Independent Accountant s Report

Transcription

1 Independent Accountant s Report To the Board of Directors and Shareholders of Co., Ltd. We have reviewed the accompanying non-consolidated balance sheet of Co., Ltd. (the Company ) as of June 30, 2003, and the related non-consolidated statements of income and cash flows for the three-month periods and six-month periods ended June 30, 2003 and 2002, expressed in Korean Won. These financial statements are the responsibility of the Company s management. Our responsibility is to issue a report on these financial statements based on our reviews. We conducted our reviews in accordance with the quarterly and semi-annual review standards established by the Securities and Futures Commission of the Republic of Korea. These standards require that we plan and perform our review to obtain moderate assurance as to whether the financial statements are free of material misstatement. A review is limited primarily to inquiries of company personnel and analytical procedures applied to financial data, and thus provides less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion. Based on our reviews, nothing has come to our attention that causes us to believe that the accompanying non-consolidated financial statements are not presented fairly, in all material respects, in accordance with financial accounting standards generally accepted in the Republic of Korea. We have audited the non-consolidated balance sheet of Co., Ltd. as of December 31, 2002, and the related non-consolidated statements of income, appropriations of retained earnings and cash flows for the year then ended, and expressed an unqualified opinion on the audit report issued on January 30, The accompanying non-consolidated balance sheet as of December 31, 2002, presented in a comparative from, is not materially different from the audited non-consolidated balance sheet, except for the restatement due to the application of the Statements of Korean Financial Accounting Standards ( SKFAS ) described in Note 2 to the accompanying non-consolidated financial statements.

2 Without qualifying our opinion, we draw your attention to the following matters. As discussed in Note 16 to the accompanying non-consolidated financial statements, in June 1999, Samsung Motors Inc. ( SMI ), an affiliate of the Company, filed a petition for court receivership. In connection with this petition, the Company and 30 other Samsung Group affiliates (the Affiliates ) entered into an agreement with the institutional creditors (the Creditors ) of SMI in September In accordance with this agreement, the Company and the Affiliates agreed to sell 3,500,000 shares of Samsung Life Insurance Co., Ltd., which were previously transferred to the Creditors in connection with the petition for court receivership of SMI by December 31, In the event that the sales proceeds fall short of 2,450,000 million, the Company and the Affiliates have agreed to compensate the Creditors for the shortfall by other means, including the participation in any equity offering or subordinated debentures issued by the Creditors. Any excess proceeds over 2,450,000 million are to be distributed to the Company and the Affiliates. As of the date of this report, the shares in Samsung Life Insurance Co., Ltd. were not sold. As of the balance sheet date, the ultimate effect of these matters on the financial position of the Company cannot presently be determined. As discussed in Note 25 to the accompanying non-consolidated financial statements, the Company had sales and purchases amounting to 737,708 million and US$12,391,232 thousand, and 3,576,105 million and US$3,475,688 thousand, respectively, to subsidiaries and affiliated companies within the Samsung Group for the six-month period ended June 30, 2003, and the related accounts receivable and accounts payable as of June 30, 2003 amounted to 388,131 million and US$235,920 thousand and 1,189,150 million and US$152,506 thousand, respectively. The amounts expressed in U.S. Dollars, provided solely for the convenience of the reader, have been translated on the basis set forth in Note 3 to the accompanying non-consolidated financial statements.

3 Accounting principles and review standards and their application in practice vary among countries. The accompanying non-consolidated financial statements are not intended to present the financial position, results of operations 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 review such financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report and the accompanying non-consolidated financial statements are for use by those who are knowledgeable about Korean accounting principles or review standards and their application in practice. Seoul, Korea July 21, 2003 This report is effective as of July 21, 2003, the review report date. Certain subsequent events or circumstances, which may occur between the review report date and the time of reading this report, could have a material impact on the accompanying non-consolidated financial statements and notes thereto. Accordingly, the readers of the review report should understand that there is a possibility that the above review report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.

4 NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS 1. The Company: Co., Ltd. (the "Company") was incorporated under the laws of the Republic of Korea to manufacture and sell semiconductors, telecommunication products, home appliances and digital media products. The Company's stock is publicly traded and all issued and outstanding shares are listed on the Korea Stock Exchange. As of June 30, 2003, the notable shareholders of the Company s stock, including preferred stock, and their respective shareholdings, are as follows: Number Ownership Name of Shareholder of Shares Ratio (%) Lee, Kun-Hee 2,819, Hong, Ra-Hee 1,092, Lee, Jai-Yong 961, Samsung Corporation 5,917, Samsung Welfare Foundation, etc. 407, Summary of Significant Accounting Policies: The significant accounting policies followed by the Company in the preparation of its interim non-consolidated financial statements in accordance with Financial Accounting Standards of the Republic of Korea are summarized below: Basis of Financial Statement Presentation - The Company maintains its official accounting records in Korean Won and prepares statutory financial statements in the Korean language in conformity with financial accounting standards generally accepted in the Republic of Korea. The accompanying non-consolidated financial statements have been condensed, restructured and translated into English from the Korean language non-consolidated financial statements. 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. Certain information attached to the Korean language non-consolidated financial statements, but not required for a fair presentation of the Company s financial position, results of operations and cash flows, is not presented in the accompanying non-consolidated financial statements. 12

5 2. Summary of Significant Accounting Policies, Application of the Statements of Korean Financial Accounting Standards - The Korean Accounting Standards Board ("KASB") has published a series of Statements of Korean Financial Accounting Standards ("SKFAS"), which will gradually replace the existing financial accounting standards established by the Korean Financial and Supervisory Board. SKFAS No. 2 through No. 9 became effective on January 1, In addition, the Company opted an early adoption of SKFAS No. 10, Inventories, for the fiscal year The changes in accounting policies from the year ended December 31, 2002 are summarized below: Change in Revenue Recognition: In accordance with SKFAS No. 4, Revenue Recognition, the Company changed its accounting principles on revenue recognition in order not to record supplies of raw materials processed outside of the Company as sales, which were recorded as sales under the previous accounting principles. As a result of this change, the amounts of sales for the six-month periods ended June 30, 2003 and 2002 are 358,658 million and 437,517 million less, respectively, than those which would have been reported under the previous accounting principles, and the amounts of cost of sales for the six-month periods ended June 30, 2003 and 2002 are 348,693 million and 441,150 million less, respectively, than those which would have been reported under the previous accounting principles. This change had no effect on net income or shareholders equity. Change of treatment of appropriations of retained earnings: In accordance with SKFAS No. 6, "Subsequent Events" the Company has not reflected proposed appropriations of retained earnings in the balance sheets. As a result, retained earnings as of June 30, 2003 and 2002 increased 81,541 million and 828,651 million, respectively. Reclassification of Securities: In accordance with SKFAS No. 8, Securities, the Company changed its accounting principles for marketable securities, resulting in a net income for the six-month period ended June 30, 2003 amounting to 8,947 million less than that which would have been reported under the previous accounting principles. Change of Inventories: Due to an early adoption of SKFAS No. 10, Inventories, the Company changed its accounting principles for losses on valuation of inventories and losses on inventory obsolescence, which resulted to the inclusion of such losses as part of cost of sales rather than recording them as nonoperating expenses. As a result of this change, the amounts of gross profits for the six-month periods ended June 30, 2003 and 2002 are 61,636 million and 69,636 million less, respectively, than those which would have been reported under the previous accounting principles. This change had no effect on ordinary profit or net income. The balance sheet as of December 31, 2002, and the statements of income and cash flows for the six-month periods and the three-month periods ended June 30, 2002 were restated in accordance with SKFAS No. 2 through No

6 2. Summary of Significant Accounting Policies, Use of Estimates - The preparation of financial statements requires management to make estimates and assumptions that affect amounts reported therein. Although these estimates are based on management s best knowledge of current events and actions that the Company may undertake in the future, actual results may be different from those estimates. Cash, Cash Equivalents and Short-Term Financial Instruments - Cash and cash equivalents include cash on hand and in bank accounts, with original maturities of three months or less. Investments which are readily convertible into cash within four to twelve months of purchase are classified in the balance sheet as short-term financial instruments. The cost of these investments approximates fair value. Marketable Securities - In accordance with SKFAS No. 8, Securities, investments on equity securities or debt securities are classified into trading securities, available-for-sale securities and held-to-maturity securities, depending on the acquisition and holding purpose (investments in business entities in which the Company has a control or the ability to exercise a significant influence over the operating and financial policies are classified as equity-method investments). Trading securities are classified as current assets, and available-for-sale securities and held-to-maturity securities are classified as long-term investments, except that those securities that mature or are certain to be disposed of within one year are classified as part of current assets. Cost is measured at the market value upon acquisition, including incidental costs, and is determined using the average cost method. Available-for-sale securities are stated at fair value, while non-marketable equity securities are stated at cost. Non-marketable debt securities are stated at fair value, as evaluated by independent credit assessment institutions. Unrealized holding gains and losses on available-forsale securities are reported in a separate component of shareholders equity (capital adjustments), which are to be included in current operations upon the disposal or impairment of the securities. In the case of available-for-sale debt securities, the difference between the acquisition cost after amortization using the effective interest rate method and the fair value is reported in capital adjustments. Impairment resulting from the decline in realizable value below the acquisition cost (after amortization) are included in current operations. 14

7 2. Summary of Significant Accounting Policies, Equity-Method Investments - In the stand-alone financial statements of the Company, investments in business entities in which the Company has a control or the ability to exercise a significant influence over the operating and financial policies are accounted for using the equity method of accounting. Under the equity method, the original investment is recorded at cost and adjusted by the Company s share in the net book value of the investee with a corresponding charge to current operations, a separate component of shareholders equity, or retained earnings, depending on the nature of the underlying change in the net book value. All significant unrealized profits resulting from intercompany transactions of inventories and property, plant and equipment are fully eliminated. Differences between the investment account and corresponding capital account of the investee at the date of acquisition of the investment are recorded as part of investments and are amortized over five years using the straight-line method. However, differences which occur from additional investments made after the Company has control in its subsidiaries are reported in a separate component of shareholders equity, and are not included in the determination of the results of operations. Assets and liabilities of the Company s foreign investees are translated at current exchange rates, while income and expense are translated at average rates for the period. Adjustments resulting from the translation process are reported in a separate component of shareholders equity, and are not included in the determination of the results of operations. The equity-method investments are accounted for based on unaudited or unreviewed financial statements of the entities that are subject to the equity method of accounting since audit or review procedures for most of these entities are not yet completed as of the date of this review report. Allowance for Doubtful Accounts - The Company provides an allowance for doubtful accounts and notes receivable based on the aggregate estimated collectibility of the receivables. Inventory Valuation - Inventories are stated at the lower of cost or net realizable value. Cost is determined using the average cost method, except for materials in-transit which are stated at actual cost as determined using the specific identification method. 15

8 2. Summary of Significant Accounting Policies, Property, Plant and Equipment and Related Depreciation - Property, plant and equipment are stated at cost, except for certain assets subject to upward revaluation in accordance with the Asset Revaluation Law of Korea. The revaluation presents production facilities and other buildings at their depreciated replacement cost, and land at the prevailing market price, as of the effective date of revaluation. The revaluation increment, net of revaluation tax, is first applied to offset accumulated deficit and deferred foreign exchange losses, if any. The remainder may be credited to other capital surplus or transferred to common stock. A new basis for calculating depreciation is established for revalued assets (Note 10). Depreciation is computed using the straight-line method over the estimated useful lives of the assets as described below. Estimated Useful Lives - Years Buildings and auxiliary facilities 7-60 Structures 5-40 Machinery and equipment 2-10 Tools and fixtures 2-10 Vehicles 2-12 The Company capitalizes interest expense incurred on borrowings used to finance the cost of constructing facilities and equipment. Maintenance and Repairs - Routine maintenance and repairs are charged to expense as incurred. Expenditures which enhance the value or extend the useful life of the related assets are capitalized. Intangible Assets - Intangible assets are amortized on a straight-line basis over the estimated useful lives, as follows: Estimated Useful Lives - Years Goodwill 5 Intellectual property rights 5-10 Other intangible assets

9 2. Summary of Significant Accounting Policies, Discounts and Premiums on Debentures - The difference between the face amount and the proceeds upon the issuance of the debenture is treated as either a discount or premium of the debenture, which is amortized over the term of the debenture using the effective interest rate method. The discount or premium is reported in the balance sheet as a direct deduction from or addition to the face amount of the debenture. Amortization of the discount or premium is treated as part of interest expense. Debt Issued with a Put - When debt is issued with a premium put allowing the holder to redeem the debt for cash at a certain multiple of the debt s face value at dates prior to maturity, the debt is accreted on an interest method by charges to income so that the debt equals the put price at the date the put is exercisable. Stock and Debenture Issuance Costs - Stock issuance costs are charged directly to paid-in capital in excess of par value. Debenture issuance costs are recorded as a reduction of the proceeds from the issuance of the debenture. Government Grants - Government grants received for the development of certain technologies are recorded as accrued income, and offset against relevant development costs as they occur. Accrued Severance Benefits - Employees and directors with one year or more of service are entitled to receive a lump-sum payment upon termination of their employment with the Company, based on their length of service and rate of pay at the time of termination. Accrued severance benefits represent the amount which would be payable assuming all eligible employees and directors were to terminate their employment as of the balance sheet date. 17

10 2. Summary of Significant Accounting Policies, Accrued Severance Benefits, Continued - A portion of the accrued severance benefits of the Company are funded through a group severance insurance plan with Samsung Life Insurance Co., Ltd., and the amounts funded under this insurance plan are classified as a deduction to the accrued severance benefits liability. Subsequent accruals are to be funded at the discretion of the Company. In accordance with the National Pension Act, a certain portion of the accrued severance benefits is deposited with the National Pension Fund and deducted from the accrued severance benefits liability. Foreign Currency Translation - Assets and liabilities denominated in foreign currencies are translated into Korean Won at the rate of exchange in effect as of the balance sheet date. Gains and losses resulting from the translation are reflected in income for the period. Foreign currency convertible debentures are translated at the exchange rate that will be used at the time of conversion as prescribed in the terms of such debentures. Income Tax Expense - Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carry-forwards. Long-Term Receivables and Payables - Long-term receivables and payables that have no stated interest rate or whose interest rate is different from the market rate are recorded at their present values. The difference between the nominal value and present value of the long-term receivables and payables is amortized using the effective interest rate method with interest income or expense adjusted accordingly. 18

11 2. Summary of Significant Accounting Policies, Stock-Based Compensation - The Company uses the fair-value method in determining compensation costs of stock options granted to its employees and directors. The compensation cost is estimated using the Black- Scholes option-pricing model and is accrued as a charge to expense over the vesting period, with a corresponding increase in a separate component of shareholders equity (other capital adjustments). Earnings Per Share - Basic earnings per share are calculated by dividing net income available to common shareholders by the weighted-average of common shares outstanding during the period. Diluted earnings per share are calculated by using the weighted-average of common shares outstanding adjusted to include the potentially dilutive effect of convertible bonds. Product Warranties - The Company accrues the estimated cost of warranty coverage at the time sales are recorded. Asset Impairment - When the book value of an asset is greater than its recoverable value due to obsolescence, physical damage or the abrupt decline in the market value of the asset, the decline in value, if material, is deducted from the book value and recognized as an asset impairment loss in the current period. 3. United States Dollar Amounts: The Company operates primarily in Korean Won and its official accounting records are maintained in Korean Won. The U.S. Dollar amounts, provided herein, represent supplementary information solely for the convenience of the reader. All Won amounts are expressed in U.S. Dollars at the rate of 1,193 to US$1, the exchange rate in effect on June 30, Such presentation is not in accordance with generally accepted accounting principles in either the Republic of Korea or the United States, and should not be construed as a representation that the Won amounts shown could be readily converted, realized or settled in U.S. Dollars at this or at any other rate. The 2002 U.S. Dollar amounts, which were previously expressed at 1,201 to US$1, the rate in effect on June 30, 2002, have been restated to reflect the exchange rate in effect on June 30,

12 4. Cash and Cash Equivalents, Short-Term Financial Instruments: Cash and cash equivalents and short-term financial instruments as of June 30, 2003 and December 31, 2002 consist of the following: Cash and cash equivalents Annual Interest Rates (%) Millions Cash and passbook accounts 1 5,232 2,120 Money market deposit accounts ,029, ,454 Money Market Fund ,025 Foreign currency deposits - 4, ,039,192 1,409,380 ============ ============ Short-term financial instruments Passbook accounts 1 12,162 24,759 Time deposits ,179,790 3,910,990 Installments ,038 Foreign currency deposits , ,215 Other financial instruments ,065 2,383,878 4,273,067 Less: Long-term portion (60) (65) 2,383,818 4,273,002 ============ ============ As of June 30, 2003 and December 31, 2002, bank deposits amounting to 12,222 million and 25,814 million, respectively, are subject to withdrawal restrictions in relation to governmentsponsored R&D projects and other activities. 20

13 5. Short-Term Available-For-Sale Securities: Short-term available-for-sale securities as of June 30, 2003 and December 31, 2002 consist of the following: Annual Interest Rates (%) Millions Financial institution bonds (A) 4.2 ~ , ,476 Beneficiary certificates (B) 3.9 ~ ,748 1,006,010 1,550,783 1,733,486 ============== ============= (A) Interest income amounting to 6,865 million is computed based on documentation sent by the financial institutions. (B) Cash and cash equivalents classified as Money Market Fund with a balance as of December 31, 2002 amounting to 5,958 million were reclassified to available-for-sale securities as of June 30, 2003, due to the increase in the price volatility of assets included in the Money Market Fund, and 4,170 million was recognized as an impairment of available-for-sale securities for the six-month period ended June 30, As of June 30, 2003, gains (losses) on valuation of short-term available-for-sale securities are as follows (in millions of Won): Balance as of December 31, 2002 Valuation Amount Amount Included in Current Operations Balance as of June 30, 2003 Financial institution bonds (305) 228 Beneficiary certificates - 12,085 (3,710) 8,375-12,618 (4,015) 8,603 =============== ============= ============ ============= Balance as of December 31, 2002 Valuation Amount Amount Included in Current Operations Balance as of June 30, 2003 Financial institution bonds - (418) - (418) Beneficiary certificates (418) - (418) =============== ============= ============ ============= 21

14 6. Accounts and Notes Receivable: Accounts and notes receivable and their allowance for doubtful accounts as of June 30, 2003 and December 31, 2002 are as follows: Millions Trade accounts and notes receivable 1,293,942 1,121,172 Less: Allowance for doubtful accounts (20,848) (16,287) 1,273,094 1,104,885 ============= ============ Other accounts and notes receivable 355, ,720 Less: Allowance for doubtful accounts (4,032) (8,957) 351, ,763 ============= ============ The outstanding balance of trade accounts and notes receivable sold to financial institutions as of June 30, 2003 and December 31, 2002 are as follows (see Note 16): Millions Export accounts and notes receivable with recourse 2,567,111 2,412,710 Trade notes receivable with recourse 127,556 22,709 Trade accounts receivable with recourse 6, ,271 Trade accounts receivable without recourse - 215,096 2,701,377 2,756,786 ============= ============ Accounts that are valued at present value under rescheduled payment and long-term installment transactions (including current portions) are as follows: Millions Weighted-Average Accounts Face Value Discount Present Value Period Interest Rate (%) Long-term installment Long-term trade receivables 13, , ~ 8.2 transactions ~ Other long-term payables 371,578 43, , ~ 9.5 ~ Rescheduled Long-term trade receivables ~

15 7. Inventories: Inventories as of June 30, 2003 and December 31, 2002 consist of the following: Millions Finished goods and merchandise 422, ,543 Semi-finished goods and work-in-process 903, ,414 Raw materials and supplies 700, ,759 Materials in-transit 76,873 86,007 2,104,284 2,272,723 ============= =========== Inventories are insured against fire and other casualty losses up to 2,886,267 million as of June 30, Long-Term Available-For-Sale Securities: Long-term available-for-sale securities as of June 30, 2003 and December 31, 2002 consist of the following (in millions of Korean Won): Detail Acquisition Cost Market Value or Net Book Value Recorded Book Value Recorded Book Value Fair-value investments (1) 875, , , ,350 Cost-method investments (2) 178, , , ,175 Government and public bonds (3) ,411 Funds (4) 6,119 9,337 9,017 8,246 1,060,141 ============ 565,374 ============= 582,795 =========== 547,182 ============ 23

16 8. Long-Term Available-For-Sale Securities, Continued: (1) Fair-value investments Fair-value investments as of June 30, 2003 and December 31, 2002 consist of the following (in millions of Korean Won except for the number of shares owned and percentage of ownership): Number of Shares Owned Percentage of Ownership Acquisition Cost Market Value Recorded Book Value Recorded Book Value Samsung Heavy Industries Co., Ltd. 40,675, , , , ,736 Samsung Fine Chemicals Co., Ltd. 2,164, ,678 35,289 35,289 31,825 The Shilla Hotels & Resorts 2,004, ,957 9,633 9,633 9,522 Cheil Communications Inc. 119, ,920 14,094 14,094 11,167 Koram Bank 8,497, ,888 68,234 68,234 62,881 Dacom Corporation 4,262, ,055 53,276 53,276 60,522 Hanaro Telecom, Inc. 23,542, ,496 71,804 71,804 77,219 Serome Technology Inc ,976 Transmeta Corp. 1,120, ,778 2,138 2,138 1, ,071 ============ 449,304 =========== 449,304 =========== 423,350 ============ The difference between the acquisition cost and fair value of the investments using the fairvalue method is recorded in a separate component of shareholders equity (other capital adjustments). The Company disposed its investments in Serome Technology Inc. which were charged an impairment loss amounting to 41,186 million. 24

17 8. Long-Term Available-For-Sale Securities, Continued: (2) Cost-method investments Cost-method investments as of June 30, 2003 and December 31, 2002 consist of the following (in millions of Korean Won except for the number of shares owned and percentage of ownership): Number of Shares Owned Percentage of Ownership Recorded Recorded Acquisition Net Book Book Book Cost Value Value Value Samsung Petrochemical Co. 514, ,040 26,783 8,040 8,040 Samsung General Chemicals Co., Ltd. 2,589, ,892 25,854 25,892 25,892 Kihyup Technology Banking Corporation 1,000, ,000 5,505 5,000 5,000 Pusan Newport Co., Ltd. 1,135, ,676 5,827 5,676 4,661 GE Samsung Lighting 80, , Brooks-PRI Automation Asia Inc. 219, , Samsung Venture Investment Corporation 980, ,900 5,639 4,900 4,900 Hanul Education Co., Ltd Bluebird Soft Inc. 140, ,199 2,299 10,199 10,199 Alticast Corporation 110, , ,265 1,265 Mpeon Co., Ltd. 260, ,300 2,342 1,300 1,300 imarketkorea Inc. 380, ,900 2,848 1,900 1,900 Cyberbank, Co. 108, , ,707 2,707 SkyLife Broadcasting 600, ,344 1,659 3,344 3,344 Norpak Corporation 2,547, ,018 1,103 1,018 1,018 Samsung SDI Brasil Ltda , ,110 3,110 Monarchy Enterprises Holding B.V. 17,559 25

18 8. Long-Term Available-For-Sale Securities, Continued: (2) Cost-method investments, Number of Shares Owned Percentage of Ownership Recorded Acquisition Net Book Book Cost Value Value Recorded Book Value New Telephone Co ,678 4,605 3,678 3,678 Data Play Inc. 626, , Staktek Corporation 176, ,016 5,209 4,496 4,496 Shanghai Samsung Semiconductor Co.,Ltd ,310 Symbian Ltd. 10,359, ,839 3,761 31,839 - Chile Ltda Beijing T3G Technology Co., Ltd ,638 5,638 5,638 - Others 22,371 4,403 2,841 2, , , , ,175 ========= ========= ========== ========== As of June 30, 2003, investments in eleven affiliated companies, including Norpak Corporation, were not valued using the equity method, due to the immateriality of their asset values. As of June 30, 2003, the net asset values of certain cost-method investments, including Bluebird Soft Inc., have declined below their acquisition costs. However, the Company did not adjust their carrying values to their net asset values, as their net asset values are likely to recover in subsequent periods. 26

19 8. Long-Term Available-For-Sale Securities, Continued: (3) Government and public bonds Government and public bonds as of June 30, 2003 and December 31, 2002 consist of the following (in millions of Korean Won): Maturity Interest Acquisition Cost Market Value or Net Book Value Recorded Book Value Recorded Book Value From one year to five years 3.0 ~ ,509 More than five years to ten years ========== =========== =========== 11,411 =========== As of December 31, 2002, the government and public bonds were classified as marketable securities. In accordance with the Statement of Korean Financial Accounting Standards ( SKFAS ) No 8, the government and public bonds were classified into long-term availablefor-sale securities starting from January 1, (4) Funds Funds as of June 30, 2003 and December 31, 2002 consist of the following (in millions of Korean Won, except for the number of shares owned and percentage of ownership): Number of Shares Owned Percentage of Ownership Acquisition Cost Market Value or Net Book Value Recorded Book Value Recorded Book Value Securities market stabilization fund ,688 8,586 8,586 7,815 Investment in capital of partnership Korea Software Industry Association Korea Electronic Industries Cooperative, etc ,119 ========= 9,337 ========= 9,017 8,246 ========= =========== 27

20 8. Long-Term Available-For-Sale Securities, Continued: (5) For the six-month period ended June 30, 2003 and for the year ended December 31, 2002, the changes in valuation gain or loss on long-term available-for-sale securities are as follows (in millions of Korean Won): Valuation Gain of Available-For-Sale Securities Balance at January 1, 2003 Valuation Amount Balance at Included in Balance at January 1, Valuation Earnings June 30, Amount Included in Earnings Balance at December 31, 2002 Listed stocks 8,247 2,927-11,174 28,012 (19,765) - 8,247 Funds - 1,489-1, Government and public bonds (417) ,247 ========= 4,833 ========= (417) ========= 12,663 ========= 28,012 ========= (19,765) ========= - ========= 8,247 ========= Valuation Loss of Available-For-Sale Securities Balance at January 1, 2003 Valuation Amount Balance at Included in Balance at January 1, Valuation Earnings June 30, Amount Included in Earnings Balance at December 31, 2002 Listed stocks (463,944) 25,859 1,144 (436,941) (390,936) (113,032) (40,024) (463,944) Funds - (718) - (718) Government and public bonds - (61) 52 (9) (463,944) ========= 25,080 ========= 1,196 ========= (437,668) ========= (390,936) ========= (113,032) ========= (40,024) ========= (463,944) ========= 28

21 9. Equity-Method Investments: Equity-method investments as of June 30, 2003 consist of the following (in millions of Korean Won, except for the number of shares owned and percentage of ownership): Number of Shares Owned Percentage of Ownership 2003 Acquisition Cost Market Value (Net Book Value) Recorded Book Value Canada, Inc ,911 42,492 42,481 America, Inc. 270, , , ,787 Latin America Panama (ZONE LIBRE) S.A. 39, ,842 41,049 33,559 Mexico S.A. de C.V. 396, ,922 42,539 39,445 Argentina S.A. 31,000, ,967 10,646 10,646 Iberia, S.A. 8,021, ,221 85,242 72,945 Nordic AB. 1,000, ,153 21,188 19,693 Hungarian RT. Co., Ltd. 752, , ,352 93,408 Portuguesa S.A. 1,751, ,594 18,911 18,174 France S.A. 2,700, ,433 50,778 43,807 Samsung Europe PLC 109,546, , , ,474 Holding GmbH , , ,687 Italia, S.p.A. 677, ,779 61,203 53,270 Europe Logistics B.V. 287, ,314 32,928 29,161 Benelux B.V. 309, ,020 23,481 19,968 Poland, SP.Zo.O ,098 18,797 18,557 South Africa (Pty) Ltd. 1,271, ,830 (6,534) (7,371) 29

22 9. Equity-Method Investments, Continued: Number of Shares Owned Percentage of Ownership 2003 Acquisition Cost Market Value (Net Book Value) Recorded Book Value (UK), Ltd. 4,393, ,280 9,998 9,191 Overseas B.V ,318 8,698 Australia Pty, Ltd. 53,200, ,458 47,766 44,601 Malaysia SDN.BHD. 16,247, ,378 35,813 34,337 Samsung Gulf Electronics Co., Ltd ,976 22,035 19,426 PT Indonesia 44, , ,197 83,014 Display (M) SDN.OMD (HSD) 71,400, ,876 60,669 45,155 Samsung India Electronics, Ltd. 117,750, ,379 43,353 42,092 Samsung Asia Private, Ltd. 42,911, , , ,298 Samsung Vina Electronics Co., Ltd ,532 21,405 24,252 Thai- Co., Ltd. 11,020, ,423 69,177 63,551 Syrian-Korean Telecommunication Equipment Manufacturing Establishment Co., Ltd ,061 4,341 6,177 India Information & Telecommunications, Ltd. 74,432, ,720 23,925 22,980 Philippines Manufacturing Corp ,487 27,436 19,731 Hong Kong Co., Ltd. 274,250, ,397 75,813 70,991 Taiwan Co., Ltd. 27,419, ,385 26,391 22,656 30

23 9. Equity-Method Investments, Continued: Number of Shares Owned Percentage of Ownership 2003 Acquisition Cost Market Value (Net Book Value) Recorded Book Value Souzhou Semiconductor Co., Ltd ,189 71,731 68,714 Samsung (CHINA) Investment Co., Ltd , ,714 98,041 Huizhou Co., Ltd ,391 29,684 26,016 Tianjin Samsung Electronics Display Co., Ltd ,896 26,718 25,424 Souzhou Samsung Electronics Co., Ltd ,338 76,207 72,040 Tianjin Samsung Electronics Co., Ltd ,931 77,554 72,911 Shandong-Samsung Telecommunications Co., Ltd ,055 34,725 29,430 Tianjin Samsung Telecom Technology Co., Ltd ,126 28,296 22,375 Suzhou Computer Co., Ltd ,471 3,991 3,955 Suzhou LCD Co., Ltd ,541 52,716 52,279 Shenzhen Samsung Kejian Mobile Technology Co., Ltd. 20,278, ,117 13,847 13,556 Shanghaibell Samsung Mobile Communications Co., Ltd. 774, ,742 7,129 7,129 Shanghai Samsung Semiconductor Co., Ltd ,310 2,287 1,213 Samsung Japan Co., Ltd. 795, ,024 96,613 39,893 Samsung Yokohama Research Institute 122, ,766 61,040 57,911 Samsung SDI Co., Ltd. 9,282, , , ,338 Samsung Electro-Mechanics Co., Ltd. 17,693, , , ,499 Novita Co., Ltd. 4,988, ,991 40,149 39,945 31

24 9. Equity-Method Investments, Continued: 2003 Number of Shares Owned Percentage of Ownership Acquisition Cost Market Value (Net Book Value) Recorded Book Value Samsung Kwangju Electronics Co., Ltd. 38,515, , , ,255 Samsung Capital Co., Ltd. 31,259, , , ,406 Samsung Card Co., Ltd. 31,261, , , ,775 Samsung Techwin Co., Ltd. 19,604, , , ,063 STECO, Ltd. 2,447, ,240 21,747 20,542 DNS Korea Co., Ltd. 1,247, ,134 18,819 6,568 Seoul Commtech Co., Ltd. 3,333, ,192 24,917 24,674 Samsung Economic Research Institute 3,576, ,880 18,617 18,602 Samsung SDS Co., Ltd. 11,977, ,753 50,459 40,411 Samsung Networks Inc. 23,955, ,214 21,207 18,021 Samsung Corning Co., Ltd. 3,665, , , ,913 Samsung Lions Co., Ltd. 55, Secron Co., Ltd. 405, ,025 6,922 2,461 Service Co., Ltd. 5,999, ,000 42,187 40,796 MEMC Electronic Materials Korea, Inc. 3,440, ,200 36,920 36,435 Samsung Corning Micro- Optics Co., Ltd. 6,513, ,986 6,987 6,363 Samsung Corning Precision Glass Co., Ltd. 1,021, , , ,605 Samsung Thales Co., Ltd. 13,500, ,000 95,004 46,654 Living Plaza 300, ,007 66,251 53,902 Bluetek Co., Ltd. 5,998, ,993 76,791 87,911 Tolos Co., Ltd. 1,010, ,058 9,718 9,090 Bokwang FUND ,000 14,896 13,896 Bokwang FUND ,000 6,523 6,523 SVIC FUND ,900 6,688 6,734 SVIC FUND ,700 31,816 31,816 SVIC FUND ,800 17,930 17,930 SVIC FUND ,500 92,452 92,452 SVIC FUND ,700 20,251 20,251 4,842,659 7,025,187 6,559,599 ======================= ============ 32

25 9. Equity-Method Investments, Equity-method investments as of December 31, 2002 consist of the following (in millions of Korean Won except for the number of shares owned and percentage of ownership): Number of Shares Owned Percentage of Ownership Acquisition Cost Market Value or Net Book Value Recorded Book Value Canada, Inc ,911 37,805 37,670 America, Inc. 270, , , ,560 Latin America Panama (ZONE LIBRE) S.A. 39, ,842 61,474 54,829 Mexico S.A. de C.V. 230, ,767 44,877 41,968 Argentina S.A. 31,000, ,967 9,845 9,845 Iberia, S.A. 8,021, ,221 89,089 78,772 Nordic AB. (previously Samsung Electronics Svenska AB.) 1,000, ,153 19,787 17,962 Hungarian RT. Co., Ltd. 752, , ,287 99,329 Portuguesa S.A. 1,751, ,594 16,987 16,436 France S.A. 2,700, ,433 46,682 43,022 Samsung Europe PLC 109,546, , , ,276 Holding GmbH , ,456 86,580 Italia, S.p.A. 677, ,779 55,437 50,649 Europe Logistics B.V. 287, ,314 23,863 18,766 Benelux B.V. 597, ,020 22,843 21,327 Poland, SP.Zo.O ,098 18,925 18,093

26 9. Equity-Method Investments, Number of Shares Owned Percentage of Ownership 2002 Acquisition Cost Market Value or Net Book Value Recorded Book Value South Africa (Pty) Ltd. 1,271, ,830 4,730 11,837 (UK), Ltd. 4,393, ,280 8,972 8,403 Overseas B.V (9,691) Australia Pty, Ltd. 53,200, ,458 39,557 38,069 Malaysia SDN.BHD. 16,247, ,378 33,080 32,412 Samsung Gulf Electronics Co., Ltd ,976 18,317 16,675 PT Indonesia 44, ,910 72,921 62,565 Display (M) SDN.OMD (HSD) 71,400, ,876 47,530 35,930 Samsung India Electronics, Ltd. 60,000, ,316 31,548 29,822 Samsung Asia Private, Ltd. 42,911, , , ,063 Samsung Vina Electronics Co., Ltd ,532 20,646 19,856 Thai- Co., Ltd. 11,020, ,423 61,978 60,162 Syrian-Korean Telecommunication Equipment Manufacturing Establishment Co., Ltd ,061 5,034 7,222 India Information & Telecommunications, Ltd. 74,432, ,720 22,820 22,096 Philippines Manufacturing Corp ,487 19,939 15,910 Hong Kong Co., Ltd. 274,250, ,397 68,666 57,158 Taiwan Co., Ltd. 9,999, ,525 18,416 11,103 34

27 9. Equity-Method Investments, Number of Shares Owned Percentage of Ownership Acquisition Cost Market Value or Net Book Value Recorded Book Value Souzhou Semiconductor Co., Ltd ,189 66,310 60,033 Samsung (CHINA) Investment Co., Ltd ,027 56,972 64,371 Huizhou Co., Ltd ,391 38,473 35,653 Tianjin Samsung Electronics Display Co., Ltd ,896 21,564 18,685 Souzhou Samsung Electronics Co., Ltd ,338 73,717 70,845 Tianjin Samsung Electronics Co., Ltd ,931 61,482 56,919 Shandong-Samsung Telecommunications Co., Ltd ,307 25,351 24,291 Tianjin Samsung Telecom Technology Co., Ltd ,126 14,694 3,883 Suzhou Computer Co., Ltd ,471 5,401 5,401 Suzhou LCD Co., Ltd ,382 18,038 18,038 Shenzhen Samsung Kejian Mobile Technology Co., Ltd. 20,278, ,117 10,788 5,975 Shanghaibell Samsung Mobile Communications Co., Ltd. 774, ,742 6,177 6,195 Samsung Japan Co., Ltd. 795, ,024 88,109 27,945 Samsung Yokohama Research Institute 122, ,766 61,964 58,783 Samsung SDI Co., Ltd. 9,282, , , ,403 Samsung Electro-Mechanics Co., Ltd. 17,693, , , ,896 Novita Co., Ltd. 4,988, ,991 38,485 38,364 Samsung Kwangju Electronics Co., Ltd. 38,515, , , ,814

28 9. Equity-Method Investments, Percentage of Ownership 2002 Market Value or Net Book Value Number of Shares Owned Acquisition Cost Recorded Book Value Samsung Capital Co., Ltd. 31,259, , , ,343 Samsung Card Co., Ltd. 25,885, ,388 1,123,998 1,122,547 Samsung Techwin Co., Ltd. 19,604, , , ,039 STECO, Ltd. 2,447, ,240 21,555 20,056 DNS Korea Co., Ltd. 1,247, ,134 18,984 9,818 Seoul Commtech Co., Ltd. 3,333, ,192 22,411 22,246 Samsung Economic Research Institute 3,576, ,880 18,137 18,105 Samsung SDS Co., Ltd. 11,977, ,753 46,597 41,567 Samsung Networks Inc. 23,955, ,214 19,266 15,560 Samsung Corning Co., Ltd. 3,665, , , ,966 Samsung Lions Co., Ltd. 55, Secron (previously Towa Korea) Co., Ltd. 405, ,025 7,063 3,041 Service Co., Ltd. 5,999, ,000 45,028 41,174 MEMC Electronic Materials Korea, Inc. 3,440, ,200 36,897 36,311 Samsung Corning Micro- Optics Co., Ltd. 6,513, ,986 6,969 5,342 Samsung Corning Precision Glass Co., Ltd. 1,021, , , ,239 Samsung Thales Co., Ltd. 13,500, , ,152 37,382 Living Plaza 300, ,007 66,945 50,672 Bluetek Co., Ltd. 5,998, ,993 84,362 68,402 Tolos Co., Ltd. 1,010, ,058 8,114 7,240 Bokwang FUND ,000 12,006 11,006 Bokwang FUND ,000 8,849 8,849 SVIC FUND ,900 1,712 1,712 SVIC FUND ,700 31,217 31,217 SVIC FUND ,800 18,004 18,004 SVIC FUND ,500 99,123 99,123 SVIC FUND ,700 22,811 22,811 4,617,842 ========== 6,989,908 =========== 6,548,942 =========== 36

29 9. Equity-Method Investments, Changes in goodwill (negative goodwill) for the six-month period ended June 30, 2003 and the year ended December 31, 2002 are as follows (in millions of Korean Won): Balance at Beginning of Period Increase (Decrease) Balance at Balance at Amortization End of Beginning Increase (Reversal) Period of Year (Decrease) Amortization (Reversal) Balance at End of Year Samsung Techwin Co., Ltd. 26,858-7,006 19,852 40,871-14,013 26,858 Samsung Corning Precision Glass Co., Ltd. 26,246-4,632 21,614 35,510-9,264 26,246 Samsung SDI Co., Ltd. 15,007-3,463 11,544 21,934-6,927 15,007 Samsung Electro- Mechanics Co., Ltd. 14,637-2,412 12,225 19,584-4,947 14,637 Samsung Capital Co., Ltd. (5,373) - (1,332) (4,041) (7,926) (111) (2,664) (5,373) Samsung Card Co., Ltd. (5,093) - (1,270) (3,823) (7,187) (375) (2,469) (5,093) Samsung Networks Inc. (3,102) - (716) (2,386) (4,534) - (1,432) (3,102) Samsung SDS Co., Ltd. 3, ,385 4,531-1,431 3,100 Samsung Corning Co., Ltd. 2, ,754 4,010-1,504 2,506 Samsung (CHINA) Investment Co., Ltd. (1,674) 59 (184) (1,431) - (1,860) (186) (1,674) Others , ,729 ======== 109 ======== 15,678 ======== 58,160 ======== 107,891 (2,268) 31,894 73,729 =========== ========== =========== =========== 37

30 9. Equity-Method Investments, Information relating to the elimination of unrealized gains and losses as of June 30, 2003 and December 31, 2002 are as follows (*) (in millions of Korean Won): Inventories Property, Plant and Equipment and Intangible Assets Total Inventories Property, Plant and Equipment and Intangible Assets Total Overseas B.V. (7,162) 5 (7,157) 5, ,393 Samsung Japan Co., Ltd. 1,045 (5,294) (4,249) (9,219) (12,539) (21,758) Italia, S.p.A. (3,042) - (3,042) (1,999) - (1,999) Iberia, S.A. (4,222) (28) (4,250) 1,493 (55) 1,438 France S.A. (3,314) - (3,314) (1,074) (1) (1,075) Holding GmbH. (1,066) (1) (1,067) (7,005) (1) (7,006) Europe Logistics B.V. (5,796) - (5,796) 7,178-7,178 Thai- Co., Ltd. (3,572) (172) (3,744) 96 1,082 1,178 Benelux B.V. (2,147) - (2,147) (452) - (452) Mexico S.A. de C.V. (1,967) (1,902) (3,869) 558 (1,020) (462) Display (M) SDN.OMD (HSD) (5,055) 137 (4,918) (731) 73 (658) PT Indonesia (6,865) (168) (7,033) (3,989) 3 (3,986) Samsung Thales Co., Ltd. - 15,260 15,260 (86) 30,485 30,399 Tianjin Samsung Telecom Technology Co., Ltd. 4, ,000 (5,366) (639) (6,005) America, Inc. 5,932 (211) 5,721 (19,556) (102) (19,658) Living Plaza 3,016 (21) 2,995 (8,833) (33) (8,866) Samsung Europe PLC (1,622) 285 (1,337) (7,279) 324 (6,955) Samsung Electro-Mechanics Co., Ltd. 4, ,382 (6,443) - (6,443) Samsung Asia Private, Ltd. 1, ,300 (5,216) 21 (5,195) Others (1,467) (494) (1,961) (26,009) 14,100 (11,909) (26,636) =========== 8,410 =========== (18,226) =========== (88,550) 31,709 (56,841) =========== =========== =========== (*) Amounts in the table are recognized gains and losses from the elimination of unrealized gains and losses for the six-month period ended June 30, 2003 and the year ended December 31,

31 9. Equity-Method Investments, The following table reconciles the difference between the book values recorded for the equitymethod investments at the beginning and at the end of the six-month period ended June 30, 2003 and the year ended December 31, 2002 (in millions of Korean Won): Balance at Beginning of Period Earnings from Equity -Method Investments Other Increase (Decrease) Balance at End of Period Balance at Beginning of Year Earnings from Equity Other -Method Increase Investments (Decrease) Balance at End of Year Samsung Card Co., Ltd. 1,122,547 (353,734) 63, , , ,385 (36,157) 1,122,547 Samsung SDI Co., Ltd. 646,403 54,392 (15,457) 685, ,896 99,676 (43,169) 646,403 Samsung Capital Co., Ltd. 590,343 (9,370) (14,567) 566, , ,640 12, ,343 Samsung Electro- Mechanics Co., Ltd. 433,896 (15,811) (11,586) 406, ,114 27,664 (11,882) 433,896 Samsung Kwangju Electronics Co., Ltd. 431,814 16, , ,686 84,129 (1) 431,814 Samsung Corning Co., Ltd. 358,966 15,614 (30,667) 343, ,632 70,143 (23,809) 358,966 America, Inc. 196,560 (10,906) 4, , ,316 (67,886) (24,870) 196,560 Samsung Europe PLC 195,276 18,967 5, , ,153 23, ,276 Samsung Techwin Co., Ltd. 172,039 (4,116) , ,406 (7,469) (5,898) 172,039 Samsung Corning Precision Glass Co., Ltd. 181,239 40,197 (18,831) 202, ,947 74,239 (25,947) 181,239 Others 2,219, , ,407 2,496,484 2,060, ,997 (128,978) 2,219,859 6,548,942 (92,108) 102,765 6,559,599 5,768,825 1,067,772 (287,655) 6,548,942 ========= ========= ========= ========= ========== ========== =========== =========== 39