Samsung Electro-Mechanics Co., Ltd. Consolidated financial statements Years ended December 31, 2009 and 2008 with independent auditors report

Transcription

1 Consolidated financial statements Years ended with independent auditors report

2 Consolidated financial statements Years ended with independent auditors report

3 Contents Page Independent auditors report 1-2 Consolidated statements of financial position 3-4 Consolidated statements of income 5 Consolidated statements of changes in equity 6-7 Consolidated statements of cash flows

4 Independent auditors report The Board of Directors and Stockholders Co., Ltd. We have audited the accompanying consolidated statements of financial position of Samsung Electro- Mechanics Co., Ltd. (the Company ) and its subsidiaries (collectively the Group ) as of December 31, 2009 and 2008, and the related consolidated statements of income, changes in equity and cash flows for the years then ended, all expressed in Korea won. These consolidated financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the financial statements of certain subsidiaries that are included in the accompanying consolidated financial statements, whose financial statements reflect \1,552,014 million of the Group s total consolidated assets as of December 31, 2009, and \4,851,422 million of the Group s consolidated sales for the year then ended. These financial 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 the subsidiaries, is based solely on the reports of the other auditors. We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audit and the reports of the other auditors, the consolidated financial position of Co., Ltd. and its subsidiaries as of, and the consolidated results of their operations, their changes in equity and their cash flows for the years then ended in conformity with accounting principles generally accepted in the Republic of Korea. We have also reviewed the translation of the 2009 and 2008 consolidated financial statements mentioned above into United States dollar amounts on the basis described in Note 2 to the accompanying consolidated financial statements. In our opinion, such statements have been properly translated on such basis. Without qualifying our opinion, we draw attention to Note 12 to the consolidated financial statements, which described a pending lawsuit filed by institutional creditors of Samsung Motors Inc. where Samsung Electro- Mechanics Co., Ltd. has been named as a defendant. The effect of any losses that may result from this lawsuit including the related interest on delay of settlement thereon to the consolidated financial statements of the Group cannot presently be determined. 1

5 Accounting principles and auditing standards and their application in practice vary among countries. The accompanying consolidated financial statements are not intended to present the consolidated financial position, results of operations, changes in retained earnings and equity, and cash flows in accordance with accounting principles and practices generally accepted in countries other than the Republic of Korea. In addition, the procedures and practices utilized in the Republic of Korea to audit such financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report and the accompanying consolidated financial statements are for use by those who are knowledgeable about Korean accounting principles and auditing standards and their application in practice. March 15, 2009 This report is effective as of March 15, 2009 the independent auditors report date. Accordingly, certain material subsequent events or circumstances may have occurred during the period from the auditors report date to the time this audit report is used. Such events and circumstances could significantly affect the accompanying consolidated financial statements and may result in modifications to this report. 2

6 Consolidated statements of financial position As of Korean won US dollars (Note 2) Assets Current assets: Cash and cash equivalents (Note 13) \ 1,083,816,428,549 \ 330,013,300,748 $ 928,242,916 $ 282,642,430 Short-term financial instruments (Note 3) 15,723,885,330 16,155,680,588 13,466,842 13,836,657 Held-to-maturity securities (Note 6) 19,910,000 92,635,000 17,052 79,338 Trade accounts and notes receivable, net of allowance for doubtful accounts (Notes 12, 13 and 18) 645,668,756, ,300,196, ,987, ,572,282 Other accounts receivable, net of allowance for doubtful accounts (Notes 13 and 18) 75,289,494,008 49,740,302,477 64,482,266 42,600,464 Short-term loans receivable, net of allowance for doubtful accounts (Note 7) 6,348,741,135 5,425,513,163 5,437,428 4,646,722 Inventories (Note 4) 484,568,420, ,140,436, ,012, ,215,173 Accrued income 1,337,546,792 1,036,861,190 1,145, ,028 Advance payments 1,427,809, ,053,066 1,222, ,265 Prepaid income tax 16,664,907, ,978,048 14,272, ,655 Prepaid expenses 16,696,721,092 17,192,681,910 14,300,035 14,724,805 Short-term guarantee deposits 6,985,056, ,537,314 5,982, ,071 Deferred income tax assets (Note 20) 38,794,820,139 51,866,565,170 33,226,122 44,421,519 Total current assets 2,393,342,498,127 1,334,312,741,504 2,049,796,589 1,142,782,409 Non-current assets: Equity method investments (Note 5) 51,919,943,148 39,900,032,043 44,467,235 34,172,689 Available-for-sale securities (Note 6) 900,328,183, ,602,255, ,092, ,194,463 Held-to-maturity securities (Note 6) 92,400,000 92,475,000 79,137 79,201 Long-term loans receivable, net of present value discount and allowance for doubtful accounts (Note 7) 14,155,142,553 12,690,252,673 12,123,281 10,868,665 Property, plant and equipment, net (Notes 8 and 10) 2,088,411,086,518 1,821,084,040,694 1,788,635,737 1,559,681,433 Intangible assets, net (Notes 9) 23,151,822,637 13,388,224,267 19,828,555 11,466,448 Long-term financial instruments (Note 3) 45,310,989 26,500,000 38,807 22,695 Long-term other accounts receivable - 97,685,593-83,664 Long-term prepaid expenses 4,554,120,539 2,008,193,231 3,900,411 1,719,933 Long-term guarantee deposits 27,324,285,096 28,624,164,427 23,402,094 24,515,386 Deferred income tax assets (Note 20) 19,384,958,868 80,973,764,687 16,602,397 69,350,604 Other non-current assets 40,234,864,252 34,599,934,830 34,459,459 29,633,380 Total non-current assets 3,169,602,118,585 2,503,087,522,926 2,714,630,111 2,143,788,561 Total assets \ 5,562,944,616,712 \ 3,837,400,264,430 $ 4,764,426,700 $ 3,286,570,970 (Continued) See accompanying notes. 3

7 Consolidated statements of financial position (cont'd) As of Korean won US dollars (Note 2) Liabilities and equity Current liabilities: Trade accounts and notes payable (Note 13 and 18) \ 322,340,255,822 \ 175,807,867,660 $ 276,070,791 $ 150,572,001 Other accounts payable (Notes 13) 337,018,844, ,357,175, ,642, ,736,190 Advances received 4,963,240,361 22,377,500 4,250,805 19,165 Withholdings 33,447,567,603 15,857,722,419 28,646,427 13,581,468 Withholding deposits 2,221,744, ,334,980 1,902, ,760 Accrued expenses (Note 13) 165,442,712,786 79,211,343, ,694,684 67,841,164 Income taxes payable 20,231,328,757-17,327,277 - Dividends payable 2,623,131, ,361,709 2,246, ,439 Short-term borrowings (Notes 10 and 13) 639,669,833, ,182,081, ,850, ,934,979 Current portion of long-term borrowings (Note 10) 430,084,290, ,000,000, ,348, ,468,654 Unearned income (Note 8) 8,453,257,085 7,357,016,704 7,239,857 6,300,974 Provision of product warranties 1,767,779,846 1,249,162,790 1,514,029 1,069,856 Deferred income tax liabilities (Note 20) 7,336,031-6,283 - Total current liabilities 1,968,271,323,683 1,167,835,443,986 1,685,741,113 1,000,201,650 Non-current liabilities: Bonds payable, net of discount (Note 10) 299,011,488, ,090,689 - Long-term borrowings (Note 10) 309,127,056, ,000,000, ,754, ,228,845 Long-term other accounts payable (Note 8) 8,098,437,436 6,837,128,291 6,935,969 5,855,711 Long-term accrued expenses 11,525,743,834 5,130,000,000 9,871,312 4,393,628 Severance and retirement benefits (Note 11) 106,518,529, ,406,090,902 91,228, ,385,826 Provision for restoration costs 219,927, ,359 - Deferred income tax liabilities (Note 20) 65,658,036,430-56,233,330 - Total non-current liabilities 800,159,220, ,373,219, ,302, ,864,010 Total liabilities 2,768,430,543,983 1,833,208,663,179 2,371,043,631 1,570,065,660 Equity: Equity attributable to holders of the parent: Capital stock (Note 14): Common stock 373,468,480, ,468,480, ,859, ,859,952 Preferred stock 14,534,920,000 14,534,920,000 12,448,545 12,448, ,003,400, ,003,400, ,308, ,308,497 Capital surplus 1,131,702,616,870 1,076,815,882, ,255, ,247,244 Capital adjustments: Treasury stock (Note 14) (20,181,018,270) (35,748,462,553) (17,284,189) (30,617,046) Share based payments (Note 16) 9,905,816,096 31,076,401,938 8,483,912 26,615,623 (10,275,202,174) (4,672,060,615) (8,800,277) (4,001,423) Accumulated other comprehensive income (Note 20): Equity adjustment arising from equity method investments, net 6,465,817,100 4,630,040,035 5,537,698 3,965,433 Gain on valuation of available-for-sale securities, net (Notes 6) 393,002,673,464 51,124,049, ,590,162 43,785,585 Foreign currency translation adjustments 50,452,208,872 82,363,892,289 43,210,182 70,541, ,920,699, ,117,981, ,338, ,292,207 Retained earnings (Note 15): Appropriated 334,695,257, ,695,257, ,652, ,384,427 Unappropriated 280,258,652,172 47,124,166, ,029,678 40,359, ,953,909, ,819,424, ,682, ,744,282 Minority interests 220,208,648,953 50,106,973, ,599,392 42,914,503 Total equity 2,794,514,072,729 2,004,191,601,251 2,393,383,069 1,716,505,310 Total liabilities and equity \ 5,562,944,616,712 \ 3,837,400,264,430 $ 4,764,426,700 $ 3,286,570,970 See accompanying notes. All May In accordance stockholders' be presented with as equity SKAS a oneaccounts 21, linetotal these itemassets are accounts on the presented areface made can ofbe as up theaggregated of abalance one-line total sheet as of item "Long-term "Short-term "Current andindetail theassets" above disclosure investment and illustrative "Non-current insecurities" assets" the notes balance to on the Assets". financial the face sheets. face of 4

8 Consolidated statements of income For the years ended Korean won US dollars (Note 2) Sales (Notes 17, 18 and 25) \ 5,550,514,688,069 \ 4,284,469,416,646 $ 4,753,780,994 $ 3,669,466,784 Cost of sales (Notes 17 and 18) 4,374,775,873,784 3,553,828,384,122 3,746,810,443 3,043,703,652 Gross profit 1,175,738,814, ,641,032,524 1,006,970, ,763,132 Selling and administrative expenses (Notes 19) 710,740,736, ,688,663, ,719, ,469,222 Operating income 464,998,078, ,952,369, ,251, ,293,910 Other income (expenses): Interest income 17,476,951,876 11,081,503,234 14,968,270 9,490,839 Interest expense (66,777,306,499) (55,962,975,230) (57,191,938) (47,929,921) Dividend income 7,964,795,604 10,801,996,358 6,821,510 9,251,453 Service fee income 3,043,838,071 3,210,975,968 2,606,919 2,750,065 Loss on disposal of trade notes and accounts receivable (4,644,234,451) (7,193,389,352) (3,977,590) (6,160,834) Gain (loss) on foreign currency transactions, net (2,845,339,993) 3,888,726,028 (2,436,913) 3,330,529 Loss on foreign currency translation, net (Note 13) (68,297,598) (12,183,729,504) (58,494) (10,434,849) Reversal of allowance for doubtful accounts 4,203,425,202-3,600,056 - Gain (loss) on valuation of equity method investments, net (Note 5) 7,379,113,213 (1,737,693,501) 6,319,898 (1,488,261) Loss on disposal of held-for-trading securities, net (16,853,760) - (14,435) - Impairment loss on available-for-sale securities (Note 6) (4,230,000,000) (1,459,230,000) (3,622,816) (1,249,769) Loss on disposal of property, plant and equipment, net (5,261,566,605) (2,690,398,320) (4,506,309) (2,304,212) Impairment loss on property, plant and equipment, net (Notes 8) (2,526,538,366) (254,765,235) (2,163,873) (218,196) Gain on disposal of intangible assets - 3,055,890-2,617 Gain (loss) on disposal of other noncurrent assets, net 243,312,332 (14,861,656) 208,387 (12,728) Bad debt expense-non-trade (929,525,065) (13,686,065,206) (796,099) (11,721,536) Donations (4,152,753,050) (2,208,721,702) (3,556,657) (1,891,677) Others 17,816,646,260 15,086,063,547 15,259,204 12,920,575 Income before income taxes 431,673,745,386 83,632,860, ,710,301 71,628,005 Provision for income taxes (Note 20) 113,104,995,763 29,537,083,971 96,869,644 25,297,263 Net income \ 318,568,749,623 \ 54,095,776,356 $ 272,840,657 $ 46,330,742 Attributable to: Equity holders of the parent \ 278,476,226,596 \ 48,036,022,292 $ 238,503,106 $ 41,140,821 Minority interests (Note 21) \ 40,092,523,027 \ 6,059,754,064 $ 34,337,551 $ 5,189,921 Earnings per share (Note 22): Basic \ 3,616 \ 624 $ 3.10 $ 0.53 Diluted \ 3,606 \ 624 $ 3.09 $ 0.53 See accompanying notes. If the entity does not report discontinuing operations, the statement of income should be presented normally 5

9 Consolidated statements of changes in equity For the years ended Capital stock Capital surplus Capital adjustments Korean won Accumulated other comprehensive income Retained earnings Minority interests Total As of January 1, 2008 (as previously stated) \ 388,003,400,000 \ 1,076,760,016,456 \ (4,851,657,413) \ 155,222,106,924 \ 348,037,823,607 \ 42,608,133,307 \ 2,005,779,822,881 Cumulative effect of changes in accounting policy - 1,272,139,190 - (1,272,139,190) As of January 1, 2008 (as restated) 388,003,400,000 1,078,032,155,646 (4,851,657,413) 153,949,967, ,037,823,607 42,608,133,307 2,005,779,822,881 Dilution of interest in subsidiaries ,390, ,390,752 Dividends (38,529,164,200) (10,953,003,506) (49,482,167,706) Effect on retained earnings from the change of functional currency of a subsidairy (9,696,419) - (9,696,419) Effect on deferred income tax from the change of income tax rate (1,715,560,868) - (1,715,560,868) Net income for the year ,036,022,292 6,059,754,064 54,095,776,356 Other capital surplus - (1,216,273,266) (1,216,273,266) Treasury stock ,225, ,225,000 Share based payments - - (336,628,202) (336,628,202) Equity adjustment arising from equity method investments, net (5,471,533,848) - - (5,471,533,848) Loss on valuation of available-for-sale securities, net (110,523,892,804) - - (110,523,892,804) Foreign currency translation adjustments ,163,440,472-10,780,223, ,943,663,885 Minority interest arising from acquisition of subsidiaries ,475, ,475,490 As of December 31, 2008 \ 388,003,400,000 \ 1,076,815,882,380 \ (4,672,060,615) \ 138,117,981,554 \ 355,819,424,412 \ 50,106,973,520 \ 2,004,191,601,251 As of January 1, 2009 \ 388,003,400,000 \ 1,076,815,882,380 \ (4,672,060,615) \ 138,117,981,554 \ 355,819,424,412 \ 50,106,973,520 \ 2,004,191,601,251 Issuance of capital stock - 34,340,240, ,101,642,233 72,441,882,340 Dividends (19,339,670,950) (9,772,126,272) (29,111,797,222) Retained earnings (2,070,414) - (2,070,414) Net income for the year ,476,226,596 40,092,523, ,568,749,623 Gains on disposal of treasury stock 20,546,494, ,546,494,383 Treasury stock ,567,444, ,567,444,283 Share based payments - - (21,170,585,842) (21,170,585,842) Equity adjustment arising from equity method investments, net ,835,777, ,835,777,065 Gain on valuation of available-for-sale securities, net ,878,624, ,878,624,234 Foreign currency translation adjustments (31,911,683,417) - (4,996,923,296) (36,908,606,713) Minority interest arising from acquisition of subsidiaries ,676,559, ,676,559,741 As of December 31, 2009 \ 388,003,400,000 \ 1,131,702,616,870 \ (10,275,202,174) \ 449,920,699,436 \ 614,953,909,644 \ 220,208,648,953 \ 2,794,514,072,729 (Continued) See accompanying notes. 6

10 Consolidated statements of changes in equity For the years ended Capital stock Capital surplus Capital adjustments US Accumulated dollars (Note 2) other comprehensive income Retained earnings Minority interests As of January 1, 2008 (as previously stated) $ 332,308,497 $ 922,199,398 $ (4,155,240) $ 132,941,166 $ 298,079,670 $ 36,492,064 $ 1,717,865,555 Cumulative effect of changes in accounting policy - 1,089,533 - (1,089,533) As of January 1, 2008 (as restated) 332,308, ,288,931 (4,155,240) 131,851, ,079,670 36,492,064 1,717,865,555 Dilution of interest in subsidiaries , ,914 Dividends (32,998,599) (9,380,784) (42,379,383) Effect on retained earnings from the change of functional currency of a subsidairy (8,305) - (8,305) Effect on deferred income tax from the change of income tax rate (1,469,305) - (1,469,305) Net income for the year ,140,821 5,189,921 46,330,742 Other capital surplus - (1,041,687) (1,041,687) Treasury stock , ,125 Share based payments - - (288,308) (288,308) Equity adjustment arising from equity method investments, net (4,686,137) - - (4,686,137) Loss on valuation of available-for-sale securities, net (94,659,038) - - (94,659,038) Foreign currency translation adjustments ,785,749-9,232,805 95,018,554 Minority interest arising from acquisition of subsidiaries , ,583 As of December 31, 2008 $ 332,308,497 $ 922,247,244 $ (4,001,423) $ 118,292,207 $ 304,744,282 $ 42,914,503 $ 1,716,505,310 As of January 1, 2009 $ 332,308,497 $ 922,247,244 $ (4,001,423) $ 118,292,207 $ 304,744,282 $ 42,914,503 $ 1,716,505,310 Issuance of capital stock - 29,410, ,632,444 62,043,407 Dividends (16,563,610) (8,369,413) (24,933,023) Retained earnings (1,773) - (1,773) Net income for the year ,503,106 34,337, ,840,657 Gains on disposal of treasury stock - 17,597, ,597,203 Treasury stock ,332, ,332,857 Share based payments - - (18,131,711) (18,131,711) Equity adjustment arising from equity method investments, net ,572, ,572,265 Gain on valuation of available-for-sale securities, net ,804, ,804,577 Foreign currency translation adjustments (27,331,007) - (4,279,653) (31,610,660) Minority interest arising from acquisition of subsidiaries ,363,960 91,363,960 As of December 31, 2009 $ 332,308,497 $ 969,255,410 $ (8,800,277) $ 385,338,042 $ 526,682,005 $ 188,599,392 $ 2,393,383,069 Total See accompanying notes. 7

11 Consolidated statements of cash flows For the years ended Korean won US dollars (Note 2) Cash flows from operating activities: Net income \ 318,568,749,623 \ 54,095,776,356 $ 272,840,657 $ 46,330,742 Adjustments to reconcile net income to net cash provided by operating activities: Provision for severance and retirement benefits 53,578,156,749 55,579,559,239 45,887,424 47,601,541 Depreciation 370,862,441, ,122,731, ,627, ,874,899 Bad debt expense-trade 1,065,450,653 1,715,026, ,513 1,468,848 Amortization of intangible assets 6,365,014,668 4,650,054,855 5,451,366 3,982,575 Amortization of discount on bonds payable 263,888, ,010 - Amortization of present value discount - (589,211,318) - (504,635) Provision of product warranties 66,478, ,898,146 56, ,032 Loss on disposal of trade accounts and notes receivable 4,644,234,451 7,193,389,352 3,977,590 6,160,834 Loss (gain) on foreign currency translation, net (2,384,457,437) 12,794,972,282 (2,042,187) 10,958,352 Reversal of allowance for doubtful accounts (4,203,425,202) - (3,600,056) - Loss on valuation of inventories - 24,581,649,007-21,053,142 Loss on inventories written off 37,689,701,501 27,476,519,561 32,279,635 23,532,476 Supplies expenses - 1,534,543,895-1,314,272 Loss (gain) on valuation of equity method investments, net (7,379,113,213) 1,737,693,501 (6,319,898) 1,488,261 Loss on disposal of held-for-trading securities, net 16,853,760-14,435 - Impairment loss on available-for-sale securities 4,230,000,000 1,459,230,000 3,622,816 1,249,769 Loss on disposal of property, plant and equipment, net 5,261,566,605 2,690,398,320 4,506,309 2,304,212 Impairment loss on property, plant and equipment, net 2,526,538, ,765,235 2,163, ,196 Gain on disposal of of intangible assets - (3,055,890) - (2,617) Loss (gain) on disposal of other noncurrent assets, net (243,312,332) 14,861,656 (208,387) 12,728 Bad debt expense-non-trade 929,525,065 13,686,065, ,099 11,721,536 Donations 20,423, ,174,085 17, ,206 Changes in operating assets and liabilities: Trade accounts and notes receivable (278,572,524,268) 127,325,770,143 (238,585,581) 109,049,136 Other accounts receivable (26,393,505,935) (279,959,899) (22,604,921) (239,773) Accrued income (300,685,602) 164,675,204 (257,524) 141,038 Advance payments (1,122,367,269) 437,510,484 (961,260) 374,710 Prepaid income tax (16,397,929,458) (266,978,048) (14,044,134) (228,654) Prepaid expenses 484,702,474 2,370,749, ,127 2,030,446 Short-term guarantee deposits (6,170,891,075) 63,298,976 (5,285,107) 54,213 Current-deferred income tax assets 13,071,745,031 (4,981,098,747) 11,195,397 (4,266,100) Inventories (42,283,890,873) (32,340,599,212) (36,214,364) (27,698,355) Long-term other accounts receivable 97,685,593 93,101,560 83,664 79,738 Long-term prepaid expenses (2,545,927,308) (1,266,815,427) (2,180,479) (1,084,974) Deferred income tax assets 55,334,149,455 10,610,184,419 47,391,358 9,087,174 Trade accounts and notes payable 147,216,770,918 (177,064,138,454) 126,084,936 (151,647,943) Advances received 4,944,219,875 (1,608,548,091) 4,234,515 (1,377,653) Withholdings 17,589,845,184 10,041,076,803 15,064,958 8,599,757 Withholding deposits 1,660,409, ,077,425 1,422, ,348 Accrued expenses 86,602,594,335 (12,778,481,594) 74,171,458 (10,944,229) (Continued) See accompanying notes. 8

12 Consolidated statements of cash flows For the years ended Korean won US dollars (Note 2) Cash flows from operating activities (cont'd): Income taxes payable \ 20,231,328,757 \ (2,992,975,176) $ 17,327,277 $ (2,563,357) Unearned income 1,096,240,381 2,432,374, ,884 2,083,225 Provision of product warranties 452,138,203 (217,660,366) 387,237 (186,417) Current-deferred income tax liabilities 7,336,031-6,283 - Long-term other accounts payable 1,261,309,145 2,052,841,356 1,080,258 1,758,172 Long-term accrued expenses 6,395,743,834 2,430,000,000 5,477,684 2,081,192 Deferred income tax liabilities (25,717,372,279) - (22,025,841) - Payment of severance and retirement benefits (41,886,059,981) (38,782,299,611) (35,873,638) (33,215,399) Succession of severance and retirement benefits 11,225,627,600 96,425,000 9,614,275 82,584 Deposits for severance and retirement (69,866,447,366) (3,227,299,747) (59,837,656) (2,764,046) benefits Net decrease in prepayments to NPS 132,172, ,932, , ,100 Total adjustments 329,856,384, ,188,428, ,508, ,476,560 Net cash provided by operating activities 648,425,134, ,284,205, ,348, ,807,302 Cash flows from investing activities: Decrease (increase) in short-term financial instruments, net 431,795,258 (2,078,215,024) 369,814 (1,779,903) Decrease (increase) in held-for-trading securities, net (16,853,760) - (14,435) - Decreasein short-term loans receivable, net 4,112,981,277 1,355,780,658 3,522,594 1,161,169 Increase in long-term financial instruments (19,591,478) - (16,779) - Proceeds from disposal of available-for-sale securities 7,580,000, ,000,000 6,491, ,616 Proceeds from disposal of held-to-maturity securities 92,635,000 73,935,000 79,338 63,322 Increase in long-term loans receivable, net (3,511,569,585) (8,546,291,052) (3,007,511) (7,319,537) Decrease (increase) in long-term guarantee deposits, net 1,235,607,870 (1,794,576,730) 1,058,246 (1,536,979) Proceeds from disposal of other non-current assets 1,126,818,182 17,119, ,072 14,662 Proceeds from disposal of property, plant and equipment 48,270,186,006 37,393,657,372 41,341,372 32,026,085 Proceeds from disposal of intangible assets 188,367,689 37,442, ,329 32,068 Acquisition of held-to-maturity securities (19,835,000) (26,315,000) (16,988) (22,538) Acquisition of other non-current assets (6,580,574,927) (2,950,391,042) (5,635,984) (2,526,885) Acquisition of property, plant and equipment (756,840,202,761) (414,638,308,481) (648,201,613) (355,120,168) Acquisition of intangible assets (16,705,749,678) (5,319,959,478) (14,307,768) (4,556,320) Net cash used in investing activities (720,655,985,907) (395,916,121,818) (617,211,364) (339,085,408) Cash flows from financing activities: Issuance of capital stock 38,101,642, ,390,752 32,632, ,912 Issuance of bonds payable 298,747,600, ,864,680 - Increase in other accounts payable, net 133,798,717,276 3,580,783, ,592,940 3,066,790 Drawdown of short-term borrowings 809,129,978,277 70,493,099, ,985,593 60,374,357 Drawdown of long-term borrowings 315,944,511, ,593,107 - Increase in long-term other accounts payable - 259,910, ,602 Proceeds from exercise of share-based payments 36,875,675, ,500,000 31,582, ,255 Payment of dividends (23,813,025,818) (49,413,761,060) (20,394,849) (42,320,796) Repayment of short-term borrowings (682,428,206,661) - (584,470,886) - Repayment of current portion of long-term borrowings (150,000,000,000) - (128,468,654) - Repayment of long-term borrowings (70,301,755,677) - (60,210,479) - Acquisition of treasury stock (21,932,322,741) - (18,784,106) - Net cash provided by financing activities 684,122,814,131 26,415,922, ,922,247 22,624,120 (Continued) See accompanying notes. 9

13 Consolidated statements of cash flows For the years ended Korean won US dollars (Note 2) Net effect of foreign exchange differences \ (15,003,620,484) \ 22,934,525,708 $ (12,849,966) $ 19,642,451 Net increase in cash and cash equivalents arising from changes in consolidated subsidiaries 156,914,785, ,809, ,390, ,922 Net increase in cash and cash equivalents 753,803,127,801 82,219,340, ,600,486 70,417,387 Cash and cash equivalents at the beginning of the year 330,013,300, ,793,959, ,642, ,225,043 Cash and cash equivalents at the end of the year \ 1,083,816,428,549 \ 330,013,300,748 $ 928,242,916 $ 282,642,430 See accompanying notes. 10

14 1. Organization and business The organization and business of Co., Ltd. (the Company ) and its consolidated subsidiaries (collectively the Group ), as well as the organization and business of unconsolidated subsidiaries and equity method investees accounted for using the equity method of accounting are described below. The Company The Company was incorporated on August 8, 1973 under the laws of the Republic of Korea to engage in the manufacture and sales of various electronic components. The Company listed its common shares on the Korea Exchange ( KRX ) in The Company s manufacturing plants are located in Suwon, Gyunggi-do, Busan, Gyeongsangnamdo and Yeongi-gun, Chungcheongnam-do. The Company maintains its overseas business operations through 15 overseas direct subsidiaries and 3 overseas indirect subsidiaries located in the Americas, Europe and Asia. Consolidated and unconsolidated subsidiaries Consolidated and unconsolidated subsidiaries as of December 31, 2009 are as follows: Subsidiaries America Inc. (*) Germany, GmbH (**) Samsung Portugal Produtos Electro-Mechanicos, S.A. Hungary Inc. Thailand Co., Ltd. Philippines Corp. Pte Ltd. Calamba Premier Realty Corp. Indonesia, PT. Tianjin Samsung Electro- Mechanics Co., Ltd. (**) Dongguan Samsung Electro- Mechanics Co., Ltd. (**) Hong Kong Co., Ltd. (***) Samsung High Tech Electronics (Tianjin) Co., Ltd. (**) Net asset value (Korean won in thousands) Number of shares Ownership (%) Principal activities Country \ 3,420,160 5, Trading US 3,089, Trading German 10,591,700 1,304, Manufacturing and trading Portugal 2,478,280 13, Real estate Hungary 13,130,733 3,181, ,917,212 4,046, Manufacturing and trading Manufacturing and trading Thailand Philippines 1,215,800 1,760, Trading Singapore 3, Real estate Philippines 8,765,980 3, ,475, ,574, Manufacturing and trading Manufacturing and trading Manufacturing and trading Indonesia China China 3,787,360 23,310, Trading China 38,972, Manufacturing and trading China 11

15 1. Organization and business (cont d) Consolidated and unconsolidated subsidiaries (cont d) Subsidiaries Net asset value (Korean won in thousands) Number of shares Ownership (%) Principal activities Country \ (Shenzen) Co., Ltd. (**) 139, Trading China Samsung LED Co., Ltd. 20,000,000 2,000, Manufacturing (****) and trading Korea Tianjin Samsung LED Co., 37,661, Manufacturing Ltd. (**) and trading China Kunshan Samsung Electro- 14,149, Manufacturing Mechanics Co., Ltd. (**) and trading China do Brasil Intermediacoes de Negocios Ltda (**) 233, Trading Brazil (*) America Inc. is a direct subsidiary which wholly owns Samsung Electro-Mechanics do Brasil Intermediacoes de Negocios Ltda. (**) These subsidiaries are limited liability entities which do not issue shares in accordance with the local law. (***) Hong Kong Co., Ltd. is a direct subsidiary which wholly owns (Shenzen) Co., Ltd. (****) Samsung LED Co., Ltd. is a direct subsidiary which wholly owns Tianjin Samsung LED Co., Ltd. Since Samsung Portugal Produtos Electro-Mechanicos, S.A. has filed for bankruptcy and Samsung Electro-Mechanics Indonesia, PT. is under liquidation procedings, these subsidiaries are excluded from the consolidated financial statements for the year ended December 31, Samsung LED Co., Ltd., Tianjin Samsung LED Co., Ltd., Kunshan Co., Ltd. and do Brasil Intermediacoes de Negocios Ltda were newly incorporated during current financial year, and are included in the consolidated financial statements for the year ended December 31,2009. Hungary Inc., Calamba Premier Realty Corp. and Samsung Electro- Mechanics (Shenzen) Co., Ltd. are excluded from the consolidated financial statements and accounted for using the equity method of accounting, as each investee s total assets as of the end of previous year were less than the \10 billion threshold. The summary of the consolidated subsidiaries financial position as of December 31, 2009, and the results of their operations for the year then ended, which are included in the accompanying consolidated financial statements are as follows (Korean won in thousands): Net income Total assets Total liabilities Sales (loss) America Inc. \ 101,838,415 \ 93,816,382 \ 555,249,804 \ 2,291,526 Germany, GmbH 94,667,286 76,165, ,572,986 4,083,189 Thailand Co., Ltd. 141,363,791 69,782, ,697,330 29,967,041 12

16 1. Organization and business (cont d) Consolidated and unconsolidated subsidiaries (cont d) Total assets Total liabilities Sales Net income (loss) Philippines Corp. \ 259,253,094 \ 166,449,713 \ 399,323,830 \ 23,238,946 Pte Ltd. 61,907,823 58,801, ,144, ,821 Tianjin Samsung Electro- Mechanics Co., Ltd. 313,291, ,557, ,116,784 40,947,235 Dongguan Samsung Electro- Mechanics Co., Ltd. 297,198, ,213,852 1,004,268,628 24,490,799 Hong Kong Co., Ltd. 63,941,447 52,618, ,336, ,651 Samsung High Teah Electronics (Tianjin) Co., 152,859,288 77,681, ,964,010 16,668,131 Ltd. Samsung LED Co., Ltd. 909,476, ,152, ,623,001 47,998,827 Tianjin Samsung LED Co., Ltd. 294,945, ,208, ,071,614 23,916,791 Kunshan Samsung Electro- Mechanics Co., Ltd. 30,473,243 16,476,877 - (19,635) \ 2,721,216,603 \ 1,764,925,379 \ 5,782,369,068 \ 215,041,322 Equity method investments The summary of the financial position of equity method investments as of December 31, 2009, and the result of their operations for the year then ended that are included in the accompanying consolidated financial statements are as follows (Korean won in thousands): Total assets Total liabilities Sales Net income (loss) Hungary Inc. \ 8,108,015 \ 3,399,536 \ 915,415 \ 99,241 Calamba Premier Realty Corp. 8,592,259 6,846, ,480 15,317 Indonesia, PT. 3,074,336 2,787 - (585,781) (Shenzen) Co., Ltd. 2,214,893 1,222,927 7,653, ,702 Stemco Co., Ltd. 149,000,444 99,884, ,436,096 16,923,797 Samsung Economic Research Institute 114,180,079 26,385, ,822,981 70,810 e-samsung International Co., Ltd. 63,122,361 2,453,561-20,184,556 \ 348,292,387 \ 140,194,807 \ 300,688,796 \ 37,196,642 13

17 2. Summary of significant accounting policies Basis of financial statements preparation The Company maintains its official accounting records in Korean won and prepares statutory financial statements in the Korean language in conformity with accounting principles generally accepted in the Republic of Korea ( Korean GAAP ). Overseas subsidiaries prepare their financial statements in accordance with the Group s Global Accounting Manual ( GAM ), which is model based on accounting principles generally accepted in the US. Significant GAAP differences between Korean GAAP and GAM are adjusted to conform with the Group s accounting policy. Certain accounting principles applied by the Group 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 consolidated financial statements are intended for use by those who are informed about Korean accounting principles and practices. In the event of any differences in interpreting the consolidated financial statements or the independent auditors report thereon, the Korean version, which is used for regulatory reporting purposes, shall prevail. The accompanying consolidated financial statements have been condensed, restructured and translated into English with certain expanded descriptions from the Korean language consolidated financial statements. The consolidated financial statements of the Group have been prepared in accordance with accounting principles generally accepted in the Republic of Korea including, Statements of Korea Accounting Standards ( SKAS ) 1 to 23 and 25, and the summary of significant account policies used for the preparation of the consolidated financial statements are as follows: Adoption of revised Statements of Korea Accounting Standards ( SKAS ) The Group has adopted the revised SKAS 5 Amendments Property, Plant and Equipment for the current year. The adoption of this revised standard did not have any effect on the Group s financial statements as the Group chose not to revalue any of its existing property, plant and equipment. Revenue recognition The Group recognizes revenue when the amount of revenue can be reliably measured, and it is probable that future economic benefits will flow into the Group. Revenue from the sale of goods is recognized when significant risks and rewards of ownership of goods have passed to the buyer upon delivery of goods sold. Cash equivalents Highly liquid deposits and marketable securities with original maturities of three months or less, and which have no significant risk of loss in value by interest rate fluctuations, are considered as cash equivalents. Financial instruments Financial instruments, such as time deposits and restricted bank deposits, which are traded by financial institutions and are held for short-term cash management purposes or which will mature within one year, are accounted for as short-term financial instruments. Financial instruments other than cash equivalents and short-term financial instruments are recorded as long-term financial instruments. Allowance for doubtful accounts The Group provides an allowance for doubtful accounts in consideration of the estimated losses that may arise from non-collection of its receivables. The estimate of losses, if any, is based on a review of the aging and current status of the outstanding receivables. 14

18 2. Summary of significant accounting policies (cont d) Inventories Inventories are stated at the lower of cost or net realizable value, with cost being determined using the moving weighted-average method. A perpetual inventory system is used to record inventories, in which inventories are adjusted to physical inventory counts that are performed at the end of the year. When a decline in the value of an inventory indicates that its cost exceeds net realizable value, a valuation loss will be recognized to write the inventory down to its net realizable value. The writedown of inventories as of amounted to \29,903,718 thousand and \54,770,424 thousand, respectively, and inventories written-off amounting to \37,689,702 thousand and \27,476,520 thousand were recognized as an expense in 2009 and 2008, respectively. If the circumstances that previously caused the inventories to be written down cease to exist or there is an increase in net realizable value, the amount of the write-down is reversed to the extent of the original write-down amount so that the new carrying amount is the lower of cost and the revised net realizable value. Investments in securities Investments in securities within the scope of SKAS 8 Investments in Securities are classified as either trading, held-to-maturity or available-for-sale securities, depending on the acquisition and holding purpose. The Group determines the classification of its investments after initial recognition, and, where allowed and appropriate, re-evaluates this designation at each financial year end. Securities that are acquired and held principally for the purpose of selling them in the near term are classified as trading securities. Debt securities which carry fixed or determinable payments and fixed maturity are classified as held-to-maturity if the Group has the positive intention and ability to hold to maturity. Securities that are not classified as either trading or held-to-maturity are classified as available-for-sale securities. After initial measurement, available-for-sale securities are measured at fair value with unrealized gains or losses being recognized directly in equity as other comprehensive income. Likewise, trading securities are also measured at fair value after initial measurement, but with unrealized gains or losses reported as part of net income. Held-to-maturity securities are measured at amortized cost after initial measurement. The cost is computed as the amount initially recognized minus principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between the initially recognized amount and the maturity amount. The fair value of trading and available-for-sale securities that are traded actively in the open market (marketable securities) is measured at the closing price of those securities at the statement of financial position date. Non-marketable equity securities are measured at cost subsequent to initial measurement if their fair values cannot be reliably estimated. Non-marketable debt securities are carried at a value using the present value of future cash flows discounted using an appropriate interest rate which reflects the issuer s credit rating announced by a public independent credit rating agency. If the application of such measurement method is not feasible, estimates of fair values may be made using a reasonable valuation model or quoted market prices of similar debt securities issued by entities conducting business in similar industries. 15

19 2. Summary of significant accounting policies (cont d) Investments in securities (cont d) Trading securities are classified as current assets. Available-for-sale and held-to-maturity securities are classified as long-term investments, except that securities maturing within one year or that are certain to be disposed of within one year from the statement of financial position date are classified as short-term investments. The Group recognizes an impairment loss on its investments in securities if there is objective evidence that the securities are impaired. The impairment loss is charged to the statement of income. Equity method investments Investments in entities over which the Group has significant influence are accounted for using the equity method. Under the equity method of accounting, the Group s initial investment in an investee is recorded at acquisition cost. Subsequently, the carrying amount of the investment is adjusted to reflect the Group s share of income or loss of the investee in the statement of income and share of changes in equity that have been recognized directly in the equity of the investee in the related equity account of the Group on the statement of financial position. If the Group s share of losses of the investee equals or exceeds its interest in the investee, it suspends recognizing its share of further losses. However, if the Group has other long-term interests in the investee, it continues recognizing its share of further losses to the extent of the carrying amount of such long-term interests. At the date of acquisition, the excess of the cost of the investment over the Group s share of the net fair value of the investee s identifiable assets and liabilities is accounted for as goodwill which is amortized over its useful life of 20 years using the straight-line method. Conversely, negative goodwill represents the excess of the Group s share in the net fair value of the investee s identifiable assets and liabilities over the cost of the investment. Negative goodwill is recorded to the extent of the fair value of acquired non-monetary assets and recognized as income using the straight-line method over the remaining weighted-average useful life of those acquired nonmonetary assets. The amount of negative goodwill in excess of the fair value of acquired nonmonetary assets is recognized as income immediately. The Group s share in the investee s unrealized gains and losses resulting from transactions between the Group and its investee are eliminated to the extent of the interest in the investee. In translating the financial statements of foreign investees into Korean won, assets and liabilities are translated at the exchange rate on the statement of financial position date and income and expenses are translated at the weighted-average exchange rate for the period. All resulting exchange differences are recognized as foreign currency translation adjustments in other comprehensive income within equity. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation, except for certain assets of the Group which were revalued in accordance with the previous Korean Assets Revaluation Law and are stated at revalued amount less accumulated depreciation (Note 8). Maintenance and repairs are expensed in the year in which they are incurred. Expenditures which enhance the value or extend the useful life of the related assets are capitalized. 16

20 2. Summary of significant accounting policies (cont d) Property, plant and equipment (cont d) Depreciation of property, plant and equipment is provided using the straight-line method over the estimated useful life of the assets as follows: Years Buildings Structures 7-50 Machinery and equipment 2-8 Furniture and fixtures 2-12 Vehicles 3-6 Intangible assets Intangible assets of the Group primarily consist of development costs, patents, trademarks and software, which are stated at cost less accumulated amortization. Amortization is recognized as an expense based on the straight-line method over the estimated useful life of the assets as follows: Years Development costs 5 Industrial property rights (Patents) 10 Industrial property rights (Trademarks) 5 Software 4 Others 30 Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets that necessarily takes a substantial period of time to get ready for their intended use or sale are capitalized as part of the cost of the respective assets. Impairment of assets When the recoverable amount of an asset is less than its carrying amount due to obsolescence, physical damage or abrupt decline in the market value of the asset, the decline in value, if material, is deducted from the carrying amount and recognized as an asset impairment loss in the current year. Total impairment losses amounting to \6,756,538 thousand recognized in 2009 consisted of \4,230,000 thousand which was attributable to impairment loss on available-for-sale securities (2008: \1,459,230 thousand) and \2,526,538 thousand on property, plant and equipment (2008: \254,765 thousand). Government subsidy Government subsidy, which is used for the acquisition of certain assets, is accounted for as a deduction from the acquisition cost of the acquired assets. Such subsidy amount is offset against the depreciation or amortization of the acquired assets during such assets useful life. Government subsidy, which is required to be repaid, is recorded as a liability in the statement of financial position. Government subsidy with no repayment obligation, which is used to purchase a designated asset or to develop a certain technology, is presented as a deduction of the related asset and is amortized against the depreciation or amortization expense of the related asset. Government subsidy, contributed to compensate for specific expenses, is offset against the related expenses as incurred. 17

21 2. Summary of significant accounting policies (cont d) Discount (premium) on bonds Discount (premium) on bonds is presented as a direct deduction from (addition to) the nominal value of the bonds and is amortized using the effective-interest-rate method over the life of the bonds. Severance and retirement benefits In accordance with the Employee Retirement Benefit Security Act ( ERBSA ) of Korea and the employee benefits policy of the Company and its domestic subsidiaries, employees terminating their employment with at least one year of service are entitled to severance and retirement benefits based on the rates of pay in effect at the time of termination, years of service and certain other factors. The provision is determined based on the amount that would be payable assuming all employees were to terminate their employment as of the reporting date. The severance and retirement benefits are partly funded through an insurance plan with Samsung Life Insurance. Up to March 1999, the Company had previously prepaid a portion of its severance and retirement benefits obligation to the National Pension Service ( NPS ). The insurance deposits and prepayments are presented as a deduction from the provision for severance and retirement benefits. Provision for product warranties The Group accrues warranty reserves for the estimated costs of future repairs and returns, based on the past experience on the levels of repairs and returns. The provision for product warranties is charged to selling and administrative expenses when the goods covered by warranties are sold to customers. Provisions and contingent liabilities Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The provision is used only for expenditures for which the provision was originally recognized. If the effect of the time value of money is material, provisions are stated at present value. A contingent liability is disclosed, but not recognized when it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation or the amount of the obligation cannot be measured with sufficient reliability. Income taxes Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the tax authorities. Deferred income taxes are provided using the liability method for the tax effect of temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred income tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse, and are classified as current or non-current, respectively, based on the classification of the related asset or liability in the statement of financial position. In addition, current tax and deferred tax are charged or credited directly to equity if the tax relates to items that are credited or charged directly to equity. 18