-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B+WmhpFBg0ZskCj3myWI8sLCJhP2mrYYe7+JzCrsexhs/s5y2yVESFNoiutt62AN Kvr5Y1H/7KRauNHGbddDag== 0001145549-06-001639.txt : 20061124 0001145549-06-001639.hdr.sgml : 20061123 20061124081211 ACCESSION NUMBER: 0001145549-06-001639 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20061124 FILED AS OF DATE: 20061124 DATE AS OF CHANGE: 20061124 FILER: COMPANY DATA: COMPANY CONFORMED NAME: hanarotelecom inc CENTRAL INDEX KEY: 0001108838 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 000000000 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-15012 FILM NUMBER: 061237596 BUSINESS ADDRESS: STREET 1: 17-7, YEOUIDO-DONG STREET 2: YEONGDEUNGPO-GU CITY: SEOUL STATE: M5 ZIP: 100-733 BUSINESS PHONE: 011-822-6266-4319 MAIL ADDRESS: STREET 1: 17-7, YEOUIDO-DONG STREET 2: YEONGDEUNGPO-GU CITY: SEOUL STATE: M5 ZIP: 100-733 FORMER COMPANY: FORMER CONFORMED NAME: HANARO TELECOM INC DATE OF NAME CHANGE: 20000309 6-K 1 h00866e6vk.txt HANAROTELECOM INCORPORATED ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 6-K REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934 NOVEMBER 24, 2006 HANAROTELECOM INCORPORATED (Name of the Registrant) 17-7, Yeoido-dong, Yeongdeungpo-gu, Seoul, 150-874, Korea (Address of Principal Executive Offices) (Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.) Form 20-F [X] Form 40-F [ ] (Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1).) Yes [ ] No [X] (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).) Yes [ ] No [X] (Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.) Yes [ ] No [X] (If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ) ================================================================================ TABLE OF CONTENTS SIGNATURE EXHIBIT INDEX EX-99.1 QUARTERLY REPORT FOR 3Q'06 hanarotelecom incorporated (the "Company") is furnishing under cover of Form 6-K, a fair and accurate English language translation of: Exhibit 99.1: Quarterly report for the 3rd quarter ended September 30, 2006, filed with Korea Securities Dealers Association Automated Quotation Market ("KOSDAQ") and the Financial Supervisory Commission of Korea on November 14, 2006. 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. Date : November 24, 2006 hanarotelecom incorporated By : /s/ Janice Lee Name : Janice Lee Title : Senior Executive Vice President and Chief Financial Officer EXHIBIT INDEX Exhibit No. Description Exhibit 99.1 Quarterly Report for 3Q'06 EX-99.1 2 h00866exv99w1.txt EX-99.1 QUARTERLY REPORT FOR 3Q'06 EXHIBIT 99.1 QUARTERLY REPORT (For the period from January 1, 2006 through September 30, 2006) To: The Financial Supervisory Commission of Korea Pursuant to Article 186-3 of the Securities and Exchange Act of Korea, hanarotelecom incorporated ("the Company" or "hanarotelecom") is submitting this report. NOVEMBER 14, 2006 Representative Director & CEO : Mr. Byung-Moo Park Head Office : Asia One Building, 17-7 Yeouido-dong, Youngdeungpo-gu, Seoul, Korea 150-874 (Tel.) 82-2-6266-5500 Person in Charge : Ms. Janice Lee, Senior Executive Vice President & Chief Financial Officer (Tel.) 82-2-6266-2300 [HANAROTELECOM LOGO] 1 On Nov. 14, 2006, hanarotelecom incorporated ("the Company" or "hanarotelecom") filed an quarterly report (the "Report") with the Financial Supervisory Commission of the Republic of Korea ("Korea") pursuant to the Securities and Exchange Act of Korea. This is an English summary of the Report. Non-material or previously disclosed information may have been omitted or abridged. The unaudited quarterly financial statements included in the Report were prepared in accordance with generally accepted accounting principles in Korea, or Korean GAAP, on a non-consolidated basis. The accounts of the financial statements or figures in the Report are expressed in Korean won ("KRW" or "Won"). CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS The Report contains "forward-looking statements" that are based on the Company's current expectations, assumptions, estimates and projections about the Company and its industry. The U.S. Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking information to encourage companies to provide prospective information about themselves. The Company relies on this safe harbor in making forward-looking statements. In many cases, but not all cases, forward-looking statements can be identified by the use of forward-looking terminology such as "anticipate," "believe," "estimate," "expect," "intend," "project," "should," and similar expressions. Those statements include, among other things, a the discussions of the Company's business strategies, expectations concerning its market position and growth opportunities, future operations, margins, profitability, liquidity and capital resources, as well as statements concerning expansion of its network coverage, increases in the number of subscribers to its services, the consummation and the regulatory environment in which the Company operates. Forward-looking statements are subject to various risks and uncertainties. The Company cautions you that reliance on any forward-looking statement involves risks and uncertainties, and that although the Company believes that the assumptions on which its forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions could be incorrect. Important factors that could cause actual results to differ materially from estimates or forecasts contained in forward-looking statements include, among others, the ability to implement the Company's business and growth strategies, the ability to integrate businesses and products lines, that the Company recently acquired or intends to acquire, in a manner that achieves the expected results, requirements imposed by regulatory authorities, competitive factors in the Korean telecommunications industry, risks associated with debt service requirements, degree of financial leverage and other risks identified from time to time in the Company's filings with the SEC. In light of these and other uncertainties, you should not conclude that the Company will necessarily achieve any plans and objectives or projected financial results referred to in any of the forward-looking statements. The Company does not intend to update these forward-looking statements. The Company is under no obligation, and disclaims any obligation, to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise. 2 TABLE OF CONTENTS I. COMPANY INFORMATION II. BUSINESS III. FINANCIAL INFORMATION IV. OPINION OF INDEPENDENT AUDITORS AND AUDIT COMMITTEE V. GOVERNANCE STRUCTURE AND STATUS OF AFFILIATES VI. INFORMATION ON OFFICERS & EMPLOYEES VII. TRANSACTIONS WITH RELATED PARTIES VIII. ATTACHMENTS IX. OTHER MATTERS LIST OF EXHIBITS 3 I. COMPANY INFORMATION 1. COMPANY OBJECTIVES A) Proposed future business - TV-Portal business - In order to grow into a comprehensive media company, hanarotelecom incorporated acquired 65% of shares (780,000 shares at KRW 5.5 billion) of CelrunTV, a provider of TV portal/IP TV service platform and IP STB technology, as of March 13, 2006. CelrunTV changed its corporate name to hanaromedia Inc. and became affiliated to hanarotelecom as of May 2, 2006. hanarotelecom further acquired newly issued shares of hanaromedia totaling KRW 13 billion, KRW 6.5 billion each on March 31 and June 30, 2006. In addition, to strengthen its convergence services including TV-Portal, hanarotelecom newly established the Convergence Headquarters in April 2006. The Company expects to offer various value-added services over its own network and improve subscriber retention. The commercial hanaTV service was launched on July 24, 2006 and about 82,000 subscribers signed up for hanaTV as of November 8, 2006. (a) Expected revenue and subscriber target of TV-Portal service
Year Expected revenue (KRW billion) Subscriber target (1,000 subscribers) ---- ------------------------------ ------------------------------------- 2006 Note) 1.5~2 200~220 2007 70 ~ 80 1,000 2008 200 1,500
* Figures for 2008 are estimated on the assumption that regulations on the IP-TV business will be eased and that a full-fledged IP-TV service will be provided. Note) Given the revenue/acquisition trends as of the date of 3Q '06 earnings release (Nov. 18), the number of subscribers is expected to reach 200,000~220,000 and the revenues are forecast to reach 1.5~2 B KRW by the end of 2006, which was publicly notified through the fair disclosure(amended) on Nov. 18. (b) Basis for the estimates of expected revenue and subscribers - Expected revenue of TV-Portal service was calculated based on expected monthly fees and the subscriber target that hanarotelecom will likely achieve if the Company undertakes marketing activities mainly targeting its broadband subscribers. The revenue may change depending on the actual number of TV-Portal subscribers. 2. HISTORY OF THE COMPANY A) M&A 4
Date Company Description Acquisition Amount ---- ------- ----------- ------------------ Jan. 1, 2006 Korea Thrunet Co., Merger with Korea Thrunet Co., KRW 471.4 billion Ltd. Ltd. (1,217,832 shares were issued as part of the merger.)
B) Transfer of business
Date Company Description Amount - -------------- ----------------------- -------------------------------- --------------------- Feb. 28, 2002 DreamX.net Co. Transfer of Hananet business Decrease in assets (HanaroDream Inc.) (portal, e-commerce, cyber (KRW 320 million), education, etc.) to DreamX.net revenues (KRW 27.8 billion) and costs (KRW 49.9 billion) Apr. 1, 2004 GS Digital Acquisition of broadband KRW 4.2 billion Broadcasting Co., Ltd. Internet business Acquisition of broadband Jun. 1, 2004 Damul Telecom Co., Ltd. Internet business and outsourcing of customer services Jul. 1, 2004 Joongang Cable TV Acquisition of broadband KRW 893 million Internet business Jul. 1, 2004 Kyungsan Cable TV Acquisition of broadband KRW 972 million Internet business Jul. 1, 2004 Youngcheon Cable TV Acquisition of broadband KRW 231 million Internet business Dec. 1, 2004 DBS Daekyung Acquisition of broadband KRW 1.61 billion Broadcasting Co., Ltd. Internet business Feb. 1, 2005 CM TEL Co., Ltd. Acquisition of broadband KRW 900 million Internet business May 1, 2005 Damyang Cable TV Acquisition of broadband KRW 120 million Internet business Jul. 1, 2005 Pohang Broadcasting Acquisition of broadband KRW 2.4 billion Internet business Sep. 1, 2005 Dreamline Corp. Acquisition of broadband KRW 2.78 billion Internet business Nov. 1, 2005 Chungcheong Media Acquisition of broadband KRW 654 million Telecom Internet business Nov. 1, 2005 Tongyoung Cable TV Acquisition of broadband KRW 317 million Internet business Jul. 1, 2006 Gochang Cable TV Acquisition of broadband KRW 280 million Internet business Jul. 1, 2006 Buan Cable TV Acquisition of broadband KRW 200 million Internet business Jun. 1, 2006 Keumsa Cable TV Acquisition of broadband KRW 250 million Internet business Jul. 1, 2006 Wasoo Cable TV Acquisition of broadband KRW 60 million Internet business Jul. 1, 2006 Sangmoo Internet Acquisition of broadband KRW 60 million Internet business
5 Aug. 1, 2006 OK-NET Co. Ltd. Acquisition of broadband KRW 12 million Internet business Oct.1, 2006 Techro Billtec Co. Ltd. Acquisition of broadband KRW 540 million Internet business Jul. 1, 2006 Pohang Broadcasting Acquisition of broadband KRW 580 million Internet business Aug. 1, 2006 Hangaram Networks Co. Acquisition of broadband KRW 560 million Ltd. Internet business Aug. 1, 2006 Tera Power Co. Ltd. Acquisition of broadband KRW 450 million Internet business Sep. 1, 2006 Youngnam Network Co. Acquisition of broadband KRW 340 million Ltd. Internet business Aug. 1, 2006 Chungcheong Cable Acquisition of broadband KRW 206 million Netcom Co. Ltd. Internet business Aug. 1, 2006 Chungcheong Hananet Acquisition of broadband KRW 124 million Co. Ltd. Internet business Sep. 1, 2006 HINET Co. Ltd. Acquisition of broadband KRW 100 million Internet business Oct. 1, 2006 Techro Villiage Co. Acquisition of broadband KRW 440 million Ltd. Internet business Oct. 1, 2006 Daelim I&S Co. Ltd. Acquisition of broadband KRW 9.55 billion Internet business
Note) The transfers of businesses stated above have not been subjected to the resolution of the general shareholders meeting as they are not the transfer of the entire business or part of an material business. 3. CHANGES IN PAID-IN CAPITAL A) Capital increase (Unit: KRW, share)
Date Type Number Par value per share Offering price per share - ------------- -------------------- ----------- ------------------- ------------------------ Mar. 20, 2002 Exercise of warrants 2,990,394 5,000 5,000 Mar. 22, 2002 Exercise of warrants 4,226,094 5,000 5,000 Mar. 27, 2002 Exercise of warrants 2,718,540 5,000 5,000 Mar. 28, 2002 Exercise of warrants 3,286,962 5,000 5,000 Mar. 29, 2002 Exercise of warrants 2,100,690 5,000 5,000 Nov. 18, 2003 Right issue 182,812,500 5,000 3,200 Jan. 9, 2006 - 1,217,832 5,000 3,826 Sep. 6, 2006 Exercise of warrants 502,399 5,000 5,917 Sep. 15, 2006 Exercise of warrants 66,986 5,000 5,917
Note) 1,217,832 shares issued on Jan. 9, 2006 were issued with regard to the merger with Thrunet B) Bonds with warrants (As of September 30, 2006) Issue date February 26, 2002 Expiration date February 26, 2007 Total face value KRW 132,120 million (USD 100 million)
6 Exercise period May 26, 2002 ~ Jan. 26, 2007 Exercise price KRW 5,917 Number of shares issued upon exercise 569,385 Number of shares to be issued upon exercise 2,779,945 Remark After capital reduction, the exercise price and the number of shares to be issued were adjusted to KRW 10,000 per share and 1,981,800 shares, and readjusted to KRW 5,917 per share and 3,349,332 shares through refixing.
Note 1) The bonds were fully repaid on September 2, 2003, with the remaining warrants to subscribe for 3,349,332 common shares of the Company. The exercise price was adjusted from KRW 5,000 per share to KRW 10,000 per share on May 3, 2006, and adjusted again to KRW 5,917 per share through refixing on May 26, 2006, in accordance with the Subscription Agreement. Note 2) The fractional shares (2 shares) resulting from the former exercise of bonds with warrants in September 2006 (569,385 shares) are not included in the number of shares to be issued upon exercise (2,779,945 shares). 4. NUMBER OF SHARES ISSUED (AS OF SEP 30, 2006) A) Total number of shares issued (Unit: share)
Authorized shares Shares issued Treasury stock Shares trading Par value - ----------------- ------------- -------------- -------------- --------- 700,000,000 232,245,891 - 232,245,891 KRW 5,000
Note) After a capital reduction at the equal ratio of 2:1 on May 3, 2006, the number of issued shares was changed to 232,245,891 shares as of Nov. 14, 2006. B) Acquisition and disposal of treasury stock
Class Beginning Acquisition Disposal Ending Remark (+) (-) ------------ --------- ----------- -------- ------ ------ Direct acquisition in Registered - - - - accordance with common share Paragraph 1, Article 189-2 of the Securities and Exchange Act of Korea Direct acquisition for reasons other than Paragraph 1, Article 189-2 of the " - 15,023 15,023 - Securities and Exchange Act of Korea Subtotal " - 15,023 15,023 - Indirect acquisition through trust " - - - - agreement, etc. Total " - 15,023 15,023 -
Note1) With regard to the merger with Thrunet, 44 shares were acquired through the exercise of appraisal right, while 4,524 shares were as odd lots. Note2) 10,455 shares were acquired as odd lots after capital reduction on May 3, 2006. 7 C) Employee share scheme (Employee Stock Ownership Association) - Transactions with the Employee Stock Ownership Association(as of September 30, 2006): [loans & loan guarantee for employees] (Unit: KRW million)
Interest Rate Ending Details of Series No. Lender Period (p.a.) Balance Collateral - ---------- -------------- --------------- -------- ------- ---------- 1st hanarotelecom Jan. 14, 2005 ~ 2.00% 1,677 Jan. 13, 2007 2nd hanarotelecom Sep. 2, 2006 ~ - 1,525 Mar. 1, 2007 Korea Exchange Sep. 2, 2006 ~ 5.13% 924 Guaranteed Bank Mar. 1, 2007 by the Company 3rd hanarotelecom Jul. 23, 2006 ~ - 6,259 Jul. 22, 2007 Hana Bank Jul. 23, 2006 ~ 4.98% 4,227 Guaranteed Jul. 22, 2007 by the Company 4th Hana Bank Sep. 1, 2006 ~ 4.88% 10,028 Guaranteed Aug. 31, 2007 by the Company SC First Bank Sep. 1, 2006 ~ 4.88% 1,564 Guaranteed Aug. 31, 2007 by the Company Total 26,203
Note) The interest rate of SC First Bank's loan(4th) to executives is 7.69% (p.a.). - Shares owned by the Association(as of September 30, 2006) (Unit: share)
Account held by Type End of 2005 As of Sep. 30, 2006 - --------------- ------------ ----------- ------------------- Association Common Share 1,097,433 531,807 Members - - -
Note) The number of shares as of September 30, 2006 refers to the number of shares adjusted after the capital reduction on May 3, 2006, and the Association's purchase of hanarotelecom's stocks related to the public disclosure released on Aug. 7, 2006(provision of security) is now in progress. 5. VOTING RIGHTS (AS OF SEPTEMBER 30, 2006)
Description Number of common shares - -------------------------------------- ----------------------- 1. Shares with voting right 232,245,891 (one vote for each share) 2. Shares with no voting right - 3. Shares with restricted voting right 24,621,686 4. Shares with reinstated voting right - 5. Shares with unrestricted voting right 207,624,205
8 Note) The number of shares with restricted voting rights include those that are restricted with respect to voting on the appointment and dismissal of the audit committee members (who are not outside directors) by the largest shareholders and others (pursuant to Article 191-11 of the Korean Securities and Exchange Act). - - Pursuant to Article 191-11 of the Securities and Exchange Act of Korea (appointment and dismissal of audit committee members who are not outside directors)
Shareholder Number of shares owned Number of shares in excess of 3% ----------- ---------------------- -------------------------------- AIF II NT, Ltd./ SSB-AOF NT 31,589,062 24,621,686 Total 31,589,062 24,621,686
Note) These numbers have been tabulated based on the Company's shareholder registry as of Oct. 12, 2006, and the number of shares in excess of 3% of the total issued shares was 6,967,376 shares. - - Pursuant to Article 191-11 of the Securities and Exchange Act of Korea (appointment and dismissal of audit committee members who are outside directors)
Shareholder Number of shares owned Number of shares in excess of 3% ----------- ---------------------- -------------------------------- Newbridge Asia HT, L.P. 24,767,899 17,800,523 AIF II NT, Ltd. 19,228,125 12,260,749 SSB-AOF NT 12,360,937 5,393,561 SK Telecom Co., Ltd. 11,045,000 4,077,624 United Classic Investments Limited 10,196,373 3,228,997 Total 77,598,334 42,761,454
Note) These numbers have been tabulated based on the Company's shareholder registry as of Oct. 12, 2006, and the number of shares in excess of 3% of the total issued shares was 6,967,376 shares. - - Pursuant to Article 10 of the Monopoly Regulation and Fair Trade Act of Korea : Not applicable. II. BUSINESS 1. INTRODUCTION A) Industry Overview [Telecommunications Subscribers] (Unit: persons)
As of the end of September Description 2006 2005 2004 2003 2002 - ------------------ ------------- ---------- ---------- ---------- ---------- Broadband Internet 13,898,491 12,190,711 11,921,439 11,178,499 10,405,486 Local Telephony 23,076,412 22,920,151 22,870,615 22,877,019 23,490,130 Mobile 39,703,210 38,342,423 36,586,052 33,591,758 32,342,493 Total 76,678,113 73,453,285 71,378,106 67,647,276 66,238,109
9 Note 1) Source: Ministry of Information and Communication B) Current Status of the Company - Business environment and portfolio - Current Business Outlook - Overview In the information and communication industry, SOs/ROs are rushing into the saturated broadband Internet market. Meanwhile, competition has heated up excessively in the telephony sector due to stagnant growth of the wired and wireless voice markets and introduction of number portability. In addition, changes in the government's policy towards deregulation and innovation and structural changes in the telecommunications and broadcasting market caused by development of digital technology enabled telecommunication companies to enter the media market. hanarotelecom is providing services in a total of 83 cities and 59 counties as of the end of September 2006. It has a total of 5.34 million customers, including 3.6 million broadband subscribers and 1.68 million voice subscriber lines. To respond to rapidly changing market conditions represented by a convergence of telecommunication and broadcasting, the Company completed the acquisition of hanaromedia Inc., a company with a competitive edge in TV-Portal platform and IP VOD contents, as of March 13, 2006 and launched the commercial hanaTV service on July 24, 2006. - Expansion of network facilities As of the end of September 2006, the total length of the Company's fiber optic cables reached 28,149 kilometers (including leased lines) in 83 cities, which enabled provisions of Internet services to 13.1 million households and voice services to 11.7 million households. - Operational results Despite intensifying competition in the broadband market, hanarotelecom achieved revenue of KRW 1, 292 billion, EBITDA of KRW 411.4 billion and operating profit of KRW 34.1 billion by the end of 3Q 2006. The Company has a total of 5.34 million subscribers as of the end of September 2006. The subscriber growth has been maintaining net addition in broadband, voice and hanaTV. - Financing The Company issued senior unsecured notes worth KRW 100 billion on February 17, 2006. The Company also made a drawdown of USD 27.5 million and KRW 22.5 billion from syndicated loans to pay off KRW 190 billion of non-guaranteed corporate bonds maturing on February 24, 2006. Also, the Company was provided with KRW 19.5 billion of loans(Technology Promotion Fund) by the government on August 23, 2006 as part of the government policy to provide support for the deployment of public broadband network in 2006. 10 - Market Share - Broadband Internet Subscribers & Market Share
As of the end of 3Q 2006 -------------------------------------------------- Service Provider No. of Subscribers Market Share - ---------------- ------------------ ------------ hanarotelecom 3,604,130 25.9% KT Corp. 6,333,119 45.6% Others 3,961,242 28.5% Total 13,898,491 100%
Note 1) Source: Ministry of Information and Communication Note 2) 'Others' include Onse Telecom, Dreamline Corporation, LG LG Powercomm and other value-added telecommunications business operators and network service operators. - - Local Telephony Service Subscriber Lines & Market Share
As of the end of 3Q 2006 ---------------------------------------------------- Service Provider No. of Subscriber Lines Market Share - ---------------- ----------------------- ------------ hanarotelecom 1,683,475 7.3% KT Corp. 21,320,282 92.4% LG Dacom 72,655 0.3% Total 23,076,412 100%
Note) Source: Ministry of Information and Communication 2. MAJOR SERVICES A) Prices of Major Services (Unit: KRW)
Classification 3Q 2006 ---------------------------- ------------- hanafos Fiber LAN Installation fee 30,000 Monthly flat fee 27,390~33,000 hanafos Free (fixed-line + Installation fee 30,000 wireless service) Monthly flat fee 30,000~40,000 Modem rental fee / month 3,000~8,000 Telephony charge / 3 minutes 39 hanafos Premium Installation fee 30,000 Monthly flat fee 34,000~38,000 Modem rental fee / month 8,000 Telephony charge / 3 minutes 39 hanafos Speed Installation fee 30,000 Monthly flat fee 25,200~28,000
11 Modem rental fee / month 3,000~8,000 Telephony charge / 3 minutes 39 hanafos wing pack Installation fee 30,000 (fixed-line + wireless service) Monthly flat fee 33,000~43,000 hanafone (local telephony Installation fee 30,000 service) Monthly flat fee 4,500 Telephony charge / 3 minutes 39 hanaTV Installation fee 20,000 Monthly flat fee 7,000~10,600 STB rental fee / month 0~7,000
Note) Installation fee or monthly flat fee can be changed depending on contract period, etc. - - Discount for broadband term contract - Modem rental fees
No-term contract 1-year contract 2-year contract 3-year contract -------- --------------- --------------- --------------- Modem rental fees (KRW) 8,000 6,000 4,000 3,000
Note) For hanaTV service, installation fees are KRW 20,000 with STB rental fees of KRW 7,000 for no-term contract, KRW 5,000 for 1-year contract, KRW 3,000 for 2-year contract, and exempted for contract of 3 years or more. - Monthly flat fees
Discount rate -------------------------------------------------------------------------------------- 40-month 1-year contract 2-year contract 3-year contract contract 4-year contract --------------- --------------- --------------- -------- --------------- Fiber LAN, wing 3% 5 % 10% 15% 17% pack Premium, Speed, 3% 5%~6% 10%~11% - - Multi-line Family 3% 5%~6% 10%~11% - - hanaTV 5% 10% 15% - 24%~26%
Note 1) For service bundles of broadband and telephony, KRW 2,000 is discounted from monthly flat fees of telephony service. Note 2) For service bundles of broadband, telephony and hanaTV, 10%~40% discounts of monthly flat fees are applied. 3. MAJOR FACILITIES A) Status on major facilities (Unit: KRW million) 12
Beginning book value Ending book value Description (As of Dec. 31, 2005) (As of September 30, 2006) - ----------- --------------------- -------------------------- Land 176,264 176,307 Buildings 288,871 283,620 Structures 167 163 Machinery 1,838,469 1,640,709 Vehicles - 291 Others 10,405 14,118
* Beginning book value includes Thrunet's facilities. B) Capital Expenditure ("CAPEX") plan - CAPEX (Unit: KRW billion)
Item Actually executed by 3Q 2006 (E) ---- ----------------------- -------- Backbone 43.2 75.6 Last-mile 126.7 201.6 Others 24.9 52.8 Total 194.8 330.0
4. DERIVATIVE CONTRACTS IN FOREIGN CURRENCY (AS OF SEPTEMBER 30, 2006)
Valuation Derivatives Date of Gains/Losses Contact Amount Payment Method Counterparty Contract (in KRW) - -------------- ----------- ---------------------------- ------------- ---------- --------------- Cross USD Receive the principal and Korea Dec. 19, -13,771,142,249 currency and 55,970,609 interest in USD and make Development 2003 interest rate payments in KRW based on Bank swaps the FX rate and the swap rates at the time of the contract Cross USD Receive the principal and Korea Feb. 10, -27,154,145,032 currency and 123,135,339 interest in USD and make Development 2004 interest rate payments in KRW based on Bank, etc. swaps the FX rate and the swap rates at the time of the contract Cross USD Receive the principal and Korea Feb. 1, 2005 -43,457,477,496 currency swaps 500,000,000 interest in USD and make Development payments in KRW based on Bank, etc. the FX rate at the time of the contract Cross USD Receive the principal in Calyon, etc. Feb. 27, -899,389,952 currency swaps 27,507,105 USD and make payments in 2006 KRW based on the FX rate at the time of the contract
13 5. MATERIAL AGREEMENTS [Leased line contract]
Agreement Counterpart Contract Period - -------------------------------------- ------------------------- -------------------------- CATV access network lease agreements LG Powercomm May 2002~December 2007 CATV access network lease agreements LG Powercomm July 2004~June 2007 Interconnection agreements among basic telecommunications carriers Major carriers - Telecommunications network interconnection agreement KEPCO December 2004~May 2005 Telecommunications conduit lease Seoul Metropolitan Rapid agreement Transit Corporation January 2006~December 2008 Telecommunications conduit lease Seoul Metropolitan Subway agreement Corporation January 2006~January 2007
6. RESEARCH AND DEVELOPMENT ACTIVITIES A) Summary of R&D activities - R&D Expenses (Unit: KRW million)
3Q 2006 Items (accumulative) 2005 2004 - ------------------------ -------------- ------ ------ R&D Expenses 3,881 7,707 5,335 R&D Expenses to Revenues 0.30% 0.53% 0.37%
7. OTHER MATTERS AFFECTING INVESTMENT DECISIONS A) Summary of financing activities - Domestic (Unit: KRW million)
Beginning Ending (as of Dec. 31, (as of Sep. 30, Source 2005) Net change 2006) - ---------------------------------- --------------- ---------- --------------- Commercial banks 79,847 41,996 121,843 Insurance companies - - - Merchant banks - - - Lease companies 6,663 -4,514 2,149 Mutual savings & finance companies - - -
14 Other financial institutions 32,761 -17,323 15,438 Sub-total (financial institutions) 119,271 20,159 139,430 Corporate bonds Public offering 190,000 -90,000 100,000 Private placement - - - Right Issuance Public offering 1,692,600 - 1,692,600 Note 1) Private placement 585,000 - 585,000 Asset Backed Public offering - - - Securities Private placement - - - Others - 3,367 3,367 Sub-total (capital market) 2,467,600 -86,633 2,380,967 Borrowings from shareholders, directors, affiliated companies - - - Others - - - Total 2,586,871 -66,474 2,520,397
- Overseas (Unit: KRW million)
Beginning Ending (As of Dec.31, (As of Sep. 30, Source 2005) Net change 2006) - ----------------------------------------- -------------- ---------- ---------------- Financial institutions 202,718 4,541 195,291 Corporate bonds 502,250 472,600 Equity (including right issuance) note 1) 361,620 340,272 Asset Backed Securities - - - Others - - - Total 1,066,588 4,541 1,008,163
Note 1) Refers to the amount of capital raised from the initial public offering on the NASDAQ Market in April, 2000. Note 2) Beginning balances are based on the end of year 2005 exchange rate of KRW/USD = 1,004.5 while ending balances are based on the end of September 2006 exchange rate of KRW/USD = 945.2. B) Credit Ratings in the last 3 years
Subject of credit Date rating Credit Credit rating company - ------------- ----------------- ------ -------------------------------------- Jun. 11, 2004 Corporate bond BBB Korea Management Consulting & Credit Rating Corporation Jun. 14, 2004 Corporate bond BBB Korea Investors Service, Inc. Jan. 13, 2005 Corporate bond BB Standard & Poor's Jan. 13, 2005 Corporate bond Ba2 National Information and Credit Evaluation (NICE) Jan. 17, 2005 Corporate bond BBB+ Moody's Aug. 2, 2005 Corporate bond BBB Korea Investors Service, Inc. Aug. 3, 2005 Corporate bond BBB Korea Management Consulting & Credit Rating Corporation Aug. 18, 2005 Commercial paper A3+ National Information and Credit Evaluation (NICE)
15 Feb. 2, 2006 Corporate bond BBB Korea Investors Service, Inc. Feb. 3, 2006 Corporate bond BBB Korea Management Consulting & Credit Rating Corporation Feb. 3, 2006 Corporate bond BBB+ National Information and Credit Evaluation (NICE) Jul. 26, 2006 Corporate bond BBB Korea Investors Service, Inc. Oct. 13, 2006 Commercial paper A3+ Korea Investors Service, Inc. Oct. 13, 2006 Corporate bond BBB+ Korea Investors Service, Inc. Oct. 17, 2006 Commercial paper A3+ Korea Management Consulting & Credit Rating Corporation Oct. 17, 2006 Corporate bond BBB+ Korea Management Consulting & Credit Rating Corporation
III. FINANCIAL INFORMATION 1. SUMMARIZED FINANCIAL STATEMENTS (Unit: KRW million)
Description 3Q 2006 2005 2004 2003 2002 - -------------------------- ----------- ----------- ---------- ---------- ---------- [Current Asset] 511,137 343,770 611,134 672,571 676,104 Quick assets 509,093 343,654 609,293 671,302 665,242 Inventories 2,004 116 1,841 1,269 10,862 [Non-current Asset] 2,376,585 2,636,331 2,561,300 2,709,351 2,925,467 Investment Securities 123,177 384,881 144,348 117,922 188,425 Property and Equipment 2,146,228 2,188,804 2,362,686 2,542,994 2,695,529 Intangible Asset 107,180 62,645 54,266 48,435 41,513 TOTAL ASSETS 2,887,723 2,980,101 3,172,434 3,381,922 3,601,570 [Current Liabilities] 489,642 595,691 737,081 821,987 1,355,344 [Long-term Liabilities] 861,868 816,823 687,140 828,763 898,739 TOTAL LIABILITIES 1,351,509 1,412,514 1,424,220 1,650,750 2,254,083 [Capital Stock] 1,161,229 2,310,676 2,310,676 2,310,676 1,396,613 [Capital Surplus] 1,502,480 344,642 344,642 344,642 692,815 [Accumulated Deficit] -1,140,233 -1,100,104 -891,264 -901,756 -736,420 [Capital Adjustment] 12,737 12,373 -15,841 -22,390 -5,521 TOTAL SHAREHOLDERS' EQUITY 1,536,213 1,567,587 1,748,213 1,731,172 1,347,487 Revenue 1,292,027 1,444,411 1,436,485 1,375,335 1,253,859 Operating Income (loss) 34,118 53,228 114,021 75,207 1,426 Ordinary Income (loss) -40,123 -202,692 10,493 -165,336 -127,794 Net Income -40,123 -208,839 10,493 -165,336 -127,794
16 - - As accounting policy for some operating expenses including sales commissions was changed from invoice basis accounting to accrual basis accounting, financial statements for 2003, 2004 and 2005 reflect an increase of KRW 27.2 billion in current liabilities and accumulated deficit without any change in net income. For the year 2002, net loss increases by KRW 4.6 billion due to the change. 2. ACCOUNTING STANDARDS More information regarding the Company's financial statements is posted on our website (http://www.hanaro.com/eng/download/ir/state/2006_3Q_review_report.pdf). 3. ACCOUNTING INFORMATION A) Fiscal years recorded net loss in the last 5 years (Unit : KRW billion)
Year Net loss amount Reason - -------------- --------------- --------------------------------------------------- 3Q 2006 40.1 Increase in marketing expenses due to intensifying (accumulative) competition 2005 208.8 Increase in marketing expenses due to intensifying competition and expenses for Thrunet merger 2003 165.3 Large investments in early business stage and write-off of idle equipments 2002 127.8 Large investments in early business stage 2001 251.0 Large investments in early business stage
4. FINANCIAL STATEMENTS More information regarding the Company's financial statements is posted on our website (http://www.hanaro.com/eng/download/ir/state/2006_3Q_review_report.pdf). 17 IV. OPINION OF INDEPENDENT AUDITORS AND AUDIT COMMITTEE 1. OPINION OF INDEPENDENT AUDITORS A) Auditors
3Q 2006 3Q 2005 2005 2004 - ------------------ --------------------------- ------------------ ------------------------------ Deloitte Anjin LLC Deloitte Anjin LLC (formerly known as Deloitte (formerly known as Deloitte Deloitte Anjin LLC HanaAnjin LLC) Deloitte Anjin LLC HanaAnjin LLC)
B) Opinion
Year Summary of auditor's opinion - -------- ------------------------------------------------------------------------------ 3Q 2006 Based on our reviews, nothing has come to our attention that causes us to believe that the financial statements referred to above are not presented fairly, in all material respects, in accordance with accounting principles generally accepted in the Republic of Korea. 3Q 2005 Based on our reviews, nothing has come to our attention that causes us to believe that the financial statements referred to above are not presented fairly, in all material respects, in accordance with accounting principles generally accepted in the Republic of Korea. 2005 In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of hanarotelecom incorporated as of December 31, 2005 and 2004, and the results of its operations, changes in its deficit and its cash flows for the years then ended in accordance with accounting principles generally accepted in the Republic of Korea 2004 In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of hanarotelecom incorporated as of December 31, 2004 and 2003, and the results of its operations, changes in its deficit and its cash flows for the years then ended in conformity with financial accounting standards in the Republic of Korea.
C) Summary of particular situations
Year Particular situations - -------- -------------------------------------------------------------------------------- 3Q 2006 - At the board of directors' meeting held on September 14, 2005, the Company resolved to merge with Korea Thrunet Co., Ltd. on January 1, 2006. Accordingly, the network unification of the Company and Korea Thrunet Co., 3Q 2005 Ltd. is in progress and accounted for the expenses occurred in relation to this unification as extraordinary item, which amount to [won] 1,399 million for the nine months ended September 30, 2005. 2005 The Company corrected its accounting treatment on the recognition of some operating expenses from cash basis to accrual basis in 2005. As a result of this error correction, [won] 27,183 million of expenses that should have been expensed before December 31, 2004 were reflected as accrued expenses and added to accumulated deficit before disposition as of December 31, 2004. In addition, the prior year's financial statements, which are presented for comparative purposes, are restated to reflect the error correction. 2004 -
18 2. FEES PAID TO INDEPENDENT AUDITORS FOR THE PAST 3 YEARS A) Auditing fees to independent auditors for the past 3 years (Unit : KRW million)
Total Hours of Year Auditor Auditing Fees Service - -------- ----------------------- -------------- -------------- 3Q 2006 Deloitte Anjin LLC 406 2,700 2005 Deloitte Anjin LLC 410 3,200 2004 Deloitte HanaAnjin LLC 370 2,800
B) Contracts with independent auditors for services other than auditing (Unit : KRW million)
Date of Year Contract Description Term Fees - ------- -------------- ------------------------------- -------- ----- 3Q 2006 - - - - 2005 Dec. 30, 2005 Improvement of customer center 5 weeks 50 commission system Apr. 4, 2005 Advisory service rendered in relation to the global bond offering 8 weeks 40 2004 Dec. 23, 2004 Issuance of comfort letter in relation to the global bond offering 4 weeks 85
19 V. GOVERNANCE STRUCTURE AND STATUS OF AFFILIATES 1. GOVERNANCE STRUCTURE A) Executive compensation - Compensation for directors (including outside directors) and Audit Committee members (Unit: KRW)
Ceiling amount of Average amount per Total amount paid compensation person ----------------- ------------------ ------------------ Directors 527,630,004 175,876,668 Outside directors 100,341,005 2,000,000,000 25,085,251 Members of Audit Committee 66,466,667 22,155,256
Note 1) Total amount paid and average amount per person include allowances for retirement payment as of the end of 3Q 2006. The amount paid to retired directors is included in the total amount paid, but not included in the average amount per person. KRW 2,000,000,000 is the ceiling amount of compensation for directors for the fiscal year 2006. - Granting of the stock option rights (As of October 31, 2006) - The cumulative number of stock option rights that have been granted: 26,524,585 - The cumulative number of stock option rights that have been cancelled: 18,363,057 - The cumulative number and type of stock option rights to be exercised: 8,161,528 common shares 2. AFFILIATED COMPANIES (AS OF SEP 30, 2006) Hanaro Telephone & Internet Information, Inc.( 99.99%) Hanaro Realty Development & Management Co., Ltd.( 100%) hanaromedia Inc.( 65.00%) HanaroDream Inc.( 57.02%) 20 VI. INFORMATION ON DIRECTORS, OFFICERS & Employees 1. DIRECTORS AND OFFICERS (AS OF SEP. 30, 2006)
No. shares Name Position owned - --------------------- ----------------------------------------------------- ----------- Park Byung-moo Representative Director and CEO 65,000 David Yeung Non-standing Director - Wilfried Kaffenberger Non-standing Director - Paul Chen Non-standing Director - Varun Bery Non-standing Director - Steven J. Schneider Non-standing Director - Afshin Mohebbi Non-standing Director - Peter Whang Member of Audit Committee - Park Sung-Kyou Member of Audit Committee - Kim Sun-woo Member of Audit Committee - Kim Tae-hyun Chairman - Dominic A. Gomez Senior Executive Vice President & Chief Operating Officer - Janice Lee Senior Executive Vice President & Chief Financial Officer - Kim Jin-ha Senior Executive Vice President & Head of Technology HQ 14,647 Eric Choi Senior Executive Vice President & Head of Sales Ops HQ - Hong Soon-man Senior Executive Vice President & Head of Convergence HQ 4,200 Mark D. Pitchford Senior Executive Vice President & Head of Marketing HQ - Park Chong-hoon Executive Vice President & Head of External Collaboration / Strategy HQ - Shin Kyu-shik Executive Vice President & Head of Corporate Business HQ 9,000 Matt Ki Lee Executive Vice President & Head of Sales & Service Provisioning Unit - Chang Young-bo Senior Vice President - Park Geon-jun Senior Vice President 1,649 Oh Sang-hwan Senior Vice President - Lee Seok-ho Senior Vice President - Choi Myung-hun Senior Vice President - Jeun Sang-jin Senior Vice President 649
21 Marshall J. Cochrane Senior Vice President & Chief Procurement Officer - Min Kyung-you Senior Vice President 932 Kim Yeon-ho Senior Vice President & Head of Subuk Br. - Ko Myung-joo Senior Vice President & Head of HR HQ - Lee Baek-kyu Senior Vice President & Head of Direct Channel Sales Team - Cho Young-wan Senior Vice President & President of Hanaro T&I 5,934
2. EMPLOYEES (AS OF SEP. 30, 2006) (Unit: Number of employees, 1,000 KRW)
Management Total Salaries Average Salary/ Description Staff Others Total (3Q 2006) Employee - ----------- ---------- ------ -------- -------------- --------------- Male 1,304 45 1,349 60,150,212 44,589 Female 76 65 141 3,418,244 24,243 Total 1,380 110 1,490 63,568,456 42,663
3. TRADE UNION (AS OF SEP. 30, 2006) (Unit: Number of employees)
Description Details - ----------------------- --------------------------------- Eligible for membership 1,215 Registered members 1,179 Standing members 5 Affiliation Federation of Korean Trade Unions Others -
VII. TRANSACTIONS WITH RELATED PARTIES 1. Debt Guarantee (as of Sep. 30, 2006) (Unit: B KRW)
Company Relation Amount Reference - ---------------- ------------------ ------ ----------------------------- hanaromedia Inc. Affiliated Company 90 Guarantee for equipment lease Total 90
Note) It was resolved that the debt guarantee shall be provided in the BOD meeting held on Jun. 22, '06, and the public disclosure was made thereon. But, no debt guarantee has been provided as of the end of 3Q '06. 2. Disposal of Equity Investment (as of Sep. 30, 2006) (Unit: B KRW)
Disposal ----------------------- Company Relation Type Amount - ---------------- ------------------ ------------- -------- hanaromedia Inc. Affiliated Company Common Shares 18.5 Total 18.5
22 3. Provision of Security for Members of the Employee Stock Ownership Association (as of Sep. 30, 2006) (Unit: B KRW)
Name Relation Amount Reference - ----------------- ---------------- ------- ------------------------ Yoon Sei-hong and Members of the 1,096 others. Employee Stock Ownership Date of BOD Resolution: Association 20 Aug. 2, 2006 Total 20
VIII. ATTACHMENTS Not applicable. IX. OTHER MATTERS 1. MATERIAL DEVELOPMENTS IN DISCLOSED EVENTS (AS OF JUNE 30, 2006)
Date Title Details After Disclosure - ------------ -------------------- -------------------------------- ------------------------------------- The Company announced its business plan for the fiscal year of 2006, with the following annual guidances - a The Company is currently 20~22% increase in revenues undertaking its business operations from the Company's 2005 for the fiscal year 2006. At the 2Q February 22, revenues of KRW 1,444.4 earnings conference call, the 2006 billion, EBITDA margin of Company said that there is no 32~34%, CAPEX of KRW 330 change in its revenue and CAPEX billion, Amortization and guidance for 2006. The EBITDA 2006 Business Plan Depreciation of KRW 510 billion margin is expected to fall short of for 2006, KRW 480 billion for the yearly target of 32%, but the 2007 and KRW 410 billion for Company will make utmost efforts to 2008. reduce cost. Through a resolution of the The Company made a 6-k filing Board of Directors, the Company regarding this on Aug. 10, 2006 as has decided to pursue the relevant US laws didn't take Plan for delisting deregistration from the SEC and effect as of Aug. '06 (previously from NASDAQ/ delisting of Depository expected to take effect in April deregistration from Receipts on NASDAQ after the 2006, but delayed). The delisting the SEC relevant law of the United /deregistration will be pursued States is enacted. after the relevant laws take effect.
23 - The Company expects TV-Portal revenue of KRW 5 billion, KRW 70~80 billion and KRW 200 billion for 2006, 2007 and 2008, respectively, with subscriber target of 250,000, 1 million and 1.5 million subscribers for 2006, 2007 and 2008, respectively (Figures for 2008 are estimated on the After offering a trial TV-Portal assumption that regulations on service, the Company launched a the IP-TV business and that a commercial service on July 24, May 12, 2006 full-fledged IP-TV service is 2006. As of November 8, 2006, about provided.) 82,000 subscribers signed up for the service. Given the recent Business plan for - Expected revenue of TV-Portal trends, the number of hanaTV TV-Portal service service was calculated based on subscribers is expected to reach of hanarotelecom expected monthly fees and the 200,000~220,000, and the revenues subscriber target that to reach 1.5~2 B KRW by the end of hanarotelecom will likely '06 (Fair Closure made on Nov. achieve if the Company 8). Any changes or announcements in undertakes marketing activities the future will be disclosed mainly targeting its broadband through filing. subscribers. The revenue may change depending on the actual number of TV-Portal subscribers.
2. CONTINGENT LIABILITIES As of Sep. 30, 2006, the Company is a defendant in 4 lawsuits claiming damages for payments amounting to KRW 1,647,308 and is a plaintiff in 5 lawsuits claiming for payments amounting to KRW 27,043,923. The final outcome of the above lawsuits cannot presently be determined. However, management believes that the ultimate disposition of those litigations will not have a materially adverse impact on the operations or financial position of the Company. 3. DEBT GUARANTEE (AS OF SEP. 30, 2006) (UNIT: B KRW)
Company No. of cases Amount Reference hanaromedia Inc. 1 90 Total 1 90
4. MAJOR DEVELOPMENT AFTER 2Q 2006 Not applicable The following exhibits were filed as part of the Report submitted to the Financial Service Advisory in Korea. LIST OF EXHIBITS EXHIBIT A INDEPENDENT ACCOUNTANTS' REVIEW REPORT 24 -----END PRIVACY-ENHANCED MESSAGE-----