SK TELECOM CO LTD - Annual Report 2016

6-K 1 d121534d6k.htm FORM 6-K 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

OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE MONTH OF FEBRUARY 2016

Commission File Number: 333-04906

SK Telecom Co., Ltd.

(Translation of registrants name into English)

Euljiro 65(Euljiro2-ga), Jung-gu

Seoul 100-999, Korea

(Address of principal executive office)

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): ¨

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): ¨

RESOLUTION TO CALL

THE ANNUAL GENERAL MEETING OF SHAREHOLDERS

The Board of Directors of SK Telecom Co., Ltd. (the Company) has resolved to call the Annual General Meeting of Shareholders, to be held at the following time and place and the agenda of which shall be as follows:

1. Date / Time	March 18, 2016 10:00 AM (Seoul time)
2. Place	4th Floor, SK Telecom Boramae Building, Boramae-ro 5-Gil 1, Gwanak-gu, Seoul, Korea
3. Agenda	1. Approval of financial statements for the 32nd fiscal year(2015) 2. Amendment to the Articles of Incorporation 3. Approval of the appointment of directors as set forth in Item 3 of the Companys
agenda enclosed herewith 3.1 Election of an executive
Director(candidate: Cho, Dae Sik) 3.2 Election of an independent
non-executive director (candidate: Oh, Dae Shick) 4. Approval of the election of a member of the Audit Committee (candidate: Oh, Dae Shick) 5. Approval of ceiling amount of the remuneration for directors 6. Amendment to the remuneration policy for executives
4. Date of the resolution by the Board of Directors	February 18, 2016
Attendance of external directors	Present	4
	Absent	0
5. Other Noteworthy Matters	-

Documents relating to the Annual Meeting of Shareholders

Approval of Financial Statements for the 32nd Fiscal Year(2015)

SK TELECOM CO., LTD. AND SUBSIDIARIES

Consolidated Financial Statements

December 31, 2015

Consolidated Statements of Financial Position

As of December 31, 2015 and 2014

(In millions of won)		December 31, 2015
Assets
Current Assets:
Cash and cash equivalents	34,35	W	768,922	834,429
Short-term financial instruments	6,34,35,36,37		691,090	313,068
Short-term investment securities	9,34,35		92,262	280,161
Accounts receivable - trade, net	7,34,35,36		2,344,867	2,392,150
Short-term loans, net	7,34,35,36		53,895	74,512
Accounts receivable - other, net	7,34,35,36		673,739	690,527
Prepaid expenses			151,978	134,404
Inventories, net	8,37		273,556	267,667
Assets classified as held for sale	10			10,510
Advanced payments and other	7,9,34,35,36		109,933	85,720
Total Current Assets			5,160,242	5,083,148
Non-Current Assets:
Long-term financial instruments	6,34,35,37		10,623	631
Long-term investment securities	9,34,35		1,207,226	956,280
Investments in associates and joint ventures	12		6,896,293	6,298,088
Property and equipment, net	13,36,37		10,371,256	10,567,701
Investment property, net	14		15,071	14,997
Goodwill	15		1,908,590	1,917,595
Intangible assets, net	16		2,304,784	2,483,994
Long-term loans, net	7,34,35,36		62,454	55,728
Long-term accounts receivable - other	7,34,35		2,420	3,596
Long-term prepaid expenses	37		76,034	51,961
Guarantee deposits	6,7,34,35,36		297,281	285,144
Long-term derivative financial assets	22,34,35		166,399	70,035
Deferred tax assets	2,31		17,257	25,083
Other non-current assets	7,34,35		85,457	127,252
Total Non-Current Assets			23,421,145	22,858,085
Total Assets		W	28,581,387	27,941,233

Consolidated Statements of Financial Position, Continued

As of December 31, 2015 and 2014

(In millions of won)		December 31, 2015
Liabilities and Equity
Current Liabilities:
Short-term borrowings	17,34,35	W	260,000	366,600
Current installments of long-term debt, net	17,34,35		703,087	590,714
Current installments of finance lease liabilities	20,34,35		26	3,804
Current installments of long-term payables other	18,34,35		120,185	189,389
Accounts payable - trade	34,35,36		279,782	275,495
Accounts payable - other	34,35,36		1,323,434	1,381,850
Withholdings	34,35,36		865,327	1,053,063
Accrued expenses	34,35		920,739	952,418
Income tax payable	31		381,794	99,236
Unearned revenue			224,233	327,003
Provisions	19		40,988	51,075
Advanced receipts	34,35		136,844	129,255
Liabilities classified as held for sale	10			408
Other current liabilities			54
Total Current Liabilities			5,256,493	5,420,310
Non-Current Liabilities:
Debentures, excluding current installments, net	17,34,35		6,439,147	5,649,158
Long-term borrowings, excluding current installments	17,34,35		121,553	149,720
Long-term payables - other	18,34,35		581,697	684,567
Long-term unearned revenue			2,842	19,659
Finance lease liabilities	20,34,35			26
Defined benefit liabilities	21		98,856	91,587
Long-term derivative financial liabilities	22,34,35		89,296	130,889
Long-term provisions	19		29,217	36,013
Deferred tax liabilities	31		538,114	444,211
Other non-current liabilities	34,35		50,076	66,823
Total Non-Current Liabilities			7,950,798	7,272,653
Total Liabilities			13,207,291	12,692,963
Equity
Share capital	1,23		44,639	44,639
Capital surplus and other capital adjustments	23,24,25		189,510	277,998
Retained earnings	26		15,007,627	14,188,591
Reserves	27		9,303	(4,489	)
Equity attributable to owners of the Parent Company			15,251,079	14,506,739
Non-controlling interests			123,017	741,531
Total Equity			15,374,096	15,248,270
Total Liabilities and Equity		W	28,581,387	27,941,233

Consolidated Statements of Income

For the years ended December 31, 2015 and 2014

(In millions of won except for per share data)
Operating revenue:	5,36
Revenue	W	17,136,734		17,163,798
Operating expense:	36
Labor cost	21	1,893,745		1,659,777
Commissions paid		5,206,951		5,692,680
Depreciation and amortization	5	2,845,295		2,714,730
Network interconnection		957,605		997,319
Leased line		389,819		399,014
Advertising		405,005		415,857
Rent		493,586		460,309
Cost of products that have been resold		1,955,861		1,680,110
Other operating expenses	28	1,280,861		1,318,897
		15,428,728		15,338,693
Operating income	5	1,708,006		1,825,105
Finance income	5,30	103,900		126,337
Finance costs	5,30	(350,100	)	(386,673	)
Gain related to investments in subsidiaries, associates and joint ventures, net	1,5,12	786,140		906,338
Other non-operating income	5,29	30,910		56,279
Other non-operating expenses	5,29	(243,491	)	(273,558	)
Profit before income tax	5	2,035,365		2,253,828
Income tax expense	31	519,480		454,508
Profit for the year		1,515,885		1,799,320
Attributable to :
Owners of the Parent Company	W	1,518,604		1,801,178
Non-controlling interests		(2,719	)	(1,858	)
Earnings per share	32
Basic earnings per share (in won)	W	20,988		25,154
Diluted earnings per share (in won)	W	20,988		25,154

Consolidated Statements of Comprehensive Income

For the years ended December 31, 2015 and 2014

(In millions of won) — Profit for the year	W	1,515,885		1,799,320
Other comprehensive income (loss)
Items that will never be reclassified to profit or loss, net of taxes:
Remeasurement of defined benefit liabilities	21	(14,489	)	(32,942	)
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	27,30	(3,661	)	27,267
Net change in other comprehensive income of investments in associates and joint ventures	12,27	(5,709	)	8,187
Net change in unrealized fair value of derivatives	22,27,30	(1,271	)	(45,942	)
Foreign currency translation differences for foreign operations	27	26,965		14,944
Other comprehensive income (loss) for the year		1,835		(28,486	)
Total comprehensive income	W	1,517,720		1,770,834
Total comprehensive income attributable to:
Owners of the Parent Company	W	1,522,280		1,777,519
Non-controlling interests		(4,560	)	(6,685	)

Consolidated Statements of Changes in Equity

For the years ended December 31, 2015 and 2014

(In millions of won)	Controlling Interest
	Share capital	Capital surplus (deficit) and other capital adjustments		Retained earnings		Reserves		Sub-total
Balance, January 1, 2014	W	44,639	317,508		13,102,495		(12,270	)	13,452,372		714,185		14,166,557
Cash dividends					(666,802	)			(666,802	)	(170	)	(666,972	)
Total comprehensive income
Profit (loss) for the year					1,801,178				1,801,178		(1,858	)	1,799,320
Other comprehensive income (loss)					(31,440	)	7,781		(23,659	)	(4,827	)	(28,486	)
					1,769,738		7,781		1,777,519		(6,685	)	1,770,834
Interest on hybrid bond					(16,840	)			(16,840	)			(16,840	)
Changes in consolidation scope											23,667		23,667
Business combination under common control			(28,641	)					(28,641	)			(28,641	)
Changes in ownership in subsidiaries			(10,869	)					(10,869	)	10,534		(335	)
Balance, December 31, 2014	W	44,639	277,998		14,188,591		(4,489	)	14,506,739		741,531		15,248,270
Balance, January 1, 2015	W	44,639	277,998		14,188,591		(4,489	)	14,506,739		741,531		15,248,270
Cash dividends					(668,494	)			(668,494	)	(143	)	(668,637	)
Total comprehensive income
Profit (loss) for the year					1,518,604				1,518,604		(2,719	)	1,515,885
Other comprehensive income (loss)					(13,402	)	17,078		3,676		(1,841	)	1,835
					1,505,202		17,078		1,522,280		(4,560	)	1,517,720
Interest on hybrid bond					(16,840	)			(16,840	)			(16,840	)
Acquisition of treasury stock			(490,192	)					(490,192	)			(490,192	)
Disposal of treasury stock			425,744						425,744				425,744
Changes in consolidation scope											(5,226	)	(5,226	)
Changes in ownership in subsidiaries			(24,040	)	(832	)	(3,286	)	(28,158	)	(608,585	)	(636,743	)
Balance, December 31, 2015	W	44,639	189,510		15,007,627		9,303		15,251,079		123,017		15,374,096

Consolidated Statements of Cash Flows

For the years ended December 31, 2015 and 2014

(In millions of won)
Cash flows from operating activities:
Cash generated from operating activities
Profit for the year	W	1,515,885		1,799,320
Adjustments for income and expenses	38	3,250,143		2,978,995
Changes in assets and liabilities related to operating activities	38	(685,734	)	(707,333	)
Sub-total		4,080,294		4,070,982
Interest received		43,400		56,706
Dividends received		62,973		13,048
Interest paid		(275,796	)	(280,847	)
Income tax paid		(132,742	)	(182,504	)
Net cash provided by operating activities		3,778,129		3,677,385
Cash flows from investing activities:
Cash inflows from investing activities:
Decrease in short-term financial instruments, net				5,627
Decrease in short-term investment securities, net		105,158
Collection of short-term loans		398,308		207,439
Decrease in long-term financial instruments		7,424		2,535
Proceeds from disposals of long-term investment securities		149,310		65,287
Proceeds from disposals of investments in associates and joint ventures		185,094		7,333
Proceeds from disposals of property and equipment		36,586		25,143
Proceeds from disposals of intangible assets		3,769		10,917
Proceeds from disposals of assets held for sale		1,009		3,667
Collection of long-term loans		2,132		4,454
Decrease in deposits		14,635		8,891
Proceeds from disposals of other non-current assets		607		94
Proceeds from disposals of subsidiaries,		155
Increase in cash due to acquisition of a subsidiary		10,355
Sub-total		914,542		341,387
Cash outflows for investing activities:
Increase in short-term financial instruments, net		(385,612	)
Increase in short-term investment securities, net				(174,209	)
Increase in short-term loans		(370,378	)	(202,501	)
Increase in long-term loans		(16,701	)	(4,341	)
Increase in long-term financial instruments		(10,008	)	(2,522	)
Acquisitions of long-term investment securities		(312,261	)	(41,305	)
Acquisitions of investments in associates and joint ventures		(65,080	)	(60,020	)
Acquisitions of property and equipment		(2,478,778	)	(3,008,026	)
Acquisitions of intangible assets		(127,948	)	(130,667	)
Cash held by disposal group classified as held for sale				(552	)
Increase in deposits		(12,536	)	(6,903	)
Increase in other non-current assets		(2,542	)	(18,233	)
Acquisitions of business, net of cash acquired		(13,197	)	(375,273	)
Sub-total		(3,795,041	)	(4,024,552	)
Net cash used in investing activities	W	(2,880,499	)	(3,683,165	)

Consolidated Statements of Cash Flows, Continued

For the years ended December 31, 2015 and 2014

(In millions of won)	2015
Cash flows from financing activities:
Cash inflows from financing activities:
Increase in short-term borrowings, net	W			102,868
Proceeds from issuance of debentures		1,375,031		1,255,468
Proceeds from long-term borrowings				62,552
Cash inflows from settlement of derivatives		175		200
Sub-total		1,375,206		1,421,088
Cash outflows for financing activities:
Decrease in short-term borrowings, net		(106,600	)
Repayments of long-term account payables-other		(191,436	)	(207,791	)
Repayments of debentures		(620,000	)	(1,039,938	)
Repayments of long-term borrowings		(21,924	)	(23,284	)
Cash outflows from settlement of derivatives		(655	)	(6,444	)
Payments of finance lease liabilities		(3,206	)	(19,388	)
Payments of dividends		(668,494	)	(666,802	)
Payments of interest on hybrid bond		(16,840	)	(16,840	)
Acquisitions of treasury stock		(490,192	)
Decrease in cash from the consolidated capital transaction		(220,442	)
Sub-total		(2,339,789	)	(1,980,487	)
Net cash used in financing activities		(964,583	)	(559,399	)
Net decrease in cash and cash equivalents		(66,953	)	(565,179	)
Cash and cash equivalents at beginning of the year		834,429		1,398,639
Effects of exchange rate changes on cash and cash equivalents		1,446		969
Cash and cash equivalents at end of the year	W	768,922		834,429

Reporting Entity

(1) General

SK Telecom Co., Ltd. (the Parent Company) was incorporated in March 1984 under the laws of the Republic of Korea (Korea) to engage in providing cellular telephone communication services in Korea. The Parent Company mainly provides wireless telecommunications in Korea. The Parent Companys 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 December 31, 2015, the Parent Companys total issued shares are held by the following:

SK Holdings Co., Ltd.(*)	20,363,452	25.22
National Pension Service	6,963,591	8.63
Institutional investors and other minority stockholders	43,282,117	53.60
Treasury stock	10,136,551	12.55
Total number of shares	80,745,711	100.00

(*) During the year ended December 31, 2015, SK C&C Co., Ltd., the ultimate controlling entitys investee accounted using the equity method, merged SK Holdings Co., Ltd., the ultimate controlling entity of the Parent Company, and changed its name to SK, Holdings Co., Ltd.

These consolidated 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 December 31, 2015 and 2014 is as follows:

Subsidiary	Location	Primary business	Ownership (%) — Dec. 31, 2015	Dec. 31, 2014
SK Telink Co., Ltd.	Korea	Telecommunication and MVNO service	83.5	83.5
M&Service Co., Ltd.	Korea	Data base and internet website service	100.0	100.0
SK Communications Co., Ltd.	Korea	Internet website services	64.6	64.6
Stonebridge Cinema Fund	Korea	Investment association	55.2	56.0
Commerce Planet Co., Ltd.	Korea	Online shopping mall operation agency	100.0	100.0
SK Broadband Co., Ltd.(*1,4)	Korea	Telecommunication services	100.0	50.6
K-net Culture and Contents Venture Fund	Korea	Investment association	59.0	59.0
Fitech Focus Limited Partnership II	Korea	Investment association	66.7	66.7
Open Innovation Fund	Korea	Investment association	98.9	98.9
PS&Marketing Corporation	Korea	Communications device retail business	100.0	100.0
Service Ace Co., Ltd.	Korea	Customer center management service	100.0	100.0
Service Top Co., Ltd.	Korea	Customer center management service	100.0	100.0
Network O&S Co., Ltd.	Korea	Base station maintenance service	100.0	100.0
BNCP Co., Ltd.(*5)	Korea	Internet website services		100.0
Iconcube Holdings, Inc. (*5)	Korea	Investment association		100.0
Iconecube, Inc. (*5)	Korea	Internet website services		100.0
SK Planet Co., Ltd.	Korea	Telecommunication service	100.0	100.0
Neosnetworks Co.,Ltd.(*2)	Korea	Guarding of facilities	83.9	66.7

Reporting Entity, Continued

(2) List of subsidiaries, Continued

Subsidiary	Location	Primary business	Ownership (%) — Dec. 31, 2015	Dec. 31, 2014
IRIVER LIMITED (*3)	Korea	Manufacturing digital audio players and other portable media devices.	49.0	49.0
Iriver CS Co., Ltd. (*5)	Korea	After-sales service and logistics agency		100.0
iriver Enterprise Ltd.	Hong Kong	Management of Chinese subsidiary	100.0	100.0
iriver America Inc.	USA	Marketing and sales in North America	100.0	100.0
iriver Inc.	USA	Marketing and sales in North America	100.0	100.0
iriver China Co., Ltd.	China	Sales and manufacturing MP3,4 in China	100.0	100.0
Dongguan iriver Electronics Co., Ltd.	China	Sales and manufacturing e-book in China	100.0	100.0
Groovers JP Ltd.(*5)	Japan	Digital music contents sourcing and distribution service	100.0
SK Telecom China Holdings Co., Ltd.	China	Investment association	100.0	100.0
Shenzhen E-eye High Tech Co., Ltd.(*5)	China	Manufacturing		65.5
SK Global Healthcare Business Group., Ltd.	Hong Kong	Investment association	100.0	100.0
SK Planet Japan	Japan	Digital contents sourcing service	100.0	100.0
SKT Vietnam PTE. Ltd.	Singapore	Telecommunication service	73.3	73.3
SK Planet Global PTE. Ltd.	Singapore	Digital contents sourcing service	100.0	100.0
SKP GLOBAL HOLDINGS PTE. LTD.	Singapore	Investment association	100.0	100.0
SKT Americas, Inc.	USA	Information gathering and consulting	100.0	100.0
SKP America LLC.	USA	Digital contents sourcing service	100.0	100.0
YTK Investment Ltd.	Cayman	Investment association	100.0	100.0
Atlas Investment	Cayman	Investment association	100.0	100.0
Technology Innovation Partners, LP.	USA	Investment association	100.0	100.0
SK Telecom China Fund I L.P.	Cayman	Investment association	100.0	100.0
Entrix Co., Ltd.(*5)	Korea	Cloud streaming services	100.0
shopkick Management Company, Inc.	USA	Investment association	95.2	95.2
shopkick, Inc.	USA	Mileage-based online transaction app development	100.0	100.0

(*1) On March 20, 2015, the Board of Directors of the Parent Company decided to grant 0.0168936 share of its treasury stock in exchange for 1 share of SK Broadband Co., Ltd., a subsidiary of the Parent Company, to the shareholders of SK Broadband Co., Ltd. as of June 9, 2015. After the stock exchange, SK Broadband Co., Ltd. became a wholly-owned subsidiary of the Parent Company.

(*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. The Parent Company newly acquired 50,377 and 326,748 shares of Neosnetworks Co., Ltd. by participating in the capital increase and capital increase without consideration respectively for the year ended December 31, 2015,

(*3) Although the Group has less than 50% of the voting rights of IRIVER LIMITED, it is considered to have de facto control 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.

Reporting Entity, Continued

(2) List of subsidiaries, Continued

(*4) On November 2, 2015, the board of directors of the Parent Company resolved to acquire 30% 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), and the Parent Company entered into a share purchase agreement with CJ O Shopping. On April 4, 2016 (the transaction closing date), the Parent Company will acquire 23,234,060 shares of CJ Hello Vision. As of December 31, 2015, the approval of relevant government agencies for the share purchase has not been completed yet and the deal closing will depend upon the status of the pre-requirements including the government agencies approval. According to the share purchase agreement, the Parent Company will grant put option (the exercise date: after 2 years from the date which is 3 years from the transaction closing date) to CJ O Shopping and be granted call option (the exercise date: after 5 years from the transaction closing date) on CJ O Shoppings remaining shares in CJ Hello Vision. On November 2, 2015, the board of directors of SK Broadband Co., Ltd. (SK Broadband), a subsidiary of the Parent Company, held a meeting to resolve the merger of SK Broadband into CJ Hello Vision, and SK Broadband entered into a merger agreement with CJ Hello Vision. Under the agreement, SK Broadband will be merged into CJ Hello Vision on April 1, 2016 (the registered date of the merger: April 4, 2016). As of December 31, 2015, the approval of relevant government agencies for the merger has not been completed yet and the deal closing will depend upon the status of the pre-requirements including the government agencies approval.

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

In accordance with the Groups accounting policy relating to the scope of consolidation, small-sized subsidiaries including IM Shopping Inc. were excluded from the list of subsidiaries as the effects on the Groups consolidated financial statements are not material considering both individual and overall quantitative and qualitative effects.

Reporting Entity, Continued

(3) Condensed financial information of subsidiaries

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	)
Stonebridge Cinema Fund		7,797	523	7,274			3,290
Commerce Planet Co., Ltd.		26,291	33,660	(7,369	)	78,647	(3,003	)
SK Broadband Co., Ltd.		3,291,707	2,170,484	1,121,223		2,731,344	10,832
K-net Culture and Contents Venture Fund		13,169		13,169			(421	)
Fitech Focus Limited Partnership II		18,249		18,249			(1,085	)
Open Innovation Fund		19,455		19,455			(2,348	)
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	)
Neosnetworks Co.,Ltd.		68,361	15,583	52,778		61,092	(5,615	)
IRIVER LIMITED(*1)		60,434	12,377	48,057		55,637	635
SK Telecom China Holdings Co., Ltd.		37,748	2,111	35,637		10,764	(10,124	)
SK Global Healthcare Business Group., Ltd.		24,584		24,584			(1,290	)
SK Planet Japan		5,068	1,021	4,047		699	(4,988	)
SKT Vietnam PTE. Ltd.		4,523	1,371	3,152
SK Planet Global PTE. Ltd.		1,570	218	1,352		1	(4,069	)
SKP GLOBAL HOLDINGS PTE. LTD.		28,320	16	28,304			(23,918	)
SKT Americas, Inc.		51,138	837	50,301		9,132	(3,204	)
SKP America LLC.		380,141		380,141			791
YTK Investment Ltd.		16,318		16,318			(3,210	)
Atlas Investment(*2)		77,750	199	77,551			(2,429	)
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	)	33,851	(52,390	)

(*1) 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 JP Ltd. subsidiaries of IRIVER LIMITED.

(*2) The financial information of Atlas Investment includes financial information of Technology Innovation Partners, L.P. and SK Telecom China Fund I L.P., subsidiaries of Atlas Investment.

Reporting Entity, Continued

(3) Condensed financial information of subsidiaries, Continued

Condensed financial information of subsidiaries as of and for the year ended December 31, 2014 is as follows:

(In millions of won) — Subsidiary	Total assets	Total liabilities	Total equity		Revenue	Profit (loss)
SK Telink Co., Ltd.	W	324,028	184,074	139,954		465,463	13,073
M&Service Co., Ltd.		78,826	36,817	42,009		133,789	7,492
SK Communications Co., Ltd.		176,168	41,987	134,181		93,910	(18,386	)
Stonebridge Cinema Fund		11,137	320	10,817			383
Commerce Planet Co., Ltd.		26,078	27,259	(1,181	)	64,509	933
SK Broadband Co., Ltd.		3,109,991	1,988,379	1,121,612		2,654,381	4,307
K-net Culture and Contents Venture Fund		21,094	4	21,090			4,920
Fitech Focus Limited Partnership II		19,301		19,301			(2,055	)
Open Innovation Fund		21,765		21,765			(6,266	)
PS&Marketing Corporation		544,292	336,221	208,071		1,627,217	2,817
Service Ace Co., Ltd.		66,336	37,770	28,566		207,427	3,570
Service Top Co., Ltd.		57,032	36,723	20,309		188,835	3,503
Network O&S Co., Ltd.		71,348	45,770	25,578		211,916	3,823
BNCP Co., Ltd.		6,785	5,887	898		12,869	(1,505	)
Iconcube Holdings, Inc.(*1)		1,415	515	900		630	(2,284	)
SK Planet Co., Ltd.		2,579,286	746,832	1,832,454		1,512,492	1,593
Neosnetworks Co.,Ltd.		31,633	13,251	18,382		33,302	(1,989	)
IRIVER LIMITED(*2)		61,945	14,392	47,553		53,192	2,345
SK Telecom China Holdings Co., Ltd.		37,877	2,335	35,542		12,420	1,058
Shenzhen E-eye High Tech Co., Ltd.		15,566	408	15,158		3,637	(1,143	)
SK Global Healthcare Business Group., Ltd.		25,768		25,768			(106	)
SK Planet Japan		5,222	1,638	3,584		93	(4,561	)
SKT Vietnam PTE. Ltd.		4,242	1,286	2,956			(73	)
SK Planet Global PTE. Ltd.		4,215	64	4,151		87	(2,543	)
SKP GLOBAL HOLDINGS PTE. LTD.		29,529	11	29,518			(9,716	)
SKT Americas, Inc.		42,159	554	41,605		9,100	(5	)
SKP America LLC.		297,981	67	297,914			(2,370	)
YTK Investment Ltd.		27,944		27,944			(15,259	)
Atlas Investment(*3)		66,825	94	66,731			(6,626	)
shopkick Management Company, Inc.		230,925		230,925
shopkick, Inc.		28,216	13,698	14,518

(*1) The condensed financial information of Iconcube Holdings, Inc. includes financial information of Iconcube, Inc., a subsidiary of Iconcube Holdings, Inc.

(*2) The condensed financial information of IRIVER LIMITED includes financial information of iriver CS Co. Ltd., iriver Enterprise Ltd., iriver America Inc., iriver Inc., iriver China Co., Ltd., and Dongguan iriver Electronics Co., Ltd., subsidiaries of IRIVER LIMITED.

(*3) The financial information of Atlas Investment includes financial information of Technology Innovation Partners, L.P. and SK Telecom China Fund I L.P., subsidiaries of Atlas Investment.

Reporting Entity, Continued

(4) Changes in subsidiaries

The list of subsidiaries that were newly included from consolidation during the year ended December 31, 2015 is as follows:

Subsidiary	Reason
Groovers JP Ltd.	Established by IRIVER LIMITED, a subsidiary of the Parent Company during the year ended December 31, 2015.
Entrix Co., Ltd	Established by spin-off from SK Planet Co., Ltd., a subsidiary of the Parent Company.

The list of subsidiaries that were excluded from subsidiaries during the year ended December 31, 2015 is as follows:

Subsidiary	Reason
BNCP Co., Ltd.	Disposed during the year ended December 31, 2015.
Iconcube Holdings, Inc.	Disposed during the year ended December 31, 2015.
Iconcube, Inc.	Disposed during the year ended December 31, 2015.
Iriver CS Co., Ltd.	Merged into IRIVER LIMITED, a subsidiary of the Parent Company during the year ended December 31, 2015.
Shenzhen E-eye High Tech Co., Ltd.	Disposed during the year ended December 31, 2015.

Reporting Entity, Continued

(5) The information of significant non-controlling interests of the Group as of and for the years ended December 31, 2015 and 2014 are as follows. There were no dividends paid during the years ended December 31, 2015 and 2014 by subsidiaries of which non-controlling interests are significant.

(In millions of won)	December 31, 2015
	SK Communications Co., Ltd.
Ownership of non-controlling interests (%)		35.4
Current assets	W	95,662
Non-current assets		56,834
Current liabilities		(33,298	)
Non-current liabilities		(1,708	)
Net assets		117,490
Net assets of consolidated entities		117,490
Carrying amount of non-controlling interests		41,659
Revenue	W	80,147
Loss for the period		(14,819	)
Loss of the consolidated entities		(14,819	)
Total comprehensive loss		(21,546	)
Loss attributable to non-controlling interests		(5,254	)
Net cash used in operating activities	W	(2,706	)
Net cash provided by investing activities		8,723
Net cash provided by financing activities
Net increase in cash and cash equivalents		6,017

Reporting Entity, Continued

(In millions of won)	December 31, 2014
	SK Communications Co., Ltd.		SK Broadband Co., Ltd.
Ownership of non-controlling interests (%)		35.4		49.4
Current assets	W	89,135		463,764
Non-current assets		87,033		2,646,227
Current liabilities		(41,252	)	(881,886	)
Non-current liabilities		(735	)	(1,106,493	)
Net assets		134,181		1,121,612
Adjustment for fair value				111,561
Net assets of consolidated entities		134,181		1,233,173
Carrying amount of non-controlling interests		47,577		609,638
Revenue	W	93,910		2,654,381
Profit (loss) for the period		(18,386	)	4,307
Amortization of fair value adjustment				(1,916	)
Profit (loss) of the consolidated entities		(18,386	)	2,391
Total comprehensive income (loss)		530		(10,324	)
Profit (loss) attributable to non-controlling interests		(6,519	)	1,182
Net cash provided by (used in) operating activities	W	(5,962	)	431,760
Net cash used in Investing activities		(17,927	)	(599,016	)
Net cash provided by financing activities				119,484
Net decrease in cash and cash equivalents		(23,889	)	(47,772	)

Basis of Presentation

(1) Statement of compliance

These consolidated financial statements were prepared in accordance with K-IFRS, as prescribed in the Act on External Audits of Stock Companies in the Republic of Korea.

The consolidated financial statements were authorized for issuance by the Board of Directors on February 3, 2016, which will be submitted for approval at the shareholders meeting to be held on March 18, 2016.

(2) Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis, except for the following material items in the consolidated statements of financial position:

derivative financial instruments are measured at fair value

financial instruments at fair value through profit or loss are measured at fair value

available-for-sale financial assets are measured at fair value

liabilities for defined benefit plans are recognized at the net of the total present value of defined benefit obligations less the fair value of plan assets.

(3) Functional and presentation currency

Financial statements of Group entities within the Group are presented in functional currency and the currency of the primary economic environment in which each entity operates. Consolidated financial statements of the Group are presented in Korean won, which is the Parent Companys functional and presentation currency.

(4) Use of estimates and judgments

The preparation of the consolidated 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.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period prospectively.

1) Critical judgments

Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements is included in the following notes: revenue, consolidation: whether the Group has de facto control over an investee: and classification of lease.

Basis of Presentation, Continued

(4) Use of estimates and judgments, Continued

2) Assumptions and estimation uncertainties

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are included in the following notes: allowance for doubtful accounts, estimated useful lives of property and equipments and intangible assets, impairment of goodwill, recognition of provision, measurement of defined benefit obligations, recognition of deferred tax assets (liabilities), and commitments and contingencies.

3) Fair value measurement

Groups 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.

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 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 36.

(5) Common control transactions

SK Holdings Co., Ltd. (the Ultimate Controlling Entity) is the Ultimate Controlling Entity of the Parent Company because it controls the Parent Company. Accordingly, gains and losses from business acquisitions and dispositions involving entities that are under the control of the Ultimate Controlling Entity are accounted for as common control transactions within equity.

Changes in Accounting Policies

Except for the changes below, the Group has consistently applied the accounting policies set out in Note 4 to all periods presented in these consolidated financial statements.

The Group has adopted the following amendments to standards with a date of initial application of January 1, 2015.

1) K-IFRS 1019 Employee Benefits Employee contributions

Amendments to K-IFRS 1019 introduced a practical expedient to accounting for defined benefit plan, when employees or third parties pay contributions if certain criteria are met. According to the amendments, the entity is permitted to recognize those contributions as a reduction of the service cost in the period in which the related service is rendered, instead of forecast future contributions from employees or third parties and attribute them to periods or service as negative benefits.

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

Significant Accounting Policies

The significant accounting policies applied by the Group in preparation of its consolidated financial statements in accordance with K-IFRSs are included below. The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements except for those as described in Note 3.

(1) Operating segments

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Groups other components. The Groups operating segments have been determined to be each business unit, for which the Group generates separately identifiable financial information that is regularly reported to the chief operating decision maker for the purpose of resource allocation and assessment of segment performance. The Group has three reportable segments which consist of cellular services, fixed-line telecommunication services and others, as described in Note 5. Segment results that are reported to the chief operating decision maker include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

Significant Accounting Policies, Continued

(2) Basis of consolidation

(i) Business combination

A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control.

Consideration transferred is generally measured at fair value, identical to the measurement of identifiable net assets acquired at fair value. If goodwill incurs as a result of business combination, the Group performs impairment test on an annual basis and recognizes gain from bargain purchases through profit or loss. Acquisition-related costs are expensed in the periods in which the costs are incurred and the services are received excluding costs to issue debt or equity securities recognized based on K-IFRS No. 1032 and 1039.

Consideration transferred does not include the amount settled in relation to the pre-existing relationship and the amount settled in relation to the pre-existing relationship is generally recognized through profit or loss.

Contingent consideration is measured at fair value at the acquisition date. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. If contingent consideration is not classified as equity, the Group subsequently recognizes changes in fair value of contingent consideration and recognizes through profit or loss.

Entire or certain portion of market-based measure of replacement award for share-based payment transactions of the acquiree or the replacement of an acquirees share-based payment transactions with share-based payment transactions of the acquirer is included in measurement of contingent considerations. Portion of a replacement award that is part of the consideration transferred for the acquiree and the portion that is remuneration for post-combination service is determined by comparing market-based measure of the awards of acquire and replacement awards that is attributable to pre-combination service.

(ii) Non-controlling interests

The Group measure at the acquisition date components of non-controlling interests in the acquiree that are present ownership interests and entitle their holders to a proportionate share of the acquirees net assets.

Changes in a Controlling Companys ownership interest in a subsidiary that do not result in the Controlling Company losing control of the subsidiary are accounted for as equity transactions.

(iii) Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Consolidation of an investee begins from the date the Group obtains control of the investee and cease when the Group loses control of the investee.

Significant Accounting Policies, Continued

(2) Basis of consolidation, Continued

(iv) Loss of control

If the Group loses control of a subsidiary, the Group derecognizes the assets and liabilities of the former subsidiary from the consolidated statement of financial position and recognizes gain or loss associated with the loss of control attributable to the former controlling interest. Any investment retained in the former subsidiary is recognized at its fair value when control is lost.

(v) Interest in investees accounted for using the equity method

Interest in investees accounted for using the equity method composed of interest in associates and joint ventures. An associate is an entity in which the Group has significant influence, but not control, over the entitys financial and operating policies. A joint venture is a joint arrangement whereby the Group that has joint control of the arrangement have rights to the net assets of the arrangement.

The investment in an associate and a joint venture is initially recognized at cost including transaction costs and the carrying amount is increased or decreased to recognize the Groups share of the profit or loss and changes in equity of the associate or the joint venture after the date of acquisition.

(vi) Intra-group transactions

Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. The Groups share of unrealized gain incurred from transactions with investees accounted for using the equity method are eliminated and unrealized loss are eliminated using the same basis if there are no evidence of asset impairments.

(vii) Business combinations under common control

The assets and liabilities acquired from the combination of entities or business under common control are recognized at the carrying amounts in the ultimate controlling shareholders consolidated financial statements. The difference between consideration and carrying amount of net assets acquired is added to or subtracted from other capital adjustments.

(3) Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments.

(4) Inventories

Inventories are stated at the acquisition cost using the average method. During the period, a perpetual inventory system is used to value inventories, which is adjusted to the physical inventory counts performed at the period end. When the net realizable value of inventories is less than the acquisition cost, the carrying amount is reduced to the net realizable value and any difference is charged to current operations as operating expenses. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

Significant Accounting Policies, Continued

(5) Non-derivative financial assets

The Group recognizes and measures non-derivative financial assets by the following four categories: financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables and available-for-sale financial assets. The Group recognizes financial assets in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

Upon initial recognition, non-derivative financial assets are measured at their fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the assets acquisition or issuance.

(i) Financial assets at fair value through profit or loss

A financial asset is classified as financial assets are classified at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. Upon initial recognition, transaction costs are recognized in profit or loss when incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss.

(ii) Held-to-maturity investments

A non-derivative financial asset with a fixed or determinable payment and fixed maturity, for which the Group has the positive intention and ability to hold to maturity, are classified as held-to-maturity investments. Subsequent to initial recognition, held-to-maturity investments are measured at amortized cost using the effective interest rate method.

(iii) Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method except for loans and receivables of which the effect of discounting is immaterial.

(iv) Available-for-sale financial assets

Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified as financial assets at fair value through profit or loss, held-to-maturity investments or loans and receivables. Subsequent to initial recognition, they are measured at fair value, which changes in fair value, net of any tax effect, recorded in other comprehensive income in equity. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost.

(v) De-recognition of financial assets

The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognized as a separate asset or liability. If the Group retains substantially all the risks and rewards of ownership of the transferred financial assets, the Group continues to recognize the transferred financial assets and recognizes financial liabilities for the consideration received.

Significant Accounting Policies, Continued

(5) Non-derivative financial assets, Continued

(vi) Offsetting between financial assets and financial liabilities

Financial assets and financial liabilities are offset and the net amount is presented in the consolidated statement of financial position only when the Group currently has a legally enforceable right to offset the recognized amounts, and there is the intention to settle on a net basis or to realize the asset and settle the liability simultaneously.

(6) Derivative financial instruments, including hedge accounting

Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.

(i) Hedge accounting

The Group holds forward exchange contracts, interest rate swaps, currency swaps and other derivative contracts to manage interest rate risk and foreign exchange risk. The Group designated derivatives as hedging instruments to hedge the risk of changes in the fair value of assets, liabilities or firm commitments (a fair value hedge) and foreign currency risk of highly probable forecasted transactions or firm commitments (a cash flow hedge).

On initial designation of the hedge, the Group formally documents the relationship between the hedging instrument(s) and hedged item(s), including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship.

Fair value hedge

Changes in the fair value of a derivative hedging instrument designated as a fair value hedge are recognized in profit or loss. The gain or loss from remeasuring the hedging instrument at fair value for a derivative hedging instrument and the gain or loss on the hedged item attributable to the hedged risk are recognized in profit or loss in the same line item of the consolidated statement of income. The Group discontinues fair value hedge accounting if the hedging instrument expires or is sold, terminated or exercised, or if the hedge no longer meets the criteria for hedge accounting. Any adjustment arising from gain or loss on the hedged item attributable to the hedged risk is amortized to profit or loss from the date the hedge accounting is discontinued.

Cash flow hedge

When a derivative is designated to hedge the variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income, net of tax, and presented in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. The cumulative gain or loss on the hedging instrument that has been recognized in other comprehensive income is reclassified to profit or loss in the periods during which the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, then the balance in other comprehensive income is recognized immediately in profit or loss.

Significant Accounting Policies, Continued

(6) Derivative financial instruments, including hedge accounting, Continued

(ii) Separable embedded derivatives

Embedded derivatives are separated from the host contract and accounted for separately only if the following criteria have been met:

(a) the economic characteristics and risks of the embedded derivative are not closely related to those of the host contract;

(b) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and

Changes in the fair value of separable embedded derivatives are recognized immediately in profit or loss.

(iii) Other derivative financial instruments

Changes in the fair value of other derivative financial instrument not designated as a hedging instrument are recognized immediately in profit or loss.

(7) Impairment of financial assets

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. However, losses expected as a result of future events, regardless of likelihood, are not recognized.

Objective evidence that a financial asset is impaired includes following loss events:

significant financial difficulty of the issuer or obligor;

a breach of contract, such as default or delinquency in interest or principal payments;

the lender, for economic or legal reasons relating to the borrowers financial difficulty, granting to the borrower a concession that the lender would not otherwise consider;

it becoming probable that the borrower will enter bankruptcy or other financial reorganization;

the disappearance of an active market for that financial asset because of financial difficulties; or

observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group

In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

Significant Accounting Policies, Continued

(7) Impairment of financial assets, Continued

If financial assets have objective evidence that they are impaired, impairment losses should be measured and recognized.

(i) Financial assets measured at amortized cost

An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of its estimated future cash flows discounted at the assets original effective interest rate. If it is not practicable to obtain the instruments estimated future cash flows, impairment losses would be measured by using prices from any observable current market transactions. The Group can recognize impairment losses directly or establish a provision to cover impairment losses. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtors credit rating), the previously recognized impairment loss shall be reversed either directly or by adjusting an allowance account.

(ii) Financial assets carried at cost

If there is objective evidence that an impairment loss has occurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the impairment loss is measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses shall not be reversed.

(iii) Available-for-sale financial assets

When a decline in the fair value of an available-for-sale financial asset has been recognized in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had been recognized in other comprehensive income shall be reclassified from equity to profit or loss as a reclassification adjustment even though the financial asset has not been derecognized. Impairment losses recognized in profit or loss for an investment in an equity instrument classified as available-for-sale shall not be reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss shall be reversed, with the amount of the reversal recognized in profit or loss.

(8) Property, plant and equipment

Property, plant and equipment are initially measured at cost and after initial recognition, are carried at cost less accumulated depreciation and accumulated impairment losses. The cost of property, plant and equipment includes expenditures arising directly from the construction or acquisition of the asset, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

Significant Accounting Policies, Continued

(8) Property, plant and equipment, Continued

Subsequent to initial recognition, an item of property, plant and equipment shall be carried at its cost less any accumulated depreciation and any accumulated impairment losses.

Subsequent costs are recognized in the carrying amount of property, plant and equipment at cost or, if appropriate, as separate items if it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing are recognized in profit or loss as incurred.

Property, plant and equipment, except for land, are depreciated on a straight-line basis over estimated useful lives that appropriately reflect the pattern in which the assets future economic benefits are expected to be consumed. A component that is significant compared to the total cost of property, plant and equipment is depreciated over its separate useful life.

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognized as other non-operating income (loss).

The estimated useful lives of the Groups property, plant and equipment are as follows:

	Useful lives (years)
Buildings and structures	15 ~ 40
Machinery	3 ~ 15
Other property, plant and equipment (Other PP&E)	4 ~ 10

Depreciation methods, useful lives and residual values are reviewed at the end of each reporting date and adjusted, if appropriate. The change is accounted for as a change in an accounting estimate.

(9) Borrowing costs

The Group capitalizes borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. Other borrowing costs are recognized in expense as incurred. A qualifying asset is an asset that requires a substantial period of time to get ready for its intended use or sale. Financial assets and inventories that are manufactured or otherwise produced over a short period of time are not qualifying assets. Assets that are ready for their intended use or sale when acquired are not qualifying assets.

To the extent that the Group borrows funds specifically for the purpose of obtaining a qualifying asset, the Group determines the amount of borrowing costs eligible for capitalization as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. To the extent that the Group borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the Group shall determine the amount of borrowing costs eligible for capitalization by applying a capitalization rate to the expenditures on that asset. The capitalization rate shall be the weighted average of the borrowing costs applicable to the borrowings of the Group that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs that the Group capitalizes during a period shall not exceed the amount of borrowing costs incurred during that period.

Significant Accounting Policies, Continued

(10) Intangible assets

Intangible assets are measured initially at cost and, subsequently, are carried at cost less accumulated amortization and accumulated impairment losses.

Amortization of intangible assets except for goodwill is calculated on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The residual value of intangible assets is zero. However, as there are no foreseeable limits to the periods over which club memberships are expected to be available for use, this intangible asset is determined as having indefinite useful lives and not amortized.

The estimated useful lives of the Groups intangible assets are as follows:

	Useful lives (years)
Frequency use rights	6.3 ~ 13.1
Land use rights	5
Industrial rights	5, 10
Development costs	5
Facility usage rights	10, 20
Customer relations	3 ~ 7
Other	3 ~ 20

Amortization periods and the amortization methods for intangible assets with finite useful lives are reviewed at the end of each reporting period. The useful lives of intangible assets that are not being amortized are reviewed at the end of each reporting period to determine whether events and circumstances continue to support indefinite useful life assessments for those assets. Changes are accounted for as changes in accounting estimates.

Expenditures on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, are recognized in profit or loss as incurred. Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. Other development expenditures are recognized in profit or loss as incurred.

Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which it relates. All other expenditures, including expenditures on internally generated goodwill and brands, are recognized in profit or loss as incurred.

Significant Accounting Policies, Continued

(11) Government grants

Government grants are not recognized unless there is reasonable assurance that the Group will comply with the grants conditions and that the grant will be received.

(i) Grants related to assets

Government grants whose primary condition is that the Group purchase, construct or otherwise acquire long-term assets are deducted in calculating the carrying amount of the asset. The grant is recognized in profit or loss over the life of a depreciable asset as a reduction to depreciation expense.

(ii) Grants related to income

Government grants which are intended to compensate the Group for expenses incurred are deducted from the related expenses.

(12) Investment property

Property held for the purpose of earning rentals or benefiting from capital appreciation is classified as investment property. Investment property is initially measured at its cost. Transaction costs are included in the initial measurement. Subsequently, investment property is carried at depreciated cost less any accumulated impairment losses.

Subsequent costs are recognized in the carrying amount of investment property at cost or, if appropriate, as separate items if it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing are recognized in profit or loss as incurred.

Investment property except for land, are depreciated on a straight-line basis over 15~40 years as estimated useful lives.

Depreciation methods, useful lives and residual values are reviewed at the end of each reporting date and adjusted, if appropriate. The change is accounted for as a change in an accounting estimate.

(13) Impairment of non-financial assets

The carrying amounts of the Groups non-financial assets, other than assets arising from employee benefits, inventories, deferred tax assets and non-current assets held for sale, are reviewed at the end of the reporting period to determine whether there is any indication of impairment. If any such indication exists, then the assets recoverable amount is estimated. Goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, irrespective of whether there is any indication of impairment, are tested for impairment annually by comparing their recoverable amount to their carrying amount.

Significant Accounting Policies, Continued

(13) Impairment of non-financial assets, Continued

The Group estimates the recoverable amount of an individual asset, if it is impossible to measure the individual recoverable amount of an asset, then the Group estimates the recoverable amount of cash-generating unit (CGU). A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. The value in use is estimated by applying a pre-tax discount rate that reflect current market assessments of the time value of money and the risks specific to the asset or CGU for which estimated future cash flows have not been adjusted, to the estimated future cash flows expected to be generated by the asset or CGU.

An impairment loss is recognized in profit or loss if the carrying amount of an asset or a CGU exceeds its recoverable amount.

Goodwill acquired in a business combination is allocated to each CGU that is expected to benefit from the synergies arising from the goodwill acquired. Any impairment identified at the CGU level will first reduce the carrying value of goodwill and then be used to reduce the carrying amount of the other assets in the CGU on a pro rata basis. Except for impairment losses in respect of goodwill which are never reversed, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the assets carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

(14) Leases

The Group classifies and accounts for leases as either a finance or operating lease, depending on the terms. Leases where the Group assumes substantially all of the risks and rewards of ownership are classified as finance leases. All other leases are classified as operating leases.

(i) Finance leases

At the commencement of the lease term, the Group recognizes as finance assets and finance liabilities in its consolidated statements of financial position, the lower amount of the fair value of the leased property and the present value of the minimum lease payments, each determined at the inception of the lease. Any initial direct costs are added to the amount recognized as an asset.

Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent rents are charged as expenses in the periods in which they are incurred.

The depreciable amount of a leased asset is allocated to each accounting period during the period of expected use on a systematic basis consistent with the depreciation policy the lessee adopts for depreciable assets that are owned. If there is no reasonable certainty that the lessee will obtain ownership by the end of the lease term, the asset is fully depreciated over the shorter of the lease term and its useful life. The Group reviews to determine whether the leased asset may be impaired.

Significant Accounting Policies, Continued

(14) Leases, Continued

(ii) Operating leases

Leases where the lessor retains a significant portion of the risks and rewards of ownership are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are recognized in profit or loss on a straight-line basis over the period of the lease.

(iii) Determining whether an arrangement contains a lease

Determining whether an arrangement is, or contains, a lease shall be based on the substance of the arrangement and requires an assessment of whether fulfillment of the arrangement is dependent on the use of a specific asset or assets (the asset) and the arrangement conveys a right to use the asset.

At inception or reassessment of the arrangement, the Group separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a financial lease that it is impracticable to separate the payments reliably, the Group recognizes an asset and a liability at an amount equal to the fair value of the underlying asset that was identified as the subject of the lease. Subsequently, the liability shall be reduced as payments are made and an imputed finance charge on the liability recognized using the purchasers incremental borrowing rate of interest.

(15) Non-current assets held for sale

Non-current assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use, are classified as held for sale. In order to be classified as held for sale, the asset (or disposal group) must be available for immediate sale in its present condition and its sale must be highly probable. The assets or disposal group that are classified as non-current assets held for sale are measured at the lower of their carrying amount and fair value less cost to sell. The Group recognizes an impairment loss for any initial or subsequent write-down of an asset (or disposal group) to fair value less costs to sell, and a gain for any subsequent increase in fair value less costs to sell, up to the cumulative impairment loss previously recognized in accordance with K-IFRS No. 1036, Impairment of Assets.

A non-current asset that is classified as held for sale or part of a disposal group classified as held for sale is not depreciated (or amortized).

Significant Accounting Policies, Continued

(16) Non-derivative financial liabilities

The Group classifies non-derivative financial liabilities into financial liabilities at fair value through profit or loss or other financial liabilities in accordance with the substance of the contractual arrangement and the definitions of financial liabilities. The Group recognizes financial liabilities in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the financial liability.

(i) Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading or designated as such upon initial recognition. Subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss. Upon initial recognition, transaction costs that are directly attributable to the acquisition are recognized in profit or loss as incurred.

(ii) Other financial liabilities

Non-derivative financial liabilities other than financial liabilities at fair value through profit or loss are classified as other financial liabilities. At the date of initial recognition, other financial liabilities are measured at fair value minus transaction costs that are directly attributable to the acquisition. Subsequent to initial recognition, other financial liabilities are measured at amortized cost using the effective interest method.

The Group derecognizes a financial liability from the consolidated statement of financial position when it is extinguished (i.e. when the obligation specified in the contract is discharged, cancelled or expires).

(17) Employee benefits

(i) Short-term employee benefits

Short-term employee benefits are employee benefits that are due to be settled within 12 months after the end of the period in which the employees render the related service. When an employee has rendered service to the Group during an accounting period, the Group recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service.

(ii) Other long-term employee benefits

Other long-term employee benefits include employee benefits that are settled beyond 12 months after the end of the period in which the employees render the related service, and are calculated at the present value of the amount of future benefit that employees have earned in return for their service in the current and prior periods. Any changes from remeasurements are recognized through profit or loss in the period in which they arise.

Significant Accounting Policies, Continued

(17) Employee benefits, Continued

(iii) Retirement benefits: defined contribution plans

When an employee has rendered service to the Group during a period, the Group recognizes the contribution payable to a defined contribution plan in exchange for that service as a liability (accrued expense), after deducting any contribution already paid. If the contribution already paid exceeds the contribution due for service before the end of the reporting period, the Group recognizes that excess as an asset (prepaid expense) to the extent that the prepayment will lead to a reduction in future payments or a cash refund.

(iv) Retirement benefits: defined benefit plans

As of the end of reporting period, defined benefits liabilities relating to defined benefit plans are recognized as present value of defined benefit obligations net of fair value of plan assets.

The calculation is performed annually by an independent actuary using the projected unit credit method. When the fair value of plan assets exceeds the present value of the defined benefit obligation, the Group recognizes an asset, to the extent of the present value of any economic benefits available in the form of refunds from the plan or reduction in the future contributions to the plan.

Remeasurements of the net defined benefit liability comprise of actuarial gains and losses, the return on plan assets excluding amounts included in net interest on the net defined benefit liability, and any change in the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability and recognized in other comprehensive income. The Group determines net interests on net defined benefit liability (asset) by multiplying discount rate determined at the beginning of the annual reporting period and considers changes in net defined benefit liability (asset) from contributions and benefit payments. Net interest costs and other costs relating to the defined benefit plan are recognized through profit or loss.

When the plan amendment or curtailment occurs, gains or losses on amendment or curtailment in benefits for the past service provided are recognized through profit or loss. The Group recognizes gain or loss on a settlement when the settlement of defined benefit plan occurs.

(v) Termination benefits

The Group recognizes a liability and expense for termination benefits at the earlier of the period when the Group can no longer withdraw the offer of those benefits and the period when the Group recognizes costs for a restructuring. If benefits are payable more than 12 months after the reporting period, then they are discounted to their present value.

Significant Accounting Policies, Continued

(18) Provisions

Provisions are recognized when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

The risks and uncertainties that inevitably surround many events and circumstances are taken into account in reaching the best estimate of a provision. Where the effect of the time value of money is material, provisions are determined at the present value of the expected future cash flows.

Where some or all of the expenditures required to settle a provision are expected to be reimbursed by another party, the reimbursement shall be recognized when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement shall be treated as a separate asset.

Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimates. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.

A provision shall be used only for expenditures for which the provision was originally recognized.

(19) Foreign currencies

(i) Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency using the reporting dates exchange rate. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined.

Foreign currency differences arising on retranslation are recognized in profit or loss, except for differences arising on the retranslation of available-for-sale equity instruments, a financial liability designated as a hedge of the net investment in a foreign operation, or qualifying cash flow hedges, which are recognized in other comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

(ii) Foreign operations

If the presentation currency of the Group is different from a foreign operations functional currency, the financial statements of the foreign operation are translated into the presentation currency using the following methods:

The assets and liabilities of foreign operations, whose functional currency is not the currency of a hyperinflationary economy, are translated to presentation currency at exchange rates at the reporting date. The income and expenses of foreign operations are translated to functional currency at exchange rates at the dates of the transactions. Foreign currency differences are recognized in other comprehensive income.

Significant Accounting Policies, Continued

(19) Foreign currencies, Continued

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation is treated as assets and liabilities of the foreign operation. Thus they are expressed in the functional currency of the foreign operation and translated at the closing rate.

When a foreign operation is disposed of, the relevant amount in the translation is transferred to profit or loss as part of the profit or loss on disposal. On the partial disposal of a subsidiary that includes a foreign operation, the relevant proportion of such cumulative amount is reattributed to non-controlling interest. In any other partial disposal of a foreign operation, the relevant proportion is reclassified to profit or loss.

(20) Equity capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of ordinary shares and share options are recognized as a deduction from equity, net of any tax effects.

When the Group repurchases its share capital, the amount of the consideration paid is recognized as a deduction from equity and classified as treasury shares. The profits or losses from the purchase, disposal, reissue, or retirement of treasury shares are not recognized as current profit or loss. If the Group acquires and retains treasury shares, the consideration paid or received is directly recognized in equity.

(21) Hybrid bond

The Group recognizes a financial instrument issued by the Group as an equity instrument if it does not include contractual obligation to deliver financial assets including cash to the counter party.

(22) Revenue

Revenue from the sale of goods, rendering of services or use of the Group assets is measured at the fair value of the consideration received or receivable. Returns, trade discounts and volume rebates are recognized as a reduction of revenue.

(i) Services

Revenue from cellular services consists of revenue from basic charges, voice charges, data charges, data-roaming services and interconnection charges. Such revenues are recognized as services are performed. Revenues received for the activation of service are deferred and recognized over the average customer retention period.

Revenue from fixed-line services includes domestic short and long distance charges, international phone connection charges, and broadband internet services. Such revenues are recognized as the related services are performed.

Revenue from services rendered is recognized in profit or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to surveys of work performed.

Significant Accounting Policies, Continued

(22) Revenue, Continued

(ii) Goods sold

Revenue is recognized when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably.

(iii) Customer loyalty programmes

For customer loyalty programmes, the fair value of the consideration received or receivable in respect of the initial sale is allocated between the award credits and the other components of the sale. The amount allocated to the award credits is estimated by reference to the fair value of the services to be provided with respect to the redeemable award credits. The fair value of the services to be provided with respect to the redeemable portion of the award credits granted to the customers in accordance with customer loyalty programmes is estimated taking into account the expected redemption rate and timing of the expected redemption. Considerations allocated to the award credits are deferred and revenue is recognized when the award credits are recovered and the Group performs its obligation to provide the service. The amount of revenue recognized is based on the relative size of the total award credits that are expected to be redeemed and the redeemed award credits in exchange for services.

(iv) Bundled arrangements

When the Group sells both handsets and wireless services to subscribers, the Group recognizes these transactions separately as sales for handset sales and wireless telecommunication services.

(23) Finance income and finance costs

Finance income comprises interest income on funds invested (including available-for-sale financial assets), dividend income, gains on the disposal of available-for-sale financial assets, changes in the fair value of financial assets at fair value through profit or loss, and gains on hedging instruments that are recognized in profit or loss. Interest income is recognized as it accrues in profit or loss, using the effective interest rate method. Dividend income is recognized in profit or loss on the date that the Groups right to receive payment is established.

Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions, changes in the fair value of financial assets at fair value through profit or loss, and losses on hedging instruments that are recognized in profit or loss. Interest expense on borrowings and debentures are recognized in profit or loss using the effective interest rate method.

(24) Income taxes

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.

Significant Accounting Policies, Continued

(24) Income taxes, Continued

(i) Current tax

Current tax is the expected tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted or substantively enacted at the end of the reporting period and any adjustment to tax payable in respect of previous years. The taxable profit is different from the accounting profit for the period since the taxable profit is calculated excluding the temporary differences, which will be taxable or deductible in determining taxable profit (tax loss) of future periods, and non-taxable or non-deductible items from the accounting profit.

(ii) Deferred tax

Deferred tax is recognized, using the asset-liability method, in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The Group recognizes a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries and associates, except to the extent that the Group is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The Group recognizes a deferred tax asset for all deductible temporary differences arising from investments in subsidiaries and associates, to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.

The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset only if (a) there is a legally enforceable right to offset the related current tax liabilities and assets, (b) they relate to income taxes levied by the same tax authority and (c) they intend to settle current tax liabilities and assets on a net basis. Income tax expense in relation to dividend payments is recognized when liabilities relating to the dividend payments are recognized.

Significant Accounting Policies, Continued

(25) Earnings per share

The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Parent Company by the weighted average number of ordinary shares outstanding during the period, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise convertible notes and share options granted to employees.

(26) Discontinued operations

A discontinued operation is a component of the Groups business that represents a separate major line of business or geographical area of operations that has been disposed of or is held for sale, or is a subsidiary acquired exclusively with a view to resale. When an operation is classified as a discontinued operation, the comparative consolidated statement of comprehensive income is re-presented as if the operation had been discontinued from the start of the comparative period.

(27) New standards and interpretations not yet adopted

The following new standards, interpretations and amendments to existing standards have been published and but not effective for the Group for annual periods beginning on or after January 1, 2015 are as follows. The Group has not early adopted them.

As of December 31, 2015, management is not able to evaluate the impact, if any, of applying these standards on its financial position and results of operations.

1) K-IFRS 1109 Financial Instruments

K-IFRS 1109, published in December 2015, replaces the existing guidance in K-IFRS 1039, Financial Instruments: Recognition and Measurement. K-IFRS 1109 includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from K-IFRS 1039. K-IFRS 1109 is effective for annual periods beginning on or after January 1, 2018, with early adoption permitted.

2) K-IFRS 1115 Revenue from Contracts with Customers

K-IFRS 1115, published in January 2016, establishes a comprehensive framework for determining whether, how much and when revenue is recognized. It replaces existing revenue recognition guidance, including K-IFRS 1018, Revenue, K-IFRS 1011, Construction Contracts and K-IFRS 2113, Customer Loyalty Programmes. K-IFRS 1115 is effective for annual reporting periods beginning on or after January 1, 2018, with early adoption permitted.

SK TELECOM CO., LTD.
Separate Financial Statements
December 31, 2015

Separate Statements of Financial Position

As of December 31, 2015 and 2014

(In millions of won)		December 31, 2015
Assets
Current Assets:
Cash and cash equivalents	29,30	W	431,666	248,311
Short-term financial instruments	5,29,30		121,500	143,000
Short-term investment securities	7,29,30		92,262	197,161
Accounts receivable - trade, net	6,29,30,31		1,528,751	1,559,281
Short-term loans, net	6,29,30,31		47,741	67,989
Accounts receivable - other, net	6,29,30,31		264,741	305,990
Prepaid expenses			92,220	86,070
Inventories, net			45,991	23,694
Advanced payments and other	6,29,30		88,657	58,417
Total Current Assets			2,713,529	2,689,913
Non-Current Assets:
Long-term financial instruments	5,29,30		10,062	69
Long-term investment securities	7,29,30		726,505	608,797
Investments in subsidiaries and associates	8		8,810,548	8,181,769
Property and equipment, net	9,31		7,442,280	7,705,906
Goodwill	10		1,306,236	1,306,236
Intangible assets, net	11		1,766,069	1,928,169
Long-term loans, net	6,29,30,31		35,080	38,457
Long-term prepaid expenses			29,802	28,551
Guarantee deposits	5,6,29,30,31		166,656	156,807
Long-term derivative financial assets	16,29,30		139,923	67,728
Other non-current assets			250	60
Total Non-Current Assets			20,433,411	20,022,549
Total Assets		W	23,146,940	22,712,462

Separate Statements of Financial Position, Continued

As of December 31, 2015 and 2014

(In millions of won)		December 31, 2015
Liabilities and Equity
Current Liabilities:
Short-term borrowings	12,29,30	W	230,000		200,000
Current installments of debentures and long-term borrowings, net	12,29,30		592,637		211,863
Current installments of long-term payables other	13,29,30		120,185		189,389
Accounts payable other	29,30,31		927,170		1,086,485
Withholdings	29,30		607,690		801,119
Accrued expenses	29,30		540,770		615,488
Income tax payable	26		375,189		91,315
Unearned revenue			10,014		92,783
Provisions	14		37,551		50,456
Advanced receipts			50,100		39,148
Total Current Liabilities			3,491,306		3,378,046
Non-Current Liabilities:
Debentures, excluding current installments, net	12,29,30		5,033,495		4,655,137
Long-term borrowings, excluding current installments	12,29,30		72,554		80,147
Long-term payables - other	13,29,30		550,964		657,001
Long-term unearned revenue			2,768		19,544
Defined benefit liabilities	15		4,006		15,555
Long-term derivative financial liabilities	16,29,30		89,296		130,889
Long-term provisions	14		20,055		27,676
Deferred tax liabilities	26		56,274		144,876
Other non-current liabilities	29,30		46,762		61,370
Total Non-Current Liabilities			5,876,174		5,792,195
Total Liabilities			9,367,480		9,170,241
Equity
Share capital	1,17		44,639		44,639
Capital surplus and other capital adjustments	17,18,19		369,446		433,894
Retained earnings	20,21		13,418,603		12,996,790
Reserves	22		(53,228	)	66,898
Total Equity			13,779,460		13,542,221
Total Liabilities and Equity		W	23,146,940		22,712,462

Separate Statements of Income

For the years ended of December 31, 2015 and 2014

(In millions of won except for per share data)
Operating revenue:	31
Revenue	W	12,556,979		13,012,644
Operating expense:	31
Labor cost		694,666		588,635
Commissions paid		5,102,723		5,591,245
Depreciation and amortization		2,155,531		2,095,702
Network interconnection		720,879		771,786
Leased line		358,031		370,549
Advertising		175,776		213,605
Rent		403,317		377,112
Cost of products that have been resold		462,256		457,049
Other operating expenses	23	825,024		809,801
		10,898,203		11,275,484
Operating income		1,658,776		1,737,160
Finance income	25	246,394		82,276
Finance costs	25	(314,191	)	(293,338	)
Other non-operating income	24	15,277		37,422
Other non-operating expenses	24	(132,993	)	(184,177	)
Loss relating to investments in subsidiaries and associates, net	8	(3,819	)	(57,593	)
Profit before income tax		1,469,444		1,321,750
Income tax expense	26	362,683		293,209
Profit for the year	W	1,106,761		1,028,541
Earnings per share	27
Basic earnings per share (in won)	W	15,233		14,262
Diluted earnings per share (in won)	W	15,233		14,262

Separate Statements of Comprehensive Income

For the years ended of December 31, 2015 and 2014

(In millions of won) — Profit for the year	W	1,106,761		1,028,541
Other comprehensive income (loss)
Items that will never be reclassified to profit or loss, net of taxes:
Remeasurement of defined benefit liabilities	15	386		(13,808	)
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	22	(121,528	)	(66,103	)
Net change in unrealized fair value of derivatives	16,22	1,402		(38,175	)
Other comprehensive loss for the year		(119,740	)	(118,086	)
Total comprehensive income	W	987,021		910,455

Separate Statements of Changes in Equity

For the years ended of December 31, 2015 and 2014

(In millions of won)	Share capital	Capital surplus (deficit) and other capital adjustments — Paid-in surplus	Treasury stock	Loss on disposal of treasury stock		Hybrid bond	Other		Retained earnings		Reserves		Total equity
Balance, January 1, 2014	W 44,639	2,915,887	(2,139,683	)	(18,087	)	398,518	(722,741	)	12,665,699		171,176		13,315,408
Cash dividends										(666,802	)			(666,802	)
Interest on hybrid bonds										(16,840	)			(16,840	)
Total comprehensive income
Profit for the year										1,028,541				1,028,541
Other comprehensive loss										(13,808	)	(104,278	)	(118,086	)
										1,014,733		(104,278	)	910,455
Balance, December 31, 2014	W 44,639	2,915,887	(2,139,683	)	(18,087	)	398,518	(722,741	)	12,996,790		66,898		13,542,221
Balance, January 1, 2015	W 44,639	2,915,887	(2,139,683	)	(18,087	)	398,518	(722,741	)	12,996,790		66,898		13,542,221
Cash dividends										(668,494	)			(668,494	)
Interest on hybrid bonds										(16,840	)			(16,840	)
Acquisition of treasury stock			(490,192	)										(490,192	)
Disposal of treasury stock			369,249		18,087			38,408						425,744
Total comprehensive income
Profit for the year										1,106,761				1,106,761
Other comprehensive income (loss)										386		(120,126	)	(119,740	)
										1,107,147		(120,126	)	987,021
Balance, December 31, 2015	W 44,639	2,915,887	(2,260,626	)			398,518	(684,333	)	13,418,603		(53,228	)	13,779,460

Separate Statements of Cash Flows

For the years ended of December 31, 2015 and 2014

(In millions of won)
Cash flows from operating activities:
Cash generated from operating activities
Profit for the year	W	1,106,761		1,028,541
Adjustments for income and expenses	33	2,811,718		2,886,389
Changes in assets and liabilities related to operating activities	33	(699,106	)	(334,898	)
Sub-total		3,219,373		3,580,032
Interest received		18,786		20,954
Dividends received		59,462		13,048
Interest paid		(221,309	)	(224,119	)
Income tax paid		(129,183	)	(168,482	)
Net cash provided by operating activities		2,947,129		3,221,433
Cash flows from investing activities:
Cash inflows from investing activities:
Decrease in short-term investment securities, net		105,158
Decrease in short-term financial instruments, net		21,500		30,500
Collection of short-term loans		387,922		197,925
Decrease in long-term financial instruments		7		2,522
Proceeds from disposals of long-term investment securities		22,106		54,218
Proceeds from disposals of investments in subsidiaries and associates		185,557
Proceeds from disposals of property and equipment		23,372		25,677
Proceeds from disposals of intangible assets		343		1,127
Proceeds from disposals of assets held for sale				3,667
Collection of long-term loans				3,660
Proceeds from disposals of other non-current assets				93
Sub-total		745,965		319,389
Cash outflows for investing activities:
Increase in short-term investment securities, net				(94,802	)
Increase in short-term loans		(364,687	)	(195,700	)
Increase in long-term financial instruments		(10,000	)	(2,522	)
Acquisitions of long-term investment securities		(296,254	)	(28,801	)
Acquisitions of investments in subsidiaries and associates		(306,382	)	(210,060	)
Acquisitions of property and equipment		(1,752,804	)	(2,319,016	)
Acquisitions of intangible assets		(77,830	)	(91,060	)
Increase in long-term loans				(45	)
Increase in other non-current assets, net		(190	)
Sub-total		(2,808,147	)	(2,942,006	)
Net cash used in investing activities		(2,062,182	)	(2,622,617	)

Separate Statements of Cash Flows, Continued

For the years ended of December 31, 2015 and 2014

(In millions of won)	2015
Cash flows from financing activities:
Cash inflows from financing activities:
Increase in short-term borrowings, net	W	30,000
Proceeds from long-term borrowings				3,552
Proceeds from issuance of debentures		897,029		797,364
Cash inflows from settlement of derivatives		175		119
Sub-total		927,204		801,035
Cash outflows for financing activities:
Decrease in short-term borrowings, net				(60,000	)
Repayments of long-term borrowings		(12,814	)	(12,814	)
Repayments of long-term account payables - other		(190,134	)	(207,668	)
Repayments of debentures		(250,000	)	(629,940	)
Payments of cash dividends		(668,494	)	(666,802	)
Payments of interest on hybrid bond		(16,840	)	(16,840	)
Acquisitions of treasury stock		(490,192	)
Cash outflows from settlement of derivatives		(150	)	(5,882	)
Sub-total		(1,628,624	)	(1,599,946	)
Net cash used in financing activities		(701,420	)	(798,911	)
Net increase (decrease) in cash and cash equivalents		183,527		(200,095	)
Cash and cash equivalents at beginning of the year		248,311		448,459
Effects of exchange rate changes on cash and cash equivalents		(172	)	(53	)
Cash and cash equivalents at end of the year	W	431,666		248,311

Separate Statements of Appropriation of Retained Earnings

For the years ended of December 31, 2015 and 2014

Date of appropriation for 2015: March 18, 2016

Date of appropriation for 2014: March 20, 2015

(In millions of won)	2015
Unappropriated retained earnings:
Unappropriated retained earnings	W	3,866		3,542
Remeasurement of defined benefit liabilities		386		(13,808	)
Interim dividends - W 1,000 per share, 200% on par value		(72,629	)	(70,937	)
Interest on hybrid bond		(16,840	)	(16,840	)
Profit		1,106,761		1,028,541
		1,021,544		930,498
Transfer from voluntary reserves:
Reserve for research and manpower development		27,300		64,233
Appropriation of retained earnings:
Reserve for research and manpower development
Reserve for business expansion		200,000		195,000
Reserve for technology development		210,000		200,000
Cash dividends - W 9,000 per share, 1,800% on par value		635,482		595,865
		1,045,482		990,865
Unappropriated retained earnings to be carried over to subsequent year	W	3,362		3,866

Reporting Entity

SK Telecom Co., Ltd. (the Company) was incorporated in March 1984 under the laws of the Republic of Korea (Korea) to engage in providing cellular telephone communication services in Korea. The Company mainly provides wireless telecommunications in Korea. The Companys 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 December 31, 2015, the Companys total issued shares are held by the following:

SK Holdings Co., Ltd.(*)	20,363,452	25.22
National Pension Service	6,963,591	8.63
Institutional investors and other minority stockholders	43,282,117	53.60
Treasury stock	10,136,551	12.15
Total number of shares	80,745,711	100.00

(*) During the year ended December 31, 2015, SK C&C Co., Ltd., the ultimate controlling entitys investee accounted using equity method, merged SK Holdings Co., Ltd., the ultimate controlling entity of the Company, and changed its name to SK, Holdings Co., Ltd.

Basis of Presentation

(1) Statement of compliance

These separate financial statements were prepared in accordance with (K-IFRS), as prescribed in the Act on External Audits of Stock Companies in the Republic of Korea.

These financial statements are separate 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.

The separate financial statements were authorized for issuance by the Board of Directors on February 3, 2016, which will be submitted for approval at the shareholders meeting to be held on March 18, 2016.

(2) Basis of measurement

The separate financial statements have been prepared on the historical cost basis, except for the following material items in the separate statement of financial position:

derivative financial instruments are measured at fair value

financial instruments at fair value through profit or loss are measured at fair value

available-for-sale financial assets are measured at fair value

liabilities for defined benefit plans are recognized at the net of the total present value of defined benefit obligations less the fair value of plan assets

(3) Functional and presentation currency

These separate financial statements are presented in Korean won, which is the Companys functional currency and the currency of the primary economic environment in which the Company operates.

Basis of Presentation, Continued

(4) Use of estimates and judgments

The preparation of the separate 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.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period prospectively.

1) Critical judgments

Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements is included in the following notes: revenue, classification of lease.

2) Assumptions and estimation uncertainties

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are included in the following notes: allowance for doubtful accounts, estimated useful lives of property and equipments and intangible assets, impairment of goodwill, recognition of provision, measurement of defined benefit liabilities and recognition of deferred tax assets (liabilities).

3) Fair value measurement

A number of the Companys 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.

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).

Basis of Presentation, Continued

(4) Use of estimates and judgments, continued

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 31.

(5) Common control transactions

SK Holdings Co., Ltd. (the Ultimate Controlling Entity) is the Ultimate Controlling Entity of the Company because it controls the Company. Accordingly, gains and losses from business acquisitions and dispositions involving entities that are under the control of the Ultimate Controlling Entity are accounted for as common control transactions within equity.

Changes in Accounting Policies

Except for the changes below, the Company has consistently applied the accounting policies set out in Note 4 to all periods presented in these financial statements.

The Company has adopted the following amendments to standards with a date of initial application of January 1, 2015.

1) K-IFRS 1019 Employee Benefits Employee contributions

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

Significant Accounting Policies

The significant accounting policies applied by the Company in preparation of its separate financial statements in accordance with K-IFRSs are included below. The accounting policies set out below have been applied consistently to all periods presented in these separate financial statements except for those as described in Note 3.

(1) Operating segments

The Company presents disclosures relating to operating segments on its separate financial statements in accordance with K-IFRS No. 1108, Operating Segments and such disclosures are not separately disclosed on these separate financial statements.

(2) Investments in subsidiaries and associates

These separate financial statements are prepared and presented in accordance with K-IFRS No. 1027, Separate Financial Statements. The Company applied the cost method to investments in subsidiaries and associates in accordance with K-IFRS No. 1027. Dividends from a subsidiary or associate are recognized in profit or loss when the right to receive the dividend is established.

(3) Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the Company in the management of its short-term commitments.

(4) Inventories

Inventories are stated at the acquisition cost using the average method. During the period, a perpetual inventory systems is used to value inventories, which is adjusted to the physical inventory counts performed at the period end. When the net realizable value of inventories is less than the acquisition cost, the carrying amount is reduced to the net realizable value and any difference is charged to current operations as operating expenses. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

Significant Accounting Policies, Continued

(5) Non-derivative financial assets

The Company recognizes and measures non-derivative financial assets by the following four categories: financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables and available-for-sale financial assets. The Company recognizes financial assets in the separate statement of financial position when the Company becomes a party to the contractual provisions of the instrument.

(i) Financial assets at fair value through profit or loss

(ii) Held-to-maturity investments

A non-derivative financial asset with a fixed or determinable payment and fixed maturity, for which the Company has the positive intention and ability to hold to maturity, are classified as held-to-maturity investments. Subsequent to initial recognition, held-to-maturity investments are measured at amortized cost using the effective interest rate method.

(iii) Loans and receivables

(iv) Available-for-sale financial assets

Significant Accounting Policies, Continued

(5) Non-derivative financial assets, Continued

(v) De-recognition of financial assets

The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Company is recognized as a separate asset or liability. If the Company retains substantially all the risks and rewards of ownership of the transferred financial assets, the Company continues to recognize the transferred financial assets and recognizes financial liabilities for the consideration received.

(vi) Offsetting between financial assets and financial liabilities

Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position only when the Company currently has a legally enforceable right to offset the recognized amounts, and there is the intention to settle on a net basis or to realize the asset and settle the liability simultaneously.

(6) Derivative financial instruments, including hedge accounting

Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.

(i) Hedge accounting

The Company holds forward exchange contracts, interest rate swaps, currency swaps and other derivative contracts to manage interest rate risk and foreign exchange risk. The Company designated derivatives as hedging instruments to hedge the risk of changes in the fair value of assets, liabilities or firm commitments (a fair value hedge) and foreign currency risk of highly probable forecasted transactions or firm commitments (a cash flow hedge).

On initial designation of the hedge, the Company formally documents the relationship between the hedging instrument(s) and hedged item(s), including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship

Fair value hedge

Changes in the fair value of a derivative hedging instrument designated as a fair value hedge are recognized in profit or loss. The gain or loss from remeasuring the hedging instrument at fair value for a derivative hedging instrument and the gain or loss on the hedged item attributable to the hedged risk are recognized in profit or loss in the same line item of the statement of income. The Company discontinues fair value hedge accounting if the hedging instrument expires or is sold, terminated or exercised, or if the hedge no longer meets the criteria for hedge accounting. Any adjustment arising from gain or loss on the hedged item attributable to the hedged risk is amortized to profit or loss from the date the hedge accounting is discontinued.

Significant Accounting Policies, Continued

(6) Derivative financial instruments, including hedge accounting, Continued

Cash flow hedge

(ii) Separable embedded derivatives

Embedded derivatives are separated from the host contract and accounted for separately only if the following criteria have been met:

(a) the economic characteristics and risks of the embedded derivative are not closely related to those of the host contract;

(b) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and

Changes in the fair value of separable embedded derivatives are recognized immediately in profit or loss.

(iii) Other derivative financial instruments

Changes in the fair value of other derivative financial instrument not designated as a hedging instrument are recognized immediately in profit or loss.

Significant Accounting Policies, Continued

(7) Impairment of financial assets

Objective evidence that a financial asset is impaired includes following loss events:

significant financial difficulty of the issuer or obligor;

a breach of contract, such as default or delinquency in interest or principal payments;

the lender, for economic or legal reasons relating to the borrowers financial difficulty, granting to the borrower a concession that the lender would not otherwise consider;

it becoming probable that the borrower will enter bankruptcy or other financial reorganization;

the disappearance of an active market for that financial asset because of financial difficulties; or

In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

If financial assets have objective evidence that they are impaired, impairment losses should be measured and recognized.

(i) Financial assets measured at amortized cost

An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of its estimated future cash flows discounted at the assets original effective interest rate. If it is not practicable to obtain the instruments estimated future cash flows, impairment losses would be measured by using prices from any observable current market transactions. The Company can recognize impairment losses directly or establish a provision to cover impairment losses. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtors credit rating), the previously recognized impairment loss shall be reversed either directly or by adjusting an allowance account.

Significant Accounting Policies, Continued

(7) Impairment of financial assets, Continued

(ii) Financial assets carried at cost

(iii) Available-for-sale financial assets

(8) Property, plant and equipment

Subsequent to initial recognition, an item of property, plant and equipment shall be carried at its cost less any accumulated depreciation and any accumulated impairment losses.

Significant Accounting Policies, Continued

(8) Property, plant and equipment, Continued

Subsequent costs are recognized in the carrying amount of property, plant and equipment at cost or, if appropriate, as separate items if it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing are recognized in profit or loss as incurred.

The estimated useful lives of the Companys property, plant and equipment are as follows:

	Useful lives (years)
Buildings and structures	15, 30
Machinery	3 ~ 6
Other property, plant and equipment (Other PP&E)	4 ~ 10

Depreciation methods, useful lives and residual values are reviewed at the end of each reporting date and adjusted, if appropriate. The change is accounted for as a change in an accounting estimate.

(9) Borrowing costs

The Company capitalizes borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. Other borrowing costs are recognized in expense as incurred. A qualifying asset is an asset that requires a substantial period of time to get ready for its intended use or sale. Financial assets and inventories that are manufactured or otherwise produced over a short period of time are not qualifying assets. Assets that are ready for their intended use or sale when acquired are not qualifying assets.

To the extent that the Company borrows funds specifically for the purpose of obtaining a qualifying asset, the Company determines the amount of borrowing costs eligible for capitalization as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. To the extent that the Company borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the Company shall determine the amount of borrowing costs eligible for capitalization by applying a capitalization rate to the expenditures on that asset. The capitalization rate shall be the weighted average of the borrowing costs applicable to the borrowings of the Company that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs that the Company capitalizes during a period shall not exceed the amount of borrowing costs incurred during that period.

Significant Accounting Policies, Continued

(10) Intangible assets

Intangible assets are measured initially at cost and, subsequently, are carried at cost less accumulated amortization and accumulated impairment losses.

The estimated useful lives of the Companys intangible assets are as follows:

	Useful lives (years)
Frequency use rights	6.3 ~ 13.1
Land use rights	5
Industrial rights	5, 10
Development costs	5
Facility usage rights	10, 20
Other	3 ~ 20

Expenditures on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, are recognized in profit or loss as incurred. Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset. Other development expenditures are recognized in profit or loss as incurred.

Significant Accounting Policies, Continued

(11) Government grants

Government grants are not recognized unless there is reasonable assurance that the Company will comply with the grants conditions and that the grant will be received.

(i) Grants related to assets

Government grants whose primary condition is that the Company purchase, construct or otherwise acquire long-term assets are deducted in calculating the carrying amount of the asset. The grant is recognized in profit or loss over the life of a depreciable asset as a reduction to depreciation expense.

(ii) Grants related to income

Government grants which are intended to compensate the Company for expenses incurred are deducted from the related expenses.

(12) Impairment of non-financial assets

The carrying amounts of the Companys non-financial assets, other than assets arising from employee benefits, inventories, deferred tax assets and non-current assets held for sale, are reviewed at the end of the reporting period to determine whether there is any indication of impairment. If any such indication exists, then the assets recoverable amount is estimated. Goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, irrespective of whether there is any indication of impairment, are tested for impairment annually by comparing their recoverable amount to their carrying amount.

The Company estimates the recoverable amount of an individual asset, if it is impossible to measure the individual recoverable amount of an asset, then the Company estimates the recoverable amount of cash-generating unit (CGU). A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. The value in use is estimated by applying a pre-tax discount rate that reflect current market assessments of the time value of money and the risks specific to the asset or CGU for which estimated future cash flows have not been adjusted, to the estimated future cash flows expected to be generated by the asset or CGU.

An impairment loss is recognized in profit or loss if the carrying amount of an asset or a CGU exceeds its recoverable amount.

Significant Accounting Policies, Continued

(13) Leases

The Company classifies and accounts for leases as either a finance or operating lease, depending on the terms. Leases where the Company assumes substantially all of the risks and rewards of ownership are classified as finance leases. All other leases are classified as operating leases.

(i) Finance leases

At the commencement of the lease term, the Company recognizes as finance assets and finance liabilities in its separate statements of financial position, the lower amount of the fair value of the leased property and the present value of the minimum lease payments, each determined at the inception of the lease. Any initial direct costs are added to the amount recognized as an asset.

The depreciable amount of a leased asset is allocated to each accounting period during the period of expected use on a systematic basis consistent with the depreciation policy the lessee adopts for depreciable assets that are owned. If there is no reasonable certainty that the lessee will obtain ownership by the end of the lease term, the asset is fully depreciated over the shorter of the lease term and its useful life. The Company reviews to determine whether the leased asset may be impaired.

(ii) Operating leases

(iii) Determining whether an arrangement contains a lease

At inception or reassessment of the arrangement, the Company separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Company concludes for a financial lease that it is impracticable to separate the payments reliably, the Company recognizes an asset and a liability at an amount equal to the fair value of the underlying asset that was identified as the subject of the lease. Subsequently, the liability shall be reduced as payments are made and an imputed finance charge on the liability recognized using the purchasers incremental borrowing rate of interest.

Significant Accounting Policies, Continued

(14) Non-current assets held for sale

Non-current assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use, are classified as held for sale. In order to be classified as held for sale, the asset (or disposal group) must be available for immediate sale in its present condition and its sale must be highly probable. The assets or disposal group that are classified as non-current assets held for sale are measured at the lower of their carrying amount and fair value less cost to sell. The Company recognizes an impairment loss for any initial or subsequent write-down of an asset (or disposal group) to fair value less costs to sell, and a gain for any subsequent increase in fair value less costs to sell, up to the cumulative impairment loss previously recognized in accordance with K-IFRS No. 1036, Impairment of Assets.

A non-current asset that is classified as held for sale or part of a disposal group classified as held for sale is not depreciated (or amortized).

(15) Non-derivative financial liabilities

The Company classifies non-derivative financial liabilities into financial liabilities at fair value through profit or loss or other financial liabilities in accordance with the substance of the contractual arrangement and the definitions of financial liabilities. The Company recognizes financial liabilities in the separate statement of financial position when the Company becomes a party to the contractual provisions of the financial liability.

(i) Financial liabilities at fair value through profit or loss

(ii) Other financial liabilities

The Company derecognizes a financial liability from the separate statements of financial position when it is extinguished (i.e. when the obligation specified in the contract is discharged, cancelled or expires).

Significant Accounting Policies, Continued

(16) Employee benefits

(i) Short-term employee benefits

Short-term employee benefits are employee benefits that are due to be settled within 12 months after the end of the period in which the employees render the related service. When an employee has rendered service to the Company during an accounting period, the Company recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service.

(ii) Other long-term employee benefits

(iii) Retirement benefits: defined contribution plans

When an employee has rendered service to the Company during a period, the Company recognizes the contribution payable to a defined contribution plan in exchange for that service as a liability (accrued expense), after deducting any contribution already paid. If the contribution already paid exceeds the contribution due for service before the end of the reporting period, the Company recognizes that excess as an asset (prepaid expense) to the extent that the prepayment will lead to a reduction in future payments or a cash refund.

(iv) Retirement benefits: defined benefit plans

As of the end of reporting period, defined benefits liabilities relating to defined benefit plans are recognized as present value of defined benefit obligations net of fair value of plan assets.

The calculation is performed annually by an independent actuary using the projected unit credit method. When the fair value of plan assets exceeds the present value of the defined benefit obligation, the Company recognizes an asset, to the extent of the present value of any economic benefits available in the form of refunds from the plan or reduction in the future contributions to the plan.

Remeasurements of the net defined benefit liability comprise of actuarial gains and losses, the return on plan assets excluding amounts included in net interest on the net defined benefit liability, and any change in the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability and recognized in other comprehensive income. The Company determines net interests on net defined benefit liability (asset) by multiplying discount rate determined at the beginning of the annual reporting period and considers changes in net defined benefit liability (asset) from contributions and benefit payments. Net interest costs and other costs relating to the defined benefit plan are recognized through profit or loss.

When the plan amendment or curtailment occurs, gains or losses on amendment or curtailment in benefits for the past service provided are recognized through profit or loss. The Company recognizes gain or loss on a settlement when the settlement of defined benefit plan occurs.

Significant Accounting Policies, Continued

(v) Termination benefits

The Company recognizes a liability and expense for termination benefits at the earlier of the period when the Company can no longer withdraw the offer of those benefits and the period when the Company recognizes costs for a restructuring. If benefits are payable more than 12 months after the reporting period, then they are discounted to their present value.

(17) Provisions

Provisions are recognized when the Company has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

A provision shall be used only for expenditures for which the provision was originally recognized.

(18) Foreign currencies

Transactions in foreign currencies are translated to the respective functional currencies of Company entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency using the reporting dates exchange rate. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined.

Significant Accounting Policies, Continued

(19) Equity capital

When the Company repurchases its share capital, the amount of the consideration paid is recognized as a deduction from equity and classified as treasury shares. The profits or losses from the purchase, disposal, reissue, or retirement of treasury shares are not recognized as current profit or loss. If the Company acquires and retains treasury shares, the consideration paid or received is directly recognized in equity.

Significant Accounting Policies, Continued

(20) Hybrid bond

The Company recognizes a financial instrument issued by the Company as an equity instrument if it does not include contractual obligation to deliver financial assets including cash to the counter party.

(21) Revenue

Revenue from the sale of goods, rendering of services or use of assets is measured at the fair value of the consideration received or receivable. Returns, trade discounts and volume rebates, and are recognized as a reduction of revenue.

(i) Services

(ii) Goods sold

When two or more revenue generating activities or deliverables are sold under a single arrangement, each deliverable that is considered to be a separate unit of account is accounted for separately. The allocation of consideration from a revenue arrangement to its separate units of account is based on the relative fair values of each unit.

(iii) Customer loyalty programmes

For customer loyalty programmes, the fair value of the consideration received or receivable in respect of the initial sale is allocated between the award credits and the other components of the sale. The amount allocated to the award credits is estimated by reference to the fair value of the services to be provided with respect to the redeemable award credits. The fair value of the services to be provided with respect to the redeemable portion of the award credits granted to the customers in accordance with customer loyalty programmes is estimated taking into account the expected redemption rate and timing of the expected redemption. Considerations allocated to the award credits are deferred and revenue is recognized when the award credits are recovered and the Company performs its obligation to provide the service. The amount of revenue recognized is based on the relative size of the total award credits that are expected to be redeemed and the redeemed award credits in exchange for services.

Significant Accounting Policies, Continued

(22) Finance income and finance costs

Finance income comprises interest income on funds invested (including available-for-sale financial assets), dividend income, gains on the disposal of available-for-sale financial assets, changes in the fair value of financial assets at fair value through profit or loss, and gains on hedging instruments that are recognized in profit or loss. Interest income is recognized as it accrues in profit or loss, using the effective interest method. Dividend income is recognized in profit or loss on the date that the Companys right to receive payment is established.

(23) Income taxes

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to items recognized directly in equity or in other comprehensive income.

(i) Current tax

(ii) Deferred tax

Deferred tax is recognized, using the asset-liability method, in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The Company recognizes a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries and associates, except to the extent that the Company is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The Company recognizes a deferred tax asset for all deductible temporary differences arising from investments in subsidiaries and associates, to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.

Significant Accounting Policies, Continued

(23) Income taxes, Continued

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset only if there is a legally enforceable right to offset the related current tax liabilities and assets, and they relate to income taxes levied by the same tax authority and they intend to settle current tax liabilities and assets on a net basis. If there are any additional income tax expense incurred in accordance with dividend payments, such income tax expense is recognized when liabilities relating to the dividend payments are recognized.

(24) Earnings per share

The Company presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise convertible notes and share options granted to employees.

(25) New standards and interpretations not yet adopted

The following new standards, interpretations and amendments to existing standards have been published and are mandatory for the Company for annual periods beginning on or after January 1, 2015, and the Company has not early adopted them.

As of December 31, 2015, management is not able to evaluate the impact, if any, of applying these standards on its financial position and results of operations.

3) K-IFRS 1109 Financial Instruments

4) K-IFRS 1115 Revenue from Contracts with Customers

Significant Accounting Policies, Continued

(25) New standards and interpretations not yet adopted, Continued

5) K-IFRS 1027 Separate Financial Statements

Amendments to K-IFRS 1027 introduced equity accounting as a third option in the entitys separate financial statements, in addition to the existing cost and equity method options. This amendment is effective for annual periods beginning on or after January 1, 2016, with early adoption permitted.

Disclaimer:

The consolidated and separate financial statements included above have not yet been audited and remain subject to the audit process of the Companys independent auditors. For the Companys audited consolidated and separate financial statements as of and for the years ended December 31, 2014 and 2015 and the respective accompanying notes, please refer to the Companys future filings with the U.S. Securities and Exchange Commission, including its annual report to be filed on Form 20-F and the Companys annual business report to be furnished on Form 6-K.

Amendments to the Articles of Incorporation

The proposed amendments are as follows:

Current	Proposed Amendment	Remarks
Article 2. Objectives ① (Text omitted) ② In order to achieve the above objectives, the Company carries on the following businesses: 1.~19. (Text omitted) 20. Any other incidental businesses relating to the foregoing activities (amended on
March 18, 2016). ③ (Text omitted)	Article 2. Objectives ① (Same as the present text) ② (Same as the present text) 1.~19. (Same as the present text) 20. Electric utility business including smart grid business, etc. (newly established on March 18, 2016); and 21. Any other incidental businesses relating to the foregoing activities (amended on
March 18, 2016). ③ (Same as the present text)	Addition of related business due to the promotion of new business opportunities
	Addendum No. 25 (as of March 18, 2016) Article 1. Date of Effectiveness These Articles of Incorporation shall take effect as of March 18, 2016.

Approval of the Appointment of Directors

(1) Candidate for Executive Director

Name	Term	Profile		Remarks
Cho, Dae Sik	3 years	¨	Education	Current Director
			B.A. in Sociology, Korea University
			M.B.A., Clark University
		¨	Career
			CEO, SK Holdings Co., Ltd. (13~ Current)
			CFO, Head of Finance Division and Risk Mgmt. & Corporate Auditing
Office, SK Holdings (12)
			Head of Business Mgmt. Office, SK Holdings (10~11
)
			Head of Corporate Business Mgmt. Office, SK Holdings
(09)
			SVP, Finance Mgmt. & Strategy Office, SK Holdings (07
~08)

(2) Candidate for Independent Non-Executive Director

Name	Term	Profile		Remarks
Oh, Dae Shick	3 years	¨	Education	Current Director
			B.A. in Archeology, Seoul National University (73)
		¨	Career
			Advisor, Bae, Kim & Lee LLC (Law firm) (08 ~
Current)
			Head of Seoul Regional Tax Office (07~08)
			Head of Investigation Dept., Korea National Tax Service
(06~07)
			Head of Policy Promotion Dept., Korea National Tax Service
(05~06)
			Head of Investigation Dept., Seoul Regional Tax Office
(03~05)

Approval of the Election of a Member of the Audit Committee

(1) Candidate for Audit Committee Member

Name	Term	Profile		Remarks
Oh, Dae Shick	3 years	¨	Education	Current Director
			B.A. in Archeology, Seoul National University (73)
		¨	Career
			Outside Director, CJ Corporation (11 ~ Current)
			Outside Director, Doosan Corporation (10 ~ To resign)
			Advisor, Bae, Kim & Lee LLC (Law firm) (08 ~
Current)
			Head of Seoul Regional Tax Office (07~08)
			Head of Investigation Dept., Korea National Tax Service
(06~07)
			Head of Policy Promotion Dept., Korea National Tax Service
(05~06)
			Head of Investigation Dept., Seoul Regional Tax Office
(03~05)

Approval of Ceiling Amount of the Remuneration of Directors

The number of directors and total amount and maximum authorized amount of compensation of directors are as follows:

Classification	Fiscal year 2015	Fiscal year 2016
Number of directors (Number of independent non-executive directors)	6 persons (4 persons)	6 persons (4 persons)
Total amount and maximum authorized amount of compensation of directors	Won 12 billion	Won 12 billion

Amendment to the Remuneration Policy for Executives

According to the position grade-based [performance management standard] adopted in 2012 with respect to the Companys executives, amendments to the severance pay policy for executives are proposed as below.

< Severance Payout Rate Grade >

Before amendment — Position	Years of Service	Payout Rate	After amendment — Grade	Years of Service	Payout Rate
			Chairman, Vice Chairman	1	4.0
Chairman	1	6.0
Vice Chairman	1	5.5	Grade E	1
President	1		Grade D	1
Senior Executive Vice President	1	3.5	Grade C	1	3.5
Executive Vice President	1		Grade B	1
Senior Vice President	1	2.5	Grade A	1	2.5

The severance payment amount is to be calculated as the sum of the relevant executives monthly salary multiplied by the payout ratio corresponding to the executives grade for each year of service. The proposed amendments are to be effective April 1, 2016. The payout rate with respect to periods of service prior to April 1, 2016 will be determined on the basis of the severance payout rate scale prior to the above amendments.

Forward-Looking Statement Disclaimer

The material above contains forward-looking statements. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. These statements are based on current plans, estimates and projections, and therefore you should not place undue reliance on them. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results or performance to be materially different from any future results or performance expressed or implied by such forward-looking statements. We do not make any representation or warranty, express or implied, as to the accuracy or completeness of the information contained herein, and nothing contained herein is, or shall be relied upon as, a promise or representation, whether as to the past or the future. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future events. Additional information concerning these and other risk factors are contained in our latest annual report on Form 20-F and in our other filings with the U.S. Securities and Exchange Commission.

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 T ELECOM C O ., L TD .
(Registrant)
By:	/s/ Lee, Sunghyung
(Signature)
Name: Lee, Sunghyung
Title: Senior Vice President

Date: February 19, 2016

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SK TELECOM CO LTD Annual Report 2016

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SK TELECOM CO LTD — Annual Report 2016

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SK TELECOM CO LTD Annual Report 2016