SAMSUNG ELECTRONICS CO., LTD. December 31, · PDF fileThe Controlling Company - Samsung Electronics Co., Ltd. ... ("SEO") 119,898 100 ... Latinoamerica Miami (ZONA LIBRE) S.A

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SAMSUNG ELECTRONICS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999

1. The Consolidated Companies:

The Controlling Company - Samsung Electronics Co., Ltd. ("SEC"), the controlling company, was established and incorporated under the laws of the Republic of Korea in 1969 to manufacture and sell electronic goods, communication facilities, semiconductors, telecommunication equipment and other similar products. SEC's stock is publicly traded, and all issued and outstanding shares are listed on the Korean Stock Exchange. Under the Articles of Incorporation, SEC is authorized to issue 500,000,000 shares of capital stock (par value:₩5,000), of which 100,000,000 shares are cumulative, participating preferred stock, which are non-voting and entitled to a minimum cash dividend (9% of par value). The non-cumulative, non-voting preferred stock issued on or before February 28, 1997 is entitled to an additional cash dividend (1% of par value) over common stock. At December 31, 1999, 151,214,992 shares of common stock and 23,893,427 shares of such preferred stock were issued and outstanding. As of December 31, 1999, major shareholders of SEC’s stock, including preferred stock, consist of the following: Percentage Name of Shareholder Number of Shares of Ownership (%) CITI BANK N.A 16,800,865 9.59 Samsung Life Insurance Co., Ltd. 10,873,359 6.21 Samsung Corporation 5,917,362 3.38 Lee, Kun-Hee and relatives 5,322,559 3.04 Seoul Bank 4,699,627 2.68 In addition, SEC is authorized to issue convertible debentures and debentures with stock purchase options of face values up to ₩4,000,000 million and ₩2,000,000 million, respectively. SEC is authorized to issue depository receipts free from any preemptive rights by shareholders. Also, SEC is authorized to issue capital stock through the exercise of stock options or general public subscription and to domestic and foreign financial institutions for urgent fund raising or to co-operating companies for technical assistance free from any preemptive rights by shareholders.

Continued;

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued December 31, 1999

1. The Consolidated Companies, Continued:

The Controlling Company, Continued- SEC has a stock option plan under which options to purchase shares of common stock may be granted to key employees up to maximum of 1% of issued shares per employee by the approval of shareholders. No stock options have been granted as of December 31, 1999. SEC issued 9,580,000 shares of common stock for cash at ￦51,300 per share on February 12, 1999 and 15,400,000 shares of common stock for cash at ￦69,900 per share on June 25, 1999. In addition, SEC issued 1,461,359 shares of common stock upon the conversion of foreign currency convertible bonds in the amount of US$ 153,050 thousand in 1999 (see Note 12). The cash proceeds in excess of par value of ￦1,442,785 million and the conversion price in excess of ￦125,335 million were credited to paid-in capital in excess of par value. As of December 31, 1999, ￦675,972,431 thousand (face value of US$ 624,010,000) of convertible bonds are outstanding (see Note 12). No debentures with stock purchase options have been issued as of December 31, 1999.

Consolidated Subsidiaries - The consolidated financial statements include the accounts of SEC and its controlled subsidiaries (collectively referred to as "the Company"). Controlled subsidiaries include majority-owned entities and entities of which the Company owns more than 30% of total outstanding voting stock and is the largest single shareholder.

Continued;

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Consolidated Subsidiaries, Continued- The following table sets forth certain information with regard to consolidated subsidiaries as of December 31, 1999. Investment Amount Percentage of Subsidiaries Thousands of Won Ownership(%) Primary Business Subsidiaries of SEC Samsung Kwangju Electronics Electronic goods Co., Ltd. ("SKEC") ₩ 153,089,701 98.96 manufacturing Samsung Card Co., Ltd. ("WINNER")(a) 153,387,755 56.59 Financing Samsung Finance Co., Ltd. ("SFC")(a) 210,477,729 75.45 Financing STECO, Ltd. ("STECO") 12,239,960 51.00 Semiconductor equipment manufacturing Novita Co., Ltd. Home appliances ("NOVITA")(d) 31,193,683 100.00 manufacturing DNS Korea Co., Ltd. ("DNS") 6,499,532 61.08 Semiconductor equipment manufacturing Samsung Electronics Service Service center of Co., Ltd. ("SSVC") 29,999,990 83.33 electronic goods Samsung Motors Inc. ("MOTORS")(e) 463,258,185 40.02 Vehicle manufacturing Samsung Electronics Canada Inc. ("SECA") 37,910,597 100.00 Sale of electronic goods Samsung Electronics America, Inc. ("SEA") 584,138,017 100.00 Sale of electronic goods Samsung Electronics Latinoamerica Panama (ZONA LIBRE) S.A. 43,842,300 100.00 Sale of electronic goods Samsung Electronics Mexico S. A. de C. V. 30,767,040 100.00 Sale of electronic goods Varimetrix corp ("VX")(b) 400,145 54.80 CAD/Software development Continued;

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Consolidated Subsidiaries, Continued- Investment Amount Percentage of Subsidiaries Thousands of Won Ownership(%) Primary Business Subsidiaries of SEC, continued: Samsung Electronics A/V & home appliances Argentina S. A. ("SEASA") ￦ 50,227,700 100.00 sales Cagent Technologies, Inc. ("C.E.T.") 22,162,492 91.48 Sale of Hardware Alpha Processor Inc. ("API")(f) 46,571,928 90.62 Sale of Alpha CPU Samsung Glass America Inc. ("SGA.") 5,703,309 61.04 Holding company Samsung Electronica Espanola S.A. ("SESA") 65,221,118 100.00 A/V(VCR) manufacturing Samsung Electronics Svenska AB. ("SESAB") 16,153,454 100.00 Sale of electronic goods Samsung Electronics Hungarian Co., Ltd. ("SEH") 48,397,117 100.00 A/V(CTV) manufacturing Samsung Electronica Portuguesa S.A. ("SEP") 12,594,048 100.00 Sale of electronic goods Samsung Electronics France S.A. ("SEF")(d) 39,433,410 100.00 Sale of electronic goods Samsung Europe PLC ("SEPLC") 179,626,805 100.00 Holding company Samsung Electronics (UK) Ltd. ("SEUK") 8,280,489 5.17 Sale of electronic goods Samsung Electronics Holding GmbH. ("SEHG") 77,607,622 100.00 Holding company Samsung Electronics Italia, S.p.A. ("SEI") 56,778,556 100.00 Sale of electronic goods Continued;

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Consolidated Subsidiaries, Continued- Investment Amount Percentage of Subsidiaries Thousands of Won Ownership(%) Primary Business Subsidiaries of SEC, continued: Samsung Electronics South Africa (Pty) Ltd. ("SSA") ￦ 39,829,558 100.00 Sale of electronic goods Samsung Electronics Nederland B.V. ("SEN") 38,334,024 100.00 Sale of electronic goods Samsung Electronics Poland, SP. Zo.0 ("SEPOL") 20,097,600 100.00 Sale of electronic goods Samsung Electronics Moscow Service Service center Center, Ltd. ("SMSC")(b) 113,322 95.00 Samsung Russia Service Center, Ltd.(“SRSC”)(b) 706,889 26.00 Service center Samsung Electronics Moscow Co., Ltd. ("SEMCO")(b) 76,245 100.00 Sale of electronic goods Samsung Crosna Joint Stock Company Facsimile machine ("SCT")(b) 2,230,533 71.00 manufacturing Samsung Electronics Overseas B.V. ("SEO") 119,898 100.00 Sales & marketing center Usbekistan Samsung Electronics Electronic goods ("USE")(f) 3,341,000 80.00 manufacturing Samsung Ukraine Service Co., Ltd. ("SUSC")(b) 684,078 100.00 Service center Samsung Almaty Service Co., Ltd. ("SALSC")(b) 717,045 100.00 Service center Samsung Yokohama Research Institute ("SYRI") 33,991,706 100.00 Research center

Continued;

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Consolidated Subsidiaries, Continued- Investment Amount Percentage of Subsidiaries Thousands of Won Ownership(%) Primary Business Subsidiaries of SEC, continued: Samsung Electronics Australia Pty. Ltd. ("SEAU") ￦ 40,457,800 100.00 Sale of electronic goods PT Samsung Electronics Indonesia ("SEIN")(d) 56,910,316 99.99 A/V manufacturing Samsung Asia Pte., Ltd. Semiconductor & home ("SAPL") 20,454,044 70.00 appliances sales Samsung Electronics Display (M) SDN. BHD. ("SDMA") 21,876,246 75.00 Monitor manufacturing Samsung Electronics (M) Home appliances SDN.BHD. ("SEMA") 4,378,136 100.00 manufacturing Samsung Vina Electronics Electronic goods Co., Ltd. ("SAVINA") 13,531,704 81.62 manufacturing Samsung Gulf Electronics Co., Ltd. ("SGE") 7,976,308 100.00 Sale of electronic goods Samsung India Electronics Ltd. Electronic goods ("SIEL") 15,526,467 73.87 manufacturing & sales Thai-Samsung electronics CTV & washing machine Co., Ltd.(“TSE”) 37,422,945 91.50 manufacturing Samsung Electronics India Private Ltd.. ("SEIP")(b) 897,200 100.00 Sale of electronic goods Samsung Electronics Semiconductor & home H.K.Co., Ltd. ("SEHK") 69,029,200 100.00 appliances sales

Continued;

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Consolidated Subsidiaries, Continued- Investment Amount Percentage of Subsidiaries Thousands of Won Ownership(%) Primary Business Subsidiaries of SEC, continued: Samsung Electronics Taiwan Co., Ltd. ("SET") ￦ 1,524,856 100.00 Semiconductor sales Samsung Electronics Hui Zhou Co., Ltd. ("SEHZ") 36,022,618 94.88 A/V(Audio) manufacturing Shandong-Samsung Telecommunications Telecom System (PABX) Co., Ltd. ("SST") 15,562,465 59.00 manufacturing Samsung Electronics Suzhou Semiconductor Semiconductor Co., Ltd. ("SESS") 25,093,560 100.00 manufacturing Suzhou Samsung Electronics Home appliances Co., Ltd. ("SSEC") 64,731,000 82.41 manufacturing Samsung (CHINA) Investment Co., Ltd. ("SCIC") 23,253,000 100.00 Sale of electronic goods Tianjin Samsung Electonics Co., Ltd. ("TSEC") 50,570,084 85.82 VCR manufacturing Shanghai Samsung KangCheng Communications Equipment Co., Ltd. ("SSK")(b) 1,008,934 51.00 Telecom manufacturing Tianjin Samsung Electronics Display Co., Ltd. ("TSED") 9,895,816 59.17 Monitor manufacturing Tianjin Tongguang Samsung Electonics Co., Ltd. ("TTSEC") 122,601,521 94.04 CTV manufacturing

Continued;

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Consolidated Subsidiaries, Continued- Investment Amount Percentage of Subsidiaries Thousands of Won, US$ Ownership(%) Primary Business Subsidiary of DNS KDNS America Inc. ("KDNS.A.")(b) ￦ 71,225 100.00 Sale of electronic goods Subsidiaries of SEA Samsung Receivables Corp. ("SRC")(f) US$ 87,936,215 22.62 Financing Samsung Semiconductor Inc. ("SSI") 155,300,000 100.00 Semiconductor sales Samsung Information Systems America Inc. ("SISA") 11,434,707 100.00 Information system R & D Samsung Telecommunications America Inc. ("STA") 57,500,000 100.00 Telephone sales Samsung International Inc. ("SII") 37,000,000 100.00 A/V(CTV) manufacturing AST Research Inc.(“AST”) 373,849,487 100.00 PC manufacturing & sales Samsung Austin Semiconductor Semiconductors, Inc. ("SAS") 3,900,000 1.11 manufacturing Subsidiaries of SSI Samsung Receivables Corp. ("SRC")(f) US$ 227,682,283 58.57 Financing Samsung Austin Semiconductor Semiconductors, Inc. ("SAS") 347,100,000 98.89 manufacturing Cagent Technologies, Inc. ("C.E.T.") 248,367 1.11 Sale of Hardware

Continued;

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Consolidated Subsidiaries, Continued- Percentage of Subsidiaries Investment Amount Ownership(%) Primary Business Subsidiaries of AST AST de Mexico S.A.de C.V. ("ASTMEX")(e) US$ 6,216 100.00 Sales & distribution AST Australia Pty, Limited ("ASTAUS")(e) 4,683,246 100.00 Sales & distribution AST Research (Far East) Limited ("ASTFE") 3,044,103 100.00 Manufacturing AST Computer & Services(M) Sdn.Bhd. ("ASTMAL") 39,208 100.00 Sales & distribution AST Singapore Pte.,Ltd. ("ASTSIN") 217,725 100.00 Sales & distribution AST Taiwan Ltd. ("ASTTAI") 3,395,642 100.00 Manufacturing AST Computer (China)Limited. Manufacture process and ("ASTCHI") 5,760,000 100.00 sale of computer parts AST Research France S.A.R.I. ("ASTFRA") 19,561,873 100.00 Sales & distribution AST Holdings Ireland Limited ("ASTHIRE") 22,875,400 100.00 Holding company AST U.K. ("ASTUK") 35,378,352 100.00 Sales & distribution AST Research Italia S.p.A. ("ASTITA")(e) 21,956,834 100.00 Sales & distribution AST Sweden AB. ("ASTSWE") 21,293,402 100.00 Sales & distribution AST Norway AS ("ASTNOR") 7,701,390 100.00 Sales & distribution AST Research Swithzerland S.A. ("ASTSWI") 23,367,330 100.00 Sales & distribution AST Research Deutschland GmbH. ("ASTGER")(e) 17,087,885 100.00 Sales & distribution

Continued;

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Consolidated Subsidiaries, Continued- Percentage of Subsidiaries Investment Amount Ownership(%) Primary Business Subsidiary of ASTHIRE AST Ireland Limited ("ASTIRE") US$ 22,875,397 100.00 Manufacturing Subsidiary of SISA Samsung Receivables Corp. ("SRC")(f) US$ 34,604,889 8.90 Financing Subsidiary of SII Samsung Mexicana S.A. de C.V. ("SAMEX") US$ 1,350 100.00 A/V(CTV) manufacturing Subsidiary of STA Samsung Receivables Corp. ("SRC")(f) US$ 38,544,508 9.91 Financing Subsidiaries of SELAPA Samsung Electronics Latinoamerica Miami (ZONA LIBRE) S.A. (“SELAMI”) US$ 4,010,000 100.00 Sale of electronic goods Samsung Electronics Latinoamerica, Colombia (ZONA LIBRE) S.A. (“SELACOL”) US$ 3,000,000 100.00 Sale of electronic goods Samsung Electronica Da Amazonia LTDA.("SEDA") US$ 25,000,001 100.00 A/V(CTV) manufacturing

Continued;

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Consolidated Subsidiaries, Continued- Percentage of Subsidiaries Investment Amount Ownership(%) Primary Business

Subsidiaries of SEPLC Samsung Electronics (UK) Ltd.("SEUK") £ 80,546,000 94.83 Sale of electronic goods Samsung Semiconductor Europe Ltd. ("SSEL") 18,000,000 100.00 Semiconductor sales Subsidiaries of SEUK Samsung Electronics Manufacturing (U.K.) Ltd. Electronic goods ("SEMUK") £ 56,730,000 100.00 manufacturing Samsung Telecom(U.K) Ltd. ("STUK")(f) 4,046,000 100.00 Sale of electronic goods Subsidiaries of SEHG Samsung Electronics GmbH. ("SEG") DEM 88,610,000 100.00 Sale of electronic goods Samsung Semiconductor Europe GmbH. ("SSEG") 16,000,000 100.00 Semiconductor sales Subsidiary of SEI Samsung Telephone Systems Telecommunication Italia, S.p.A. ("STI") ITL 2,288,000,000 100.00 equipment sales Subsidiary of SEN Samsung Electionics Rus, Moscow ("SER")(c) NLG 174,436 100.00 Sales & marketing center Subsidiary of SMSC Samsung Russia Service Center, Ltd. ("SRSC")(b) RUR 6,621,880,000 74.00 Service center

Continued;

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Subsidiary of SEO SGM Ltd. Moscow, Russia Federation("SGM")(c) US$ 907,085 50.00 Real estate management Subsidiary of SEAU Samsung Telecommunications Australia Pty Ltd. Telecommunication ("STAU")(c) AUD 185,761 100.00 System manufacturing Subsidiaries of SAPL Samsung Electronics Philippines Corporation ("SEPCO") SGD 16,911,918 100.00 Sale of electronic goods Samsung Electronics Display (M) SDN. BHD. ("SDMA") 13,411,300 25.00 Monitor manufacturing Subsidiary of SDMA Tianjin Samsung Electronics Display Co., Ltd. ("TSED") MYR 10,953,750 20.83 Monitor manufacturing Subsidiaries of SCIC Suzhou Samsung Electronics Home appliances Co., Ltd. ("SSEC") CNY 35,185,325 5.86 manufacturing Shandong-Samsung Telecommunications Telecom. System(PABX) Co., Ltd. ("SST") 24,671,122 10.00 manufacturing Samsung Electronics Hui Zhou Co., Ltd. ("SEHZ") 12,418,290 5.12 A/C(Audio) manufacturing

Continued;

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Subsidiaries of SCIC, Continued: Tianjin Samsung Electronics Co., Ltd. ("TSEC") CNY 18,544,736 4.73 VCR manufacturing Tianjin Tongguang Samsung Electronics Co., Ltd. ("TTSEC") 16,392,222 1.99 CTV manufacturing Subsidiary of SET IVT (b) TWD 14,999,940 99.99 Service center (a) The accounts of these subsidiaries are excluded from the accompanying 1999 consolidated

financial statements due to the dissimilar nature of their operations. Investments in these companies are reflected in the 1999 consolidated financial statements using the equity method.

(b) The accounts of these subsidiaries are excluded from the accompanying 1999 consolidated

financial statements due to their small size as of December 31, 1998 and, accordingly, their exclusion has no material effect on the consolidated statements. Investments in these companies are reflected in the 1999 consolidated financial statements using the cost method.

(c) The accounts of these subsidiaries are excluded from the accompanying 1999 consolidated

financial statements as they have commenced operations in 1999.

(d) ASAN, DMS and SENI, which were included in the 1998 consolidated financial statements, are merged into NOVITA, SEF and SEIN, respectively.

(e) The accounts of NPSA, ROLLEI, RDSA, NTCL, IHCH, SCH, LUX and BETHANY are

excluded from the accompanying 1999 consolidated financial statements due to disposal of the Company’s investments. The accounts of SWC, SESOY, ASTCAN, ASTME, ASTNZ, ASTDEN, ASTFIN, ASTII and ASTDIRE are excluded from the accompanying 1999 consolidated financial statements due to liquidation of the entities and MOTORS, ASTAUS, ASTMEX, ASTITA and ASTGER are excluded due to being under the process of liquidation at the end of the year.

(f) The accounts of API, USE, SRC and STUK are included in the consolidated financial

statements for the first time. The following table sets forth financial information with regard to the above companies (Unit : million Won).

Continued;

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Consolidated Subsidiaries, Continued-

(1) Subsidiaries which were newly included in consolidation

API USE SRC STUK Current assets Quick assets ₩ 61,287 ₩ 13,408 ₩ 461,236 ₩ 6,408 Inventories 5,910 1,189 - 4,935 Non-current assets Investments 934 - - - Tangible assets 2,463 3,035 - 459 Intangible assets - 203 - - Total assets ₩ 70,594 ₩ 17,835 ₩ 461,236 ₩ 11,802 =========== ============ =========== ========== Current liabilities ₩ 23,157 ₩ 8,838 ₩ 20,840 ₩ 3,910 Long-term liabilities 320 - - - Total liabilities 23,477 8,838 20,840 3,910 Capital stock 51,503 3,356 440,396 8,478 Capital surplus - 817 - - Retained earnings (Accumulated deficit) (3,285) 318 - 143 Net income (loss) 5,138 4,146 - 421 Capital adjustment (6,239) 360 - (1,150) Total shareholders’ equity 47,117 8,997 440,396 7,892 Total liabilities and shareholders’ equity ₩ 70,594 ₩ 17,835 ₩ 461,236 ₩ 11,802 =========== ============ =========== =========== Sales ₩ 149,516 ₩ 19,865 ₩ - ₩ 25,025 Cost of sales 117,831 8,251 - 14,202 Gross profit 31,685 11,614 - 10,823 Selling and administrative expenses 26,745 3,512 - 10,478 Operating income 4,940 8,102 - 345 Non-operating income 1,420 1,143 177,036 921 Non-operating expense - 5,112 177,036 402 Ordinary income 6,360 4,133 - 864 Extraordinary gains - 13 - - Extraordinary losses - - - - Net income before income taxes 6,360 4,146 - 864 Income taxes 1,222 - - 443 Net income ₩ 5,138 ₩ 4,146 ₩ - ₩ 421 =========== =========== =========== ========== Continued;

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Consolidated Subsidiaries, Continued- (2) Subsidiaries which were excluded from consolidation (Financial status of 1998)

SWC LUX BETHANY ROLLEI Other Total Current assets Quick assets ￦ 14,006 ￦ 4,383 ￦ 2,099 ￦ 19,134 ￦ 16,203 ￦ 55,825 Inventories - 6,137 2,603 25,217 2,920 36,877 Non-current assets Investments 34 1,532 397 936 120,782 123,681 Tangible assets 7 1,814 3,489 17,178 15,513 38,001 Intangible assets 232 - 388 19,258 1,136 21,014 Total assets ￦ 14,279 ￦ 13,866 ￦ 8,976 ￦ 81,723 ￦ 156,554 ￦ 275,398 ========= ========= ========= ======== ======== ========= Current liabilities ￦ 723 ￦ 23,979 ￦ 3,292 ￦ 52,772 ￦ 23,006 ￦ 103,772 Long-term liabilities 24,981 354 4,414 22 17,761 47,532 Total liabilities 25,704 24,333 7,706 52,794 40,767 151,304 Capital stock 130,800 13,428 7,502 11,634 184,586 347,950 Capital surplus - 10,172 - 29,786 46,026 85,984 Accumulated deficit (85,398) (25,339) (3,025) (13,927) (57,959) (185,648) Net income(loss) (56,827) (8,810) (3,880) 1,590 (65,205) (133,132) Capital adjustment - 82 673 (154) 8,339 8,940 Total shareholders’ equity (11,425) (10,467) 1,270 28,929 115,787 124,094 Total liabilities and ￦ 14,279 ￦ 13,866 ￦ 8,976 ￦ 81,723 ￦ 156,554 ￦ 275,398 shareholders’ equity ========= ========= ========= ======== ======== ========= Sales ￦ 14,935 ￦ 16,872 ￦ 10,475 ￦ 46,027 ￦ 40,099 ￦ 128,408 Cost of sales 11,487 14,028 7,286 29,599 47,340 109,740 Gross profit 3,448 2,844 3,189 16,428 (7,241) 18,668 Selling and administrative expenses 20,766 7,908 5,549 33,109 11,282 78,614 Operating loss 17,318 5,064 2,360 16,681 18,523 59,946 Non-operating income 3,414 317 603 19,942 5,445 29,721 Non-operating expense 17,856 585 2,123 666 51,417 72,647 Ordinary income(loss) (31,760) (5,332) (3,880) 2,595 (64,495) (102,872) Extraordinary gains - 167 - - 6,076 6,243 Extraordinary losses 25,065 957 - - 6,694 32,716 Net income(loss) before income taxes (56,825) (6,122) (3,880) 2,595 (65,113) (129,345) Income taxes 2 2,688 - 1,005 92 3,787 Net income(loss) ￦ (56,827) ￦ (8,810) ￦ (3,880) ￦ 1,590 ￦ (65,205) ￦ (133,132) ========= ========= ========= ======== ======== ========= Continued;

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Equity-Method Investees -

Investments in subsidiaries having dissimilar operations and affiliated companies whose equity is owned 20% to 50% by SEC are accounted for using the equity method (see Notes 2 and 9).

The following table sets forth certain information with regard to the equity-method investees as of December 31, 1999.

Investment Amount Percentage Recorded Book Valu Affiliated companies Thousands of Won of Ownership(%) Thousands of Won Affiliates of SEC Samsung Lions Co., Ltd. 275,000 27.50 ￦ - Towa Korea Co., Ltd. 800,000 40.00 613,494 Samsung Card Co., Ltd. ("WINNER") 153,387,755 56.59 208,047,564 Samsung Economic Research Institute. 8,940,000 29.80 9,014,557 Samsung SDS Co., Ltd. 17,966,660 29.94 29,469,892 Posco Huls Co., Ltd. 17,200,000 20.00 14,436,732 Samsung Electro-Mechanics Co., Ltd. 305,698,344 21.32 288,843,852 Samsung Finance Co., Ltd. ("SFC") 210,477,729 75.45 212,687,167 Seoul Commtech Co., Ltd. 4,191,977 30.30 10,258,024 Samsung Corning Co., Ltd. 94,263,035 48.36 180,071,678 Samsung Motors Inc. (“MOTORS”) 463,258,185 40.02 - Samsung Aerospace Industries Ltd.. 196,321,791 22.93 195,521,505 Samsung Venture Investment Co., Ltd. 4,900,000 24.50 4,900,000 Samsung Corning Micro-Optics Co., Ltd. 3,234,000 49.00 3,234,000 Samsung Japan Co., Ltd.(“SJC”) 47,766,973 49.00 63,581,701 Union Optical Co., Ltd. 17,388,905 20.00 2,220,455 Joong-Ang Daily News California, Inc. 2,889,682 25.42 3,861,021 Norpak Corporation (“NORPAK”) 1,018,116 21.54 1,018,116 Samsung Portugal Productos Electro-mechanicos S.A. (“SPEM”) 2,123,880 24.15 2,514,488 Samsung Electronics Ticaret S.A. (“SETAS”) 1,371,004 20.00 1,371,004 PrimeTel Ltd.("PrimeTel") 19,070,717 50.00 14,218,089 Syrian-Korean Telecommunication Equipment Manufacturing Establishment Co., Ltd. (“SKT”) 2,060,925 49.00 3,834,498 Affiliate of SGA Video Monitors de Mexico US$ 6,562,500 43.75 4,214,805 Affiliates of SAPL Skyworld Corporation ("SKY") SGD 2,825,800 25.00 2,018,566 Samsung Devices(M) SDN BHO (“SEDM”) 30,447,627 25.00 26,397,290 Samsung Electro-Mechanics. Thailand Co., Ltd.(“SEMTHAI”) 5,715,138 25.00 6,265,081 Affiliate of SET CAME TWD 20,000,000 25.00 20,000,000

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Continued; SAMSUNG ELECTRONICS CO., LTD.



Equity-Method Investees, Continued- In 1999, the accounts of NORPAK, CAME and SETAS are excluded from using the equity method due to the small scale of assets as of December 31, 1998. Samsung Venture Investment Co., Ltd. and Samsung Corning Micro-Optics Co., Ltd. are excluded from using the equity method due to the establishment in 1999. Due to the accumulated deficit of Samsung Lions Co., Ltd., Samsung Motors Inc., which reduced the Company’s investment in these companies to zero as of December 31, 1999, the equity method of accounting was not applied to account for these investments.

2. Summary of Significant Accounting Policies :

The significant accounting policies followed by the Company in preparation of the accompanying consolidated financial statements are summarized below.

Transitional Presentation of Comparative Financial statements – In accordance with the transition clause of the revised financial accounting standards generally accepted in the Republic of Korea effective January 1, 1999, the Company has not presented comparative financial statement for the year ended December 31, 1999. Basis of Consolidated Financial Statement Presentation - The official accounting records of the Company, on which the Korean language consolidated financial statements are based, are maintained in Korean Won in accordance with the laws and regulations of the Republic of Korea. The accompanying consolidated financial statements have been extracted from the Company’s Korean language consolidated financial statements that were prepared using accounting principles, procedures and reporting practices generally accepted in the Republic of Korea. These standards vary from International Accounting Standards and the accounting principles generally accepted in the country of the reader. The consolidated financial statements have been translated from Korean into English, and have been formatted in a manner different from the presentation under Korean financial statement practices. Certain supplementary information included in the Korean language statutory financial statements but not required for a fair presentation of the Company’s financial position, results of operations, or cash flows is not presented in the accompanying consolidated financial statements. Accordingly, the accompanying consolidated financial statements are not intended to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in countries and jurisdictions other than the Republic of Korea. The preparation of consolidated financial statements requires management to make estimates and assumptions that effect amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may differ from those estimates.

Continued;

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2. Summary of Significant Accounting Policies, Continued:

Cumulative Effect of Significant Changes in Financial Accounting Standards - Effective January 1, 1999, the financial accounting policies of the Company have been significantly changed in accordance with the changes of accounting principles generally accepted in Korea. The cumulative effects on assets and liabilities arising in accordance with adoption of revised standards were added to or deducted from the beginning balance of retained earnings, capital surplus or capital adjustments pursuant to the addendum to the revised financial accounting standards. A summary of the cumulative effects and variation of net income from the changes in financial accounting standards is as follows : Millions of Won Beginning Capital Capital Retained Earnings Surplus Net income Adjustment Valuation of equity investments ₩ (621,901) ₩ - ₩ 144,216 ₩ (17,890) Adoption of deferred income taxes 853,904 537,734 (272,037) - Recognition of derivative instruments (22,183) - 12,876 (3,794) Valuation of assets and liabilities at present value, and others (1,981) (230) (5,693) (121) ₩ 207,839 ₩ 537,504 ₩ (120,638) ₩ (21,805) =========== ======== ========= ========

Principles of Consolidation - The accompanying consolidated financial statements include the accounts of SEC and certain majority-owned domestic and foreign subsidiaries as presented in Note 1. All significant intercompany transactions and balances have been eliminated on consolidation. Investments in subsidiaries whose operations are dissimilar to those of the Company and investments in affiliated companies of which the Company holds a 20% to 50% interest are accounted for using the equity method. Under the equity method, the original investment is recorded at cost and adjusted by the Company's share of undistributed earnings or losses (see Note 9). The Company records differences between the investment account and corresponding capital account of subsidiaries as a consolidation adjustment. The consolidation adjustment is amortized over five years using the straight-line method. Likewise, differences between the investment account and corresponding capital account of equity-method investee companies at the date of acquisition of the investment are amortized over five years using the straight-line method.

Continued;

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Cash, Cash Equivalents and Short term Financial Instruments - Cash and cash equivalents include cash on hand and in bank accounts, with original maturity 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 - Marketable securities are stated at fair value.

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, other than materials in-transit, are stated at the lower of cost or market value, cost being determined by the average cost method, the moving average method, the first-in, first-out method and the replacement cost. Materials in transit are stated at actual cost as determined by the specific identification method.

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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 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 (see Note 8). Depreciation is computed using the straight-line method based on the estimated useful lives of the assets as described below.

Estimated Useful Lives-years Buildings and auxiliary facilities 2-66 Machinery and equipment 2-15 Tools and fixtures 2-20 Structures and vehicles 2-50

The Company capitalizes interest expense incurred on borrowings used to finance the cost of constructing facilities and equipment (see Note 8). 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.

Continued;

33




Equity Investments in Subsidiaries and Affiliated Companies & Other Investments - All investments in equity and debt securities are initially carried at cost, including incidental expenses. The subsequent accounting for investments by the type of security is as follows. Investments in marketable equity securities of non-controlled investees, classified as other investments, are carried at fair value. Temporary changes in fair value are accounted for in the capital adjustment account, a component of stockholders’ equity. Declines in fair value which are anticipated to be permanent are recorded in current operations after eliminating any previously recorded capital adjustment for temporary changes. Subsequent recoveries or other future changes in fair value are recorded in the capital adjustment account. Investments in non-marketable equity securities of non-controlled investees, classified as other investments, are carried at cost, except for declines in the Company’s proportionate ownership of the underlying book value of the invested company which are anticipated to be permanent, which are recorded in current operations. Subsequent recoveries are also recorded in current operations up to the original cost of the investments. Investments in equity securities of companies over which the Company exerts significant control or influence, classified as equity investments in subsidiaries and affiliated companies, are recorded using the equity method of accounting. Differences between the initial purchase price and the Company’s initial proportionate ownership of the net book value of the invested company are amortized over 5 years using the straight-line method. Under the equity method, the Company records changes in its proportionate ownership of the book value of the invested company as current operations, capital adjustments or adjustments to retained earnings, depending on the nature of the underlying change in book value of the invested company. Certain of the accounting policies for investments stated above represent revised policies that were adopted in the current year in accordance with revisions in generally accepted accounting principles in Korea. As a result of these changes, shareholders’ equity as of December 31, 1999 is approximately ￦495,575 million less and net income for the year ended December 31, 1999 is approximately ￦144,216 million greater than that which would have been reported under the previous accounting method. Stock and debenture issuance cost - Pursuant to the revised generally accepted accounting standards effective January 1, 1999, stock and debenture issuance costs are credited to capital surplus and debenture. As a result of this change, net income for the year ended December 31, 1999 is approximately ₩290 million greater than that which would have been reported under the previous accounting method.

Continued;

34




Accrued Severance Benefits - Employees and directors with more than one year 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 terminated their employment as the balance sheet date. Severance pay expense is calculated based on the net change in accrued severance benefits liability assuming the termination of all eligible employees’ employment as of the beginning and end of the accounting period. As of December 31, 1990, accrued severance benefits were underaccrued by approximately ￦42,255 million. Under the previously prevailing generally accepted accounting standards, SEC was adjusting the underaccrued severance benefits over 10 years beginning in 1991. Pursuant to the revised generally accepted accounting standards effective January 1, 1999, SEC deducted the remaining ￦8,451 million underaccrued severance benefits balance as of December 31, 1998 from retained earnings to account for the remaining underaccrued severance benefits. As a result of this change, shareholders’ equity as of December 31, 1999 is approximately ￦4,225 million less than that which would have been reported under the previous accounting method. Accrued severance benefits are funded approximately 55.3% at December 31, 1999 through a group severance insurance plan with Samsung Life Insurance Company, Ltd. The amounts funded under this insurance plan are classified as a deduction to 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 accrued severance benefits is deposited with the National Pension Fund and deducted from the accrued severance benefits liability. The contributed amount shall be refunded from the National Pension Fund to employees on their retirement.

Continued;

35




Discounts and Premiums on Debentures - Discounts and premiums on debentures represent the difference between the issue price and par value of debentures. Pursuant to the revised generally accepted accounting standards effective January 1, 1999, discounts and premiums on debentures are amortized over the redemption period of the related debentures using the effective interest rate method. The amortization of discount on debentures is recorded as interest expense and the amortization of premiums on debentures is deducted from interest expense. As a result of this change, shareholders’ equity as of December 31, 1999 and net income for the year ended December 31, 1999 are approximately ￦7,581 million and ₩1,912 million, respectively, greater than that which would have been reported under the previous accounting method.

Foreign Currency Translation - Monetary assets and liabilities denominated in foreign currencies are translated into Korean Won at the rates prevailing at the balance sheet date (in the case of U.S. Dollars, US$1 : ￦1,145.40) and resulting translation losses and gains are recognized currently. Foreign currency convertible debentures are translated at a fixed conversion exchange rate in accordance with accounting practices prevailing in the Republic of Korea. Translation of Foreign Operations - Accounts of foreign subsidiaries are maintained in the currencies of the countries in which they operate. In translating the foreign currency financial statements of these subsidiaries into Korean Won, income and expenses are translated at the average rate for the year and assets and liabilities are translated at the rate prevailing on the balance sheet date. Overseas translation gains or losses are offset and the net amount is recorded as either an overseas business translation debit or credit, presented as an addition to or deduction from shareholders' equity.

Continued;

36




Income tax expense - In accordance with revised generally accepted accounting principles in Korea, during the current fiscal year the Company has adopted the deferred method of accounting for income taxes. Under this method, the future tax effects of temporary differences between the financial and tax bases of assets and liabilities are reflected in the balance sheet as of December 31, 1999. As a result of this change, shareholders’ equity as of December 31, 1999 is approximately ₩1,119,601 million greater and net income for the year ended December 31, 1999 is approximately ₩272,037 million less than that which would have been reported under the previous accounting method.

Valuation of Assets and Liabilities at Present Value - Pursuant to the revised generally accepted financial accounting standards effective January 1, 1999, assets acquired and liabilities incurred through long-term installment transactions and accounts and notes receivables under rescheduled debt payments approved by the court are stated at present value. As a result of this change, shareholders’ equity as of December 31, 1999 and net income for the year ended December 31, 1999 are approximately ₩2,452 million and ₩8,729 million, respectively, less than that which would have been reported under the previous method. Earnings Per Share - Earnings per share are computed based on earnings available to common shareholders, using the weighted average number of common shares outstanding during the period. Product Warranties and Performance Guarantees - In conformity with accounting practices prevailing in the Republic of Korea, costs related to repairs, service and other work required in accordance with product warranties and performance guarantees are charged to expense when incurred.

Continued;

37




Derivative Instruments - The Company utilized derivative instruments to reduce its exposure to fluctuations in interest and foreign currency exchange rates. Pursuant to the revised generally accepted accounting standards effective January 1, 1999, rights or obligations derived from derivative instruments are recorded as assets or liabilities at fair value on an accrual basis. Gain or loss on valuation of derivative instruments is recognized as a component of current operations, except for gains or losses on valuation of derivative instruments used to hedge cash flows, which are recorded as a capital adjustment. As a result of this change, shareholders’ equity as of December 31, 1999 is approximately ₩14,081 million less and net income for the year ended December 31, 1999 is approximately ₩11,896 million greater than that which would have been reported under the previous accounting method.

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 are provided herein as supplementary information solely for the convenience of the reader. Won amounts are expressed in U.S. Dollars at the rate of ₩1,145 : US$1, the rate in effect on December 31, 1999. This presentation is not in accordance with accounting principles generally accepted 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 converted, realized or settled in U.S. Dollars at this rate.

Continued;

38



4. Cash and Cash Equivalents, Short-term Financial Instruments :

Cash and cash equivalents and short-term financial instruments at December 31, 1999 consist of the following :

Annual Interest Rates (%) Thousands of Won

(1) Cash and cash equivalents

Cash on hand and in banks - ￦ 10,053,903 Passbook accounts 1 55,442,397 Foreign currency deposits 0 - 7.0 387,757,477

￦ 453,253,777 ==================

(2) Short-term financial instruments

Installment and time deposits 5.8 - 16.5 ￦ 460,369,864 Foreign currency deposits 4.5 - 16.5 467,016,550 Money market deposit accounts 5.3 - 5.5 530,095,523 Trust deposits 10.04 - 13.61 20,135,286 Other financial instruments - 103,800 1,477,721,023 Less : portions classified as non-current (23,138,455)

￦ 1,454,582,568 ==================

At December 31, 1999, bank deposits of ￦54,932 million are pledged as collateral for certain short-term and long-term loans, and are subject to restrictions on withdrawal (see Notes 10 and 11).

39



5. Marketable Securities :

Marketable securities as of December 31, 1999 consist of the following : Annual Interest Rates (%) Thousands of Won Beneficiary securities 4.31 - 8.65 ￦ 245,129,308 Government and public bonds 5.0 - 6.0 313,576 Marketable securities of foreign subsidiaries 4.66 - 5.06 28,823,673 ￦ 274,266,557 ================== At December 31, 1999, marketable securities of ₩38,450 million are pledged as collateral for certain long-term loans (see Note 11).

6. Trade Accounts and Notes Receivable and Valuation of Assets and Liabilities at Present Value :

The outstanding balance of trade accounts and notes receivable sold to financial institution as of December 31, 1999 is as follows (see Note 13).

Millions of Won Asset Backed Securities sold with limited recourse ￦ 589,438 Export accounts and notes receivable sold with recourse 1,523,803 Trade notes receivable sold with recourse 370,089 Trade accounts receivable sold without recourse 128,396 ￦ 2,611,726 ================= Accounts which are valued at present value under rescheduled payment and long-term installment transactions are as follows : Millions of Won Accounts Face Value Discount Present Value Long-term installment Long-term financial transactions instruments and other assets ￦ 4,151 ￦ 742 ￦ 3,409 Other long-term liabilities 205,363 46,110 159,253 Rescheduled Long-term financial instruments and other assets 4,914 1,362 3,552 ￦ 214,428 ￦ 48,214 ￦ 166,214 =========== ========== ==========

40



7. Inventories :

Inventories at December 31, 1999 consist of the following : Thousands of Won Finished goods and merchandise ￦ 1,145,802,544 Semifinished goods and work in process 752,009,169 Raw materials and supplies 1,091,445,978 Materials in transit 493,834,513 ￦ 3,483,092,204 ================== Inventories are insured against fire and other casualty losses up to ￦2,139,974 million at December 31, 1999. At December 31, 1999, ￦294,219 million of land and construction in progress held by the Company, included in merchandise account, are for sale. Related interest costs of ￦29,885 million have been capitalized for the year ended December 31, 1999. At December 31, 1999, inventories of SIEL are pledged as collateral for certain short-term loans (see Note 10).

8. Property, Plant and Equipment :

Property, plant and equipment at December 31, 1999 consist of the following : Thousands of Won Buildings and auxiliary facilities ￦ 3,080,358,355 Machinery and equipment 9,119,527,522 Tools and fixtures 1,321,807,587 Structures and other 212,747,355 13,734,440,819 Less : accumulated depreciation (5,146,477,780) 8,587,963,039 Land 1,860,883,179 Construction in progress 964,701,123 ￦ 11,413,547,341 ================== At December 31, 1999, a certain portion of the Company’s property, plant and equipment, up to a maximum of ₩1,632,558 million is pledged as collateral for various loans from financial institutions (see Notes 10 and 11).

Continued;

41



8. Property, Plant and Equipment, Continued: At December 31, 1999, depreciable assets are insured against fire and other casualty losses, and business interruption losses up to ₩16,534,633 million and ₩7,596,945 million, respectively. At December 31, 1999, the government-appraised value of land owned by SEC and its domestic subsidiaries is ₩1,149,545 million. Interest costs of ₩45,421 million were capitalized for the year ended December 31, 1999. In accordance with the Asset Revaluation Law (see Note 2), effective January 1, 1980, 1982 and 1998, SEC revalued a substantial portion of its property, plant and equipment by ₩18,564 million, ₩14,967 million and ₩956,696 million, respectively, and its investments in equity securities by ₩502 million, ₩649 million and ₩6,956 million, respectively. The revaluation increments, net of revaluation tax and credit to deferred foreign currency translation losses, were credited to other capital surplus, a component of shareholders' equity. In addition, effective April 1, 1999, SEC revalued a substantial portion of its property, plant and equipment by ₩2,056,184 million as follows : Millions of Won Revalued Book Revaluation Amount Value Increment Land ₩ 1,426,789 ₩ 1,011,656 ₩ 415,133 Buildings and auxiliary facilities 1,846,476 1,727,253 119,223 Machinery and equipment 4,851,141 3,383,409 1,467,732 Tools and fixtures 146,003 103,796 42,207 Structures and others 139,407 127,518 11,889 ₩ 8,409,816 ₩ 6,353,632 ₩ 2,056,184 ============ =========== ========== In relation to the above revaluation, additional depreciation expense of ₩1,046,779 million is recorded for the year ended December 31, 1999. The revaluation increment, net of revaluation tax of ₩53,383 million, was offset against deferred foreign exchange losses of ₩811,148 million. The remaining revaluation increment of ₩1,191,653 million has been recorded as other capital surplus.

42



9. Investments :

Equity investments in subsidiaries and affiliated companies and other investments at December 31, 1999 consist of the following :

Thousands of Won Percentage of Acquisition Ownership Cost Recorded Book Value (1) Equity investments in subsidiaries and affiliated companies Subsidiaries : Samsung Capital Co., Ltd. 75.45 ₩ 210,477,729 ₩ 212,687,167 Samsung Card Co., Ltd. 56.59 153,387,755 208,047,564 Total equity investments in subsidiaries 363,865,484 420,734,731 Affiliated companies : Samsung Electro-Mechanics Co., Ltd 21.32 305,698,344 288,843,852 Samsung Aerospace Industries Ltd. 22.93 196,321,791 195,521,505 Seoul Commtech. Co., Ltd. 30.30 4,191,977 10,258,024 Samsung Economic Research Institute 29.80 8,940,000 9,014,557 Samsung SDS Co., Ltd. 29.94 17,966,660 29,469,892 Samsung Corning Co., Ltd. 46.69 94,229,653 180,071,678 Samsung Lions Co., Ltd. 27.50 275,000 - Samsung Motors Inc. 40.02 436,258,185 - Towa Korea Co., Ltd. 40.00 800,000 613,494 Posco Huls Co., Ltd. 20.00 17,200,000 14,436,732 The Joong-Ang Daily News California, Inc. 25.42 2,889,686 3,861,021 Video Monitors de Mexico 43.75 7,434,000 4,214,805 Samsung Portugal Productos Electro-Mechanicos S.A. 24.15 2,123,880 2,514,488 Samsung Devices (M) SDN BHD 25.00 20,702,925 26,397,290 Skyworld Corporation 25.00 1,921,408 2,018,566 Samsung Electro-Mechanics Tailand Co., Ltd. 25.00 3,886,020 6,265,081 Syrian-Korean Telecommunication Equipment Manufacturing Establishment Co., Ltd. 49.00 2,060,925 3,834,498 PrimeTel, Ltd. 50.00 19,070,717 14,218,089 Samsung Japan Co., Ltd. 49.00 47,766,973 63,581,701 Union Optical Co., Ltd. 24.90 22,555,864 2,220,455 Total equity investments in affiliated companies 1,212,294,008 857,355,728 1,576,159,492 1,278,090,459 Continued;

43



9. Investments , Continued : Thousands of Won Acquisition Cost Recorded Book Value (2) Other Investments Investment in listed companies ￦ 1,188,033,442 ￦ 2,899,665,314 Investment in unlisted companies 234,915,604 214,507,648 Securities market stabilization fund 18,508,670 18,760,587 Other 153,538,343 154,473,194 1,594,996,059 3,287,406,743 Total investments ￦ 3,171,155,551 ￦ 4,565,497,202 =============== ===============

In 1999, investments in 13 affiliated companies, including Samsung Electronics India Private, Ltd., were not valued using equity method due to the pending liquidation of the entity or due to the small scale of assets.

At December 31, 1999, the financial condition of other investments, including as Array Micro Sys. Inc., ACC Microelectronics Co., Jazz Multimedia, Inc., Micro Unity Systems Engineering Inc. and Institute for Social Development & Policy Research, have deteriorated significantly. Accordingly, these investments have been written off. The differences between the revalued amount and the acquisition cost were charged to current operations as invested stock reduction loss account.

The cumulative net gain on the valuation of investments in listed companies of ₩1,711,632 million as of December 31, 1999 is recorded in the capital adjustment account.

44



10. Short-Term Borrowings :

Short-term borrowings at December 31, 1999 consist of the following:

Annual Interest Rates (%) Thousands of Won Bank overdraft facilities 8.5 - 10.8 ￦ 1,505,046 General term loans: Commercial banks 8.0 - 10.5 26,500,001 Notes, discounted 9. 2 - 10.17 30,000,000 Usance financing 1.5 - 7.9 10,045,571 Short-term borrowings of foreign subsidiaries 2.0 - 12.0 711,633,455 D/A loan incurred from intercompany transaction 1,554,025,549 ￦ 2,333,709,622 =================

Certain bank deposits, inventories and property, plant and equipment are pledged as collateral for the above loans (see Notes 4, 7 and 8). In addition, SEC guarantees repayment of substantially all short-term borrowings of foreign subsidiaries(see Note 13).

11. Long-Term Debt :

Long-term debt at December 31, 1999 consists of the following: Reference Thousands of Won Won currency loans (A) ￦ 322,662,329 Foreign currency loans, in Won equivalent (B) 1,888,823,111 Debentures (C) 2,220,554,290 4,432,039,730 Less : current maturities (1,170,123,282) ￦ 3,261,916,448 =================

Continued;

45



11. Long-Term Debt, Continued:

(A) Won currency loans at December 31, 1999 consist of the following:

Annual Interest Rates (%) Thousands of Won

Korea Development Bank 5.5 - 10.84 ￦ 264,784,600 Korea Technology Banking Corporation 6 - 6.5 19,544,552 Hanvit Bank 5 - 9.5 6,184,515 Kookmin Bank 6.5 - 12.45 28,975,527 Housing & Commercial Bank 3 704,000 Samsung Card Co., Ltd. 6.5 83,000 Korea Industrial Leasing Company 13.7 - 14.6 2,386,135 ￦ 322,662,329 ================

(B) Long-term debt denominated in foreign currencies at December 31, 1999 consist of the

following:

Annual Interest Thousands of Rates (%) U.S. Dollars Citibank, N.A. LIBOR+0.6 $ 181,222 ING LIBOR+0.45 8,533 Korea Development Bank 6 ..3175-9.29 or 659,729 LIBOR+0.4-0.625 Hana Bank LIBOR+2.5 8,000 Kookmin Bank LIBOR+3.45 2,983 Hanvit Bank LIBOR+0.45 20,000 Bank of Seoul LIBOR+1 8,606 Korea Exchange Bank LIBOR+0.375 56,667 Korea Development Leasing Corporation and others LIBOR+0.65-1.2 495,587 Long-term debt of foreign subsidiaries 0-14.29 207,724 U.S. Dollar equivalent of foreign currencies $ 1,649,051 =============== Won equivalent (in thousands) ₩ 1,888,823,111 ===============

Continued;

46



11. Long-Term Debt, Continued:

(C) Debentures outstanding at December 31, 1999 consist of the following :

Annual Interest Rates (%) Thousands of Won Guaranteed by banks payable through 2001 11.0 - 25.0 ￦ 548,550,000 Floating rate notes, payable at 2001 CD + 0.1 32,000,000 Other, payable through 2003 8 - 15.7 1,686,000,000 2,266,550,000 Add : premiums 10,514 Less : discounts (46,006,224) ￦ 2,220,554,290 =================

At December 31, 1999, certain bank deposits, marketable securities and property, plant and equipment are pledged as collateral for the above long-term loans (see Notes 4, 5 and 8). In addition, repayment of certain long-term debt is guaranteed by various Korean financial institutions and/or certain affiliated companies (see Note 13). Maturities of long-term debt outstanding, excluding premiums and discounts on debentures, at December 31, 1999 are as follows:

Thousands of Won

Won Foreign Currency Currency Debentures Loans Loans Total 2000 ₩ 596,050,000 ₩ 103,968,513 ₩ 474,466,921 ₩ 1,174,485,434 2001 1,637,500,000 115,942,303 859,121,175 2,612,563,478 2002 - 70,392,402 412,790,450 483,182,852 2003 33,000,000 16,514,340 50,626,514 100,140,854 2004 - 6,270,871 19,248,468 25,519,339 Thereafter - 9,573,900 72,569,583 82,143,483 ₩ 2,266,550,000 ₩ 322,662,329 ₩ 1,888,823,111 ₩ 4,478,035,440 ============ ============ ============= =============

47



12. Foreign Currency Notes and Bonds : Unsecured foreign currency notes and bonds at December 31, 1999 consist of the following : Reference Due Date Thousands of Won ECU denominated floating rate notes ( A ) May 16, 2000 ￦ 122,420,352 US$ denominated straight bonds ( B ) November 1, 2002 178,619,403 DM denominated straight bonds ( C ) March 24, 2000 176,481,000 Yen denominated straight bonds ( D ) April 23, 2003 165,920,136 DM denominated straight bonds ( E ) December 16, 2001 176,481,000 US$ denominated straight bonds ( F ) October 1, 2027 114,540,000 US$ denominated straight bonds ( G ) October 1, 2002 175,091,571 Convertible bonds ( H ) December 31, 2006 18,911,736 Convertible bonds ( I ) December 31, 2007 178,650,695 Convertible bonds ( J ) February 1, 2004 117,300,000 Convertible bonds (K) July 30, 2002 120,470,000 Convertible bonds ( L ) January 31, 2003 240,640,000 Foreign subsidiaries Liquid yield option notes (Zero coupon convertible subordinated notes) ( M ) December 14, 2013 338,798 US$ denominated floating rate notes (N) July 27, 2000 214,099,200 US$ denominated fixed rate notes ( O ) May 1, 2003 333,043,200 US$ denominated straight bonds ( P ) October 2, 2002 10,874,880 2,343,881,971 Less : current maturities (513,155,862) Add : premiums 1,158,941 Less : discounts (6,739,422) Add : long-term accrued interest 3,110,418 Less : conversion rights (68,652,265) ￦ 1,759,603,781 ================== Continued;

48



12. Foreign Currency Notes and Bonds, Continued:

(A) ECU denominated floating rate notes -

On May 16, 1995, SEC issued ECU 80 million (US$106,880 thousand) of floating rate notes. These notes are listed on the Luxembourg Stock Exchange, bear interest at ECU Libor plus 0.375% and mature on May 16, 2000. SEC also entered into a Currency Swap contract with Union Bank of Switzerland.

(B) US$ denominated straight bonds -

On November 1, 1992, SEC issued straight bonds of US$200 million at 99.5% of face value for the expansion of its semiconductor product manufacturing facilities. The bonds bear interest at 8.5% per annum and mature on November 1, 2002. SEC redeemed US$ 44,055 thousand of these bonds during 1998 and 1999.

(C) DM denominated straight bonds -

On March 24, 1995, SEC issued straight bonds of DM300 million at 101.75% of face value. The bonds bear interest at 7.5% and mature on March 24, 2000.

(D) Yen denominated straight bonds -

On April 23, 1996, SEC issued straight bonds of ￥20,000 million at face value. The bonds bear interest at 3.3% per annum and mature on April 23, 2003. SEC redeemed ￥5,210 million of these bonds during 1998.

(E) DM denominated straight bonds -

On December 16, 1996, SEC issued straight bonds of DM300 million at face value. The bonds bear interest at 5.375% per annum and mature on December 16, 2001.

( F ) US$ denominated straight bonds -

On October 2, 1997, SEC issued straight bonds of US$ 100 million at 99.85% of face value. The bonds bear interest at 7.7% per annum and mature on October 1, 2027.

Continued;

49




( G ) US$ denominated straight bonds - On October 2, 1997, SEC issued straight bonds of US$ 227 million at 93.11% of face value. The bonds bear interest at 7.45% per annum and will mature on October 1, 2002. SEC redeemed US$ 74,135 thousand of these bonds during 1998 and 1999.

(H) Convertible bonds -

On September 24, 1996, SEC issued foreign currency convertible bonds of US$150 million for the expansion of its manufacturing facilities. The bonds are listed on the London Stock Exchange and will mature on December 31, 2006. A summary of the terms of bonds is as follows :

∙ Interest: 0.25% per annum payable annually in arrears on December 31. ∙ Conversion period: On or after November 24, 1996 through December 15, 2006. ∙ Conversion Price: Subject to adjustment based on certain events, ₩65,499 per share, with a

fixed exchange rate applicable to the conversion of ₩827.3 : US$1.00. ∙ Redemption: Redeemable at the option of the bondholders on September 24, 2001 at

131.1% of the principal amount, and at the option of SEC, at any time on or after October 24, 1996 at a declining redemption price. However, no such redemption may be made prior to September 24, 2001 unless the closing price of SEC’s common shares has reached 135% of the conversion price for a stipulated period.

SEC recorded ₩51,969 million of consideration for conversion rights, the difference between nominal value and the discounted present value at 5.796% guaranteed return rate, as an adjustment to debentures and shareholders’ equity related to the issuance of foreign currency convertible bonds. The conversion rights account is amortized using the effective interest method, and amortization of ₩668 million was recognized as interest expense during 1999. During 1997, US$ 72,440 thousand of convertible bonds were converted into 823,352 shares of common stocks at the conversion price of ₩72,284 per share. During 1999, US$ 54,620 thousand of convertible bonds were converted into 689,856 shares of common stock at the conversion price of ₩65,499 per share. In relation to the conversion to common stock, SEC recorded ₩3,291 million as other capital surplus, the difference between conversion right and related consideration for conversion rights (see Note 1).

Continued;

50




( I ) Convertible bonds - On June 26, 1997, SEC issued foreign currency convertible bonds of US$300 million for the

expansion of its manufacturing facilities. The bonds are listed on the London Stock Exchange and will mature on December 31, 2007. A summary of the terms of bonds is as follows:

ㆍInterest : 0% ㆍConversion period : On or after July 26, 1997 through December 15, 2007. ㆍConversion Price : Subject to adjustment based on certain events, ₩113,351 per share with

a fixed exchange rate applicable to the conversion of ₩888.5 : US$1.00. ㆍRedemption : Redeemable at the option of the bondholders on June 26, 2002 at 131.1% of

the principal amount, and at the option of SEC, at any time on or after June 26, 1999 at a declining redemption price. However, no such redemption may be made prior to June 26, 2002 unless the closing price of SEC’s common shares has reached 135% of the conversion price for a stipulated period.

SEC recorded ₩115,678 million of consideration for conversion rights, the difference

between nominal value and the discounted present value at the 5.558% guaranteed return rate, as an adjustment to debentures and shareholders' equity related to the issuance of foreign currency convertible bonds. The conversion rights account is amortized using the effective interest method and amortization of ₩6,102 million was recognized as interest expense during 1999.

During 1998, US$ 500,000 of convertible bonds was converted to common stock at the

conversion price of ₩123,635 per share. During 1999, US$ 98,430 thousand of convertible bond were converted into 771,503 shares

of common stock at the conversion price of ₩113,351 per share. In relation to the conversion to common stock, SEC recorded ₩4,245 million as other capital surplus, the difference between conversion rights and related consideration for conversion rights (see Note 1).

Continued;

51




( J ) Convertible bonds -

On February 1, 1999, SEC issued foreign currency convertible bonds of US$ 100 million to Intel Corporation. A summary of the terms of 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, 2004. ∙ Conversion Price : Subject to adjustment based on certain events, ₩108,465 per share, with

a fixed exchange rate applicable to the conversion of ₩1,173 : US$1.00. (K) Convertible bonds -

On July 30, 1999, SEC issued foreign currency convertible bonds of US$ 100 million to Apple Computer Inc. Ltd.. A summary of the terms of bonds is as follows :

∙ Interest : 2% per annum payable annually in arrears on December 31. ∙ Conversion period : On or after July 30, 2000 through July 20, 2002. ∙ Conversion Price : Subject to adjustment based on certain events, ₩219,050 per share, with

a fixed exchange rate applicable to the conversion of ₩1,204.7 : US$1.00. SEC recognized interest expense using a 5% effective interest rate. The difference between effective and nominal interest rate was credited to long-term accrued interest. The additional interest expense of ₩1,515 million was recognized as long-term accrued interest during 1999.

(L) Convertible bonds -

On October 15, 1999, SEC issued foreign currency convertible bonds of US$ 200 million to Dell Computer Corporation. A summary of the terms of 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, 2003. ∙ Conversion Price : Subject to adjustment based on certain events, ₩260,000 per share, with

a fixed exchange rate applicable to the conversion of ₩1,203.2 : US$1.00.

SEC recognized interest expense using a 5.143% effective interest rate. The difference between effective and nominal interest rate was credited to long-term accrued interest. The additional interest expense of ₩1,595 million was recognized as long-term accrued interest during 1999.

Continued;

52




(M) Liquid yield option notes -

On December 14, 1993, AST issued US$ 315 million par value Liquid Yield Option Notes

("LYONs") due on December 14, 2013 and received total proceeds of approximately US$111.7 million. The LYONs are zero coupon convertible subordinated notes which are issued at a significant discount from par value. They provide a yield to maturity of 5.25% and a total value at maturity of US$ 315 million, payable in cash. There are no periodic interest payments on the LYONs.

The holder of a LYONs may require AST to purchase all or a portion of its LYONs on

December 14, 1999, December 14, 2003 and December 14, 2008 ("the Purchase Dates"), and such payments may reduce the liquidity of AST. In addition, as of 35 business days after the occurrence of any change in control of AST on or prior to December 14, 1998, each LYONs are purchased for cash by AST, at the option of the holder, for a change in purchase equal to the issue price of the LYONs plus accrued original issue discount through the date set for such purchase.

In accordance with the terms of the LYONs, LYONs were redeemed at US$ 314,701 thousand par value upon the occurrence of a change in control of AST in September, 1997. For redemption of these LYONs, AST issued US$ denominated straight bonds(P) of US$ 136,000,000.

(N) US$ denominated floating rate notes -

In connection with the acquisition of shares of AST Research, Inc., in July 1995, SEA

issued US$189 million of floating rate notes due in 2000 to finance a portion of the acquisition cost. These notes are listed on the Luxembourg Stock Exchange, bear interest at Libor plus 0.35% per annum and will mature on July 27, 2000. These notes may be redeemed earlier at the option of SEA on any interest payment date by giving noteholders proper notice. Repayment of these notes is guaranteed by SEC.

(O) US$ denominated fixed rate notes -

On May 1, 1998, SEA issued fixed rate notes of US$ 300 million at face value. The notes bear interest at 9.75% per annum and will mature on May 1, 2003. The notes are non-callable except in the event of the imposition of certain taxes in the U.S. or the Republic of Korea which would then grant the issuer the right to redeem the note at 100% of their principal amount plus accrued interest. The notes are guaranteed by SEC.

During 1999, SEA purchased and wrote off the notes of US$ 6 million.

(P) US$ denominated straight bonds -

On October 2, 1997, AST issued straight bonds of US$ 136 million at face value. The bonds bear interest at 7.45% per annum and will mature on October 2, 2002. AST redeemed US$ 126,400 thousand of these bonds during 1998 and 1999. The Bands are guaranteed by SEC.

53



13. Commitments and Contingencies :

At December 31, 1999, guarantees of indebtedness among the Company and equity-method investees consist of the following (unit : million Won, thousand US$) :

Guarantor Guarantee Amount SEC Domestic subsidiaries ₩ 3,308 and equity-method investees SEC Foreign subsidiaries US$ 2,117,838 and equity-method investees SELAPA SELACOL US$ 4,000 SSEL SEC, SEUK, SEMUK, SEPLC (Joint Banking Facilities) US$ 96,467 SEUK SEPLC US$ 10,000

At December 31, 1999, the Company is contingent liable for guarantees of indebtedness, principally for related parties, approximating ₩108,314 million. In addition, at December 31, 1999, the Company provided guarantees of contract fulfillment for affiliated companies in the amount of ₩447,366 million. Royalty expense related to the technical assistance agreements among the Company incurred during 1999 approximates ₩128,846 million.

At December 31, 1999, the Company has entered into technical assistance agreements with certain foreign companies. The royalty expense incurred related to these agreements for the year ended December 31, 1999 amounts to approximately ₩785,970 million. Continued;

54



13. Commitments and Contingencies, Continued:

At December 31, 1999, the Company has entered into lease agreements with several leasing companies that are recognized as direct financing leases. These lease agreements are summarized as follows: Depreciation Expense Charged to 1999 Acquisition Cost Operations Accounts (Millions of Won) (Millions of Won)

Machinery and equipment ₩ 746,919 ₩ 453,675 ================ ================ Scheduled future lease payments, net of interest, under these lease arrangements which are included in long-term debt (Note 11), are as follows :

Thousands of Won

2000 ₩ 267,993,002 2001 224,960,236 2002 90,938,015 2003 4,470,471 Thereafter 88,771 ₩ 588,450,495 ===============

In addition, at December 31, 1999, the Company has entered into lease agreements that are recognized as operating leases. Related rental payments are charged to operations as incurred. Future rental expense under operating leases agreements amounts to ₩685,225 million (US$ 583,734 thousand, AUD 1,032 thousand, DEM 16,123 thousand, FRF 1,730 thousand, GBP 5,110 thousand, ITL 1,756,665 thousand, NLG 1,739 thousand and ZAR 5,826 thousand) in 1999. Continued;

55




As of December 31, 1999, SEC and seven foreign subsidiaries have entered into one hundred and eight forward exchange contracts and two currency SWAP contracts with various foreign and Korean financial institutions to hedge currency risk on foreign currency long-term debt. In addition SEC has entered into twelve interest rate SWAP contracts with various foreign and Korean financial institutions to hedge interest rate risk on floating-rate foreign currency long-term debt. For the year ended December 31, 1999, the Company recognized gains of ₩9,972 million and losses of ₩3,500 million from the valuation of forward exchange contracts, and losses of ₩24,182 million from the valuation of currency SWAP contracts. In addition, the Company recognized gains of ₩395 million, losses of ₩1,650 million and deferred losses of ₩3,794 million as capital adjustment from the valuation of interest rate SWAP contracts entered to hedge future cash flow, of which ₩1,913 million is estimated to be realized by December 31, 2000. On September 1, 1999, SEC and the other 33 affiliated companies of Samsung Group entered into an agreement with 16 creditor financial institutions of Samsung Motors Inc., currently in court receivership. The agreement forces SEC and the other 33 affiliated companies to assume the deficit or excess arising from the disposal of the shares of Samsung Life Insurance Co., Ltd. valued at ₩2,450,000 million, donated by the Chairman of Samsung Group. At December 31, 1999, SEC is a defendant in seven legal actions for alleged patent infringement, two legal actions for breach of contract and one environment legal actions brought against SEC in a foreign country. In addition, SEC is party to various other legal claims and proceedings in Korea, all of which are pending as of December 31, 1999. In addition, NOVITA, one of the domestic subsidiaries of SEC, is in the process of court litigation with regard to the construction in progress and defective compensation. SEI is claimed by agents for the dismission. TTSEC has been involved in court litigation with regard to sales compensation. SEF was imposed additional tax of FRF 52,000 thousand by tax authority but the outcome of these matters is uncertain. SISA has sued Megatron and Grand National Bank for accounts receivables amounting to US$ 6,810 thousand. The Company's management believes that, although the outcome of these matters is uncertain, the resolution of these matters will not have a material adverse effect on the operations or financial position of the Company.

Continued;

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As of December 31, 1999, SEC and eleven foreign subsidiaries have entered into an agreement to issue Asset Backed Securities based on accounts and notes receivable with eight financial institutions, including Citibank, amounting up to US$ 693 million. SEC and four domestic subsidiaries have entered into an agreement to discount trade notes receivable with ten Korean banks amounting up to ₩471,900 million ( see Note 6 ). As of December 31, 1999, the Company has pledged 10 blank notes, 23 blank checks and 14 promissory notes amounting to approximately ₩17,642 million as a collateral for a certain borrowing and implementation of warranty provided in contract. As of January 12, 1999, AST, one of the foreign subsidiaries of SEC, has entered into an agreement with Alagem Enterprise LLC. to establish joint company, AST Computer LLC,. by contributing the AST brand and the patent related to the AST line of personal computers. In connection with the Asian financial crisis which began in 1997, the Korean economy as well as other economies in the Asia Pacific region experienced economic contractions, a reduction in the availability of credit, increased interest rates, increased inflation, negative fluctuations in currency exchange rates, increased numbers of bankruptcies, increased unemployment and labor unrest. Such conditions had a significant adverse effect on the operations of the Company and other companies in Korea and in the Asia Pacific region. Recently, economic conditions in the Republic of Korea have improved as evidenced by an increased trade surplus, increases in foreign exchange reserves, recorded levels of foreign investment and economic growth, lower inflation and interest rates and stabilized foreign exchange rates. Notwithstanding the current recovery, significant uncertainties still exist related to the economy in Korea and in the Asia Pacific region. The accompanying financial statements reflect management’s current 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.

57



14. Retained Earnings :

Retained earnings at December 31, 1999 consist of the following :

Reference Thousands of Won Appropriated: Legal reserve (A) ￦ 387,789,000 Reserve for business rationalization (B) 1,512,100,829 Reserve for improvement of financial structure (C) 204,815,000 Reserve for overseas market development (D) 548,741,108 Reserve for overseas investment losses (D) 213,382,454 Reserve for technology development (D) 2,023,097,908 Reserve for export losses (D) 217,118,059 Reserve for facilities (E) 134,615,000 5,241,659,358 Undisposed deficit carried over to subsequent year : (51,404,827) ￦ 5,190,254,531 ==================

(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) Pursuant to the Tax Exemption and Reduction Control Law, the Company is required to

appropriate as a reserve for business rationalization, an amount equal to the exemption of income taxes resulting from investment tax credits and certain deductions from taxable income specified by such law. This reserve may be used for the reduction of accumulated deficit, if any, or transferred to capital stock.

Continued;

58



14. Retained Earnings, Continued:

(C) The Financial Control Regulations for listed companies require the Company to appropriate

as a reserve for improvement of financial structure, an amount equal to at least 50% of the net gain on disposal of property, plant and equipment and 10% of net earnings for each year until the Company's net worth equals 30% of total assets. This reserve is not available for payment of cash dividends, but may be transferred to capital stock or used to reduce accumulated deficit, if any.

(D) Pursuant to the Korean tax laws, the Company is allowed to claim the amounts of retained

earnings appropriated to reserves for overseas market development, overseas investment losses, technology development and export losses as deductions in determining taxable income. These amounts are not available for dividends until used for the specified purposes or reversed.

(E) The reserve for facilities represents amounts appropriated by the Company for capital

expenditures and may be used for any purpose through shareholders' resolution. 15. Treasury Stock :

At December 31, 1999, SEC acquired 3,449,625 shares of common stock and 869,693 shares of non-voting preferred stock under the authorization of the Board of Directors.

59



16. Income Tax Expense :

The statutory income tax rate applicable to the Company, including resident tax surcharges, is approximately 30.8% Income tax expense for the year ended December 31, 1999 consists of the following :

Thousands of Won Current income taxes ￦ 695,504,633 Deferred income taxes 272,615,621 ￦ 968,120,254 =================

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 :

Thousands of Won Income before taxes ￦ 4,104,566,936 Statutory tax rate 30.8 % Expected taxes at statutory rate 1,264,206,616 Tax credit (403,263,139) Undisposed deficit carried over to subsequent year (32,381,659) Income taxes for undistributed earnings 76,598,599 Others, net 62,959,837 Actual taxes ￦ 968,120,254 ================= Effective tax rate 23.6% =================

The Company periodically assesses its ability to recover deferred tax assets. In the event of significant uncertainty regarding the Company’s ultimate ability to recover such assets, a valuation allowance is recorded to reduce the asset to its estimated net realizable value. Continued;

60



16. Income Tax Expense, Continued :

Components of deferred taxes as of December 31, 1999 are as follows (in thousands of Korean Won) : Beginning Increase foreign currency Ending balance (Decrease) rate change Balance (Deferred tax assets) Loss (Gain) on valuation of investments using equity method ￦ 759,579,159 ￦ (439,156,712) ￦ (1,989,035) ￦ 318,433,412 Deferred foreign exchange losses 427,571,521 (188,123,082) (1,486,386) 237,962,053 Invested stock reduction losses 34,689,080 51,112,156 (532,615) 85,268,621 Depreciation (22,465,382) 302,490,252 (1,759,213) 278,265,657 Allowance for doubtful accounts 4,652,481 45,312,962 (304,066) 49,661,377 Interest expense 8,290,008 (6,151,159) (11,684) 2,127,165 Accrued severance benefits 397,312 (307,317) (559) 89,436 Other 76,642,409 21,672,084 (567,210) 97,747,283 Undisposed deficit carried over to subsequent year 44,463,637 (32,381,659) (65,127) 12,016,851 Tax credits 344,213,066 (99,437,358) (426,239) 244,349,469 Total deferred tax assets 1,678,033,291 (344,969,833) (7,142,134) 1,325,921,324 (Deferred tax liabilities) Special reserves appropriated for tax purpose 242,383,547 (82,081,969) (995,078) 159,306,500 Capitalized interest expense 43,780,381 (8,848,094) (216,844) 34,715,443 Other 8,975,684 12,773,339 (127,700) 21,621,323 Total deferred tax liabilities 295,139,612 (78,156,724) (1,339,622) 215,643,266 Net deferred tax assets ￦ 1,382,893,679 ￦ (266,813,109) ￦ (5,802,512) ￦ 1,110,278,058 ============ ============ =========== ============

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17. Earnings Per Share :

Earnings per share and diluted earnings per share are calculated as follows : ㆍEarnings per share Thousands of Won Net income ￦ 3,175,307,880 Adjustment : Dividends for preferred stock (58,710,522) Undeclared participating preferred stock dividend (370,440,824)

Net income available for common stock 2,746,156,534 Weighted average number of shares of common stock 142,702,153 Earnings per share in Korean Won ￦ 19,244 =============== ㆍDiluted earnings per share

Net income available for common stock ￦ 2,746,156,534 Adjustment : Interest expense on convertible bonds 9,684,081

Net income available for common stock & common equivalent share 2,755,840,615 Weighted average number of common stock & common equivalent shares 145,986,386

Diluted earnings per share in Korean Won ￦ 18,877 ===============

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18. Related Party Transactions :

Significant transactions between SEC and consolidated subsidiaries, which have been eliminated on consolidation, for the year ended December 31, 1999 and the related amounts receivable and payable at December 31, 1999 are as follows :

Millions of Won Company Sales Purchase Receivables Payables

SSI ￦ 3,000,347 ￦ 1,433 ￦ 126,142 ￦ 667 SEA 573,867 875,026 156,089 39,680 SET 860,374 165,306 79,394 14,793 STA 716,669 60,865 212,513 72,238 SAPL 576,666 389,282 58,290 31,413 SSEL 818,118 - 78,711 - KEC 113,570 667,460 21,742 170,879 SEHK 358,356 344,997 7,021 32,812 SSEG 650,270 - 58,969 - SEN 535,173 6,343 84,958 - SISA 269,375 40,621 62,371 12,054 SEI 288,688 12,163 17,878 4,729 SEUK 276,396 21,605 12,565 9,600 SSVC 105,370 124,600 31,008 31,674 SAS 167,351 20,679 61,747 9,941 SEF 228,120 12,044 10,898 3,740 SEG 215,526 11,976 7,571 5,704 SEO 210,325 - 20,838 2,267 SELAPA 165,216 996 38,221 3,934 Others 1,443,041 489,675 341,942 8,616 ￦11,572,818 ￦3,245,071 ￦1,488,868 ￦ 454,741

========== ========= ========= ========= Continued;

63



18. Related Party Transactions, Continued;

In addition, significant transactions among subsidiaries for the year ended December 31, 1999 and the related amount receivables at December 31, 1999 are as follows :

Millions of Won Sales company Purchase company Sales Receivables

SII SEA ￦ 528,822 ￦ 18,726 SEA SSI 12 362,104 SAS SSI 147,562 43,994 SEMUK SENCON 171,214 17,779 STA SEA 4,698 156,245 SEA SAS - 132,587 SDMA SENCON 83,845 28,423 SEMUK SEUK 98,952 3,395 SDMA SEUK 94,769 3,757 SEA SAMEX 503 95,380 SENCON SEUK 85,757 1,626 SAPL SEIN 74,354 12,657 TSEC SEA 81,891 4,542 SAS SAPL 80,488 5,650 SENCON SEG 61,103 5,273 Others 1,703,524 328,695 ￦ 3,217,494 ￦ 1,220,833 =========== ===============

In addition, significant transactions between SEC and equity-method investees for the year ended December 31, 1999 are as follows : Millions of Won, Thousands of US Dollar Equity-method investees Sales Purchases Samsung Electro-Mechanics Co., Ltd. ￦ 91,093 ￦ 724,503 Samsung SDS Co., Ltd. 89,063 272,211 Seoul Commtech. Co., Ltd. 19,844 95,804 Samsung Aerospace Industries Ltd. 15,358 162,369 Posco Huls Co., Ltd. - 140,368 Domestic equity-method investees 13,953 10,842 Foreign equity-method investees $ 1,313,965 $ 1,541,812 ￦ 229,311 ￦ 1,406,097 $ 1,313,965 $ 1,541,812 =============== ===============

On July 20, 1999, Pan-Pacific Industrial Investments PLC (“PP”), a shareholder of Samsung

Motors Inc., exercised its right to sell certain shares of Samsung Motors Inc. to SEC in accordance with the joint-venture agreement provision triggered by the court receivership application of Samsung Motors Inc. As a result of this exercise, SEC acquired 30,465,951 shares of Samsung Motors Inc. and recognized valuation losses of ￦266,258 million.

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19. Subsequent Events: On January 11, 2000, the Company established a 50 : 50 joint venture with Thomson-CSF International. Pursuant to the joint venture agreement, the Company sold its defense electronics division to the joint venture for ￦220,000 million, subject to adjustment upon final resolution of assets and liabilities to be transferred (Book value ￦54,100 million). On March 16, 2000, the Company granted stock options to 76 key employees, including the vice president, by the approval of shareholders. On February 26, 2000, NOVITA, a domestic subsidiary of SEC, sold its remote control division to SJ Remotec Co., Ltd. for ￦10,791 million and the instrument panel automobile division to Samji Electronics Co., Ltd. for ￦3,398 million. In January 2000, SEA, a subsidiary of SEC, issued 14,900 shares of common stock for US$ 149million. Investments in and guarantees of indebtedness of affiliated companies by SEC subsequent to the balance sheet date are summarized as follows: Millions of Won Company Amount Date Classification Samsung Economic Research Institute ￦ 8,940 January 11, 2000 Investment Samsung SDI Co., Ltd. ￦ 86,658 January 21, 2000 Investment SEROME technology, Inc. ￦ 44,000 January 22, 2000 Investment Samsung Japan Co., Ltd. ￦ 63,300 April 3, 2000 Guarantees

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