taihan electric wire co., ltd. and subsidiaries

TAIHAN ELECTRIC WIRE CO., LTD. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2008 AND INDEPENDENT AUDITORS’ REPORT

Independent Auditors’ Report

English Translation of a Report Originally Issued in Korean

To the Shareholders and Board of Directors of

Taihan Electric Wire Co., Ltd.

We have audited the accompanying consolidated balance sheet of Taihan Electric Wire Co., Ltd. (the

“Company”) and its subsidiaries as of December 31, 2008 and the related consolidated statement of income,

changes in shareholders' equity and cash flows for the year ended December 31, 2008, all expressed in Korean

Won. These financial statements are the responsibility of the Company's management. Our responsibility is

to express an opinion on these financial statements based on our audit. We did not audit the financial

statements of certain subsidiaries including Namkwang Engineering & Construction Co., Ltd. whose financial

statements reflect 57.01% of the Company’s consolidated total assets (before eliminating inter-company

transactions) as of December 31, 2008 and 54.90% of the Company’s consolidated total sales (before

eliminating inter-company transactions) for the year then ended. Those statements were audited by other

auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included

for those consolidated subsidiaries, is based solely on the reports of the other auditors. The consolidated

financial statements of the Company as of December 31, 2007, which are presented for comparative purposes,

were audited by Samil PricewaterhouseCoopers, whose report dated April 29, 2008, expressed an unqualified

opinion on those statements.

We conducted our audit in accordance with auditing standards generally accepted in the Republic of Korea.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the

financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence

supporting the amounts and disclosures in the financial statements. An audit also includes assessing the

accounting principles used and significant estimates made by management, as well as evaluating the overall

financial statement presentation. We believe that our audit and the reports of other auditors provide a

reasonable basis for our opinion.

In our opinion, based on our audit and the reports of other auditors, the 2008 financial statements referred to

above, present fairly, in all material respects, the financial position of the Company and its subsidiaries as of

December 31, 2008, and the results of their operations, the changes in their shareholders’ equity and cash flows

for the year then ended, in conformity with accounting principles generally accepted in the Republic of Korea.

Without qualifying our opinion, we draw attention to the following:

(1) Asset revaluation

As explained in Notes 2 and 8 to the consolidated financial statements, the Company and its certain subsidiaries

adopted the amendment to the Statement of Korea Accounting Standards (“SKAS”) No. 5 “Property, Plant and

Equipment”, which permits certain items of its lands and buildings to be revalued after acquisition date,

applying the revaluation models permitted under SKAS No. 5. As a result of this adoption, the book value of

the lands & buildings as of December 31, 2008 increased by ￦138,612 million, the Company accounted for the

amount of gain on revaluation as “Gain on revaluation of property, plant and equipment” in accumulated other

comprehensive income (￦108,608 million) and the amount of loss on revaluation as “Loss on revaluation of

property, plants and equipment” in non-operating expenses (￦491 million).

(2) Hedging with non-derivatives

As explained in Notes 2 and 24 to the consolidated financial statements, according to the Interpretation for

SKAS No. 53-70 “Accounting for Derivatives” (newly amended on December 30, 2008), the Company

designated the foreign currency denominated borrowings as a hedging instrument to the exposure of fluctuating

expected future cash flows produced by a foreign currency risk and accordingly, the effective portion of the gain

or loss on the derivatives instruments, which incurred from July 1, 2008 to December 31, 2008, was recorded as

loss on valuation of derivatives included in accumulated other comprehensive loss. In addition, such adoption

of the above Interpretation for SKAS increased net income for the year ended December 31, 2008 by ￦21,934

million.

(3) Changes in the scope of consolidated subsidiaries

As explained in Note 1 to the consolidated financial statements, the Company had substantial control over

Namkwang Engineering & Construction Co., Ltd., Aldex Co., Ltd., Onse Telecom Co., Ltd., Aldex Canada

Enterprises Ltd. and SJD Co., Ltd.; therefore, they were added to the scope of consolidated subsidiaries. In

addition, Muju Enterprises City Co., Ltd. and Taihan Global Canada Investments Ltd. were added to the scope

of consolidated subsidiaries since its total assets were more than the required level of ￦7,000 million for

consolidation with substantial control as of the prior year end, while Taihan Bulk Terminal Co., Ltd. was

excluded from the scope of consolidated subsidiaries due to the disposal of its shares.

Accounting principles and auditing standards and their application in practice vary among countries. The

accompanying financial statements are not intended to present the financial position, results of operations,

changes in shareholders’ equity and cash flows in conformity with accounting principles and practices generally

accepted in countries and jurisdictions other than the Republic of Korea. In addition, the procedures and

practices used in the Republic of Korea to audit such financial statements may differ from those generally

accepted and applied in other countries. Accordingly, this report and the accompanying financial statements

are for use by those who are informed about Korean accounting procedures or auditing standards and their

application in practice.

March 27, 2009

Notice to Readers

This report is effective as of March 27, 2009, the auditors’ report date. Certain subsequent events or

circumstances may have occurred between the auditors’ report date and the time the auditors’ report is read.

Such events or circumstances could significantly affect the accompanying financial statements and may

result in modifications to the auditors’ report.

TAIHAN ELECTRIC WIRE CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2008 AND 2007

Korean Won

2008 2007

(In millions)

ASSETS

CURRENT ASSETS:

Cash and cash equivalents (Note 14) ￦ 225,097 ￦ 467,191

Short-term financial instruments (Notes 3 and 14) 711,396 195,619

Short-term marketable securities (Note 6) 79 1,714

Available-for-sale securities (Notes 6 and 14) 23,014 9,828

Held-to-maturity securities (Note 6) 648 807

Trade accounts and notes receivable, net of allowance

for doubtful accounts of ￦137,599 million in 2008

and ￦11,765 million in 2007 (Notes 14, 22 and 24) 498,003 523,191

Receivables from construction revenue, net of allowance

for doubtful accounts of ￦29,559 million in 2008

and ￦4,380 million in 2007 438,504 122,250

Other accounts receivable, net of allowance for doubtful

accounts of ￦10,576 million in 2008 and

￦4,078 million in 2007 (Note 14) 120,697 48,610

Short-term loans, net of allowance for doubtful accounts

of ￦64,917 million in 2008 and ￦6,489 million

in 2007 (Note 14) 440,086 207,493

Accrued income, net of allowance for doubtful accounts

of ￦9 million in 2008 and ￦280 million in 2007

(Note 14) 50,693 19,153

Advanced payments, net of allowance for doubtful

accounts of ￦16,361 million in 2008 and 15 million

in 2007 (Note 14) 263,661 12,032

Prepaid expenses 41,584 8,872

Guarantee deposits (Notes 4 and 14) 6,817 80

Current portion of deferred tax assets (Note 13) 23,300 1,285

Financial derivative assets 64,807 15,339

Inventories (Note 5) 415,927 349,202

Others 14,587 5,747

Total current assets 3,338,900 1,988,413

NON-CURRENT ASSETS:

Long-term financial instruments (Notes 3 and 14) 16,800 9,884

Available-for-sale securities (Notes 6 and 14) 600,937 565,022

Held-to-maturity securities (Note 6) 55,166 5,415

Equity method investments (Note 7) 554,601 293,675

Long-term loans, net of allowance for doubtful accounts

of ￦34,468 million in 2008 and ￦1,730 million in 2007

(Note 14) 259,517 211,729

Other investments, net of allowance for doubtful accounts

of ￦836 million in 2008 and ￦69 million in 2007 130,644 15,254

Deferred tax assets (Note 13) 140,086 3,423

Property, plant and equipment, net (Notes 8 and 23) 1,550,808 1,385,068

Intangible assets, net (Notes 9 and 23) 53,553 (26,085)

Other non-current assets 125,670 73,621

Total non-current assets 3,487,782 2,537,006

Total assets ￦ 6,826,682 ￦ 4,525,419

(Continued)


CONSOLIDATED BALANCE SHEETS (CONTINUED)

AS OF DECEMBER 31, 2008 AND 2007

Korean Won

2008 2007

(In millions)

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES:

Trade accounts and notes payable (Notes 14 and 22) ￦ 515,675 ￦ 137,958

Short-term borrowings (Notes 10 and 14) 1,785,987 1,205,981

Other accounts payable (Note 14) 166,942 73,502

Advances from construction revenue 32,703 28,262

Accrued expenses 80,798 30,992

Income tax payable (Note 13) 80,094 52,128

Current maturities of long-term debts, net (Note 11) 813,391 225,632

Current portion of deferred tax liabilities (Note 13) 561 1,574

Financial derivative liabilities 262,238 16,789

Others 114,635 95,790

Total current liabilities 3,853,024 1,868,608

NON-CURRENT LIABILITIES:

Long-term borrowings, net of current maturities

(Notes 11 and 14) 479,082 209,875

Debentures, net (Note 11) 508,090 432,378

Bonds with stock warrants, net (Notes 11 and 14) - 133,673

Convertible bonds, net (Note 11) 42,561 207,011

Exchangeable bonds, net (Note 11) 43,306 -

Finance lease liabilities (Notes 11, 14 and 24) 7,570 22

Guarantee deposits received 349,980 324,924

Financial derivative liabilities (Note 24) 6,887 -

Deferred tax liabilities (Note 13) 24,567 2,722

Accrued severance benefits, net (Note 12) 29,420 12,505

Others (Note 15) 36,359 17,077

Total non-current liabilities 1,527,822 1,340,187

Total liabilities 5,380,846 3,208,795

COMMITMENTS AND CONTINGENCIES (Note 24):

SHAREHOLDERS’ EQUITY (Note 15):

Capital stock 122,650 122,650

Capital surplus 508,798 623,148

Capital adjustments (68,609) (23,650)

Accumulated other comprehensive loss (Note 18) (159,219) (91,613)

Retained earnings 478,070 432,303

Minority interests 564,146 253,786

Total shareholders' equity 1,445,836 1,316,624

Total liabilities and shareholders’ equity ￦ 6,826,682 ￦ 4,525,419

See accompanying notes to consolidated financial statements.


CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

Korean Won

2008 2007

(In millions)

Sales (Notes 22 and 23) ￦ 4,734,656 ￦ 3,130,719

Cost of sales (Notes 16 and 22) 4,003,641 2,830,196

Gross profit 731,015 300,523

Selling and administrative expenses 624,354 175,027

Operating income (Note 23) 106,661 125,496

Non-operating income

Interest income 80,881 43,784

Dividend income 16,583 1,045

Gain on foreign currency transactions 133,857 21,633

Gain on foreign currency translation 102,071 10,184

Reversal of allowance for doubtful accounts 1,926 13,632

Gain on valuation of available-for-sale securities - 622

Gain on disposal of available-for-sale securities 5,839 10,205

Recovery of impairment losses on available-for-sale securities 621 36

Gain on valuation of equity method investments (Note 7) 42,845 2,532

Gain on disposal of equity method investments (Note 7) 6,902 5,390

Gain on disposal of property, plant and equipment (Note 8) 382,904 68,304

Gain on futures transactions 72,415 16,798

Gain on valuation of financial derivatives 51,613 4,487

Gain on financial derivatives transactions 63,240 844

Amortization of negative goodwill 9,242 7,834

Gain on recovery of bad debts 7,045 6,513

Gain on debt exemption 499 10,744

Others 26,191 9,012

1,004,674 233,599

Non-operating expenses

Interest expenses 287,289 99,619

Loss on foreign currency transactions 84,869 24,346

Loss on foreign currency translation 130,031 6,391

Other bad debt expenses 83,734 1,734

Loss on disposal of available-for-sale securities 1,134 88

Impairment losses on available-for-sale securities (Note 6) 1,148 5,572

Loss on valuation of equity method investments (Note 7) 50,212 1,901

Loss on disposal of equity method investments 4 -

Loss on disposal of property, plant and equipment 4,745 4,285

Loss on valuation of financial derivatives 216,342 6,509

Loss on financial derivatives transactions 25,841 400

Loss on valuation of inventories 26 915

Loss on redemption of bonds 7,307 247

Loss on futures transactions 94,906 15,510

Impairment losses on investments 24,174 -

Others 30,290 31,677

1,042,052 199,194

(Continued)


CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)


Korean Won

2008 2007

(In millions, except per share amounts)

Income from continuing operations before income tax ￦ 69,283 ￦ 159,901

Income tax expense (Note 13) 60,026 61,802

Net loss of newly consolidated subsidiaries before acquisition (6,766) (19,315)

Income from continuing operations 16,023 117,414

Income (loss) from discontinued operations, net (15,793) 2,857

Net income ￦ 230 ￦ 120,271

Parent interests in net income 69,954 76,289

Minority interests in net income (69,724) 43,982

Basic earnings per share from continuing operations (Note 19) ￦ 1,564 ￦ 1,535

Basic earnings per share (Note 19) ￦ 1,473 ￦ 1,595

Diluted earnings per share from continuing operations (Note 19) ￦ 1,557 ￦ 1,535

Diluted earnings per share (Note 19) ￦ 1,466 ￦ 1,595



CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

FOE THE YEARS ENDED DECEMBER 31, 2008 AND 2007

Korean Won

Common

stock

Capital

surplus

Capital

adjustments

Accumulated

other

comprehensive

income (loss)

Retained

earnings

Minority

interests

Total

(In millions)

Balance as of January 1, 2007 ￦ 119,465 ￦ 558,843 ￦ (37,801) ￦ 22,207 ￦ 379,515 ￦ 225,648 ￦1,267,877

Payment of dividends - - - - (23,200) - (23,200)

Balance after appropriations 119,465 558,843 (37,801) 22,207 356,315 225,648 1,244,677

Net income - - - - 76,289 43,982 120,271

Conversion of convertible bonds 3,185 20,209 - - - - 23,394

Issuance of bonds with stock warrants - 10,444 - - - - 10,444

Issuance of convertible bonds - 16,281 - - - - 16,281

Disposal of treasury stock - 21,266 11,024 - - - 32,290

Changes in capital surplus of

consolidated subsidiaries - (3,804) - - - - (3,804)

Changes in equity arising

from equity method investments - - - 1,622 - - 1,622

Loss on valuation of

available-for-sale securities - - - (139,603) - - (139,603)

Compensation expenses

associated with stock options - - 2,940 - - - 2,940

Changes in the scope of consolidation - (91) - - - (28,886) (28,977)

Decrease from translation of foreign

currency of minority interest - - - - - (497) (497)

Changes in minority interests - - - - - 14,937 14,937

Others - - 187 24,161 (301) (1,398) 22,649

Balance as of December 31, 2007 ￦ 122,650 ￦623,148 ￦ (23,650) ￦ (91,613) ￦ 432,303 ￦253,786 ￦1,316,624

Balance as of January 1, 2008 ￦ 122,650 ￦623,148 ￦ (23,650) ￦ (91,613) ￦ 432,303 ￦ 253,786 ￦1,316,624

Payment of dividends - - - - (24,187) (3,487) (27,674)

Balance after appropriations 122,650 623,148 (23,650) (91,613) 408,116 250,299 1,288,950

Net income - - - - 69,954 (69,724) 230

Acquisition of treasury stock - - (43,117) - - - (43,117)

Changes in capital surplus of

consolidated subsidiaries - (117,303) - - - - (117,303)

Changes in capital adjustments of

consolidated subsidiaries - - (1,781) - - - (1,781)

Changes in equity arising

from equity method investments - - - 29,476 - - 29,476

Loss on valuation of

available-for-sale securities - - - (257,148) - - (257,148)

Gain on revaluation of

property, plant and equipment, - - - 73,111 - - 73,111

Changes in the scope of consolidation - - (61) - - 148,790 148,790

Changes in minority interests - - - - - 193,414 193,414

Others - 2,952 - 86,955 - 41,368 131,275

Balance as of December 31, 2008 ￦ 122,650 ￦508,797 ￦ (68,609) ￦ (159,219) ￦ 478,070 ￦ 564,147 ￦1,445,836



CONSOLIDATED STATEMENTS OF CASH FLOWS


Korean Won

2008 2007

(In millions)

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income ￦ 230 ￦ 120,271

Adjustments to reconcile net income

to net cash provided by (used in) operating activities

Depreciation 111,979 86,769

Amortization of intangible assets 39,138 7,116

Provision for severance benefits 16,522 9,687

Bad debt expenses 22,555 3,635

Other bad debt expenses 83,734 1,734

Compensation expenses associated with stock options, net (89) 2,617

Interest, net 97,594 3,337

Loss on valuation of short-term marketable securities 1,919 24

Loss on disposal of short-term marketable securities 7 -

Gain on valuation of available-for-sale securities - (622)

Gain on disposal of available-for-sale securities, net (4,701) (10,117)

Gain on valuation of equity method investments, net (1,618) (32)

Gain on disposal of equity method investments (6,898) (5,390)

Impairment losses of available-for-sale securities 1,148 5,572

Gain on disposal of property, plant and equipment, net (378,262) (63,987)

Loss (gain) on foreign currency translation, net 57,440 (3,317)

Loss on valuation of financial derivatives, net 164,729 2,022

Impairment losses of investments 24,174 -

Reversal of allowance for doubtful accounts (1,914) (13,632)

Amortization of negative goodwill (8,667) (7,834)

Net loss of newly consolidated subsidiaries before acquisition - (19,315)

Others 20,970 (6,711)

239,760 (8,444)

Changes in operating assets and liabilities

Decrease (increase) in trade accounts and notes receivable 114,962 (73,758)

Decrease (increase) in other accounts receivable (49,407) 27,478

Increase in accrued income (33,070) (20,067)

Decrease (increase) in advanced payments (99,407) 5,245

Increase in prepaid expenses (12,045) (2,160)

Increase in inventories (61,491) (64,311)

Cash dividends from equity method investments 3,358 4,716

Decrease (increase) in other current assets (271) 266

Increase in current maturities of deferred tax assets (730) -

Increase in deferred tax assets (33,833) (1,191)

Increase (decrease) in trade accounts and notes payable 85,054 (86,591)

Increase (decrease) in other accounts payable (76,738) 15,453

Increase in accrued expenses 5,724 17,943

Increase in income tax payable 24,349 17,822

Decrease in other current liabilities (1,942) (2,167)

Decrease in current maturities of deferred tax liabilities (7,339) (1,220)

Payment of severance benefits (8,220) (5,849)

Decrease in contribution to National Pension Fund 17 38

Increase in pension plan assets (7,485) (2,075)

Decrease in deferred tax liabilities (6,221) (20,411)

Others (55,872) 51,179

(220,607) (139,660)

Net cash provided by (used in) operating activities 19,383 (27,833)

(Continued)


CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)


Korean Won

2008 2007

(In millions)

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from disposal of short-term marketable securities ￦ 801 ￦ 1,038

Withdrawal of short-term financial instruments 283,753 -

Withdrawal of long-term financial instruments 41,155 8,310

Proceeds from disposal of available-for-sale securities 95,989 33,616

Proceeds from disposal of held-to-maturity securities 2,049 86,975

Collection of short-term loans 204,709 153,176

Collection of long-term loans 4,268 3,213

Proceeds from disposal of property, plant and equipment 686,543 111,036

Acquisition of short-term financial instruments (673,591) (82,341)

Acquisition of long-term financial instruments (6,242) (6,203)

Acquisition of short-term marketable securities - (1,169)

Acquisition of available-for-sale securities (204,491) (655,788)

Acquisition of held-to-maturity securities (49,464) (4,502)

Acquisition of equity method investments (248,933) (163,337)

Acquisition of a subsidiary (75,000) -

Extension of short-term loans (490,400) (305,310)

Extension of long-term loans (54,509) (126,177)

Acquisition of property, plant and equipment (191,050) (134,021)

Acquisition of intangible assets (46,832) (58,902)

Others, net 65,135 54,689

Net cash used in investing activities (656,110) (1,085,697)

CASH FLOWS FROM FINANCING ACTIVITIES:

Issuance of debentures 289,633 382,411

Issuance of bonds with stock warrants 3,991 145,624

Issuance of exchangeable bonds 50,964 -

Issuance of convertible bonds 1,151 227,005

Proceeds from short-term borrowings 823,160 1,085,609

Proceeds from long-term borrowings 223,374 126,622

Proceeds from stock issuance 33,379 58,052

Proceeds from disposal of treasury stock - 40,356

Cash inflows from the transactions between consolidated

companies and minorities 11,650 13,930

Repayment of short-term borrowings (529,368) (267,106)

Repayment of current maturities of long-term borrowings (302,583) (324,003)

Repayment of debentures (53,989) (15,796)

Repayment of long-term borrowings (22,428) (26,184)

Payment of dividends (27,697) (25,119)

Purchase of treasury stock (43,130) -

Cash outflows from the transactions between consolidated

companies and minorities (139,580) -

Others, net (19,459) (14,700)

Net cash provided by financing activities 299,068 1,406,701

(Continued)


CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)


Korean Won

2008 2007

(In millions)

EFFECT OF CHANGES IN CONSOLIDATED SUBSIDIARIES ￦ 91,231 ￦ (55,096)

EFFECT OF EXCHANGE RATE ON

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 4,334 13,201

NET INCREASE (DECREASE) IN

CASH AND CASH EQUIVALENTS (242,095) 251,356

CASH AND CASH EQUIVALENTS,

BEGINNING OF YEAR 467,191 215,835

CASH AND CASH EQUIVALENTS,

END OF YEAR ￦ 225,097 ￦ 467,191


- 2 -


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. GENERAL INFORMATION:

The Company

Taihan Electric Wire Co., Ltd. (the “Company”) was incorporated in 1955 under the laws of the Republic of

Korea to engage in manufacturing, processing and selling electric wires, cables and related products.

In December 1968, the Company offered its shares for public ownership and all shares were listed on the Korea

Stock Exchange. On April 19, 2002, the Company split its common share by two-for-one, thereby, decreasing

the par value per share from ￦5,000 to ￦2,500.

As of December 31, 2008 and 2007, the shareholders of the Company are as follows:

2008 2007

Shareholder Number of

shares

Percentage of

ownership (%)

Number of

shares

Percentage of

ownership (%)

Sam Yang Metal Co., Ltd. ￦ 13,000,010 26.5 ￦ 13,000,010 26.5

Seul, Yoon Suk 7,979,432 16.3 7,979,432 16.3

Seul, Yoon Sung 2,849,821 5.8 2,849,821 5.8

Yang, Kyue Ae 1,156,340 2.4 1,156,340 2.4

Others 22,388,448 45.6 23,388,448 47.6

47,374,051 96.6 48,374,051 98.6

Treasury stock 1,685,931 3.4 685,931 1.4

￦ 49,059,982 100.0 ￦ 49,059,982 100.0

- 3 -

Consolidated Subsidiaries

Consolidated subsidiaries as of December 31, 2008 and 2007 are as follows:

Percentage of

ownership (%)

Number of

shares

2008 2007 2008 2007

Taihan Bulk Terminal Co., Ltd. (*1) - 100.00 - 928,000

Malesela T.E.C. Ltd. (*2) 49.00 49.00 10,569 10,569

Skytel Co., Ltd. 34.03 39.97 - -

Taihan Reach Ltd. 51.00 51.00 - -

Muju Resort Inc. 74.50 74.50 12,200,537 12,200,537

Trybrands Inc. (*3) 38.36 - 3,188,013 -

KTC Co., Ltd. 49.75 49.75 199,000 199,000

TMC Co., Ltd. 42.86 42.86 135,000 135,000

Korea Rental Corporation 68.47 68.47 2,359,400 2,359,400

Taihan Techren Co., Ltd. 100.00 100.00 200,000 66,660

TSC Co., Ltd. 70.00 70.00 19,600,000 19,600,000

Standard Telecom Congo 51.00 51.00 4,080,000 4,080,000

Taihan Global Holdings Ltd. 100.00 100.00 140,548,504 50,000,000

Taihan Luxemburg Investment Ltd. 100.00 100.00 1,000,000 150

Silkroad Telecom Ltd. 100.00 - 1,800,000 -

Taihan ST Co., Ltd. 80.10 80.10 3,204,000 3,204,000

Daimyung TMS Co., Ltd. 100.00 100.00 250,080 250,080

Jilin Try Textile Co., Ltd. 100.00 100.00 - -

TEC Construction Co., Ltd.

(formerly Myungji Construction Co., Ltd.)

44.07

90.00

11,900,000

9,900,000

TEC&R Co., Ltd. (*3) 67.50 - 5,400,000 -

Muju Enterprises City Co., Ltd. (*4) 96.07 96.07 8,800,000 8,800,000

Namkwang E&C (*5) 41.28 - 8,921,404 -

Aldex Co., Ltd. (*6) 51.37 - 56,421,706 -

SJD Co., Ltd. (*7) 42.00 - - -

Onse Telecom Co., Ltd. (*7) 52.65 - 75,947,474 -

Aldex Canada Enterprises Ltd. (*7) 100.00 - - -

Taihan Global Canada Investments Ltd. (*4) 100.00 100.00 8,700,000 7,000,000

TEC&Co Co., Ltd. (*3) 36.52 38.36 6,010,506 7,948,520

(*1) Taihan Bulk Terminal Co., Ltd. was excluded from the scope of consolidated subsidiaries due to the

disposal of its shares.

(*2) The fiscal year for Malesela T.E.C. Ltd. ends on June 30. In preparing the consolidated financial

statements, the unaudited financial statements as of and for the year ended December 31, 2008 were used.

(*3) TEC&Co Co., Ltd., the surviving company, spun off its clothing business unit to establish a new company,

Trybrands Co., Ltd. on April 30, 2008. In addition, TEC&Co Co., Ltd. dropped its development of real

estate business unit to establish a new company, TEC&R Co., Ltd. on April 30, 2008.

(*4) Muju Enterprises City Co., Ltd. and Taihan Global Canada Investments Ltd. were added to the scope of

consolidated subsidiaries since its total assets were more than the required level of ￦7,000 million for

consolidation with substantial control as of the prior year end.

(*5) Namkwang Engineering and Construction Co., Ltd. (“Namkwang E&C”) was added to the scope of

consolidated subsidiaries because the sum of equity ratio after adding the Company and its subsidiaries is

more than 30% and the Company and its subsidiaries are the largest shareholders.

(*6) Aldex Co., Ltd. was added to the scope of consolidated subsidiaries because the Company had substantial

control over Aldex Co., Ltd.

(*7) Onse Telecom Co., Ltd., Aldex Canada Enterprises Ltd. and SJD Co., Ltd. were added to the scope of

consolidated subsidiaries because they were subsidiaries of Aldex Co., Ltd.

- 4 -

The major business of consolidated subsidiaries and their relationship with the Company are summarized as

follows:

Company Major business Relationship

Malesela T.E.C. Ltd. Manufacturing and marketing of cable Supplier of

products and merchandise

Skytel Co., Ltd. Telecommunication service No relationship

Taihan Reach Ltd. Rent service of communication Supplier and purchaser of

of products and merchandise

Muju Resort Inc. Leisure sports and resort Lessor

Trybrands Inc. Manufacturing and marketing

fiber clothes

No relationship

KTC Co., Ltd. Manufacturing and marketing of cable Supplier and purchaser of


TMC Co., Ltd. Manufacturing cable and fiber cable Supplier and purchaser of


Korea Rental Corporation Rent and marketing of meters

and office automations

Lessor

Taihan Techren Co., Ltd. Photovoltaic development Lessor

TSC Co., Ltd. Manufacturing and marketing of cable Supplier of


Standard Telecom Congo Wire communication Supplier of


Taihan Global Holdings Ltd. Trading and investment Supplier of


and purchaser of raw materials

Silkroad Telecom Ltd. Telecommunication service No relationship

Taihan Luxemburg Investment Ltd. Investment Purchaser of raw materials

Taihan ST Co., Ltd. Manufacturing, rolling and extruding of

other nonferrous metal

Supplier and purchaser of


Daimyung TMS Co., Ltd. Manufacturing and tooling of metal No relationship

Jilin Try Textile Co., Ltd. Spinning and manufacturing of textile No relationship

TEC Construction Co., Ltd. Construction Lessor and construction

contract

TEC&R Co., Ltd. Development of real estate and consulting Lessor

Muju Enterprise City Co., Ltd. Leisure and sports No relationship

Namkwang E&C Construction No relationship

Aldex Co., Ltd. Manufacturing of aluminum ingot,

pellet and mini pellet

Loans

SJD Co., Ltd. Manufacturing of electronic devices and

construction materials

No relationship

Onse Telecom Co., Ltd. Telecommunication service Loans

Aldex Canada Enterprises Ltd. Development of real estate No relationship

Taihan Global Canada Investments Ltd. Hotel business No relationship

TEC&Co Co., Ltd. Manufacturing, wholesaling and

home-network system

Lessor

javascript:flink(%22wire%22);

javascript:flink(%22communication%22);

- 5 -

A summary of condensed financial information of the Company and its subsidiaries included in the

accompanying consolidated financial statements as of and for the years ended December 31, 2008 and 2007 is

as follows:

2008

Company Total assets

Shareholders’

equity Sales

Net income

(loss)

(In millions)

Taihan Electric Wire Co., Ltd. ￦ 3,394,483 ￦ 878,415 ￦ 2,444,536 ￦ 70,770

Malesela T.E.C. Ltd. (*1) 59,923 41,075 120,883 4,757

Skytel Co., Ltd. 51,781 48,017 40,046 14,937

Taihan Reach Ltd. 19,787 9,737 6,718 1,615

Muju Resort Inc. 745,560 236,167 76,682 (9,676)

T.E.C & Co Co., Ltd. 101,264 88,862 5,926 (33,955)

Trybrands Inc. 116,616 68,587 90,031 3,133

KTC Co., Ltd. 125,425 34,447 220,830 1,741

TMC Co., Ltd. 113,470 34,758 212,811 13,568

Korea Rental Corporation 181,400 67,825 103,188 (753)

Taihan Techren Co., Ltd. 6,621 5,960 33,993 52

TSC Co., Ltd. 39,809 30,329 19,037 (3,339)

Standard Telecom Congo 32,667 (12,080) 5,630 (4,795)

Taihan Global Holdings Ltd. (*2) 1,162,025 638,424 499,023 (209,585)

Taihan ST Co., Ltd. 190,288 90,673 274,517 4,787

TEC Construction Co., Ltd. 263,914 34,905 174,212 (49,074)

Jilin Try Textile Co., Ltd. 51,681 15,500 38,424 1,463

Daimyung TMS.Co., Ltd. 32,901 (13,693) 57,798 (1,171)

TEC&R Co., Ltd 75,685 44,623 343 (413)

Muju Enterprise City Co., Ltd. 64,267 46,518 - 1,283

Namkwang E&C 1,075,768 184,087 669,875 (7,155)

Aldex Co., Ltd. 163,536 87,378 121,569 (48,611)

SJD Co., Ltd. 15,538 8,167 26,236 (2,027)

Onse Telecom Corporation 297,205 50,350 385,750 (44,888)

Aldex Canada Enterprises Ltd. 14,617 5,683 44 (2,170)

Taihan Global Canada Investments,

Ltd.

53,553

8,132

20,114

(1,179)

8,449,784 2,732,846 5,648,216 (300,685)

Consolidation adjustments (1,623,102) (1,287,010) (913,560) 300,915

￦ 6,826,682 ￦ 1,445,836 ￦ 4,734,656 ￦ 230

(*1) Unaudited financial statements were used in preparing consolidated financial statements due to the

different fiscal year.

(*2) The financial information of Taihan Global Holdings Ltd., which has 100% ownership of Taihan

Luxemburg Investment Ltd. and Silkroad Telecom Ltd., is based on the consolidated financial statements.

- 6 -

2007

Company Total assets

Shareholders’

equity Sales

Net income

(loss)

(In millions)

Taihan Electric Wire Co., Ltd. ￦ 2,981,272 ￦ 1,071,751 ￦ 2,078,618 ￦ 77,625

Taihan Bulk Terminal Co., Ltd. 38,118 36,903 9,301 2,857

Malesela T.E.C. Ltd. (*1) 59,139 33,810 137,387 6,823

Skytel Co., Ltd. 32,934 29,277 24,932 9,782

Taihan Reach Ltd. 15,073 8,122 6,577 (758)

Muju Resort Inc. 632,786 147,024 68,918 (17,341)

Trybrands Inc. (*2) 512,523 175,491 377,351 53,170

KTC Co., Ltd. 67,663 19,375 156,562 1,752

TMC Co., Ltd. 76,813 22,555 141,179 9,422

Korea Rental Corporation 159,719 68,578 91,950 6,503

Taihan Techren Co., Ltd. 7,468 1,923 8,069 (799)

TSC Co., Ltd. 32,122 27,580 12,819 623

Standard Telecom Congo (*1) 25,230 (5,043) 2,881 (4,063)

Taihan Global Holdings Ltd. (*2) 463,059 371,370 56 4,838

Taihan ST Co., Ltd. (*2) 234,165 85,810 296,201 15,886

5,338,084 2,094,526 3,412,801 166,320

Consolidation adjustments (812,665) (777,902) (282,082) (46,049)

￦ 4,525,419 ￦ 1,316,624 ￦ 3,130,719 ￦ 120,271

(*1) Unaudited financial statements were used in preparing consolidated financial statements.

(*2) The financial information of Trybrands Inc., a direct subsidiary, is based on the consolidated financial

statements.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The Company prepared its consolidated financial statements in conformity with Statements of Korea

Accounting Standards (“SKASs”) No. 25 “Consolidated Financial Statements”.

The significant accounting policies followed by the Company in the preparation of its consolidated financial

statements are summarized below.

Basis of Financial Statement Presentation

The Company maintains its official accounting records in Korean Won and prepares financial statements in the

Korean language (Hangul) in conformity with the accounting principles generally accepted in the Republic of

Korea. Certain accounting principles applied by the Company that conform with financial accounting

standards and accounting principles in the Republic of Korea may not conform with generally accepted

accounting principles in other countries. Accordingly, these financial statements are intended for use by those

who are informed about Korean accounting principles and practices. The accompanying consolidated financial

statements have been condensed, restructured and translated into English from the Korean language financial

statements. Certain information included in the Korean language financial statements, but not required for a

fair presentation of the Company and its subsidiaries’ financial position, results of operations, changes in

shareholders’ equity or cash flows, is not presented in the accompanying consolidated financial statements.

The Company prepared its consolidated financial statements as of December 31, 2008 in accordance with

Financial Accounting Standards and Statements of Korea Accounting Standards (“SKASs”) in the Republic of

Korea, and adopted SKAS No. 1 through No. 25 (except for No.14). The significant accounting policies

applied by the Company in preparation of its consolidated financial statements for the year ended December 31,

2008 are identical to those for the year ended December 31, 2007, except for current amendments in SKASs.

- 7 -

Principles of Consolidation

(1) Elimination of Investment and Capital Accounts

Investments and equity accounts of subsidiaries were eliminated at the dates the Company obtained substantial

control of the subsidiaries.

(2) Amortization of Goodwill and Negative Goodwill

The difference between the cost of acquisition and the book value of the subsidiary is amortized using the

straight-line method within five years from the year the acquisition occurred or reversed over the remaining

weighted average useful life of the identifiable acquired depreciable assets for negative goodwill using the

straight-line method.

(3) Elimination of Intercompany Unrealized Income

Profits and losses on inter-company sales of products, property or other assets are eliminated in the consolidated

financial statements based on the gross profit or loss recognized. Unrealized gains and losses arising from

sales by a controlling company to its subsidiary (downstream sales) are eliminated entirely and charged

(credited) to controlling interest, and unrealized gains and losses arising from sales by a subsidiary to its

controlling company or from transactions among subsidiaries (upstream sales) are eliminated entirely and

allocated to controlling interest and minority interest.

Unrealized income included as a result of intercompany transactions are as follows:

2008 2007

Tangible

assets

Convertible

bonds Inventories Total

Tangible

assets

Convertible

bonds Total

(In millions)

Malesela T.E.C, Ltd. (350) - - (350) (731) - (731)

KTC Co., Ltd. (2,357) - - (2,357) (3,000) - (3,000)

Standard Telecom Congo (1,603) - - (1,603) (1,927) - (1,927)

Taihan ST Co., Ltd. (45,364) - - (45,364) (46,765) - (46,765)

TMC Co., Ltd. - (304) - (304) - (304) (304)

Taihan Techren Co., Ltd. - - - - - (315) (315)

Jilin Try Textile Co., Ltd.

(112) - (322) (434) - - -

TEC&R Co., Ltd

(4,901) - - (4,901) - - -

Total ￦ (54,687) ￦ (304) ￦ (322) ￦ (55,313) ￦ (52,423) ￦ (619) ￦ (53,042)

(4) Adjustment of Different Accounting Policy

Differences in accounting policy between the Company and consolidated subsidiaries are adjusted in preparing

the consolidated financial statements.

(5) Translation of Foreign Currency Financial Statements

Accounts and records of the overseas subsidiaries are maintained in foreign currencies. For presentation in the

accompanying consolidated financial statements, the financial statements of the overseas subsidiaries have been

translated to Korean Won at exchange rates as of the balance sheet date for the balance sheet accounts and

average exchange rate for income statement accounts. Resulting differences are accounted for as gain (loss) on

overseas operation translation in accumulated other comprehensive income (loss) account within shareholders’

equity.

- 8 -

Recent Changes in Korean Accounting Standards

Korea Financial Accounting Standards, SKAS, Interpretation on Korea Financial Accounting Standards,

Opinion on Application of Accounting Standards and Opinion on Financial Reporting Practice (collectively

referred to as “KFAS and others”) that were issued or amended by the Korea Accounting Institute and the

Financial Supervisory Service for the year ended December 31, 2008 and adopted by the Company are

summarized below.

(1) SKAS No. 5 “Property, Plant and Equipment”

The Company and its certain subsidiaries adopted the amendment to the SKAS No. 5 “Property, Plant and

Equipment”, which permits certain items of its lands and buildings to be revalued after acquisition date,

applying the revaluation models permitted under SKAS No. 5. As a result of this adoption, the book value of

the lands & buildings as of December 31, 2008 increased by ￦138,612 million, the Company accounted for the

amount of gain on revaluation as “Gain on revaluation of property, plant and equipment” in accumulated other

comprehensive income (￦108,608 million) and the amount of loss on revaluation as “Loss on revaluation of

property, plants and equipment” in non-operating expenses (￦491 million).

(2) SKAS No. 53-70 “Accounting for Derivatives”

According to the Interpretation for SKAS No. 53-70 “Accounting for Derivatives” (newly amended on

December 30, 2008), the Company designated the foreign currency denominated borrowings as a hedging

instrument to the exposure of fluctuating expected future cash flows produced by a foreign currency risk and

accordingly, the effective portion of the gain or loss on the derivatives instruments, which incurred from July 1,

2008 to December 31, 2008, was recorded as loss on valuation of derivatives included in accumulated other

comprehensive loss. In addition, such adoption of the above Interpretation for SKAS increased net income for

the year ended December 31, 2008 by ￦21,934 million.

Revenue Recognition

Revenue is the gross inflow of economic benefits arising in the ordinary course of the Company’s activities and

is measured at the fair value of the consideration received or receivable for the sale of goods and services in the

said ordinary course of the Company’s activities. Revenue is shown as net of value-added tax, sales discounts

and sales returns. The Company recognizes revenue when the amount of revenue can be reliably measured,

and it is probable that future economic benefits will flow into the Company.

Revenue from the sale of goods is recognized when the significant risks and rewards of ownership of goods are

transferred to the buyer. Revenue from the rendering of services is recognized under the percentage-of-

completion method, under which revenue is generally recognized based on the costs incurred to date as a

percentage of the total estimated costs to be incurred.

Allowance for Doubtful Accounts

The Company provides an allowance for doubtful accounts and based on management’s estimate of the

collectibility of the receivables and prior years’ collection experience.

Inventories

The quantities of inventories are determined using the perpetual method and periodic inventory count, while the

costs of inventories are determined using the weighted-average method, except for materials in-transit which is

stated at cost, determined using the specific identification method. Inventories are stated at the lower of cost or

net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less

applicable variable selling expense. Replacement cost is used for the estimate of net realizable value of raw

materials. If, however, the circumstances which caused the valuation loss cease to exist, the valuation loss is

reversed up to the original carrying amount before valuation. The reversal of valuation loss is deducted from

cost of sales.

- 9 -

Investments in Securities (Excluding Equity Method Investments)

Costs of securities are determined using the weighted-average method. Investments in equity securities or debt

securities are classified into trading, available-for-sale and held-to-maturity securities, depending on the

acquisition and holding purpose. Investments in equity securities of companies, over which the Company

exercises a significant control or influence, are recorded using the equity method of accounting. Trading

securities are classified as current assets; available-for-sale securities and held-to-maturity securities are

classified as non-current assets, unless they mature or are certain to be disposed of within one year, which are

then classified as current assets.

Held-to-maturity securities are carried at amortized cost while available-for-sale and trading securities are

recorded at fair value. However, non-marketable securities, classified as available-for-sale securities, are

carried at cost when the fair values are not readily determinable.

Gains and losses related to trading securities are recognized in the income statement, while unrealized gains and

losses of available-for-sale securities are recognized under other comprehensive income (loss). Realized gains

and losses of available-for-sale securities are recognized in the income statement.

Equity Method Investments

Investments in equity securities of companies, over which the Company exercises significant influence, are

reported using the equity method of accounting.

Under the equity method of accounting, the Company records changes in its proportionate equity of the net

assets of the investee depending on the nature of the underlying changes in the investee as follows; (i) “equity

in income (loss) of associates” in the non-operating income (expense) for net income (loss) of the investee; (ii)

“increase (decrease) in retained earnings of associates” in the retained earnings for changes in beginning

retained earnings of the investee; (iii) “increase (decrease) in equity of associates” in accumulated other

comprehensive income (loss) for other changes in shareholders’ equity of the investee.

When the equity method investee’s unappropriated retained earnings carried over from prior period changes due

to significant error corrections, the Company records the changes in equity as “equity in income (loss) of

associates” included in the non-operating income (expense) if the impact of the changes on the Company’s

consolidated financial statements is not significant. If the changes results from the changes in accounting

policies of the equity method investee, they are reflected in unappropriated retained earnings carried over from

prior period in accordance with SKAS on changes in accounting policy and errors corrections. When the

investee declares cash dividends, the dividends to be received are deducted directly from equity method

investments.

Difference between the acquisition cost and the Company’s proportionate equity in the fair value of net assets of

the investee upon acquisition (“Investment difference”) is considered as (negative) goodwill and accounted for

in accordance with accounting standards for business combination. The goodwill portion is amortized over

useful lives within 5 years on a straight line method while the negative goodwill portion is amortized over the

weighted average useful lives of depreciable non-monetary assets of the investee. The amortization is included

in “equity in income (loss) of associates”.

When the Company’s equity interest in the investee increases due to an increase (or decrease) in contributed

capital with (or without) consideration, the changes in the Company’s proportionate equity in the investee are

accounted for as investment difference. If the Company’s equity interest decreases, the changes are accounted

for as “gain (loss) on disposal of the equity method investments”.

Upon acquisition of the equity method investments, the Company’s proportionate shares in the differences

between the fair values and book values of the identifiable assets and liabilities of the investee are

amortized/reversed and included in “equity in income (loss) of associates” in accordance with the investee’s

methods of accounting for the assets and liabilities.

- 10 -

The Company’s proportionate share in the gain (loss) arising from transactions between the Company and the

investee, which remains in the book value of assets held as of balance sheet date, is considered unrealized gain

(loss) and adjusted to equity method investments.

When there is objective evidence that the equity method investments is impaired and the recoverable amount is

lower than the carrying amount of the equity method investments, an impairment loss is recognized as “loss on

impairment of equity method investments” included in non-operating expense and the unamortized investment

difference is first reduced. When the recoverable amount is recovered after the recognition of impairment loss,

the reversal of impairment loss is recognized as income up to the previously recorded impairment loss. The

book value of the equity method investments after the reversal of the impairment loss cannot exceed the book

value calculated as if the impairment loss would not been originally recognized. The reversal of the

impairment loss recognized against the unamortized investment difference is not allowed.

Property, Plant and Equipment

Property, plant and equipment are stated at cost (acquisition cost or manufacturing cost plus expenditures

directly related to preparing the assets ready for use). However, certain assets, for which the revaluation

method in accordance with the Korean Assets Revaluation Act or revaluation model in accordance with the

amendment to SKAS No. 5 is elected, are recorded at revalued amounts. The Company presents the amount of

gain on revaluation performed in accordance with the Korean Assets Revaluation Act on the other capital

surplus. The Company accounts for the amount of gain on revaluation performed in accordance with the

amendment to SKAS No. 5 as “Gain on revaluation of property, plant and equipment” in accumulated other

comprehensive income or “Loss on revaluation of property, plants and equipment” in non-operating expenses.

Property, plant and equipment are stated net of accumulated depreciation calculated based on the following

depreciation method and estimated useful lives:

Estimated useful lives

Buildings 6 - 60 years

Structures 5 - 48 years

Machinery and equipment 2 - 40 years

Vehicles 2 - 10 years

Others 2 - 20 years

Rental assets 3 - 10 years

Expenditures incurred after the acquisition or completion of assets are capitalized if they enhance the value of

the related assets over their recently appraised value or extend the useful life of the related assets. Routine

maintenance and repairs are charged to expense as incurred.

Accounting for Leases

A lease is classified as a finance lease or an operating lease depending on the extent of transfer to the Company

of the risks and rewards incidental to ownership. If a lease meets any one of the following criteria, it is

accounted for as a finance lease:

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

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

exercised;

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

transferred;

4) At the date of lease commencement the present value of the minimum lease payments amounts to at least

substantially all (90% or more) of the fair value of the leased asset; or

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

modifications.

- 11 -

All other leases are treated as operating leases.

For operating leases, lease payments excluding guaranteed residual value are recognized as an expense on a

straight-line basis over the lease term and contingent rent is expensed as incurred. Finance leases are

recognized as assets and liabilities at the lower of fair value of the leased property or the present value of the

minimum lease payments discounted using the implicit interest rate of the lessor (or the Company’s incremental

borrowing rate if the implicit interest rate is not practicable to determine). Any initial direct costs incurred by

the Company are added to the amount recognized as an asset. The depreciation policy for depreciable leased

assets is consistent with that for the similar depreciable assets that are owned by the Company. Annual

minimum lease payments excluding guaranteed residual value is allocated to interest expense, which is

calculated using the effective interest rate, and finance lease repayment amount. Contingent rent relating to

finance lease is charged as expenses in the periods in which they are incurred, however, if the amount is

material, it is allocated to principal and interest, respectively, over the remaining lease term.

Government Grants

Government grants received, which are to be repaid, are recorded as liability, and while grants without

obligation to be repaid are offset against cost of assets purchased with such grants. Grants received for a

specific purpose are offset against the specific expense for which it was granted, and other grants are recorded as

a gain for the period.

Intangible Assets

Intangible assets are stated at cost, which includes acquisition cost, production cost and other costs required to

prepare the asset for its intended use. Intangible assets are stated net of accumulated amortization calculated

based on using the straight-line method over the estimated useful lives.

Development costs, which are individually identifiable and directly related to a new technology or to new

products that carry probable future benefits, are capitalized as intangible assets. Amortization of development

cost begins at the commencement of the commercial production of the related products or use of the related

technology.

Estimated useful life

Goodwill 5 years

Development cost 5 years

Industry property rights 5 - 10 years

Others 4 - 20 years

Impairment of Assets

When the book value of an asset is significantly greater than its recoverable value due to obsolescence, physical

damage or an abrupt decline in the market value of the asset, the said decline in value is deducted from the book

value to agree with recoverable amount and is recognized as an asset impairment loss for the period. When the

recoverable value subsequently exceeds the book value, the impairment amount is recognized as gain for the

period to the extent that the revised book value does not exceed the book value that would have been recorded

without the impairment.

Derivatives

All derivative instruments are accounted for at their fair value according to the rights and obligations associated

with the derivative contracts. The resulting changes in fair value of derivative instruments are recognized

either under the income statement or shareholders’ equity, depending on whether the derivative instruments

qualify as a cash flow hedge. Fair value hedge accounting is applied to a derivative instrument purchased with

the purpose of hedging the exposure to changes in the fair value of an asset or a liability or a firm commitment

that is attributable to a particular risk. The resulting changes in the fair value of derivatives that are designated

and qualify as cash flow hedges are recognized under the shareholders’ equity as accumulated other

comprehensive income (loss).

- 12 -

Income Tax and Deferred Income Tax

Income tax expense includes the current income tax under the relevant income tax law and the changes in

deferred tax assets or liabilities. Deferred tax assets and liabilities represent temporary differences between

financial reporting and the tax bases of assets and liabilities. Deferred tax assets are recognized for temporary

differences which will decrease future taxable income or operating loss to the extent that it is probable that

future taxable income will be available against which the temporary differences can be utilized. Deferred tax

effects applicable to items in the shareholders’ equity are directly reflected in the shareholders’ equity.

Deferred income tax assets (liabilities) for temporary differences are classified into current assets (current

liabilities) or investments (non-current liabilities) according to the classification of the assets (liabilities) on

balance sheet, to which the temporary differences are related. For temporary differences that are not related to

the assets (liabilities) on balance sheet, the deferred income tax assets (liabilities) are classified into current or

non-current assets (liabilities) according to the expected reversal date of the temporary differences.

Discounts on Debentures

Discounts on debentures are amortized over the term of the debentures using the effective interest rate method.

Amortization of the discount is recorded as part of interest expense.

Convertible Bonds and Consideration for Conversion Rights

The Company has recorded the conversion rights as other capital surplus, calculated by deducting the present

value of ordinary bonds from the issuance price of convertible bonds. Conversion rights adjustments and

discounts on convertible bonds are deducted from convertible bonds, while redemption premiums are added.

Accrued Severance Benefits

The Company has a defined contribution pension plan, and accrues severance benefits for current employees

and pension payables for retired employees.

Pension plan assets are presented as a deduction from the total accrued severance benefits and pension payables.

The excess of pension plan assets over pension plan liabilities is recorded as investment assets.

Approximately 47.0% of accrued severance benefits are funded as of December 31, 2008 (2007: 47.6%),

through pension plan assets or group severance insurance deposits with Kyobo Life Insurance Co., Ltd. and

others. are presented as a deduction from accrued severance benefits.

Provisions and Contingent Liabilities

When there is a probability that an outflow of economic benefits will occur due to a present obligation resulting

from a past event, and whose amount is reasonably estimable, a corresponding amount of provision is

recognized in the consolidated financial statements. However, when such outflow is dependent upon a future

event, is not certain to occur, or cannot be reliably estimated, a disclosure regarding the contingent liability is

made in the notes to the consolidated financial statements.

Translation of Assets and Liabilities Denominated in Foreign Currencies

Monetary assets and liabilities denominated in foreign currencies are translated into Korean Won at the rates of

exchange in effect at the balance sheet date, and the resulting translation gains and losses are recognized in

current operations.

The Company designated the foreign currency denominated borrowings as a hedging instrument to the exposure

of fluctuating expected future cash flows produced by a foreign currency risk and accordingly, the effective

portion of the gain (loss) on the derivatives instruments are recorded as a gain (loss) on valuation of derivatives

included in accumulated other comprehensive income (loss).

- 13 -

Share-based Payments

In case of equity-settled share-based payment, the fair value of the goods or employee services received in

exchange for the grant of the options is recognized as an expense and a capital adjustment. If the fair value of

goods or employee services cannot be estimated reliably, the fair value is estimated based on the fair value of

the equity granted.

Net Income (Loss) of Newly Consolidated Subsidiaries before Acquisition

Namkwang E&C, Aldex Co., Ltd., Onse Telecom Co., Ltd., Aldex Canada Enterprises Ltd. and SJD Co., Ltd.

became consolidated subsidiaries of the Company during current year and its results of operations were reflected

in the income statement on an annual basis. However, total net income (loss) of the consolidated subsidiaries

until the deemed acquisition date (March 31, 2008) was deducted from net income before income tax and

accounted for as net income (loss) of newly consolidated subsidiaries before acquisition.

Reclassification of the Subsidiaries’ Financial Statements

The Company reclassified some accounts in the subsidiaries’ financial statements according to the Company’s

financial statements. This reclassification does not affect the amount of net income or net assets in the

subsidiaries’ financial statements.

3. RESTRICTED FINANCIAL INSTRUMENTS:

Details of restricted deposits as of December 31, 2008 and 2007 are as follows:

Korean Won

2008 2007

(In millions)

Short-term financial

instruments

Term-deposits and

others ￦ 639,849 ￦ 11,554 Pledged as collateral for derivatives

transactions and borrowings

Long-term financial

instruments

Term-deposits and

others 25,327 7,570 Pledged as collateral for borrowings

Guarantee deposits 54 51 Guarantee deposits for checking account

￦ 665,230 ￦ 19,175

In additions, pension plan assets or severance insurance deposits are made under defined contribution pension

plan and withdrawals are restricted to the actual payment of severance benefits.

4. DEPOSITS PAID FOR GUARANTEES:

The Company was named as a defendant in a lawsuit filed by Jinro Co. Ltd.’s subordinated secured creditors,

claiming amounts totaling ￦14,664 million with respect to the Jinro receivables acquired in 2003. The

plaintiffs contested the profits received by the Company after collecting the restructured receivables from Jinro

Co., Ltd. The amount was deposited with the court and is presented as deposits paid for guarantees, net of

allowance amounting to ￦4,399 million in the balance sheet as of December 31, 2006. The Company won

the first trial on June 23, 2006 and the second trial on June 22, 2007, and the Company collected the deposits in

2007. Accordingly, the allowance for deposits paid for guarantees amounting to ￦4,399 million was reversed

in the prior year.

- 14 -

5. INVENTORIES:

Inventories as of December 31, 2008 and 2007 consist of the following:

Korean Won

2008 2007

(In millions)

Merchandise ￦ 93,372 ￦ 56,021

Finished products 105,741 48,884

Semi-finished products 476 470

Work-in-process 75,035 111,181

Raw materials and supplies 94,420 66,312

Materials-in-transit 39,071 18,786

Uncompleted construction - 2,165

Completed housing 3,761 8,060

Commercial facilities unsold - 34,395

Land for construction 4,051 2,928

￦ 415,927 ￦ 349,202

6. INVESTMENTS IN SECURITIES (EXCLUDING EQUITY METHOD INVESTMENTS):

Investments in securities as of December 31, 2008 and 2007 consist of the following:

Korean Won

2008 2007

Current Non-current Current Non-current

(In millions)

Trading securities ￦ 79 ￦ - ￦ 1,714 ￦ -

Available-for-sale securities 23,014 600,937 9,828 565,022

Held-to-maturity securities 648 55,166 807 5,415

￦ 23,741 ￦ 656,103 ￦ 12,349 ￦ 570,437

Trading securities as of December 31, 2008 and 2007 consist of the following:

Korean Won

Book value before

valuation of its fair value

Fair value (Book value)

2008 2007 2008 2007

(In millions)

Beneficiary certificates ￦ - ￦ 800 ￦ - ￦ 801

National government bonds for housing - 402 - 411

Local government bonds

for regional development

-

365

-

365

Others 137 171 79 137

￦ 137 ￦ 1,738 ￦ 79 ￦ 1,714

- 15 -

Available-for-sale securities as of December 31, 2008 and 2007 consist of the following:

Korean Won

2008 2007

Current

assets

Non-current

assets

Current

assets

Non-current

assets

(In millions)

Marketable equity ￦ - ￦ 392,983 ￦ - ￦ 95,003

Non-marketable equity - 185,076 - 36,128

Other debt securities 23,014 22,878 9,828 433,891

￦ 23,014 ￦ 600,937 ￦ 9,828 ￦ 565,022

Marketable equity of available-for-sale securities as of December 31, 2008 and 2007 consist of the following:

Korean Won

Percentage of

ownership (%) Acquisition cost

Book value

Dec. 31,

2008

Dec. 31,

2007

Dec. 31,

2008

Dec. 31,

2007

Dec. 31,

2008

Dec. 31,

2007

(In millions)

Shinhan Financial Group Co, Ltd. 0.20 0.20 ￦ 45,088 ￦ 45,088 ￦ 23,646 ￦ 42,594

SK Broadband Co., Ltd. (*1) 0.21 0.21 18,082 18,082 2,796 5,278

Korea Technology Investment Co., Ltd. - 0.60 - 517 - 1,064

KT Freetel Co., Ltd. (*2) 0.02 0.02 309 358 1,256 1,407

KT Co., Ltd. - 0.04 - 4,081 - 4,890

Yuhwa Securities Co. Ltd. 3.53 1.76 7,254 3,618 4,880 4,680

Dong-A Pharm Co., Ltd. - 1.47 - 11,087 - 14,568

Daewoo Motor Sales Co., Ltd. 0.81 0.81 12,059 12,059 1,637 9,313

Bookook Securities Co., Ltd. 2.49 2.69 8,032 8,680 3,867 8,637

JS Cable Co., Ltd.

(formerly, Jinro-Cable Industries Co., Ltd.) -

0.74 -

423 -

1,507

Eugene Securities Co. Ltd. 0.26 - 2,162 - 1,499 -

Timo technology Co., Ltd. (*3) 12.66 - 11,188 - 6,532 -

Others 785,405 2,014 346,870 1,065

￦ 889,579 ￦ 106,007 ￦ 392,983 ￦ 95,003

(*1) The name of the company was changed (formerly, Hanaro Telecom Co., Ltd.) in 2008.

(*2) As of December 31, 2008 and 2007, these securities are provided to KT Freetel Co., Ltd. as collaterals in

connection with a certain arrangement.

(*3) As of December 31, 2008, 729,927 shares are provided to Hana Daetoo Securities Co., Ltd. as collaterals

in connection with a consolidated company’s short-term borrowings (Note 10).

- 16 -

Non-marketable equity of available-for-sale securities as of December 31, 2008 and 2007 consist of the

following:

Korean Won

Percentage of

ownership (%)

Fair value or Net

asset value (*1)

Acquisition cost

Book value (*2)

Dec. 31,

2008

Dec. 31,

2007

Dec. 31,

2008

Dec. 31,

2007

Dec. 31,

2008

Dec. 31,

2007

Dec. 31,

2008

Dec. 31,

2007

(In millions)

The Korea Economic Daily 0.02 0.05 ￦ 59 ￦ 18 ￦ 43 ￦ 43 ￦ 9 ￦ 9

Versus Tech Inc. 0.26 0.55 24 24 535 535 7 7

Taihan Telecom Co., Ltd. 19.00 19.00 16 16 19 19 19 19

Taihan Powersystem Co., Ltd. 19.00 19.00 17 17 19 19 19 19

TMT Co., Ltd. 19.00 19.00 12 12 10 10 10 10

T.E.USA, Ltd. (*3) 100.00 100.00 867 797 1,670 1,670 847 847

Jinro Co., Ltd. 0.01 0.01 33 17 1,033 1,033 2 2

C U Media. Inc. 14.53 10.38 2,690 1,933 5,675 3,755 5,675 3,754

Jinro Industries Co., Ltd. 1.00 1.00 - 608 - 471 471 471

Sky Networks Co., Ltd. (*3) 28.57 28.57 1,236 754 887 405 887 405

POSCore Co., Ltd. - - 2 2 2 2 2 2

TU Media Corp. 4.85 4.85 1,914 5,088 10,600 10,600 5,088 5,088

Gyunggi Savings bank 19.56 9.28 30,989 12,330 25,000 10,000 25,000 10,000

KTC Leisure (*3) 40.00 40.00 376 376 376 376 376 376

0769167BC (*3) 100.00 100.00 1 1 1 1 1 1

First Standard Bank 8.17 3.39 828 935 2,354 935 2,354 935

Finanstar Co., Ltd. - 19.00 - 3,800 - 3,800 - 3,800

Cambodia Development (*3) 40.00 40.00 200 200 200 200 200 200

KR reconstruction estate Co., Ltd. 1.42 1.42 5,000 5,000 5,000 5,000 5,000 5,000

Incheon United FC - - - - - 30 - -

KTC Telecom Co., Ltd. 18.00 - 900 - 900 - 900 -

NH-IBK Private Equity Fund No1 18.07 - 423 - 423 - 423 -

KERR Asset Management Co., Ltd. 9.90 - 1,980 - 1,980 - 1,980 -

HRDC C0., Ltd. - - 30 - 30 - 30 -

Yeung Nam Savings Bank 6.71 - 5,000 - 5,000 - 5,000 -

AMP Partners Co., Ltd. (*3) 46.98 - 23 - 23 - 23 -

SBW USA Inc. - 2.77 - - - 114 - -

SBW INT’L Inc. - 49.00 - - - 767 - -

Taeyoung Wool Spinning Co., Ltd. - 49.50 - - - 3,000 - -

Meltonwool Pty, Ltd. - 100.00 - - - 3,580 - -

Ilshin Leisure Co., Ltd. - - - - 2 2 2 2

Jeonbuk Knitting Industry Co. - 11.03 - - - 3 - 3

Hunchun TRY Knitting Co., Ltd. - 100.00 - - - 1,158 - 597

Hunchun Ssangbangwool

Knitting Co., Ltd. - 85.70 - - - 261 - 261

TMC.POSI (DALINA) Co., Ltd. (*3) 50.00 - 1,992 - 1,992 - 1,992 -

KMA Consultants Inc. 2.50 2.50 270 270 100 100 100 100

Pyeongtaek-Dangjin Port Grain

Quay Co., Ltd. 3.88 - 1,261 - 1,261 - 1,261 -

Jeonla Railroad Co., Ltd. 18.00 - 3,420 - 3,420 - 3,420 -

Korea Housing Guarantee Co., Ltd. 0.08 - 4,133 4,073 3,299 3,299 4,133 3,745

Electric Contractors'

Financial Cooperative 3.00 - 1,800 - 1,800 - 1,800 -

Yongsan International Business District 0.40 - 4,000 - 4,000 - 4,000 -

- 17 -

Korean Won

Percentage of

ownership (%)

Fair value or Net

asset value (*1)

Acquisition cost

Book value (*2)

Dec. 31,

2008

Dec. 31,

2007

Dec. 31,

2008

Dec. 31,

2007

Dec. 31,

2008

Dec. 31,

2007

Dec. 31,

2008

Dec. 31,

2007

(In millions)

PacMetalXchange (*3) 53.00 - ￦ 1,733 ￦ - ￦ 972 ￦ - ￦ 972 ￦ -

E-Ron Technologies Corp. and others - - 82,857 419 113,810 1,212 113,073 475

￦154,086 ￦ 36,690 ￦192,436 ￦ 52,400 ￦185,076 ￦ 36,128

(*1) Net asset values are reported based on recent available financial statements of the investee. If the fair

value is not measurable, the non-marketable securities are carried at cost.

(*2) If the fair value is not reliably measurable, the non-marketable securities are reported at the acquisition

cost, unless there is objective evidence of an impairment loss which decreases the book value.

(*3) As the effect of using the equity method is not significant on the valuation of the investments, the equity

method is not applied on those investees.

Available-for-sale debt securities as of December 31, 2008 and 2007 consist of the following:

Korean Won

Annual interest rate(%) Acquisition cost Book value

Dec. 31,

2008

Dec. 31,

2007

Dec. 31,

2008

Dec. 31,

2007

Dec. 31,

2008

Dec. 31,

2007

Current assets: (In millions)

Investment in debt securities 6.70 6.70 ￦ 23,014 ￦ 9,828 ￦ 23,014 ￦ 9,828

Non-current assets:

Government bonds 2.5-6.0 2.5 ~ 6.0 1,528 1,451 1,536 1,451

Beneficiary certificates - - 12,105 11,584 11,828 11,584

Investment in debt securities 6.70~7.88 6.70~7.88 5,539 4,545 5,425 4,164

Others - - 4,337 416,709 4,089 416,710

￦ 23,509 ￦ 434,289 ￦ 22,878 ￦433,891

Held-to-maturity securities as of December 31, 2008 and 2007 consist of the following:

Korean Won

Annual interest rate(%) Acquisition cost Book value

2008 2007 2008 2007 2008 2007

Current assets: (In millions)

Shinhan Bank debenture 7.50 7.50 ￦ 377 ￦ - ￦ 377 ￦ -

National bonds 6.00 6.00 271 807 271 807

￦ 648 ￦ 807 ￦ 648 ￦ 807

Non-current assets:

Sunwoon Lakevalley Co., Ltd. - 1.00 5,865 4,500 5,865 4,500

National bonds - - 47,500 975 47,500 915

Subordinated bonds - - 1,801 - 1,801 -

￦ 53,365 ￦ 5,475 ￦ 55,166 ￦ 5,415

- 18 -

Maturities of the held-to-maturity securities as of December 31, 2008 and 2007 are as follows:

Korean Won

Held-to-maturity securities

2008 2007

(In millions)

Within one year ￦ 648 ￦ 807

More than 1 year to 5 years 7,653 5,415

More than 5 year to 10 years 47,513 -

￦ 55,814 ￦ 6,222

7. EQUITY METHOD INVESTMENTS:

Equity method investments as of December 31, 2008 and 2007 consist of the following:

Korean Won

Percentage of


Net asset value Book value

2008 2007 2008 2007 2008 2007 2008 2007

(In millions)

Novelis Korea Ltd. 23.50 23.50 ￦ 53,746 ￦ 53,746 ￦ 95,189 ￦ 86,393 ￦ 95,189 ￦ 86,385

Optomagic Co., Ltd. 28.53 25.82 20,205 18,894 16,373 23,253 17,035 24,057

KTC Cambodia Co., Ltd. 58.84 58.84 2,500 2,500 3,833 3,046 3,833 2,764

Phil BXT Corp. 40.00 40.00 14,579 14,579 15,443 12,850 17,148 15,237

NPS07-1 Corporate

Restructuring Fund QCP12 53.08 26.54 118,320 59,160 100,263 59,057 102,481 59,160

TEC Networks Co., Ltd. 45.55 45.55 9,110 9,110 4,742 7,127 4,856 7,276

Korea Investment & Credit

Capital Corporation 25.74 25.67 23,069 17,892 21,534 16,679 22,854 18,270

Kookmin Cable Investment

Fund II Co. 99.50 - 100,000 - 98,012 - 98,048 -

CEP 1st Private Equity Fund 21.39 - 18,192 - 18,021 - 18,022 -

BERRY I.B. 49.98 - 50,000 - 42,206 - 41,853 -

K3 Equity Partners 70.00 - 17,086 - 16,820 - 16,821 -

ALD I Co., Ltd. 46.98 - 2,349 - (11,015) - - -

SkyResort LLC 44.80 - 4,242 - 5,174 - 5,174 -

Khmer Union Bank 40.50 - 5,416 - 6,595 - 6,595 -

Taihan Global Canada

Investments. Ltd. (*1) - 100.00 - 5,752 - 6,585 - 6,585

Muju Enterprise City Co., Ltd.(*1) - 96.07 - 44,000 - 43,458 - 44,000

NT Development I Co., Ltd. 94.98 - 4,749 - 7,986 - 7,986 -

TEC Media Co., Ltd. 100.00 - 7,224 - 6,801 - 6,802 -

KIpartners Co., Ltd. - 93.26 - 6,819 - 3,291 - 3,291

KPF 21.11 - 21,439 - 22,292 - 22,292 -

Bulace Investments Co., Ltd. 50.00 50.00 - 16,454 - 17,408 29,729 17,408

Hunchun TRY Knitting Co., Ltd. 100.00 - 597 - 1,231 - 597 -


Knitting Co., Ltd. 100.00 - 291 - 326 - 291 -

Pan-Gyo 1st Fercilities Land

Development PFV Co., Ltd. 30.00 - 1,500 - - - - -

Dok-san 1st Commercial-

residential building

Development PFV Co., Ltd. 60.00 - 3,000 - 2,864 - 2,864 -

OTC Realty 49.00 - 245 - 178 - 178 -

Nanum D&I. Co., Ltd. 49.00 - 417 - 302 - 417 -

Shenyang Sanli Nanguang

Real Estate Development Co. 50.00 - 6,897 - - - - -

- 19 -

Korean Won

Percentage of


Net asset value Book value

2008 2007 2008 2007 2008 2007 2008 2007

(In millions)

SK New York L.L.C. 40.00 - ￦ 3,478 ￦ - ￦ - ￦ - ￦ - ￦ -

Bong-Hwa Solatech. Co., Ltd. 90.00 - 2,250 - 2,211 - 2,250 -

Namkwang Int’l Engineering

& Construction, LIMITADA, 45.00 - 105 - 17,383 - 17,383 -

Namkwang NK Co. Ltd. 100.00 - 2,496 - 6,220 - 4,494 -

Yingchu International Trade

(Shanghai) Co., Ltd. 100.00 - 2,311 - 3,461 - 3,461 -

Onse America, Inc. 100.00 - - - 595 - 595 -

Anyuser, Inc. 22.54 - 3,844 - 1,608 - - -

DMCC PF. Co., Ltd. 38.71 - 3,000 - 2,781 - 2,781 -

DMCC Management. Co., Ltd. 34.78 - 17 - 18 - 18 -

Shanghai Longming Property

Management Co., Ltd. 93.33 - 1,906 - 2,412 - 2,412 -

Onse Telecom SA (PTY) Ltd. 28.57 - 268 - 142 - 142 -

Sunwoon Lakevalley Co., Ltd. - 30.00 - 4,800 - 2,487 - 4,202

Hantur D&D - 42.00 - 5,040 - 2,182 - 5,040

￦504,848 ￦258,746 ￦ 512,001 ￦ 283,816 ￦554,601 ￦293,675

(*1) Muju Enterprises City Co., Ltd. and Taihan Global Canada Investments Ltd. were added to the scope of

consolidated subsidiaries since its total assets were more than the required level of ￦7,000 million for

consolidation with substantial control as of the prior year end.

Changes in equity method investments during the years ended December 31, 2008 and 2007 are as follows:

Korean Won

2008

Beginning

book

value

Changes in

scope of

consolidation Acquisition Disposal

Dividends

received

Valuation

gain (loss)

Other

changes

Ending

book value

(In millions)

Novelis Korea Ltd. ￦ 86,385 ￦ - ￦ - ￦ - ￦ 3,358 ￦ 12,162 ￦ - ￦ 95,189

Optomagic Co., Ltd. 24,057 - 1,312 - - (9,154) 820 17,035

KTC Cambodia Co., Ltd. 2,764 - - - - 978 91 3,833

Phil BXT Corp. 15,237 - - - - (969) 2,880 17,148

NPS07-1 Corporate

Restructuring Fund QCP12

59,160

55,889

-

-

-

(11,805)

(763)

102,481

TEC Networks Co., Ltd.

(formerly, TEC Wizhome

Co., Ltd.)

7,276

-

-

-

-

(1,362)

(1,058)

4,856


Capital Corporation

18,270

-

5,177

-

-

610

(1,203)

22,854


Fund II Co.

-

-

100,000

-

-

(2,005)

53

98,048

CEP 1st Private Equity Fund - - 18,232 - - (210) - 18,022

BERRY I.B. - - 50,000 - - (8,554) 407 41,853

K3 Equity Partners - - 17,086 - - (265) - 16,821

ALD I Co., Ltd. - - 2,349 - - (2,349) - -

SkyResort LLC - - 4,901 - - 14 259 5,174

Khmer Union Bank - - 5,417 - - (25) 1,203 6,595

Taihan Global Canada

Investments, Ltd.

6,585

(6,585)

-

-

-

-

-

-

Muju Enterprise City Co., Ltd. 44,000 (44,000) - - - - - -

NT Development I Co., Ltd. - 4,749 - - 3,237 - 7,986

TEC Media Co., Ltd. - - 7,224 - - (314) (108) 6,802

KIpartners Co., Ltd. 3,291 - - (3,360) - 69 - -

- 20 -

Korean Won

2008

Beginning

book

value

Changes in

scope of consolidation Acquisition Disposal

Dividends

received

Valuation

gain (loss)

Other

changes

Ending

book value

(In millions)

KPF ￦ - ￦ - ￦ 21,439 ￦ - ￦ - ￦ 1,011 ￦ (158) ￦ 22,292

Bulace Investments Co., Ltd. 17,408 - - - - 11,359 962 29,729

Hunchun TRY Knitting Co., Ltd. - 597 - - - - - 597


Knitting Co., Ltd.

-

291

-

-

-

-

-

291


Development PFV Co., Ltd.

-

-

1,500

-

-

(1,500)

-

-

Dok-san 1st Commercial-

residential building

Development PFV Co., Ltd.

-

-

3,000

-

-

(136)

-

2,864

OTC Realty - - 245 - - (67) - 178

Nanum D&I. Co. Ltd. - - 417 - - - - 417

Bong-Hwa Solatech. Co., Ltd. - 2,250 - - - - - 2,250

Kunwi Solartech Co., Ltd. - 1,035 - (1,035) - - - -


& Construction, LIMITADA,

-

4,373

-

-

-

10,696

2,314

1,738

Namkwang NK Co. Ltd. - 2,193 127 - - 1,236 938 4,494


(Shanghai) Co., Ltd.

-

2,440

-

-

-

(359)

1,380

3,461

Onse America, Inc. - - 289 - - 166 140 595

DMCC PF. Co. Ltd. - - 3,000 - - (214) (5) 2,781

DMCC Management. Co. Ltd. - - 17 - - 1 - 18


Management Co., Ltd.

-

-

1,906

-

-

(109)

615

2,412

Onse Telecom SA (PTY) Ltd. - - 546 - - (401) (3) 142

Sunwoon Lakevalley Co., Ltd 4,202 (4,202) - - - - - -

Hantur D&D 5,040 (5,040) - - - - - -

Berry M&C Co., Ltd.

(formerly Setizen Co., Ltd.)

-

4,894

-

(4,647)

-

(123)

(124)

-

Aldex Networks Co., Ltd. - 20 - (20) - - - -

￦ 293,675 ￦ 14,155 ￦ 248,933 ￦ (9,062) ￦ (3,358) ￦ 1,618 ￦ 8,640 ￦ 554,601

Korean Won

2007

Beginning

book

value

Changes in

scope of

consolidation Acquisition Disposal

Dividends

received

Valuation

gain (loss)

Other

changes

Ending

book value

(In millions)

Novelis Korea Ltd. ￦ 90,493 ￦ - ￦ - ￦ - ￦ (4,716) ￦ 789 ￦ (181) ￦ 86,385

Optomagic Co., Ltd. - 18,313 5,390 - 66 288 24,057

KTC Cambodia Co., Ltd. 2,516 - - - - 13 235 2,764

Taihan WizHome Co., Ltd. 580 - 8,510 - - (863) (951) 7,276

Phil BXT Corp. (7,230) - 7,000 - - (934) 1,941 15,237

Taihan Global

Canada Investments Ltd.

-

-

5,752

-

-

(104)

937

6,585

Muju Enterprise City Co., Ltd. - - 44,000 - - - - 44,000


Capital Corporation

-

-

17,892

-

-

496

(118)

18,270

NPS07-1 Corporate


-

-

59,160

-

-

-

-

59,160

Sunwoon Lakevalley Co., Ltd. - - 4,800 - - (598) - 4,202

Hantur D&D - - 5,040 - - - - 5,040

Korea Investment Partners 3,078 - - - - 213 - 3,291

Bulace Investments Co., Ltd. - - 16,454 - - 954 - 17,408

￦ 103,897 ￦ 18,313 ￦ 168,608 ￦ 5,390 ￦ (4,716) ￦ 32 ￦ 2,151 ￦ 293,675

- 21 -

The accumulated unamortized differences between the purchase price and the underlying proportionate net book

value of equity investments, along with changes in such amounts for the years ended December 31, 2008 and

2007 are as follows:

Korean Won

2008

Beginning

book

value

Changes in

scope of

consolidation

Increase

(decrease)

Amortization

(recovery)

Ending

balance

(In millions)

Novelis Korea Ltd. ￦ (9) ￦ - ￦ - ￦ 9 ￦ -

Optomagic Co., Ltd. (111) - (243) 102 (252)

Phil BXT Corp. 2,387 - - (682) 1,705

NPS07-1 Corporate

Restructuring Fund QCP12 103 - 2,670 (555) 2,218

TEC Networks Co., Ltd. 149 - - (35) 114


Capital Corporation 1,591 - 86 (357) 1,320


Fund II. Co. - - 45 (9) 36

Berry I.B. - - 798 (80) 718

Muju Enterprise City Co., Ltd 542 (434) - (108) -

KPF - - 7,542 (754) 6,788

Nanum Development &

Investment Co., Ltd - - 115 - 115

Berry M&C Co., Ltd. - 3,305 - (3,305) -

Sunwoon Lakevalley Co., Ltd. 1,715 (1,715) - - -

Hantur D&D 2,858 (2,858) - - -

￦ 9,225 ￦ (1,702) ￦ 11,013 ￦ (5,774) ￦ 12,762

Korean Won

2007

Beginning

book

value

Changes in

scope of

consolidation

Increase

(decrease)

Amortization

(recovery)

Ending

balance

(In millions)

Novelis Korea Ltd. ￦ (34) ￦ - ￦ - ￦ 25 ￦ (9)

Optomagic Co., Ltd. - (292) 181 (111)

Taihan WizHome Co., Ltd. - - 175 (26) 149

Phil BXT Corp. 3,070 - (683) 2,387

Muju Enterprise City Co., Ltd. - - 542 - 542


Capital Corporation

-

-

1,768

(177)

1,591

NPS07-1 Corporate


-

-

103

-

103

Sunwoon Lakevalley Co., Ltd. - - 1,688 27 1,175

Hantur D&D - - 2,858 - 2,858

￦ 3,036 ￦ (292) ￦ 7,134 ￦ (653) ￦ 9,225

- 22 -

The eliminated unrealized gain (loss) incurred from transactions entered into with equity method investees as of

December 31, 2008 and 2007 is as follows:

Korean Won

2008 2007

Inventories PP&E Others Total Inventories PP&E Others Total

(In millions)

Optomagic Co., Ltd. ￦ - ￦ (914) ￦ - ￦ (914) ￦ - ￦ (914) ￦ - ￦ (914) Berry I.B. - - 1,071 1,071 - - - -

ALD I Co., Ltd. - 154,496 - 154,496 - - - - Namkwang NK

Co., Ltd. 1,726 - - 1,726 - - - - ￦ 1,726 ￦153,582 ￦ 1,071 ￦156,379 ￦ - ￦ (914) ￦ - ￦ (914)

The financial information on the equity method investees as of and for the year ended December 31, 2008 is as

follows:

Korean Won

Assets Liabilities Sales

Net income

(loss)

(In millions)

Novelis Korea Ltd. ￦ 1,133,474 ￦ 728,463 ￦ 1,791,370 ￦ 51,710

Optomagic Co., Ltd. 80,318 22,926 50,843 (36,201)

KTC Cambodia Co., Ltd. 20,451 12,060 7,067 2,366

Phil BXT Corp. 90,796 65,534 - (720)

NPS07-1 Corporate

Restructuring Fund QCP12 194,044 294 110 (27,361)

TEC Networks Co., Ltd. 11,779 1,367 1,027 (2,850)


Capital Corporation 116,249 32,577 17,828 3,771


Fund II Co. 98,505 3 - (2,007)

CEP 1st Private Equity Fund 84,251 - 36 (949)

Berry I.B 105,775 21,320 3,766 (15,146)

K3 Equity Partners 24,029 - - (379)

ALD I Co., Ltd. 587,375 610,820 8,202 (28,445)

SkyResort LLC 14,079 2,530 - 31

Khmer Union Bank 16,296 13 125 (61)

NT Development I Co., Ltd. 225,798 217,390 300 3,408

TEC Media Co., Ltd. 6,813 12 - (313)

KPF 109,100 35,669 156,902 12,507

Hunchun TRY Knitting Co., Ltd 1,242 11 381 (2)

Hunchun Ssangbangwool Knitting

Co., Ltd. 356 31 337 (39)


Development PFV Co., Ltd. 176,440 176,764 (1,718) (5,323)

Dok-san 1st Commercial-residential

building Development PFV Co., Ltd. 16,398 11,625 (179) (226)

OTC Realty 33,472 33,100 (5) (137)

Nanum D&I. Co. Ltd. 63,617 63,001 (205) (225)

Bong-Wah Solatech. Co. Ltd. 2,457 1 - (27)


& Construction, LIMITADA, 186,536 147,907 175,074 28,406

Namkwang NK. Co., Ltd. 21,456 15,236 - 2,477

NPS07-1 Corporate Restructuring

Fund QCP12 194,044 293 110 (27,361)


(Shanghai) Co., Ltd. 60 2,485 1,726 (359)

- 23 -

Korean Won

Assets Liabilities Sales

Net income

(loss)

(In millions)

Onse America, Inc. ￦ 1,301 ￦ 436 ￦ 1,951 ￦ 34

Anyuser, Incs. 7,732 599 5 (1,372)

DMCC PF. Co. Ltd. 8,796 1,612 - (552)

DMCC Management. Co. Ltd. 269 216 282 3


Management Co., Ltd. 2,587 2 4 (117)

Onse Telecom SA (PTY) Ltd. 4,778 4,280 816 (494)

The market prices of the listed equity method investments as of December 31, 2008 are as follows:

Korean Won

Number of

shares

Acquisition

cost

Book

value

Net asset

value

Market price

per share

Market

value

(In millions) (In Won) (In millions)

Optomagic Co., Ltd. ￦ 4,224,110 ￦ 20,205 ￦ 17,035 ￦ 16,373 ￦ 2,995 ￦ 12,651


Capital Corporation 15,826,690 23,069 22,854 21,534 590 9,338

KPF 2,362,650 21,439 22,292 22,292 4,110 45,990

8. PROPERTY, PLANT AND EQUIPMENT:

(1) Changes in property, plant and equipment for the years ended December 31, 2008 are as follows:

Korean Won

2008

Lands Buildings Structures

Machinery

&

equipment Vehicles

Others

(In millions)

Balance as of January 1, 2008 ￦ 538,458 ￦ 329,340 ￦ 219,423 ￦ 152,690 ￦ 5,824 ￦ 20,196

Acquisition during the year 2,941 3,298 151 39,255 2,576 7,350

Disposal (224,064) (46,712) (1,964) (13,315) (345) (2,032)

Transfer (*1) (5,158) 26,938 86 29,118 282 4,274

Changes in the scope of consolidation 64,505 62,886 126 71,774 1,562 10,139

Gain on revaluation of PP&E 136,391 2,712 - - - -

Loss on revaluation of PP&E (199) (292) - - - -

Government subsidies received - - - - - (6)

Impairment of PP&E - - - - - (55)

Depreciation - (14,681) (10,811) (37,776) (2,176) (6,319)

Balance as of December 31, 2008 ￦ 512,874 ￦ 363,489 ￦ 207,011 ￦ 241,746 ￦ 7,723 ￦ 33,547

- 24 -

Korean Won

2008

Woods

Rental

asset

Prepaid

rental asset

Construction-

in-progress

Machinery-

in-transit

Total

(In millions)

Balance as of January 1, 2008 ￦ 5,328 ￦ 80,601 ￦ 461 ￦ 32,747 ￦ - ￦ 1,385,068

Acquisition during the year - 44,768 11,315 97,906 3,236 212,796

Disposal - (9,804) - (1,923) - (300,159)

Transfer (*1) (198) 11,701 (11,761) (52,484) (3,232) (434)

Changes in the scope of consolidation 198 - - 15,211 - 226,401

Gain on revaluation of PP&E - - - - - 139,103

Loss on revaluation of PP&E - - - - - (491)

Government subsidies received - - - - - (6)

Impairment of PP&E - - - - - (55)

Depreciation - (39,423) - (229) - (111,415)

Balance as of December 31, 2008 ￦ 5,328 ￦ 87,843 ￦ 15 ￦ 91,228 ￦ 4 ￦ 1,550,808

(*1) Represents transfer of assets and adjustments of foreign currency translation.

(2) As of December 31, 2008, the values of the lands of the Company and its subsidiaries, as determined by

the local government in Korea for tax assessment purposes, amount to ￦376,730 million (2007:

￦729,438 million).

(3) As of December 31, 2008, the Company and certain subsidiaries adopted the revaluation model to measure

the items of those lands and buildings after the date of acquisition. Details of the lands & buildings

revaluation are as follows:

Date of revaluation is December 31, 2008

In related to the revaluation process, the Company and its subsidiaries utilized the results from a

specialist who is a reliable and publicly independent property appraiser.

Fair value of the lands was valuated based on related acts such as “Public Notice of Values and

Appraisal of Real Estate Act”, “Rules of Appraisal of Real Estate” and appraisal theories.

The book value using cost model of the revaluated lands is as follows:

Korean Won

Revaluated amounts Book value using cost model

(In millions) (In millions)

Lands ￦ 512,874 ￦ 376,483

Buildings 363,489 360,777

The changes in other comprehensive income related to the revaluation are as follows:

Korean Won

Beginning balance Increase (Decrease) Ending balance

(In millions)

Gain on revaluation of PP&E ￦ - ￦ 139,103 ￦ 139,103

Deferred tax effect - (30,495) (30,495)

Total, net - 108,608 108,608

Minority interest - (35,497) (35,497)

Parent interest ￦ - ￦ 73,111 ￦ 73,111

In addition, the Company presented the loss on revaluation of lands and buildings as non-operating

expenses of ￦199 million and 292 million, respectively.

- 25 -

(4) On January 2005, the Company contracted to sell a part of plant located in Geumcheon district in Seoul to

Yongjo Co., Ltd. (“Yongjo”) for ￦104,528 million. Subsequently, Yongjo was not able to fully repay

the sale price; thus, the Company adjusted the sale price to ￦147,136 million on October, 2005, and

extended the closing date. In 2007, Yongjo transferred its business including the above contract to

Daewan Planning Co., Ltd. (“Daewan”). As a result, Yongjo’s contractual position was transferred to

Daewan. The Company then revised the sales contract with Daewan on August, 2007 and transferred

ownership of real estate of the plant to Daewan upon payment of the sale price in August 2007.

The Company has provided loans amounting to ￦100 billion to Daewan for the purpose of investing in

Daewan’s real estate complex development project on the plant site. As these arrangements imply that the

significant risks and rewards of the plant ownership were not transferred to Daewan, the Company has not

recorded the transactions as sale of the assets. Accordingly, the land, of which legal ownership has been

transferred to Daewan, was recorded as an asset on the Company’s balance sheet as of December 31, 2008,

and the loans to Daewan were eliminated from the Company’s balance sheet.

The Company has entered into a sales contract of land and buildings (located in Anyang) with ALD I Co.,

Ltd. on June 28, 2008 after the board of directors’ decision to improve the financial structure of the

Company by obtaining additional operational funds and the debt repayment through increased liquidity of

assets. On September 12, 2008, the asset transfer was completed and gain on disposal of PP&E was

recognized amounting to ￦328,854 million. The transfer price of the assets is as follows:

Korean Won

Area Transfer price

(m2) (In millions)

Land 260,323.2 ￦ 550,000

Building 128,500.4 -

Total 388,823.6 ￦ 550,000

The above transferred assets will be appraised by independent property appraiser for its fair value

immediately after the change in its intended usage of the purchasing party. Any additional transfer price

resulting from the appraisal should be paid to the Company after three months of the notice of the appraisal

result and the receipt of the related information. The date of the payment can be changed based on

mutual discussions between the parties involved.

In addition, the Company has leased the above lands and buildings from ALD I Co., Ltd., the purchaser.

(5) The Company has entered into a sales contract of land and buildings (located in Seoul) with D&DS Co.,

Ltd. on December 29, 2008 after the board of directors’ decision to improve the financial structure of the

Company by obtaining additional operational funds and the debt repayment through increased liquidity of

assets. On December 29, 2008, the asset transfer was completed and gain on disposal of PP&E was

recognized amounting to ￦50,261 million. The transfer price of the assets is as follows:

Korean Won

Area Transfer price

(m2) (In millions)

Land 5,036 ￦ 71,925

Building 31,284 23,075

Total 36,320 ￦ 95,000

In addition, the Company has leased the above lands and buildings from D&DS Co., Ltd., the purchaser.

- 26 -

(6) As of December 31, 2008, property, plant and equipment, except for land, and inventories are insured

against fire and other casualty losses for up to ￦3,060,121 million (2007: ￦1,425,857 million).

Insured amount of ￦ 21,264 million for TMC Co., Ltd. are collateralized for borrowings from the Korea

Development Bank. In addition, insured amount of ￦6,692 million for fire insurance of buildings and

machineries of Aldex Co., Ltd. are collateralized for borrowings from the Korea Development Bank.

9. INTANGIBLE ASSETS:

The changes in intangible assets for the year ended December 31, 2008 are as follows:

Korean Won

2008

Goodwill

Negative

goodwill

Industry

property

rights

Development

cost

Right of

Telecommu-

nication line Others

Total

(In millions)

Beginning balance ￦ 71,659 ￦ (112,040) ￦ 2,379 ￦ 2,771 ￦ - ￦ 9,146 ￦ (26,085)

Increase - - 198 593 - 1,272 2,063

Changes in the scope of

consolidation

123,892

(23,712)

14

5,025

23,355

2,727

131,301

Transfer - - 1,176 1,048 - 1,416 3,640

Decrease (20,913) - (4) - - (337) (21,254)

Impairment - - (2) (5,639) - - (5,641)

Amortization (33,272) 8,667 (553) (2,690) (1,377) (1,246) (30,471)

Ending balance ￦ 141,366 ￦ (127,085) ￦ 3,208 ￦ 1,108 ￦ 21,978 ￦ 12,978 ￦ 53,553

10. SHORT-TERM BORROWINGS:

Short-term borrowings as of December 31, 2008 and 2007 consist of the following:

Korean Won

Annual interest

rates (%)

Amount

2008 2008 2007

(In millions)

Won currency borrowings:

General term loans

Commercial papers discounted

Others

5.83~10.00

6.38~7.98

5.23~10.00

￦ 768,294

41,000

62,961

￦ 848,277

-

32,299

872,255 880,576

Foreign currency borrowings of USD

726,625 thousand (USD 198,456 thousand

and JPY 418,521 thousand in 2007):

Usance 6.00 399,110 135,672

General term loans 5.20~5.88 473,532 78,194

Others 5.20~6.00 41,090 111,539

913,732 325,405

￦ 1,785,987 ￦ 1,205,981

A substantial portion of the Company's property, plant and equipment, short-term financial instruments and

various notes and checks have been pledged as collaterals for the above borrowings (Notes 3, 8 and 24).

- 27 -

11. LONG-TERM DEBTS:

Long-term debts as of December 31, 2008 and 2007 consist of the following:

Korean Won

Reference 2008 2007

(In millions)

Long-term borrowings

Debentures

Bonds with stock warrants

Convertible bonds

Finance lease liabilities

Exchangeable Bonds

(1)

(2)

(3)

(4)

(5)

(6)

￦ 479,082

508,090

-

42,561

7,570

43,306

￦ 209,875

432,378

133,673

207,011

22

-

￦ 1,080,609 ￦ 982,959

(1) Long-term borrowings

Annual interest

rates (%) Korean Won

2008 2008 2007

Won currency loans: (In millions)

General term loan

Energy development loan

Others

6.69~7.15

4.25

5.90

￦ 343,662

-

167,625

￦ 140,657

435

23,861

511,287 164,953

Less: Current maturities (62,489) (34,727)

448,798 130,226

Foreign currency loans:

General term loan

Others

4.04~6.19

3.28~6.61

90,386

9,222

170,535

-

99,608 170,535


34,399 83,522

483,197 213,748

Less: Present value discounts on loans (4,115) (3,873)

￦ 479,082 ￦ 209,875

A substantial portion of the Company's property, plant and equipment, and long-term financial instruments have

been pledged as collateral for the above borrowings (Notes 3, 8 and 24).

(2) Debentures

Annual interest

rates (%)

Korean Won

2008 2008 2007

(In millions)

Non-guaranteed debentures,

payable through 2010

Private offered debentures,

payable through 2010

5.20~10.65

5.70~6.60

￦ 513,000

258,088

￦ 234,200

299,000

771,088 533,200


510,000 433,088

Less: Discount on debentures issued (1,910) (710)

￦ 508,090 ￦ 432,378

- 28 -

(3) Bonds with stock warrants

Annual interest


2008 2008 2007

(In millions)

Overseas bonds with stock warrants

of EUR 100,400 thousand (EUR

107,900 in 2007) (*1)

-

￦ 178,332

￦ 149,038


of USD 2,000 thousand in 2007


of USD 2,400 thousand (*2)

6M Libor + 1

-

3,018

1,876

-

181,350 150,914

Less: Current maturities (181,350) -

Add: Redemption premium - 25,682

Less: Conversion right adjustment - (39,636)

Less: Discount on bonds - (3,287)

￦ - ￦ 133,673

(*1) The Company presented the bonds with stock warrants as current liability due to the early redemption of

the option holders within 1 year.

(*2) The bonds with stock warrants were issued by Onse Telecom Co., Ltd., a subsidiary.

Major terms of the overseas bonds with stock warrants which issued by the Company are as follows:

Issuance date: November 26, 2007

Issuance price: EUR 107,900 thousand (equivalent to ￦148,927 million)

Interest: No coupon interest

Redemption method: If the bonds are not previously redeemed, converted or purchased and cancelled, the bonds

shall then be redeemed at an amount equal to 116.633% of the principal on November 26, 2012.

Redemption at the option of the issuer: On or after November 26, 2009 but not less than seven business days

prior to maturity date, the issuer may redeem the bonds in whole or in part at their early redemption amount,

provided that the closing price of the shares (translated into Euros at the prevailing rate) on any 20 trading days

out of the 30 consecutive trading days prior to the date upon which notice of such redemption is given was at

least 130% of the applicable early redemption amount divided by the exercise ratio to require the issuer to

redeem all or some of that holder’s bonds at 106.348% of their principal amount upon the decision of the issuer.

Redemption at the option of the holders: On November 26, 2009, the holder of each bond with stock warrants

will have the right at such holders’ option, to require the issuer to redeem all or some of those holders’ bonds

with stock warrants at 106.348% of their principal amount.

Conversion period: From November 26, 2008 to November 12, 2012

Conversion price: ￦85,000 per share

Conversion stock: Common stock

- 29 -

(4) Convertible bonds

Annual interest


2008 2008 2007

(In millions)

Overseas convertible bonds of

EUR 150,400 thousand (EUR

168,200 thousand in 2007) (*1)

-

￦ 207,587

￦ 232,155

Convertible bonds (*2) - 1,538 1,093

Convertible bonds (*3) - 15,849 -

Convertible bonds (*4)

0.07 40,000 -

Convertible bonds (*5)

0.05~0.15 29,651 -

294,625 233,248

Less: Current maturities (252,240) -

Add: Redemption premium 2,836 39,038

Less: Conversion right adjustment (2,658) (60,214)

Less: Discount on bonds (2) (5,061)

￦ 42,561 ￦ 207,011

(*1) The Company presented the bonds with stock warrants as current liability due to the early redemption of

the option holders within 1 year.

(*2) The convertible bonds were issued by KTC Co., Ltd., a subsidiary.

(*3) The convertible bonds were issued by Aldex Co., Ltd., a subsidiary.

(*4) The convertible bonds were issued by TEC Construction Co., Ltd., a subsidiary.

(*5) The convertible bonds were issued by Onse Telecom Co., Ltd., a subsidiary.

Major terms of the overseas convertible bonds, which issued by the Company are as follows:

Issuance date: November 26, 2007

Issuance price: EUR 168,200 thousand (equivalent to ￦165,488 million)


Redemption method: If the bonds are not previously redeemed, converted or purchased and cancelled, the bonds

shall then be redeemed at an amount equal to 116.633% of the principal on November 26, 2012.

Redemption at the option of the issuer: On and at any time after November 26, 2009 but not less than seven

business days prior to the maturity date, the issuer may redeem the bonds in whole or in part at their early

redemption amount, provided that the closing price of the shares (translated into Euros at the prevailing rate) on

any 20 trading days out of the 30 consecutive trading days prior to the date upon which notice of such

redemption is given was at least 130% of the applicable early redemption amount divided by the exercise ratio

to require the issuer to redeem all or some of that holder’s bonds at 106.348% of their principal amount upon the

decision of the issuer.

Redemption at the option of the holders: On November 26, 2009, the holder of each convertible bond will have

the right at such holders’ option, to require the issuer to redeem all or some of those holders’ bonds convertible

bonds at 106.348% of their principal amount.

Conversion period: From November 26, 2008 to November 12, 2012

Conversion price: ￦85,000 per share

Conversion stock: Common stock

- 30 -

(5) Finance lease liabilities

Annual interest


2008 2008 2007

(In millions)

GE Capital Korea Co., Ltd. 5.3 ￦ 10,604 ￦ 3,825

Korea Exchange Capital Co., Ltd. - 22

LG Card Co., Ltd. 1,502 3,847

12,106 (3,825)


￦ 7,570 ￦ 22

(6) Exchangeable bonds

Annual interest


2008 2008 2007

(In millions)

Exchangeable Bonds - ￦ 51,939 ￦ -

Less: Current maturities - -

Add: Redemption premium 14,350 -

Less: Conversion right adjustment (22,358) -

Less: Discount on bonds (625) -

￦ 43,306 ￦ -

Major terms of the exchangeable bonds are as follows:

Issuance date: April 29, 2008

Issuance price: ￦ 51,939 million


Redemption method: If the bonds are not exchanged into exchange stock, then the bonds shall then be redeemed

at an amount equal to 127.628% of the principal on April 29, 2013.

Redemption at the option of the issuer (put option for early redemption): With notice on 24th

, 36th

and 48th

month day, the debtor may demand early payment of the principle and interest calculated at 5% of compounded

interest method.

Exercise period

Exercise date

Advanced

redemption rate From To

2010.03.01 2010.03.29 2010.04.29 110.2500%

2011.03.01 2011.03.29 2011.04.29 115.7625%

2012.03.01 2012.03.29 2012.04.29 121.5506%

Exchange period: From April 29, 2009 to March 29, 2013

Exchange price: ￦65,250 per share (Exchange price will be adjusted in case of increased paid-in capital

with or without consideration prior to exchange)

Exchange stock: 796,000 shares of Securities of Shinhan Financial Group Co., Ltd.

As of December 31, 2008, the Company recorded exchange rights amounting to ￦6,109 million as financial

derivative liabilities. Every year, the Company evaluates exchange right using faire value method and records

the related gain (loss) as gain (loss) on valuation of financial derivates (Note 24).

- 31 -

The aggregate annual maturities of long-term borrowings outstanding at December 31, 2008 are as follows:

Korean Won

Year Borrowings Debentures

Convertible

bonds

Finance

lease

Exchangeable

bonds Total

(In millions)

2010

2011

2012

2013

￦ 206,826

145,797

90,490

37,031

￦ 270,000

240,000

-

-

￦ 2,386

40,000

-

-

￦ 6,320

1,250

-

-

￦ -

-

-

51,939

￦ 485,532

427,047

90,490

88,970

Thereafter 3,053 - - - - 3,053

￦ 483,197 ￦ 510,000 ￦ 42,386 ￦ 7,570 ￦ 51,939 ￦1,095,092

12. ACCRUED SEVERANCE BENEFITS:

Changes in accrued severance benefits for the years ended December 31, 2008 and 2007 are as follows:

Korean Won

2008

Beginning

balance

Changes in

scope of

consolidation Increase Decrease

Ending

balance

(In millions)

Provision for severance benefits ￦ 24,089 ￦ 23,649 ￦ 16,522 ￦ (8,220) ￦ 56,040

Deposits for severance benefits (5,665) (9,932) - (210) (15,807)

Pension plan assets (5,794) 2,729 (7,485) - (10,550)

Contribution to National Pension Plan (125) (155) - 17 (263)

￦ 12,505 ￦ 16,291 ￦ 9,037 ￦ (8,413) ￦ 29,420

Korean Won

2007

Beginning

balance

Changes in

scope of

consolidation Increase Decrease

Ending

balance

(In millions)

Provision for severance benefits ￦ 16,441 ￦ 3,810 ￦ 9,687 ￦ (5,849) ￦ 24,089

Deposits for severance benefits (3,350) (2,433) (763) 881 (5,665)

Pension plan assets (4,133) 414 (2,075) - (5,794)

Contribution to National Pension Plan (78) (85) - 38 (125)

￦ 8,880 ￦ 1,706 ￦ 6,849 ￦ (4,930) ￦ 12,505

- 32 -

13. INCOME TAX:

Income tax expense for the years ended December 31, 2008 and 2007 consists of the following:

Korean Won

2008 2007

(In millions)

Current income tax

Deferred income taxes

Deferred income taxes directly deducted from

shareholders’ equity

￦ 105,280

(45,254)

60,026

-

￦ 91,286

(13,117)

(16,367)

Income tax expense ￦ 60,026 ￦ 61,802

An explanation of the relationship between income tax expense and accounting income before income tax

expense for the years ended December 31, 2008 and 2007 is as follows

Korean Won

2008 2007

(In millions)

Income before income tax ￦ 69,283 ￦ 159,901

Tax effect at the rate of 27.5% 19,053 43,973

Adjustment:

Non-taxable income (138) (320)

Non-deductible expenses 6,142 3,443

Tax credit (2,589) 9,491

Effect of tax rate discount 13,001 -

Other 24,557 5,215

Income tax expense ￦ 60,026 ￦ 61,802

Effective tax rate (income tax expense/pretax income) 86.6% 38.7%

- 33 -

The changes in temporary differences and deferred income tax assets (liabilities) for the years ended December

31, 2008 and 2007 are as follows:

Korean Won

2008

Temporary differences (*1)

Deferred income

tax assets (liabilities)

Beginning

balance Increase Decrease

Ending

balance Current Non-current

(In millions)

Accrued interest income ￦ (12,770) ￦ (35,849) ￦ (9,313) ￦ (39,306) ￦ (8,505) ￦ -

Allowance for doubtful accounts 213,911 114,419 26,633 301,697 17,200

Available-for-sale securities (*3) 45,383 11,410 88 56,705 7,846

Gain (loss) on valuation of

financial derivatives (2,885) (44,369) (1,411) (45,843) (9,972) (1,020)

Equity method investments (*3) 3,908 319,554 (4,743) 328,205 - 57,644

Convertible bonds and bonds

with stock warrants (45,401) 3,330 (24,528) (17,543) (3,217) 325

Exchangeable bonds - (1,899) - (1,899) - (418)

Gain on disposal of

property, plant and equipment 100,218 (173,289) - (73,071) - (16,216)

Division evaluation marginal

profits (47,924) - - (47,924) - (10,543)

Government subsidy 5,681 7 21 5,667 - 1,211

Gain (loss) on foreign currency

translation (23) 94,670 (2) 94,649 17,102 1,977

Depreciation 20,727 9,137 2,796 27,068 932

Others (*3) 109,524 116,486 82,495 143,515 10,131 11,114

￦438,273 ￦413,607 ￦ 72,036 ￦779,844 22,739 63,395

Available-for-sale securities (*3) - 9,087

Equity method investments (*2,3) - 66,988

Loss on valuation of financial

derivatives

-

7,612

Gain on revaluation of PP&E - (30,495)

Others - (1,068)

Deferred tax assets ￦ 22,739 ￦ 115,519

(*1) Adjustment to the temporary differences arising from the prior period tax return and the final tax

assessment and the amount reported in the financial statements are included under increase or decrease

columns.

(*2) The Company recognized the deferred income tax assets on equity method investments because the

Company is planning to dispose of its interest in certain investees in the predictable future.

(*3) As of December 31, 2008, temporary differences, which were not recognized as deferred income tax assets

(liabilities), are as follows:

Korean Won

Temporary differences

Deferred income tax assets

(liabilities)

(In millions)

Available-for-sale securities ￦ 822 ￦ 181

Equity method investments (26,853) (5,908)

Others 18,098 3,982

￦ (7,933) ￦ (1,745)

- 34 -

Korean Won

2007

Temporary differences (*1) Deferred income tax assets (liabilities)

Beginning

balance Increase Decrease

Ending

balance

Beginning

balance

Ending

balance

(In millions)

Accrued interest income ￦ (3,008) ￦ (5,206) ￦ (2,393) ￦ (5,821) ￦ (811) ￦ (1,576)

Allowance for doubtful

accounts 6,305 4,510 4,400 6,415 102 561

Available-for-sale securities 27,183 5,492 3,452 29,223 5,615 6,248

Equity method investments (37,380) (3,438) (5,825) (34,993) (11,192) (9,823)

Shareholders’ equity (9,869) 64,516 (9,329) 63,976 (3,446) 18,139

Others (66,726) 52,655 (14,902) 831 (3,000) 23,114

￦ (83,495) ￦ 118,529 ￦(24,597) ￦ 59,631 ￦ (12,732) ￦ 385

(*1) Adjustment to the temporary differences arising from the prior period tax return and the final tax

assessment, and the amount reported in the financial statements are included under increase or decrease

columns.

The gross deferred tax assets and liabilities as of December 31, 2008 are follows:

Korean Won

Current Non-current Total

(In millions)

Deferred tax assets ￦ 23,300 ￦ 140,086 ￦ 163,386

Deferred tax liabilities (561) (24,567) (25,128)

Deferred tax effect 22,739 115,519 138,258

Income tax payable 80,094

Prepaid tax 2,240

14. ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES:

Monetary assets and liabilities denominated in foreign currency as of December 31, 2008 and 2007 other than

those accounts of overseas subsidiaries consisted of the following:

Foreign currencies Korean Won

2008 2007 2008 2007

(In thousands) (In millions)

Cash and cash equivalents USD 44,797 USD 860 ￦ 56,336 ￦ 807

JPY 108,632 JPY 2 1,514 -

Others - Others 123 -

Short-term financial instruments USD 17,021 USD 136,306 21,402 127,882

EUR 89 - 158 -

Long-term financial instruments USD 10,627 USD 10,000 13,439 9,402

Trade accounts receivable USD 186,311 USD 148,193 245,392 139,041

JPY 56,631 JPY 305,472 791 2,546

SGD 414 SGD 10,466 308 6,792

Others - Others - 17,064 14,121

Other accounts receivable USD 6,413 USD 4 8,064 4

Accrued income USD 1,228 - 1,545 -

Available-for-sale securities USD 1,888 USD 4,639 2,374 4,352

Held -to-maturity bond USD 498 - 627 -

Short-term loans USD 14,400 - 18,108 -

Long-term loans CAD 840 CNY 43 872 9

USD 24,093 - 30,279 -

Guarantee deposits USD 3,346 USD 26,579 4,167 24,937

Assets in overseas branches 21,569 11,309

￦ 476,513 ￦ 341,202

- 35 -

Foreign currencies Korean Won

2008 2007 2008 2007

(In thousands) (In millions)

Trade accounts payable USD 31,813 USD 20,999 ￦ 39,783 ￦ 19,707

JPY 2,956 JPY 89,724 41 746

EUR 115 - 205 -

Other accounts payable USD 4,819 USD 1,059 6,068 1,000

AUD 16 - 14 -

JPY 1,178 - 16 -

EUR 2 - 4 -

Others within long-term liabilities USD - USD 5,260 - 4,935

Short-term borrowings USD 14,449 USD 465,118 18,170 47,205

Long-term borrowings USD 60,227 USD 18,272 69,465 17,052

JPY 744,233 JPY 1,358,863 10,374 11,324

Bonds with stock warrants EUR 100,400 - 178,332 -

USD 2,400 - 3,018 -

Finance lease USD 8,432 - 10,604 -

Liabilities in overseas branches 78,385 97,947

￦ 414,479 ￦ 199,916

15. SHAREHOLDERS’ EQUITY:

(1) Common Stock

As of December 31, 2008, the Company is authorized to issue 120 million shares with a par value of ￦2,500

per share. 1,274,057 shares are issued through the conversion of overseas convertible bonds in 2007. As of

December 31, 2008, the outstanding common stocks are 49,059,982 shares and the capital stock amounts to

￦122,650 million.

(2) Capital adjustments

Korean Won

Reference 2008 2007

(In millions)

Treasury stocks

Stock options

Other capital adjustments

(*1)

(*2)

￦ (53,920)

8,004

(22,693)

￦ (10,803)

8,004

(20,852)

￦ (68,609) ￦ (23,650)

(*1) Detail of treasury stock as of December 31, 2008 and 2007 is as follows:

Korean Won

Number of treasury stock Face value Book value

2008 2007 2008 2007 2008 2007

(In millions)

1,685,931 685,931 ￦ 4,215 ￦ 1,715 ￦ 53,920 ￦ 10,803

The Company is expecting to dispose of its treasury stock through the exercise of stock options.

- 36 -

(*2) The Company granted stock options to its executives in accordance with the resolution of the Board of

Directors dated September 26, 2005. Details of the stock options are as follows:

Korean Won

Grant date

Number of shares to

be issued (*3)

Exercise period Exercise price

September 26, 2005 990,000 shares September 26, 2008 ~

Semtember 26, 2012 ￦ 13,826

(*3) The number of shares to be issued decreased by 80,000 shares due to retirement of an officer after 2005

and will be adjusted on a basis of comparison between the increasing ratio of composite stock exchange

index and that of the Company’s stock price between the grant date and the exercise date. Details are as

follows:

Ratio of the Company’s stock price to

composite stock exchange index Exercise ratio

Less than 40% Cancellation

40% ~ 50% 60%

50% ~ 60% 70%

60% ~ 70% 80%

70% ~ 80% 90%

More than 80% 100%

The Company recorded ￦2,940 million as stock compensation expense in the current year. As the

requisite service period has passed hereinafter, no further recognition of compensation cost will be made.

(3) Accumulated other comprehensive loss

Accumulated other comprehensive loss as of December 31, 2008 and 2007 consist of the following:

Korean Won

2008 2007

(In millions)

Loss on valuation of available-for-sale securities ￦ (387,640) ￦ (130,489)

Changes in equity arising from equity method investments 53,398 23,922

Loss on valuation of financial derivates (23,842) (1,314)

Gain on overseas operation translation 124,278 16,778

Gain on revaluation of property, plant and equipment 73,111 -

Others 1,476 (510)

Total ￦ (159,219) ￦ (91,613)

- 37 -

(4) Retained earnings

Legal Reserve

The Korean Commercial Code requires the Company to appropriate an amount equal to a minimum of 10% of

its cash dividends as a legal reserve until such reserve equals 50% of its paid-in capital. This reserve is not

available for the payment of cash dividends. Subject to the approval of the Board of Directors, it may be

transferred to common stock or may be used to dispose of accumulated deficit, if any.

Other Reserves

Pursuant to Korean tax laws, the Company is allowed to claim the amounts of retained earnings appropriated for

technology development and overseas investment losses as deductions from taxable income for the current year.

These amounts were not available for dividends until used for the specified purposes or otherwise reversed.

The voluntary reserve did not have any specified purpose and may be reversed to unappropriated retained

earnings with the ratification of the majority shareholders.

16. COST OF SALES:

Costs of sales for the years ended December 31, 2008 and 2007 are as follows:

Korean Won

2008 2007

(In millions)

Cost of manufacture

Beginning inventory of finished goods ￦ 48,884 ￦ 42,862

Consolidation adjustments 5,413 (3,218)

Cost of products manufactured for the year 2,112,077 1,829,013

Ending inventory of finished goods (68,387) (48,884)

Transfer from other accounts (48,118) (35,415)

Refund of customs duties (17,886) (23,209)

2,031,983 1,761,149

Cost of commodities

Beginning inventory of commodities 56,021 58,638

Consolidation adjustments 1,667 773

Purchases of commodities for the year 650,015 470,288

Transfer from other accounts 268,408 155,533

Ending inventory of commodities (88,341) (54,355)

Transfer to other accounts (5,594) (6,540)

882,176 624,337

Cost of construction revenue 870,638 213,906

Cost of lotting out revenue 2,459 34,953

Other costs 216,385 195,851

Total ￦ 4,003,641 ￦ 2,830,196

- 38 -

17. THE DETAILS FOR THE NET INCOME OF THE COMPANY AND THE NET INCOME OF THE

MINORITY INTERESTS:

The parent interest (loss) and minority interests (loss) for the years ended December 31, 2008 and 2007 are

calculated as follows:

Korean Won

2008 2007

Parent

interest

Minority

interests Total

Parent

interest

Minority

interests Total

(In millions)

Non-consolidated

net income

￦ (228,384)

￦ (72,301)

￦ (300,685)

￦ 100,040

￦ 66,280

￦ 166,320

Consolidation

adjustments

298,338

2,577

300,915

(23,751)

(22,298)

(46,049)

Consolidated net

income

￦ 69,954

￦ (69,724)

￦ 230

￦ 76,289

￦ 43,982

￦ 120,271

18. STATEMENTS OF COMPREHENSIVE INCOME (LOSS):

The statements of comprehensive income (loss) for the years ended December 31, 2008 and 2007 consist the

followings:

Korean Won

2008 2007

(In millions)

Net income ￦ 230 ￦ 120,271

Accumulated other comprehensive income (loss):

Gain on valuation of available-for-sale securities (258,861) (139,603)

Gain on valuation of equity method investments 45,096 1,958

Loss on valuation of equity method investments (11,982) (337)

Loss on valuation of derivatives (578) (1,307)

Gain on overseas operation translation 114,656 29,659

Gain on revaluation of PP&E 108,609 -

Loss on translation of financial instruments (21,934) -

Others 1,984 (4,191)

Comprehensive income (loss) ￦ (22,780) ￦ 6,450

Parent interest 2,348 (37,532)

Minority interests (25,128) 43,982

- 39 -

19. EARNINGS PER SHARE:

Basic Earnings per Share

Basic earnings per share is computed by dividing net income allocated to common stock by the weighted

average number of common shares outstanding during the year.

Basic earnings per share for the years ended December 31, 2008 and 2007 is as follows:

Korean Won

2008 2007

(In thousands except per share amounts)

Net income of continuing operations(A) ￦ 74,292,902 ￦ 73,432,308

Net income (C) 69,954,162 76,288,830

Weighted average number of

common shares outstanding during the year(B) (*1) 47,497,749 shares 47,833,229 shares

Basic income per share from continuing

operations(A/B) ￦ 1,564 ￦ 1,535

Basic earnings per share(C/B) ￦ 1,473 ￦ 1,595

(*1) The weighted average number of common shares outstanding for the years ended December 31, 2008 and

2007 is calculated as follows:

2008

Period Shares Days

Weighted

shares

Beginning 2008.01.01 ~ 2008.01.29 48,374,051 29 1,402,847,479

Acquisition of treasury stock 2008.01.29 ~ 2008.01.30 48,274,051 1 48,274,051

〃 2008.01.30 ~ 2008.01.31 48,134,051 1 48,134,051

〃 2008.01.31 ~ 2008.02.03 48,009,781 3 144,029,343

〃 2008.02.03 ~ 2008.02.04 47,943,441 1 47,943,441

〃 2008.02.04 ~ 2008.02.10 47,899,791 6 287,398,746

〃 2008.02.10 ~ 2008.02.11 47,849,791 1 47,849,791

〃 2008.02.11 ~ 2008.02.12 47,785,791 1 47,785,791

〃 2008.02.12 ~ 2008.02.13 47,727,901 1 47,727,901

〃 2008.02.13 ~ 2008.02.14 47,710,391 1 47,710,391

〃 2008.02.14 ~ 2008.02.17 47,660,391 3 142,981,173

〃 2008.02.17 ~ 2008.02.18 47,652,891 1 47,652,891

〃 2008.02.18 ~ 2008.02.19 47,646,391 1 47,646,391

〃 2008.02.19 ~ 2008.02.21 47,604,771 2 95,209,542

〃 2008.02.21 ~ 2008.03.19 47,554,771 27 1,283,978,817

〃 2008.03.19 ~ 2008.03.20 47,520,751 1 47,520,751

〃 2008.03.20 ~ 2008.03.23 47,477,751 3 142,433,253

〃 2008.03.23 ~ 2008.03.25 47,454,911 2 94,909,822

〃 2008.03.25 ~ 2008.03.26 47,408,411 1 47,408,411

〃 2008.03.26 ~ 2008.12.31 47,374,051 280 13,264,734,280

366 17,384,176,316

- 40 -

Weighted average number of common shares outstanding: 17,384,176,316 / 366 = 47,497,749 shares

2007

Period Shares Days

Weighted

Shares

Beginning 2007.01.01 ~ 2007.12.31 47,785,925 365 17,441,862,625

Treasury stock as of 2007.1.1 2007.01.01 ~ 2007.12.31 (1,385,931) 365 (505,864,815)

Disposal of treasury stock 2007.10.10 ~ 2007.12.31 700,000 83 58,100,000

Conversion of convertible bonds 2007.01.01 ~ 2007.12.31 1,274,057 365 465,030,805

17,459,128,615

Weighted average number of common shares outstanding: 17,459,128,615/ 365 = 47,833,229 shares

Diluted Earnings per Share

Diluted earnings per share is computed by dividing diluted net income as adjusted by adding back the after-tax

amount of expenses on diluted securities, by the weighted average number of common shares and potential

shares of diluted securities outstanding during the year.

Diluted earnings per share for the years ended December 31, 2008 and 2007 is as follows:

Korean Won

2008 2007

(In thousands except per share)

Diluted net income of continuing operations(A) (*1) ￦ 74,292,902 ￦ 73,432,308

Diluted net income (C) (*1) 69,954,162 76,289,830

Weighted average number of

common shares outstanding during the year(B) (*2) 47,714,430 shares 47,833,229 shares

Diluted basic income per share from continuing

operations(A/B) ￦ 1,557 ￦ 1,535

Diluted basic earnings per share(C/B) ￦ 1,466 ￦ 1,595

(*1) Diluted ordinary income and net income for the years ended December 31, 2008 and 2007 are calculated

as follows:

Korean Won Korean Won

2008 2007

(In thousands)

Net income of continuing operations (A) ￦ 74,292,902 ￦ 73,432,308

Net income (C) 69,954,162 76,288,830

Interest expense of convertible bonds, net of tax - -

Diluted net income of continuing operations (A) 74,292,902 73,432,308

Diluted net income ￦ 69,954,162 ￦ 76,288,830

(*2) Weighted average number of common shares and potential shares of diluted securities outstanding for the

years ended December 31, 2008 and 2007 is calculated as follows:

2008 2007

Weighted average number of common shares 47,497,749 47,833,229

Stock options (not exercised) 216,681 -

Weighted average number of common shares and potential shares 47,714,430 47,833,229

- 41 -

Potentially dilutive securities excluded from calculation as they have no dilutive effects for the year ended

December 31, 2008 are as follows:

Expense after tax

Weighted average

number of shares

Earnings Per

Share

Bonds with stock warrants ￦ - - ￦ - No dilutive effect

Convertible bonds 8,271,468,815 2,482,790 shares 3,332 No dilutive effect

Stock options - 216,681 shares - Dilutive effect

Dilutive potential shares

Details of dilutive potential shares as of December 31, 2008 are as follows:

Period

Number of common

shares to be issued

Bonds with stock warrants 2008.11.26 ~ 2012.11.12 2,056,674 shares

Convertible bonds 2008.11.26 ~ 2012.11.12 2,482,790 shares

Stock options 2008.09.26 ~ 2012.09.26 990,000 shares

20. DIVIDENDS:

Details of dividends for the years ended December 31, 2008 and 2007 are as follows:

(1) Dividend yield ratio

Korean Won

2008 2007

Dividend per share (A)

Market value at the end of the year (B) ￦ 500

17,700

￦ 500

49,000

Dividend yield ratio (A/B) 2.8% 1.0%

(2) Dividends

Korean Won

2008 2007

Common shares issued (par value ￦2,500) 47,374,051 shares 48,374,051 shares

Cash dividend per share (ratio) ￦ 500(20%) ￦ 500 (20%)

Dividend amount ￦ 23,687 million ￦ 24,187 million

(3) Dividend payout ratio

Korean Won

2008 2007

Total dividends (A)

Net income of the Company (B) ￦ 23,687 million

69,954 million

￦ 24,187 million

76,289 million

Dividend payout ratio (A/B) 33.86% 31.70%

- 42 -

21. SUPPLEMENTARY CASH FLOW INFORMATION:

Major transactions not involving an inflow or outflow of cash and cash equivalents for the years ended

December 31, 2008 and 2007 are as follows:

Korean Won

2008 2007

(In millions)

Reclassification of long-term debts to current maturities

Acquisition of finance lease assets

Transfer of advanced rental asset to rental assets

Transfer of construction-in-progress to property, plant and equipment

Transfer of machinery-in-transit to property, plant and equipment

Transfer of advanced payment to long-term loans

Revaluation of property, plant and equipment

Increase of net assets due to merge and acquisition

Decrease of net assets due to spin-off

Others

￦ 813,389

18,511

11,761

52,484

3,232

4,668

139,103

￦ 256,535

432

11,500

23,728

105

-

-

85,288

65,184

1,986

22. RELATED PARTY TRANSACTIONS:

Significant transactions, which occurred in the ordinary course of business with consolidated subsidiaries for the

years ended December 31, 2008 and 2007 and related account balances as of those dates, are summarized as

follows:

Korean Won

2008

Seller Buyer Sales

Purchases Receivables(*1) Payables

(In millions)

Taihan Electric Wire Co., Ltd. Muju Resort Inc. ￦ 23 ￦ 128 ￦ 2 ￦ -

Taihan Electric Wire Co., Ltd. TEC&Co Co., Ltd. 43 225 - 248

Taihan Electric Wire Co., Ltd. Taihan Reach Limited 1,205 - 1,048 -

Taihan Electric Wire Co., Ltd. TMC Co., Ltd. 76,291 1,077 8,910 7,169

Taihan Electric Wire Co., Ltd. Korea Rental Corporation - 138 - 1

Taihan Electric Wire Co., Ltd. KTC Co., Ltd. 132,018 81,648 - 14,035

Taihan Electric Wire Co., Ltd. Malesela T.E.C. Ltd. 1,074 - 3,831 -

Taihan Electric Wire Co., Ltd. Skytel Co., Ltd. 1,547 - - -

Taihan Electric Wire Co., Ltd. TSC Co., Ltd. 6,859 - 1,145 -

Taihan Electric Wire Co., Ltd. Standard Telecom Congo 912 - 16,684 -

Taihan Electric Wire Co., Ltd. Taihan Global Holdings Ltd. 85,208 429,725 117,698 8,232

Taihan Electric Wire Co., Ltd. Taihan Techren Co., Ltd. 950 - 1 -

Taihan Electric Wire Co., Ltd. TEC Construction Co., Ltd. 331 15,414 - 15,414

Taihan Electric Wire Co., Ltd. Taihan ST Co., Ltd. 1,320 322 - -

Taihan Electric Wire Co., Ltd. Trybrands Co., Ltd. - 47 - -

Taihan Electric Wire Co., Ltd. TEC&R Co., Ltd. 24 - - -

Taihan Electric Wire Co., Ltd. Namkwang E&C - - 302 -

Taihan Electric Wire Co., Ltd. ALDEX Co., Ltd. 43 - 8,043 -

Taihan Electric Wire Co., Ltd. Onse telecom Corporation 95 - 14,095 -

Trybrands Co., Ltd. Jilin Try Textile Co., Ltd. 4,819 22,510 14,085 -

Daimyung TMS Co., Ltd. Taihan ST Co., Ltd. 35,408 5,852 15,644 -

Onse Telecom Corporation Taihan Electric Wire Co., Ltd. - 297 8,000 45,487

Aldex Co., Ltd. SJD Co., Ltd. 236 351 - -

Others (between subsidiaries) 5,983 7,818 8,156 11,091

￦ 354,389 ￦ 565,552 ￦ 216,644 ￦ 101,677

- 43 -

(*1) Includes convertible bonds issued by and loan receivables from consolidated subsidiaries.

Korean Won

2007

Seller Buyer Sales

Purchases Receivables(*1) Payables

(In millions)

Taihan Electric Wire Co., Ltd. Taihan Bulk Terminal Co.,

Ltd. ￦ 43 ￦ - ￦ 1 ￦ 122

Taihan Electric Wire Co., Ltd. Malesela T.E.C. Ltd.1 2,269 - 3,545 -

Taihan Electric Wire Co., Ltd. Skytel Co., Ltd. 1,017 - 225 -

Taihan Electric Wire Co., Ltd. KTC Co., Ltd. 106,927 98,825 3,461 -

Taihan Electric Wire Co., Ltd. Muju Resort Inc. 473 33 2 342

Taihan Electric Wire Co., Ltd. Taihan Reach Limited 782 - 782 -

Taihan Electric Wire Co., Ltd. TMC Co., Ltd. 59,932 2,642 8,511 371

Taihan Electric Wire Co., Ltd. Standard Telecom Congo 4,666 - 12,760 -

Taihan Electric Wire Co., Ltd. Korea Rental Corporation - 4 - -

Taihan Electric Wire Co., Ltd. Taihan Techren Co., Ltd. 35 - 4,100 465

Taihan Electric Wire Co., Ltd. Trybrands Co., Ltd 4 124 - 4

Taihan Electric Wire Co., Ltd. Taihan ST Co., Ltd. 1,296 158 - 21

Taihan Electric Wire Co., Ltd. Taihan Global Holdings Ltd. - 4,252 - -

Trybrands Co., Ltd. Jilin Try Textile Co., Ltd. 5,674 23,565 1,112 -

Trybrands Co., Ltd. Muju Resort Inc. 6 88 - -

Taihan Bulk Terminal Co., Ltd. Trybrands Co., Ltd. - 3 - -

Taihan Bulk Terminal Co., Ltd. Muju Resort Inc. - 300 - -

Taihan ST Co., Ltd. Daimyung TMS Co., Ltd. 4,298 - 4,649 -

Korea Rental Corporation Taihan Electric Wire Co., Ltd. 4 - - -

Korea Rental Corporation Muju Resort Inc. 10 - 3 -

￦ 187,436 ￦ 129,994 ￦ 39,151 ￦ 1,325

(*1) Includes convertible bonds issued by and loan receivables from consolidated subsidiaries.

Significant transactions, which occurred in the ordinary course of business with related companies for the years

ended December 31, 2008 and 2007 and related account balances as of those dates, are summarized as follows:

Korean Won

2008

Buyer Sales

Purchases Receivables Payables

(In millions)

T.E. USA ￦ 25,983 ￦ - ￦ 7,282 ￦ -

Novelis Korea Ltd. 3,358 - - -

Sam Yang Metal Co., Ltd. - 46,039 - 1,494

Phil. BXP Co., Ltd. 1,814 - 5,323 -

Optomagic Co., Ltd. 168 8,302 15 1,073

ALD I Co., Ltd. - 8,202 - -

Others 160,602 265,950 149,991 42,135

￦ 191,925 ￦ 328,493 ￦ 162,611 ￦ 44,702

- 44 -

Korean Won

2007

Buyer Sales

Purchases Receivables Payables

(In millions)

T.E. USA ￦ 30,560 ￦ - ￦ 20,489 ￦ -

Novelis Korea Ltd. 4,716 - - -

Sam Yang Metal Co., Ltd. - 44,629 - 100

KTC Cambodia Co., Ltd. 1,287 - 501 -

TEC Networks Co., Ltd. 66 - 6 495

Others 31,415 46,771 2,745 -

￦ 68,044 ￦ 91,400 ￦ 23,741 ￦ 595

23. SEGMENT INFORMATION:

Financial information of each business division as of and for the years ended December 31, 2008 and 2007 is as

follows:

Korean Won

2008

Cable

Others Adjustment Amounts

(In millions)

Total sales ￦ 3,013,269 ￦ 2,634,947 ￦ (913,560) ￦ 4,734,656

Intercompany sales (296,498) (617,062) 913,560 -

Sales, net 2,716,771 2,017,885 - 4,734,656

Operating income (loss) 115,557 17,549 (26,445) 106,661

Property, plant and equipment, and

intangible assets

236,144

1,386,686

(18,470)

1,604,360

Korean Won

2007

Cable

Others Adjustment Amounts

(In millions)

Total sales ￦ 2,078,618 ￦ 1,349,272 ￦ (297,171) ￦ 3,130,719

Intercompany sales (236,552) 60,619 297,171 -

Sales, net 1,842,066 1,288,653 - 3,130,719

Operating income (loss) 67,474 60,807 (2,785) 125,496

Property, plant and equipment, and

intangible assets

402,908

1,004,786

(48,712)

1,358,982

- 45 -

24. COMMITMENTS AND CONTINGENCIES:

(1) As of December 31, 2008, in the ordinary course of business, the Company has provided as collaterals to

creditors and guarantors 25 blank checks and 9 promissory notes, and checks and promissory notes with

face values totaling ￦42,401 million.

(2) The Company and domestic subsidiaries have bank overdraft agreements with various banks amounting to

￦15,800 million as of December 31, 2008.

(3) Outstanding guarantees provided by financial institutions and third parties to the Company as of December

31, 2008 are as follows:

Guarantor Guarantee Currency Amount Remarks

(In millions, except USD in thousands)

Hana Bank & others The Company USD 371 Related to import of raw materials, etc.

Seoul Guarantee

Insurance Company

The Company KRW 156,502 Implementation of construction contracts

and rectification warranty on defects

Kim, Seong Kyun SJD Co., Ltd. KRW 6,500 In connection with borrowings

Shinhan Bank &

others

Korea Rental

Corporation

KRW 1,000 In connection with the agreement of

purchasing from Apple Computer Korea

Co., Ltd.

Myungji Academy TEC Construction

Co., Ltd.

KRW 10,044 In connection with borrowings

Kyoungnam

Enterprise Ltd.

Namkwang E&C KRW 3,085,202 Implementation of construction contracts

Woori Bank &

others

Daemyung TMS

Co., Ltd.

KRW 360 In connection with long-term borrowings

(4) Outstanding guarantees provided to third parties and between consolidated companies as of December 31,


Guarantor Guarantee

Creditors Currency Amount Details of guarantee

(In millions, except USD in thousands)

TEC&Co Co., Ltd. Jilin Try Textile Co.,

Ltd.

The Export-Import

Bank of Korea

KRW 4,904 Payment guarantee to

borrowings Trybrands Inc. (USD) (3,900)

Taihan ST Co., Ltd. Daemyung TMS Co.,

Ltd.

Woori Bank&

others

KRW 27,500 Payment guarantee to

borrowings

JPY 533,739

TEC Construction

Co., Ltd.

Myungji Academy Woori Bank &

others

KRW

37,346

Payment guarantee to project

financing

TEC&R Co., Ltd. PINE STONE CC. Financial institution KRW

9,800

Payment guarantee to project

financing

Jilin Try Textile Co.,

Ltd.

Financial institution USD

3,900

Payment guarantee to

borrowings

Aldex Co., Ltd. Mamquam Ocean

Chennel Development

HSBC CAD

9,610


mortgage loans

Onse Telecom Co.,

Ltd.

Aldex Co., Ltd. Woori Bank &

others

KRW

5,000

Issue of the 12th

convertible

bonds

TEC&Co., Ltd. Taihan Global

Holdings Ltd.

Woori Bank &

others

USD

124,750


mortgage loans

Namkwang E&C Deawoo E&C &

others

NongHyup &

others

KRW 3,377,119 Implementation

of construction contracts

- 46 -

(5) Details of pledged assets

The pledged assets in connection with the short and long-term borrowings as of December 31, 2008 are as

follows:

Creditor Pledged assets Currency 2008 2007

(In millions)

KDB and others Lands, buildings,

machineries and others

KRW

351,367

561,389

USD 8,957 92,672

GBP - 603

JPY 419,894 1,884,814

Construction Contractors'

Financial Cooperative

Available-for-sale

securities and others

KRW

80,960

-

Shinhan Capital

Co., Ltd.

Advanced payments

KRW

26,800

-

HK Mutual Savings

and Finance Co., Ltd.

Inventories

KRW

28,900

-

Korea Exchange

Bank

Accounts receivables,

memberships and

others

KRW

141,760

-

As of December 31, 2008, certain securities of Aldex Co., Ltd. are provided as collateral as follows:

Creditor Pledged assets

Number of

shares Remarks

Green Non-life

Insurance Co., Ltd.

Securities of

Namkwang E&C

4,447,299

In connection with the short-term

borrowings of Aldex Co., Ltd.

1,096,750

In connection with the borrowings of Onse

Telecom Co., Ltd.

National Federation

of Fisheries

Cooperatives &

others

Securities of Onse

Telecom co., Ltd.

17,422,718

In connection with the short-term

borrowings of Aldex Co., Ltd.

Woori Bank

9,826,005

In connection with the 12th

debenture of

Aldex Co., Ltd.

36,395,365 Custodial (until May 12, 2009)

In connection with borrowings of ￦163,500 million borrowed from Korea Exchange Bank and other

creditors, Namkwang E&C Co., Ltd. offered the title of land as collateral. Additionally, in connection

with short-term borrowings of ￦28,900 million borrowed from Hana Capital Co., Ltd. and other creditors,

Namkwang E&C Co., Ltd. offered beneficiary right of first ranked priority which was obtained by trust of

unsold apartments of developer.

(6) As of December 31, 2008, the 174 notes and 62 checks issued by TEC&Co Co., Ltd. before October 1997

are still outstanding because these were misplaced, used as collateral of which one note issued for the

reorganization creditor by Onse Telecom Co., Ltd. is still outstanding as it is missing.

(7) Namkwang E&C recognized allowance for doubtful accounts in relation to the fraud amount (loans to

customers) in connection with the former chief executive officer’s embezzlement case. In addition,

Namkwang E&C could not obtain sufficient reliable information in relation to the appropriate tax

adjustments needed for the fraud amount as of December 31, 2008. As such, the consolidated financial

statements do not include any adjustment that may arise from the uncertainty on the tax position.

- 47 -

(8) As of December 31, 2008, the Company and its subsidiaries are defendants in 45 legal cases involving an

aggregate amount of ￦ 71,477 million in damages. The result of the cases could not be ascertained as

of December 31, 2008.

(9) As of December 31, 2008, the outstanding balance of notes receivable discounted with recourse of the

certain subsidiaries amounts to ￦94,345million.

(10) The Company and several banks have entered into a business loan agreement with Daewan and others for

the purpose of investing in Daewan’s real estate complex development business. According to this

agreement, ￦100 billion of the Company’s loans to Daewan is subordinated to other creditors’ loans, and

the Company guarantees the interest of the last six months of original loan period and the interest for any

extended maturity or overdue payments in case Daewan fails to repay the principal or interest due to other

creditors.

(11) The outstanding derivative contracts of the Company and its subsidiaries as of December 31,


Futures Contracts

Type of Raw

Materials Counterpart Maturities Position Price (USD/ton)

Quantity

(in tons)

Copper SEMPRA and others 2009.1.2~2012.7.18 Buying 2,845.0~7,240.0 26,450

Copper SEMPRA and others 2009.1.2~2012.9.21 Selling 2,941.5~8,020.0 24,100

Interest Rate Swap Contracts

U.S. dollars

Counterpart Initial date Maturities Amount Payment rate Receipt rate

(In thousands)

Citibank 2008.03.11 2009.03.11 USD 34,322 Fixed interest

rate - 5.20%

Libor (3M) + 1.0%

Shinhan Bank 2006.06.30 2009.06.12 20,975 Fixed interest

rate - 5.57%

Libor (3M) + 0.94%

Kookmin Bank 2006.08.25 2009.08.25 21,000 Fixed interest

rate - 5.30%

Libor + 0.82%

Kookmin Bank 2008.05.27 2009.05.27 20,000 Fixed interest

rate - 5.88%

Libor + 2.48%

Nonghyup Bank 2008.10.26 2009.10.26 25,000 Fixed interest

rate - 8.90%

Libor + 6.0%

Shinhan Bank 2007.11.13 2010.11.19 ￦ 100,000 Fixed interest

rate - 6.29%

CD 91days + 0.91% (IRS)_

Currency Swap Contracts

Foreign currency Korean Won Exchange rate

Counterpart Initial date Maturities Disbursements Receipts terms

(In thousands) (In millions) (1/USD)

Citibank 2008.03.11 2009.03.11 USD 34,322 ￦ 32,218 ￦ 938.7

Shinhan Bank 2006.06.30 2009.06.12 USD 20,975 20,000 953.5

Kookmin Bank 2006.08.25 2009.08.25 USD 21,000 20,000 1,050.0

Kookmin Bank 2008.05.27 2009.05.27 USD 20,000 21,000 952.4

Nonghyup Bank 2008.10.26 2009.10.26 USD 25,000 36,000 1,440.0

Industrial Bank of Korea 2007.09.21 2008.10.02 USD 15,000 13,815 921.0

Industrial Bank of Korea 2007.11.30 2008.12.04 EUR 57,900 78,744 1,360.0

SC First Bank 2007.11.23 2008.11.24 USD 25,000 22,750 910.0

Goldman Sachs 2007.12.03 2008.11.26 EUR 50,000 68,250 1,365.0

Goldman Sachs 2007.12.03 2008.06.05 EUR 20,000 27,100 1,365.0

- 48 -

Muju Resort Co., Ltd. has entered into forwards contracts with Woori Bank to hedge the exposure to

changes in foreign exchange rate in connection with short-term borrowings. The details of the

contracts are as follows:

Foreign currency Korean Won Exchange rate

Maturities Disbursements Receipts terms

(In thousands) (In millions) (1/USD)

2009.02.09 USD 494 ￦ 518 ￦ 1,048.37

2009.05.08 USD 478 508 1,048.37

2009.05.08 USD 29,606 31,000 1,407.70

Korea Rental Corporation has entered into derivative instrument contracts including futures to convert

the variable interest rate to fixed rate and hedge the exposure to changes in foreign exchange rate. The

details of the contracts are as follows:

Exchange rate

Amount Interest rate terms

(In millions, except USD in thousands) (%) (1/USD)

Korea Exchange Bank KRW 5,000 6.5 -

Kookmin Bank KRW 5,000 6.22 -



Hana Bank KRW 10,000 7.12 -

Shinhan Bank USD 5,209 5.17 959.9

KTC Co., Ltd. has entered into forwards contracts to hedge the exposure to changes in foreign

exchange rate in connection with the foreign currency accounts receivables and borrowings. The

details of the outstanding forwards contracts are as follows:

Exchange rate

Amount terms Fair value

(In USD) (1/USD) (In millions)

Kookmin Bank 2008.03.18 2009.11.16 USD 2,800,000 975.00 (1,934)

Kookmin Bank 2008.03.18 2009.11.15 USD 7,800,000 990.00 (778)

USD 10,600,000 (2,713)

- 49 -

Details of the valuation gain and loss in relation to the outstanding derivative contracts for the years

ended December 31, 2008 and 2007 are as follows:

Korean Won

2008 2007

Valuation Valuation Valuation Valuation

gain

loss

gain

loss

(In millions)

Futures contracts ￦ 13,888 ￦ 886 ￦ - ￦ 2,929

Interest rate swap - 591 - 1,435

Currency swap 25,987 212,152 4,487 1,215

Currency forward 6,230 2,713 - 462

Currency option 871 - - 468

Gain on valuation of exchange right 4,637 - - -

￦ 51,613 ￦ 216,342 ￦ 4,487 ￦ 6,509

Cash flow hedge

Interest rate swap 1,907

Loss on translation of financial

instruments (*1) 21,934

(*1) Foreign currency translation loss related to short-term borrowings is ￦49,780 million, of which ￦28,121

million (￦21,294 million after deferred tax effect) was recognized as accumulated other comprehensive

loss which is an effective portion of hedging cash flow risk in relation the future sales.

(12) On January 6, 2003, Taihan Reach Ltd. entered into a Head Services Agreement with Reach Global

Services Ltd. There are receivables and payables which are calculated in accordance with the agreement

with Reach Global Services Ltd. Taihan Reach Ltd. recognized revenue of ￦6,590 million from this

agreement in 2008 (2007: ￦6,540 million). Further, on December 10, 2004, the subsidiary entered into

a similar agreement with Reach Network Services Korea Co., Ltd., a related party. Expenses incurred

according to the Agreement amount to ￦1,876 million in 2008 (2007: ￦1,536 million).

(13) According to the option agreement between the Company and Reach International Holdings BV and its

subsidiaries (hereinafter referred to as “Reach Group”), as shareholders of Taihan Reach Ltd., the Reach

Group has call options to buy all or part of the shares of Taihan Reach Ltd. from the Company, while the

Company has put options to sell those stocks to Reach Group after the end of call option exercise period or

when restrictions imposed on foreign-owned equity are lifted. The call option exercise period can be

extended to an additional year upon the request of the Reach Group. Total price for call and put options

of all shares for Taihan Reach Ltd. owned by the Company is USD 10,000 thousand.

(14) In 2006, the Company transferred a portion of machinery and equipment at their total book value of

￦10,005 million and contracted a sale-finance leaseback of machinery and equipment with GE Capital

Korea Co., Ltd.

Book value of finance lease assets as of December 31, 2008 is as follows:

Korean Won

Amount

(In millions)

Acquisition ￦ 20,451

Less: Accumulated depreciation (7,005)

Net book value ￦ 13,446

- 50 -

Details of future minimum lease payments according to the finance lease contract are summarized below:

Korean Won

Minimum lease payment

(In millions)

2009.01.01~2009.12.31 ￦ 11,422

Less: Present value discounts (818)

Present value of finance lease

liability ￦ 10,604

(15) The Company has leased the lands and buildings located in Seoul and Anyang, which it sold in current

year, from their purchasing parties. The payment schedule of lease fee by years is as follows:

Korean Won

Year Anyang (*1) Seoul

(*2)

(In millions)

2009

2010 ￦ 27,240

28,057

￦ 5,268

-

￦ 55,297 ￦ 5,268

(*1) The purchasing party is ALD I Co., Ltd. The leasing period is 30 months, the conditions of lease period

and lease fee may be changed according to the progress of permission on the purchasing party’s

development plan.

(*2) The purchasing party is D&DS Co., Ltd. The lease period will be renewed every year.

25. SUBSEQUENT EVENTS:

(1) At the extraordinary shareholders’ meeting on January 30, 2009, it approved to issue preferred convertible

shares and preferred redemption shares, and revised the articles of incorporation which involves increasing

flexibility of third-party designation and increasing the limit of convertible bonds and bonds with stock

warrants.

(2) The Company issued additional stocks based on the resolutions at the Board of Directors’ meeting on

February 3, 2009 and the details of stock issuance are as follows:

Numbers and type of additionally issued stock: 3,000,000 shares of authorized common stock

Issue price: ￦ 8,510 per share

Date of issue: March 9, 2009

Due date of payment: February 26, 2009

Initial date reckoning in dividend: January 1, 2009

Details of changes in capital by stock issuance are as follows:

Korean Won

Before issuance Increased by issuance After issuance

(In millions)

Common stock ￦ 110,000 ￦ 15,000 ￦ 125,000

Additional paid in capital 19,946 10,263 30,209

(3) Aldex Co., Ltd. redeemed early the 12th convertible bonds (par value: ￦2,500 million) and 15th

convertible bonds (par value: ￦3,000 million) on January 16, 2009 and February 4, 2009, respectively, to

improve the financial status.

- 51 -

26. DISCONTINUED OPERATIONS:

(1) In 2008, the Company disposed its shares of Taihan Bulk Terminal Co., Ltd. and eliminated it from the

scope of consolidated subsidiaries. As a result, the Company recognized the profit from discontinued

operations related to the gain on valuation of equity method investments from beginning of the fiscal year

to the date of sale (￦955 million) and gain on disposal of securities (￦2,142 million).

In addition, the consolidated financial statements of prior year were restated in accordance with SKAS No.

11 “Discontinued operations”, the profit of Taihan Bulk Terminal Co., Ltd. (￦2,856 million) was

recognized as profit from discontinued operation.

(2) On November 28, 2008, Onse Telecom Co., Ltd. decided to discontinue its manufacturing and sales of

ubiquitous unit to prevent losses due to decrease of sales and concentrate to existing main business.

Consequently, Onse Telecom Co., Ltd. sold certain inventories, properties and intangibles to Digito. Com

Inc. and transferred certain assets to another unit to use as continuing operation assets. The Company

recognized the loss from discontinued operations including loss on impairment of discontinued operation

assets (￦5,695 million), loss of ubiquitous unit (before tax: ￦13,195 million) from beginning of the

fiscal year to the date of sale.

taihan electric wire co., ltd. and subsidiaries

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