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

32 9. Equity-Method Investments, Equity gain or loss on securities as of June 30, 2003 and December 31, 2002 are as follows (in millions of Korean Won): Balance at January 1, 2003 Valuation Amount Balance at Balance at Included in June 30, January 1, Valuation Earnings Amount Included in Earnings Balance at December 31, 2002 Valuation gains in investment securities using equity method 614,061 (9,990) - 604, ,938 (56,541) 5, ,061 Valuation losses in investment securities using equity method (280,602) 68,803 - (211,799) (163,773) (118,007) (1,178) (280,602) 333,459 ======= 58,813 ======= - ======== 392,272 ======== 512,165 ========= (174,548) 4,158 ========== ========= 333,459 ======== Samsung Corning Precision Glass Co., Ltd., included in equity-method investments, had previously accounted for a large amount of repair expenses in current operations, but has applied Statement of Korean Financial Accounting Standards ( SKFAS ) No. 5 for the current fiscal year ending December 31, 2003, and has accounted for these expenses as a separate asset subject to depreciation. This change in accounting policy has affected the value of investments calculated using the equity method, and 13,167 million was added to the retained earnings as of December 31,

33 10. Property, Plant and Equipment: Property, plant and equipment as of June 30, 2003 and June 30, 2002, and its movements for the six-month periods then ended, consist of the following: Land Buildings and Structures Millions Machinery and Construction Equipment In-Progress Others Total Balance at December 31, ,888,914 3,087,575 7,410,340 1,279, ,188 14,225,713 Acquisition 228 7,129 50,607 3,257, ,779 3,435,808 Transfer 41, ,883 2,970,854 (3,349,288) 56,014 - Disposal (500) (4,732) (12,245) - (1,949) (19,426) Depreciation - (90,712) (1,533,037) - (80,068) (1,703,817) Others (9,276) - (9,276) Balance at June 30, ,930,179 3,280,143 8,886,519 1,178, ,964 15,929,002 ========= ========== ========== ========= ========= ========= Millions Buildings and Machinery and Construction Land Structures Equipment In-Progress Others Total Balance at December 31, ,826,144 2,755,196 7,342, , ,588 13,232,499 Acquisition 405 8,274 82,697 1,325, ,260 1,713,812 Transfer 30, , ,334 (1,032,813) 40,125 - Disposal (10,427) (5,124) (8,608) - (2,859) (27,018) Depreciation - (78,331) (1,329,641) - (75,254) (1,483,226) Others (168,939) (34,863) (*) (203,802) Balance at June 30, ,846,443 2,887,048 6,842, , ,997 13,232,265 ========= ========== ========== ========= ========= ========= (*) Decrease due to reclassification of tools and fixtures to other intangible assets. 41

34 10. Property, Plant and Equipment, Continued: Property, plant and equipment as of June 30, 2003 and June 30, 2002, and its movements for the three-month periods then ended, consist of the following: Land Buildings and Structures Millions Machinery and Construction Equipment In-Progress Others Total Balance at March 31, ,890,174 3,061,689 7,676,860 2,171, ,509 15,437,856 Acquisition 118 2,848 32,532 1,352,541 10,906 1,398,945 Transfer 40, ,426 1,986,450 (2,339,061) 47,798 - Disposal (500) (1,595) (6,453) - (873) (9,421) Depreciation - (47,225) (802,870) - (41,376) (891,471) Others (6,907) - (6,907) Balance at June 30, ,930,179 3,280,143 8,886,519 1,178, ,964 15,929,002 ========= ========== ========== ========= ========= ========= Millions Buildings and Machinery and Construction Land Structures Equipment In-Progress Others Total Balance at March 31, ,851,073 2,823,654 7,057, , ,598 12,935,077 Acquisition 389 2,420 45, , ,018 1,178,249 Transfer 3, , ,009 (537,381) 10,228 - Disposal (8,718) (2,222) (5,013) - (1,064) (17,017) Depreciation - (40,249) (676,218) - (37,494) (753,961) Others (106,794) (3,289) (*) (110,083) Balance at June 30, ,846,443 2,887,048 6,842, , ,997 13,232,265 ========= ========== ========== ========= ========= ========= (*) Decrease due to reclassification of tools and fixtures to other intangible assets. As of June 30, 2003, certain portions of the Company s property, plant and equipment, up to a maximum of 1,102,892 million (including US$ 458,270 thousand), are pledged as collateral for various loans from Korea Development Bank, which have been repayed as of June 30, As of June 30, 2003, property, plant and equipment are insured against fire and other casualty losses, and business interruption losses up to 34,740,579 million and 10,028,579 million, respectively. Korea Development Bank is the beneficiary for the insurance benefits of up to 789,259 million, held as collateral for borrowings. 42

35 10. Property, Plant and Equipment, As of June 30, 2003 and December 31, 2002, the value of land based on the posted price issued by the Korean tax authority amounted to 1,518,122 million and 1,440,003 million, respectively. In accordance with the Asset Revaluation Law, on January 1, 1980, 1982, 1998, and April 1, 1999, the Company revalued a substantial portion of its property, plant, equipment and investments in equity securities by 3,051,612 million. The remaining revaluation increments amounting to 1,212,641 million, net of revaluation tax, credits to deferred foreign currency translation losses and others, were credited to other capital surplus, a component of shareholders' equity. 11. Intangible Assets: The details of the increase (decrease) in intangible assets for the six-month periods ended June 30, 2003 and 2002 are as follows (in millions of Korean Won): Six-month period ended June 30, 2003: Goodwill Intellectual Property Rights Others Total Balance at December 31, , ,397 67, ,298 Acquisition (*) - 14,110 24,062 38,172 Disposal - - (3) (3) Amortization (1,102) (21,250) (10,924) (33,276) Balance at June 30, , ,257 80, ,191 ========== ========== ========= ========== Six-month period ended June 30, 2002: Goodwill Intellectual Property Rights Others Total Balance at December 31, , ,015 2, ,398 Acquisition (*) - 15,346 16,251 31,597 Amortization (1,302) (19,634) (6,070) (27,006) Others (**) ,863 34,863 Balance at June 30, , ,727 47, ,852 ========== ========== ========= ========== (*) The amount of acquisition includes the amount transferred from other accounts such as construction in-progress. (**) The increase represents the amount of other intangible assets transferred from tools and fixtures. 43

36 11. Intangible Assets, The details of the increase (decrease) in intangible assets for the three-month periods ended June 30, 2003 and 2002 are as follows (in millions of Korean Won): Three-month period ended June 30, 2003: Goodwill Intellectual Property Rights Others Total Balance at March 31, , ,504 70, ,029 Acquisition (*) - 7,494 15,435 22,929 Disposal Amortization (551) (10,741) (5,475) (16,767) Balance at June 30, , ,257 80, ,191 =========== =========== ========== =========== Three-month period ended June 30, 2002: Goodwill Intellectual Property Rights Others Total Balance at March 31, , ,701 42, ,517 Acquisition (*) - 10,947 6,253 17,200 Amortization (651) (9,921) (4,582) (15,154) Others (**) - - 3,289 3,289 Balance at June 30, , ,727 47, ,852 =========== ============ ========== =========== (*) The amount of acquisition includes the amount transferred from other accounts such as construction in-progress. (**) The increase represents the amount of other intangible assets transferred from tools and fixtures. The amortization expense of intangible assets for the six-month periods ended June 30, 2003 and 2002 is distributed into the following accounts (in millions of Korean Won): Account Production costs 5,969 4,668 Selling and administrative expenses 8,989 8,638 Research and development expenses 18,318 13,700 33,276 ============== 27,006 ============= 44

37 11. Intangible Assets, The amortization expense of intangible assets for the three-month periods ended June 30, 2003 and 2002 is distributed into the following accounts (in millions of Korean Won): Account Production costs 3,114 2,538 Selling and administrative expenses 4,316 5,246 Research and development expenses 9,337 7, Long-Term Deposits and Other Assets: 16,767 ============== 15,154 ============== Long-term deposits and other assets as of June 30, 2003 and December 31, 2002 consist of the following: Millions Long-term financial instruments Long-term trade receivables, net 4,675 1,904 Long-term loans, net 41,734 38,792 Long-term guarantee deposits 342, ,070 Long-term prepaid expenses 351, ,006 Others , ,882 =============== ============== 13. Long-Term Debt: Long-term debt as of June 30, 2003 and December 31, 2002 consist of the following: Reference Millions Local currency loans (A) 1,508 7,293 Foreign currency loans, in Korean Won equivalents (B) 623 1,970 Debentures (C) 991,029 1,007, ,160 1,016,711 Less: Current maturities (2,035) (28,853) 991, ,858 ============ ============ 45

38 13. Long-Term Debt, Continued: (A) Local currency loans as of June 30, 2003 and December 31, 2002 consist of the following: Annual Interest Rates (%) Millions Woori Bank Korea Development Bank - - 4,375 KTB Network 6.5 1,247 2,520 Samsung Card Co., Ltd ,508 7,293 ============ ============ (B) Long-term debt denominated in foreign currencies as of June 30, 2003 and December 31, 2002 consist of the following: Annual Interest Rates (%) Thousands Hanmi Capital Co., Ltd. and others LIBOR $ 522 $ 1,641 Korean Won equivalents (in millions) 623 1,970 ============ =========== 46

39 13. Long-Term Debt, (C) Debentures outstanding as of June 30, 2003 and December 31, 2002 consist of the following: Annual Interest Rates (%) Millions Non-guaranteed debentures 5 1,000,000 1,000,000 Private debentures ,000 1,000,000 1,020,000 Less: Discounts (8,971) (12,552) 991,029 1,007,448 ============ ============ Maturities of long-term debts, including foreign currency notes and bonds (see Note 14), outstanding as of June 30, 2003 are as follows: Millions Period Local Ending Currency Foreign Currency June 30 Loans Debentures Notes and Bonds Total ,000,000-1,000, Thereafter , , ,000, ,310 1,119,406 =========== ============ ============ ============= 47

40 14. Foreign Currency Notes and Bonds: Unsecured foreign currency notes and bonds as of June 30, 2003 and December 31, 2002 consist of the following: Millions Due Date JPY denominated straight bonds ( A ) April 23, ,803 USD denominated straight bonds ( B ) October 1, , ,040 Convertible bonds ( C ) February 1, ,345 85,512 Convertible bonds ( D ) January 31, , , ,615 Add : Long-term accrued interest - 24,070 Less: Current maturities (58,345) (410,133) Less: Discounts (5,960) (5,997) Less: Conversion rights , ,555 ============ ============ (A) JPY denominated straight bonds - On April 23, 1996, the Company issued straight bonds in the amount of 20,000,000 thousand at face value. The bonds bear interest at 3.3% per annum and mature on April 23, (B) USD denominated straight bonds - On October 2, 1997, the Company issued straight bonds in the amount of US$100,000 thousand at 99.85% of face value. The bonds bear interest at 7.7% per annum and mature on October 1, 2027, with repayment to be made annually for twenty years after a ten-year grace period which began on the date of issuance. (C) Convertible bonds Intel - On February 1, 1999, the Company issued foreign currency convertible bonds in the amount of US$100,000 thousand to Intel Corporation, which mature on February 1, A summary of the terms of these bonds is as follows: Interest: 5% per annum payable annually in arrears on February 1. Conversion period: On or after May 3, 1999 through January 21, Conversion price: Subject to adjustment pursuant to anti-dilution provisions, 108,465 per share, with a fixed exchange rate applicable to the conversion of 1,173 to US$ For the six-month period ended June 30, 2003, convertible bonds amounting to US$23,160 thousand were converted into 250,462 shares of common stock at the conversion price of 108,465 per share (see Note 17). 48

41 14. Foreign Currency Notes and Bonds, Continue; (D) Convertible bonds Dell - On October 15, 1999, the Company issued foreign currency convertible bonds in the amount of US$200,000 thousand to Dell Computer Corporation, which mature on January 31, A summary of the terms of these bonds is as follows: Interest: 2% per annum payable annually in arrears on December 31. Conversion period: On or after October 15, 2000 through January 16, Conversion price: Subject to adjustment pursuant to anti-dilution provisions, 260,000 per share, with a fixed exchange rate applicable to the conversion of 1,203.2 to US$ For the six-month periods ended June 30, 2003, convertible bonds amounting to US$ 192,835 thousand were converted into 892,368 shares of common stock at the conversion price of 260,000 per share (Note 17). 15. Accrued Severance Benefits: Accrued severance benefits as of June 30, 2003 and December 31, 2002 consist of the following: Millions Balance at the beginning of the period/year 662, ,853 Provision for severance benefits 157, ,515 Transferred from affiliated companies Actual severance payments (59,987) (86,849) 760, ,113 Cumulative deposits to the National Pension Fund (17,630) (19,194) Severance insurance deposits (439,391) (378,655) Balance at the end of the period/year 303, ,264 =============== ============= 49

42 16. Commitments and Contingencies: As of June 30, 2003, the Company is contingently liable for guarantees of indebtedness, principally for related parties, approximating 3,030 million and US$598,599 thousand. As of June 30, 2003, the Company has technical assistance agreements with certain companies. Total royalty expense incurred in relation to these agreements for the six-month periods ended June 30, 2003 and 2002 amounted to 734,687 million and 413,776 million, respectively. As of June 30, 2003, the Company has entered into an insurance plan for product liabilities of the entire domestic sales, and cargo insurance plans for product damages in transit and other losses. As of June 30, 2003, the Company has a bank overdraft facility agreement with Hana Bank and six other banks with a maximum limit of 195,000 million. The Company leases certain property, plant and equipment under various capital lease arrangements. Assets recorded under capitalized lease agreements are included in property, plant and equipment (total acquisition costs: 708,257 million, total net book value: 8,826 million). Depreciation expense for the capital lease assets amounted to 10,779 million for the six-month period ended June 30, Future minimum lease payments under scheduled capital leases are as follows (in millions of Korean Won): Period Under Leases Total Minimum Payments Interest Amount Capital Lease Obligations ~ ============ ========== ============ As of June 30, 2003, the Company has entered into an agreement to discount trade notes receivable with three Korean banks, including Korea First Bank, up to 150,000 million, and a credit sales facility agreement with six financial institutions, including Woori Card and Hana Bank (see Note 6). In relation to the credit sales facility agreement with Woori Card, the Company has recourse obligation on the receivables of which due dates are extended. In addition, the Company has entered into credit purchase facilities with Samsung Card Co., Ltd. and Woori Card, whereby certain trade creditors of the Company are paid through these financial institutions (Note 25). Pursuant to the contracts made with foreign affiliated and subsidiary companies, the Company is obliged to compensate for certain amounts of uncollectible receivables of foreign affiliated and subsidiary companies if certain conditions, such as the refusal of payment from a trading partner, are fulfilled. The Company has insured against such compensation with Korea Export Insurance Co. as of June 30,

43 16. Commitments and Contingencies, As of June 30, 2003, the Company has been named as the defendant in nine legal actions filed by MOSAID Technologies Inc., Matsushita Electric Industrial Co., Ltd., S.I.SV.EL.S.P.A, Pitney Bowes Inc., International Rectifier Corporation, Commissariat A L'Energie Atomigue., William Reber L.L.C., GEZ Microsystems, Inc., and QinetiQ Limited for patent infringements, and as a plaintiff in five legal actions against Quanta Computer, Compal Electronics, Inc., Inventec Corporation, Twinhead Corporation, and Tessera Technology, Inc. for alleged patent infringements, and two legal actions against Grandiente Electronica S.A. and Miditel for unpaid debts. In addition, the Company is a party to various other legal claims and proceedings, all of which are pending as of June 30, The Company s management believes that, although the outcome of these matters are uncertain, the resolution of these matters will not have a material adverse effect on the operations or financial position of the Company. The Company has been alleged by Infinion Technologies AG., that illegal government subsidies allowed the Company to cut the prices of its dynamic random access memory, or DRAM, Chips. As of June 30, 2003, the investigation by the European Union Commission is in progress, and it is not possible to predict the ultimate outcome of the matter. 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. In response to the generally unstable economic conditions, the Korean government and the private sector have been implementing structural reforms to historical business practices. Implementation of these reforms is progressing slowly, particularly in the areas of restructuring private enterprises and reforming the banking industry. The Korean government continues to apply pressure to Korean companies to restructure into more efficient and profitable firms. The Company may be either directly or indirectly affected by these generally unstable economic conditions and the reform program described above. The accompanying non-consolidated financial statements reflect management s assessment of the impact to date of the economic situation on the financial position of the Company. Actual results may differ materially from management s current assessment. 51

44 17. Capital Stock: Under its Articles of Incorporation, the Company is authorized to issue 500,000,000 shares of capital stock (par value of 5,000 per share), of which 100,000,000 shares are cumulative, participating preferred stock and are non-voting and entitled to a minimum cash dividend (9% of par value). In addition, the Company is authorized to issue to investors other than current shareholders convertible debentures and debentures with warrants of face values up to 4,000 billion and 2,000 billion, respectively ( 3,000 billion of such convertible debentures is for common stock and the remaining 1,000 billion is for preferred stock, and 1,500 billion of such debentures with warrants is for common stock and the remaining 500 billion is for preferred stock). The Company is also authorized, subject to the Board of Directors approval, to issue shares of common or preferred stock to investors other than current shareholders for issuance of depository receipts, general public subscription, urgent financing with financial institutions, and strategic alliance. The Company is authorized, subject to the Board of Directors approval, to retire treasury stock in accordance with applicable laws up to the maximum amount of certain undistributed earnings. 3,100,000 shares of common stock and 470,000 shares of non-voting preferred stock ( 981,298 million of acquisition cost) were retired on April 14, 2003, with the Board of Director s approval. The Company has issued global depositary receipts ( GDR ), representing certain shares of non-voting preferred stock and common stock, for direct funding at overseas stock markets, as follows: Number of Number of Shares of Stock Share of GDR Non-voting preferred stock 7,695,272 15,390,544 Common stock 4,251,338 8,502,678 In addition to the above issuances, there have been several conversions of foreign currency convertible bonds into GDRs and conversions of the issued GDRs into original shares of common stock or non-voting preferred stock. 52

45 17. Capital Stock, As of June 30, 2003, outstanding global depositary receipts consist of 31,650,066 shares for common stock (common stock equivalent: 15,825,033 shares) and 10,646,132 shares for nonvoting preferred stock (preferred stock equivalent: 5,323,066 shares). The Company issued 1,142,830 shares of common stock upon the conversion of foreign currency convertible bonds amounting to US$215,995 thousand during the six-month period ended June 30, 2003 (Note 14). The cash proceeds in excess of par value amounting to 277,291 million were credited to paid-in capital in excess of par value. As of June 30, 2003, 151,978,789 shares of common stock and 23,423,427 shares of preferred stock have been issued (number of retired stock is excluded). The preferred shares, which are non-cumulative and non-voting, were all issued on or before February 28, 1997, and are entitled to an additional cash dividend (1% of par value) over common stock. The par value of capital stock differs from paid-in capital due to the deduction from retained earnings during the retirement of capital stock. 18. Retained Earnings: Retained earnings as of June 30, 2003 and December 31, 2002 consist of the following: Reference Millions Appropriated: Legal reserve ( A ) 444, ,289 Reserve for business rationalization 4,512,101 3,512,101 Reserve for improvement of financial structure ( B ) 204, ,815 Reserve for overseas market development 510, ,750 Reserve for overseas investment losses 164, ,982 Reserve for research and human resource development ( C ) 8,436,458 5,436,458 Reserve for export losses 167, ,749 Reserve for loss on disposal of treasury stock ( C ) 800, ,000 Reserve for capital expenditure 4,250,393 2,714,811 19,492,037 13,352,955 Unappropriated 1,290,470 6,967,764 20,782,507 20,320,719 ============= ============ 53

46 18. Retained Earnings, (A) The Korean Commercial Code requires the Company to appropriate, as a legal reserve, an amount equal to a minimum of 10% of annual cash dividends declared, until the reserve equals 50% of capital stock. This reserve is not available for the payment of cash dividends, but may be transferred to capital stock or used to reduce accumulated deficit, if any. (B) In accordance with the Regulation for Securities Issuance and Disclosure, the Company is required to appropriate, as a reserve for improvement of financial structure, an amount equal to at least 50% of the net extraordinary gain on disposal of property, plant and equipment and 10% of net earnings for each year, until the shareholders' equity equals 30% of total assets. This reserve is not available for the payment of cash dividends, but may be transferred to capital stock or used to reduce accumulated deficit, if any. (C) Pursuant to the Korean tax laws, the Company is allowed to claim a tax deduction in determining taxable income for the amounts of retained earnings appropriated to reserves for research and human resource development and losses on disposal of treasury stock. These amounts are not available for dividends until used for the specified purposes or reversed. 19. Dividends: On June 30, 2003, the Company declared a 10% cash dividend ( 81,541 million) to shareholders of common stock and preferred stock as an interim dividend for the six-month period ended June 30, Treasury Stock: As of June 30, 2003, the Company holds 10,439,625 shares of its own common stock and 1,879,693 shares of its own preferred stock. This treasury stock is recorded as a capital adjustment. 21. Other Capital Adjustments: Other capital adjustments as of June 30, 2003 and December 31, 2002 consist of the following: Millions Gain on valuation of available-for-sale securities 21,266 8,247 Loss on valuation of available-for-sale securities (438,086) (463,944) Gain on valuation of investments using the equity method 392, ,459 Stock option compensation 660, , , ,259 =============== =============== 54

47 22. Stock Option Plan: The Company has a stock option plan that provides for the granting of stock purchase options to employees or directors who have contributed or are expected to contribute to the management and technological innovation of the Company. A summary of the terms of stock options granted is as follows: Date of the Grant March 16, 2000 March 9, 2001 February 28, 2002 March 25, 2002 March 7, 2003 Quantity (after reflecting forfeitures) 1,416,205 2,798, , , ,823 Exercise price (*) 272, , , , ,800 Exercise period from the date of the grant (**) 3~10 years 3~10 years 2~10 years 2~10 years 2~10 years (*) The exercise price can be adjusted in the case of the issuance of new shares, stock dividends, stock splits, or stock merger. (**) The options can be fully vested after two years from the date of grant. The fair value of each option grant was estimated using the Black-Scholes option-pricing model based on the date of the grant and the following assumptions: Date of the Grant March 16, 2000 March 9, 2001 February 28, 2002 March 25, 2002 March 7, 2003 Risk-free interest rates 9.08% 6.04% 5.71% 6.44% 4.62% Expected stock price volatility 69.48% 74.46% 64.97% 64.90% 60.08% Expected life 4 years 4 years 3 years 3 years 3 years Expected dividend yield 0.39% 0.89% 0.73% 0.74% 1.25% The compensation expense related to stock options amounted to 44,678 million for the threemonth period ended March 31, 2003, 26,931 million for the three-month period ended June 30, 2003, and is estimated to be 93,829 million for the periods thereafter. 55

48 23. Income Tax Expense: The statutory income tax rate applicable to the Company, including resident surtax, is approximately 29.7%. Income tax expense for the six-month periods ended June 30, 2003 and 2002 consist of the following: Millions Current income taxes 560, ,190 Increase (decrease) in deferred income taxes (270,680) 234, ,333 1,013,152 ============== ============== The following table reconciles the expected amount of income tax expense based on statutory rates to the actual amount of taxes recorded by the Company: Millions Income before taxes 2,547,903 4,835,856 Statutory tax rate 29.7% 29.7% Expected taxes at statutory rate 756,727 1,436,249 Tax credit (533,777) (233,690) Others, net 66,383 (189,407) Actual taxes 289,333 1,013,152 ============== ============== Effective tax rate 11.4% 21.0% ============== ============== 56

49 23. Income Tax Expense, Components of deferred income taxes as of June 30, 2003 are as follows (in millions of Korean Won): Beginning Increase Ending Balance (Decrease) Balance (Deferred income tax assets) Deferred foreign exchange losses 24,462 (5,186) 19,276 Loss on impairment of investments 39,571 (21,199) 18,372 Depreciation 16,364 (1,476) 14,888 Accrued expenses 188, , ,949 Tax credit carry-forwards 242, , ,317 Others 27, ,686 Total deferred income tax assets 539, , ,488 (Deferred income tax liabilities) Special reserves appropriated for tax purpose 220,852 (9,900) 210,952 Capitalized interest expense 71,654 (4,953) 66,701 Accrued interest income 52,216 (6,883) 45,333 Earnings from investments using the equity method 242,877 (37,850) 205,027 Total deferred income tax liabilities 587,599 (59,586) 528,013 Net deferred income tax assets (liabilities) (48,205) 270, ,475 ============ ============ =========== The Company periodically assesses its ability to recover deferred income tax assets. In the event of a significant uncertainty regarding the Company's ultimate ability to recover such assets, a valuation allowance is recorded to reduce the assets to its estimated realizable value. The Company did not recognize the income tax effect of a 412,908 million temporary difference resulting from the revaluation of land, as the Company does not expect cash inflows from the revalued land within five years. The Company did not recognize the income tax effect of a temporary difference resulting from earnings arising from investments using the equity method, as the Company does not expect cash inflows, such as proceeds from the disposal of or receipts of dividends, from the investments using the equity method within five years. 57

50 24. Earnings Per Share: Earnings per share are calculated as follows (in millions of Korean Won except for per share amounts which are in Korean Won): Basic earnings per share: Net income 2,258,570 3,822,704 Adjustments: Dividends for preferred stock (59,784) (22,974) Undeclared participating preferred stock dividend (239,047) (487,348) Net income available for common stock 1,959,739 3,312,382 Weighted-average number of shares of common stock outstanding 142,985, ,386,036 Basic earnings per share 13,706 22,628 ============== ============= Diluted earnings per share: Net income available for common stock 1,959,739 3,312,382 Adjustment: Interest expense on convertible bonds 1,037 7,224 Net income available for common stock and common equivalent shares 1,960,776 3,319,606 Weighted-average number of shares of common stock and common equivalent shares (*) outstanding 143,692, ,597,288 Diluted earnings per share 13,646 22,340 ============== ============= 58

51 24. Earnings Per Share, (*) Common equivalent shares 2003 Number of Shares Weight Common Stock Equivalent Convertible bond US$49,740 thousand 537, / ,915 Stock options 168, / , ,763 ============= The number of dilutive shares of outstanding stock options are computed by applying the treasury stock method. Under the treasury stock method, the proceeds from the exercise of the stock options are assumed to be used to purchase common stock at the average market price. The incremental shares (the difference between the number of shares assumed to be issued and the number of shares assumed to be purchased) is included in the denominator of the diluted earnings per share computation Number of Shares Weight Common Stock Equivalent Convertible bond US$72,900 thousand 788, / ,380 US$90,430 thousand 497, / ,334 US$200,000 thousand 925, / ,538 2,211,252 ============= 59

52 25. Related Party Transactions: Significant transactions with related parties for the six-month periods ended June 30, 2003 and 2002 and the related receivables and payables as of June 30, 2003 and December 31, 2002 are as follows: Millions of Won, Thousands of U.S. Dollars Sales Purchases Receivables Payables Company (Local Company) Samsung Corporation 36,519 40, , ,224 21,627 19, , ,640 Samsung Kwangju Electronics Co., Ltd. 1,088 4, , , ,872 38,587 31,506 DNS Korea Co., Ltd. 2, ,651 9,721 2,172 1,418 22,815 14,931 Seoul Commtech Co., Ltd. 2,891 2,576 96,764 62,067 2, ,770 20,577 Service Co., Ltd. 64,366 59,340 84,732 74,393 43,496 41,088 39,009 19,609 Samsung Card Co., Ltd ,063 9, , ,814 1,278,694 Living Plaza 412, ,469 11,702 5,911-9,918 42,793 5,053 i Market Korea Inc. 40,524 35, ,305 75,088 30,224 30,692 48,189 10,921 Bluetek Co., Ltd. 7,582 9,321 39,836 49,419 4,863 3,055 23,137 4,633 Tolos Co., Ltd ,053 76, ,878 17,301 Samsung SDI Co., Ltd. 109, , , ,765 17,881 26, , ,717 Samsung Electro-Mechanics Co., Ltd. 14,164 14, , ,011 1,067 13,523 69,851 29,815 Samsung Heavy Industries Co., Ltd. 2,572 6,509 41,212 21,629 1,960 4,947 5,464 3 Samsung Life Insurance Co., Ltd. 12,867 4,727 4,063 1,671 36,452 36,488 2,015 3,192 Samsung Corning Co., Ltd. 1,857 1,899 9, , Samsung Everland ,572 62, , ,469 17,828 14,502 Samsung SDS Co., Ltd. 13,847 18, , , ,484 51,088 38,739 S1 1,658 3,125 22,010 6, , Other local companies 10,592 10, , ,645 37,224 35, , , , ,908 3,576,105 3,195, , ,023 1,189,150 1,907,087 ========== =========== ========== ============ ========== ========= =========== ============ 60

53 25. Related Party Transactions, Continued: Millions of Won, Thousands of U.S. Dollars Sales Purchases Receivables Payables Company (Foreign Company) Samsung Semiconductor Inc. $ 1,451,682 $ 1,874,166 $ 9 $ - $ 2,009 $ 114 $ - $ 2,318 Samsung Telecommunications America Inc. 1,100, ,465 5,553-2, ,693 12,359 Samsung Japan Co., Ltd. 1,245,551 1,200,493 1,731,202 1,143, ,327 93,002 Taiwan Co., Ltd. 863, , , , , Samsung Semiconductor Europe GmbH 694, , Hong Kong Co., Ltd. 585, , , , ,184 Samsung Asia Private Ltd. 619, , , ,711 10, Overseas B.V. 458, , ,353 2,355 4 Iberia, S.A. 336, , ,169 1, Europe Logistics B.V. 123,214 57, , Tianjin Samsung Telecom Technology Co., Ltd. 368,594 57, , France S.A.S 248, , , (UK) Ltd. 305, , ,250 America Inc. 103,209 35, , , ,839 Other foreign companies 3,886,929 3,421, , , ,294 85,637 21,640 48,148 $12,391,232 $ 10,538,886 $ 3,475,688 $ 2,925,188 $ 235,920 $ 116,636 $ 152,506 $ 212,319 ============ ============= ============ ============ =========== =========== =========== ========== In addition, during the six-month period ended June 30, 2002, Samsung Corporation executed an exportation amounting to 11,364,464 million and importation amounting to 412,883 million of goods on behalf of the Company. Furthermore, the balance of receivables from Samsung Card Co., Ltd. as of June 30, 2003 and December 31, 2002 resulting from the credit purchase facility agreement (Note 16) amounted to 751 million and 26,592 million, respectively, and the balances of payables to Samsung Card Co., Ltd. resulting from the credit purchase facility agreement amounted to 128,814 million and 1,278,324 million as of June 30, 2003 and December 31, 2002, respectively. Furthermore, as of December 31, 2002, the balances of Money Market Fund from Samsung Securities Co., Ltd. amounted to 530,025 million, and as of June 30, 2003 and December 31, 2002, securities from Samsung Securities Co., Ltd. amounted to 811,262 million and 1,006,010 million, respectively. The balances of local currency loans from Samsung Card Co., Ltd. amounted to 14 million and 28 million, as of June 30, 2003 and December 31, 2002, respectively (Notes 4, 5 and 13). 61

54 26. Research and Development Costs: Research and development costs incurred and expensed for the six-month periods ended June 30, 2003 and 2002 comprise the following: Millions Research expenses 627, ,632 Ordinary development expenses 1,011, ,210 1,638,911 1,326,842 ============== ============= Research and development costs incurred and expensed for the three-month periods ended June 30, 2003 and 2002 comprise the following: Millions Research expenses 336, ,379 Ordinary development expenses 542, , , ,400 ============== ============= 27. Foreign Currency Translation: As of June 30, 2003 and December 31, 2002, assets and liabilities dominated in foreign currencies and related gains and losses on foreign currency translation for the six-month period ended June 30, 2003 are as follows: Thousands Millions Foreign Korean Won Translation Translation Korean Won Account Currencies (Translated) Loss Gain (Translated) Foreign currency USD 60,063,699 71, ,429 deposits JPY 3,015,938,000 30, ,486 Others 93, , , ,996 Trade accounts USD 355,436, ,072 7, ,569 and notes receivable JPY 5,699,687,554 56, ,839 53,328 EUR 18,477,462 25, Others ,525 8,296 2, ,484 62

55 27. Foreign Currency Translation, Thousands Millions Foreign Korean Won Translation Translation Korean Won Account Currencies (Translated) Loss Gain (Translated) Other accounts USD 93,457, ,504 2, ,710 and notes EUR 2,469,087 3, ,292 receivable Others 2, , ,100 2, ,955 Other assets USD 35,808,441 42, ,977 EUR 896,342 1, ,912 Others - 4, ,384 48, ,273 Trade accounts USD 212,660, , ,238 and notes JPY 17,283,788, , , ,013 payable EUR 6,712,779 9, ,497 Others , , ,012 Other accounts USD 291,910, ,279 3,839 5, ,669 and notes EUR 32,613,765 44,431 1, ,421 payable JPY 11,391,796, , ,016 53,458 Others 6, , ,809 5,181 7, ,668 63

56 27. Foreign Currency Translation, Thousands Millions Foreign Korean Won Translation Translation Korean Won Account Currencies (Translated) Loss Gain (Translated) Other current USD 409,456, , , ,231 liabilities JPY 1,175,022,306 11, ,887 EUR 21,048,947 28, ,172 Others 7, , , , ,429 Other long-term USD 145,536, , ,412 liabilities (including current portions) Foreign currency USD 149,740, , ,812 notes and bonds JPY ,803 (including current 177, ,615 portions) Long-term debt USD 522, ,970 (including current portions) Total 17,276 17,559 ========== =========== 64

57 28. Supplementary Information For Computation of Value Added: The accounts and amounts, included in cost of sales and selling, general and administrative expenses, needed for the computation of value added for the six-month periods ended June 30, 2003 and 2002 are as follows: Millions Wages and salaries 1,263,147 1,154,477 Provision for severance benefits 157, ,093 Employee benefits 174, ,724 Rent 27,005 63,642 Depreciation and amortization expenses 1,737,093 1,510,232 Taxes and dues 94,207 66,693 3,453,280 3,114,861 ============= ============= 29. Segment Information: A summary of financial data by business segment and geographic area as of June 30, 2003 and 2002, and for the six-month periods then ended, are as follows (in millions of Won): 2003 Summary of Business by Segment Digital Digital Telecomm Device Media Appliances -unications Solution Others Sales Net sales to external customers 3,719,314 1,774,276 6,513,093 7,283, ,334 Intersegment sales 13,781 11, ,634 75,468 3,733,095 1,786,083 6,513,799 7,873, ,802 ========== ========== ========== ========== ========== Operating profit 140,303 11,140 1,228,826 1,130,689 1,541 ========== ========== ========== ========== ========== Property, plant and equipment & Intangible assets 323, ,857 1,052,662 12,069,439 2,513,768 ========== ========== ========== ========== ========== Depreciation & Amortization 26,185 14,525 81,147 1,559,467 55,769 ========== ========== ========== ========== ========== 65

58 29. Segment Information, 2002 Summary of Business by Segment Digital Digital Telecomm Device Media Appliances -unications Solution Others Sales Net sales to external customers 4,474,992 1,900,728 5,700,270 7,088, ,341 Intersegment sales 11,082 6, ,076 6,719 4,486,074 1,906,729 5,700,274 7,762, ,060 ========== ========== ========== ========== ========== Operating profit (loss) 442, ,444 1,416,258 2,084,709 (86,069) ========== ========== ========== ========== ========== Property, plant and equipment & Intangible assets 325, ,053 1,030,865 9,483,857 2,406,125 ========== ========== ========== ========== ========== Depreciation & Amortization 24,661 13,199 81,114 1,334,445 56,813 ========== ========== ========== ========== ========== Summary of Sales by Geographic Area Asia (excluding South Korea South Korea) Europe America Africa ,480,466 6,255,941 4,457,647 4,143,094 98,722 =========== =========== ========== ========== =========== ,730,558 4,552,689 3,834,855 5,255,339 62,631 =========== =========== ========== ========== =========== 66

59 30. Reclassification of Prior Year Financial Statement Presentation: Certain amounts in the financial statements as of December 31, 2002 and for the three-month period and six-month period ended March 31, 2002 have been reclassified to conform to the 2003 presentation. These reclassifications had no effect on previously reported net income or shareholders equity other than those mentioned herein. The Company changed its method of accounting for royalty income from rendering technology to recording it as part of sales from recording it as part of other income. As a result of the change, sales increased by 222,583 million and 151,175 million for the three-month periods ended June 30, 2003 and 2002, respectively, than what would have been reported under the previous method. The Company also changed its method of accounting for sales incentives to treating it as a subtraction from sales from previously presenting it as part of selling, general and administrative expenses. As a result of the change, sales decreased by 173,185 million and 143,982 million for the three-month periods ended June 30, 2003 and 2002, respectively, than what would have been reported under the previous method. 67