,529,390

Total liabilities		9,731,374		2,316,179		987,201			13,034,754		127,143			13,161,897

Derivative Transactions

A.	Current Swap Contract Applying Cash Flow Risk Hedge Accounting

Currency swap contracts under cash flow hedge accounting as of June 30, 2016 are as follows:


Borrowing date	Hedged item	Hedged risk	Contract type	Financial institution	Duration of contract
Jul. 20, 2007	Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of US$400,000,000)	Foreign currency risk	Cross currency swap	Morgan Stanley and five other banks	Jul. 20, 2007 – Jul. 20, 2027


Borrowing date	Hedged item	Hedged risk	Contract type	Financial institution	Duration of contract
Jun. 12, 2012	Fixed-to-fixed cross currency swap (Swiss Franc denominated bonds face value of CHF 300,000,000)	Foreign currency risk	Cross currency swap	Citibank and five other banks	Jun. 12, 2012 – Jun.12, 2017

Nov. 1, 2012	Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of US$700,000,000)	Foreign currency risk	Cross currency swap	Barclays and nine other banks	Nov. 1, 2012 – May. 1, 2018

Jan. 17, 2013	Fixed-to-fixed cross currency swap (Australia dollar denominated bonds face value of AUD 300,000,000)	Foreign currency risk	Cross currency swap	BNP Paribas and three other banks	Jan. 17, 2013 – Nov. 17, 2017

Mar. 7, 2013	Floating-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds face value of US$300,000,000)	Foreign currency risk and interest rate risk	Cross currency interest rate swap	DBS Bank	Mar. 7, 2013 – Mar. 7, 2020

Oct. 29, 2013	Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of US$300,000,000)	Foreign currency risk	Cross currency swap	Korea Development Bank and others	Oct. 29, 2013 – Oct. 26, 2018

Dec. 16, 2013	Fixed-to-fixed cross currency swap (U.S. dollar denominated loan face value of US$69,056)	Foreign currency risk	Cross currency swap	Deutsche Bank	Dec. 16, 2013 – Apr. 29, 2022

B.	Treatment of Derivative Instruments on the Balance Sheet

As of June 30, 2016, fair values of the above derivatives recorded in assets or liabilities and details of derivative instruments are as follows:


(Unit: in millions of Won and thousands of foreign currencies)
Hedged item	Fair value
	Cash flow hedge											Trading purposes		Total
	Accumulated gain (loss) on valuation of derivatives			Tax effect			Foreign currency translation gain (loss)			*Others^(1)**		Trading purposes		Total
Non-current assets:
Convertible option^(*2) (face amounts of Won 150 billion)		—			—			—			—		9,961		9,961
Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of US$400,000,000)		(50,424	)		(16,098	)		8,299			129,806		—		71,583
Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of US$700,000,000)		(15,296	)		(4,884	)		51,650			—		—		31,470
Floating-to-fixed cross currency swap (U.S. dollar denominated bonds face value of US$300,000,000)		(11,613	)		(3,709	)		24,255			—		—		8,933
Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of US$300,000,000)		(4,481	)		—			30,694			—		—		26,213
Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of US$69,056)		(3,622	)		(1,156	)		7,457			—		—		2,679

Total assets															150,839

Non-current liabilities:
Fixed-to-fixed cross currency swap (Swiss Franc denominated bonds face value of CHF 300,000,000)		(6,565	)		(2,095	)		(6,710	)		—		—		(15,370	)
Fixed-to-fixed cross currency swap (Australia dollar denominated bonds face value of AUD 300,000,000)		2,873			918			(74,879	)		—		—		(71,088	)

Total liabilities															(86,458	)

(*1)	Cash flow hedge accounting has been applied to the relevant contract from May 12, 2010. Others represent gain on valuation of currency swap incurred prior to the application of hedge accounting and was recognized through profit or loss prior to the year ended December 31, 2015.

Major Contracts

[SK Telecom]

(Unit: in 100 millions of Won)

Category

Vendor

Start Date

Completion
Date

Contract Title

Contract
Amount

Product

Acts Display & Optics Company

May 4, 2016

February 28,
2017

Purchase smart beam laser

Real Estate

SK Broadband Co., Ltd.

February 1,
2016

January 31,
2017

Namsan Office Building Lease Contract

Real Estate

Multiple

January 1, 2016

June 30, 2016

Purchase land (Euiwang and four others)

Subtotal

143

[SK Broadband]

Below are SK Broadband’s contracts related to its telecommunications equipment. In addition to the below, SK Broadband also has entered into various real estate rental agreements.


Counterparty	Contract Contents	Contract Period	Note
Telecommunication service providers	Interconnection among telecommunication service providers	—	Automatically renewed for two years at a time unless specific amendments are requested

KEPCO	Provision of electric facilities	From Nov. 2015 to Nov. 2016 (Unless special reasons arise, the usage period will be renewed annually)	Use of electricity poles

Seoul City Railway	Use of telecommunication line conduits	From Jan. 2015 to Dec. 2017	Use of railway telecommunication conduit (Serviced areas to expand)

Busan Transportation Corporation	Use of telecommunication line conduits	From July 2009 to July 2013 (Renewal in progress, currently in the process of transitioning to private network system, plans to enter into a contract once completed and the remaining work is confirmed)	Use of railway telecommunication conduit (Serviced areas to expand)

Seoul Metro	Use of telecommunication line conduits	From May 2010 to May 2013 (Renewal in progress, currently in discussion to decide usage unit price, future plans to enter into a contract)	Use of railway telecommunication conduit (Serviced areas to expand)

Gwangju City Railway	Use of telecommunication line conduits	From Sep. 2010 to Dec. 2012 (Renewal in progress, in the completion stage of transitioning to private network system, currently reviewing whether to renew contract at the end of 2016)	Use of railway telecommunication conduit (Service lease)

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

[SK Communications]


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

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

R&D Investments

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


(Unit: in millions of Won except percentages)
		For the six months ended June 30, 2016			For the year ended December 31,						Remarks
Category		For the six months ended June 30, 2016			2015			2014			Remarks
Raw material			347			1,267			530			—
Labor			60,458			68,969			71,224			—
Depreciation			64,638			147,577			176,975			—
Commissioned service			23,842			37,001			67,802			—
Others			20,528			67,888			81,221			—

Total R&D costs			169,813			322,702			397,752			—

Accounting	Sales and administrative expenses		168,111			315,790			390,943			—
Accounting	Development expenses (Intangible assets)		1,702			6,912			6,809			—
R&D cost / sales amount ratio (Total R&D costs / Current sales amount×100)			2.00	%		1.88	%		2.32	%		—

Other information relating to investment decisions

A.	Trademark Policies

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

B.	Business-related Intellectual Property

[SK Telecom]

As of June 30, 2016, the Company holds 6,029 Korean-registered patents, 403 U.S.-registered patents, 238 Chinese-registered patents (all including patents held jointly with other companies) and more patents with other countries. The Company holds 951 Korean-registered trademarks and owns intellectual property rights to the design of the alphabet “T.” The designed alphabet “T” is registered in all business categories for trademarks (total of 45) and is being used as the primary brand of the Company.

[SK Broadband]

As of June 30, 2016, SK Broadband holds 419 Korean-registered patents relating to high-speed Internet, telephone and IPTV service. In addition, SK Broadband has applied for a patent relating to two-way broadcasting system. SK Broadband also holds a number of trademarks and service marks relating to its service and brand.

[SK Planet]

As of June 30, 2016, SK Planet held 2,275 registered patents, 126 registered design marks, 1,140 registered trademarks and five copyrights (including those held jointly with other companies) in Korea. It also holds 114 U.S.-registered patents, 84 Chinese-registered patents, 66 Japanese-registered patents, 24 E.U.-registered patents (all including patents held jointly with other companies) and 241 registered trademarks, along with a number of other intellectual property rights, in other countries.

[SK Communications]

As of June 30, 2016, SK Communications held 92 registered patents, 26 registered design rights and 641 registered trademarks in Korea.

C.	Business-related Pollutants and Environmental Protection

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

III.

FINANCIAL INFORMATION

Summary Financial Information (Consolidated and Separate)

A.	Summary Financial Information (Consolidated)

Below is the summary consolidated financial information of the Company as of June 30, 2016, December 31, 2015 and December 31, 2014 and for the six months ended June 30, 2016 and 2015 and the years ended December 31, 2015 and 2014. The Company’s reviewed consolidated financial statements as of June 30, 2016 and December 31, 2015 and for the six months ended June 30, 2016 and 2015, which are prepared in accordance with K-IFRS, are attached hereto.


(Unit: in millions of Won except number of companies)
	As of June 30, 2016			As of December 31, 2015		As of December 31, 2014
Assets
Current Assets		6,118,565			5,160,242		5,083,148
• Cash and Cash Equivalents		1,099,561			768,922		834,429
• Accounts Receivable – Trade, net		2,199,983			2,344,867		2,392,150
• Accounts Receivable – Other, net		1,273,406			673,739		690,527
• Others		1,545,615			1,372,714		1,166,042
Non-Current Assets		22,410,825			23,421,145		22,858,085
• Long-Term Investment Securities		1,046,661			1,207,226		956,280
• Investments in Associates and Joint Ventures		6,929,114			6,896,293		6,298,088
• Property and Equipment, net		9,716,070			10,371,256		10,567,701
• Intangible Assets, net		2,070,189			2,304,784		2,483,994
• Goodwill		1,912,065			1,908,590		1,917,595
• Others		736,726			732,996		634,427

Total Assets		28,529,390			28,581,387		27,941,233

Liabilities
Current Liabilities		5,219,997			5,256,493		5,420,310
Non-Current Liabilities		7,941,900			7,950,798		7,272,653

Total Liabilities		13,161,897			13,207,291		12,692,963

Equity
Equity Attributable to Owners of the Parent Company		15,218,121			15,251,079		14,506,739
Share Capital		44,639			44,639		44,639
Capital Surplus (Deficit) and Other Capital Adjustments		191,684			189,510		277,998
Retained Earnings		15,214,203			15,007,627		14,188,591
Reserves		(232,405	)		9,303		(4,489	)
Non-controlling Interests		149,372			123,017		741,531

Total Equity		15,367,493			15,374,096		15,248,270

Total Liabilities and Equity		28,529,390			28,581,387		27,941,233

Number of Companies Consolidated		38			37		40


(Unit: in millions of Won except per share amounts)
	For the six months ended June 30, 2016		For the six months ended June 30, 2015		For the year ended December 31, 2015			For the year ended December 31, 2014
Operating Revenue		8,495,752		8,496,025		17,136,734			17,163,798
Operating Income		809,491		815,526		1,708,006			1,825,105
Profit Before Income Tax		1,100,874		1,075,605		2,035,365			2,253,828
Profit for the Period		863,288		840,635		1,515,885			1,799,320
Profit for the Period Attributable to Owners of the Parent Company		861,982		840,334		1,518,604			1,801,178
Profit for the Period Attributable to Non-controlling Interests		1,306		301		(2,719	)		(1,858	)
Basic Earnings Per Share (Won)		12,089		11,695		20,988			25,154
Diluted Earnings Per Share (Won)		12,089		11,695		20,988			25,154

B.	Summary Financial Information (Separate)

Below is the summary separate financial information of the Company as of June 30, 2016, December 31, 2015 and December 31, 2014 and for the six months ended June 30, 2016 and 2015 and the years ended December 31, 2015 and 2014. The Company’s reviewed separate financial statements as of June 30, 2016 and December 31, 2015 and for the six months ended June 30, 2016 and 2015, which are prepared in accordance with K-IFRS, are attached hereto.


(Unit: in millions of Won)
	As of June 30, 2016			As of December 31, 2015			As of December 31, 2014
Assets
Current Assets		3,559,993			2,713,529			2,689,913
• Cash and Cash Equivalents		646,221			431,666			248,311
• Accounts Receivable – Trade, net		1,520,723			1,528,751			1,559,281
• Accounts Receivable – Other, net		697,642			264,741			305,990
• Others		695,407			488,371			576,331
Non-Current Assets		19,621,845			20,433,411			20,022,549
• Long-Term Investment Securities		756,370			726,505			608,797
• Investments in Subsidiaries and Associates		8,759,224			8,810,548			8,181,769
• Property and Equipment, net		6,802,084			7,442,280			7,705,906
• Intangible Assets, net		1,585,409			1,766,069			1,928,169
• Goodwill		1,306,236			1,306,236			1,306,236
• Others		412,522			381,773			291,672

Total Assets		23,181,838			23,146,940			22,712,462

Liabilities
Current Liabilities		3,370,769			3,491,306			3,378,046
Non-Current Liabilities		6,008,250			5,876,174			5,792,195

Total Liabilities		9,379,019			9,367,480			9,170,241

Equity
Share Capital		44,639			44,639			44,639
Capital Surplus and Other Capital Adjustments		371,481			369,446			433,894
Retained Earnings		13,431,966			13,418,603			12,996,790
Reserves		(45,267	)		(53,228	)		66,898

Total Equity		13,802,819			13,779,460			13,542,221

Total Liabilities and Equity		23,181,838			23,146,940			22,712,462


(Unit: in millions of Won except per share amounts)
	For the six months ended June 30, 2016		For the six months ended June 30, 2015		For the year ended December 31, 2015		For the year ended December 31, 2014
Operating Revenue		6,190,249		6,277,222		12,556,979		13,012,644
Operating Income		908,056		803,916		1,658,776		1,737,160
Profit Before Income Tax		846,130		698,142		1,469,444		1,321,750
Profit for the Period		666,350		527,783		1,106,761		1,028,541
Basic Earnings Per Share (Won)		9,318		7,301		15,233		14,262
Diluted Earnings Per Share (Won)		9,318		7,301		15,233		14,262

Other Matters Related to Financial Information

A.	Restatement of the Financial Statements

Not applicable.

B.	Allowance for Doubtful Accounts

(1)

Allowance for Doubtful Accounts of Trade and Other Receivables


	(Unit: in millions of Won)
	For the six months ended June 30, 2016
	Gross amount		Allowance for Doubtful Accounts		Percentage
Accounts receivable – trade		2,480,255		251,843		10	%
Loans		155,850		28,091		18	%
Accounts receivable – other		1,398,087		76,698		6	%
Accrued income		12,645		—		0	%
Guarantee deposits		300,119		—		0	%

Total		4,346,956		356,632		8	%


	(Unit: in millions of Won)
	For the year ended December 31, 2015
	Gross amount		Allowance for Doubtful Accounts		Percentage
Accounts receivable – trade		2,629,605		239,495		9	%
Loans		141,878		25,529		18	%
Accounts receivable – other		755,151		78,992		10	%
Accrued income		10,753		—		0	%
Guarantee deposits		299,142		—		0	%

Total		3,836,529		344,016		9	%


	(Unit: in millions of Won)
	For the year ended December 31, 2014
	Gross amount		Allowance for Doubtful Accounts		Percentage
Accounts receivable – trade		2,682,595		221,909		8	%
Loans		157,934		27,694		18	%
Accounts receivable – other		772,711		78,588		10	%
Accrued income		10,134		—		0	%
Guarantee deposits		289,009		—		0	%

Total		3,912,383		328,191		8	%

(2)

Movements in Allowance for Doubtful Accounts of Trade and Other Receivables


	(Unit: in millions of Won)
	For the six months ended June 30, 2016			For the year ended December 31, 2015			For the year ended December 31, 2014
Beginning balance		344,016			328,191			323,985
Increase of allowance for doubtful accounts		22,643			75,773			63,697
Reversal of allowance for doubtful accounts		3,409			—			—
Write-offs		(29,775	)		(87,798	)		(89,529	)
Other		16,339			27,850			30,039
Ending balance		356,632			344,016			328,191

(3)

Policies for Allowance for Doubtful Accounts

The Company establishes allowances for doubtful accounts based on the likelihood of recoverability of trade and other receivables based on their aging at the end of the period and past customer default experience for the past two years. With respect to trade receivables relating to wireless telecommunications services, the Company considers the likelihood of recovery based on past customer default experience and the length of default in connection with the type of default (e.g., whether the customer’s service has been terminated or is continued). For such trade receivables that have been overdue for more than two years after the customer’s service has been terminated, the Company records an allowance of 100% of such receivables. For such trade receivables that have been overdue for less than two years after the customer’s service has been terminated or relates to a customer that is continuing his service, the Company records an allowance of a certain percentage of such receivable. Consistent with customary practice, the Company writes off trade and other receivables for which the prescription period has passed or that are determined to be impossible or economically too costly to collect, including receivables that are less than Won 200,000 and more than six months overdue and receivables that have been determined to be the subject of identity theft.

(4)

Aging of Accounts Receivable


(Unit: in millions of Won)
	As of June 30, 2016
	Six months or less			From six months to one year			From one year to three years			More than three years			Total
Accounts receivable – general		2,119,980			55,655			214,108			90,512			2,480,255
Percentage		85.5	%		2.2	%		8.6	%		3.7	%		100	%

C.	Inventories

(1)

Detailed Categories of Inventories


	(Unit: in millions of Won)
Account Category	For the six months ended June 30, 2016			For the year ended December 31, 2015			For the year ended December 31, 2014
Merchandise		242,792			242,230			246,738
Goods in transit		—			—			—
Other inventories		28,079			31,326			20,929

Total		270,871			273,556			267,667

Percentage of inventories to total assets [ Inventories / Total assets ]		0.95	%		0.96	%		0.96	%
Inventory turnover [ Cost of sales / { ( Beginning balance of inventories + Ending balance of inventories ) / 2} ]		6.45			7.23			7.55

(2)

Reporting of Inventories

The Company holds handsets, ICT equipment for offline sales, etc. in inventory. The Company conducts physical due diligence of its inventories with its auditors at the end of each year.

D.	Fair Value Measurement

See notes 4(5) to 4(7) and 4(16) of the notes to the Company’s audited consolidated financial statements as of and for the years ended December 31, 2015 and 2014 for more information.

E.	Key Terms of Debt Securities

[SK Telecom]

The following are key terms and conditions of bonds issued by the Company.

(As of June 30, 2016)

(Unit: in millions of Won except percentages)

Name

Issue Date

Maturity

Date

Principal
Amount

Date of Fiscal
Agency Agreement

Fiscal Agent

Unsecured Bond – Series 54

Sept. 12, 2006

Sept. 12, 2016

200,000

Sept. 4, 2006

Shinhan Investment Corp.

Unsecured Bond – Series 57-2

March 3, 2008

March 3, 2018

200,000

Feb. 22, 2008

Shinhan Investment Corp.


Maintenance of Financial Ratio	Key Term	Debt ratio no greater than 400%
Maintenance of Financial Ratio	Compliance Status	Compliant

Restriction on Liens	Key Term	The total amount of secured debt not to exceed 50% of share capital as of the end of the previous fiscal year
Restriction on Liens	Compliance Status	Compliant

Restriction on Disposition of Assets	Key Term	Disposal of assets per fiscal year not to exceed 5 trillion won
Restriction on Disposition of Assets	Compliance Status	Compliant

Submission of Compliance Certificate	Compliance Status	Submitted on April 27, 2016

Name

Issue Date

Maturity

Date

Principal
Amount

Date of Fiscal
Agency Agreement

Fiscal Agent

Unsecured Bond – Series 61-1

Dec. 27, 2011

Dec. 27, 2016

110,000

Dec. 19, 2011

Hana Financial Investment Co., Ltd.

Unsecured Bond – Series 61-2

Dec. 27, 2011

Dec. 27, 2021

190,000

Dec. 19, 2011

Hana Financial Investment Co., Ltd.


Maintenance of Financial Ratio	Key Term	Debt ratio no greater than 300%
Maintenance of Financial Ratio	Compliance Status	Compliant

Restriction on Liens	Key Term	The total amount of secured debt not to exceed 50% of share capital as of the end of the previous fiscal year
Restriction on Liens	Compliance Status	Compliant

Restriction on Disposition of Assets	Key Term	Disposal of assets per fiscal year not to exceed 2 trillion won
Restriction on Disposition of Assets	Compliance Status	Compliant

Submission of Compliance Certificate	Compliance Status	Submitted on April 27, 2016

Name

Issue Date

Maturity

Date

Principal
Amount

Date of Fiscal
Agency Agreement

Fiscal Agent

Unsecured Bond – Series 62-1

Aug. 28, 2012

Aug. 28, 2019

170,000

Aug. 22, 2012

Meritz Securities Co., Ltd.

Unsecured Bond – Series 62-2

Aug. 28, 2012

Aug. 28, 2022

140,000

Aug. 22, 2012

Meritz Securities Co., Ltd.

Unsecured Bond – Series 62-3

Aug. 28, 2012

Aug. 28, 2032

90,000

Aug. 22, 2012

Meritz Securities Co., Ltd.


Maintenance of Financial Ratio	Key Term	Debt ratio no greater than 300%
Maintenance of Financial Ratio	Compliance Status	Compliant

Restriction on Liens	Key Term	The total amount of secured debt not to exceed 100% of share capital as of the end of the previous fiscal year
Restriction on Liens	Compliance Status	Compliant

Restriction on Disposition of Assets	Key Term	Disposal of assets per fiscal year not to exceed 2 trillion won
Restriction on Disposition of Assets	Compliance Status	Compliant

Submission of Compliance Certificate	Compliance Status	Submitted on April 27, 2016

Name

Issue Date

Maturity

Date

Principal
Amount

Date of Fiscal
Agency Agreement

Fiscal Agent

Unsecured Bond – Series 63-1

April 23, 2013

April 23, 2023

230,000

April 17, 2013

Korea Securities Finance Corp.

Unsecured Bond – Series 63-2

April 23, 2013

April 23, 2033

130,000

April 17, 2013

Korea Securities Finance Corp.

Unsecured Bond – Series 64-1

May 14, 2014

May 14, 2019

50,000

April 29, 2014

Korea Securities Finance Corp.

Unsecured Bond – Series 64-2

May 14, 2014

May 14, 2024

150,000

April 29, 2014

Korea Securities Finance Corp.

Unsecured Bond – Series 64-4

May 14, 2014

May 14, 2029

50,000

April 29, 2014

Korea Securities Finance Corp.

Unsecured Bond – Series 65-1

Oct. 28, 2014

Oct. 28, 2019

160,000

Oct. 16, 2014

Korea Securities Finance Corp.

Unsecured Bond – Series 65-2

Oct. 28, 2014

Oct. 28, 2021

150,000

Oct. 16, 2014

Korea Securities Finance Corp.

Unsecured Bond – Series 65-3

Oct. 28, 2014

Oct. 28, 2024

190,000

Oct. 16, 2014

Korea Securities Finance Corp.

Unsecured Bond – Series 66-1

Feb. 26, 2015

Feb. 26, 2022

100,000

Feb. 11, 2015

Korea Securities Finance Corp.

Unsecured Bond – Series 66-2

Feb. 26, 2015

Feb. 26, 2025

150,000

Feb. 11, 2015

Korea Securities Finance Corp.

Unsecured Bond – Series 66-3

Feb. 26, 2015

Feb. 26, 2030

50,000

Feb. 11, 2015

Korea Securities Finance Corp.


Maintenance of Financial Ratio	Key Term	Debt ratio no greater than 300%
Maintenance of Financial Ratio	Compliance Status	Compliant

Restriction on Liens	Key Term	The total amount of secured debt not to exceed 100% of share capital as of the end of the previous fiscal year
Restriction on Liens	Compliance Status	Compliant

Restriction on Disposition of Assets	Key Term	Disposal of assets per fiscal year not to exceed 2 trillion won
Restriction on Disposition of Assets	Compliance Status	Compliant

Submission of Compliance Certificate	Compliance Status	Submitted on April 27, 2016

Name

Issue Date

Maturity

Date

Principal
Amount

Date of Fiscal
Agency Agreement

Fiscal Agent

Unsecured Bond – Series 67-1

July 17, 2015

July 17, 2018

90,000

July 9, 2015

Korea Securities Finance Corp.

Unsecured Bond – Series 67-2

July 17, 2015

July 17, 2025

70,000

July 9, 2015

Korea Securities Finance Corp.

Unsecured Bond – Series 67-3

July 17, 2015

July 17, 2030

90,000

July 9, 2015

Korea Securities Finance Corp.

Unsecured Bond – Series 67-4

July 17, 2015

July 17, 2030

50,000

July 9, 2015

Korea Securities Finance Corp.


Maintenance of Financial Ratio	Key Term	Debt ratio no greater than 300%
Maintenance of Financial Ratio	Compliance Status	Compliant

Restriction on Liens	Key Term	The total amount of secured debt not to exceed 100% of share capital as of the end of the previous fiscal year
Restriction on Liens	Compliance Status	Compliant

Restriction on Disposition of Assets	Key Term	Disposal of assets per fiscal year not to exceed 2 trillion won
Restriction on Disposition of Assets	Compliance Status	Compliant

Submission of Compliance Certificate	Compliance Status	Submitted on April 27, 2016

Name

Issue Date

Maturity

Date

Principal
Amount

Date of Fiscal
Agency Agreement

Fiscal Agent

Unsecured Bond – Series 68-1

November 30, 2015

November 30, 2018

80,000

November 18, 2015

Korea Securities Finance Corp.

Unsecured Bond – Series 68-2

November 30, 2015

November 30, 2025

100,000

November 18, 2015

Korea Securities Finance Corp.

Unsecured Bond – Series 68-3

November 30, 2015

November 30, 2035

70,000

November 18, 2015

Korea Securities Finance Corp.

Unsecured Bond – Series 68-4

November 30, 2015

November 30, 2030

50,000

November 18, 2015

Korea Securities Finance Corp.


Maintenance of Financial Ratio	Key Term	Debt ratio no greater than 300%
Maintenance of Financial Ratio	Compliance Status	Compliant

Restriction on Liens	Key Term	The total amount of secured debt not to exceed 100% of share capital as of the end of the previous fiscal year
Restriction on Liens	Compliance Status	Compliant

Restriction on Disposition of Assets	Key Term	Disposal of assets per fiscal year not to exceed 2 trillion won
Restriction on Disposition of Assets	Compliance Status	Compliant

Submission of Compliance Certificate	Compliance Status	Submitted on April 27, 2016

Name

Issue Date

Maturity

Date

Principal
Amount

Date of Fiscal
Agency Agreement

Fiscal Agent

Unsecured Bond – Series 69-1

March 4, 2016

March 4, 2019

70,000

February 22, 2016

Korea Securities Finance Corp.

Unsecured Bond – Series 69-2

March 4, 2016

March 4, 2021

100,000

February 22, 2016

Korea Securities Finance Corp.

Unsecured Bond – Series 69-3

March 4, 2016

March 4, 2026

90,000

February 22, 2016

Korea Securities Finance Corp.

Unsecured Bond – Series 69-4

March 4, 2016

March 4, 2036

80,000

February 22, 2016

Korea Securities Finance Corp.


Maintenance of Financial Ratio	Key Term	Debt ratio no greater than 300%
Maintenance of Financial Ratio	Compliance Status	Compliant

Restriction on Liens	Key Term	The total amount of secured debt not to exceed 100% of share capital as of the end of the previous fiscal year
Restriction on Liens	Compliance Status	Compliant

Restriction on Disposition of Assets	Key Term	Disposal of assets per fiscal year not to exceed 2 trillion won
Restriction on Disposition of Assets	Compliance Status	Compliant

Submission of Compliance Certificate	Compliance Status	Submitted on April 27, 2016

[SK Broadband]

The following are key terms and conditions of bonds issued by SK Broadband.

(As of June 30, 2016)

(Unit: in millions of Won except percentages)

Name

Issue Date

Maturity

Date

Principal
Amount

Date of Fiscal
Agency Agreement

Fiscal Agent

Unsecured Bond – Series 36-3

Jan. 19, 2012

Jan. 19, 2017

100,000

January 11, 2012

Samsung Securities Co., Ltd.

Unsecured Bond – Series 37-2

Oct. 12, 2012

Oct. 12, 2017

120,000

October 8, 2012

Hanwha Investment & Securities Co., Ltd.


Maintenance of Financial Ratio	Key Term	Debt ratio no greater than 500%
Maintenance of Financial Ratio	Compliance Status	Compliant

Restriction on Liens	Key Term	The total amount of secured debt not to exceed 200% of share capital as of the end of the previous fiscal year
Restriction on Liens	Compliance Status	Compliant

Restriction on Disposition of Assets	Key Term	Disposal of assets per fiscal year not to exceed 10 trillion won
Restriction on Disposition of Assets	Compliance Status	Compliant

Submission of Compliance Certificate	Compliance Status	Compliant

Name

Issue Date

Maturity

Date

Principal
Amount

Date of Fiscal
Agency Agreement

Fiscal Agent

Unsecured Bond – Series 38-1

April 2, 2014

Oct. 2, 2016

80,000

March 21, 2014

Korea Securities Finance Corp.

Unsecured Bond – Series 38-2

April 2, 2014

April 2, 2019

210,000

March 21, 2014

Korea Securities Finance Corp.

Unsecured Bond – Series 39

Sept. 29, 2014

Sept. 29, 2019

130,000

Sept. 17, 2014

Korea Securities Finance Corp.

Unsecured Bond – Series 40-1

Jan. 14, 2015

Jan. 14, 2018

50,000

Jan. 2, 2014

Korea Securities Finance Corp.

Unsecured Bond – Series 40-2

Jan. 14, 2015

Jan. 14, 2020

160,000

Jan. 2, 2014

Korea Securities Finance Corp.

Unsecured Bond – Series 41

July 15, 2015

July 15, 2020

140,000

July 3, 2015

Korea Securities Finance Corp.

Unsecured Bond – Series 42

October 6, 2015

October 6, 2020

130,000

September 22, 2015

Korea Securities Finance Corp.


Maintenance of Financial Ratio	Key Term	Debt ratio no greater than 400%
Maintenance of Financial Ratio	Compliance Status	Compliant

Restriction on Liens	Key Term	The total amount of secured debt not to exceed 200% of share capital as of the end of the previous fiscal year
Restriction on Liens	Compliance Status	Compliant

Restriction on Disposition of Assets	Key Term	Disposal of assets per fiscal year not to exceed 2 trillion won
Restriction on Disposition of Assets	Compliance Status	Compliant

Submission of Compliance Certificate	Compliance Status	Compliant

IV.

AUDITOR’S OPINION

Auditor (Consolidated)


Six months ended June 30, 2016	Year ended December 31, 2015	Year ended December 31, 2014
KPMG Samjong Accounting Corp.	KPMG Samjong Accounting Corp.	KPMG Samjong Accounting Corp.

Audit Opinion (Consolidated)


Period	Auditor’s opinion	Issues noted
Six months ended June 30, 2016	—	—
Year ended December 31, 2015	Unqualified	N/A
Year ended December 31, 2014	Unqualified	N/A

*	The Company’s quarterly financial statements for the first and second quarters of 2016 were reviewed and nothing came to the attention of the Company’s auditors that such financial statements were not presented fairly, in all material respects.

Remuneration for Independent Auditors for the Past Three Fiscal Years

A.	Audit Contracts

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

Fiscal Year

Auditors

Contents

Fee

Total number of
hours accumulated
for the fiscal year

Year ended December 31, 2016

KPMG Samjong Accounting Corp.

Semi-annual review

1,350

19,412

Quarterly review

Separate financial statements audit

Consolidated financial statements audit

English financial statements review and other audit task

Year ended December 31, 2015

KPMG Samjong Accounting Corp.

Semi-annual review

1,320

18,127

Quarterly review

Separate financial statements audit

Consolidated financial statements audit

English financial statements review and other audit task

Year ended December 31, 2014

KPMG Samjong Accounting Corp.

Semi-annual review

1,280

17,890

Quarterly review

Separate financial statements audit

Consolidated financial statements audit

English financial statements review and other audit task

B.	Non-Audit Services Contract with External Auditors


(Unit: in millions of Won)
Period	Contract date	Service provided	Service duration	Fee
Six months ended June, 2016	May 10, 2016	Confirmation of financial information	May 10-May 12, 2016		2
Year ended December 31, 2015	January 9, 2015	Audit of public WiFi	January 9-January 23, 2015		85
	September 30, 2015	Confirmation of debt ratio	September 30, 2015-October 5, 2015		30
	November 9, 2015	Audit of public WiFi	November 9-November 30, 2015		102
Year ended December 31, 2014	March 18, 2014	Due diligence of assets	March 18-April 2, 2014		50
	May 28, 2014	Tax advice	May 28-September 23, 2014		42
	June 12, 2014	Review of revised local tax laws	June 12-July14, 2014		22

Change of Independent Auditors

Not applicable.

V.	MANAGEMENT’S DISCUSSION AND ANALYSIS

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

VI.

CORPORATE ORGANIZATION INCLUDING BOARD OF DIRECTORS

Board of Directors

A.	Overview of the Composition of the Board of Directors

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


(As of June 30, 2016)
Total number of persons	Inside directors	Independent directors
6	Dong Hyun Jang, Dae Sik Cho	Jay Young Chung, Dae Shick Oh, Jae Hoon Lee, Jae Hyeon Ahn

At the 32nd General Meeting of Shareholders held on March 18, 2016, Dae Sik Cho and Dae Shick Oh were re-elected as an inside director and an independent director, respectively.

B.	Significant Activities of the Board of Directors


Meeting	Date	Agenda		Approval
384th (the 1st meeting of 2016)	January 25, 2016	-	Approval of the spin-off and merger of SK Planet’s location-based services business and other businesses	Approved as proposed
		-	Plan regarding designation of record date and closing period of the register of shareholders related to dissenting opinions in small-scale spin-offs and mergers	Approved as proposed
		-	Transactions of goods, services and assets with SK Planet in 2016	Approved as proposed
385th (the 2nd meeting of 2016)	February 3, 2016	-	Financial statements as of and for the year ended December 31, 2015	Approved as proposed
		-	Annual business report as of and for the year ended December 31, 2015	Approved as proposed
		-	Delegation of funding through long-term borrowings in 2016	Approved as proposed
		-	Lease contract with SK Broadband	Approved as proposed
		-	Report of internal accounting management	—
		-	Report for the period after the fourth quarter of 2015	—
386th (the 3rd meeting of 2016)	February 18, 2016	-	Convocation of the 32nd General Meeting of Shareholders	Approved as proposed
386th (the 3rd meeting of 2016)	February 18, 2016	-	Report of internal accounting management	—
387th (the 4th meeting of 2016)	March 2, 2016	-	Approval of the spin-off and merger contract with SK Planet	Approved as proposed
387th (the 4th meeting of 2016)	March 2, 2016	-	Additional investment in Oneand Co., Ltd.	Approved as proposed
388th (the 5th meeting of 2016)	March 18, 2016	-	Election of the chairman of the Board of Directors	Approved as proposed
		-	Election of committee members	Approved as proposed
		-	Additional procurement of LTE frequency bands	Approved as proposed
		-	Transactions with SK Holdings in the second quarter of 2016	Approved as proposed
		-	Transactions regarding corporate bonds with affiliated company (SK Securities)	Approved as proposed
		-	Financial transactions with affiliated company (SK Securities)	Approved as proposed
389th (the 6th meeting of 2016)	April 5, 2016	-	Notice relating to the spin-off and merger transactions with SK Planet	Approved as proposed


Meeting	Date	Agenda		Approval
390th (the 7th meeting of 2016)	April 28, 2016	-	Provision of funds for management of the 2016 SUPEX meeting	Approved as proposed
390th (the 7th meeting of 2016)	April 28, 2016	-	Report for the period after the first quarter of 2016
391st (the 8th meeting of 2016)	May 20, 2016	-	Payment of newly allocated LTE frequency bandwidths	Approved as proposed
391st (the 8th meeting of 2016)	May 20, 2016	-	Application for reallocation of the 2.1GHz frequency bandwidth	Approved as proposed
392nd (the 9th meeting of 2016)	June 23, 2016	-	Transactions with SK Holdings in the third quarter of 2016	Approved as proposed
		-	Transactions with SK China Investment Management Company Limited	Approved as proposed
		-	Allocation of operating costs in 2016 relating to the strategy and technology planning department	Approved as proposed
		-	Transactions regarding corporate bonds with affiliated company (SK Securities)	Approved as proposed
		-	Financial transactions with affiliated company (SK Securities)	Approved as proposed
		-	Additional capital expenditure plans for LTE network in 2016	—

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

C.	Committees within Board of Directors

(1)

Committee structure (as of June 30, 2016)

(a)

Compensation Review Committee


Total number of persons	Members		Task
Total number of persons	Inside Directors	Independent Directors	Task
3	—	Jay Young Chung, Dae Shick Oh, Jae Hyeon Ahn	Review CEO remuneration system and amount

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

(b)

Capex Review Committee


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

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

(c)

Corporate Citizenship Committee


Total number of persons	Members		Task
Total number of persons	Inside Directors	Independent Directors	Task
3	—	Jay Young Chung, Jae Hoon Lee, Jae Hyeon Ahn,	Review guidelines on corporate social responsibility (“CSR”) programs, etc.

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

(d)

Independent Director Nomination Committee


Total number of persons	Members		Task
Total number of persons	Inside Directors	Independent Directors	Task
3	Dong Hyun Jang	Jay Young Chung, Dae Shick Oh	Nomination of independent directors

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

(e)

Audit Committee


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

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

Audit System

The Company’s Audit Committee consists of three independent directors, Dae Shick Oh, Jae Hoon Lee and Jae Hyeon Ahn.

Major activities of the Audit Committee as of June 30, 2016 are set forth below.


Meeting	Date	Agenda		Approval
The 1st meeting of 2016	February 2, 2016	-	Report of internal accounting management system	—
		-	Review of business and audit results for the second half of 2015 and business and audit plans for 2016	—
		-	Evaluation of internal monitoring controls based on the opinion of the members of the Audit Committee	Approved as proposed
		-	Construction of fixed-line and wireless networks in 2016	Approved as proposed
		-	Contract for payment of customer appreciation gifts in 2016	Approved as proposed
		-	Service contract with SKTCH	Approved as proposed
The 2nd meeting of 2016	February 17, 2016	-	Report on the IFRS audit of fiscal year 2015	—
		-	Report on review of 2015 internal accounting management system	—
		-	Evaluation of internal accounting management system operation	Approved as proposed
		-	Agenda and document review for the 32nd General Meeting of Shareholders	Approved as proposed
		-	Auditor’s report for fiscal year 2015	Approved as proposed
The 3rd meeting of 2016	March 17, 2016	-	Changes in a contract for maintenance services of transmission equipment and optical cables in 2016	Approved as proposed
The 3rd meeting of 2016	March 17, 2016	-	Contract for maintenance services of transmission equipment in 2016	Approved as proposed
The 4th meeting of 2016	April 27, 2016	-	Election of the chairman	Approved as proposed
		-	Purchase of supplies from Happynarae Co., Ltd.	Approved as proposed
		-	Remuneration for outside auditor for fiscal year 2016	Approved as proposed
		-	Outside auditor service plan for fiscal year 2016	Approved as proposed
		-	Audit plan for fiscal year 2016	—

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

Shareholders’ Exercise of Voting Rights

A.	Voting System and Exercise of Minority Shareholders’ Rights

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


Articles of Incorporation		Description
Article 32(3) (Election of Directors)		Cumulative voting under Article 382-2 of the Korean Commercial Code will not be applied for the election of directors.
Article 4 of the 12^th Supplement to the Articles of Incorporation (Interim Regulation)		Article 32(3) of the Articles of Incorporation shall remain effective until the day immediately preceding the date of the general meeting of shareholders held in 2003.

Also, neither written or electronic voting system is applicable. Minority shareholder rights were not exercised during the relevant period.

VII.

SHAREHOLDERS

Shareholdings of the Largest Shareholder and Related Persons

A.	Shareholdings of the Largest Shareholder and Related Persons


(As of June 30, 2016)					(Unit: in shares and percentages)
Name	Relationship	Type of share	Number of shares owned and ownership ratio
			Beginning of Period				End of Period
			Number of shares		Ownership ratio		Number of shares		Ownership ratio
SK Holdings Co., Ltd.	Largest Shareholder	Common share		20,363,452		25.22		20,363,452		25.22
Tae Won Chey	Officer of affiliated company	Common share		100		0.00		100		0.00
Shin Won Chey	Officer of affiliated company	Common share		1,067		0.00		1,067		0.00
Dong Hyun Jang	Officer of the Company	Common share		251		0.00		251		0.00
Myung Hyun Cho	Officer of affiliated company	Common share		60		0.00		60		0.00

Total		Common share		20,364,930		25.22		20,364,930		25.22

B.	Overview of the Largest Shareholder

As of June 30, 2016, the Company’s largest shareholder was SK Holdings Co., Ltd. (“SK Holdings”) with 20,363,452 shares (25.22%) of the Company. SK Holdings was established on April 13, 1991 and was made public on the securities market for the first time under the name SK C&C Co., Ltd. on November 11, 2009. On August 3, 2015, SK Holdings merged with and into SK C&C and the merged entity was renamed SK Holdings. The main business of SK Holdings includes managing its subsidiaries as a holding company, IT services, security services and logistics services, among others.

C.	Changes in Shareholdings of the Largest Shareholder

Changes in shareholdings of the largest shareholder are as follows:

(As of June 30, 2016)

(Unit: in shares and percentages)

Largest Shareholder

Date of the change in the
largest shareholder/
Date of change in
shareholding

Shares Held

Holding
Ratio

Remarks

SK Holdings

January 2, 2014

20,367,290

25.22

Shin Won Chey, SKC’s Chairman, purchased 1,000 shares

March 24, 2014

20,368,290

25.23

Shin Won Chey, SKC’s Chairman, purchased 1,000 shares

January 2, 2015

20,364,290

25.22

Shin Won Chey, SKC’s Chairman, disposed of 4,000 shares

March 20, 2015

20,363,803

25.22

Appointment of CEO Dong Hyun Jang (ownership of 251 shares of the Company), Retirement of Sung Min Ha

June 9, 2015

20,365,006

25.22

Purchase through the Share Exchange between SK Broadband and SK Telecom (Shin Won Chey, SKC’s Chairman, purchased 1,067 shares, and Myung Hyun Cho, SK Broadband’s independent director, purchased 136 shares)

August 3, 2015

20,364,930

25.22

Myung Hyun Cho, SK Broadband’s independent director, disposed of 76 shares

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

Distribution of Shares

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


(As of June 30, 2016)		(Unit: in shares and percentages)
Rank	Name (title)	Common share
Rank	Name (title)	Number of shares		Ownership ratio		Remarks
1	Citibank ADR		8,778,468		10.87	—
2	SK Holdings		20,363,452		25.22	—
3	SK Telecom		10,136,551		12.55	Treasury shares
4	National Pension Service		6,761,879		8.37	—
Shareholdings under the Employee Stock Ownership Program			67		0.00	—

B.	Shareholder Distribution


(As of June 30, 2016)	(Unit: in shares and percentages)
Classification	Number of shareholders		Ratio (%)			Number of shares		Ratio (%)			Remarks
Total minority shareholders*		63,607		99.9	%		34,703,883		42.98	%	—

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

Share Price and Trading Volume in the Last Six Months

A.	Domestic Securities Market


(Unit: in Won and shares)
Types		June 2016		May 2016		April 2016		March 2016		February 2016		January 2016
Common stock	Highest		221,500		222,000		211,000		223,000		233,500		210,500
	Lowest		208,500		209,000		201,500		207,500		204,500		193,000
	Average		213,881		213,025		205,825		213,818		218,861		203,650
Daily transaction volume	Highest		380,552		399,830		384,732		385,725		1,126,589		348,930
Daily transaction volume	Lowest		75,945		52,430		96,265		71,671		102,889		77,348
Monthly transaction volume			3,347,201		2,674,439		3,296,402		3,866,625		4,561,480		4,349,859

B.	Foreign Securities Market


New York Stock Exchange		(Unit: in U.S. dollars and number of American Depositary Receipts)
Types		June 2016		May 2016		April 2016		March 2016		February 2016		January 2016
Depositary receipt	Highest		21.08		20.83		20.48		20.98		20.82		19.99
	Lowest		19.60		19.47		19.27		19.60		18.78		17.89
	Average		20.29		20.01		19.74		20.26		19.64		18.92
Daily transaction volume	Highest		1,161,177		1,940,353		1,655,112		1,080,598		1,194,211		1,279,531
Daily transaction volume	Lowest		259,773		307,678		391,518		275,174		341,417		368,941
Monthly transaction volume			12,857,856		13,729,657		21,103,195		12,929,342		13,790,441		14,437,399

VIII.

EMPLOYEES AND DIRECTORS

Employees


(As of June 30, 2016)												(Unit: in persons and millions of Won)
Business segment	Gender	Number of employees										Average service year		Aggregate wage for the first half of 2016		Average wage per person
		Employees without a fixed term of employment				Employees with a fixed term of employment				Total
		Total		Part-time employees		Total		Part-time employees		Total
—	Male		3,645		—		130		—		3,775		12.3		258,136		70
—	Female		550		—		76		—		626		9.5		29,263		49

Total			4,195		—		206		—		4,401		11.9		287,399		67

*	Based on Section 9-1-2 (Employee Status) of the Corporate Disclosure Guidelines (amended as of February 2015).

*	Average wage per person was calculated based on the average number of employees for the six months ended June 30, 2016 (Total: 4,262, Male: 3,670 Female: 592)

Compensation of Directors

A.	Amount Approved at the Shareholders’ Meeting


(As of June 30, 2016)			(Unit: in millions of Won)
Classification	Number of Directors		Aggregate Amount Approved
Directors		6		12,000

B.	Amount Paid


(As of June 30, 2016)					(Unit: in millions of Won)
Classification	Number of Directors		Aggregate Amount Paid		Average Amount Paid Per Director
Insider Directors		2		1,373		687
Independent Directors		1		39		39
Audit Committee Members		3		117		39

Total		6		1,529		—

Individual Compensation of Directors

A.	Amount Paid

*	Excluding amounts contributed to provision for retirement income.

B.	Method of Calculation


Name	Method of calculation
Dong Hyun Jang
	Total remuneration

		•	Won 1,045 million (consisting of Won 285 million in salary, Won 757 million in bonus and Won 3 million in long-term employment bonus).

		•	Did not receive any retirement income.

	Salary

		•	Annual salary is set within the executive compensation limit established by the board of directors and reflects the relevant position of the director.

		•	Annual salary is equally divided and paid on a monthly basis.

	Bonus

		•	Bonus is awarded based on performance in the previous year and is composed of target incentive payments and profit sharing payments.

		•	Bonus in the range of 0 to 200% of annual salary may be awarded by evaluating the previous year’s performance through certain financial indicators, such as revenue and operating profit, and non-financial indicators, such as leadership, meeting the Company’s strategy plans, expertise and other contributions.

			•	Financial indicators: For the year ended December 31, 2015, the Company met its financial targets with revenue of Won 17.1 trillion and operating profit of Won 1.7 trillion.

			•	Non-financial indictors: Mr. Jang contributed to the Company’s market leadership position despite intensified competition in the industry (maintaining number one position in the industry by National Customer Satisfaction Index for the previous 18 years as well as by Korea Standard – Service Quality Index and Korean Customer Satisfaction Index and being first to commercialize L4 technology globally) and enhanced mid-to-long term sustainability by establishing the foundation of its growth business areas of IoT solutions, lifestyle enhancement and advanced media platforms.

IX.

RELATED PARTY TRANSACTIONS

Line of Credit Extended to the Largest Shareholder

(Unit: in millions of Won)

Name (Corporate name)

Relationship

Account
category

Change details

Accrued
interest

Remarks

Beginning

Increase

Decrease

Ending

SK Wyverns

Affiliate

Long-term and
short-term loans

1,017

—

1,017

—

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

None.

Transactions with the Largest Shareholder

(Unit: in millions of Won)

Name (Corporate name)

Relationship

Investment

Transaction period

Transaction items

Transaction
amount

PS&Marketing

Affiliate

Sales/

Purchases

January 1, 2016 to
June 30, 2016

Marketing
commissions, etc.

762,585

SK Broadband

Affiliate

Sales/

Purchases

January 1, 2016 to
June 30, 2016

Interconnection
revenues, etc.

315,034

Related Party Transactions

See note 34 of the notes to the Company’s consolidated financial statements attached hereto for more information regarding related party transactions.

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

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


(Unit: in millions of Won)
Name (Corporate name)	Relationship	Account category	Change details									Accrued interest		Remarks
Name (Corporate name)	Relationship	Account category	Beginning		Increase		Decrease			Ending		Accrued interest		Remarks
Baekmajang and others	Agency	Long-term and short-term loans		58,602		99,377		(85,379	)		72,601		—		—
Daehan Kanggun BCN Inc.	Investee	Long-term loans		22,147		—		—			22,147		—		—
Wave City Development, Inc.	Investee	Short-term loans		1,890		1,100		(1,700	)		1,290		—		—

X.	OTHER INFORMATION RELATING TO THE PROTECTION OF INVESTORS

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

A.	Status and Progress of Major Management Events

Date

Resolution

Description

Status

July 28, 2016

Acquisition of other company shares and investment securities

1. Issuing company: CJ HelloVision

2. Expected acquisition: 23,234,060 common shares (30.0%)

3. Amount to be paid: Won 500 billion

4. Acquisition Method: cash

5. Purpose of acquisition: To secure position as the next generation media platform provider through merger with subsidiary SK Broadband

SK Broadband terminated the merger agreement, as the Korea Fair Trade Commission on July 18, 2016 denied approval of the proposed merger, which was a closing condition to the consummation of the merger.

B.	Summary Minutes of the General Meeting of Shareholders


Date			Agenda	Resolution
30th Fiscal Year Meeting of Shareholders (March 21, 2014)	1.	Approval of the financial statements for the year ended December 31, 2013		Approved (Cash dividend, Won 8,400 per share)
	2.	Amendments to Articles of Incorporation		Approved
	3.	Election of directors
		-	Election of an inside director	Approved (Sung Min Ha)
		-	Election of an independent director	Approved (Jay Young Chung)
		-	Election of an independent director	Approved (Jae Hoon Lee)
		-	Election of an independent director	Approved (Jae Hyeon Ahn)
	4.	Election of an independent director as Audit Committee member		Approved (Jae Hyeon Ahn)
	5.	Approval of remuneration limit for directors		Approved (Won 12 billion)
	1.	Approval of the financial statements for the year ended December 31, 2014		Approved (Cash dividend, Won 8,400 per share)
31st Fiscal Year Meeting of Shareholders (March 20, 2015)	2.	Amendments to Articles of Incorporation		Approved
	3.	Election of directors
		-	Election of an inside director	Approved (Dong Hyun Jang)
	4.	Election of an independent director as Audit Committee member		Approved (Jae Hoon Lee)
	5.	Approval of remuneration limit for directors		Approved (Won 12 billion)
	1.	Approval of the financial statements for the year ended December 31, 2015		Approved (Cash dividend, Won 9,000 per share)
32nd Fiscal Year Meeting of Shareholders (March 18, 2016)	2.	Amendments to Articles of Incorporation		Approved
	3.	Election of directors
		-	Election of an inside director	Approved (Dae Sik Cho)
		-	Election of an independent director	Approved (Dae Shick Oh)
	4.	Election of an independent director as Audit Committee member		Approved (Dae Shick Oh)
	5.	Approval of remuneration limit for directors		Approved (Won 12 billion)
	6.	Amendments to executive payroll regulations		Approved

Contingent Liabilities

[SK Telecom]

A.	Material Legal Proceedings

(1)

Claim for copyright license fees regarding “Coloring” services

On May 7, 2010, Korea Music Copyright Association (“KOMCA”) filed a lawsuit with the court demanding that the Company pay KOMCA license fees for the Company’s “Coloring” services. The court rendered a judgment against the Company ordering the Company to pay Won 570 million to KOMCA, which was affirmed by the appellate court on October 26, 2011. The Company filed an appeal at the Supreme Court of Korea and the judgment was overturned on July 11, 2013. The case was remanded down to the appellate court which ruled in favor of the Company on September 4, 2014. KOMCA filed an appeal at the Supreme Court of Korea, and on January 15, 2015, the Supreme Court of Korea affirmed the Seoul High Court’s decision. There is no impact on the Company’s business or results of operation as the final outcome of this litigation has been rendered in favor of the Company.

B.	Other Matters

None.

[SK Broadband]

A.	Material Legal Proceedings

(1)

SK Broadband as the plaintiff

None.

(2)

SK Broadband as the defendant


(Unit: in thousands of Won)
Description of Proceedings	Date of Commencement of Proceedings	Amount of Claim		Status
Damages claim by Mag Telecom Co., Ltd. and 7 others	January 2012		3,560,465	Pending before district court
Others	—		309,150	—

Total	—		3,869,615	—

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

B.	Other Contingent Liabilities

(1)

Pledged assets and covenants

SK Broadband, upon approval by its board of directors, has provided guarantees for financial instruments amounting to Won 1.1 billion to support employees’ funding for the Employee Stock Ownership Program.

Additionally, SK Broadband has provided “geun” mortgage amounting to Won 7.4 billion to others, including Ilsan Guksa, on a part of its buildings in connection with the leasing of the buildings.

Seoul Guarantee Insurance Company has provided a performance guarantee of Won 15.9 billion to SK Broadband in connection with the performance of certain contracts and the repair of any defects.

SK Broadband has entered into revolving credit facilities with a limit of Won 100 billion with Shinhan Bank and one other financial institution in relation to the Company’s loans.

SK Broadband has entered into a leased line contract and a resale contract for fixed-line telecommunication services with SK Telecom.

KB Kookmin Bank has provided a payment guarantee of Won 100 million to SK Broadband in connection with its e-commerce business.

[SK Planet]

A.	Material Legal Proceedings

As of June 30, 2016, there were eight pending cases proceeding with SK Planet as the defendant and the aggregate amount of the claim was Won 117.8 million. The management cannot reasonably forecast the outcome of this case and no amount in connection with this proceeding was recognized on the Company’s financial statements.

B. Other Contingent Liabilities

None.

[SK Communications]

A.	Material Legal Proceedings

As of June 30, 2016, the aggregate amount of claims was Won 1.1 billion. The Company successfully defended some but not all suits relating to a leak of personal information of subscribers of NATE. Relevant proceedings remain pending at various courts in Korea. The management cannot reasonably forecast the outcome of the pending proceedings, and as a result, adjustments were not made in the financial statements of the Company. The Company does not believe that the outcome of any of the proceedings in which SK Communications is named as a defendant will have a material effect on the Company’s financial statements.

B.	Other Contingent Liabilities

The material payment guarantees provided by third parties to SK Communications as of June 30, 2016 are set forth in the table below.


(Unit: in thousands of Won)
Financial Institution	Guarantee	Amount
Seoul Guarantee Insurance Company	Prepaid coverage payment guarantee		700,000
	Provisional deposit guarantee insurance for bonds		190,000
	Provisional attachment of real estate		118,000

Total			1,008,000

Status of sanctions, etc.

[SK Telecom]

On July 4, 2012, the Fair Trade Commission issued correctional orders and imposed fines on the Company and seven affiliated companies for alleged unfair advantage provided to SK C&C, an affiliated company, in services fees for information technology system management and operation. The Company and SK Planet were imposed fines of Won 25,042 million and Won 1,349 million, respectively. The Company and the seven affiliated companies appealed the orders and on May 14, 2014, won the suit at the Seoul High Court. The Fair Trade Commission appealed the decision, and on March 10, 2016, the Supreme Court of Korea ruled in favor of the Company.

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

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

On March 13, 2014, the Korea Communications Commission imposed on the Company a fine of Won 16.65 billion, imposed a suspension on acquiring new customers for 7 days, and issued a correctional order for providing discriminatory subsidies to subscribers. In April 2014, the Company paid the fine and completed the improvement of the procedures and reported to the Korea Communications Commission on the implementation of actions pursuant to the correctional order by April 2014. The Company suspended acquisition of new customers during the period beginning September 11, 2014 and ending September 17, 2014, and reported to the Korea Communications Commission on the implementation of actions pursuant to the correctional order by September 2014.

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

On August 21, 2014, the Korea Communications Commission imposed on the Company a fine of Won 37.1 billion and issued a correctional order for providing discriminatory subsidies to subscribers. The Company paid the fine and completed the improvement of the procedures and reported to the Korea Communications Commission on the implementation of actions pursuant to the correctional order by September 2014.

On December 4, 2014, the Korea Communications Commission imposed on the Company a fine of Won 800 million and issued a correctional order for violating the Mobile Device Distribution Improvement Act. The Company paid the fine and completed the improvement of the procedures and reported to the Korea Communications Commission on the implementation of actions pursuant to the correctional order by January 2015.

On March 12, 2015, the Korea Communications Commission imposed on the Company a fine of Won 934 million and issued a correctional order for violating the Mobile Device Distribution Improvement Act with respect to the Company’s compensation programs for used handsets. The Company paid the fine and completed the improvement of the procedures and reported to the Korea Communications Commission on the implementation of actions pursuant to the correctional order by April 2015.

On March 26, 2015, the Korea Communications Commission imposed on the Company a fine of Won 23.5 billion, imposed a suspension on acquiring new customers for seven days, and issued a correctional order for violating the Mobile Device Distribution Improvement Act. The Company paid the fine and implemented the improvement of the procedures and reported to the Korea Communications Commission on the implementation of actions pursuant to the correctional order in May 2015. The suspension on acquiring new customers was implemented from October 1, 2015 to October 7, 2015.

On May 13, 2015, the Korea Communications Commission imposed on the Company a fine of Won 3.56 billion and issued a correctional order for violating its obligations to protect personal information (a fine of Won 360 million imposed for violation of its obligations to protect personal information and Won 3.2 billion imposed for damaging users’ interests). The Company paid the fine in July 2015 and reported to the Korea Communications Commission on the implementation of actions pursuant to the correctional order in September 2015. Whether the correctional order on the violation of obligations to protect personal information will be enforced depends on the Court’s ruling following the Company’s filing of an administrative proceeding to appeal the order on June 24, 2015.

On May 28, 2015, the Korea Communications Commission imposed on the Company a fine of Won 350 million and issued a correctional order for misleading and exaggerated advertisement of bundled media and telecommunications products. The Company paid the fine in August 2015 and reported to the Korea Communications Commission on the implementation of actions pursuant to the correctional order in October 2015.

On December 10, 2015, the Korea Communications Commission imposed on the Company a fine of Won 560 million and issued a correctional order for misleading and exaggerated advertisement of bundled media and telecommunications products. The Company paid the fine and reported to the Korea Communications Commission on the implementation of actions pursuant to the correctional order in February 2016.

On January 14, 2016, the Korea Communications Commission imposed on the Company a fine of Won 15 million and issued a correctional order for failure to comply with the retention period for its subscribers’ personal information. The Company paid the fine and reported to the Korea Communications Commission on the implementation of actions pursuant to the correctional order.

[SK Broadband]

(1)

Violation of the Telecommunications Business Act

•

Date: December 10, 2015

•

Sanction: SK Broadband received a correctional order (corrective measures for damaging users’ interests through misleading and exaggerated advertisement of bundled media and telecommunications products).

•

Reason and the Relevant Law: Violated Article 50-1 Paragraph 5 of the Telecommunications Business Act and Article 42-1 of its enforcement ordinance by inducing subscribers through misleading and exaggerated advertisements.

•

Status of Implementation: Made an official announcement about having received the correctional order and paid the fine.

•

Company’s Plan: Make an official announcement about having received the correctional order

(2)

Violation of the Telecommunications Business Act

•

Date: May 28, 2015

•

Status of Implementation: Established plans to manage distribution network related to the misleading and exaggerated advertisements.

•

Company’s Plan: Make an official announcement about having received the correctional order and improve operational procedures.

(3)

Violation of the Act on Consumer Protection in Electronic Commerce

•

Date: July 11, 2014

•

Sanction: SK Broadband received a correctional order (relating to the failure to notify consumers of information relating to cancellations of purchases) and a fine of Won 1 billion.

•

Reason and the Relevant Law: Violated Article 13 of the Act on Consumer Protection in Electronic Commerce by not having notified consumers of the procedures for cancellation of purchases for paid IPTV contents.

•

Status of Implementation: Implemented voluntary improvements to notify consumers of cancellation procedures for such purchase prior to a decision by the Fair Trade Commission.

•

Company’s Plan: Implement the correctional order and pay the fine.

(4)

Violation of the Act on Facilitation of the Use of Information Network and Protection of Information

•

Date: June 16, 2014

•

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

•

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

•

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

•

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

[SK Planet]

(1)

Violation of the Electronic Financial Transactions Act

•

Date: May 4, 2016

•

Sanction: SK Planet received a fine of Won 25 million

•

Reason and the Relevant Law: Violated Article 21 (Duty to Ensure Safety) of the Electronic Financial Transactions Act.

•

Status of Implementation: Paid the fine.

•

Company’s Plan: Implemented procedures to prevent recurrence such as setting up various detailed test scenarios, enhancing quality assurance, organizing real-time notification processes upon detection of abnormal transactions and refining a continuous monitoring and reporting system

[SK Telink]

(1)

Violation of the Telecommunications Business Act

•

Date: February 4, 2016

•

Sanction: SK Telink received a correctional order and a fine of Won 49 million.

•

Reason and the Relevant Law: Violated Article 50-1, Paragraph 5 of the Telecommunications Business Act and Article 42-1 of the related Enforcement Decree by transferring account names of cell phone lines without subscribers’ consent, changing phone numbers upon such transfer of account names, subscribing users to cell phone lines that exceed the maximum number of cell phone lines determined in the user agreement, opening accounts using a third party’s name and transferring ownership of and reselling the account, changing account names with fabricated names of foreigners and changing accounts of cell phone lines owned by foreigners whose residency period in Korea has expired.

•

Status of Implementation: Ceased the prohibited practice, disclosed having received the correctional order in the press (May 2016) and paid the fine (May 2016).

•

Company’s Plan: Improve operating procedures to prevent its recurrence.

(2)

Violation of the Telecommunications Business Act

•

Date: August 21, 2015

•

Subject: SK Telink

•

Sanction: SK Telink received a correctional order and a fine of Won 480 million.

•

Reason and the Relevant Law: Violated Article 50-1, Paragraph 5 and Article 50-2 of the Telecommunications Business Act and Article 42-1 of the related Enforcement Decree by failing to inform or giving false information about key terms of the contract and failing to deliver usage contract

•

Status of Implementation: Ceased the prohibited practice, disclosed having received the correctional order in a newspaper (October 2015), improved operating procedures related to recruitment of users through phone solicitation calls and paid the fine (October 2015).

•

Company’s Plan: Accurately inform consumers of key terms of the contract and distribute usage contract by mail after entering into contract.

Important Matters That Occurred After June 30, 2016

[SK Telecom]

The Company terminated the share purchase agreement with CJ O Shopping and SK Broadband terminated the merger agreement with CJ HelloVision, as the Korea Fair Trade Commission on July 18, 2016 denied approval of the proposed merger, which was a closing condition to the consummation of the merger.

[SK Broadband]

A.	Use of Proceeds from Public Offerings

Not applicable.

B.	Use of Proceeds from Private Offerings


(As of June 30, 2016)			(Unit: in millions of Won)
Classification	Closing Date	Proceeds	Planned Use of Proceeds	Actual Use of Proceeds	Reasons for Change
Convertible Bonds*	April 7, 2009	437,673	Refinancing of convertible bonds issued in May 2004	Refinancing and working capital	—

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

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


SK Telecom Co., Ltd.

(Registrant)

By:		/s/ Sung Hyung Lee
(Signature)

Name:		Sung Hyung Lee
Title:		Senior Vice President

Date: September 19, 2016

SK TELECOM CO., LTD.

Condensed Separate Interim Financial Statements

(Unaudited)

June 30, 2016 and 2015

(With Independent Auditors’ Review Report Thereon)

Contents


	Page

Independent Auditors’ Review Report		1

Condensed Separate Statements of Financial Position		3

Condensed Separate Statements of Income		5

Condensed Separate Statements of Comprehensive Income		6

Condensed Separate Statements of Changes in Equity		7

Condensed Separate Statements of Cash Flows		8

Notes to the Condensed Separate Interim Financial Statements		10

Independent Auditors’ Review Report

Based on a report originally issued in Korean

To The Board of Directors and Shareholders

SK Telecom Co., Ltd.:

Reviewed financial statements

We have reviewed the accompanying condensed separate interim financial statements of SK Telecom Co., Ltd. (the “Company”), which comprise the condensed separate statement of financial position as of June 30, 2016, the related condensed separate statements of income and comprehensive income for the three and six-month periods ended June 30, 2016 and 2015, the condensed separate statements of changes in equity and cash flows for the six-month periods ended June 30, 2016 and 2015, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management’s responsibility

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

Auditors’ responsibility

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

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

Conclusion

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

Other matters

The separate statement of finance position of the Company as of December 31, 2015, and the related separate statements of income, comprehensive income, changes in equity and cash flows for the year then ended, which are not accompanying this report, were audited by us in accordance with Korean Standards on Auditing and our report thereon, dated February 23, 2016, expressed an unqualified opinion. The accompanying condensed separate statement of financial position of the Company as of December 31, 2015, presented for comparative purposes, is consistent, in all material respects, with the audited separate financial statements from which it has been derived.

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

KPMG Samjong Accounting Corp.

Seoul, Korea

August 5, 2016

This report is effective as of August 5, 2016, the review report date. Certain subsequent events or circumstances, which may occur between the review report date and the time of reading this report, could have a material impact on the accompanying condensed separate financial statements and notes thereto. Accordingly, the readers of the review report should understand that the above review report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

SK TELECOM CO., LTD.

Condensed Separate Statements of Financial Position

As of June 30, 2016 and December 31, 2015


(In millions of won)	*Note*		June 30, 2016		December 31, 2015

Assets:
Current Assets:
Cash and cash equivalents		26,27	W	646,221		431,666
Short-term financial instruments		4,26,27		107,500		121,500
Short-term investment securities		6,26,27		322,494		92,262
Accounts receivable – trade, net		5,26,27,28		1,520,723		1,528,751
Short-term loans, net		5,26,27,28		59,011		47,741
Accounts receivable – other, net		5,26,27,28,31		697,642		264,741
Prepaid expenses				89,963		92,220
Inventories, net				36,534		45,991
Advanced payments and other		5,6,26,27		79,905		88,657

Total Current Assets				3,559,993		2,713,529


Non-Current Assets:
Long-term financial instruments		4,26,27		10,062		10,062
Long-term investment securities		6,26,27		756,370		726,505
Investments in subsidiaries and associates		7		8,759,224		8,810,548
Property and equipment, net		8,28		6,802,084		7,442,280
Goodwill		9		1,306,236		1,306,236
Intangible assets, net		10		1,585,409		1,766,069
Long-term loans, net		5,26,27,28		37,075		35,080
Long-term receivables - other		5,26,27,28,31		45,498		—
Long-term prepaid expenses				28,692		29,802
Guarantee deposits		5,26,27,28		166,320		166,656
Long-term derivative financial assets		15,26,27		124,626		139,923
Other non-current assets				249		250

Total Non-Current Assets				19,621,845		20,433,411


Total Assets			W	23,181,838		23,146,940

See accompanying notes to the condensed separate interim financial statements.

SK TELECOM CO., LTD.

Condensed Separate Statements of Financial Position, Continued

As of June 30, 2016 and December 31, 2015


(In millions of won)	*Note*		June 30, 2016			December 31, 2015

Liabilities and Shareholders’ Equity:
Current Liabilities:
Short-term borrowings		11,26,27	W	—			230,000
Current installments of long-term debt, net		11,26,27		679,117			592,637
Current installments of long-term payables – other		12,26,27		116,079			120,185
Accounts payable – other		26,27,28		961,191			927,170
Withholdings		26,27		629,790			607,690
Accrued expenses		26,27		550,100			540,770
Income tax payable		24		319,092			375,189
Unearned revenue				1,688			10,014
Derivative financial liabilities		15,26,27		15,370			—
Provisions		13		31,086			37,551
Receipts in advance				67,256			50,100

Total Current Liabilities				3,370,769			3,491,306


Non-Current Liabilities:
Debentures, excluding current installments, net		11,26,27		5,282,937			5,033,495
Long-term borrowings, excluding current installments, net		11,26,27		65,656			72,554
Long-term payables – other		12,26,27		440,841			550,964
Long-term unearned revenue				2,643			2,768
Defined benefit liabilities		14		23,788			4,006
Long-term derivative financial liabilities		15,26,27		71,088			89,296
Long-term provisions		13		26,682			20,055
Deferred tax liabilities		24		45,956			56,274
Other non-current liabilities		26,27		48,659			46,762

Total Non-Current Liabilities				6,008,250			5,876,174


Total Liabilities				9,379,019			9,367,480


Shareholders’ Equity:
Share capital		1,16		44,639			44,639
Capital surplus and others		16,17,18		371,481			369,446
Retained earnings		19		13,431,966			13,418,603
Reserves		20		(45,267	)		(53,228	)

Total Shareholders’ Equity				13,802,819			13,779,460


Total Liabilities and Shareholders’ Equity			W	23,181,838			23,146,940

See accompanying notes to the condensed separate interim financial statements.

SK TELECOM CO., LTD.

Condensed Separate Statements of Income

For the three and six-month periods ended June 30, 2016 and 2015


(In millions of won except for per share data)
			June 30, 2016						June 30, 2015
	*Note*		Three-month period ended			Six-month period ended			Three-month period ended			Six-month period ended

Operating revenue:		28
Revenue			W	3,091,988			6,190,249			3,143,766			6,277,222

Operating expenses:		28
Labor				161,832			334,817			249,706			423,033
Commissions				1,140,041			2,358,319			1,228,049			2,571,119
Depreciation and amortization				547,735			1,090,181			531,639			1,056,576
Network interconnection				189,188			382,473			182,446			352,367
Leased line				91,922			180,554			85,383			181,586
Advertising				48,548			75,606			58,398			91,028
Rent				107,321			211,868			95,663			193,593
Cost of products that have been resold				123,131			243,026			110,599			224,108
Others		21		204,065			405,349			205,793			379,896

				2,613,783			5,282,193			2,747,676			5,473,306


Operating income				478,205			908,056			396,090			803,916

Finance income		23		20,614			127,830			19,735			82,519
Finance costs		23		(60,404	)		(123,643	)		(67,890	)		(133,598	)
Other non-operating income		22		8,429			37,328			3,737			6,969
Other non-operating expenses		22		(18,770	)		(55,823	)		(32,291	)		(61,664	)
Loss on investments in subsidiaries and associates		7		(47,618	)		(47,618	)		—			—

Profit before income tax				380,456			846,130			319,381			698,142

Income tax expense		24		96,313			179,780			87,384			170,359


Profit for the period			W	284,143			666,350			231,997			527,783


Earnings per share:		25
Basic and diluted earnings per share (in won)			W	3,905			9,318			3,135			7,301

See accompanying notes to the condensed separate interim financial statements.

SK TELECOM CO., LTD.

Condensed Separate Statements of Comprehensive Income

For the three and six-month periods ended June 30, 2016 and 2015


(In millions of won)			June 30, 2016						June 30, 2015
	*Note*		Three-month period ended			Six-month period ended			Three-month period ended			Six-month period ended

Profit for the period			W	284,143			666,350			231,997			527,783

Other comprehensive income (loss)
Items that will never be reclassified to profit or loss, net of taxes:
Remeasurement of defined benefit liabilities		14		(2,188	)		(9,085	)		(410	)		(2,453	)
Items that are or may be reclassified subsequently to profit or loss, net of taxes:
Net change in unrealized fair value of available-for-sale financial assets		20		(32,907	)		15,802			(28,520	)		(53,569	)
Net change in unrealized fair value of derivatives		15,20		5,322			(7,841	)		(24,802	)		(15,402	)

Other comprehensive loss for the period, net of taxes				(29,773	)		(1,124	)		(53,732	)		(71,424	)

Total comprehensive income			W	254,370			665,226			178,265			456,359

See accompanying notes to the condensed separate interim financial statements.

SK TELECOM CO., LTD.

Condensed Separate Statements of Changes in Equity

For the six-month periods ended June 30, 2016 and 2015


(In millions of won)
			Capital surplus and others															Retained earnings			Reserves			Total equity
	Share capital		Paid-in surplus		Treasury stock			Loss on disposal of treasury stock			Hybrid bond		Other			Sub-total		Retained earnings			Reserves			Total equity
Balance at January 1, 2015	W	44,639		2,915,887		(2,139,683	)		(18,087	)		398,518		(722,741	)		433,894		12,996,790			66,898			13,542,221
Total comprehensive income:
Profit for the period		—		—		—			—			—		—			—		527,783			—			527,783
Other comprehensive loss		—		—		—			—			—		—			—		(2,453	)		(68,971	)		(71,424	)

		—		—		—			—			—		—			—		525,330			(68,971	)		456,359

Transactions with owners:
Cash dividends		—		—		—			—			—		—			—		(595,865	)		—			(595,865	)
Disposal of Treasury stocks		—		—		369,249			18,087			—		24,736			412,072		—			—			412,072
Interest on hybrid bond		—		—		—			—			—		—			—		(8,420	)		—			(8,420	)

		—		—		369,249			18,087			—		24,736			412,072		(604,285	)		—			(192,213	)

Balance at June 30, 2015	W	44,639		2,915,887		(1,770,434	)		—			398,518		(698,005	)		845,966		12,917,835			(2,073	)		13,806,367


Balance at January 1, 2016	W	44,639		2,915,887		(2,260,626	)		—			398,518		(684,333	)		369,446		13,418,603			(53,228	)		13,779,460
Total comprehensive income:
Profit for the period		—		—		—			—			—		—			—		666,350			—			666,350
Other comprehensive loss		—		—		—			—			—		—			—		(9,085	)		7,961			(1,124	)

		—		—		—			—			—		—			—		657,265			7,961			665,226

Transactions with owners:

Cash dividends		—		—		—			—			—		—			—		(635,482	)		—			(635,482	)
Business combination under common control		—		—		—			—			—		2,035			2,035		—			—			2,035
Interest on hybrid bond		—		—		—			—			—		—			—		(8,420	)		—			(8,420	)

		—		—		—			—			—		2,035			2,035		(643,902	)		—			(641,867	)

Balance at June 30, 2016	W	44,639		2,915,887		(2,260,626	)		—			398,518		(682,298	)		371,481		13,431,966			(45,267	)		13,802,819

See accompanying notes to the condensed separate interim financial statements.

SK TELECOM CO., LTD.

Condensed Separate Statements of Cash Flows

For the six-month periods ended June 30, 2016 and 2015


(In millions of won)	*Note*		June 30, 2016			June 30, 2015

Cash flows from operating activities:
Cash generated from operating activities:
Profit for the period			W	666,350			527,783
Adjustments for income and expenses		30		1,423,773			1,383,546
Changes in assets and liabilities related to operating activities		30		(184,697	)		(647,987	)

Sub-total				1,905,426			1,263,342
Interest received				12,566			11,819
Dividends received				96,433			56,561
Interest paid				(109,351	)		(111,951	)
Income tax paid				(245,836	)		(68,359	)

Net cash provided by operating activities				1,659,238			1,151,412


Cash flows from investing activities:
Cash inflows from investing activities:
Decrease in short-term financial instruments, net				14,000			10,000
Collection of short-term loans				87,079			199,853
Proceeds from disposal of long-term investment securities				7,438			5,235
Proceeds from disposal of investments in subsidiaries and associates				—			185,557
Proceeds from disposal of property and equipment				5,575			5,739
Proceeds from disposal of intangible assets				1,117			72
Increase in cash due to business combination				360			—

Sub-total				115,569			406,456
Cash outflows for investing activities:
Increase in short-term investment securities, net				(230,000	)		(69,842	)
Increase in short-term loans				(100,477	)		(150,164	)
Acquisition of long-term investment securities				(14,677	)		(202,424	)
Acquisition of investments in subsidiaries and associates				(31,258	)		(246,271	)
Acquisition of property and equipment				(504,302	)		(789,708	)
Acquisition of intangible assets				(16,010	)		(9,859	)
Increase in other non-current assets				—			(38	)

Sub-total				(896,724	)		(1,468,306	)

Net cash used in investing activities			W	(781,155	)		(1,061,850	)

See accompanying notes to the condensed separate interim financial statements.

SK TELECOM CO., LTD.

Condensed Separate Statements of Cash Flows, Continued

For the six-month periods ended June 30, 2016 and 2015


(In millions of won)	June 30, 2016			June 30, 2015

Cash flows from financing activities:
Cash inflows from financing activities:
Increase in short-term borrowings, net	W	—			570,000
Proceeds from issuance of debentures		607,474			298,718
Cash inflows from settlement of derivatives		—			175

Sub-total		607,474			868,893
Cash outflows for financing activities:
Decrease in short-term borrowings, net		(230,000	)		—
Repayments of long-term borrowings		(6,407	)		(6,407	)
Repayments of long-term account payables-other		(120,718	)		(190,134	)
Repayments of debentures		(270,000	)		(250,000	)
Payments of cash dividends		(635,482	)		(595,865	)
Payments of interest on hybrid bonds		(8,420	)		(8,420	)
Cash outflows from settlement of derivatives		—			(329	)

Sub-total		(1,271,027	)		(1,051,155	)

Net cash used in financing activities		(663,553	)		(182,262	)


Net increase (decrease) in cash and cash equivalents		214,530			(92,700	)
Cash and cash equivalents at beginning of the period		431,666			248,311
Effects of exchange rate changes on cash and cash equivalents		25			76

Cash and cash equivalents at end of the period	W	646,221			155,687

See accompanying notes to the condensed separate interim financial statements.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

1.	Reporting Entity

SK Telecom Co., Ltd. (“the Company”) was incorporated in March 1984 under the laws of the Republic of Korea (“Korea”) to provide cellular telephone communication services in Korea. The Company mainly provides wireless telecommunications services in Korea. The Head office of the Company is located at 65, Eulji-ro, Jung-gu, Seoul, Korea.

The Company’s common shares and depositary receipts (DRs) are listed on the Stock Market of Korea Exchange, the New York Stock Exchange and the London Stock Exchange. As of June 30, 2016, the Company’s total issued shares are held by the following shareholders:


	Number of shares		Percentage of total shares issued (%)
SK Holdings Co., Ltd.		20,363,452		25.22
National Pension Service, other institutional investors and other minority stockholders		50,245,708		62.23
Treasury stock		10,136,551		12.55

		80,745,711		100.00

2.	Basis of Presentation

(1)

Statement of compliance

These condensed separate interim financial statements were prepared in accordance with K-IFRS No. 1034, Interim Financial Reporting, as part of the period covered by the Company’s K-IFRS annual financial statements. Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in financial position and performance of the Company since December 31, 2015. These condensed separate interim financial statements do not include all of the disclosures required for full annual financial statements.

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

(2)

Use of estimates and judgments

Critical judgments, assumptions and estimation uncertainties

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

In preparing these condensed separate interim financial statements, the significant judgments made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the financial statements as of and for the year ended December 31, 2015.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

2	Basis of Presentation, Continued

(2)

Use of estimates and judgments, Continued

Fair value measurement

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

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

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

•

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

•

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

•

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

If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Company recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

Information about assumptions used for fair value measurements are included in Note 27.

3.	Significant Accounting Policies

The accounting policies applied by the Company in these condensed separate interim financial statements are the same as those applied by the Company in its separate financial statements as of and for the year ended December 31, 2015.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

4.	Restricted Deposits

Deposits which are restricted in use as of June 30, 2016 and December 31, 2015 are summarized as follows:


(In millions of won)
	June 30, 2016		December 31, 2015
Short-term financial instruments(*)	W	79,000		79,000
Long-term financial instruments(*)		10,062		10,062

	W	89,062		89,062

(*)	Financial instruments include charitable trust fund established by the Company. Profits from the fund are donated to charitable institutions. As of June 30, 2016 the funds cannot be withdrawn.

5.	Trade and Other Receivables

(1)

Details of trade and other receivables as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won)	June 30, 2016
	Gross amount		Allowances for doubtful accounts			Carrying amount
Current assets:
Accounts receivable - trade	W	1,649,991		(129,268	)		1,520,723
Short-term loans		59,607		(596	)		59,011
Accounts receivable - other		755,753		(58,111	)		697,642
Accrued income		9,020		—			9,020

		2,474,371		(187,975	)		2,286,396
Non-current assets:
Long-term loans		56,337		(19,262	)		37,075
Long-term receivables - other		45,498		—			45,498
Guarantee deposits		166,320		—			166,320

		268,155		(19,262	)		248,893

	W	2,742,526		(207,237	)		2,535,289


(In millions of won)	December 31, 2015
	Gross amount		Allowances for doubtful accounts			Carrying amount
Current assets:
Accounts receivable - trade	W	1,654,575		(125,824	)		1,528,751
Short-term loans		48,223		(482	)		47,741
Accounts receivable - other		323,870		(59,129	)		264,741
Accrued income		7,505		—			7,505

		2,034,173		(185,435	)		1,848,738
Non-current assets:
Long-term loans		54,322		(19,242	)		35,080
Guarantee deposits		166,656		—			166,656

		220,978		(19,242	)		201,736

	W	2,255,151		(204,677	)		2,050,474

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

5.	Trade and Other Receivables, Continued

(2)

Changes in allowances for doubtful accounts of trade and other receivables during the six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)	For the six-month period ended
	June 30, 2016			June 30, 2015
Balance at January 1	W	204,677			189,851
Increase of bad debt allowances		15,137			27,697
Write-offs		(22,863	)		(22,319	)
Collection of receivables previously written-off		10,286			10,011

Balance at June 30	W	207,237			205,240

(3)

Details of overdue but not impaired, and impaired trade and other receivables as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won)	June 30, 2016						December 31, 2015
	Accounts receivable - trade			Other receivables			Accounts receivable - trade			Other receivables
Neither overdue nor impaired	W	1,182,054			969,486			1,188,225			488,244
Overdue but not impaired		30,493			—			45,146			—
Impaired		437,444			123,049			421,204			112,332

		1,649,991			1,092,535			1,654,575			600,576
Allowances for doubtful accounts		(129,268	)		(77,969	)		(125,824	)		(78,853	)

	W	1,520,723			1,014,566			1,528,751			521,723

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

(4)

The aging of overdue but not impaired accounts receivable as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won)
	June 30, 2016		December 31, 2015
Less than 1 month	W	10,562		5,550
1 ~ 3 months		6,129		9,507
3 ~ 6 months		1,566		6,583
More than 6 months		12,236		23,506

	W	30,493		45,146

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

6.	Investment Securities

(1)

Details of short-term investment securities as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won)
	June 30, 2016		December 31, 2015
Beneficiary certificates(*)	W	322,494		92,262

(*)	The income distributable in relation to beneficiary certificates as of June 30, 2016 were accounted for as accrued income.

(2)

Details of long-term investment securities as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won)
	June 30, 2016		December 31, 2015
Equity securities:
Marketable equity securities	W	600,197		579,282
Unlisted equity securities		79,271		72,461
Equity investments		68,177		65,659

		747,645		717,402
Debt securities:
Investment bonds(*)		8,725		9,103

	W	756,370		726,505

(*)

The Company classified the convertible bonds of IRIVER LIMITED, amounting to W6,695 million, as financial assets at fair value through profit or loss and the difference between carrying amount and fair value was accounted for as gain or loss relating to financial assets at fair value through profit or loss.

7.	Investments in Subsidiaries and Associates

(1)

Investments in subsidiaries and associates as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won)
	June 30, 2016		December 31, 2015
Investments in subsidiaries	W	4,413,248		4,469,997
Investments in associates		4,345,976		4,340,551

	W	8,759,224		8,810,548

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

7.	Investments in Subsidiaries and Associates, Continued

(2)

Details of investments in subsidiaries as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won, except for share data)	June 30, 2016						December 31, 2015
	Number of shares		Ownership percentage		Carrying amount		Carrying amount
SK Telink Co., Ltd.		1,082,272		83.5		144,740		144,740
SK Broadband Co., Ltd.(*1)		298,460,212		100.0		1,870,582		1,870,582
SK Communications Co., Ltd.		28,029,945		64.5		151,934		151,934
PS&Marketing Corporation		66,000,000		100.0		313,934		313,934
Service Ace Co., Ltd.		4,385,400		100.0		21,927		21,927
Service Top Co., Ltd.		2,856,200		100.0		14,281		14,281
Network O&S Co., Ltd.		3,000,000		100.0		15,000		15,000
SK Planet Co., Ltd.(*2,3)		57,338,266		100.0		1,298,231		1,520,206
Neosnetworks Co., Ltd.		408,435		83.9		63,967		63,967
IRIVER LIMITED		15,202,039		48.9		54,503		54,503
SK Telecom China Holdings Co., Ltd.		—		100.0		38,652		38,652
SKT Vietnam PTE. Ltd.		180,476,700		73.3		2,364		2,364
SKT Americas, Inc.(*4)		122		100.0		45,701		93,319
YTK Investment Ltd.		—		100.0		18,693		18,693
Atlas Investment		—		100.0		80,905		78,618
SK Global Healthcare Business Group Ltd.		—		100.0		39,649		39,649
Entrix Co., Ltd.		4,157,000		100.0		27,628		27,628
SK techx Co., Ltd.(*2)		6,323,905		100.0		128,371		—
One Store Co., Ltd.(*2)		10,409,600		65.5		82,186		—

					W	4,413,248		4,469,997

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

7.	Investments in Subsidiaries and Associates, Continued

(2)

Details of investments in subsidiaries as of June 30, 2016 and December 31, 2015 are as follows, Continued:

(*1)

On November 2, 2015, the board of directors of the Company entered into a share purchase agreement to acquire 30%(23,234,060 shares) of the issued and outstanding common shares of CJ Hello Vision Co., Ltd. (“CJ Hello Vision”) from CJ O Shopping Co., Ltd. (“CJ O Shopping”) for an aggregate purchase price of W500,000 million. The agreement states government’s approval as prerequisite.

On November 2, 2015, the board of directors of SK Broadband Co., Ltd. (“SK Broadband”), a subsidiary of the Company, approved the merger of SK Broadband into CJ Hello Vision, and then SK Broadband entered into a merger agreement with CJ Hello Vision with government’s approval as prerequisite.

After the announcement of disapproval of proposed takeover of CJ Hello Vision by the Fair Trade Commission (FTC) on July 18, 2016, the Company announced the revocation of share purchase agreement to CJ O Shopping while SK Broadband withdrew from merger agreement with CJ Hello vision on July 25, 2016 as execution of the share purchase agreement with CJ O Shopping and merger agreement between SK Broadband and CJ Hello Vision became objectively impossible.

(*2)

During the six-month period ended June 30, 2016, SK techx Co., Ltd. and One Store Co., Ltd. were established by spin-offs of platform service division and T-store service division of SK Planet Co., Ltd. from SK Planet Co., Ltd., respectively. In connection with the spin-offs, the Company exchanged 12,323,905 shares of SK Planet Co., Ltd. for 6,323,905 shares of SK techx Co., Ltd. and 6,000,000 shares of One Store Co., Ltd. The Company additionally acquired 4,409,600 shares of One Store Co., Ltd. for W22,048 million by participating in capital increase. The Company has equity interest of 65.5% on One Store Co., Ltd. as a result of unparticipated disproportionate capital increase by One Store Co., Ltd.

(*3)

During the six-month period ended June 30, 2016, the Company acquired Location Based Service(LBS) division and mobile phone verification services business, spun-off from SK Planet Co., Ltd., in order to strengthen the platform business capabilities. Since this is considered a business combination of entities under common control, the Company succeeded the assets and liabilities at the acquiree’s carrying amounts and recognized the difference between the carrying amount of 1,547,516 shares of SK Planet Co., Ltd., which were retired, and the net assets acquired in capital surplus and others.

(*4)	W47,618 million of impairment loss was recognized during the six-month period ended June 30, 2016.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

7.	Investments in Subsidiaries and Associates, Continued

(3)

Details of investments in associates as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won, except for share data)	June 30, 2016						December 31, 2015
	Number of shares		Ownership percentage		Carrying amount		Carrying amount
SK China Company Ltd.(*1)		720,000		9.6		47,830		47,830
HappyNarae Co., Ltd.		680,000		42.5		12,250		12,250
Korea IT Fund(*2)		190		63.3		220,957		220,957
Wave City Development Co., Ltd.(*1)		393,460		19.1		1,532		1,532
KEB HanaCard Co., Ltd.(*1)		39,902,323		15.0		253,739		253,739
Daehan Kanggun BcN Co., Ltd.		1,675,124		29.0		8,340		8,340
NanoEnTek, Inc.		6,960,445		28.5		47,958		47,958
SK Industrial Development China Co., Ltd.		72,952,360		21.0		83,691		83,691
SK Technology Innovation Company		14,700		49.0		45,864		45,864
SK hynix Inc.		146,100,000		20.1		3,374,725		3,374,725
SK MENA Investment B.V.		9,772,686		32.1		14,485		14,485
SK Latin America Investment S.A.		9,448,937		32.1		14,243		14,243
SKY Property Mgmt. Ltd.		12,639		33.0		145,656		145,656
SK Wyverns Baseball Club Co., Ltd. and others		—		—		74,706		69,281

					W	4,345,976		4,340,551

(*1)	Classified as investments in associates as the Company can exercise significant influence through its right to appoint the members of board of directors even though the Company has less than 20% of equity interests.

(*2)	Investment in Korea IT Fund was classified as investment in associates as the Company does not have control over Korea IT Fund under the agreement.

(4)

The market price of investments in listed subsidiaries as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won, except for share data)
	June 30, 2016						December 31, 2015
	Market value per share (In won)		Number of shares		Market price		Market value per share (In won)		Number of shares		Market price
IRIVER LIMITED	W	4,420		15,202,039		67,193		5,400		15,202,039		82,091
SK Communications Co., Ltd.		2,930		28,029,945		82,128		4,390		28,029,945		123,051

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

8.	Property and Equipment

Changes in property and equipment for the six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)
	For the six-month period ended June 30, 2016
	Beginning balance		Acquisition		Disposal			Transfer			Depreciation			*Others()**		Ending balance
Land	W	494,359		1,725		(2,639	)		7,519			—			—		500,964
Buildings		557,932		295		(8,411	)		19,014			(17,792	)		—		551,038
Structures		342,411		486		(15	)		5,224			(16,459	)		—		331,647
Machinery		5,222,023		44,201		(3,033	)		235,486			(806,843	)		2,612		4,694,446
Other		402,252		125,304		(2,036	)		(127,123	)		(55,768	)		344		342,973
Construction in progress		423,303		115,679		(6,848	)		(154,557	)		—			3,439		381,016

	W	7,442,280		287,690		(22,982	)		(14,437	)		(896,862	)		6,395		6,802,084

(*)	Composed of property and equipment acquired in connection with business combination.


(In millions of won)
	For the six-month period ended June 30, 2015
	Beginning balance		Acquisition		Disposal			Transfer			Depreciation			Ending balance
Land	W	448,255		828		(328	)		5,155			—			453,910
Buildings		568,874		782		(4,131	)		21,997			(17,409	)		570,113
Structures		350,915		761		(33	)		11,911			(17,013	)		346,541
Machinery		5,277,929		22,013		(689	)		525,155			(791,819	)		5,032,589
Other		430,478		421,932		(1,730	)		(309,165	)		(54,630	)		486,885
Construction in progress		629,455		200,553		—			(296,772	)		—			533,236

	W	7,705,906		646,869		(6,911	)		(41,719	)		(880,871	)		7,423,274

9.	Goodwill

Goodwill as of June 30, 2016 and December 31, 2015 is as follows:


(In millions of won)
	June 30, 2016		December 31, 2015
Goodwill related to acquisition of Shinsegi Telecom, Inc.	W	1,306,236		1,306,236

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

10.

Intangible Assets

(1)

Changes in intangible assets for the six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)
	For the six-month period ended June 30, 2016
	Beginning balance		Acquisition		Disposal			Transfer		Amortization			*Others()**		Ending balance
Frequency usage rights	W	1,103,517		—		—			—		(140,264	)		—		963,253
Land usage rights		11,695		781		—			—		(2,265	)		—		10,211
Industrial rights		11,828		1,971		—			—		(1,923	)		202		12,078
Facility usage rights		16,486		478		(4	)		72		(1,277	)		—		15,755
Memberships		61,512		118		(1,057	)		—		—			—		60,573
Other		561,031		12,662		—			28,307		(104,137	)		25,676		523,539

	W	1,766,069		16,010		(1,061	)		28,379		(249,866	)		25,878		1,585,409

(*)	Composed of intangible assets acquired in connection with business combination.


(In millions of won)
	For the six-month period ended June 30, 2015
	Beginning balance		Acquisition		Disposal			Transfer		Amortization			Ending balance
Frequency usage rights	W	1,384,044		—		—			—		(140,264	)		1,243,780
Land usage rights		14,016		1,412		—			—		(2,431	)		12,997
Industrial rights		10,583		3,507		(2	)		—		(2,109	)		11,979
Facility usage rights		15,843		515		(12	)		271		(1,276	)		15,341
Memberships		63,465		62		—			—		—			63,527
Other		440,218		4,363		(5	)		50,721		(87,030	)		408,267

	W	1,928,169		9,859		(19	)		50,992		(233,110	)		1,755,891

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

10.

Intangible Assets, Continued

(2)

The carrying amount and residual useful lives of frequency usage rights as of June 30, 2016 are as follows, all of which are amortized on a straight-line basis:


(In millions of won)
	Amount		Description	Commencement of amortization	Completion of amortization
W-CDMA license	W	54,988	Frequency usage rights relating to W-CDMA service	Dec. 2003	Dec. 2016
W-CDMA license		8,155	Frequency usage rights relating to W-CDMA service	Oct. 2010	Dec. 2016
800MHz license		202,720	Frequency usage rights relating to CDMA and LTE service	Jul. 2011	Jun. 2021
1.8GHz license		690,910	Frequency usage rights relating to LTE service	Sep. 2013	Dec. 2021
WiBro license		6,480	WiBro service	Mar. 2012	Mar. 2019

	W	963,253

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

11.

Borrowings and Debentures

(1)

There are no short-term borrowings as of June 30, 2016. Short-term borrowings as of December 31, 2015 are as follows:

(In millions of won)

Lender

Annual interest
rate (%)

Maturity

December 31,
2015

Kookmin Bank

2.47

Jan. 21, 2016

40,000

Commercial Papers

1.84

Jan. 14, 2016

190,000

230,000

(2)

Long-term borrowings as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won and thousands of U.S. dollars)
Lender	Annual interest rate (%)	Maturity	June 30, 2016			December 31, 2015
Export Kreditnamnden(*)	1.70	Apr. 29, 2022	W	80,430			87,685
			(USD	69,056	)	(USD	74,817	)

Less present value discount				(1,811	)		(2,124	)

				78,619			85,561
Less current installments				(12,963	)		(13,007	)

			W	65,656			72,554

(*)	Prior to 2015, the Company obtained long-term borrowings from Export Kreditnamnden, an export credit agency. The long-term borrowings are repaid by installments on an annual basis from 2014 to 2022.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

11.

Borrowings and Debentures, Continued

(3)

Debentures as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won, thousands of U.S. dollars, and thousands of other currencies)
	Purpose	Maturity	Annual interest rate (%)	June 30, 2016		December 31, 2015
Unsecured private bonds	Refinancing fund	2016	5.00	W	200,000		200,000
Unsecured private bonds	Other fund	2018	5.00		200,000		200,000
Unsecured private bonds		2016	5.54		—		40,000
Unsecured private bonds		2016	5.92		—		230,000
Unsecured private bonds	Operating fund	2016	3.95		110,000		110,000
Unsecured private bonds	Operating fund	2021	4.22		190,000		190,000
Unsecured private bonds	Operating and refinancing fund	2019	3.24		170,000		170,000
Unsecured private bonds		2022	3.30		140,000		140,000
Unsecured private bonds		2032	3.45		90,000		90,000
Unsecured private bonds	Operating fund	2023	3.03		230,000		230,000
Unsecured private bonds		2033	3.22		130,000		130,000
Unsecured private bonds		2019	3.30		50,000		50,000
Unsecured private bonds		2024	3.64		150,000		150,000
Unsecured private bonds(*2)		2029	4.72		54,969		54,695
Unsecured private bonds	Refinancing fund	2019	2.53		160,000		160,000
Unsecured private bonds		2021	2.66		150,000		150,000
Unsecured private bonds		2024	2.82		190,000		190,000
Unsecured private bonds	Operating and refinancing fund	2022	2.40		100,000		100,000
Unsecured private bonds		2025	2.49		150,000		150,000
Unsecured private bonds		2030	2.61		50,000		50,000
Unsecured private bonds	Operating fund	2018	1.89		90,000		90,000
Unsecured private bonds		2025	2.66		70,000		70,000
Unsecured private bonds		2030	2.82		90,000		90,000
Unsecured private bonds(*2)		2030	3.40		50,098		50,485
Unsecured private bonds	Operating and refinancing fund	2018	2.07		80,000		80,000
Unsecured private bonds		2025	2.55		100,000		100,000
Unsecured private bonds		2035	2.75		70,000		70,000
Unsecured private bonds(*2)		2030	3.10		50,460		50,524
Unsecured private bonds	Operating fund	2019	1.65		70,000		—
Unsecured private bonds		2021	1.80		100,000		—
Unsecured private bonds		2026	2.08		90,000		—
Unsecured private bonds		2036	2.24		80,000		—
Unsecured private bonds		2019	1.62		50,000		—
Unsecured private bonds		2021	1.71		50,000		—
Unsecured private bonds		2026	1.97		120,000		—
Unsecured private bonds		2031	2.17		50,000		—

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

11.

Borrowings and Debentures, Continued

(3)

Debentures as of June 30, 2016 and December 31, 2015 are as follows, Continued:


(In millions of won, thousands of U.S. dollars, and thousands of other currencies)
	Purpose	Maturity	Annual interest rate (%)		June 30, 2016			December 31, 2015
Unsecured global bonds		2027		6.63		465,880			468,800
					(USD	400,000	)	(USD	400,000	)
Unsecured private Swiss bonds		2017		1.75		356,760			355,617
					(CHF	300,000	)	(CHF	300,000	)
Unsecured global bonds		2018		2.13		815,290			820,400
					(USD	700,000	)	(USD	700,000	)
Unsecured private Australian bonds		2017		4.75		260,310			255,930
					(AUD	300,000	)	(AUD	300,000	)
Floating rate notes (*1)		2020		3M LIBOR + 0.88		349,410			351,600
					(USD	300,000	)	(USD	300,000	)

Sub-total						5,973,177			5,638,051
Less discounts on bonds						(24,086	)		(24,926	)

						5,949,091			5,613,125
Less current installments of bonds						(666,154	)		(579,630	)

					W	5,282,937			5,033,495

(*1)	As of June 30, 2016, 3M LIBOR rate is 0.65%.

(*2)	The Company eliminated a measurement inconsistency of accounting profit or loss between the bonds and related derivatives by designating the structured bonds as financial liabilities at fair value through profit or loss.

The carrying amount of financial liabilities designated at fair value through profit or loss exceeds the principal amount required to pay at maturity by W5,527 million as of June 30, 2016.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

12.

Long-term Payables - Other

(1)

As of June 30, 2016 and December 31, 2015, details of long-term payables – other which consist of payables related to the acquisition of W-CDMA licenses for 2.3GHz and 1.8GHz frequencies are as follows (See Note 10):


(In millions of won)
	Period of repayment	Coupon rate		Annual effective interest rate(*)		June 30, 2016			December 31, 2015
2.3GHz	2014~2016		3.00%		5.80%		—			2,882
1.8GHz	2012~2021		2.43~3.00%		4.84~5.25%		589,172			707,006

							589,172			709,888
Present value discount on long-term payables – other							(32,252	)		(38,739	)

							556,920			671,149
Less current installments of long-term payables – other							(116,079	)		(120,185	)

Carrying amount at period end						W	440,841			550,964

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

(2)

The repayment schedule of the principal amount of long-term payables related to acquisition of W-CDMA licenses as of June 30, 2016 is as follows:


(In millions of won)
	Amount
Less than 1 year	W	117,834
1~3 years		235,669
3~5 years		235,669

	W	589,172

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

13.

Provisions

Changes in provisions for the six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)	For the six-month period ended June 30, 2016												As of June 30, 2016
	Beginning balance		Increase		Utilization			Reversal			Ending balance		Current		Non- current
Provision for installment of handset subsidy	W	5,670		—		(1,019	)		—			4,651		1,213		3,438
Provision for restoration		50,459		2,137		(332	)		(697	)		51,567		28,323		23,244
Emission allowance		1,477		242		(169	)		—			1,550		1,550		—

	W	57,606		2,379		(1,520	)		(697	)		57,768		31,086		26,682


(In millions of won)	For the six-month period ended June 30, 2015												As of June 30, 2015
	Beginning balance		Increase		Utilization			Reversal			Ending balance		Current		Non- current
Provision for installment of handset subsidy	W	26,799		—		(2,696	)		(18,173	)		5,930		3,368		2,562
Provision for restoration		51,333		2,116		(344	)		(962	)		52,143		34,208		17,935

	W	78,132		2,116		(3,040	)		(19,135	)		58,073		37,576		20,497

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

14.

Defined Benefit Liabilities

(1)

Details of defined benefit liabilities as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won)
	June 30, 2016			December 31, 2015
Present value of defined benefit obligations	W	239,797			212,139
Fair value of plan assets		(216,009	)		(208,133	)

	W	23,788			4,006

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

14.

Defined Benefit Liabilities, Continued

(2)

Changes in defined benefit obligations for the six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)	For the six-month period ended
	June 30, 2016			June 30, 2015
Beginning balance	W	212,139			195,130
Current service cost		18,364			17,610
Interest cost		2,731			2,707
Remeasurement:
- Demographic assumption		—			16
- Adjustment based on experience		6,816			834
Benefit paid		(3,755	)		(20,266	)
Others		3,502			1,867

Ending balance	W	239,797			197,898

(3)

Changes in plan assets for the six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)	For the six-month period ended
	June 30, 2016			June 30, 2015
Beginning balance	W	208,133			179,575
Interest income		2,590			2,491
Actuarial loss		(5,169	)		(2,387	)
Contributions		11,000			25,000
Benefit paid		(3,350	)		(19,643	)
Others		2,805			—

Ending balance	W	216,009			185,036

(4)

Expenses recognized in profit and loss for the six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)	For the six-month period ended
	June 30, 2016		June 30, 2015
Current service cost	W	18,364		17,610
Net Interest cost		141		216

	W	18,505		17,826

The above costs are recognized in labor cost and research and development.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

15.

Derivative Instruments

(1)

Currency swap contracts under cash flow hedge accounting as of June 30, 2016 are as follows:


(In thousands of foreign currencies)
Borrowing date	Hedging Instrument (Hedged item)	Hedged risk	Contract type	Financial institution	Duration of contract
Jul. 20, 2007	Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds with face value of USD 400,000)	Foreign currency risk	Currency swap	Morgan Stanley and five other banks	Jul. 20, 2007 ~ Jul. 20, 2027
Jun. 12, 2012	Fixed-to-fixed cross currency swap (Swiss Franc denominated bonds with face value of CHF 300,000)	Foreign currency risk	Currency swap	Citibank and four other banks	Jun. 12, 2012 ~ Jun. 12, 2017
Nov. 1, 2012	Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds with face value of USD 700,000)	Foreign currency risk	Currency swap	Barclays and eight other banks	Nov. 1, 2012 ~ May. 1, 2018
Jan. 17, 2013	Fixed-to-fixed cross currency swap (Australia dollar denominated bonds with face value of AUD 300,000)	Foreign currency risk	Currency swap	BNP Paribas and three other banks	Jan. 17, 2013 ~ Nov. 17, 2017
Mar. 7, 2013	Floating-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds with face value of USD 300,000)	Foreign currency risk and interest rate risk	Currency and interest rate swap	DBS Bank	Mar. 7, 2013 ~ Mar. 7, 2020
Dec. 16, 2013	Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds with face value of USD 69,056)	Foreign currency risk	Currency swap	Deutsche bank	Dec. 16, 2013 ~ Apr. 29, 2022

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

15.

Derivative Instruments, Continued

(2)

As of June 30, 2016, details of fair values of the above derivatives recorded in assets or liabilities are as follows:


(In millions of won and thousands of foreign currencies)
	Fair value
	Cash flow hedge											Held for trading		Total
Hedging Instrument (Hedged item)	Accumulated gain (loss) on valuation of derivatives			Tax effect			Accumulated foreign currency translations (gain) loss			Others *()**		Held for trading		Total
Non-current assets:
Structured bond (face value of KRW 150,000)	W	—			—			—			—		9,961		9,961
Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds with face value of USD 400,000)		(50,424	)		(16,098	)		8,299			129,806		—		71,583
Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds with face value of USD 700,000)		(15,296	)		(4,884	)		51,650			—		—		31,470
Floating-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds with face value of USD 300,000)		(11,613	)		(3,709	)		24,255			—		—		8,933
Fixed-to-fixed long-term borrowings (U.S. dollar denominated bonds with face value of USD 69,056)		(3,622	)		(1,156	)		7,457			—		—		2,679

Total assets														W	124,626


Current liability:
Fixed-to-fixed cross currency swap (Swiss Franc denominated bonds with face value of CHF 300,000)	W	(6,565	)		(2,095	)		(6,710	)		—		—		(15,370	)
Non-current liability:
Fixed-to-fixed cross currency swap (Australia dollar denominated bonds with face value of AUD 300,000)		2,873			918			(74,879	)		—		—		(71,088	)

Total liabilities														W	(86,458	)

(*)	Cash flow hedge accounting has been applied to the relevant contracts from May 12, 2010. Others represent gain on valuation of currency swap recognized in profit or loss prior to May 12, 2010, when the Company started to apply hedge accounting to these contracts.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

16.

Share Capital and Capital Surplus and Others

The Company’s outstanding share capital consists entirely of common stocks with a par value of W500. The number of authorized, issued and outstanding common shares and capital surplus and others as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won, except for share data)
	June 30, 2016			December 31, 2015
Number of authorized shares		220,000,000			220,000,000
Number of issued shares(*)		80,745,711			80,745,711
Share capital:
Common stock	W	44,639			44,639
Capital surplus and others:
Paid-in surplus		2,915,887			2,915,887
Treasury stock (Note 17)		(2,260,626	)		(2,260,626	)
Hybrid bond (Note 18)		398,518			398,518
Others		(682,298	)		(684,333	)

	W	371,481			369,446

(*)	Prior to 2015, the Company retired shares of treasury stock which reduced its retained earnings before appropriation. As a result, the Company’s outstanding shares have decreased without change in the share capital.

There were no changes in share capital for the six-month period ended June 30, 2016 and the year ended December 31, 2015 and details of shares outstanding as of June 30, 2016 and 2015 are as follows:


(In shares)	June 30, 2016						June 30, 2015
	Issued shares		Treasury stock		Outstanding shares		Issued shares		Treasury stock			Outstanding shares
Beginning		80,745,711		10,136,551		70,609,160		80,745,711		9,809,375			70,936,336
Disposal of treasury stock		—		—		—		—		(1,692,824	)		1,692,824

Ending		80,745,711		10,136,551		70,609,160		80,745,711		8,116,551			72,629,160

17.

Treasury Stock

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

Treasury stocks as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won, shares)
	June 30, 2016		December 31, 2015
Number of shares		10,136,551		10,136,551
Amount	W	2,260,626		2,260,626

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

18.

Hybrid Bonds

Hybrid bonds classified as equity as of June 30, 2016 are as follows:

(In millions of won)

Type

Issuance date

Maturity

Annual
interest
rate(%)

Amount

Private hybrid bonds

Unsecured subordinated bearer bond

June 7, 2013

June 7, 2073(*1)

4.21

(*2)

400,000

Issuance costs

(1,482

)

398,518

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

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

(*2)	Annual interest rate is calculated as yield rate of 5 year national bonds plus premium. According to Step-up clause, additional premium of 0.25% and 0.75%, respectively, after 10 years and 25 years from the issuance date are applied.

19.

Retained Earnings

(1)

Retained earnings as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won)
	June 30, 2016		December 31, 2015
Appropriated:
Legal reserve	W	22,320		22,320
Reserve for research & manpower development		60,001		87,301
Reserve for business expansion		9,871,138		9,671,138
Reserve for technology development		2,826,300		2,616,300

		12,779,759		12,397,059
Unappropriated		652,207		1,021,544

	W	13,431,966		13,418,603

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

20.

Reserves

(1)

Details of reserves, net of taxes, as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won)
	June 30, 2016			December 31, 2015
Changes in unrealized fair value of available-for-sale financial assets	W	39,380			23,578
Changes in unrealized fair value of derivatives		(84,647	)		(76,806	)

	W	(45,267	)		(53,228	)

(2)

Changes in reserves for the six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)	For the six-month period ended June 30, 2016
	Unrealized fair value of available-for-sale financial assets			Unrealized fair value of derivatives			Total
Balance at January 1, 2016	W	23,578			(76,806	)		(53,228	)
Changes		20,847			(10,344	)		10,503
Tax effect		(5,045	)		2,503			(2,542	)

Balance at June 30, 2016	W	39,380			(84,647	)		(45,267	)


(In millions of won)	For the six-month period ended June 30, 2015
	Unrealized fair value of available-for-sale financial assets			Unrealized fair value of derivatives			Total
Balance at January 1, 2015	W	145,106			(78,208	)		66,898
Changes		(70,672	)		(20,319	)		(90,991	)
Tax effect		17,103			4,917			22,020

Balance at June 30, 2015	W	91,537			(93,610	)		(2,073	)

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

21.

Other Operating Expenses

Details of other operating expenses for the three and six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)	2016				2015
	Three-month period ended June 30		Six-month period ended June 30		Three-month period ended June 30		Six-month period ended June 30
Other Operating Expenses:
Communication	W	7,542		15,542		8,475		18,058
Utilities		46,779		100,397		45,979		95,260
Taxes and dues		4,329		9,307		5,116		9,509
Repair		55,236		101,860		53,017		91,491
Research and development		66,349		133,518		62,071		110,954
Training		4,931		9,991		4,421		10,161
Bad debt for accounts receivable - trade		9,158		11,724		16,347		23,612
Other		9,741		23,010		10,367		20,851

	W	204,065		405,349		205,793		379,896

22.

Other Non-operating Income and Expenses

Details of other non-operating income and expenses for the three and six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)	2016				2015
	Three-month period ended June 30		Six-month period ended June 30		Three-month period ended June 30		Six-month period ended June 30
Other Non-operating Income:
Gain on disposal of property and equipment and intangible assets	W	435		870		866		937
Others		7,994		36,458		2,871		6,032

	W	8,429		37,328		3,737		6,969


Other Non-operating Expenses:
Loss on disposal of property and equipment and intangible assets	W	2,628		9,970		884		2,056
Donations		11,447		40,647		18,116		23,562
Bad debt for accounts receivable - other		3,413		3,413		6,239		4,085
Others		1,282		1,793		7,052		31,961

	W	18,770		55,823		32,291		61,664

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

23.

Finance Income and Costs

(1)

Details of finance income and costs for the three and six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)	2016				2015
	Three-month period ended June 30		Six-month period ended June 30		Three-month period ended June 30		Six-month period ended June 30
Finance Income:
Interest income	W	5,839		12,218		5,465		11,160
Gain on disposal of accounts receivable - trade		5,191		7,855		—		—
Dividends		6,082		96,433		2,308		56,731
Gain on foreign currency transactions		816		5,601		2,308		4,484
Gain on foreign currency translation		531		111		1,197		1,098
Gain relating to financial liabilities at fair value through profit or loss		403		177		6,965		5,188
Gain relating to financial assets at fair value through profit or loss		148		—		—		—
Gain on disposal of long-term investment securities		1,141		1,751		1,492		2,828
Gain on valuation of derivatives		463		3,684		—		1,030

	W	20,614		127,830		19,735		82,519


Finance Costs:
Interest expense	W	57,235		116,707		59,906		121,132
Loss on foreign currency transactions		2,850		5,040		2,378		7,027
Loss on foreign currency translation		—		340		—		25
Loss on disposal of long-term investment securities		—		44		—		2
Loss on valuation of derivatives		—		—		699		—
Loss on settlement of derivatives		319		319		4,517		4,517
Loss relating to financial assets at fair value through profit or loss		—		378		358		689
Loss relating to financial liabilities at fair value through profit or loss		—		—		—		174
Other finance costs		—		815		32		32

	W	60,404		123,643		67,890		133,598

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

23.

Finance Income and Costs, Continued

(2)

Details of interest income included in finance income for the three and six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)	2016				2015
	Three-month period ended June 30		Six-month period ended June 30		Three-month period ended June 30		Six-month period ended June 30
Interest income on cash equivalents and deposits	W	1,914		3,750		1,668		3,483
Interest income on installment receivables and others		3,925		8,468		3,797		7,677

	W	5,839		12,218		5,465		11,160

(3)

Details of interest expenses included in finance costs for the three and six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)	2016				2015
	Three-month period ended June 30		Six-month period ended June 30		Three-month period ended June 30		Six-month period ended June 30
Interest expenses on borrowings	W	1,767		3,271		6,981		10,010
Interest expenses on debentures		48,051		97,254		44,050		91,353
Others		7,417		16,182		8,875		19,769

	W	57,235		116,707		59,906		121,132

(4)

Details of impairment losses for financial assets for the three and six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)	2016				2015
	Three-month period ended June 30		Six-month period ended June 30		Three-month period ended June 30		Six-month period ended June 30
Accounts receivable - trade	W	9,158		11,724		16,347		23,612
Other receivables		3,413		3,413		6,239		4,085
Available-for-sale financial assets		—		815		32		32

	W	12,571		15,952		22,618		27,729

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

24.

Income Tax Expense

Income tax expense was calculated by considering current tax expense adjusted to changes in estimates related to prior periods, deferred tax expenses by origination and reversal of temporary differences.

25.

Earnings per Share

(1)

Basic earnings per share

Basic earnings per share for the three and six-month periods ended June 30, 2016 and 2015 are calculated as follows:


(In millions of won, shares)	2016						2015
	Three-month period ended June 30			Six-month period ended June 30			Three-month period ended June 30			Six-month period ended June 30
Profit for the period	W	284,143			666,350			231,997			527,783
Interest on hybrid bond		(8,420	)		(8,420	)		(8,420	)		(8,420	)
Profit for the period on common shares		275,723			657,930			223,577			519,363
Weighted average number of common shares outstanding		70,609,160			70,609,160			71,326,988			71,132,741

Basic earnings per share (in won)	W	3,905			9,318			3,135			7,301

The weighted average number of common shares outstanding for the three and six-month periods ended June 30, 2016 and 2015 are calculated as follows:


(In shares)				Weighted number of shares
	Number of shares			Three-month period ended June 30			Six-month period ended June 30
Issued common shares at January 1, 2016		80,745,711			80,745,711			80,745,711
Weighted average number of treasury stock		(10,136,551	)		(10,136,551	)		(10,136,551	)

Weighted average number of common shares outstanding at June 30, 2016		70,609,160			70,609,160			70,609,160


(In shares)				Weighted number of shares
	Number of shares			Three-month period ended June 30			Six-month period ended June 30
Issued common shares at January 1, 2015		80,745,711			80,745,711			80,745,711
Weighted average number of treasury stock		(8,116,551	)		(9,418,723	)		(9,612,970	)

Weighted average number of common shares outstanding at June 30, 2015		72,629,160			71,326,988			71,132,741

(2)

Diluted earnings per share

For the six-month periods ended June 30, 2016 and 2015, there were no potentially dilutive shares. Therefore, diluted earnings per share for the six-month periods ended June 30, 2016 and 2015 are the same as basic earnings per share.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

26.

Categories of Financial Instruments

(1)

Financial assets by categories as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won)
	June 30, 2016
	Financial assets at fair value through profit or loss		Available- for-sale financial assets		Loans and receivables		Derivative financial instruments designated as hedged item		Total
Cash and cash equivalents	W	—		—		646,221		—		646,221
Financial instruments		—		—		117,562		—		117,562
Short-term investment securities		—		322,494		—		—		322,494
Long-term investment securities(*1)		6,695		749,675		—		—		756,370
Accounts receivable - trade		—		—		1,520,723		—		1,520,723
Loans and other receivables(*2)		—		—		1,014,566		—		1,014,566
Derivative financial assets		9,961		—		—		114,665		124,626

	W	16,656		1,072,169		3,299,072		114,665		4,502,562


(In millions of won)
	December 31, 2015
	Financial assets at fair value through profit or loss		Available- for-sale financial assets		Loans and receivables		Derivative financial instruments designated as hedged item		Total
Cash and cash equivalents	W	—		—		431,666		—		431,666
Financial instruments		—		—		131,562		—		131,562
Short-term investment securities		—		92,262		—		—		92,262
Long-term investment securities(*1)		7,073		719,432		—		—		726,505
Accounts receivable - trade		—		—		1,528,751		—		1,528,751
Loans and other receivables(*2)		—		—		521,723		—		521,723
Derivative financial assets		6,277		—		—		133,646		139,923

	W	13,350		811,694		2,613,702		133,646		3,572,392

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

26.

Categories of Financial Instruments, Continued

(1)

Financial assets by categories as of June 30, 2016 and December 31, 2015 are as follows, Continued:

(*1)	Long-term investment securities were designated as financial assets at fair value through profit of loss since the embedded derivative (conversion right option) could not be separately measured.

(*2)	Details of loans and other receivables as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won)
	June 30, 2016		December 31, 2015
Short-term loans	W	59,011		47,741
Accounts receivable – other		697,642		264,741
Accrued income		9,020		7,505
Long-term loans		37,075		35,080
Long-term receivables - other		45,498		—
Guarantee deposits		166,320		166,656

	W	1,014,566		521,723

(2)

Financial liabilities by categories as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won)
	June 30, 2016
	Financial liabilities at fair value through profit or loss		Financial liabilities measured at amortized cost		Derivative financial instruments designated as hedged item		Total
Derivative financial liabilities	W	—		—		86,458		86,458
Borrowings		—		78,619		—		78,619
Debentures (*1)		155,527		5,793,564		—		5,949,091
Accounts payable - other and others (*2)		—		2,102,486		—		2,102,486

	W	155,527		7,974,669		86,458		8,216,654


(In millions of won)
	December 31, 2015
	Financial liabilities at fair value through profit or loss		Financial liabilities measured at amortized cost		Derivative financial instruments designated as hedged item		Total
Derivative financial liabilities	W	—		—		89,296		89,296
Borrowings		—		315,561		—		315,561
Debentures (*1)		155,704		5,457,421		—		5,613,125
Accounts payable – other and others (*2)		—		2,171,141		—		2,171,141

	W	155,704		7,944,123		89,296		8,189,123

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

26.

Categories of Financial Instruments, Continued

(2)

Financial liabilities by categories as of June 30, 2016 and December 31, 2015 are as follows, Continued:

(*1)

Bonds classified as financial liabilities at fair value through profit or loss as of June 30, 2016 and December 31, 2015 are structured bonds and they were designated as financial liabilities at fair value through profit or loss in order to eliminate the difference in measurement bases with the related derivatives and bonds.

(*2)	Details of accounts payable and other payables as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won)
	June 30, 2016		December 31, 2015
Accounts payable - other	W	961,191		927,170
Withholdings		50		—
Accrued expenses		550,100		540,770
Current installments of long-term payables - other		116,079		120,185
Long-term payables - other		440,841		550,964
Other non-current liabilities		34,225		32,052

	W	2,102,486		2,171,141

27.

Financial Risk Management

(1)

Financial risk management

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

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

1) Market risk

(i) Currency risk

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

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

27.

Financial Risk Management, Continued

(1)

Financial risk management, Continued

1) Market risk, Continued

(i) Currency risk, Continued

Foreign currency monetary assets and liabilities as of June 30, 2016 are as follows:


(In millions of won, thousands of foreign currencies)
	Assets				Liabilities
	Foreign currencies		Won equivalent		Foreign currencies		Won equivalent
USD		62,993		73,367		1,462,207		1,703,033
EUR		7,408		9,597		—		—
JPY		96,201		1,089		—		—
AUD		—		—		299,274		259,680
CHF		—		—		299,587		356,269
Others		—		1,744		—		6

			W	85,797			W	2,318,988

In addition, the Company has entered into cross currency swaps to hedge against currency risk related to foreign currency borrowings and debentures. (See Note 15)

As of June 30, 2016, effects on income (loss) before income tax as a result of change in exchange rate by 10% are as follows:


(In millions of won)
	If increased by 10%		If decreased by 10%
USD	W	6,889		(6,889	)
EUR		960		(960	)
JPY		109		(109	)
Others		174		(174	)

	W	8,132		(8,132	)

(ii) Equity price risk

The Company has equity securities which include listed and non-listed securities for its liquidity management and operating purpose. As of June 30, 2016, available-for-sale equity instruments measured at fair value amounts to W671,879 million.

(iii) Interest rate risk

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

Accordingly, the Company performs various analysis of interest rate risk to reduce interest rate risk and to optimize its financing. To minimize risks from changes in interest rates, the Company takes various measures such as refinancing, renewal, alternative financing and hedging.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

27.

Financial Risk Management, Continued

(1)

Financial risk management, Continued

1) Market risk, Continued

(iii) Interest rate risk, Continued

The Company’s interest rate risk arises from floating-rate borrowings and payables. As of June 30, 2016, floating-rate debentures amount to W349,410 million and the Company has entered into interest rate swaps to hedge interest rate risk related to floating-rate borrowings and debentures (See Note 15). Therefore, income before income taxes for the six-month period ended June 30, 2016 would not have been changed by the interest expense from floating-rate borrowings and debentures.

2) Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet his/her contractual obligations. The maximum credit exposure as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won)
	June 30, 2016		December 31, 2015
Cash and cash equivalents	W	646,198		431,636
Financial instruments		117,562		131,562
Available-for-sale financial assets		2,030		2,030
Accounts receivable – trade		1,520,723		1,528,751
Loans and receivables		1,014,566		521,723
Derivative financial assets		124,626		139,923
Financial assets at fair value through profit or loss		6,695		7,073

	W	3,432,400		2,762,698

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

For the six-month period ended June 30, 2016, the Company has no trade and other receivables or loans which have indications of significant impairment loss or are overdue for a prolonged period. As a result, the Company believes that the possibility of default is remote. Also, the Company’s credit risk can arise due to transactions with financial institutions related to its cash and cash equivalents, financial instruments and derivatives. To minimize such risk, the Company has a policy to deal only with financial institutions with high credit ratings. The amount of maximum exposure to credit risk of the Company is the carrying amount of financial assets as of June 30, 2016.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

27.

Financial Risk Management, Continued

(1)

Financial risk management, Continued

3) Liquidity risk

Contractual maturities of financial liabilities as of June 30, 2016 are as follows:


(In millions of won)
	Carrying amount		Contractual cash flows		Less than 1 year		1 - 5 years		More than 5 years
Borrowings(*)	W	78,619		85,640		14,861		57,154		13,625
Debentures(*)		5,949,091		7,201,909		846,181		2,930,047		3,425,681
Accounts payable - other and others		2,102,486		2,123,750		1,585,341		538,409		—

	W	8,130,196		9,411,299		2,446,383		3,525,610		3,439,306

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

(*)	Includes interest to be paid.

As of June 30, 2016, periods which cash flows from cash flow hedge derivatives are expected to occur are as follows:


(In millions of won)
	Carrying amount			Contractual cash flows			Less than 1 year			1 - 5 years			More than 5 years
Assets	W	114,665			122,752			1,785			97,692			23,275
Liabilities		(86,458	)		(88,457	)		(12,384	)		(76,073	)		—

	W	28,207			34,295			(10,599	)		21,619			23,275

(2)

Capital management

The Company manages its capital to ensure that it will be able to continue as a business while maximizing the return to shareholders through the optimization of its debt and equity structure. The overall strategy of the Company is the same as that of the Company as of and for the year ended December 31, 2015.

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

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

27.

Financial Risk Management, Continued

(2)

Capital management, Continued

Debt-equity ratios as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won)
	June 30, 2016			December 31, 2015
Total liabilities	W	9,379,019			9,367,480
Total equity		13,802,819			13,779,460

Debt-equity ratios		67.95	%		67.98	%

(3)

Fair value

Fair value and carrying amount of financial assets and liabilities including fair value hierarchy as of June 30, 2016 are as follows:


(In millions of won)
	Carrying amount		Level 1		Level 2		Level 3		Total
Financial assets that are measured at fair value:
Financial assets at fair value through profit or loss	W	16,656		—		9,961		6,695		16,656
Derivative financial assets		114,665		—		114,665		—		114,665
Available-for-sale financial assets		671,879		600,197		47,494		24,188		671,879

	W	803,200		600,197		172,120		30,883		803,200

Financial liabilities that are measured at fair value:
Financial liabilities at fair value through profit or loss	W	155,527		—		155,527		—		155,527
Derivative financial liabilities		86,458		—		86,458		—		86,458

	W	241,985		—		241,985		—		241,985

Financial liabilities that are not measured at fair value:
Borrowings	W	78,619		—		81,768		—		81,768
Debentures		5,793,564		—		6,391,877		—		6,391,877

	W	5,872,183		—		6,473,645		—		6,473,645

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

27.

Financial Risk Management, Continued

(3)

Fair value, Continued

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


(In millions of won)
	Carrying amount		Level 1		Level 2		Level 3		Total
Financial assets that are measured at fair value:
Financial assets at fair value through profit or loss	W	13,350		—		6,277		7,073		13,350
Derivative financial assets		133,646		—		133,646		—		133,646
Available-for-sale financial assets		655,845		579,282		47,262		29,301		655,845

	W	802,841		579,282		187,185		36,374		802,841

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

	W	245,000		—		245,000		—		245,000

Financial liabilities that are not measured at fair value:
Borrowings	W	315,561		—		316,726		—		316,726
Debentures		5,457,421		—		5,887,378		—		5,887,378

	W	5,772,982		—		6,204,104		—		6,204,104

The above information does not include fair values of financial assets and liabilities of which fair values have not been measured as carrying amounts are a reasonable approximation of fair values.

Available-for-sale financial assets amounting to W400,290 million and W155,849 million as of June 30, 2016 and December 31, 2015, respectively, are measured at cost in accordance with K-IFRS 1039 since they are considered as equity instruments which do not have quoted price in an active market for the identical instruments (inputs for level 1) and cannot be reliably measured using other valuation methods.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

27.

Financial Risk Management, Continued

(3)

Fair value, Continued

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

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

Interest rates used by the Company for the fair value measurement as of June 30, 2016 are as follows:


		Interest rate
Derivative instruments		1.82 ~ 2.99%
Borrowings and debentures		1.57%

There have been no transfers between Level 2 and Level 1 for the six-month period ended June 30, 2016 and changes of financial assets classified as Level 3 for the six-month period ended June 30, 2016 are as follows:


(In millions of won)
	Balance at January 1, 2016		Loss for the period			Other comprehensive loss			Disposal			Balance at June 30, 2016
Financial assets at fair value through profit or loss	W	7,073		(378	)		—			—			6,695
Available-for-sale financial assets		29,301		—			(6	)		(5,107	)		24,188

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

27.

Financial Risk Management, Continued

(4)

Enforceable master netting agreement or similar agreement

Carrying amount of financial instruments recognized of which offset agreements are applicable as of June 30, 2016 are as follows:


(In millions of won)	Gross financial instruments recognized		Amount offset			Net financial instruments presented on the statement of financial position		Relevant financial instruments not offset			Net amount
Financial assets:
Derivatives(*)	W	55,876		—			55,876		(55,876	)		—
Accounts receivable – trade and others		130,173		(113,781	)		16,392		—			16,392

	W	186,049		(113,781	)		72,268		(55,876	)		16,392

Financial liabilities:
Derivatives(*)	W	86,458		—			86,458		(55,876	)		30,582
Accounts payable – other and others		113,781		(113,781	)		—		—			—

	W	200,239		(113,781	)		86,458		(55,876	)		30,582

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


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

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

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

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

(*)	The balance represents the net amount under the standard terms and conditions of International Swap and Derivatives Association.

28.

Transactions with Related Parties

(1)

List of related parties


Relationship		Company
Ultimate Controlling Entity		SK Holdings Co., Ltd.
Subsidiaries		SK Planet Co., Ltd. and 37 other companies(*)
Joint ventures		Dogus Planet, Inc. and 3 other companies
Associates		SK hynix Inc. and 50 other companies
Affiliates		The Ultimate Controlling Entity’s other subsidiaries and associates, etc.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

(*)	As of June 30, 2016, subsidiaries of the Company are as follows:


Company	Ownership percentage (%)		Types of business
SK Telink Co., Ltd.		83.5	Telecommunication and MVNO(Mobile Virtual Network Operator) service
M&Service Co., Ltd.		100.0	Database and internet website service
SK Communications Co., Ltd.		64.5	Internet website services
Stonebridge Cinema Fund		55.2	Investment
SK Broadband Co., Ltd.		100.0	Telecommunication services
K-net Culture and Contents Venture Fund		59.0	Investment
Fitech Focus Limited Partnership II		66.7	Investment
Open Innovation Fund		98.9	Investment
PS&Marketing Corporation		100.0	Communications device retail business
Service Ace Co., Ltd.		100.0	Customer center management service
Service Top Co., Ltd.		100.0	Customer center management service
Network O&S Co., Ltd.		100.0	Base station maintenance service
SK Planet Co., Ltd.		100.0	Telecommunication services
Neosnetworks Co., Ltd.		83.9	Security systems service
IRIVER LIMITED		48.9	Manufacturing of media and audio equipment
iriver Enterprise Ltd.		100.0	Management of Chinese subsidiaries
iriver America Inc.		100.0	Sales and marketing in North America
iriver Inc.		100.0	Sales and marketing in North America
iriver China Co., Ltd.		100.0	Sales and manufacturing of MP3 and 4 in China
Dongguan iriver Electronics Co., Ltd.		100.0	Sales and Manufacturing of e-book in China
groovers Japan Co., Ltd.		100.0	Digital music contents sourcing and distribution service
Entrix Co., Ltd.		100.0	Cloud streaming service
SK Telecom China Holdings Co., Ltd.		100.0	Investment
SK Global Healthcare Business Group., Ltd.		100.0	Investment
SK Planet Japan, K. K.		100.0	Digital contents sourcing service
SKT Vietnam PTE. Ltd.		73.3	Telecommunication services
SK Planet Global PTE. Ltd.		100.0	Digital contents sourcing service
SKP GLOBAL HOLDINGS PTE. LTD.		100.0	Investment
SKT Americas, Inc.		100.0	Information gathering and consulting
SKP America LLC.		100.0	Digital contents sourcing service
YTK Investment Ltd.		100.0	Investment
Atlas Investment		100.0	Investment
SK Telecom Innovation Fund, L.P. (formerly, Technology Innovation Partners, L.P.)(*)		100.0	Investment
SK Telecom China Fund I L.P.		100.0	Investment
shopkick Management Company, Inc.		100.0	Investment
shopkick, Inc.		100.0	Mileage-based online transaction application development
SK techx Co., Ltd.		100.0	System software development and supply
One Store Co., Ltd.		65.5	Telecommunication services

(*)	Changed its name to SK Telecom Innovation Fund, L.P. during the six-month period ended June 30, 2016.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

28.

Transactions with Related Parties, Continued

(2)

Compensation for the key management members

The Company considers registered directors who have substantial role and responsibility in planning, operating, and controlling of the business as key management members. The compensation given to such key management members for the three and six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)	2016				2015
	Three-month period ended June 30		Six-month period ended June 30		Three-month period ended June 30		Six-month period ended June 30
Salaries	W	221		1,201		203		1,560
Defined benefits plan expenses		47		328		421		542

	W	268		1,529		624		2,102

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

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

28.

Transactions with Related Parties, Continued

(3)

Transactions with related parties for the three and six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)		2016
		Operating revenue and others				Operating expenses and others				Acquisition of property and equipment				Loans				Collection of loans
Scope	Company	Three- month period ended June 30		Six- month period ended June 30		Three- month period ended June 30		Six- month period ended June 30		Three- month period ended June 30		Six- month period ended June 30		Three- month period ended June 30		Six- month period ended June 30		Three- month period ended June 30		Six- month period ended June 30

Ultimate Controlling Entity	SK Holdings Co., Ltd.(*1)	W	3,024		5,717		101,874		370,646		7,008		12,996		—		—		—		—

Subsidiaries	SK Broadband Co., Ltd.		30,369		61,453		132,536		253,581		7,099		7,099		—		—		—		—

	PS&Marketing Corporation(*5)		2,396		5,632		378,720		756,953		349		355		—		—		—		—

	Network O&S Co., Ltd.		1,756		3,110		37,146		92,569		1,875		2,819		—		—		—		—

	SK Planet Co., Ltd.		8,213		18,438		11,478		115,465		—		331		—		—		—		—

	SK Telink Co., Ltd.(*2)		16,374		34,202		5,649		10,856		—		—		—		—		—		—

	Service Ace Co., Ltd.		1,950		3,887		33,284		67,899		—		—		—		—		—		—

	Service Top Co., Ltd.		2,168		4,384		36,159		73,278		—		—		—		—		—		—

	SK techx Co., Ltd		379		428		53,493		70,401		1,769		2,598		—		—		—		—

	Others		5,159		7,998		12,143		24,466		678		851		—		—		—		—

			68,764		139,532		700,608		1,465,468		11,770		14,053		—		—		—		—

Associates	F&U Credit information Co., Ltd.		410		808		8,357		20,416		—		—		—		—		—		—

	HappyNarae Co., Ltd.		18		37		2,545		3,587		3,472		3,870		—		—		—		—

	SK hynix Inc.(*3)		6,053		80,673		179		187		—		—		—		—		—		—

	SK Wyverns Baseball Club Co., Ltd.		285		568		10		14,310		—		—		—		—		—		—

	KEB HanaCard Co., Ltd.		4,994		9,999		4,668		7,479		—		—		—		—		—		—

	Others(*4)		6,082		6,082		420		1,785		43		43		1,100		1,100		1,700		1,700

			17,842		98,167		16,179		47,764		3,515		3,913		1,100		1,100		1,700		1,700

Other	SK Engineering & Construction Co., Ltd.		1,528		2,309		396		831		645		645		—		—		—		—

	SK Networks Co., Ltd.		1,291		2,540		4,319		8,215		—		—		—		—		—		—
	SK Networks service Co., Ltd.		272		496		11,228		23,070		493		532		—		—		—		—

	SK Telesys Co., Ltd.		32		47		1,774		3,760		6,321		24,131		—		—		—		—

	SK TNS Co., Ltd.		24		42		10,515		10,515		57,865		57,865		—		—		—		—

	Others		4,998		9,181		414		9,893		1,443		2,141		—		—		—		—


			8,145		14,615		28,646		56,284		66,767		85,314		—		—		—		—

Total		W	97,775		258,031		847,307		1,940,162		89,060		116,276		1,100		1,100		1,700		1700

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

28.

Transactions with Related Parties, Continued

(3)

Transactions with related parties for the three and six-month periods ended June 30, 2016 and 2015 are as follows, Continued:

(*1)	Operating expenses and others include W183,271 million of dividends paid by the Company.

(*2)	Operating revenue and others include W2,489 million of dividends received.

(*3)	Operating revenue and others include W73,050 million of dividends received.

(*4)	Operating revenue and others include W6,082 million of dividends received from Korea IT Fund.

(*5)	Operating expenses and others include W394,693 million paid to PS&Marketing Corporation relating to purchase of accounts receivables from the sale of handsets.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

28.

Transactions with Related Parties, Continued

(3)

Transactions with related parties for the three and six-month periods ended June 30, 2016 and 2015 are as follows, Continued:


(In millions of won)		2015
		Operating revenue and others				Operating expense and others				Acquisition of property and equipment				Loans
Scope	Company	Three- month period ended June 30		Six- month period ended June 30		Three- month period ended June 30		Six- month period ended June 30		Three- month period ended June 30		Six- month period ended June 30		Three- month period ended June 30		Six- month period ended June 30
Ultimate Controlling Entity	SK Holdings Co., Ltd.(*1,4)	W	206		347		6,847		184,576		—		—		—		—
Subsidiaries	SK Broadband Co., Ltd.		38,684		64,378		133,507		260,899		1,977		2,000		—		—
	PS&Marketing Corporation		2,995		5,621		170,365		416,028		249		315		—		—
	Network O&S Co., Ltd.		656		1,559		47,674		79,673		—		—		—		—
	SK Planet Co., Ltd.		16,013		27,183		134,795		266,743		1,640		1,720		—		—
	SK Telink Co., Ltd.		16,242		30,296		5,575		13,507		—		—		—		—
	Service Ace Co., Ltd.		1,907		3,805		35,472		75,406		—		—		—		—
	Service Top Co., Ltd.		2,138		4,121		39,238		78,122		—		—		—		—
	Others		3,206		6,235		7,149		15,040		72		150		—		—

			81,841		143,198		573,775		1,205,418		3,938		4,185		—		—

Associates	F&U Credit information Co., Ltd.		404		853		9,205		20,718		—		—		—		—
	HappyNarae Co., Ltd.		16		34		1,340		1,755		2,323		2,643		—		—
	SK hynix Inc.(*2)		1,610		48,198		2,194		2,199		—		—		—		—
	SK Wyverns Baseball Club Co., Ltd.		279		561		1,302		10,908		—		—		—		—
	KEB HanaCard Co., Ltd.		5,418		10,850		2,837		8,223		—		—		—		—
	Others(*3)		2,429		2,544		1,715		3,437		11		11		—		500

			10,156		63,040		18,593		47,240		2,334		2,654		—		500

Other	SK Engineering & Construction Co., Ltd.		764		4,138		7,594		8,590		56,071		83,615		—		—
	SK C&C Co., Ltd.(*4)		806		2,026		63,560		121,686		34,720		63,442		—		—
	SK Networks Co., Ltd.		3,506		4,446		4,368		8,276		—		—		—		—
	SK Networks service Co., Ltd.		2,433		4,731		14,282		17,160		423		427		—		—
	SK Telesys Co., Ltd.		46		95		1,639		3,854		8,830		47,948		—		—
	Others		3,785		6,331		6,898		12,734		1,575		1,882		—		—

			11,340		21,767		98,341		172,300		101,619		197,314		—		—

Total		W	103,543		228,352		697,556		1,609,534		107,891		204,153		—		500

(*1)	Operating expense and others include W171,053 million of dividends paid by the Company.

(*2)	Operating revenue and others include W43,830 million of dividends received from SK hynix Inc.

(*3)	Operating revenue and others include W2,103 million and W227 million of dividends received from Korea IT Fund and UniSK, respectively.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

28.

Transactions with Related Parties, Continued

(3)

Transactions with related parties for the three and six-month periods ended June 30, 2016 and 2015 are as follows, Continued:

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

(4)

Account balances as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won)		June 30, 2016
		Accounts receivable				Accounts payable
Scope	Company	Loans		Accounts receivable - trade and others		Accounts payable – trade and others
Ultimate Controlling Entity	SK Holdings Co., Ltd.	W	—		3,495		37,031
Subsidiaries	SK Broadband Co., Ltd.		—		2,000		10,526
	PS&Marketing Corporation		—		1,195		116,802
	Network O&S Co., Ltd.		—		1,248		24,937
	SK Planet Co., Ltd.		—		6,185		26,493
	SK Telink Co., Ltd.		—		10,791		3,667
	Service Ace Co., Ltd.		—		—		19,912
	Service Top Co., Ltd.		—		10		21,421
	SK techx Co., Ltd		—		26		9,732
	One Store Co., Ltd		—		—		16,830
	Others(*)		—		10,123		22,149

			—		31,578		272,469

Associates	HappyNarae Co., Ltd.		—		—		2,367
	SK hynix Inc.		—		4,906		183
	SK Wyverns Baseball Club Co., Ltd.		1,017		10		21
	Wave City Development Co., Ltd.		1,290		38,412		—
	Daehan Kanggun BcN Co., Ltd.		22,147		7,791		—
	KEB HanaCard Co., Ltd.		—		1,639		2,199
	Others		—		16		1,726

			24,454		52,774		6,496

Other	SK Engineering and Construction Co., Ltd.		—		1,272		208
	SK Networks Co., Ltd.		—		670		1,951
	SK Networks Services Co., Ltd.		—		—		4,027
	SK Telesys Co., Ltd.		—		22		7,003
	SK Innovation Co., Ltd.		—		1,427		526
	SK TNS Co., Ltd.		—		—		14,597
	Others		—		2,001		8,937

			—		5,392		37,249

		W	24,454		93,239		353,245

(*)	The convertible bonds amounting to W6,695 million are included in accounts receivable - trade and others.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

28.

Transactions with Related Parties, Continued

(4)

Account balances as of June 30, 2016 and December 31, 2015 are as follows, Continued:


(In millions of won)		December 31, 2015
		Accounts receivable				Accounts payable
Scope	Company	Loans		Accounts receivable - trade and others		Accounts payable – trade and others
Ultimate Controlling Entity	SK Holdings Co., Ltd. (formerly, SK C&C Co., Ltd.)(*)	W	—		1,100		107,995
Subsidiaries	SK Broadband Co., Ltd.		—		2,160		24,847
	PS&Marketing Corporation		—		614		62,592
	Network O&S Co., Ltd.		—		665		33,658
	SK Planet Co., Ltd.		—		6,722		36,874
	SK Telink Co., Ltd.		—		10,026		3,068
	Service Ace Co., Ltd.		—		—		20,684
	Service Top Co., Ltd.		—		63		21,772
	Others		—		4,722		17,116

			—		24,972		220,611

Associates	HappyNarae Co., Ltd.		—		—		4,987
	SK hynix Inc.		—		4,360		155
	SK Wyverns Baseball Club Co., Ltd.		1,017		4,502		—
	Wave City Development Co., Ltd.		1,890		38,412		—
	Daehan Kanggun BcN Co., Ltd.		22,147		—		—
	KEB HanaCard Co., Ltd.		—		1,771		7,262
	Others		—		74		1,838

			25,054		49,119		14,242

Other	SK Engineering and Construction Co., Ltd.		—		648		14,877
	SK Networks Co., Ltd.		—		656		924
	SK Networks Services Co., Ltd.		—		—		8,963
	SK Telesys Co., Ltd.		—		117		3,585
	SK Innovation Co., Ltd.		—		2,133		292
	Others		—		2,581		39,193

			—		6,135		67,834

		W	25,054		81,326		410,682

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

(5)

The Company made an additional investments in associates and joint ventures during the six-month period ended June 30, 2016 as presented in Note 7.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

29.

Sale and Leaseback

For the year ended December 31, 2012, the Company disposed a portion of its property and equipment and investment property, and entered into lease agreements with respect to those assets. These sale and leaseback transactions were accounted for as an operating leases.

The Company recognized lease payment of W7,382 million and W7,270 million, respectively, in relation to the operating lease agreements and lease revenue of W4,534 million and W4,770 million, respectively, in relation to sublease agreements for the six-month periods ended June 30, 2016 and 2015. Future lease payments and revenue from the operating lease agreements and sublease agreements are as follows:


(In millions of won)	Lease payments		Revenue
Less than 1 year	W	15,200		9,105
1~5 years		52,894		26,529
More than 5 years		20,768		9,419

	W	88,862		45,053

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

30.

Statements of Cash Flows

(1)

Adjustments for income and expenses from operating activities for the six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)	For the six-month period ended
	June 30, 2016			June 30, 2015
Interest income	W	(12,218	)		(11,160	)
Gain on disposal of accounts receivable - trade		(7,855	)		—
Dividends		(96,433	)		(56,731	)
Gain on foreign currency translation		(111	)		(1,098	)
Gain relating to financial liabilities at fair value through profit or loss		(177	)		(5,188	)
Gain on disposal of long-term investment securities		(1,751	)		(2,828	)
Gain on disposal of property and equipment and intangible assets		(870	)		(937	)
Gain on valuation of derivatives		(3,684	)		(1,030	)
Other income		(567	)		—
Loss on foreign currency translation		340			25
Bad debt for accounts receivable - trade		11,724			23,612
Bad debt for accounts receivable - other		3,413			4,085
Loss related to Investments in associates and joint ventures		47,618			—
Loss on disposal of long-term investments securities		44			2
Loss relating to financial assets at fair value through profit or loss		378			689
Other finance costs		815			32
Depreciation and amortization		1,146,728			1,113,981
Loss on disposal of property and equipment and intangible assets		9,970			2,056
Interest expenses		116,707			121,132
Loss relating to financial liabilities at fair value through profit or loss		—			174
Loss on settlement of derivatives		319			4,517
Retirement benefit expenses		18,505			17,826
Income tax expense		179,780			170,359
Other expenses		11,098			4,028

	W	1,423,773			1,383,546

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

30.

Statements of Cash Flows, Continued

(2)

Changes in assets and liabilities from operating activities for the six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)	For the six-month period ended
	June 30, 2016			June 30, 2015
Accounts receivable – trade	W	4,334			(61,178	)
Accounts receivable – other		(431,081	)		2,495
Advance payments		7,770			(32,173	)
Prepaid expenses		2,257			3,561
Inventories		7,297			(11,100	)
Long-term receivables - other		(45,498	)		—
Long-term prepaid expenses		1,110			(1,296	)
Guarantee deposits		1,168			(8,397	)
Accounts payable – other		247,598			(95,177	)
Advanced receipts		17,156			16,966
Withholdings		22,100			(161,073	)
Deposits received		2,172			(7,164	)
Accrued expenses		711			(189,574	)
Unearned revenue		(9,368	)		(58,743	)
Provisions		(946	)		(11,476	)
Long-term provisions		—			(9,393	)
Plan assets		(7,650	)		(5,357	)
Retirement benefit payment		(3,755	)		(20,266	)
Others		(72	)		1,358

	W	(184,697	)		(647,987	)

(3)

Significant non-cash transactions for the six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)	For the six-month period ended
	June 30, 2016		June 30, 2015
Decrease of accounts payable - other related to acquisition of property and equipment and intangible assets	W	216,612		142,839

31.

Commitments

(1)

Accounts receivables from the sale of handsets

The agents of the Company sell handsets to our subscribers on an installment basis. During the six-month period ended June 30, 2016, the Company entered into comprehensive agreement to purchase the accounts receivables from the handset sales with agents and to transfer the accounts receivables from the handset sales to a Special Purpose Company, respectively.

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

The accounts receivables from the sale of handsets amounting to W460,802 million as of June 30, 2016, which the Company purchased according to the relevant comprehensive agreement are recognized as accounts receivable – other.

(2)

Frequency usage rights

During the six-month period ended June 30, 2016, the Company secured bandwidth blocs in the 2.6 GHz band for W1,330,100 million at the spectrum auction held by the Ministry of Science, ICT and Future Planning (MSIP) of Korea. The consideration will be paid on an annual installment basis for 10 years from August 2016 with the Company acquiring ownership of the frequency usage rights on the first payment of installments.

32.

Interim dividends

On July 28, 2016, the Board of Directors of the Company resolved to pay interim cash dividends of W1,000 per share totaling W70,609 million (market dividend rate: 0.48%). The ex-dividend date was June 30, 2016 and the interim dividends are expected to be paid within twenty days after the date of the Board of Directors’ resolution.

SK TELECOM CO., LTD. AND SUBSIDIARIES

Condensed Consolidated Interim Financial Statements

(Unaudited)

June 30, 2016 and 2015

(With Independent Auditors’ Review Report Thereon)

Contents


	Page

Independent Auditors’ Review Report		1

Condensed Consolidated Statements of Financial Position		3

Condensed Consolidated Statements of Income		5

Condensed Consolidated Statements of Comprehensive Income		6

Condensed Consolidated Statements of Changes in Equity		7

Condensed Consolidated Statements of Cash Flows		8

Notes to the Condensed Consolidated Interim Financial Statements		10

Independent Auditors’ Review Report

Based on a report originally issued in Korean

To The Board of Directors and Shareholders

SK Telecom Co., Ltd.:

Reviewed financial statements

We have reviewed the accompanying condensed consolidated interim financial statements of SK Telecom Co., Ltd. and its subsidiaries (the “Group”), which comprise the condensed consolidated statement of financial position as of June 30, 2016, the related condensed consolidated statements of income and comprehensive income for the three and six-month periods ended June 30, 2016 and 2015, the condensed consolidated statements of changes in equity and cash flows for the six-month periods ended June 30, 2016 and 2015, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management’s responsibility

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

Auditors’ responsibility

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

Conclusion

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

Other matters

The consolidated statement of financial position of the Group as of December 31, 2015, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended, which are not accompanying this report, were audited by us in accordance with Korean Standards on Auditing and our report thereon, dated February 23, 2016, expressed an unqualified opinion. The accompanying condensed consolidated statement of financial position of the Group as of December 31, 2015, presented for comparative purposes, is consistent, in all material respects, with the audited consolidated financial statements from which it has been derived.

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

KPMG Samjong Accounting Corp.

Seoul, Korea

August 5, 2016

This report is effective as of August 5, 2016, the review report date. Certain subsequent events or circumstances, which may occur between the review report date and the time of reading this report, could have a material impact on the accompanying condensed consolidated interim financial statements and notes thereto. Accordingly, the readers of the review report should understand that the above review report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

SK TELECOM CO., LTD. and Subsidiaries

Condensed Consolidated Statements of Financial Position

As of June 30, 2016 and December 31, 2015


(In millions of won)	*Note*		June 30, 2016		December 31, 2015

Assets:
Current Assets:
Cash and cash equivalents		32,33	W	1,099,561		768,922
Short-term financial instruments		5,32,33,35		585,160		691,090
Short-term investment securities		8,32,33		346,694		92,262
Accounts receivable – trade, net		6,32,33,34		2,199,983		2,344,867
Short-term loans, net		6,32,33,34		66,187		53,895
Accounts receivable – other, net		6,32,33,34,35		1,273,406		673,739
Prepaid expenses				156,581		151,978
Inventories, net		7		270,871		273,556
Advanced payments and other		6,8,32,33		101,262		109,933
Assets classified as held for sale		9		18,860		—

Total Current Assets				6,118,565		5,160,242


Non-Current Assets:
Long-term financial instruments		5,32,33,35		10,598		10,623
Long-term investment securities		8,32,33		1,046,661		1,207,226
Investments in associates and joint ventures		11		6,929,114		6,896,293
Property and equipment, net		12,34,35		9,716,070		10,371,256
Investment property, net		13		8,246		15,071
Goodwill		14		1,912,065		1,908,590
Intangible assets, net		15		2,070,189		2,304,784
Long-term loans, net		6,32,33,34		61,572		62,454
Long-term accounts receivable - other		6,32,33,35		47,983		2,420
Long-term prepaid expenses		35		80,250		76,034
Guarantee deposits		6,32,33,34		298,232		297,281
Long-term derivative financial assets		21,32,33		150,839		166,399
Deferred tax assets		30		18,558		17,257
Other non-current assets		6,32,33		60,448		85,457

Total Non-Current Assets				22,410,825		23,421,145


Total Assets			W	28,529,390		28,581,387

See accompanying notes to the condensed consolidated interim financial statements.

SK TELECOM CO., LTD. and Subsidiaries

Condensed Consolidated Statements of Financial Position, Continued

As of June 30, 2016 and December 31, 2015


(In millions of won)	*Note*		June 30, 2016			December 31, 2015

Liabilities and Shareholders’ Equity:
Current Liabilities:
Short-term borrowings		16,32,33	W	85,000			260,000
Current installments of long-term debt, net		16,32,33		895,620			703,087
Current installments of finance lease liabilities		32,33		—			26
Current installments of long-term payables – other		17,32,33		116,079			120,185
Accounts payable - trade		32,33,34		251,106			279,782
Accounts payable - other		32,33,34		1,141,810			1,323,434
Withholdings		32,33		955,840			865,327
Accrued expenses		32,33		1,028,226			920,739
Income tax payable		30		341,036			381,794
Unearned revenue				205,779			224,233
Derivative financial liabilities		21,32,33		15,370			—
Provisions		18		36,025			40,988
Receipts in advance				148,051			136,844
Other current liabilities				55			54

Total Current Liabilities				5,219,997			5,256,493


Non-Current Liabilities:
Debentures, excluding current installments, net		16,32,33		6,567,440			6,439,147
Long-term borrowings, excluding current installments, net		16,32,33		104,556			121,553
Long-term payables – other		17,32,33		471,828			581,697
Long-term unearned revenue				2,717			2,842
Defined benefit liabilities		20		149,376			98,856
Long-term derivative financial liabilities		21,32,33		71,088			89,296
Long-term provisions		18		37,023			29,217
Deferred tax liabilities		30		492,058			538,114
Other non-current liabilities		32,33		45,814			50,076

Total Non-Current Liabilities				7,941,900			7,950,798


Total Liabilities				13,161,897			13,207,291


Shareholders’ Equity
Share capital		1,22		44,639			44,639
Capital surplus and others		22,23,24		191,684			189,510
Retained earnings		25		15,214,203			15,007,627
Reserves		26		(232,405	)		9,303

Equity attributable to owners of the Parent Company				15,218,121			15,251,079
Non-controlling interests				149,372			123,017

Total Shareholders’ Equity				15,367,493			15,374,096


Total Liabilities and Shareholders’ Equity			W	28,529,390			28,581,387

See accompanying notes to the condensed consolidated interim financial statements.

SK TELECOM CO., LTD. and Subsidiaries

Condensed Consolidated Statements of Income

For the three and six-month periods ended June 30, 2016 and 2015


(In millions of won except for per share data)			June 30, 2016						June 30, 2015
	*Note*		Three-month period ended			Six-month period ended			Three-month period ended			Six-month period ended

Operating revenue:		4,34
Revenue			W	4,267,289			8,495,752			4,255,739			8,496,025

Operating expenses:		34
Labor				465,712			942,586			543,881			1,018,862
Commissions				1,327,035			2,650,479			1,262,168			2,609,298
Depreciation and amortization		4		721,250			1,436,602			703,859			1,396,447
Network interconnection				255,485			519,356			239,857			474,109
Leased line				108,919			210,971			93,393			196,390
Advertising				108,071			195,579			120,452			197,438
Rent				130,777			258,801			117,037			239,488
Cost of products that have been resold				451,586			878,180			449,918			940,850
Others		27		291,090			593,707			312,296			607,617

				3,859,925			7,686,261			3,842,861			7,680,499


Operating income		4		407,364			809,491			412,878			815,526

Finance income		4,29		22,210			376,404			29,053			61,302
Finance costs		4,29		(74,340	)		(151,938	)		(89,690	)		(171,040	)
Gains relating to investments in subsidiaries, associates and joint ventures, net		1,4,11		41,899			116,808			208,066			452,323
Other non-operating income		4,28		9,625			41,324			7,176			15,363
Other non-operating expenses		4,28		(42,008	)		(91,215	)		(51,891	)		(97,869	)

Profit before income tax		4		364,750			1,100,874			515,592			1,075,605

Income tax expense		30		73,760			237,586			117,704			234,970

Profit for the period			W	290,990			863,288			397,888			840,635

Attributable to:
Owners of the Parent Company			W	290,135			861,982			395,839			840,334
Non-controlling interests				855			1,306			2,049			301

Earnings per share		31
Basic and diluted earnings per share (in won)			W	3,990			12,089			5,432			11,695

See accompanying notes to the condensed consolidated interim financial statements

SK TELECOM CO., LTD. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

For the three and six-month periods ended June 30, 2016 and 2015


(In millions of won)			June 30, 2016						June 30, 2015
	*Note*		Three-month period ended			Six-month period ended			Three-month period ended			Six-month period ended

Profit for the period			W	290,990			863,288			397,888			840,635

Other comprehensive income (loss)
Items that will never be reclassified to profit or loss, net of taxes:
Remeasurement of defined benefit liabilities		20		(9,025	)		(11,636	)		5,527			(3,092	)
Items that are or may be reclassified subsequently to profit or loss, net of taxes:
Net change in unrealized fair value of available-for-sale financial assets		26		(39,172	)		(190,549	)		71,167			53,048
Net change in other comprehensive income of investments in associates and joint ventures		26		(24,475	)		(31,154	)		23,435			27,880
Net change in unrealized fair value of derivatives		21,26		5,460			(5,929	)		(32,321	)		(20,673	)
Foreign currency translations differences for foreign operations		26		6,250			(13,889	)		8,288			9,419

Other comprehensive income (loss) for the period, net of taxes				(60,962	)		(253,157	)		76,096			66,582

Total comprehensive income			W	230,028			610,131			473,984			907,217


Total comprehensive income attributable to:
Owners of the Parent Company			W	229,285			608,770			469,790			904,733
Non-controlling interests				743			1,361			4,194			2,484

See accompanying notes to the condensed consolidated interim financial statements.

SK TELECOM CO., LTD. and Subsidiaries

Condensed Consolidated Statements of Changes in Equity

For the six-month periods ended June 30, 2016 and 2015


(In millions of won)
	Controlling Interest														Non- controlling interests			Total equity
	Share capital		Capital surplus (deficit) and others			Retained earnings			Reserves			Sub-total			Non- controlling interests			Total equity
Balance at January 1, 2015	W	44,639		277,998			14,188,591			(4,489	)		14,506,739			741,531			15,248,270
Total comprehensive income:
Profit for the period		—		—			840,334			—			840,334			301			840,635
Other comprehensive income (loss)		—		—			(2,765	)		67,164			64,399			2,183			66,582

		—		—			837,569			67,164			904,733			2,484			907,217

Transactions with owners:
Cash dividends		—		—			(595,865	)		—			(595,865	)		(143	)		(596,008	)
Interest on hybrid bond		—		—			(8,420	)		—			(8,420	)		—			(8,420	)
Treasury stocks		—		412,072			—			—			412,072			—			412,072
Changes in consolidation scope		—		—			—			—			—			(5,226	)		(5,226	)
Changes in ownership in subsidiaries		—		(27,615	)		(832	)		(3,286	)		(31,733	)		(608,585	)		(640,318	)

				384,457			(605,117	)		(3,286	)		(223,946	)		(613,954	)		(837,900	)

Balance at June 30, 2015	W	44,639		662,455			14,421,043			59,389			15,187,526			130,061			15,317,587


Balance at January 1, 2016	W	44,639		189,510			15,007,627			9,303			15,251,079			123,017			15,374,096
Total comprehensive income:
Profit for the period		—		—			861,982			—			861,982			1,306			863,288
Other comprehensive income (loss)		—		—			(11,504	)		(241,708	)		(253,212	)		55			(253,157	)

		—		—			850,478			(241,708	)		608,770			1,361			610,131

Transactions with owners:
Cash dividends		—		—			(635,482	)		—			(635,482	)		(300	)		(635,782	)
Interest on hybrid bond		—		—			(8,420	)		—			(8,420	)		—			(8,420	)
Changes in ownership in subsidiaries		—		2,174			—			—			2,174			25,294			27,468

		—		2,174			(643,902	)		—			(641,728	)		24,994			(616,734	)

Balance at June 30, 2016	W	44,639		191,684			15,214,203			(232,405	)		15,218,121			149,372			15,367,493

See accompanying notes to the condensed consolidated interim financial statements.

SK TELECOM CO., LTD. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

For the six-month periods ended June 30, 2016 and 2015


(In millions of won)	*Note*		June 30, 2016			June 30, 2015

Cash flows from operating activities:
Cash generated from operating activities:
Profit for the period			W	863,288			840,635
Adjustments for income and expenses		36		1,525,247			1,479,292
Changes in assets and liabilities related to operating activities		36		(306,453	)		(786,942	)

Sub-total				2,082,082			1,532,985
Interest received				23,107			25,052
Dividends received				93,948			59,349
Interest paid				(131,354	)		(137,412	)
Income tax paid				(245,488	)		(65,923	)

Net cash provided by operating activities				1,822,295			1,414,051


Cash flows from investing activities:
Cash inflows from investing activities:
Decrease in short-term financial instruments, net				145,880			27,448
Collection of short-term loans				90,162			203,599
Decrease in long-term financial instruments				27			3
Proceeds from disposal of long-term investment securities				225,531			116,256
Proceeds from disposal of investments in associates and joint ventures				10,769			176,037
Proceeds from disposal of property and equipment				8,878			13,772
Proceeds from disposal of intangible assets				5,666			1,101
Proceeds from disposal of assets held for sale				—			990
Collection of long-term loans				708			1,501
Decrease in deposits				12,823			10,618
Proceeds from disposal of other non-current assets				—			2,548
Increase in cash due to acquisition of subsidiaries				—			10,148

Sub-total				500,444			564,021
Cash outflows for investing activities:
Increase in short-term investment securities, net				(297,150	)		(69,842	)
Increase in short-term loans				(102,342	)		(155,582	)
Increase in long-term loans				(2,667	)		(10,583	)
Increase in long-term financial instruments				(197	)		(5	)
Acquisition of long-term investment securities				(20,093	)		(232,887	)
Acquisition of investments in associates and joint ventures				(55,462	)		(20,570	)
Acquisition of property and equipment				(842,174	)		(1,103,196	)
Acquisition of intangible assets				(45,862	)		(39,935	)
Increase in deposits				(11,173	)		(11,037	)
Increase in other non-current assets				—			(436	)
Acquisition of businesses, net of cash acquired				(4,498	)		(13,957	)

Sub-total				(1,381,618	)		(1,658,030	)

Net cash used in investing activities			W	(881,174)			(1,094,009	)

See accompanying notes to the condensed consolidated interim financial statements.

SK TELECOM CO., LTD. and Subsidiaries

Condensed Consolidated Statements of Cash Flows, Continued

For the six-month periods ended June 30, 2016 and 2015


(In millions of won)	June 30, 2016			June 30, 2015

Cash flows from financing activities:
Cash inflows from financing activities:
Proceeds from short-term borrowings, net	W	—			562,700
Proceeds from issuance of debentures		607,474			507,799
Cash inflows from settlement of derivatives		—			189
Cash inflows related to equity interest transactions		24,449			—

Sub-total		631,923			1,070,688
Cash outflows for financing activities:
Decrease in short-term borrowings, net		(175,000	)		—
Repayments of long-term account payables-other		(121,565	)		(190,603	)
Repayments of debentures		(280,000	)		(370,000	)
Repayments of long-term borrowings		(20,464	)		(14,953	)
Cash outflows from settlement of derivatives		—			(474	)
Payments of finance lease liabilities		(26	)		(1,789	)
Payments of dividends		(635,482	)		(595,865	)
Payments of interest on hybrid bond		(8,420	)		(8,420	)
Cash outflows related to equity interest transactions		—			(218,394	)

Sub-total		(1,240,957	)		(1,400,498	)

Net cash used in financing activities		(609,034	)		(329,810	)


Net increase (decrease) in cash and cash equivalents		332,087			(9,768	)
Cash and cash equivalents at beginning of the period		768,922			834,429
Effects of exchange rate changes on cash and cash equivalents		(1,448	)		4,998

Cash and cash equivalents at end of the period	W	1,099,561			829,659

See accompanying notes to the condensed consolidated interim financial statements.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

1.	Reporting Entity

(1)

General

SK Telecom Co., Ltd. (“the Parent Company”) was incorporated in March 1984 under the laws of the Republic of Korea (“Korea”) to provide cellular telephone communication services in Korea. The Parent Company mainly provides wireless telecommunications services in Korea. The Head office of the Parent Company is located at 65, Eulji-ro, Jung-gu, Seoul, Korea.

The Parent Company’s common shares and depositary receipts (DRs) are listed on the Stock Market of Korea Exchange, the New York Stock Exchange and the London Stock Exchange. As of June 30, 2016, the Parent Company’s total issued shares are held by the following shareholders:


	Number of shares		Percentage of total shares issued (%)
SK Holdings Co., Ltd.		20,363,452		25.22
National Pension Service, other institutional investors and other minority stockholders		50,245,708		62.23
Treasury stock		10,136,551		12.55

		80,745,711		100.00

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

(2)

List of subsidiaries

The list of subsidiaries as of June 30, 2016 and December 31, 2015 is as follows:

Ownership (%)

Subsidiary

Location

Primary business

June 30,
2016

December 31,
2015

SK Telink Co., Ltd.

Korea

Telecommunication and MVNO (Mobile Virtual Network Operator) service

83.5

M&Service Co., Ltd.

Korea

Database and internet website service

100.0

SK Communications Co., Ltd.

Korea

Internet website services

64.5

Stonebridge Cinema Fund

Korea

Investment

55.2

Commerce Planet Co., Ltd.(*6)

Korea

Online shopping mall operation agency

—

100.0

SK Broadband Co., Ltd.(*1)

Korea

Telecommunication services

100.0

K-net Culture and Contents Venture Fund

Korea

Investment

59.0

Fitech Focus Limited Partnership II

Korea

Investment

66.7

Open Innovation Fund

Korea

Investment

98.9

PS&Marketing Corporation

Korea

Communications device retail business

100.0

Service Ace Co., Ltd.

Korea

Customer center management service

100.0

Service Top Co., Ltd.

Korea

Customer center management service

100.0

Network O&S Co., Ltd.

Korea

Base station maintenance service

100.0

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

1.	Reporting Entity, Continued

(2)

List of subsidiaries, Continued

The list of subsidiaries as of June 30, 2016 and December 31, 2015 is as follows, Continued:

Ownership (%)

Subsidiary

Location

Primary business

June 30,
2016

December 31,
2015

SK Planet Co., Ltd.

Korea

Telecommunication service

100.0

Neosnetworks Co.,Ltd.(*2)

Korea

Security systems service

83.9

IRIVER LIMITED(*3)

Korea

Manufacturing digital audio players and other portable media devices.

48.9

49.0

iriver Enterprise Ltd.

Hong Kong

Management of Chinese subsidiaries

100.0

iriver America Inc.

USA

Marketing and sales in North America

100.0

iriver Inc.

USA

Marketing and sales in North America

100.0

iriver China Co., Ltd.

China

Sales and manufacturing MP3 and 4 in China

100.0

Dongguan iriver Electronics Co., Ltd.

China

Sales and manufacturing e-book in China

100.0

groovers Japan Co., Ltd.

Japan

Digital music contents sourcing and distribution service

100.0

SK Telecom China Holdings Co., Ltd.

China

Investment

100.0

SK Global Healthcare Business Group., Ltd.

Hong Kong

Investment

100.0

SK Planet Japan, K. K.

Japan

Digital contents sourcing service

100.0

SKT Vietnam PTE. Ltd.

Singapore

Telecommunication service

73.3

SK Planet Global PTE. Ltd.

Singapore

Digital contents sourcing service

100.0

SKP GLOBAL HOLDINGS PTE. LTD.

Singapore

Investment

100.0

SKT Americas, Inc.

USA

Information gathering and consulting

100.0

SKP America LLC.

USA

Digital contents sourcing service

100.0

YTK Investment Ltd.

Cayman

Investment

100.0

Atlas Investment

Cayman

Investment

100.0

SK Telecom Innovation Fund, L.P. (formerly, Technology Innovation Partners, LP.) (*5)

USA

Investment

100.0

SK Telecom China Fund I L.P.

Cayman

Investment

100.0

Entrix Co., Ltd.

Korea

Cloud streaming services

100.0

SK techx Co., Ltd.(*6)

Korea

System software development and supply

100.0

—

One Store Co., Ltd.(*6)

Korea

Telecommunication service

65.5

—

shopkick Management Company, Inc.(*4)

USA

Investment

100.0

95.2

shopkick, Inc.

USA

Mileage-based online transaction application development

100.0

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

1.	Reporting Entity, Continued

(2)

List of subsidiaries, Continued

(*1)

On November 2, 2015, the board of directors of the Parent Company entered into a share purchase agreement to acquire 30%(23,234,060 shares) of the issued and outstanding common shares of CJ Hello Vision Co., Ltd. (“CJ Hello Vision”) from CJ O Shopping Co., Ltd. (“CJ O Shopping”) for an aggregate purchase price of W500,000 million. The agreement states government’s approval as prerequisite.

On November 2, 2015, the board of directors of SK Broadband Co., Ltd. (“SK Broadband”), a subsidiary of the Parent Company, approved the merger of SK Broadband into CJ Hello Vision, and then SK Broadband entered into a merger agreement with CJ Hello Vision with government’s approval as prerequisite.

After the announcement of disapproval of proposed takeover of CJ Hello Vision by the Fair Trade Commission (FTC) on July 18, 2016, the Parent Company announced the revocation of share purchase agreement to CJ O Shopping while SK Broadband withdrew from merger agreement with CJ Hello Vision on July 25, 2016 as execution of the share purchase agreement with CJ O Shopping and merger agreement between SK Broadband and CJ Hello Vision became objectively impossible.

(*2)	Due to the shareholders’ agreement which grants put option to the non-controlling shareholders, this entity is consolidated as a wholly owned subsidiary in the consolidated financial statements.

(*3)

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

(*4)	During the six-month period ended June 30, 2016, the Group acquired all of the non-controlling interests in shopkick Management Company, Inc.

(*5)	Changed its name to SK Telecom Innovation Fund, L.P. during the six-month period ended June 30, 2016.

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

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

1.	Reporting Entity, Continued

(3)

Condensed financial information of subsidiaries

Condensed financial information of subsidiaries as of and for the six-month period ended June 30, 2016 is as follows:


(In millions of won)
Subsidiary	Total assets		Total liabilities		Total equity			Revenue		Profit (loss)
SK Telink Co., Ltd.	W	339,484		107,217		232,267			207,436		39,916
M&Service Co., Ltd.		94,720		47,768		46,952			78,598		1,334
SK Communications Co., Ltd.		142,926		31,335		111,591			30,372		(5,908	)
SK Broadband Co., Ltd.		3,341,126		2,208,962		1,132,164			1,422,134		9,013
PS&Marketing Corporation		452,869		243,020		209,849			809,925		634
Service Ace Co., Ltd.		69,407		36,416		32,991			99,194		2,387
Service Top Co., Ltd.		67,195		40,587		26,608			94,106		3,497
Network O&S Co., Ltd.		65,064		32,331		32,733			99,444		3,272
SK Planet Co., Ltd.(*1)		2,065,256		761,070		1,304,186			616,565		189,621
IRIVER LIMITED(*2)		59,290		14,052		45,238			27,462		(3,111	)
SKP America LLC.		410,011		2		410,009			—		1,086
SK techx Co., Ltd.		194,844		40,012		154,832			76,783		20,942
One Store Co., Ltd.		145,400		39,573		105,827			34,529		(8,371	)
shopkick Management Company, Inc.		328,457		—		328,457			—		(87	)
shopkick, Inc.		30,235		33,337		(3,102	)		17,416		(20,863	)

(*1)	The condensed financial information of SK Planet Co., Ltd includes pre-merger income and expenses of Commerce Planet Co., Ltd. prior to the merger date of February 1, 2016.

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

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

1.	Reporting Entity, Continued

(3)

Condensed financial information of subsidiaries, Continued

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


(In millions of won)
Subsidiary	Total assets		Total liabilities		Total equity			Revenue		Profit (loss)
SK Telink Co., Ltd.	W	309,955		113,878		196,077			431,368		55,781
M&Service Co., Ltd.		89,452		42,414		47,038			143,255		5,549
SK Communications Co., Ltd.		152,496		35,014		117,482			80,147		(14,826	)
SK Broadband Co., Ltd.		3,291,707		2,170,484		1,121,223			2,731,344		10,832
PS&Marketing Corporation		509,580		300,364		209,216			1,791,944		4,835
Service Ace Co., Ltd.		65,424		34,240		31,184			206,338		2,778
Service Top Co., Ltd.		61,897		38,482		23,415			197,092		4,396
Network O&S Co., Ltd.		77,426		48,069		29,357			210,676		6,466
SK Planet Co., Ltd.		2,406,988		784,631		1,622,357			1,624,630		(75,111	)
IRIVER LIMITED(*)		60,434		12,377		48,057			55,637		635
SKP America LLC.		380,141		—		380,141			—		791
Entrix Co., Ltd.		30,876		3,186		27,690			4,895		(1,826	)
shopkick Management Company, Inc.		306,248		7		306,241			7		(2,455	)
shopkick, Inc.		25,388		32,243		(6,855	)		35,851		(52,390	)

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

(4)

Changes in subsidiaries

The list of subsidiaries that were newly included in consolidation during the six-month period ended June 30, 2016 is as follows:


Subsidiary		Reason
SK techx Co., Ltd.		Established by spin-off from SK Planet Co., Ltd., a subsidiary of the Parent Company.
One Store Co., Ltd.		Established by spin-off from SK Planet Co., Ltd., a subsidiary of the Parent Company.

The following subsidiary was excluded from the Group during the six-month period ended June 30, 2016:


Subsidiary		Reason
Commerce Planet Co., Ltd.		Merged into SK Planet Co., Ltd., a subsidiary of the Parent Company

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

1.	Reporting Entity, Continued

(5)

The information of significant non-controlling interests of the Group as of and for the six-month period ended June 30, 2016, and as of and for the year ended December 31, 2015 is as follows. There were no dividends paid during the six-month period ended June 30, 2016 and the year ended December 31, 2015 by the subsidiary of which non-controlling interests are significant.


(In millions of won)	SK Communications Co., Ltd.
	June 30, 2016			December 31, 2015
Ownership of non-controlling interests (%)		35.46			35.46

Current assets	W	83,082			95,662
Non-current assets		59,844			56,834
Current liabilities		(29,368	)		(33,306	)
Non-current liabilities		(1,967	)		(1,708	)
Net assets		111,591			117,482
Carrying amount of non-controlling interests		39,567			41,659

Revenue	W	30,372			80,147
Loss for the period		5,908			14,826
Total comprehensive loss		5,891			16,698
Loss attributable to non-controlling interests		2,095			5,254

Net cash used in operating activities	W	(2,916	)		(2,706	)
Net cash provided by investing activities		8,681			8,723
Net cash provided by financing activities		—			—
Net increase in cash and cash equivalents		5,765			6,017

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

2.	Basis of Preparation

(1)

Statement of compliance

These condensed consolidated interim financial statements were prepared in accordance with K-IFRS No. 1034, Interim Financial Reporting, as part of the period covered by the Group’s K-IFRS annual financial statements. Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in financial position and performance of the Group since December 31, 2015. These condensed consolidated interim financial statements do not include all of the disclosures required for full annual financial statements.

(2)

Use of estimates and judgments

1) Critical judgments, assumptions and estimation uncertainties

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

In preparing these condensed consolidated interim financial statements, the significant judgments made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as of and for the year ended December 31, 2015.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

2.	Basis of Preparation, Continued

(2)

Use of estimates and judgments, Continued

2) Fair value measurement

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

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

•

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

•

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

•

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

If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Group recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

Information about assumptions used for fair value measurements are included in Note 33.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

3.	Significant Accounting Policies

The accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group in its consolidated financial statements as of and for the year ended December 31, 2015.

4.	Operating Segments

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

(1)

Details of the segment information as of and for the six-month period ended June 30, 2016 are as follows:


(In millions of won)
	Cellular services		Fixed-line Telecommunication services		Others			Sub-total		Adjustments			Total
Total revenue	W	7,292,918		1,629,570		928,512			9,851,000		(1,355,248	)		8,495,752
Inter-segment revenue		793,473		299,906		261,869			1,355,248		(1,355,248	)		—
External revenue		6,499,445		1,329,664		666,643			8,495,752		—			8,495,752
Depreciation and amortization		1,100,243		272,026		64,333			1,436,602		—			1,436,602
Operating income (loss)		920,427		64,388		(175,324	)		809,491		—			809,491
Finance income and costs, net														224,466
Gain related to investments in associates and joint ventures, net														116,808
Other non-operating income and expenses, net														(49,891	)

Profit before income tax														1,100,874

Total assets		23,836,373		3,680,610		2,865,977			30,382,960		(1,853,570	)		28,529,390
Total liabilities		9,731,374		2,316,179		987,201			13,034,754		127,143			13,161,897

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

4.	Operating Segments, Continued

(2)

Details of the segment information as of and for the six-month period ended June 30, 2015 are as follows:


(In millions of won)
	Cellular Services		Fixed-line Telecommunication services		Others			Sub-total		Adjustments			Total
Total revenue	W	7,469,465		1,533,405		997,767			10,000,637		(1,504,612	)		8,496,025
Inter-segment revenue		847,372		301,176		356,064			1,504,612		(1,504,612	)		—
External revenue		6,622,093		1,232,229		641,703			8,496,025		—			8,496,025
Depreciation and amortization		1,066,285		261,845		68,317			1,396,447		—			1,396,447
Operating income (loss)		815,120		42,805		(42,399	)		815,526		—			815,526
Finance income and costs, net														(109,738	)
Gain related to investments in subsidiaries, associates and joint ventures, net														452,323
Other non-operating income and expense, net														(82,506	)

Profit before income tax														1,075,605

Total assets		23,580,421		3,516,376		3,214,927			30,311,724		(2,270,218	)		28,041,506
Total liabilities		9,483,378		2,242,744		897,624			12,623,746		100,173			12,723,919

Intersegment sales and purchases are conducted on an arms-length basis and eliminated on consolidation. The Group principally operates its businesses in Korea and the revenue amounts earned outside of Korea are immaterial. Therefore, no entity-wide geographical information is presented.

No single customer contributed 10% or more to the Group’s total revenue for the six-month periods ended June 30, 2016 and 2015.

5.	Restricted Deposits

Deposits which are restricted in use as of June 30, 2016 and December 31, 2015 are summarized as follows:


(In millions of won)
	June 30, 2016		December 31, 2015
Short-term financial instruments(*)	W	80,625		82,469
Long-term financial instruments(*)		10,598		10,596

	W	91,223		93,065

(*)	Financial instruments include charitable trust fund established by the Group. Profits from the fund are donated to charitable institutions. As of June 30, 2016, the funds cannot be withdrawn.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

6.	Trade and Other Receivables

(1)

Details of trade and other receivables as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won)	June 30, 2016
	Gross amount		Allowances for doubtful accounts			Carrying amount
Current assets:
Accounts receivable - trade	W	2,451,291		(251,308	)		2,199,983
Short-term loans		66,784		(597	)		66,187
Accounts receivable - other		1,350,104		(76,698	)		1,273,406
Accrued income		12,645		—			12,645
Others		1,887		—			1,887

		3,882,711		(328,603	)		3,554,108
Non-current assets:
Long-term loans		89,066		(27,494	)		61,572
Long-term accounts receivable - other		47,983		—			47,983
Guarantee deposits		298,232		—			298,232
Long-term accounts receivable - trade		28,964		(535	)		28,429

		464,245		(28,029	)		436,216

	W	4,346,956		(356,632	)		3,990,324


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

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

		433,249		(25,851	)		407,398

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

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

6.	Trade and Other Receivables, Continued

(2)

Changes in allowances for doubtful accounts of trade and other receivables during the six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)	For the six-month period ended
	June 30, 2016			June 30, 2015
Balance at January 1	W	344,016			328,191
Increase of bad debt allowances		26,052			39,069
Write-offs		(29,775	)		(38,911	)
Others		16,339			14,250

Balance at June 30	W	356,632			342,599

(3)

Details of overdue but not impaired, and impaired trade and other receivables as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won)	June 30, 2016						December 31, 2015
	Accounts receivable - trade			Other receivables			Accounts receivable - trade			Other receivables
Neither overdue nor impaired	W	1,670,307			1,698,745			1,841,442			1,053,096
Overdue but not impaired		56,908			4,886			77,008			5,155
Impaired		753,040			163,070			711,155			148,673

		2,480,255			1,866,701			2,629,605			1,206,924
Allowance for doubtful accounts		(251,843	)		(104,789	)		(239,495	)		(104,521	)

	W	2,228,412			1,761,912			2,390,110			1,102,403

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

(4)

The aging of overdue but not impaired accounts receivable as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won)
	June 30, 2016				December 31, 2015
	Accounts receivable - trade		Other receivables		Accounts receivable - trade		Other receivables
Less than 1 month	W	22,464		4,060		20,908		2,770
1 ~ 3 months		14,572		2		21,941		924
3 ~ 6 months		2,380		1		7,043		265
More than 6 months		17,492		823		27,116		1,196

	W	56,908		4,886		77,008		5,155

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

7.	Inventories

Details of inventories as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won)
	June 30, 2016							December 31, 2015
	Acquisition cost		Write-down			Carrying amount		Acquisition cost		Write-down			Carrying amount
Merchandise	W	246,014		(3,222	)		242,792		247,294		(5,064	)		242,230
Finished goods		2,174		(171	)		2,003		3,530		(179	)		3,351
Work in process		2,268		(198	)		2,070		1,976		(149	)		1,827
Raw materials and supplies		25,291		(1,285	)		24,006		27,296		(1,148	)		26,148

	W	275,747		(4,876	)		270,871		280,096		(6,540	)		273,556

8.	Investment Securities

(1)

Details of short-term investment securities as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won)
	June 30, 2016		December 31, 2015
Beneficiary certificates(*)	W	346,694		92,262

(*)	The income distributable in relation to beneficiary certificates as of June 30, 2016 were accounted for as accrued income.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

8.	Investment Securities, Continued

(2)

Details of long-term investment securities as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won)
	June 30, 2016		December 31, 2015
Equity securities:
Marketable equity securities(*)	W	726,568		897,958
Unlisted equity securities		103,239		96,899
Equity investments		213,801		207,916

		1,043,608		1,202,773
Debt securities:
Investment bonds		3,053		4,453

	W	1,046,661		1,207,226

(*)	During the six-month period ended June 30, 2016, the Group sold 3,793,756 shares of Loen Entertainment, Inc. to Kakao Corp. and received 1,357,376 shares of Kakao Corp. and W218,037 million of cash in return.

9.	Assets classified as Held for Sale

Pursuant to the disposal plan for the Group’s entire ownership interests in Candle Media Co., Ltd. approved during the six-month period ended June 30, 2016, the investment in the associate was classified as held for sale and was measured at the lower of carrying amount and fair value less cost to sell as of June 30, 2016. The disposal agreement was entered into on July 5, 2016.


(In millions of won)
	June 30, 2016
Candle Media Co., Ltd.	W	18,860

10.

Business Combinations under common control

LBS (Location based service) division and mobile phone verification services business, spun-off from SK Planet Co., Ltd., were acquired by the Parent Company during the six-month period ended June 30, 2016. Since this is considered a business combination of entities under common control, there is no impact on the Group’s consolidated financial statements.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

11.

Investments in Associates and Joint Ventures

(1)

Investments in associates and joint ventures accounted for using the equity method as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won)			June 30, 2016				December 31, 2015
	Country		Ownership percentage		Carrying amount		Ownership percentage		Carrying amount
Investments in associates:
SK China Company Ltd.(*1)		China		9.6	W	45,037		9.6	W	43,814
Korea IT Fund(*2)		Korea		63.3		256,428		63.3		260,456
KEB HanaCard Co., Ltd.(*1)		Korea		15.0		260,082		15.0		254,177
Candle Media Co., Ltd.(*3)		Korea		—		—		35.1		20,144
NanoEnTek, Inc.		Korea		28.5		41,130		28.6		45,008
SK Industrial Development China Co., Ltd.		Hongkong		21.0		75,933		21.0		86,324
SK Technology Innovation Company		Cayman		49.0		45,694		49.0		45,891
HappyNarae Co., Ltd.		Korea		42.5		15,444		42.5		17,095
SK hynix Inc.		Korea		20.1		5,670,060		20.1		5,624,493
SK MENA Investment B.V.		Netherlands		32.1		14,860		32.1		14,929
SKY Property Mgmt. Ltd.		Virgin Island		33.0		265,606		33.0		251,166
Xinan Tianlong Science and Technology Co., Ltd.		China		49.0		25,609		49.0		25,767
Daehan Kanggun BcN Co., Ltd. and others		—		—		151,317		—		161,058

Sub-total						6,867,200				6,850,322

Investments in joint ventures:
Dogus Planet, Inc.(*4)		Turkey		50.0		17,764		50.0		15,118
PT. Melon Indonesia		Indonesia		49.0		4,949		49.0		4,339
Celcom Planet(*2,4)		Malaysia		51.0		894		51.0		3,406
PT XL Planet Digital(*4)		Indonesia		50.0		38,307		50.0		23,108

Sub-total						61,914				45,971

Total					W	6,929,114			W	6,896,293

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

11.

Investments in Associates and Joint Ventures, Continued

(1)

Investments in associates and joint ventures accounted for using the equity method as of June 30, 2016 and December 31, 2015 are as follows, Continued:

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

(*2)	Classified as investment in associates as the Group does not have control over investments under the agreement.

(*3)	During the six-month periods ended June 30, 2016, the Group reclassified its investments in Candle Media Co., Ltd. to assets classified as held for sale.

(*4)	The carrying amount has been increased due to additional investment during the six-month period ended June 30, 2016. There was no change in ownership interests after additional investment.

(2)

The market price of investments in listed associates as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won, except for share data)
	June 30, 2016						December 31, 2015
	Market value per share (In won)		Number of shares		Market price		Market value per share (In won)		Number of shares		Market price
NanoEnTek, Inc.	W	5,990		6,960,445		41,693		7,300		6,960,445		50,811
SK hynix Inc.		32,400		146,100,000		4,733,640		30,750		146,100,000		4,492,575

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

11.

Investments in Associates and Joint Ventures, Continued

(3)

The financial information of the significant investees as of and for the six-month period ended June 30, 2016 and as of and for the year ended December 31, 2015 are as follows:


(In millions of won)	As of and for the six-month period ended June 30, 2016
	SK hynix Inc.			KEB HanaCard Co., Ltd.			SKY Property Mgmt. Ltd.			Korea IT Fund
Current assets	W	8,356,317			6,390,044			260,170			154,034
Non-current assets		20,973,135			378,445			470,589			250,853
Current liabilities		3,163,858			1,141,130			97,011			—
Non-current liabilities		4,464,772			4,252,566			45,169			—
Revenue		7,596,644			690,950			35,697			15,413
Profit for the period		730,334			38,775			49,497			11,750
Other comprehensive loss		(67,037	)		(708	)		(5,293	)		(8,506	)
Total comprehensive income		663,297			38,067			44,204			3,244


(In millions of won)	As of and for the year ended December 31, 2015
	SK hynix Inc.		KEB HanaCard Co., Ltd.			SKY Property Mgmt. Ltd.			Korea IT Fund
Current assets	W	9,760,030		6,228,076			176,517			152,070
Non-current assets		19,917,876		509,579			650,661			259,176
Current liabilities		4,840,698		1,103,873			242,002			—
Non-current liabilities		3,449,505		4,297,289			39,154			—
Revenue		18,797,998		1,472,830			89,161			30,875
Profit for the period		4,323,595		10,119			19,722			21,655
Other comprehensive income (loss)		40,215		(547	)		(11,872	)		15,651
Total comprehensive income		4,363,810		9,572			7,850			37,306

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

11.

Investments in Associates and Joint Ventures, Continued

(4)

The condensed financial information of joint ventures as of and for the six-month period ended June 30, 2016 and as of and for the year ended December 31, 2015 are as follows:


(In millions of won)	As of and for the six-month period ended June 30, 2016
	Dogus Planet, Inc.			PT. Melon Indonesia			PT XL Planet Digital			Celcom Planet
Current assets	W	46,543			14,695			44,663			11,816
Cash and cash equivalents		44,520			5,532			40,086			9,360
Non-current assets		17,474			1,951			46,304			2,664
Current liabilities		28,404			6,385			13,330			12,727
Accounts payable, other payables and provision		4,333			2,854			6,878			7,762
Non-current liabilities		85			110			1,022			—
Revenue		28,490			12,744			4,751			2,608
Depreciation and amortization		(2,799	)		(67	)		(1,306	)		(1,078	)
Interest income		2,617			100			101			135
Interest expense		(1,872	)		—			—			—
Income tax benefit		—			—			618			—
Profit (loss) for the period		(11,726	)		870			(24,744	)		(22,255	)
Total comprehensive income(loss)		(11,726	)		870			(24,744	)		(22,255	)

(In millions of won)	As of and for the year ended December 31, 2015
	Dogus Planet, Inc.			PT. Melon Indonesia			PT XL Planet Digital			Celcom Planet
Current assets	W	46,248			12,805			9,500			21,416
Cash and cash equivalents		8,091			4,027			5,034			19,371
Non-current assets		18,088			2,657			46,013			5,519
Current liabilities		34,022			6,416			8,583			20,257
Accounts payable, other payables and provision		4,317			3,396			3,648			5,889
Non-current liabilities		78			140			714			—
Revenue		38,944			17,094			5,536			1,647
Depreciation and amortization		(5,318	)		(132	)		(2,746	)		(1,332	)
Interest income		465			288			525			345
Income tax benefit		—			—			7,025			—
Profit (loss) for the period		(32,713	)		1,853			(21,381	)		(25,881	)
Total comprehensive income(loss)		(32,713	)		1,853			(21,381	)		(25,881	)

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

11.

Investments in Associates and Joint Ventures, Continued

(5)

Reconciliations of financial information of significant associates to carrying amounts of investments in associates in the consolidated financial statements as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won)
	June 30, 2016
	Net assets		Ownership interests (%)		Net assets attributable to the ownership interests		Goodwill		Carrying amount
Associates:
SK hynix Inc.(*1,2)	W	21,697,159		20.1		4,490,006		1,180,054		5,670,060
KEB HanaCard Co., Ltd.		1,374,793		15.0		206,219		53,863		260,082
SKY Property Mgmt. Ltd.(*1)		582,803		33.0		192,325		73,281		265,606
Korea IT Fund		404,887		63.3		256,428		—		256,428

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

(*1)	Net assets of these entities represent net assets excluding their non-controlling interests.

(*2)

The ownership interest is based on the number of shares owned by the Parent Company for the total shares issued by the investee company. The Group applied the equity method using the effective ownership interest of 20.69% which is based on the number of shares owned by the Parent Company for the total issued shares outstanding less investee’s treasury shares.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

11.

Investments in Associates and Joint Ventures, Continued

(6)

Details of changes in investments in associates and joint ventures accounted for using the equity method for the six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)	For the six-month period ended June 30, 2016
	Beginning balance		Acquisition and Disposal			Share of profits (losses)			Other comprehensive income (loss)			Other decrease			Ending balance
Investments in associates:
SK China Company Ltd.	W	43,814		—			1,941			(718	)		—			45,037
Korea IT Fund(*)		260,456		—			7,442			(5,388	)		(6,082	)		256,428
KEB HanaCard Co., Ltd.		254,177		—			5,976			(71	)		—			260,082
Candle Media Co., Ltd.		20,144		—			(673	)		(611	)		(18,860	)		—
NanoEnTek, Inc.		45,008		—			(2,655	)		(1,223	)		—			41,130
SK Industrial Development China Co., Ltd.		86,324		—			(5,715	)		(4,676	)		—			75,933
SK Technology Innovation Company		45,891		—			90			(287	)		—			45,694
HappyNarae Co., Ltd.		17,095		—			(1,609	)		(42	)		—			15,444
SK hynix Inc.(*)		5,624,493		—			132,490			(13,873	)		(73,050	)		5,670,060
SK MENA Investment B.V.		14,929		—			22			(91	)		—			14,860
SKY Property Mgmt. Ltd.		251,166		—			15,590			(1,150	)		—			265,606
Xian Tianlong Science and Technology Co., Ltd		25,767		—			(158	)		—			—			25,609
Others		161,058		(4,019	)		(5,603	)		563			(682	)		151,317

Sub-total		6,850,322		(4,019	)		147,138			(27,567	)		(98,674	)		6,867,200
Investments in joint ventures:
Dogus Planet, Inc.		15,118		12,131			(5,863	)		(3,622	)		—			17,764
PT. Melon Indonesia		4,339		—			426			184			—			4,949
Celcom Planet		3,406		8,838			(11,350	)		—			—			894
PT XL Planet Digital		23,108		27,571			(12,372	)		—			—			38,307

Sub-total		45,971		48,540			(29,159	)		(3,438	)		—			61,914

Total	W	6,896,293		44,521			117,979			(31,005	)		(98,674	)		6,929,114

(*)	Dividends received from the associate are deducted from the carrying amount during the six-month period ended June 30, 2016.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

11.

Investments in Associates and Joint Ventures, Continued

(6)

Details of changes in investments in associates and joint ventures accounted for using the equity method for the six-month periods ended June 30, 2016 and 2015 are as follows, Continued:


(In millions of won)	For the six-month period ended June 30, 2015
	Beginning balance		Acquisition and Disposal			Share of profits (losses)			Other comprehensive income (loss)			Other increase (decrease)			Ending balance
Investments in associates
SK China Company Ltd.	W	35,817		—			(1,093	)		3,836			—			38,560
Korea IT Fund(*)		240,676		—			5,041			(1,444	)		(2,103	)		242,170
KEB HanaCard Co., Ltd.		425,140		(174,475	)		2,481			561			—			253,707
Candle Media Co., Ltd.		19,486		—			259			21			—			19,766
NanoEnTek, Inc.		36,527		—			(848	)		175			—			35,854
SK Industrial Development China Co., Ltd.		79,394		—			(587	)		1,854			—			80,661
Packet One Network		53,670		—			(8,714	)		(565	)		—			44,391
SK Technology Innovation Company		44,052		—			(1,970	)		2,806			—			44,888
HappyNarae Co., Ltd.		15,551		—			808			(91	)		—			16,268
SK hynix Inc.(*)		4,849,159		—			473,132			14,831			(43,830	)		5,293,292
SK MENA Investment B.V.		14,015		—			(1	)		312			—			14,326
SKY Property Mgmt. Ltd.		248,534		—			3,939			4,424			—			256,897
Xian Tianlong Science and Technology Co., Ltd.		25,874		—			(1,254	)		—			—			24,620
Others(*)		158,725		840			(7,678	)		720			7,884			160,491

Sub-total		6,246,620		(173,635	)		463,515			27,440			(38,049	)		6,525,891
Investments in joint ventures
Dogus Planet, Inc.		11,441		4,389			(7,516	)		681			—			8,995
PT. Melon Indonesia		3,564		—			414			(172	)		—			3,806
Television Media Korea Ltd.		6,944		—			(232	)		—			—			6,712
Celcom Planet		16,605		—			(4,156	)		—			—			12,449
PT XL Planet Digital		12,914		15,341			(4,341	)		—			—			23,914

Sub-total		51,468		19,730			(15,831	)		509			—			55,876

Total	W	6,298,088		(153,905	)		447,684			27,949			(38,049	)		6,581,767

(*)	Dividends received from the associate are deducted from the carrying amount during the six-month period ended June 30, 2015.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

11.

Investments in Associates and Joint Ventures, Continued

(7)

The Group discontinued the application of the equity method for the following investees due to the carrying amount of the Group’s share being reduced to zero. The details of unrecognized accumulated equity losses as of June 30, 2016 are as follows:


(In millions of won)	Unrealized loss				Unrealized change in equity
	Period ended June 30, 2016		Accumulated		Period ended June 30, 2016		Accumulated
Wave City Development Co., Ltd.	W	172		4,710		—		—
SK Wyverns Baseball Club Co., Ltd. and others		—		6,510		—		365

	W	172		11,220		—		365

12.

Property and Equipment

Changes in property and equipment for the six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)
	For the six-month period ended June 30, 2016
	Beginning balance		Acquisition		Disposal			Transfer			Depreciation			Ending balance
Land	W	812,947		1,725		(2,639	)		12,289			—			824,322
Buildings		911,129		295		(8,411	)		20,999			(25,092	)		898,920
Structures		344,221		595		(15	)		5,223			(16,492	)		333,532
Machinery		7,342,009		216,498		(5,848	)		319,818			(1,068,371	)		6,804,106
Other		473,438		140,101		(2,346	)		(126,461	)		(70,379	)		414,353
Construction in progress		487,512		222,586		(7,419	)		(261,842	)		—			440,837

	W	10,371,256		581,800		(26,678	)		(29,974	)		(1,180,334	)		9,716,070


(In millions of won)
	For the six-month period ended June 30, 2015
	Beginning balance		Acquisition		Disposal			Transfer			Depreciation			Business combination		Ending balance
Land	W	766,780		2,198		(2,025	)		4,874			—			—		771,827
Buildings		933,867		4,360		(6,838	)		23,333			(24,581	)		—		930,141
Structures		352,789		761		(33	)		11,911			(17,044	)		—		348,384
Machinery		7,310,815		179,819		(2,858	)		594,637			(1,045,697	)		3,641		7,040,357
Other		499,050		435,518		(2,574	)		(308,958	)		(69,688	)		—		553,348
Construction in progress		704,400		295,862		—			(391,821	)		—			—		608,441

	W	10,567,701		918,518		(14,328	)		(66,024	)		(1,157,010	)		3,641		10,252,498

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

13.

Investment Property

Changes in investment property for the six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)	For the six-month period ended June 30, 2016
	Beginning balance		Transfer			Depreciation			Ending balance
Land	W	10,634		(4,770	)		—			5,864
Buildings		4,437		(1,984	)		(71	)		2,382

	W	15,071		(6,754	)		(71	)		8,246


(In millions of won)	For the six-month period ended June 30, 2015
	Beginning balance		Transfer			Depreciation			Ending balance
Land	W	10,418		886			—			11,304
Buildings		4,579		385			(121	)		4,843

	W	14,997		1,271			(121	)		16,147

14.

Goodwill

(1)

Goodwill as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won)
	June 30, 2016		December 31, 2015
Goodwill related to acquisition of Shinsegi Telecom, Inc.	W	1,306,236		1,306,236
Goodwill related to acquisition of SK Broadband Co., Ltd.		358,443		358,443
Other goodwill		247,386		243,911

	W	1,912,065		1,908,590

(2)

Changes in goodwill for the six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)	For the six-month period ended
	June 30, 2016			June 30, 2015
Beginning balance	W	1,908,590			1,917,595
Acquisition		4,498			—
Impairment loss		—			(1,976	)
Other		(1,023	)		14,586

	W	1,912,065			1,930,205

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

15.

Intangible Assets

(1)

Changes in intangible assets for the six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)
	For the six-month period ended June 30, 2016
	Beginning balance		Acquisition		Disposal			Transfer		Amortization			Impairment			Ending balance
Frequency usage rights	W	1,103,517		—		—			—		(140,264	)		—			963,253
Land usage rights		26,576		4,536		(1,456	)		—		(4,752	)		—			24,904
Industrial rights		116,542		2,110		(11	)		147		(2,990	)		—			115,798
Development costs		7,472		1,066		—			—		(2,039	)		(277	)		6,222
Facility usage rights		48,019		479		(4	)		70		(4,292	)		—			44,272
Customer relations		7,175		513		—			—		(2,033	)		—			5,655
Memberships		91,507		5,039		(3,842	)		—		—			(20	)		92,684
Other		903,976		34,462		(6,731	)		50,973		(164,779	)		(500	)		817,401

	W	2,304,784		48,205		(12,044	)		51,190		(321,149	)		(797	)		2,070,189


(In millions of won)
	For the six-month period ended June 30, 2015
	Beginning balance		Acquisition		Disposal			Transfer			Amortization			Business combination		Ending balance
Frequency usage rights	W	1,384,044		—		—			—			(140,264	)		—		1,243,780
Land usage rights		25,353		4,647		(148	)		—			(4,608	)		—		25,244
Industrial rights		107,760		9,334		—			1,089			(3,105	)		—		115,078
Development costs		8,331		1,262		—			32			(2,278	)		—		7,347
Facility usage rights		52,636		515		(12	)		271			(4,216	)		—		49,194
Customer relations		6,404		—		—			(29	)		(1,939	)		8,219		12,655
Memberships		94,119		549		(804	)		67			—			—		93,931
Other		805,347		23,929		(106	)		76,794			(154,619	)		—		751,345

	W	2,483,994		40,236		(1,070	)		78,224			(311,029	)		8,219		2,298,574

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

15.

Intangible Assets, Continued

(2)

The carrying amount and residual useful lives of frequency usage rights as of June 30, 2016 are as follows, all of which are amortized on a straight-line basis:

(In millions of won)

Amount

Description

Commencement
of amortization

Completion of
amortization

W-CDMA license

54,988

Frequency usage rights relating to W-CDMA service

Dec. 2003

Dec. 2016

W-CDMA license

8,155

Frequency usage rights relating to W-CDMA service

Oct. 2010

Dec. 2016

800MHz license

202,720

Frequency usage rights relating to CDMA and LTE service

Jul. 2011

Jun. 2021

1.8GHz license

690,910

Frequency usage rights relating to LTE service

Sep. 2013

Dec. 2021

WiBro license

6,480

WiBro service

Mar. 2012

Mar. 2019

963,253

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

16.

Borrowings and Debentures

(1)

Short-term borrowings as of June 30, 2016 and December 31, 2015 are as follows:

(In millions of won)

Lender

Annual
interest
rate (%)

June 30,
2016

December 31,
2015

Commercial Paper

Hanyang Securities Co., Ltd., etc.

1.76~2.10

85,000

220,000

Short-term borrowings

Kookmin Bank

2.47

—

40,000

85,000

260,000

(2)

Long-term borrowings as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won and thousands of U.S. dollars)
Lender	Annual interest rate (%)		Maturity		June 30, 2016			December 31, 2015
Kookmin Bank		1.98		Jun. 15, 2016	W	—			1,625
Shinhan Bank		6M bank debenture rate+1.58		Apr. 30, 2016		—			10,000
Kookmin Bank		1.69		Mar. 15, 2017		1,499			2,498
Kookmin Bank		1.69		Mar. 15, 2018		5,017			6,450
Korea Development Bank		3.32		Jul. 30 ,2019		39,000			39,000
Korea Development Bank		2.94		Jul. 30 ,2019		10,000			10,000
Export Kreditnamnden(*)		1.70		Apr. 29, 2022		80,430			87,685
					(USD	69,056	)	(USD	74,817	)

Sub-total						135,946			157,258
Less present value discount						(1,812	)		(2,124	)

						134,134			155,134
Less current installments						(29,578	)		(33,581	)

					W	104,556			121,553

(*)	Prior to 2015, the Group obtained long-term borrowings from Export Kreditnamnden, an export credit agency. The long-term borrowings are repaid by installments on an annual basis from 2014 to 2022.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

16.

Borrowings and Debentures, Continued

(3)

Debentures as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won, thousands of U.S. dollars and thousands of other currencies)
	Purpose	Maturity	Annual interest rate (%)		June 30, 2016			December 31, 2015
Unsecured private bonds	Refinancing fund	2016		5.00	W	200,000			200,000
Unsecured private bonds	Other fund	2018		5.00		200,000			200,000
Unsecured private bonds		2016		5.54		—			40,000
Unsecured private bonds		2016		5.92		—			230,000
Unsecured private bonds	Operating fund	2016		3.95		110,000			110,000
Unsecured private bonds		2021		4.22		190,000			190,000
Unsecured private bonds	Operating and refinancing fund	2019		3.24		170,000			170,000
Unsecured private bonds	Operating and refinancing fund	2022		3.30		140,000			140,000
Unsecured private bonds		2032		3.45		90,000			90,000
Unsecured private bonds	Operating fund	2023		3.03		230,000			230,000
Unsecured private bonds		2033		3.22		130,000			130,000
Unsecured private bonds		2019		3.30		50,000			50,000
Unsecured private bonds		2024		3.64		150,000			150,000
Unsecured private bonds(*4)		2029		4.72		54,969			54,695
Unsecured private bonds	Refinancing fund	2019		2.53		160,000			160,000
Unsecured private bonds		2021		2.66		150,000			150,000
Unsecured private bonds		2024		2.82		190,000			190,000
Unsecured private bonds	Operating and refinancing fund	2022		2.40		100,000			100,000
Unsecured private bonds	Operating and refinancing fund	2025		2.49		150,000			150,000
Unsecured private bonds		2030		2.61		50,000			50,000
Unsecured private bonds	Operating fund	2018		1.89		90,000			90,000
Unsecured private bonds		2025		2.66		70,000			70,000
Unsecured private bonds		2030		2.82		90,000			90,000
Unsecured private bonds(*4)		2030		3.40		50,098			50,485
Unsecured private bonds	Operating and refinancing fund	2018		2.07		80,000			80,000
Unsecured private bonds	Operating and refinancing fund	2025		2.55		100,000			100,000
Unsecured private bonds		2035		2.75		70,000			70,000
Unsecured private bonds(*4)		2030		3.10		50,460			50,524
Unsecured private bonds	Operating fund	2019		1.65		70,000			—
Unsecured private bonds		2021		1.80		100,000			—
Unsecured private bonds		2026		2.08		90,000			—
Unsecured private bonds		2036		2.24		80,000			—
Unsecured private bonds		2019		1.62		50,000			—
Unsecured private bonds		2021		1.71		50,000			—
Unsecured private bonds		2026		1.97		120,000			—
Unsecured private bonds		2031		2.17		50,000			—
Unsecured private bonds(*1)		2017		4.28		100,000			100,000
Unsecured private bonds(*1)		2017		3.27		120,000			120,000
Unsecured private bonds(*1)		2016		3.05		80,000			80,000
Unsecured private bonds(*1)		2019		3.49		210,000			210,000
Unsecured private bonds(*1)		2019		2.76		130,000			130,000
Unsecured private bonds(*1)		2018		2.23		50,000			50,000
Unsecured private bonds(*1)		2020		2.49		160,000			160,000
Unsecured private bonds(*1)		2020		2.43		140,000			140,000
Unsecured private bonds(*1)		2020		2.18		130,000			130,000
Unsecured private bonds(*2)		2016		3.24		—			10,000
Unsecured private bonds(*2)		2017		3.48		20,000			20,000
Unsecured global bonds		2027		6.63		465,880			468,800
					(USD	400,000	)	(USD	400,000	)

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

16.

Borrowings and Debentures, Continued

(3)

Debentures as of June 30, 2016 and December 31, 2015 are as follows, Continued:


(In millions of won, thousands of U.S. dollars and thousands of other currencies)
	Purpose		Maturity		Annual interest rate (%)		June 30, 2016			December 31, 2015
Unsecured private Swiss bond				2017		1.75	(CHF	356,760 300,000	)	(CHF	355,617 300,000	)
Unsecured global bonds		Operating fund		2018		2.13	(USD	815,290 700,000	)	(USD	820,400 700,000	)
Unsecured private Australian bonds								260,310			255,930
				2017		4.75	(AUD	300,000	)	(AUD	300,000	)
Floating rate notes(*3)						3M LIBOR + 0.88		349,410			351,600
				2020		3M LIBOR + 0.88	(USD	300,000	)	(USD	300,000	)
Unsecured global bonds(*1)								349,410			351,600
				2018		2.88	(USD	300,000	)	(USD	300,000	)

Sub-total								7,462,587			7,139,651
Less discounts on bonds								(29,105	)		(30,998	)

								7,433,482			7,108,653
Less current portion of bonds								(866,042	)		(669,506	)

							W	6,567,440			6,439,147

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

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

(*3)	As of June 30, 2016, 3M LIBOR rate is 0.65%.

(*4)	The Group eliminated a measurement inconsistency of accounting profit or loss between the bonds and related derivatives by designating the structured bonds as financial liabilities at fair value through profit or loss.

The carrying amount of financial liabilities designated at fair value through profit or loss exceeds the principal amount required to pay at maturity by W5,527 million as of June 30, 2016.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

17.

Long-term Payables - other

(1)

Long-term payables – other as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won)
	June 30, 2016		December 31, 2015
Payables related to acquisition of W-CDMA licenses	W	440,841		550,964
Other(*)		30,987		30,733

	W	471,828		581,697

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

(2)


(In millions of won)
	Period of repayment		Coupon rate		Annual effective interest rate(*)		June 30, 2016			December 31, 2015
2.3GHz		2014~2016		3.00%		5.80%	W	—			2,882
1.8GHz		2012~2021		2.43~3.00%		4.84~5.25%		589,172			707,006

								589,172			709,888
Present value discount on long-term payables - other								(32,252	)		(38,739	)

								556,920			671,149
Current installments								(116,079	)		(120,185	)

Carrying amount at period end							W	440,841			550,964

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

(3)

The repayment schedule of the principal amount of long-term payables related to acquisition of W-CDMA licenses as of June 30, 2016 is as follows:


(In millions of won)
	Amount
Less than 1 year	W	117,834
1~3 years		235,669
3~5 years		235,669

	W	589,172

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

18.

Provisions

Changes in provisions for the six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)
	For the six-month period ended June 30, 2016															As of June 30, 2016
	Beginning balance		Increase		Utilization			Reversal			Other			Ending balance		Current		Non-current
Provision for installment of handset subsidy	W	5,670		—		(1,019	)		—			—			4,651		1,213		3,438
Provision for restoration		59,954		3,490		(352	)		(698	)		(33	)		62,361		28,816		33,545
Emission allowance		1,477		242		(169	)		—			—			1,550		1,550		—
Other provisions		3,104		1,629		(247	)		—			—			4,486		4,446		40

	W	70,205		5,361		(1,787	)		(698	)		(33	)		73,048		36,025		37,023


(In millions of won)
	For the six-month period ended June 30, 2015														As of June 30, 2015
	Beginning balance		Increase		Utilization			Reversal			Other		Ending balance		Current		Non-current
Provision for installment of handset subsidy	W	26,799		—		(2,696	)		(18,173	)		—		5,930		3,368		2,562
Provision for restoration		59,727		1,844		(375	)		(962	)		868		61,102		34,658		26,444
Other provisions		562		1,921		(323	)		—			—		2,160		1,259		901

	W	87,088		3,765		(3,394	)		(19,135	)		868		69,192		39,285		29,907

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

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

19.

Leases

(1)

Operating Lease

The Group entered into operating lease and sublease agreements in relation to rented office space and the expected future lease payments and revenues as of June 30, 2016 are as follows:


(In millions of won)
	Lease payments		Revenues
Less than 1 year	W	41,888		1,882
1~5 years		79,657		896
More than 5 years		25,409		448

	W	146,954		3,226

(2)

Sale and Leaseback

In 2012, the Group disposed a portion of its property and equipment and investment property, and entered into lease agreements with respect to those assets. These sale and leaseback transactions are considered as operating leases and expected future lease payments and lease revenues are presented in Note 19-(1).

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

20.

Defined Benefit Liabilities

(1)

Details of defined benefit liabilities as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won)
	June 30, 2016			December 31, 2015
Present value of defined benefit obligations	W	578,719			525,269
Fair value of plan assets		(429,343	)		(426,413	)

	W	149,376			98,856

(2)

Changes in defined benefit obligations for the six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)	For the six-month period ended
	June 30, 2016			June 30, 2015
Beginning balance	W	525,269			437,844
Current service cost		56,780			52,278
Interest cost		6,458			5,957
Remeasurement
- Demographic assumption		—			(6	)
- Financial assumption		—			760
- Adjustment based on experience		10,056			3,522
Benefit paid		(20,553	)		(33,513	)
Others		709			4,198

Ending balance	W	578,719			471,040

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

20.

Defined Benefit Liabilities, Continued

(3)

Changes in plan assets for the six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)	For the six-month period ended
	June 30, 2016			June 30, 2015
Beginning balance	W	426,413			346,257
Interest income		4,848			4,721
Remeasurement		(5,501	)		(2,567	)
Contributions		20,509			29,033
Benefit paid		(18,125	)		(30,334	)
Others		1,199			2,201

Ending balance	W	429,343			349,311

(4)

Expenses recognized in profit and loss for the six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)	For the six-month period ended
	June 30, 2016		June 30, 2015
Current service cost	W	56,780		52,278
Net interest cost		1,610		1,236

	W	58,390		53,514

The above costs are recognized in labor cost and research and development.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

21.

Derivative Instruments

(1)

Currency swap contracts under cash flow hedge accounting as of June 30, 2016 are as follows:


(In thousands of foreign currencies)
Borrowing date	Hedging Instrument (Hedged item)	Hedged risk	Contract type	Financial institution	Duration of contract
Jul. 20, 2007	Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds with face value of USD 400,000)	Foreign currency risk	Currency swap	Morgan Stanley and five other banks	Jul. 20, 2007 ~ Jul. 20, 2027
Jun. 12, 2012	Fixed-to-fixed cross currency swap (Swiss Franc denominated bonds with face value of CHF 300,000)	Foreign currency risk	Currency swap	Citibank and four other banks	Jun. 12, 2012 ~ Jun. 12, 2017
Nov. 1, 2012	Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds with face value of USD 700,000)	Foreign currency risk	Currency swap	Barclays and eight other banks	Nov. 1, 2012 ~ May 1, 2018
Jan. 17, 2013	Fixed-to-fixed cross currency swap (Australia dollar denominated bonds with face value of AUD 300,000)	Foreign currency risk	Currency swap	BNP Paribas and three other banks	Jan. 17, 2013 ~ Nov. 17, 2017
Mar. 7, 2013	Floating-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds with face value of USD 300,000)	Foreign currency risk and interest rate risk	Currency and interest rate swap	DBS Bank	Mar. 7, 2013 ~ Mar. 7, 2020
Oct. 29, 2013	Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds with face value of USD 300,000)	Foreign currency risk	Currency swap	Korea Development Bank and others	Oct. 29, 2013 ~ Oct. 26, 2018
Dec. 16, 2013	Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds with face value of USD 69,056)	Foreign currency risk	Currency swap	Deutsche bank	Dec. 16, 2013 ~ Apr. 29, 2022

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

21.

Derivative Instruments, Continued

(2)

As of June 30, 2016, details of fair values of above derivatives recorded in assets or liabilities are as follows:


(In millions of won and thousands of foreign currencies)
	Fair value
	Cash flow hedge
Hedging Instrument (Hedged item)	Accumulated gain (loss) on valuation of derivatives			Tax effect			Accumulated foreign currency translation (gain) loss			Others *()**		Held for trading		Total
Non-current assets:
Structured bond (face value of KRW 150,000)	W	—			—			—			—		9,961		9,961
Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds with face value of USD 400,000)		(50,424	)		(16,098	)		8,299			129,806		—		71,583
Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds with face value of USD 700,000)		(15,296	)		(4,884	)		51,650			—		—		31,470
Floating-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds with face value of USD 300,000)		(11,613	)		(3,709	)		24,255			—		—		8,933
Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds with face value of USD 300,000)		(4,481	)		—			30,694			—		—		26,213
Fixed-to-fixed long-term borrowings (U.S. dollar denominated bonds with face value of USD 69,056)		(3,622	)		(1,156	)		7,457			—		—		2,679

Total assets														W	150,839


Current liability:
Fixed-to-fixed cross currency swap (Swiss Franc denominated bonds with face value of CHF 300,000)	W	(6,565	)		(2,095	)		(6,710	)		—		—		(15,370	)
Non-current liability:
Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds with face value of AUD 300,000)		2,873			918			(74,879	)		—		—		(71,088	)

Total liabilities														W	(86,458	)

(*)	Cash flow hedge accounting has been applied to the relevant contracts from May 12, 2010. Others represent gain on valuation of currency swap recognized in profit or loss prior to May 12, 2010, when the Group started to apply hedge accounting to these contracts.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

22.

Share Capital and Capital Surplus and Others

The Parent Company’s outstanding share capital consists entirely of common stocks with a par value of W500. The number of authorized, issued and outstanding common shares and capital surplus and others as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won, except for share data)
	June 30, 2016			December 31, 2015
Number of authorized shares		220,000,000			220,000,000
Number of issued shares (*1)		80,745,711			80,745,711
Share capital:
Common stock	W	44,639			44,639
Capital surplus and others
Paid-in surplus		2,915,887			2,915,887
Treasury stock (Note 23)		(2,260,626	)		(2,260,626	)
Hybrid bond (Note 24)		398,518			398,518
Others (*2)		(862,095	)		(864,269	)

	W	191,684			189,510

(*1)	Prior to 2015, the Parent Company retired shares of treasury stock which reduced its retained earnings before appropriation. As a result, the Parent Company’s outstanding shares have decreased without change in the share capital.

(*2)	Others primarily consist of the excess of the consideration paid by the Group over the carrying values of net assets acquired from common control transactions with entities within the control of the Ultimate Controlling Entity.

There were no changes in share capital for the six-month periods ended June 30, 2016 and 2015 and details of shares outstanding as of June 30, 2016 and 2015 are as follows:


(In shares)	June 30, 2016						June 30, 2015
	Issued shares		Treasury stock		Outstanding shares		Issued shares		Treasury stock			Outstanding shares
Beginning		80,745,711		10,136,551		70,609,160		80,745,711		9,809,375			70,936,336
Disposal of treasury stock		—		—		—		—		(1,692,824	)		1,692,824

Ending		80,745,711		10,136,551		70,609,160		80,745,711		8,116,551			72,629,160

23.

Treasury Stock

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

Treasury stocks as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won, shares)
	June 30, 2016		December 31, 2015
Number of shares		10,136,551		10,136,551
Amount	W	2,260,626		2,260,626

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

24.

Hybrid Bond

Hybrid bonds classified as equity as of June 30, 2016 are as follows:

(In millions of won)

Type

Issuance
date

Maturity

Annual
interest
rate(%)

Amount

Private hybrid bonds

Unsecured subordinated bearer bond

June 7,
2013

June 7,

2073(*1)

4.21

(*2)

400,000

Issuance costs

(1,482

)

398,518

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

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

(*2)	Annual interest rate is calculated as yield rate of 5 year national bonds plus premium. According to Step-up clause, additional premium of 0.25% and 0.75%, respectively, after 10 years and 25 years from the issuance date are applied.

25.

Retained Earnings

Retained earnings as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won)
	June 30, 2016		December 31, 2015
Appropriated:
Legal reserve	W	22,320		22,320
Reserve for research & manpower development		60,001		87,301
Reserve for business expansion		9,871,138		9,671,138
Reserve for technology development		2,826,300		2,616,300

		12,779,759		12,397,059
Unappropriated		2,434,444		2,610,568

	W	15,214,203		15,007,627

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

26.

Reserves

(1)

Details of reserves, net of taxes, as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won)
	June 30, 2016			December 31, 2015
Changes in unrealized fair value of available-for-sale financial assets	W	41,628			232,316
Other comprehensive loss of investments in associates and joint ventures		(200,468	)		(169,520	)
Changes in unrealized fair value of derivatives		(89,129	)		(83,200	)
Foreign currency translations differences for foreign operations		15,564			29,707

	W	(232,405	)		9,303

(2)

Change in reserves for the six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)	Unrealized fair value of available-for- sale financial assets			Other comprehensive loss of investment in associates			Unrealized fair value of derivatives			Foreign currency translations differences for foreign operations			Total
Balance at January 1, 2015	W	235,385			(163,808	)		(77,531	)		1,465			(4,489	)
Changes		69,215			27,946			(29,988	)		8,356			75,529
Tax effect		(16,499	)		(69	)		4,917			—			(11,651	)

Balance at June 30, 2015	W	288,101			(135,931	)		(102,602	)		9,821			59,389

Balance at January 1, 2016	W	232,316			(169,520	)		(83,200	)		29,707			9,303
Changes		(253,033	)		(30,917	)		(8,432	)		(14,143	)		(306,525	)
Tax effect		62,345			(31	)		2,503			—			64,817

Balance at June 30, 2016	W	41,628			(200,468	)		(89,129	)		15,564			(232,405	)

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

27.

Other Operating Expenses

Details of other operating expenses for the three and six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)	2016				2015
	Three-month period ended June 30		Six-month period ended June 30		Three-month period ended June 30		Six-month period ended June 30
Other Operating Expenses:
Communication	W	8,368		18,150		11,512		24,051
Utilities		61,496		132,412		60,476		126,608
Taxes and dues		8,610		17,841		8,114		16,468
Repair		86,764		155,489		79,975		145,832
Research and development		84,012		168,111		77,952		147,422
Training		6,985		13,791		7,128		14,569
Bad debt for accounts receivable - trade		14,601		22,643		21,982		34,995
Travel		6,786		12,118		7,154		13,965
Supplies and other		13,468		53,152		38,003		83,707

	W	291,090		593,707		312,296		607,617

28.

Other Non-operating Income and Expenses

(1)

Details of other non-operating income and expenses for the three and six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)	2016				2015
	Three-month period ended June 30		Six-month period ended June 30		Three-month period ended June 30		Six-month period ended June 30
Other Non-operating Income:
Fees revenues	W	173		267		201		323
Gain on disposal of property and equipment and intangible assets		1,297		2,248		1,842		2,765
Others		8,155		38,809		5,133		12,275

	W	9,625		41,324		7,176		15,363

Other Non-operating Expenses:
Loss on impairment of property and equipment and intangible assets	W	609		797		953		1,976
Loss on disposal of property and equipment and intangible assets		9,929		18,199		1,281		3,290
Donations		17,529		47,138		24,937		30,769
Bad debt for accounts receivable – others		3,408		3,409		6,226		4,074
Loss on impairment of investment assets		5,531		11,868		9,398		18,668
Others		5,002		9,804		9,096		39,092

	W	42,008		91,215		51,891		97,869

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

29.

Finance Income and Costs

(1)

Details of finance income and costs for the three and six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)	2016				2015
	Three-month period ended June 30		Six-month period ended June 30		Three-month period ended June 30		Six-month period ended June 30
Finance Income:
Interest income	W	12,346		24,395		12,380		25,181
Dividends		29		14,842		43		13,339
Gain on foreign currency transactions		1,765		7,513		2,815		6,288
Gain on foreign currency translations		826		1,036		3,243		4,024
Gain on disposal of long-term investment securities(*)		1,187		316,902		3,606		6,252
Gain on valuation of derivatives		463		3,684		—		1,030
Gain relating to financial liabilities at fair value through profit or loss		403		177		6,966		5,188
Gain on disposal of accounts receivable - trade		5,191		7,855		—		—

	W	22,210		376,404		29,053		61,302

(*)	W314,745 million of gain on disposal of long-term investment securities was recognized upon disposal of the Group’s remaining equity interest of Loen Entertainment, Inc.


(In millions of won)	2016				2015
	Three-month period ended June 30		Six-month period ended June 30		Three-month period ended June 30		Six-month period ended June 30
Finance Costs:
Interest expense	W	70,017		142,409		74,706		150,222
Loss on foreign currency transactions		3,954		7,392		2,880		8,193
Loss on foreign currency translations		—		1,684		2,088		3,132
Loss on disposal of long-term investment securities		50		134		1,649		1,651
Loss on valuation of derivatives		—		—		699		—
Loss on settlement of derivatives		319		319		4,517		4,517
Loss relating to financial liabilities at fair value through profit or loss		—		—		—		174
Other finance costs		—		—		3,151		3,151

	W	74,340		151,938		89,690		171,040

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

29.

Finance Income and Costs, Continued

(2)

Details of interest income included in finance income for the three and six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)	2016				2015
	Three-month period ended June 30		Six-month period ended June 30		Three-month period ended June 30		Six-month period ended June 30
Interest income on cash equivalents and deposits	W	5,389		10,346		5,010		10,393
Interest income on installment receivables and others		6,957		14,049		7,370		14,788

	W	12,346		24,395		12,380		25,181

(3)

Details of interest expense included in finance costs for the three and six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)	2016				2015
	Three-month period ended June 30		Six-month period ended June 30		Three-month period ended June 30		Six-month period ended June 30
Interest expenses on borrowings	W	2,591		4,958		8,536		12,722
Interest expenses on debentures		59,901		120,975		56,610		116,514
Interest on finance lease liabilities		—		—		19		47
Others		7,525		16,476		9,541		20,939

	W	70,017		142,409		74,706		150,222

(4)

Details of impairment losses for financial assets for the three and six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)	2016				2015
	Three-month period ended June 30		Six-month period ended June 30		Three-month period ended June 30		Six-month period ended June 30
Available-for-sale financial assets	W	—		—		3,151		3,151
Accounts receivable - trade		14,601		22,643		21,982		34,995
Other receivables		3,408		3,409		6,226		4,074

	W	18,009		26,052		31,359		42,220

30.

Income Tax Expense

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

31.

Earnings per Share

(1)

Basic earnings per share

Basic earnings per share for the three and six-month periods ended June 30, 2016 and 2015 are calculated as follows:


(In millions of won, shares)	2016						2015
	Three-month period ended June 30			Six-month period ended June 30			Three-month period ended June 30			Six-month period ended June 30
Basic earnings per share attributable to owners of the Parent Company:
Profit attributable to owners of the Parent Company on common shares	W	290,135			861,982			395,839			840,334
Interest on hybrid bonds		(8,420	)		(8,420	)		(8,420	)		(8,420	)
Profit for the period on common shares		281,715			853,562			387,419			831,914
Weighted average number of common shares outstanding		70,609,160			70,609,160			71,326,988			71,132,741

Basic earnings per share (in won)	W	3,990			12,089			5,432			11,695

The weighted average number of common shares outstanding for the three and six-month periods ended June 30, 2016 and 2015 are calculated as follows:


(In shares)	Number of shares			Weighted number of shares
	Number of shares			Three-month period ended June 30			Six-month period ended June 30
Issued common shares at January 1, 2016		80,745,711			80,745,711			80,745,711
Weighted average number of treasury stock		(10,136,551	)		(10,136,551	)		(10,136,551	)

Weighted average number of common shares outstanding at June 30, 2016		70,609,160			70,609,160			70,609,160


(In shares)	Number of shares			Weighted number of shares
	Number of shares			Three-month period ended June 30			Six-month period ended June 30
Issued common shares at January 1, 2015		80,745,711			80,745,711			80,745,711
Weighted average number of treasury stock		(8,116,551	)		(9,418,723	)		(9,612,970	)

Weighted average number of common shares outstanding at June 30, 2015		72,629,160			71,326,988			71,132,741

(2)

Diluted earnings per share

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

32.

Categories of Financial Instruments

(1)

Financial assets by categories as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won)
	June 30, 2016
	Financial assets at fair value through profit or loss		Available-for- sale financial assets		Loans and receivables		Derivative financial instruments designated as hedged item		Total
Cash and cash equivalents	W	—		—		1,099,561		—		1,099,561
Financial instruments		—		—		595,758		—		595,758
Short-term investment securities		—		346,694		—		—		346,694
Long-term investment securities		—		1,046,661		—		—		1,046,661
Accounts receivable – trade		—		—		2,228,412		—		2,228,412
Loans and other receivables(*)		—		—		1,761,912		—		1,761,912
Derivative financial assets		9,961		—		—		140,878		150,839

	W	9,961		1,393,355		5,685,643		140,878		7,229,837

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

32.

Categories of Financial Instruments, Continued

(1)

Financial assets by categories as of June 30, 2016 and December 31, 2015 are as follows, Continued:


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

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

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

32.

Categories of Financial Instruments, Continued

(1)

Financial assets by categories as of June 30, 2016 and December 31, 2015 are as follows, Continued:

(*)	Details of loans and other receivables as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won)
	June 30, 2016		December 31, 2015
Short-term loans	W	66,187		53,895
Accounts receivable - other		1,273,406		673,739
Accrued income		12,645		10,753
Other current assets		1,887		1,861
Long-term loans		61,572		62,454
Long-term accounts receivable - other		47,983		2,420
Guarantee deposits		298,232		297,281

	W	1,761,912		1,102,403

(2)

Financial liabilities by categories as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won)	June 30, 2016
	Financial liabilities at fair value through profit or loss		Financial liabilities measured at amortized cost		Derivative financial instruments designated as hedged item		Total
Accounts payable – trade	W	—		251,106		—		251,106
Derivative financial liabilities		—		—		86,458		86,458
Borrowings		—		219,134		—		219,134
Debentures(*1)		155,527		7,277,955		—		7,433,482
Accounts payable - other and others (*2)		—		2,781,063		—		2,781,063

	W	155,527		10,529,258		86,458		10,771,243


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

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

(*1)

(*2)	Details of accounts payable and other payables as of June 30, 2016 and December 31, 2015 are as follows:

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

32.

Categories of Financial Instruments, Continued

(2)

Financial liabilities by categories as of June 30, 2016 and December 31, 2015 are as follows, Continued:


(In millions of won)
	June 30, 2016		December 31, 2015
Accounts payable - other	W	1,141,810		1,323,434
Withholdings		2,400		1,178
Accrued expenses		1,028,226		920,739
Current installments of long-term payables - other		116,079		120,211
Long-term payables - other		471,828		581,697
Other non-current liabilities		20,720		23,542

	W	2,781,063		2,970,801

33.

Financial Risk Management

(1)

Financial risk management

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

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

1) Market risk

(i) Currency risk

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

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

33.

Financial Risk Management, Continued

(1)

Financial risk management, Continued

1) Market risk, Continued

(i) Currency risk, Continued

Foreign currency monetary assets and liabilities as of June 30, 2016 are as follows:


(In millions of won, thousands of foreign currencies)
	Assets				Liabilities
	Foreign currencies		Won translation		Foreign Currencies		Won translation
USD		154,407	W	179,759		1,840,451	W	2,143,600
EUR		7,442		9,641		38		49
JPY		122,018		1,381		1,952		21
AUD		—		—		299,274		259,680
CHF		—		—		299,587		356,269
Others		—		1,744		—		6

			W	192,525			W	2,759,625

In addition, the Group has entered into cross currency swaps to hedge against currency risk related to foreign currency borrowings and debentures. (See Note 21)

As of June 30, 2016, effects on income before income tax as a result of change in exchange rate by 10% are as follows:


(In millions of won)
	If increased by 10%		If decreased by 10%
USD	W	8,413		(8,413	)
EUR		959		(959	)
JPY		136		(136	)
Others		174		(174	)

	W	9,682		(9,682	)

(ii) Equity price risk

The Group has equity securities which include listed and non-listed securities for its liquidity management and operating purpose. As of June 30, 2016, available-for-sale equity instruments measured at fair value amount of W902,960 million.

(iii) Interest rate risk

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

Accordingly, the Group performs various analysis of interest rate risk to reduce interest rate risk and to optimize its financing. To minimize risks from changes in interest rates, the Group takes various measures such as refinancing, renewal, alternative financing and hedging.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

33.

Financial Risk Management, Continued

(1)

Financial risk management, Continued

1) Market risk, Continued

(iii) Interest rate risk, Continued

The Group’s interest rate risk arises from floating-rate borrowings and debentures. As of June 30, 2016, floating-rate borrowings and debentures amount to W6,516 million and W349,410 million respectively, and the Group has entered into interest rate swaps to hedge interest rate risk related to floating-rate debentures (See Note 21). On the other hand, if the interest rate increases (decreases) 1% with all other variables held constant, income before income taxes over the next one year will fluctuate as much as W65 million due to the interest expense on floating-rate borrowings that have not entered into an interest rate swap agreement.

2) Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet his/her contractual obligations. The maximum credit exposure as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won)
	June 30, 2016		December 31, 2015
Cash and cash equivalents	W	1,099,331		768,794
Financial instruments		595,758		701,713
Available-for-sale financial assets		2,030		3,430
Accounts receivable – trade		2,228,412		2,390,110
Loans and receivables		1,761,912		1,102,403
Derivative financial assets		150,839		166,399

	W	5,838,282		5,132,849

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

For the six-month period ended June 30, 2016, the Group has no trade and other receivables or loans which have indications of significant impairment loss or are overdue for a prolonged period. As a result, the Group believes that the possibility of default is remote. Also, the Group’s credit risk can arise due to transactions with financial institutions related to its cash and cash equivalents, financial instruments and derivatives. To minimize such risk, the Group has a policy to deal only with financial institutions with high credit ratings. The amount of maximum exposure to credit risk of the Group is the carrying amount of financial assets as of June 30, 2016.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

33.

Financial Risk Management, Continued

(1)

Financial risk management, Continued

3) Liquidity risk

Contractual maturities of financial liabilities as of June 30, 2016 are as follows:


(In millions of won)
	Carrying amount		Contractual cash flows		Less than 1 year		1 - 5 years		More than 5 years
Accounts payable - trade	W	251,106		251,106		251,106		—		—
Borrowings(*)		219,134		229,253		118,073		97,555		13,625
Debentures(*)		7,433,482		8,809,005		1,089,040		4,294,284		3,425,681
Accounts payable - other and others		2,781,063		2,804,747		2,245,242		558,765		740

	W	10,684,785		12,094,111		3,703,461		4,950,604		3,440,046

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

(*)	Includes interest to be paid.

As of June 30, 2016, periods which cash flows from cash flow hedge derivatives are expected to occur are as follows:


(In millions of won)
	Carrying amount			Contractual cash flows			Less than 1 year			1 - 5 years			More than 5 years
Assets	W	140,878			147,000			243			123,482			23,275
Liabilities		(86,458	)		(88,457	)		(12,384	)		(76,073	)		—

	W	54,420			58,543			(12,141	)		47,409			23,275

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

33.

Financial Risk Management, Continued

(2)

Capital management

The Group manages its capital to ensure that it will be able to continue as a business while maximizing the return to shareholders through the optimization of its debt and equity structure. The overall strategy of the Group is the same as that of the Group as of and for the year ended December 31, 2015.

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

Debt-equity ratios as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won)
	June 30, 2016			December 31, 2015
Total liabilities	W	13,161,897			13,207,291
Total equity		15,367,493			15,374,096

Debt-equity ratios		85.65	%		85.91	%

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

33.

Financial Risk Management, Continued

(3)

Fair value

Fair value and carrying amount of financial assets and liabilities including fair value hierarchy as of June 30, 2016 are as follows:


(In millions of won)
	Carrying amount		Level 1		Level 2		Level 3		Total
Financial assets that are measured at fair value:
Financial assets at fair value through profit or loss	W	9,961		—		9,961		—		9,961
Derivative financial assets		140,878		—		140,878		—		140,878
Available-for-sale financial assets		902,960		726,568		47,494		128,898		902,960

	W	1,053,799		726,568		198,333		128,898		1,053,799

Financial liabilities that are measured at fair value:
Financial liabilities at fair value through profit or loss	W	155,527		—		155,527		—		155,527
Derivative financial liabilities		86,458		—		86,458		—		86,458

	W	241,985		—		241,985		—		241,985

Financial liabilities that are not measured at fair value:
Borrowings	W	219,134		—		223,083		—		223,083
Debentures		7,277,955		—		7,920,858		—		7,920,858

	W	7,497,089		—		8,143,941		—		8,143,941

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

33.

Financial Risk Management, Continued

(3)

Fair value, Continued

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


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

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

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

	W	245,000		—		245,000		—		245,000

Financial liabilities that are not measured at fair value:
Borrowings	W	415,134		—		416,702		—		416,702
Debentures		6,952,949		—		7,411,909		—		7,411,909

	W	7,368,083		—		7,828,611		—		7,828,611

The above information does not include fair values of financial assets and liabilities of which fair values have not been measured as carrying amounts are a reasonable approximation of fair values.

Available-for-sale financial assets amounting to W490,395 million and W223,197 million as of June 30, 2016 and December 31, 2015, respectively, are measured at cost in accordance with K-IFRS 1039 since they are considered as equity instruments which do not have quoted price in an active market for the identical instruments (inputs for level 1) and cannot be reliably measured using other valuation methods.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

33.

Financial Risk Management, Continued

(3)

Fair value, Continued

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

Interest rates used by the Group for the fair value measurement as of June 30, 2016 are as follows:


	Interest rate
Derivative instruments		1.66 ~ 2.99	%
Borrowings and debentures		1.57 ~ 2.38	%


(In millions of won)
	Balance at January 1, 2016		Transfer		Other comprehensive loss			Disposal			Balance at June 30, 2016
Available-for-sale financial assets	W	131,071		4,657		(1,722	)		(5,108	)		128,898

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

33.

Financial Risk Management, Continued

(4)

Enforceable master netting agreement or similar agreement

Carrying amount of financial instruments recognized of which offset agreements are applicable as of June 30, 2016 are as follows:


(In millions of won)	Gross financial instruments recognized		Amount offset			Net financial instruments presented on the statement of financial position		Relevant financial instruments not offset			Net amount
Financial assets:
Derivatives(*)	W	55,876		—			55,876		(55,876	)		—
Accounts receivable – trade and others		135,108		(118,716	)		16,392		—			16,392

	W	190,984		(118,716	)		72,268		(55,876	)		16,392

Financial liabilities:
Derivatives(*)	W	86,458		—			86,458		(55,876	)		30,582
Accounts payable – trade and others		120,395		(118,716	)		1,679		—			1,679

	W	206,853		(118,716	)		88,137		(55,876	)		32,261

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


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

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

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

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

(*)	The balance represents the net amount under the standard terms and conditions of International Swap and Derivatives Association.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

34.

Transactions with Related Parties

(1)

List of related parties


Relationship		Company
Ultimate Controlling Entity		SK Holdings Co., Ltd.
Joint ventures		Dogus Planet, Inc. and three other companies
Associates		SK hynix Inc. and 50 other companies
Affiliates		The Ultimate Controlling Entity’s other subsidiaries and associates, etc.

(2)

Compensation for the key management members

The Parent Company considers registered directors who have substantial role and responsibility in planning, operating, and controlling of the business as key management members. The compensation given to such key management members for the three and six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)	2016				2015
	Three-month period ended June 30		Six-month period ended June 30		Three-month period ended June 30		Six-month period ended June 30
Salaries	W	221		1,201		203		1,560
Defined benefits plan expenses		47		328		421		542

	W	268		1,529		624		2,102

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

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

34.

Transactions with Related Parties, Continued

(3)

Transactions with related parties for the six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)		For the six-month period ended June 30, 2016
		Operating revenue and others				Operating expense and others				Acquisition of property and equipment				Loans				Collection of loans
Scope	Company	Three- month period ended June 30		Six- month period ended June 30		Three- month period ended June 30		Six- month period ended June 30		Three- month period ended June 30		Six- month period ended June 30		Three- month period ended June 30		Six- month period ended June 30		Three- month period ended June 30		Six- month period ended June 30

Ultimate Controlling Entity	SK Holdings Co., Ltd.(*1)	W	5,455		11,003		140,142		448,119		38,889		49,586		—		—		—		—
Associates	F&U Credit information Co., Ltd.		546		1,070		9,894		23,337		—		—		—		—		—		—
	HappyNarae Co., Ltd.		79		152		3,481		5,721		3,745		4,309		—		—		—		—
	SK hynix Inc.(*2)		9,435		85,304		281		290		—		—		—		—		—		—
	SK Wyverns Baseball Club Co., Ltd.		303		620		596		14,969		—		—		—		—		—		—
	KEB HanaCard Co., Ltd.		4,994		9,999		4,530		7,479		—		—		—		—		—		—
	Others(*3)		6,082		6,082		861		2,715		43		43		1,100		1,100		1,700		1,700

			21,439		103,227		19,643		54,511		3,788		4,352		1,100		1,100		1,700		1,700


Other	SK Engineering & Construction Co., Ltd.		1,972		3,030		963		1,162		645		645		—		—		—		—
	SK Networks Co., Ltd.		2,676		5,187		259,401		533,495		—		16		—		—		—		—
	SK Networks service Co., Ltd.		504		786		22,322		44,830		544		609		—		—		—		—
	SK Telesys Co., Ltd.		67		133		9,019		18,356		28,208		54,593		—		—		—		—
	SK TNS Co., Ltd		25		47		12,796		17,385		76,765		91,341
	SK Energy Co., Ltd.		1,511		2,748		302		455		—		—		—		—		—		—
	SK Gas Co., Ltd.		492		941		1		2		—		—		—		—		—		—
	Others		8,969		17,061		7,843		26,594		5,134		6,288		—		—		—		—

			16,216		29,933		312,647		642,279		111,296		153,492		—		—		—		—

Total		W	43,110		144,163		472,432		1,144,909		153,973		207,430		1,100		1,100		1,700		1,700

(*1)	Operating expenses and others include W183,271 million of dividends paid by the Parent Company.

(*2)	Operating revenue and others include W73,050 million of dividends paid by the associates which was deducted from the investment in associates.

(*3)	Operating revenue and others include W6,082 million of dividends received from the Korea IT Fund.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

34.

Transactions with Related Parties, Continued

(3)

Transactions with related parties for the six-month periods ended June 30, 2016 and 2015 are as follows, Continued:


(In millions of won)		For the six-month period ended June 30, 2015
		Operating revenue and others				Operating expense and others				Acquisition of property and equipment				Loans
Scope	Company	Three- month period ended June 30		Six- month period ended June 30		Three- month period ended June 30		Six- month period ended June 30		Three- month period ended June 30		Six- month period ended June 30		Three- month period ended June 30		Six- month period ended June 30
Ultimate Controlling Entity	SK Holdings Co., Ltd.(*1, 4)	W	1,090		1,244		9,240		189,121		—		—		—		—
Associates	F&U Credit information Co., Ltd.		662		1,331		10,127		22,366		—		—		—		—
	HappyNarae Co., Ltd.		68		139		2,001		2,959		2,481		2,869		—		—
	SK hynix Inc.(*2)		2,627		50,178		2,194		2,199		—		—		—		—
	SK Wyverns Baseball Club Co., Ltd.		1,278		3,130		1,606		11,435		—		—		—		—
	KEB HanaCard Co., Ltd.		5,418		10,850		2,496		8,223		—		—		—		—
	Xian Tianlong Science and Technology Co., Ltd.		—		—		—		—		—		—		121		7,153
	Others(*3)		3,663		5,056		4,995		9,512		11		1,141		—		500

			13,716		70,684		23,419		56,694		2,492		4,010		121		7,653

Other	SK Engineering & Construction Co., Ltd.		1,177		4,759		11,077		13,057		73,059		125,394		—		—
	SK C&C Co., Ltd.(*4)		3,438		7,379		79,359		160,928		49,150		90,384		—		—
	SK Networks Co., Ltd.		4,318		6,023		255,918		620,717		—		—		—		—
	SK Networks service Co., Ltd.		2,483		4,830		24,893		37,774		522		526		—		—
	SK Telesys Co., Ltd.		110		212		9,659		21,101		12,342		73,359		—		—
	SK Energy Co., Ltd.		1,877		3,015		227		443		—		—		—		—
	SK Gas Co., Ltd.		813		1,885		—		—		—		—		—		—
	Others		6,628		13,094		10,180		19,660		4,214		4,563		—		—

			20,844		41,197		391,313		873,680		139,287		294,226		—		—

Total		W	35,650		113,125		423,972		1,119,495		141,779		298,236		121		7,653

(*1)	Operating expense and others include W171,053 million of dividends paid by the Parent Company.

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

(*3)	Operating revenue and others include W2,103 million and W227 million of dividends paid by Korea IT Fund and UniSK, respectively, which were deducted from the investment in associates.

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

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

34.

Transactions with Related Parties, Continued

(4)

Account balances as of June 30, 2016 and December 31, 2015 are as follows:


(In millions of won)		June 30, 2016
		Accounts receivable				Accounts payable
Scope	Company	Loans		Accounts receivable- trade and others		Accounts payable – trade and others
Ultimate Controlling Entity	SK Holdings Co., Ltd.	W	—		3,531		85,503
Associates	HappyNarae Co., Ltd.		—		17		2,871
	F&U Credit information Co., Ltd.		—		8		1,092
	SK hynix Inc.		—		15,252		204
	SK Wyverns Baseball Club Co., Ltd.		1,017		43		21
	Wave City Development Co., Ltd.		1,290		38,412		—
	Daehan Kanggun BcN Co., Ltd.		22,147		7,791		—
	KEB HanaCard Co., Ltd.		—		1,639		2,592
	Xian Tianlong Science and Technology Co., Ltd.		8,287		—		—
	Others		—		292		802

			32,741		63,454		7,582

Other	SK Engineering & Construction Co., Ltd.		—		2,093		208
	SK Networks. Co., Ltd.		—		1,171		123,963
	SK Networks Services Co., Ltd.		—		2		4,202
	SK Telesys Co., Ltd.		—		22		19,498
	SK TNS Co., Ltd.		—		—		17,516
	SK innovation co., ltd.		—		1,615		552
	SK Energy Co., Ltd.		—		585		692
	SK Gas Co., Ltd.		—		1,432		9
	Others		—		2,751		15,714

			—		9,671		182,354

		W	32,741		76,656		275,439

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

34.

Transactions with Related Parties, Continued

(4)

Account balances as of June 30, 2016 and December 31, 2015 are as follows, Continued:


(In millions of won)		December 31, 2015
		Accounts receivable				Accounts payable
Scope	Company	Loans		Accounts receivable-trade and others		Accounts payable – other and others
Ultimate Controlling Entity	SK Holdings Co., Ltd. (formerly, SK C&C Co., Ltd.) (*)	W	—		1,836		160,133
Associates	HappyNarae Co., Ltd.		—		12		6,162
	F&U Credit information Co., Ltd.		—		66		934
	SK hynix Inc.		—		4,360		155
	SK Wyverns Baseball Club Co., Ltd.		1,017		4,502		—
	Wave City Development Co., Ltd.		1,890		38,412		—
	Daehan Kanggun BcN Co., Ltd.		22,147		—		—
	KEB HanaCard Co., Ltd.		—		1,771		9,042
	Xian Tianlong Science and Technology Co., Ltd.		8,287		—		—
	Others		—		299		964

			33,341		49,422		17,257

Other	SK Engineering & Construction Co., Ltd.		—		1,005		14,877
	SK Networks. Co., Ltd.		—		1,569		208,291
	SK Networks Services Co., Ltd.		—		—		9,414
	SK Telesys Co., Ltd.		—		140		37,491
	SK TNS Co., Ltd.		—		—		43,585
	SK innovation co., ltd.		—		2,159		1,424
	SK Energy Co., Ltd.		—		1,681		173
	SK Gas Co., Ltd.		—		1,830		9
	Others		—		2,886		14,503

			—		11,270		329,767

		W	33,341		62,528		507,157

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

(5)

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

(6)

There were additional investments in associates and joint ventures during the six-month period ended June 30, 2016 as presented in Note 11.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

35.

Commitments and Contingencies

(1)

Collateral assets and commitments

SK Broadband Co., Ltd., a subsidiary of the Parent Company, has pledged its properties as collateral for leases on buildings in the amount of W7,437 million as of June 30, 2016.

SK Broadband Co., Ltd. has guaranteed for employees’ borrowings relating to employee stock ownership program and provided short-term financial instruments amounting to W1,075 million as collateral as of June 30, 2016.

(2)

Contingencies

As of June 30, 2016 the Group is involved in various legal claims and litigation. Provision recognized in relation to these claims and litigation is immaterial. For those legal claims and litigation for which no provision was recognized, management does not believe the Group has a present obligation for these matters, nor is it expected any of these claims or litigation will have a significant impact on the Group’s financial position or operating results in the event an outflow of resources is ultimately necessary.

(3)

Accounts receivables from the sale of handsets

The agents of the Parent Company sell handsets to our subscribers on an installment basis. During the six-month period ended June 30, 2016, the Parent Company entered into comprehensive agreement to purchase the accounts receivables from the handset sales with agents and to transfer the accounts receivables from the handset sales to a Special Purpose Company, respectively.

The accounts receivables from the sale of handsets amounting to W460,802 million as of June 30, 2016, which the Parent Company purchased according to relevant comprehensive agreement are recognized as accounts receivable - other.

(4)

Frequency usage rights

During the six-month period ended June 30, 2016, the Parent Company secured bandwidth blocs in the 2.6 GHz band for W1,330,100 million at the spectrum auction held by the Ministry of Science, ICT and Future Planning (MSIP) of Korea. The consideration will be paid on an annual installment basis for 10 years from August 2016 with the Parent Company acquiring ownership of the frequency usage rights on the first payment of installments.

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

36.

Statements of Cash Flows

(1)

Adjustments for income and expenses from operating activities for the six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)	For the six-month period ended
	June 30, 2016			June 30, 2015
Interest income	W	(24,395	)		(25,181	)
Dividends		(14,842	)		(13,339	)
Gain on foreign currency translation		(1,036	)		(4,024	)
Gain on disposal of long-term investments assets		(316,902	)		(6,252	)
Gain on valuation of derivatives		(3,684	)		(1,030	)
Gain on disposal of accounts receivable - trade		(7,855	)		—
Gain related to investments in subsidiaries, associates and joint ventures, net		(116,808	)		(452,323	)
Gain on disposal of property, equipment and intangible assets		(2,248	)		(2,765	)
Gain on relating to financial liabilities at fair value through profit or loss		(177	)		(5,188	)
Other income		(596	)		(131	)
Interest expense		142,409			150,222
Loss on foreign currency translation		1,684			3,132
Loss on disposal of long-term investments securities		134			1,651
Other finance costs		—			3,151
Loss on settlement of derivatives		319			4,517
Income tax expense		237,586			234,970
Provision for retirement benefits		58,390			53,514
Depreciation and amortization		1,501,554			1,468,160
Bad debt expense		22,643			34,995
Loss on disposal of property and equipment and intangible assets		18,199			3,290
Loss on impairment of property and equipment and intangible assets		797			1,976
Loss relating to financial liabilities at fair value through profit or loss		—			174
Bad debt for accounts receivable - other		3,409			4,074
Loss on impairment of investment assets		11,868			18,668
Other expenses		14,798			7,031

	W	1,525,247			1,479,292

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

36.

Statements of Cash Flows, Continued

(2)

Changes in assets and liabilities from operating activities for the six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)	For the six-month period ended
	June 30, 2016			June 30, 2015
Accounts receivable - trade	W	134,035			(79,987	)
Accounts receivable - other		(600,541	)		(42,198	)
Accrued income		444			—
Advance payments		8,321			(34,860	)
Prepaid expenses		(9,141	)		(14,154	)
Value-Added Tax refundable		(192	)		27
Inventories		322			(16,676	)
Long-term receivables - other		(45,498	)
Guarantee deposits		3,813			(12,118	)
Accounts payable - trade		(46,359	)		36,889
Accounts payable - other		89,897			(132,104	)
Advanced receipts		11,066			(3,289	)
Withholdings		84,678			(178,717	)
Deposits received		(2,561	)		(7,475	)
Accrued expenses		99,147			(162,490	)
Value-Added Tax payable		6,736			13,419
Unearned revenue		(18,580	)		(71,067	)
Provisions		488			(29,665	)
Long-term provisions		(20	)		(9,137	)
Plan assets		(2,384	)		1,301
Retirement benefit payment		(20,553	)		(33,513	)
Others		429			(11,128	)

	W	(306,453	)		(786,942	)

(3)

Significant non-cash transactions for the six-month periods ended June 30, 2016 and 2015 are as follows:


(In millions of won)	For the six-month period ended
	June 30, 2016		June 30, 2015
Decrease of accounts payable - other related to acquisition of property and equipment and intangible assets	W	258,031		184,377

37.

Interim dividends

On July 28, 2016, the Board of Directors of the Parent Company resolved to pay interim cash dividends of W1,000 per share totaling W70,609 million (market dividend rate: 0.48%). The ex-dividend date was June 30, 2016 and the interim dividends are expected to be paid within twenty days after the date of the Board of Directors’ resolution.