2012 SAMSUNG ELECTRONICS ANNUAL REPORT
Despite the global economic recession and rapidly changing business environment in 2012, Samsung Electronics recorded historic sales and profit.
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Document DEVICE REPORTabout-us-sustainability-report-and-policy-annual-report-2012-en2012 SAMSUNG ELECTRONICS ANNUAL REPORT 2012 Financial Summary Samsung Electronics and Consolidated Subsidiaries 154,630 165,002 201,104 17,297 15,644 29,049 2010 2011 2012 Sales And Operating Profit (in billions of KRW) Sales Operating Profit 37,973 23,827 22,918 2010 2011 2012 (21,113) (23,985) (31,322) Cash Flows (in billions of KRW) Cash Flows from Operating Activities Cash Flows from Investing Activities Income Statements Sales Operating Profit Net Income Balance Sheets Assets Liabilities Shareholders' Equity Cash Flows Cash Flows from Operating Activities Cash Flows from Investing Activities Cash Flows from Financing Activities 2010 154,630 17,297 16,147 2011 165,002 15,644 13,759 2012 201,104 29,049 23,845 134,289 44,940 89,349 155,800 54,487 101,314 181,072 59,591 121,480 23,827 (23,985) (152) 22,918 (21,113) 3,110 37,973 (31,322) (1,865) (in billions of KRW) This annual report includes forward-looking statements that relate to future events and can be generally identified by phrases containing words such as "believes," "expects," "anticipates," "foresees," "forecasts," "estimates" or other words or phrases of similar meaning. These forward-looking statements are not guarantees of future performance and may involve known and unknown risks, uncertainties and other factors that may affect our actual results, performance, achievements or financial position, making them materially different from the actual future results, performance, achievements or financial position expressed or implied by these forward-looking statements. Unless otherwise specified, all data presented in this report is from our consolidated financial statements. ( K-IFRS standards have been applied to our data. As some business accounting standards have been revised in 2012, some statements for 2011, such as income statements, are retroactive and have been recalculated.) CONTENTS | 02 CEOs' Message 04 About the Board 07 Business Overview 40 PlanetFirst 43 Financial Statements 112 Global Network DISCOVERY INNOVATION POSSIBILITY In a world of amazing imagination, our reality is filled with possibilities. On the path where no one ventures, Samsung Electronics is striding toward new goals. Discover with us the happiness of new lives, powered by creativity. Our constant innovation and desire for positive change brings surprising possibilities into everyday life. Vice Chairman & CEO Oh-Hyun Kwon The trust and dedication of our customers, shareholders and society drives change and innovation at Samsung Electronics President & CEO Boo-Keun Yoon President & CEO Jong-Kyun Shin 02 Dear Samsung Electronics Stakeholder: In 2012, the company achieved steady growth thanks to your continued trust and dedication. Despite intensifying competition, we recorded historic sales revenue and operating profit that strengthened our leadership in the global electronics industry. Based on consolidated financial statements, we realized sales revenue of KRW 201 trillion, operating profit of KRW 29 trillion and net income of KRW 24 trillion, double the previous year. We also maintained a robust financial structure, with a 49.1 percent liability ratio and 79.5 percent capital adequacy ratio. Expanding the market leadership of core businesses Last year, Samsung Electronics expanded its market leadership in core businesses, including smartphones and TVs. We achieved remarkable results in our mobile business, ranking No. 1 in both sales and market share in smartphones and all mobile phones. In the TV business, we again achieved No. 1 market share, for the seventh year in a row, also earning the highest profitability in the industry. We further strengthened the market power of our Memory business, outpacing competitors with our unmatched technology, dominant cost savings and advanced process technology development. In our developing businesses, OLED greatly improved its profitability, led by differentiated competitiveness. The System LSI business also showed outstanding growth in the mobile device market, led by the AP and CIS sensor segments. In 2013, we will sharpen our market leadership across core areas and accelerate developing businesses to maintain our strong performance. With our newly reorganized structure of three divisions, we will aggressively respond to rapidly changing business environments as we steer new technology initiatives, pioneer new markets and identify business opportunities. Securing our core competitiveness and brand momentum To reinforce competitiveness, Samsung Electronics is focusing on attracting outstanding talent. We are consistently recruiting experts in software and R&D, and nurturing our patent capabilities by collaborating with outside research institutes and partners. That strategy has paid off. In 2012, we registered 5,081 patents in the U.S. Our differentiated capabilities and technology earned worldwide recognition, including four awards from the European Imaging and Sound Association 2012 (EISA), the most prestigious in the region's video and audio industry, and 27 innovation awards at CES 2013, the world's largest consumer electronics show. We also advanced high profile and consistent global brand marketing by sponsoring a range of international sports events, including the London 2012 Summer Olympics. As a result of such efforts, we attained the No. 9 ranking on Interbrand's Best 100 Global Brands 2012 list, with an estimated brand value of USD 32.9 billion. Corporate citizenship that's committed to social improvement Samsung Electronics is committed to transmitting its positive energy to society and to creating shared social value. We comply with all laws and ethical standards that safeguard markets around the world, including those for fair competition, personal data protection and anti-corruption, even as these turn more rigorous. We are increasing our social responsibility programs. In addition, we are boosting support for our worldwide partner companies to promote their global competitiveness as we expand the win-win partnerships that sustain growth. The power to keep growing is directly fueled by the trust and dedication of our customers, shareholders and society. Looking ahead in 2013, Samsung Electronics will continue to work toward the change and innovation that inspires the world and shapes new futures. Thank you. Vice Chairman & CEO Oh-Hyun Kwon President & CEO Boo-Keun Yoon President & CEO Jong-Kyun Shin 03 Our board of directors conducts transparent and responsible management based on advanced, boardcentered corporate governance At Samsung Electronics, our board consists of nine members, including five outside directors. In 2012, we convened 11 board meetings and proposed and addressed 47 motions. Our Management Committee, established to ensure professionalism and efficiency in management performance, hosted 21 meetings that deliberated and resolved the delegated issues. Comprised of three outside directors appointed to monitor and support the company's operations through checks and balances, the Audit Committee had five meetings in 2012. The Internal Transaction Committee, established to enhance transparency in management, has three outside directors and had nine meetings in 2012. Ensuring fairness and independence, two of the three members of the Outside Director Candidate Recommendation Committee are outside directors. With three outside directors, the Compensation Committee also ensures objectivity and transparency in determining director remuneration. 04 Oh-Hyun Kwon · Vice Chairman & CEO, Samsung Electronics (2012~Present) · Vice Chairman & Head, Device Solutions, Samsung Electronics (2011~Present) · President & Head, Device Solutions, Samsung Electronics (2011~2011) · President & Head, Semiconductor Business, Samsung Electronics (2008~2011) · President & Head, System LSI Division, Samsung Electronics (2004~2008) · Head, LSI Technology, Samsung Electronics (2000~2004) · Head, ASIC Business, Samsung Electronics (1998~2000) Boo-Keun Yoon · President & CEO, Samsung Electronics (2013~Present) · President & Head, Consumer Electronics (2012~Present) · Head, Consumer Electronics Division (2011~2012) · Head, Visual Display Business (2007~2011) · Head, R&D Team, Visual Display Business (2003~2007) Jong-Kyun Shin · President & CEO, Samsung Electronics (2013~Present) · President & Head, IT & Mobile Communications (2012~Present) · Head, IT & Mobile Communications Division (2011~2012) · Head, Mobile Communications Business (2009~2011) · Head, R&D Team, Mobile Communications Business (2006~2009) Sang-Hoon Lee · President & CFO, Corporate Management Office (2012~Present) · Head, Strategy Team 1, Samsung Corporate Strategy Office (2010~2012) · Head, Corporate Management Support Team (2008~2010) · Strategy & Planning Office (2006~2008) In-Ho Lee · Independent Director (2010~Present) · Corporate Advisor, Shinhan Bank (2009~2011) · Chief Executive Officer, Shinhan Financial Group (2005~2009) · President & Chief Executive Officer, Shinhan Bank (1999~2003) · Director & Deputy President (Executive Vice President), Shinhan Bank (1991~1999) Han-Joong Kim · Independent Director (2012~Present) · Chairman, CHA Strategy Committee, CHA Health Systems (2012~Present) · Professor Emeritus, Yonsei University (2012~Present) · Chairman, Korea University Sport Federation (2010~2012) · Trustee, Korean Council for University Education (2008~2012) · President, Yonsei University (2008~2012) · Chairman, Board of Directors, The Korean Society for Preventive Medicine (2006~2008) · Professor, Department of Preventive Medicine & Public Health (1982~2012) Kwang-Soo Song · Independent Director (2013~Present) · Advisor, Kim & Chang Law Office (2007~Present) · Prosecutor General, Supreme Prosecutors' Office (2003~2005) · Chief Prosecutor, Daegu High Prosecutors' Office (2002~2003) · Senior Prosecutor, Director of Prosecution Bureau, Ministry of Justice (2001~2002) Byeong-Gi Lee · Independent Director (2012~Present) · Professor of Electrical Engineering, Seoul National University (1986~Present) · President, IEEE Communications Society (2010~2011) · Commissioner, Korea Communications Commission (2008~2010) · President, Korea Information and Communication Society (KICS) (2007~2007) · President, Korea Society of Engineering Education (KSEE) (2003~2004) · Vice Chancellor for Research Affairs, Seoul National University (2000~2002) · Member of Technical Staff, AT&T Bell Laboratories (1984~1986) Eun-Mee Kim · Independent Director (2013~Present) · Dean, Graduate School of International Studies, Ewha Womans University (2011~Present) · Professor, Graduate School of International Studies, Ewha Womans University (1997~Present) · President, Korea Association of International Development and Cooperation (KAIDEC) (2011~2012) · Dean, Graduate School of International Studies, Ewha Womans University (2005~2007) · Visiting Scholar, Brown University (2003~2004) · Visiting Scholar, Harvard University (1994~1994) · Professor, Department of Sociology, University of Southern California (1987~1997) 05 Despite the global economic recession and rapidly changing business environment in 2012, Samsung Electronics recorded historic sales and profit. Our corporate and brand values also increased significantly. But we're hardly resting on laurels. We expect to strengthen competitiveness in our core businesses, bolstering our No. 1 status in mobile phones, TVs and memory products. We plan to fortify key capabilities and structures in our emerging businesses, such as digital appliances, printers, cameras and system LSI. We also intend to secure the base for our new business areas in health and medical equipment. We are preparing for the future. 06 Business Overview Consumer Electronics IT & Mobile Communications Device Solutions Visual Display Business Digital Appliances Business Printing Solutions Business Health & Medical Equipment Business Mobile Communications Business Networks Business Digital Imaging Business Memory Business System LSI Business LED Business Consumer Electronics DISCOVERY Dreams are boundless. Samsung Electronics constantly reinvents tomorrow to pursue happier and richer lives. We explore the territory of the unknown to discover potential and fulfill greater promise. CE Consumer Electronics Visual Display Business Digital Appliances Business Printing Solutions Business Health & Medical Equipment Business We continuously develop and expand strategic products in our Consumer Electronics division. Since we first won top global market share in 2006, exceptional technology and innovative design have strengthened our unrivaled leadership in flat-panel TVs and monitors. In the Digital Appliances business, we achieved remarkable growth by debuting inventive new products and differentiated design in the premium market. BUSINESS OVERVIEW Consumer Electronics VISUAL DISPLAY BUSINESS Our astute strategy for the evolutionary Smart TV and premium ultra large size TVs will solidify the No. 1 global leadership for eight consecutive years 01 01 UHD TV 85S9 The 85-inch UHD TV, with timeless gallery design and splendid sound, features 8-megapixel picture quality, four times more vivid than Full HD, and the world's largest 2.14-meter screen 10 DISCOVERY Dreams are boundless. Samsung Electronics constantly reinvents tomorrow to pursue happier and richer lives. We explore the territory of the unknown to discover potential and fulfill greater promise. Samsung Electronics has earned No. 1 global market share across all TV categories every year from 2006 through 2012, including for flat panel TVs and LCD TVs. Despite the depressed TV market, we maintained our dominant position by extending our sales lead over competitors in advanced North American and European markets, as well as in emerging markets like Asia, Africa and Latin America. That striking performance was built on ultra large size premium Smart TV models, such as the ES9000 and ES8000, with innovative and differentiated picture quality and design. Last year, after systematic market research, we implemented our premium TV marketing and differentiated strategy by regions. In 2013, we will reinforce our ultra large size premium TV lineups and enhance the premium brand image by highlighting innovative Smart TV features. Continuing our innovation in the AV business, last year we launched the world's first wireless audio dock with a built-in vacuum tube. In 2013, we employed a vacuum tube and wireless connection to TV to sound bar speakers AirTrack HW-F750, ensuring our lead in the global AV market with our new audio system. 30.56% 37.22% Top Global Top Global 02 03 Flat Panel TV Smart TV Market Share in 2012 Market Share in 2012 Source: GfK, NPD (based on sales revenue) 02 Smart TV F8000 Offers the full range of Smart TV features: S Recommendation, to recommend customized content; Smart Hub, redesigned to easily find content with intuitive panel UI; Smart Interaction, to recognize voice and gestures; and Evolution Kit, to update to the latest Smart TV 03 AirTrack HW-F750 New concept in premium audio systems finds the best sound and links to your TV via Bluetooth connection; HW-F750 provides warm and rich sound by combining analog and digitally produced sounds 11 BUSINESS OVERVIEW Consumer Electronics Digital Appliances Business Primed for home innovation, with premium lifestyle technology and harmonious design DISCOVERY Dreams are boundless. Samsung Electronics constantly reinvents tomorrow to pursue happier and richer lives. We explore the territory of the unknown to discover potential and fulfill greater promise. 01 T9000 LCD Refrigerator RF32FSQDBSR French doors and 32-cubicfoot capacity refrigerator; Unique Triple Cooling system deploys two compressors and three evaporators to ensure commercial-grade humidity that keeps food and produce fresh longer 02 ecobubbleTM Washer WF80F5E Premium Crystal Gloss design; advanced technology for power and energy efficiency that gently washes delicate loads while fighting stains and protecting fabrics 03 Smart Oven MC32F606 Smart sensor technology; quality cooking performance and sleek design allows for quick meal preparation with less fat, fresher ingredients and more efficiency, including pre-programmed recipes 01 02 03 Samsung Electronics works to satisfy differing consumer needs in diverse cultures around the world. We operate five Lifestyle Research Centers to support development of products that will bring more comfort and convenience to customers' lives. We also respond to consumers' emotional satisfaction by providing luxuriously designed products that offer new experiences. In 2012, the technical excellence of our premium T9000 refrigerator made it a worldwide hit with consumers. The T9000's wide top refrigerated section and bottom freezer drawers allow customers to store food easily and safely according to individual habits and menus. In our Digital Appliances business, Samsung is committed to developing eco-friendly technologies and smart products for the home. Our premium ecobubbleTM washer offers significant energy savings and superior cleaning that's still gentle on clothes. The new Samsung Smart Oven provides convenience and a superlative experience for busy households, allowing consumers to save time and effort while preparing healthful, greattasting meals. In 2013, Samsung Electronics will continue its efforts to develop inventive products that offer true value to customers and help them live happily and comfortably. 12 13 BUSINESS OVERVIEW Consumer Electronics Printing Solutions Business Providing total printing solutions with first-class products and technology 01 14 DISCOVERY Dreams are boundless. Samsung Electronics constantly reinvents tomorrow to pursue happier and richer lives. We explore the territory of the unknown to discover potential and fulfill greater promise. After entering the A4 laser printer market in 1991, Samsung Electronics now provides a full lineup of A4 laser products. In 2012, we launched seven models of A4 color laser printers and multifunction printers. We also successfully cleared the tough market barrier for A3 multifunction printers with the worldwide launch of our second-generation product. Samsung's exclusive world-first 1GHz dual core processor bolstered our results by improving printer durability, performance and document-processing times. In addition, we added a color touch screen with intuitive smartphone UI to our A3 multifunction printers to improve ease of use and create a more intuitive experience. Our solution for upgrading user convenience shaped another innovation. Our open-platform XOA (eXtensible Open Architecture) supports Samsung solutions as well as more than fifty global top-tier ISV (Independent Software Vendor) solutions, ensuring that we meet the varying needs of global corporate clients. In 2013, we will expand our hardware product lineups, solutions and services for the B2B market so we grow business for our partners and corporate clients together. 16% 2nd in Global A4 Laser Printer 02 03 Market Share in 2012 Source: IDC 01 MultiXpress C9301 Series A3 color MPFs with 1GHz dual core processor improves documentprocessing by up to 1.5 times; unique image improvement technology, ReCP (Rendering Engine for Clean Pages) delivers smooth images and clean text 02 CLP-415/CLX-4195 Series The laser printing industry's first iF Design Award 2013 Gold Winner. These Color laser printer and MFPs also offers fast speed, durability and high quality 03 MultiXpress C9352 Series A3 color MFPs with expanded paper handling features and latest technology; 1GHz dual core processor, ReCP, polymerized toner and all-in-one board for business document use 15 BUSINESS OVERVIEW Consumer Electronics Health & Medical Equipment Business Developing new and advanced healthcare and medical equipment for faster and more accurate diagnosis 01 16 DISCOVERY Dreams are boundless. Samsung Electronics constantly reinvents tomorrow to pursue happier and richer lives. We explore the territory of the unknown to discover potential and fulfill greater promise. 01 XGEO GC80 Digital X-ray for large hospitals, with soft handling function using robotic technology along with outstanding image-processing technologies 02 UGEO H60 Ultrasound diagnosis device that shows clear intra-ventral images through a built-in 18.5-inch LED monitor, with a slim and compact design 03 LABGEO PT10 Chemical analyzer that provides accurate test results within 7 minutes from small blood sample (less than 7L) for 16 exam categories, including liver function, blood sugar level, kidney function and more 8Award Winners iF Design Award 2012 IDEA 2012 Award 02 03 in 5 Categories in 3 Categories XGEO GC80 (GOLD), XGEO GU60, LABGEO PA20, LABGEO IB10, LABGEO HC10 XGEO GC80 (GOLD), XGEO GU60 (GOLD), XGEO UX Samsung Electronics has created world-class cutting-edge technologies across industries, including in IT, semiconductor, telecommunications and imaging. Building on those technologies, we are developing and launching differentiated diagnostic equipment to support a new and innovative medical environment. Our state-of-the-art ultrasound, digital X-ray and in-vitro diagnostics help medical professionals provide fast and accurate diagnosis in more than 110 countries. In 2012, we launched a high-performance flat-panel detector and four digital X-ray products, including the XGEO GC80, GU60 and GR40, all with outstanding imageprocessing technology. We also released two ultrasound systems as well as three in-vitro diagnostics, including the UGEO H60, which provides high-resolution image presentations in slim profile. Looking forward, we will harness the technological expertise of our Consumer Electronics and IT businesses to realize sophisticated digital convergences. Samsung will strive to develop innovative medical devices for both medical professionals and patients. 17 Consumer Electronics "Samsung Electronics is like an inventor for trends that change our lives. Its features and designs transform my days with exciting creative experiences that I never before imagined. I find new ways to live with Samsung Electronics." 18 DISCOVERY Dreams are boundless. Samsung Electronics constantly reinvents tomorrow to pursue happier and richer lives. We explore the territory of the unknown to discover potential and fulfill greater promise. IT & Mobile Communications INNOVATION Samsung Electronics is creating a culture of infinite possibilities that enriches lives and amazes the world. The deep trust and commitment of our customers drives our continuous efforts to lead change and innovation. IM IT & Mobile Communications Mobile Communications Business Networks Business Digital Imaging Business Technological innovation at Samsung Electronics accounts for our growth and stellar performance. That's proven by annual sales of more than 400 million mobile devices worldwide, fueled by our amazing smartphone technology. Our telecommunications equipment and solutions power the global expansion of 4G. And our digital imaging technology enriches people's lives, not only by capturing special moments but also by allowing memories to be shared instantly, anytime, anywhere. BUSINESS OVERVIEW IT & Mobile Communications Mobile Communications Business Focused on People Inspired innovation, we always aim to deepen value and convenience for our customers 01 22 INNOVATION Samsung Electronics is creating a culture of infinite possibilities that enriches lives and amazes the world. The deep trust and commitment of our customers drives our continuous efforts to lead change and innovation. As digital devices evolve, the way of mobile communications is rapidly shifting from simple voice calls and text messaging to image-based interactions. Ushering in a new era of image communications and a new category in the digital camera market, Samsung Electronics pioneered the world's first SMART camera. In 2012, anticipating rising interest in enjoying, editing and instant sharing of images after shooting, we released the GALAXY Camera is an innovative camera that features Android OS, 3G/LTE network capabilities and a generous 4.8-inch HD display, the camera was hailed for originating new trends in digital imaging devices. We also launched three NX series cameras, including NX20 with 20.3-megapixel APS-C CMOS sensor, developed by Samsung to provide high-quality images with rich color and details in 3-inch AMOLED display. In addition, we garnered top reviews for our unique compact camera MV900F with a rotating flip-up touch screen, and for the QF20 Wi-Fi camcorder with a switchgrip feature that permits shooting with either hand. In 2013, we will build on our advances in digital imaging by launching new products with excellent picture quality, great optical performance and convenient user interfaces to reinforce our leadership in SMART camera market, including new NX and GALAXY Camera series. USD 7.5 Billion USD 8.7 Billion 30.4% 2011 2012 Top Global 16% Growth in 02 03 Smartphone Sales and Mobile PC Sales Market Share in 2012 Revenue 213 Million units sold Best industry growth rate Source: Strategy Analytics, IDC 01 GALAXY S4 Developed to redefine the way we live, the next-generation smartphone makes every moment of life meaningful with highly crafted larger screen and battery, thin bezel, slim chassis and eye, voice and motion recognition. The GALAXY S4 gets you closer to what matters in life. 02 GALAXY Note II The ultimate smartphone for on-thego creativity, the GALAXY Note II enables unique experiences in personalized and expressive content creation. Advanced S Pen interface and Air View give users more options and allow content previews without opening email or applications. 03 ATIV book 9 Notebook Designed for mobility, the premium notebook is built with the same material as advanced aircraft, making it twice as strong as aluminum yet ultra-light with fast, powerful performance. 23 BUSINESS OVERVIEW IT & Mobile Communications Networks Business Providing next-generation network infrastructure and solutions with outstanding technology and successful experience Smart SchedulerTM Indoor Small Cell Macrocell Outdoor Small Cell 01 RRU CDU 24 INNOVATION Samsung Electronics is creating a culture of infinite possibilities that enriches lives and amazes the world. The deep trust and commitment of our customers drives our continuous efforts to lead change and innovation. 01 Smart LTE NetworksTM The LTE base station handles large-capacity mobile data traffic more efficiently by flexible use of resources depending on network conditions 02 Wireless Enterprise Solutions An integrated solution to create a more comfortable and efficient office environment with Wireless LAN communications systems for enterprise customers 9.36% Top Ratio of Contributions to 02 Global LTE Patents in 2012 Contributions for 1,177 LTE patents Source: iRunway 2012 Samsung Electronics is a trailblazing provider of telecommunications infrastructure, including wireless and enterprise network systems. In 2012, we made giant strides in the market for LTE (Long-Term Evolution) infrastructure with large-scale commercial LTE network deployments in the most active LTE markets. We contributed to building a nationwide LTE network in Korea, deployed LTE service commercialization in the U.S. and Japan, and established the world's first commercial TD-LTE network in Saudi Arabia. In addition, we achieved recognition in the GSM-based EU market by earning the contract to provide a LTE service network for the United Kingdom. In 2013, we expect the commercialization of LTE service to be expanded to Europe, South America and Asia. We are actively identifying new markets based on successful LTE commercialization in advanced markets, such as the U.S., Japan and Korea. We also plan to develop and provide solutions in established markets to generate value for telecommunications providers and subscribers, including with such services as VoLTE (Voice over LTE) for high-quality voice calling, and Carrier Aggregation to double speeds for data transmission. 25 BUSINESS OVERVIEW IT & Mobile Communications Digital Imaging Business Introducing the next big thing in digital imaging and the innovative SMART cameras that lead the trends 01 01 NX300 An interchangeable-lens SMART Compact System camera with 20.3-megapixel APS-C CMOS sensor, fast Hybrid Auto Focus (AF) system and AutoShare, which can simultaneously shoot and send photos to other digital devices 26 INNOVATION Samsung Electronics is creating a culture of infinite possibilities that enriches lives and amazes the world. The deep trust and commitment of our customers drives our continuous efforts to lead change and innovation. As digital devices evolve, the way of mobile communication is rapidly shifting from simple voice calls and text messaging to image-based interactions. Ushering in a new era of image communications and a new category in the digital camera market, Samsung Electronics pioneered the world's first SMART camera. In 2012, anticipating rising interest in enjoying, editing and instant sharing of images after shooting, we released GALAXY Camera. GALAXY Camera is an innovative camera that features Android OS, 3G/LTE network capabilities and a generous 4.8-inch HD display, the camera was hailed for originating new trends in digital imaging devices. We also launched three NX series cameras, including NX20 with 20.3-megapixel APS-C CMOS sensor, developed by Samsung to provide high-quality images with rich color and details in 3-inch AMOLED display. In addition, we garnered top reviews for our unique compact MV900 Mirror Pop camera with a rotating flip-up touch screen and for the QF20 Wi-Fi camcorder with a switch-grip feature that permits shooting with either hand. In 2013, we will build on our advances in digital imaging by launching new products with excellent picture quality, great optical performance and convenient user interfaces to reinforce our leadership in SMART camera market, including new NX and GALAXY Camera series. 12.1% 11.3% Global CSC (Mirrorless Camera) Market Share Global Compact Camera Market Share Source: GfK (based on Q4 2012 sales revenue) 02 03 02 GC100 GALAXY Camera features 21x optical zoom, 16.3-megapixel BSI CMOS sensor, 4.8-inch HD display, Android OS platform and 3G/LTE network 03 WB250F 24mm wide-angle lens with 18x optical zoom and upgraded SMART Camera 2.0 features, including Remote Viewfinder and AutoShare to connect with smartphone or tablet and automatically back up images and videos 27 IT & Mobile Communications "Passion gives us essential energy for life. With passion, we're not so excited by success or frustrated by difficulties. The thing we must fear most is not failure after doing our best but the unwillingness to begin at all." 28 INNOVATION Samsung Electronics is creating a culture of infinite possibilities that enriches lives and amazes the world. The deep trust and commitment of our customers drives our continuous efforts to lead change and innovation. Device Solutions POSSIBILITY Our future is yet to be determined. We can't assume tomorrow's promise. We must shape it with our vision and effort. Samsung Electronics proposes the possibility of a positive future for us all. DS Device Solutions Memory Business System LSI Business LED Business Samsung Electronics is expanding its market leadership in the memory business by demonstrating superior technology and dramatic cost savings. That is generating exciting prospects. We are expanding our highly profitable differentiated products, mainly for mobile devices, and accelerating process conversion while also focusing on developing next-generation products. Supported by increased demand for AP and CIS sensors, our System LSI business showed strong growth and cost leadership, allowing us to launch nextgeneration products more quickly. BUSINESS OVERVIEW Device Solutions Memory Business Creating an easier world through cuttingedge green memory with the world's highest performance 01 01 2GB LPDDR3 DRAM, 128GB eMMC Mobile DRAM and memory storage suitable for cuttingedge mobile devices with the world's highest performance and largest capacity 32 POSSIBILITY Our future is yet to be determined. We can't assume tomorrow's promise. We must shape it with our vision and effort. Samsung Electronics proposes the possibility of a positive future for us all. The undisputed leader in advanced memory technology since 1993, Samsung Electronics pioneered the green IT market throughout the computer and mobile era. From the 40-nanometer class green DDR3 in 2009 to the 20nanometer class green DDR3 and green SSD (Solid State Drive) in 2012, we have been launching differentiated green memory products and solutions every year. Based on our green memory products with outstanding energy efficiency, on-time introduction of green IT systems resulted in significant achievements, helping global companies improve their IT investment efficiency, expanding the premium memory market and consistently increasing global market share. As we continue to lead the trends in the rapidly developing IT industry in 2013, Samsung will expand markets for both high-efficiency green memory with ultimate performance and smart memory tailored to maximize customer convenience, utilizing our optimized systems, solutions and software, or "3S Innovation Technology." With increasingly convenient and eco-friendly nextgeneration memory products and solutions, Samsung Electronics will pioneer the green IT era by creating deeper customer value and conserving our environment. 41.4% 40.0% Global DRAM Global NAND Flash Memory 02 03 Market Share Market Share Source: IHS iSuppli and Samsung Electronics 02 800GB SSD, 64GB DDR3 DRAM Highly efficient enterprise SSD and server DRAM with the world's highest performance and large capacity 03 SSD 840 Series High-quality computer SSD with the world's highest performance and stability 33 BUSINESS OVERVIEW Device Solutions System LSI Business Leading innovation in electronic devices with competitive R&D and trailblazing process technology 01 01 Exynos 5 Octa Industry-first eight-core mobile AP that consists of four high-performance ARM CortexTM-A15 cores and four low-power ARM CortexTM-A7 cores 34 POSSIBILITY Our future is yet to be determined. We can't assume tomorrow's promise. We must shape it with our vision and effort. Samsung Electronics proposes the possibility of a positive future for us all. 02 13-Megapixel CMOS Image Sensor 1.12 micrometer pixelsized image sensor for mobile phones that represents sharp images in low-light environments 03 14-Nanometer FinFET Process Cutting-edge process technology that enhances performance and reduces power consumption utilizing three-dimensional cell structures 72.1% 25.8% Top Global Mobile AP Top Global Mobile CMOS 02 03 Market Share in 2012 Market Share in 2012 (standalone APs) Source: Strategy Analytics, Techno Systems Research Owing to continual R&D and reinforced competitiveness, Samsung Electronics is ranked No. 1 in market share for standalone mobile APs for smartphones, CMOS image sensors for mobile cameras, display driver ICs and smart card ICs. With increasing demand for mobile devices, we have been recording an average annual sales growth of 30 percent since 2009, solidifying our leading position in the system semiconductor business. We pioneered component innovation in mobile APs with the development of Exynos 5 Octa that supports the optimal computing environment by combining ultimate processing power and energy efficiency. We also successfully acquired Nanoradio and CSR, strengthening technological competitiveness of the Exynos family and laying the groundwork to enter the wireless connectivity market. In addition, we established a sound ecosystem with our EDA partners and IP companies to strengthen leadership of our process technology to build an infrastructure for cutting-edge 14-nanometer FinFET process. In 2013, we plan to increase sales of our core products and expand our high-value product lineups to secure our position in the mobile industry. As a global system semiconductor company with product leadership and process technology prowess, we will continue to grow alongside our customers. BUSINESS OVERVIEW Device Solutions LED Business Continuous eco-friendly, next-generation technology excellence and leadership in light sources in the LED industry 01 01 LM561B The most advanced middle power LED package that is the ideal solution for most LED lighting applications. It features the industry's highest light efficacy of 160lm/W (65mA, 5000K CCT) and a color rating of over 80 CRI. 36 POSSIBILITY Our future is yet to be determined. We can't assume tomorrow's promise. We must shape it with our vision and effort. Samsung Electronics proposes the possibility of a positive future for us all. Harnessing the past three decades of know-how in semiconductor technology and manufacturing excellence, Samsung Electronics has developed the world's best eco-friendly LED lighting solutions that include LED packages, LED display modules, LED light engines and LED retrofit lamps. We launched a new series of product portfolios that offer a range of energy savings, brightness levels and price points to meet the needs of all consumers who desire energy efficient lighting, from the most performance-oriented to the most value-conscious. In addition to their high performance, our LED products have also been recognized for their brilliant design. We have received prestigious awards for our LED lamp and package designs including the Japan Institute of Design Promotion's Good Design Award 2012 and the iF Design Award 2013 in Germany. Worldwide, environmental regulation is becoming more exacting as concerns regarding the environment and energy consumption rise, and the rapidly growing LED lighting market reflects this trend. In 2013, we will focus our efforts to satisfy the expanding market needs and increasing consumer demand by launching additional new product lineups, including LED packages and lighting solutions. While retaining our leadership in LED light sources in the display industry, we will strengthen our product competiveness in LED lighting to become the most preferred LED solutions provider. 10.2% 2nd in Global LED Package Market Share in 2012 Source: Strategies Unlimited 02 03 02 LH351A A 3-watt-class high-power LED package with high efficiency, high brightness, and superior heat radiation which is suitable for LED lighting applications that require high light output 03 FH411A Lens integrated flash LED which enables high-quality photos to be taken under low-light environments, and features intense light output, high efficacy, and excellent color rendering 37 Device Solutions "You help me to dream and brighten my every possibility. You recognize who I am and understand what I want now and where I want to go next. I think that must be love." 38 POSSIBILITY Our future is yet to be determined. We can't assume tomorrow's promise. We must shape it with our vision and effort. Samsung Electronics proposes the possibility of a positive future for us all. PlanetFirst Protecting the global environment continues to be our top priority for sustainable growth Samsung Electronics is committed to PlanetFirst, which sums up our mindset and fundamental approach to balancing cutting-edge technology and a greener way of life. At the Green Management Initiative in 2009, we announced Eco-Management 2013 to establish green management goals for significantly reducing greenhouse gases and launching eco-friendly products. We are creating new value through Eco-Innovation and green management throughout our entire product lifecycle, from production to consumption. In 2012, we reduced greenhouse gas emissions by up to 44% over 2008, based on sales, by adopting greenhouse gas reduction systems and energy savings at our global complexes. In product development, we improved energy efficiency by an average 30% over 2008 in our refrigerators, washers, air conditioners, TVs, monitors, printers, mobile phones and more. As a result, we reduced greenhouse gas emissions for product usage by as much as an accumulated 58.34 million tons from 2009 through 2012. Looking forward, we will continue our efforts to respect the planet and build the future we all envision by creating new value with our ecofriendly innovations. 40 Greenhouse Gas Emissions Unit: 1,000 tons CO2 eq Korea Global 7,486 6,004 6,544 5,307 5,993 5,066 5,512 4,573 6,055 5,027 * Emissions totals prior to 2011 have been recalculated owing to the spinoff of the LCD business and merger of Samsung LED in 2012. 2008 2009 2010 2011 2012 Greenhouse Gas Emissions Intensity Unit: Tons CO2 eq/KRW 100 million, Reflecting Price Index 6 Korea Global 5 2.34 2.54 2.93 3.13 3.29 3.66 3.44 4.34 4.20 4.75 4 3 2 0 2008 2009 2010 2011 2012 41 We remain thankful and grateful for the innovative technology that helps us discover and share the joy of each day. We are unleashing the passion and energy that generates new possibilities for the future. That's how we nurture the next generation. Samsung Electronics will never cease to take on challenges -- for all of us here today and for all those who will come tomorrow. We are dedicated to creating value that society shares. By experiencing the rich opportunities of today and the limitless possibilities of tomorrow, we all become part of the Samsung Electronics story. 42 Financial Statements Report of Independent Auditors 44 Consolidated Financial Statements Consolidated Statements of Financial Position 46 Consolidated Statements of Income 48 Consolidated Statements of Comprehensive Income 48 Consolidated Statements of Changes in Equity 49 Consolidated Statements of Cash Flows 51 Notes to the Consolidated Financial Statements 52 FINANCIAL STATEMENTS Report of Independent Auditors To the Board of Directors and Shareholders of Samsung Electronics Co., Ltd. We have audited the accompanying consolidated financial statements of Samsung Electronics Co., Ltd. and its subsidiaries (collectively referred to as the "Company"), which comprise the consolidated statements of financial position as of December 31, 2012, December 31, 2011, and January 1, 2011, the related consolidated statements of income, comprehensive income, changes in equity and cash flow for the years ended December 31, 2012 and 2011, and the related notes. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We did not audit the financial statements of certain subsidiaries, whose financial statements represents 7.2% and 7.6% of the consolidated total assets as of December 31, 2012 and 2011, respectively, and 22.1% and 20.4% of the consolidated total sales for the year then ended, respectively. Those financial statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for those subsidiaries, is based solely on the reports of the other auditors. We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Samsung Electronics Co., Ltd. and its subsidiaries as of December 31, 2012, December 31, 2011, and January 1, 2011, and their financial performance and cash flows for the years ended December 31, 2012 and 2011, in accordance with International Financial Reporting Standards as adopted by the Republic of Korea. Samil PricewaterhouseCoopers Seoul, Korea February 1, 2013 This report is effective as of February 1, 2013, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying financial statements and notes thereto. Accordingly, the readers of the audit report should understand that there is a possibility that the above audit report may have to be revised to reflect the impact of such subsequent events or circumstances, if any. 44 45 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION Samsung Electronics Co., Ltd. and its subsidiaries Assets Current Assets Cash and cash equivalents Short-term financial instruments Available-for-sale financial assets Trade and other receivables Advances Prepaid expenses Inventories Other current assets Total current assets Non-current assets Available-for-sale financial assets Associates and joint ventures Property, plant and equipment Intangible assets Deposits Long-term prepaid expenses Deferred income tax assets Other non-current assets Total assets Notes December 31 2012 KRW December 31 2011 KRW (In millions of Korean won, in thousands of U.S dollars (Note 2.28)) January 1 December 31 December 31 January 1 2011 2012 2011 2011 KRW USD USD USD 4, 6, 7 5, 6, 7 6, 9 6, 7, 10 11 6 18,791,460 17,397,937 1,258,874 26,674,596 1,674,428 2,262,234 17,747,413 1,462,075 87,269,017 14,691,761 11,529,905 655,969 24,153,028 1,436,288 2,329,463 15,716,715 988,934 71,502,063 9,791,419 11,529,392 1,159,152 21,308,834 1,302,428 2,200,739 13,364,524 746,101 61,402,589 17,544,076 16,243,056 1,175,309 24,903,927 1,563,279 2,112,066 16,569,333 1,365,023 81,476,069 13,716,517 10,764,546 612,426 22,549,741 1,340,947 2,174,832 14,673,434 923,288 66,755,731 9,141,461 10,764,067 1,082,207 19,894,346 1,215,972 2,054,653 12,477,382 696,575 57,326,663 6, 9 5,229,175 3,223,598 3,040,206 4,882,060 3,009,614 2,838,396 12 8,785,489 9,204,169 8,335,290 8,202,305 8,593,193 7,781,990 13 68,484,743 62,043,951 52,964,594 63,938,701 57,925,451 49,448,785 14 3,729,705 3,355,236 2,779,439 3,482,126 3,132,514 2,594,939 6 814,693 791,863 655,662 760,613 739,299 612,139 3,515,479 3,454,205 3,544,572 3,282,120 3,224,914 3,309,282 29 2,516,080 1,783,086 1,144,068 2,349,062 1,664,724 1,068,124 6 727,189 442,092 442,383 678,919 412,746 413,018 181,071,570 155,800,263 134,308,803 169,051,975 145,458,186 125,393,336 The accompanying notes are an integral part of these financial statements. 46 Liabilities and Equity Current liabilities Trade and other payables Short-term borrowings Advance received Withholdings Accrued expenses Income tax payable Current portion of long-term borrowings and debentures Provisions Other current liabilities Total current liabilities Non-current liabilities Non-current liabilities Long-term trade and other payables Debentures Long-term borrowings Retirement benefit liabilities Deferred income tax liabilities Provisions Other non-current liabilities Total liabilities Equity attributable to owners of the parent Preferred stock Common stock Share premium Retained earnings Other components of equity Non-controlling interests Total equity Total liabilities and equity Notes 6 6,15 6 6, 15, 16 18 6 6 6, 16 6, 15 17 29 18 6 20 20 20 21 23 December 31 2012 KRW 16,889,350 8,443,752 1,517,672 966,374 9,495,156 3,222,934 999,010 5,054,853 343,951 46,933,052 1,165,881 1,829,374 3,623,028 1,729,939 3,429,467 408,529 472,094 59,591,364 119,467 778,047 4,403,893 119,985,689 (8,193,044) 4,386,154 121,480,206 181,071,570 December 31 2011 KRW 18,509,490 9,653,722 1,450,733 1,715,070 7,823,728 1,262,798 30,292 3,514,536 358,645 44,319,014 1,024,804 1,280,124 3,682,472 1,119,188 2,333,442 363,223 364,366 54,486,633 119,467 778,047 4,403,893 97,622,872 (5,833,896) 4,223,247 101,313,630 155,800,263 The accompanying notes are an integral part of these financial statements. (In millions of Korean won, in thousands of U.S dollars (Note 2.28)) January 1 December 31 December 31 January 1 2011 2012 2011 2011 KRW USD USD USD 16,049,800 8,429,721 883,585 1,052,555 7,102,427 2,051,452 1,123,934 2,917,919 333,328 39,944,721 15,768,229 7,883,253 1,416,928 902,226 8,864,864 3,008,994 932,695 4,719,310 321,120 43,817,619 17,280,823 9,012,904 1,354,433 1,601,223 7,304,386 1,178,973 28,281 3,281,240 334,839 41,377,102 14,984,409 7,870,153 824,932 982,686 6,630,965 1,915,276 1,049,327 2,724,226 311,202 37,293,176 1,072,661 587,338 634,381 823,486 1,618,523 295,357 154,700 45,131,167 1,088,489 1,707,940 3,382,530 1,615,105 3,201,818 381,411 440,757 55,635,669 956,777 1,195,149 3,438,028 1,044,896 2,178,547 339,112 340,180 50,869,791 1,001,457 548,350 592,271 768,823 1,511,085 275,751 144,431 42,135,344 119,467 778,047 4,403,893 85,071,444 (4,931,290) 3,736,075 89,177,636 134,308,803 111,537 726,400 4,111,561 112,020,996 (7,649,185) 4,094,997 113,416,306 169,051,975 111,537 726,400 4,111,561 91,142,630 (5,446,639) 3,942,906 94,588,395 145,458,186 111,537 726,400 4,111,561 79,424,371 (4,603,949) 3,488,072 83,257,992 125,393,336 47 CONSOLIDATED STATEMENTS OF INCOME Samsung Electronics Co., Ltd. and its subsidiaries Notes Revenue Cost of sales Gross profit Selling, general and administrative expenses Operating profit Other non-operating income Other non-operating expense Share of profit or loss of associates and joint ventures Finance income Finance expense Profit before income tax Income tax expense Profit for the year Profit attributable to owners of the parent Profit attributable to non-controlling interests Earnings per share for profit attributable to the owners of the parent - Basic (in Korean won and US dollars) - Diluted (in Korean won and US dollars) The accompanying notes are an integral part of these financial statements. 25 25, 26 27 27 12 28 28 29 30 (In millions of Korean won, in thousands of U.S dollars (Note 2.28)) 2012 KRW 201,103,613 126,651,931 74,451,682 45,402,344 29,049,338 1,552,989 1,576,025 986,611 7,836,554 7,934,450 29,915,017 6,069,732 23,845,285 23,185,375 659,910 For the year ended December 31, 2011 2012 KRW USD 165,001,771 187,754,283 112,145,120 118,244,730 52,856,651 69,509,553 37,212,360 42,388,520 15,644,291 27,121,033 2,251,019 1,449,901 1,612,690 1,471,408 1,399,194 921,119 7,403,525 7,316,361 7,893,421 7,407,758 17,191,918 27,929,248 3,432,875 5,666,822 13,759,043 22,262,426 13,382,645 21,646,322 376,398 616,104 2011 USD 154,048,895 104,700,887 49,348,008 34,742,191 14,605,817 2,101,596 1,505,639 1,306,315 6,912,076 7,369,453 16,050,712 3,204,999 12,845,713 12,494,300 351,413 154,020 153,950 89,229 89,146 143.80 143.73 83.31 83.23 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Samsung Electronics Co., Ltd. and its subsidiaries Notes Profit for the year Items not to be reclassified subsequently to profit or loss : Remeasurement effect of employee benefit, net of tax Items to be reclassified subsequently to profit or loss : Changes in value of available-for-sale financial assets, net of tax Share of associates and joint ventures, net of tax Foreign currency translation, net of tax Consolidated comprehensive income Consolidated comprehensive income attributable to : Owners of the parent Non-controlling interests The accompanying notes are an integral part of these financial statements. 17, 23 23 23 23 48 (In millions of Korean won, in thousands of U.S dollars (Note 2.28)) For the year ended December 31, 2012 2011 2012 2011 KRW KRW USD USD 23,845,285 13,759,043 22,262,426 12,845,713 (504,120) (385,214) (470,656) (359,643) 962,184 (350,491) (1,824,653) 22,128,205 21,499,343 628,862 (572,028) (113,898) 183,655 12,871,558 12,439,116 432,442 898,314 (327,225) (1,703,532) 20,659,327 20,072,209 587,118 (534,057) (106,337) 171,463 12,017,139 11,613,403 403,736 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Samsung Electronics Co., Ltd. and its subsidiaries (In millions of Korean won) 2011 KRW Notes Preferred stock Common stock Share premium Retained earnings Equity Other attributable reserves to owners of the parent Noncontrolling interests Total Balance at January 1, 2011 Cumulative effect of change in accounting policy 2 Revised balance at January 1, 2011 119,467 - 119,467 778,047 4,403,893 85,014,550 (4,726,398) 85,589,559 - - 56,894 (204,892) (147,998) 778,047 4,403,893 85,071,444 (4,931,290) 85,441,561 3,759,532 89,349,091 (23,457) (171,455) 3,736,075 89,177,636 Profit for the year - - - 13,382,645 - 13,382,645 376,398 13,759,043 Available-for-sale financial assets, net of tax, 9, 23 - - - - (567,186) (567,186) (4,842) (572,028) Share of associates and joint ventures, net of tax 12 Foreign currency translation, net of tax Remeasurement effect of employee benefit, net of tax 17 Total comprehensive income Dividends 22 Capital transaction under common control Effect of business combination Disposal of treasury stock 23 Stock option activities 24 Others Total transactions with owners Balance at December 31, 2011 - - 119,467 - - - (113,898) (113,898) - - - 123,434 123,434 - - - (385,879) (385,879) - - 13,382,645 (943,529) 12,439,116 - - (824,478) - (824,478) - - - (108,840) (108,840) - - - - - - - - 288,773 288,773 - - - (73,008) (73,008) - - (6,739) (66,002) (72,741) - - (831,217) 40,923 (790,294) 778,047 4,403,893 97,622,872 (5,833,896) 97,090,383 60,221 (113,898) 183,655 665 (385,214) 432,442 12,871,558 (156,388) (980,866) 78,155 (30,685) 131,564 131,564 - 288,773 - (73,008) 1,399 (71,342) 54,730 (735,564) 4,223,247 101,313,630 The accompanying notes are an integral part of these consolidated financial statements. (In thousands of U.S dollars (Note 2.28)) 2011 USD Notes Preferred stock Common stock Share premium Retained earnings Equity Other attributable reserves to owners of the parent Noncontrolling interests Total Balance at January 1, 2011 111,537 726,400 4,111,561 79,371,254 (4,412,658) 79,908,094 3,509,972 83,418,066 Cumulative effect of change in accounting policy 2 - - - 53,117 (191,291) (138,174) (21,900) (160,074) Revised balance at January 1, 2011 111,537 726,400 4,111,561 79,424,371 (4,603,949) 79,769,920 3,488,072 83,257,992 Profit for the year - - - 12,494,300 - 12,494,300 351,413 12,845,713 Available-for-sale financial assets, net of tax, Share of associates and joint ventures, net of tax Foreign currency translation, net of tax Remeasurement effect of employee benefit, net of tax Total comprehensive income Dividends Capital transaction under common control Effect of business combination Disposal of treasury stock Stock option activities Others Total transactions with owners Balance at December 31, 2011 9, 23 12 17 22 23 24 - - 111,537 - - - (529,536) (529,536) - - - (106,337) (106,337) - - - 115,240 115,240 - - - (360,264) (360,264) - - 12,494,300 (880,897) 11,613,403 - - (769,749) - (769,749) - - - (101,615) (101,615) - - - - - - - - 269,604 269,604 - - - (68,162) (68,162) - - (6,292) (61,620) (67,912) - - (776,041) 38,207 (737,834) 726,400 4,111,561 91,142,630 (5,446,639) 90,645,489 (4,521) - 56,224 (534,057) (106,337) 171,464 621 (359,643) 403,737 12,017,140 (146,007) (915,756) 72,967 (28,648) 122,831 122,831 - 269,604 - (68,162) 1,306 (66,606) 51,097 (686,737) 3,942,906 94,588,395 The accompanying notes are an integral part of these consolidated financial statements. 49 (In millions of Korean won) 2012 KRW Notes Preferred stock Common stock Share premium Retained earnings Equity Other attributable reserves to owners of the parent Noncontrolling interests Total Balance at January 1, 2012 Profit for the year Available-for-sale financial assets, net of tax 9, 23 119,467 - 778,047 4,403,893 97,622,872 (5,833,896) 97,090,383 - - 23,185,375 - 23,185,375 - - - 960,688 960,688 4,223,247 101,313,630 659,910 23,845,285 1,496 962,184 Share of associates and joint ventures, net of tax 12 - - - - (350,491) (350,491) - (350,491) Foreign currency translation, net of tax Remeasurement effect of employee benefit, net of tax Total comprehensive income Dividends Capital transaction under common control Effect of business combination Disposal of treasury stock Stock option activities Others Total transactions with owners Balance at December 31, 2012 - - - - (1,789,877) (1,789,877) (34,776) (1,824,653) 17 - - - - (506,351) (506,351) 2,231 (504,120) - - - 23,185,375 (1,686,031) 21,499,344 628,861 22,128,205 22 - - - (827,501) - (827,501) (373,632) (1,201,133) - - - - (1,089,835) (1,089,835) (104,395) (1,194,230) - - - - - - 12,844 12,844 23 - - - - 455,377 455,377 - 455,377 24 - - - - (33,071) (33,071) - (33,071) - - - 4,943 (5,588) (645) (771) (1,416) - - - (822,558) (673,117) (1,495,675) (465,954) (1,961,629) 119,467 778,047 4,403,893 119,985,689 (8,193,044) 117,094,052 4,386,154 121,480,206 The accompanying notes are an integral part of these consolidated financial statements. (In thousands of U.S dollars (Note 2.28)) 2012 USD Balance at January 1, 2012 Profit for the year Available-for-sale financial assets, net of tax Notes Preferred stock Common stock Share premium Retained earnings Equity Other attributable reserves to owners of the parent Noncontrolling interests Total 111,537 726,400 4,111,561 91,142,630 (5,446,639) 90,645,489 - - - 21,646,322 - 21,646,322 3,942,906 94,588,395 616,104 22,262,426 9, 23 - - - - 896,917 896,917 1,397 898,314 Share of associates and joint ventures, net of tax 12 - - - - (327,225) (327,225) - (327,225) Foreign currency translation, net of tax Remeasurement effect of employee benefit, net of tax Total comprehensive income Dividends Capital transaction under common control Effect of business combination Disposal of treasury stock Stock option activities Others Total transactions with owners Balance at December 31, 2012 - - - - (1,671,064) (1,671,064) (32,468) (1,703,532) 17 - - - - (472,739) (472,739) 2,083 (470,656) - - - 21,646,322 (1,574,111) 20,072,211 587,116 20,659,327 22 - - - (772,571) - (772,571) (348,830) (1,121,401) - - - - (1,017,491) (1,017,491) (97,466) (1,114,957) - - - - - - 11,991 11,991 23 - - - - 425,149 425,149 - 425,149 24 - - - - (30,876) (30,876) - (30,876) - - - 4,615 (5,217) (602) (720) (1,322) - - - (767,956) (628,435) (1,396,391) (435,025) (1,831,416) 111,537 726,400 4,111,561 112,020,996 (7,649,185) 109,321,309 4,094,997 113,416,306 The accompanying notes are an integral part of these consolidated financial statements. 50 CONSOLIDATE STATEMENTS OF CASH FLOWS Samsung Electronics Co., Ltd. and its subsidiaries Notes Cash flows from operating activities Profit for the year Adjustments 31 Changes in operating assets and liabilities 31 Cash flows from operating activities Interest received Interest paid Dividend received Income tax paid Net cash generated from operating activities Cash flows from investing activities Net decrease (increase) in short-term financial instruments Net decrease (increase) in short-term available-for-sale financial assets Proceeds from disposal of long-term available-for-sale financial assets Acquisition of long-term available-for-sale financial assets Proceeds from disposal of associates and joint ventures Acquisition of associates and joint ventures Disposal of property and equipment Purchases of property and equipment Disposal of intangible assets Purchases of intangible assets Proceeds from deposits Payment for deposits Cash outflows from business combination Cash inflows from disposal of business Others Net cash used in investing activities Cash flows from financing activities Net (repayment) proceeds from shortterm borrowings Disposal of treasury stock Proceeds from long-term borrowings and debentures Repayment of long-term borrowings and debentures Payment of dividends Net increase (decrease) in Non-controlling interests Others Net cash provided by (used in) financing activities Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents Beginning of the year End of the year The accompanying notes are an integral part of these consolidated financial statements. (In millions of Korean won, in thousands of U.S dollars (Note 2.28)) For the year ended December 31, 2012 2011 2012 KRW KRW USD 2011 USD 23,845,285 22,759,559 (5,777,949) 40,826,895 789,397 (576,379) 1,112,940 (4,180,044) 37,972,809 13,759,043 16,450,629 4,057,345) 26,152,327 755,859 (641,462) 628,585 3,977,408) 22,917,901 22,262,426 21,248,771 (5,394,406) 38,116,791 736,997 (538,119) 1,039,063 (3,902,572) 35,452,160 12,845,713 15,358,630 (3,788,017) 24,416,326 705,685 (598,882) 586,859 (3,713,385) 21,396,603 (5,965,611) (589,072) 106,208 (870,249) 41,091 (279,022) 644,062 (22,965,271) 61,497 (650,884) 313,043 (347,746) (464,279) - (355,321) (31,321,554) 75,666 518,479 415,096 (419,678) 306,804 (403,538) 379,878 (21,965,678) 9,703 (663,678) 461,454 (594,067) (522,740) 925,454 364,281 (21,112,564) (5,569,612) (549,969) 99,158 (812,482) 38,363 (260,500) 601,309 (21,440,828) 57,415 (607,678) 292,263 (324,662) (433,460) (331,735) (29,242,418) 70,643 484,062 387,542 (391,820) 286,438 (376,751) 354,662 (20,507,588) 9,059 (619,623) 430,823 (554,633) (488,040) 864,022 340,100 (19,711,104) (800,579) 88,473 1,862,256 (522,899) (1,265,137) (1,200,134) (26,488) (1,864,508) (687,048) 4,099,699 14,691,761 18,791,460 977,315 160,827 3,925,406 (1,145,167) (874,608) 363,417 (297,461) 3,109,729 (14,724) 4,900,342 9,791,419 14,691,761 (747,436) 82,600 1,738,639 (488,189) (1,181,157) (1,120,469) (24,729) (1,740,741) (641,442) 3,827,559 13,716,517 17,544,076 912,440 150,151 3,664,836 (1,069,150) (816,551) 339,293 (277,715) 2,903,304 (13,747) 4,575,056 9,141,461 13,716,517 51 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Samsung Electronics Co., Ltd. and Subsidiaries 1. General Information 1.1 Company Overview Samsung Electronics Co., Ltd. ("SEC") was incorporated under the laws of the Republic of Korea in 1969 and listed its shares on the Korea Stock Exchange in 1975. SEC operates two business units: DMC and DS. The DMC division includes digital TVs, monitors, air conditioners and refrigerators in the CE (Consumer Electronics) business, and mobile phones, communication system, printers and computers in the IM (Information technology & Mobile Communications) business. The DS division includes products such as memory and system LSI in semiconductor business, and LCD display panels and OLED panels designed for mobiles in the LCD and other LED business. The Company is domiciled in the Republic of Korea and the address of its registered office is Suwon, the Republic of Korea. These consolidated financial statements have been prepared in accordance with Korean International Financial Reporting Standards ("K-IFRS") 1027, Consolidated and Separate Financial Statements. SEC, as the controlling Company, consolidates its 166 subsidiaries (collectively referred to as "the Company") including Samsung Display and Samsung Electronics America. The Company also applies the equity method of accounting to its 34 affiliates, including Samsung SDI. 1.2 Consolidated Subsidiaries (A) The consolidated subsidiaries as of December 31, 2012 are as follows: Area Domestic Subsidiaries World Cyber Games High Pioneer Private Investment Trust #1 Samsung Display (SDC) SU Materials STECO SEMES SECRON Samsung Electronics Service Living Plaza Samsung Electronics Logitech Samsung Electronics Football Club GES Samsung Medison Ray Samsung Venture Capital Union #6 Samsung Venture Capital Union #14 Samsung Venture Capital Union #20 Samsung Venture Capital Union #21 Samsung Venture Capital Union #22 Samsung Venture Capital Union #23 Industry Cyber game match hosting Technology business venture capital investments Manufacture and sales of LCD Manufacture of electronic devices Manufacture of semiconductor components Manufacture of semiconductor/FPD Semiconductor equipments Repair service for electronic devices Sale of consumer electronics General logistics agency Sponsoring of sports team and games Semiconductor equipments Medical equipments Dental CT Technology business venture capital investments Technology business venture capital investments Technology business venture capital investments Technology business venture capital investments Technology business venture capital investments Technology business venture capital investments (*) Ownership represents the Company's ownership of the voting right in each entity. Percentage of ownership (*) 99.9 100.0 84.8 50.0 51.0 90.3 93.1 99.3 100.0 100.0 100.0 100.0 68.5 68.1 99.0 99.0 99.0 99.0 99.0 99.0 52 Area America Subsidiaries Samsung Electronics America (SEA) NexusDX (Nexus) Samsung Receivables (SRC) Samsung Semiconductor (SSI) Samsung Electronics Canada (SECA) Samsung Information Systems America (SISA) Grandis mSpot Samsung Mexicana (SAMEX) Samsung International (SII) Samsung Telecommunications America (STA) Samsung Austin Semiconductor (SAS) Samsung Electronics Mexico (SEM) SEMES America (SEMESA) Samsung Electronics Corporativo (SEC) Samsung Electronics Digital Appliance Mexico (SEDAM) Samsung Electronics Latinoamerica Miami (SEMI) Nvelo Newton Sub Samsung Medison America (SMUS) Samsung Electronics Latinoamerica (SELA) Samsung Electronics Venezuela (SEVEN) Samsung Electronica Colombia (SAMCOL) Samsung Electronics Panama (SEPA) Samsung Electronica da Amazonia (SEDA) Samsung Electronics Argentina (SEASA) Samsung Electronics Chile (SECH) Samsung Electronics Peru (SEPR) Samsung Medison Brasil (SMBR) Deltapoint Cardiac Diagnostics (Deltapoint) Industry Sale of electronic devices Medical equipments Credit managements Sale of electronic devices Sale of electronic devices R&D R&D Software Manufacture of electronic devices Manufacture of CTV Sales of communication equipment Manufacture of semiconductor Manufacture and sales of electronic devices Semiconductor equipments Consulting Consulting Sales of electronic devices Software Medical equipments Medical equipments Sales of electronic devices Marketing and services Sale of electronic devices Consulting Manufacture and sales of electronic devices Marketing and services Sale of electronic devices Sale of electronic devices Medical equipments Medical equipments (*) Ownership represents the Company's ownership of the voting right in each entity. Percentage of ownership (*) 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 95.2 95.2 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 53 Area Europe Subsidiaries Samsung Electronics (UK) (SEUK) Samsung Electronics Holding (SEHG) Samsung Semiconductor Europe GmbH (SSEG) Samsung Electronics GmbH (SEG) Samsung Electronics Iberia (SESA) Samsung Electronics France (SEF) Samsung Electronics Hungarian (SEH) Samsung Electronics Czech and Slovak (SECZ) Samsung Electronics Italia (SEI) Samsung Electronics Europe Logistics (SELS) Samsung Electronics Benelux (SEBN) Samsung Display Slovakia (SDSK) Samsung Electronics Romania (SEROM) Samsung Electronics Overseas (SEO) Samsung Electronics Polska (SEPOL) Samsung Electronics Portuguesa (SEP) Samsung Electronics Nordic (SENA) Samsung Semiconductor Europe (SSEL) Samsung Electronics Austria (SEAG) Samsung Electronics Slovakia (SESK) Samsung Electronics European Holding (SEEH) Samsung Electronics Poland Manufacturing (SEPM) Samsung Electronics Greece (SEGR) Samsung LCD Netherlands R&D Center (SNRC) Industry Sale of electronic devices Holding Company Sale of semiconductor and LCD Sale of electronic devices Sale of electronic devices Sale and Marketing of electronic devices Manufacture and sales of electronic devices Sale of electronic devices Sale of electronic devices Logistics Sale of electronic devices Toll processing of LCD Sale of electronic devices Sale of electronic devices Sale of electronic devices Sale of electronic devices Sale of electronic devices Sale of semiconductor and LCD Sale of electronic devices Manufacture of CTV/monitor Holding Company Manufacture of home appliances Sale of electronic devices R&D (*) Ownership represents the Company's ownership of the voting right in each entity. Percentage of ownership (*) 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 54 Area Europe (Cont.) Middle East and Africa Subsidiaries Samsung LCD Netherlands R&D Center UK (SNRC (UK)) Samsung Nanoradio Design Center (SNDC) Nanoradio Hellas General RF Modules SonoAce Deutschland (SMDE) Samsung Medison Italia (SMIT) Samsung Medison France (SMFR) Samsung Medison Europe (SMNL) Nanogen Recognomics (Nanogen) Samsung Electronics Rus (SER) Samsung Electronics Rus Company (SERC) Samsung Electronics Ukraine (SEU) Samsung Electronics Baltics (SEB) Samsung Electronics Ukraine Company (SEUC) Samsung Moscow Research Centre (SMRC) Samsung Electronics Kazakhstan (SEK) Samsung Electronics KZ and Central Asia (SEKZ) Samsung Electronics Rus Kaluga (SERK) Samsung Russia Service Center (SRSC) Samsung Opto-Electronics GmbH (SOG) Samsung Electronics Limited (SEL) Samsung Telecoms (UK) (STUK) Samsung Denmark Research Center (SDRC) Samsung France Research Center (SFRC) Samsung Cambridge Solution Centre (SCSC) Samsung Electronics West Africa (SEWA) Samsung Electronics East Africa (SEEA) Samsung Gulf Electronics (SGE) Samsung Electronics Egypt (SEEG) Samsung Electronics Israel (SEIL) Samsung Electronics Tunisia (SETN) Samsung Electronics Pakistan (SEPAK) Samsung Electronics South Africa (SSA) Samsung Electronics Turkey (SETK) Samsung Semiconductor Israel R&D Center (SIRC) Samsung Electronics Levant (SELV) Samsung Electronics Morocco (SEMRC) (*) Ownership represents the Company's ownership of the voting right in each entity. Industry R&D R&D R&D R&D Medical equipments Medical equipments Medical equipments Medical equipments Medical equipments Marketing Sale of electronic devices Marketing Sale of electronic devices Sale of electronic devices R&D Marketing Sale of electronic devices Manufacture of CTV Services Sale of electronic devices Holding Company Sale of electronic devices R&D R&D R&D Marketing Marketing Sale of electronic devices Manufacture of CTV-Monitor Marketing Marketing Marketing Sale of electronic devices Sale and Marketing of electronic devices R&D Sale of electronic devices Sale of electronic devices Percentage of ownership (*) 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 60.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 55 Area China Subsidiaries Industry Samsung Display Dongguan (SDDG) Manufacture of TFT-LCD Samsung Display Tianjin (SDTJ) Manufacture of TFT-LCD Samsung Electronics Hong Kong (SEHK) Sale of electronic devices Suzhou Samsung Electronics (SSEC) Manufacture of home appliances Samsung Suzhou Electronics Export (SSEC-E) Manufacture of home appliances Samsung (China) Investment (SCIC) Sale of electronic devices Samsung Guangzhou Mobile R&D Center (SGMC) R&D Samsung Tianjin Mobile R&D (STMC) R&D Samsung Electronics Suzhou Semiconductor (SESS) Toll processing of semiconductor Samsung Electronics (Shandong) Digital Printing (SSDP) Manufacture of printer Samsung Electronics Huizhou (SEHZ) Manufacture of electronic devices Tianjin Samsung Electronics (TSEC) Manufacture of electronic devices Samsung Electronics Taiwan (SET) Sale of electronic devices Beijing Samsung Telecom R&D Center (BST) R&D Tianjin Samsung Telecom Technology (TSTC) Manufacture of communication devices Shanghai Samsung Semiconductor (SSS) Sale of semiconductor and LCD Samsung Electronics Suzhou Computer (SESC) Manufacture of electronic devices Samsung Display Suzhou (SDSZ) Toll processing of TFT-LCD Samsung Suzhou LCD (SSL) Manufacture of TFT-LCD Shenzhen Samsung Kejian Mobile Telecommunication Technology (SSKMT) Samsung Electronics Shanghai Telecommunication (SSTC) Samsung LCD Netherlands R&D Center HK (SNRC(HK)) Manufacture of communication devices Sale of mobile communication and network equipment R&D Samsung Semiconductor (China) R&D (SSCR) R&D Samsung Electronics China R&D Center (SCRC) R&D Samsung (China) Semiconductor (SCS) Manufacture of electronic devices Samsung Electronics Hainan Fiberoptics (SEHF) Manufacture of optical fiber, cable Samsung Electronics (Beijing) Service (SBSC) Services Medison (Shanghai) (SMS2) Medical equipments Samsung Medison Shanghai Medical Instrument (SMS1) Medical equipments Medison Medical Equipment (Shanghai) (MMS) Medical equipments Tianjin Samsung LED (TSLED) Manufacture of LED Tianjin Samsung Opto-Electronics (TSOE) Manufacture of camera and camcorder (*) Ownership represents the Company's ownership of the voting right in each entity. Percentage of ownership (*) 100.0 95.0 100.0 88.3 100.0 100.0 100.0 100.0 100.0 100.0 99.8 91.3 100.0 100.0 90.0 100.0 100.0 100.0 60.0 60.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 98.2 100.0 100.0 90.0 56 Area Rest of Asia Subsidiaries Samsung Japan (SJC) Samsung Yokohama Research Institute (SYRI) Samsung Electronics Japan (SEJ) TNP Small/Medium Size & Venture Enterprises Growth Promotion Investment Limited Partnership (TSUNAMI) Samsung Electronics Display (M) (SDMA) Samsung Electronics (M) (SEMA) Samsung Vina Electronics (SAVINA) Samsung Asia Private (SAPL) Samsung India Electronics (SIEL) Samsung India Software Operations (SISO) Samsung Electronics Australia (SEAU) Samsung Electronics Indonesia (SEIN) Samsung Telecommunications Indonesia (STIN) Thai Samsung Electronics (TSE) Samsung Electronics Philippines (SEPCO) Samsung Electronics Philippines Manufacturing (SEPHIL) Batino Realty Corporation (BRC) (*2) Samsung Malaysia Electronics (SME) Samsung Bangladesh R&D (SBRC) Samsung Electronics Vietnam (SEV) Samsung Telecommunications Malaysia (STM) Samsung Medison India (SMIN) Medison Medical Systems (India) (MI) Industry Sale of electronic devices R&D Sale and services of communication equipments Technology business investment Manufacture and sales of electronic devices Manufacture of home appliances Manufacture and sales of electronic devices Sale of electronic devices Manufacture and sale of electronic devices R&D Sale of electronic devices Manufacture and sale of electronic devices Sale and services of communication equipments Manufacture and sale of electronic devices Sale of electronic devices Manufacture of electronic devices Management of real estate Sale of electronic devices R&D Manufacture of electronic devices Communication system service Medical equipments Medical equipments Percentage of ownership (*1) 100.0 100.0 100.0 97.0 100.0 100.0 80.0 100.0 100.0 100.0 100.0 100.0 99.0 91.8 100.0 100.0 39.8 100.0 100.0 100.0 100.0 100.0 100.0 (*1) Ownership represents the Company's ownership of the voting right in each entity. (*2) Although the Company owns less than 50% of the voting rights of BRC as at December 31, 2012, the Company is considered to have control over BRC, as BRC is a special purpose entity, and its operations are based on the specific business needs of the Company. Therefore the Company obtains most of the benefits from BRC's operation. 57 (B) A summary of financial data of major consolidated subsidiaries is as follows: (1) 2012 Samsung Display (SDC) Samsung Electronics America (SEA) Samsung Austin Semiconductor (SAS) Samsung Semiconductor (SSI) Samsung (China) Investment (SCIC) Samsung Telecommunications America (STA) Samsung Electronics European Holding (SEEH) Samsung Electronics Vietnam (SEV) Samsung Electronics Huizhou (SEHZ) Samsung Electronica da Amazonia (SEDA) Tianjin Samsung Telecom Technology (TSTC) Samsung Electronics Taiwan (SET) Shanghai Samsung Semiconductor (SSS) Samsung Electronics Rus Company (SERC) Samsung Electronics Slovakia (SESK) Samsung Japan (SJC) Samsung Semiconductor Europe GmbH (SSEG) Samsung Electronics Europe Logistics (SELS) Samsung India Electronics (SIEL) Thai Samsung Electronics (TSE) Samsung Electronics (UK) (SEUK) Samsung Electronics Hungarian (SEH) Samsung Electronics Rus Kaluga (SERK) Samsung Electronics Hong Kong (SEHK) Samsung Electronics Mexico (SEM) Assets 33,791,814 11,432,490 6,728,824 5,502,929 5,407,272 5,009,772 4,377,597 3,416,148 3,275,716 2,556,334 2,234,437 2,117,243 1,998,989 1,705,108 1,696,474 1,570,232 1,569,684 1,529,851 1,449,983 1,447,777 1,349,828 1,301,842 1,296,147 1,294,473 1,291,398 2012 Liabilities 9,122,941 6,598,643 3,819,196 2,136,789 4,519,921 4,516,706 3,068,900 1,498,575 1,496,513 1,564,590 1,227,917 1,885,749 1,824,247 1,367,484 426,980 1,382,927 1,556,757 1,443,264 964,580 463,908 763,081 416,616 465,344 1,067,647 1,053,329 (In millions of Korean won) Sales 22,304,545 12,430,205 3,063,343 17,325,969 13,796,191 15,308,222 14,599,505 15,343,968 6,145,530 10,697,834 4,967,564 12,584,108 6,712,179 5,279,531 6,021,986 5,191,270 12,873,583 5,089,445 4,799,886 5,722,969 3,542,522 2,348,160 2,362,833 2,814,961 Net income 2,079,916 201,790 (86,815) 20,797 264,269 109,896 7,856 854,250 700,435 198,552 551,682 38,298 60,991 21,832 147,665 26,503 (32) 29,372 316,994 295,994 74,329 153,961 194,169 83,950 37,902 (2) 2011 Samsung Electronics America (SEA) Samsung Austin Semiconductor (SAS) Samsung Semiconductor (SSI) Samsung (China) Investment (SCIC) Samsung Telecommunications America (STA) Samsung Electronics European Holding (SEEH) Samsung Electronics Vietnam (SEV) Samsung Electronics Huizhou (SEHZ) Samsung Electronica da Amazonia (SEDA) Tianjin Samsung Telecom Technology (TSTC) Samsung Electronics Taiwan (SET) Shanghai Samsung Semiconductor (SSS) Samsung Electronics Rus Company (SERC) Samsung Electronics Slovakia (SESK) Samsung Japan (SJC) Samsung Semiconductor Europe GmbH (SSEG) Samsung Electronics Europe Logistics (SELS) Samsung India Electronics (SIEL) Thai Samsung Electronics (TSE) Samsung Electronics (UK) (SEUK) Samsung Electronics Hungarian (SEH) Samsung Electronics Rus Kaluga (SERK) Samsung Electronics Hong Kong (SEHK) Samsung Electronics Mexico (SEM) Samsung Electronics Suzhou Computer (SESC) Assets 9,816,571 6,952,894 5,974,863 3,323,358 2,235,101 3,796,937 2,217,392 2,984,592 2,434,259 1,664,989 1,794,858 2,024,403 1,509,256 2,361,719 2,856,471 1,338,671 1,368,673 1,090,390 1,169,778 996,860 1,318,553 1,125,145 1,155,606 1,094,270 1,411,349 2011 Liabilities 4,913,504 3,731,834 2,490,812 2,652,717 1,818,412 3,592,183 1,043,133 1,816,087 1,482,344 907,083 1,582,616 1,901,188 1,189,211 1,174,527 2,197,847 1,325,034 1,285,617 876,886 443,187 457,017 592,167 470,867 998,115 925,327 1,018,670 (In millions of Korean won) Sales 10,873,623 2,521,060 16,762,084 9,117,657 10,059,797 6,810,279 8,380,968 5,448,043 7,022,353 5,394,509 10,919,636 5,725,681 4,893,947 7,840,230 5,198,900 10,759,828 4,177,987 3,543,691 3,808,041 4,322,195 2,177,423 1,522,892 2,444,660 6,092,471 Net income (1,825) 19,796 47,593 124,892 46,184 5,227 905,239 398,015 (43,406) 327,649 18,497 48,248 33,313 255,032 36,929 483 12,118 62,550 189,320 49,564 191,329 291,158 23,104 5,125 156,469 58 59 (C) Changes in scope of consolidation Area Domestic Samsung Display (SDC) Samsung Venture Capital Union #23 mSpot Nanoradio Samsung LED America (SLA) America Samsung Electronics Panama (SEPA) Samsung Electronics Corporativo (SEC) Samsung Electronics Digital appliance (SEDAM) Nvelo Newton Sub Samsung Nanoradio Design Center (SNDC) Nanoradio Hellas General RF Modules Europe Samsung LED Europe GmbH (SLEG) Samsung Cambridge Solution Centre (SCSC) Samsung Denmark Research Center (SDRC) Samsung France Research Center (SFRC) Samsung Electronics Egypt (SEEG) Middle East and Samsung Electronics Tunisia (SETN) Africa Samsung Electronics Israel (SEIL) Samsung Electronics Pakistan (SEPAK) China Tianjin Samsung LED (TSLED) Samsung (China) Semiconductor (SCS) Subsidiaries (In millions of Korean won) Description Spin-off Acquisition of shares Acquisition of shares Acquisition of shares Acquisition of shares Incorporation Acquisition of shares Acquisition of shares Acquisition of shares Incorporation Acquisition of shares Acquisition of shares Acquisition of shares Acquisition of shares Incorporation Incorporation Acquisition of shares Incorporation Incorporation Incorporation Incorporation Acquisition of shares Incorporation (D) Details of subsidiaries deconsolidated for the year ended December 31, 2012, are as follows: Area Domestic America Europe Asia Medison Healthcare Prosonic Samsung Mobile Display SLCD Samsung Venture Capital Union #7 SEHF Korea Samsung LED America (SLA) HX Diagnostics (HX) HX Reagents (HX Reagent) Nanoradio Samsung LED Europe GmbH (SLEG) Samsung Asia Private (SAPL) (*) Samsung Medison Japan (SMJP) Subsidiaries (In millions of Korean won) Description Merger Merger Merger Merger Liquidation Merger Liquidation Liquidation Liquidation Liquidation Merger Merger Liquidation (*) Samsung Asia Private merged with Samsung Electronics Asia Holding, and the resulting subsidiary is named Samsung Asia Private (Note 37). 60 2. Summary of Significant Accounting Policies 2.1 Basis of Presentation The Company first adopted International Financial Reporting Standards as adopted by the Republic of Korea ("Korean IFRS") from January 1, 2010. International Financial Reporting Standards (IFRS) have been adopted by the Korean Accounting Standards Board as Korean IFRS based on standards and interpretations published by the International Accounting Standards Board. The Company has prepared the consolidated financial statements in accordance with Korean IFRS ("K-IFRS"). KIFRS permits the use of critical accounting estimates in the preparation of the financial statements and requires management judgments in applying accounting policies. Footnote 3 explains where more complex and higher standards of judgment or critical assumptions and estimates are required. The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. Changes in accounting policies applied in the current fiscal year are presented in footnote 2.2. 2.2 Changes in Accounting Standards (A) Amendments Adopted K-IFRS 1001, `Presentation of financial statements' The amendment requires entities to present operating income after deducting cost of sales, selling, and general and administrative expenses from revenue. The amendment has been retroactively applied in the preparation of the consolidated statement of income. Dividend income, profit on business transfer, gains and losses on disposal of property, plant and equipment, donations, and impairment losses on intangible assets which were previously classified as operating income are now excluded from operating income. As a result, operating income has increased by 23,036 million for the current financial year and decreased by 638,329 million for the prior financial years, relative to the figures under the standard prior to the amendment. The amendment does not have an impact on net income or earnings per share in the current or prior financial years. (B) Standards Early Adopted New standards issued and effective for the financial year beginning January 1, 2013 and early adopted are set out below: K-IFRS 1019, `Employee benefits' The main impacts on the Company will be that the corridor approach will no longer be applied and instead all actuarial gains and losses will be recognized in other comprehensive income as they occur; all past service costs will be immediately recognized, and expected return on plan assets will be replaced with a net interest amount calculated by applying the discount rate to the net defined benefit liability. The impacts of the amendment on the financialstatements are as follows: (1) Impacts on Financial Position Deferred income tax assets Defined benefit liability Deferred income tax liability Other components of equity Retained earnings Non-controlling interests (In millions of Korean won) December 31, 2011 Pre-amendment Post-amendment 1,614,077 1,783,086 418,486 1,119,188 2,333,442 2,333,442 (5,244,167) (5,833,896) 97,542,525 97,622,872 4,245,558 4,223,247 Deferred income tax assets Defined benefit liability Deferred income tax liability Other components of equity Retained earnings Non-controlling interests (In millions of Korean won) January 1, 2011 Pre-amendment Post-amendment 1,124,009 1,144,068 597,829 823,486 1,652,667 1,618,523 (4,726,398) (4,931,290) 85,014,550 85,071,444 3,759,532 3,736,075 (2) Impacts on Business Performance (In millions of Korean won) 2011 Pre-amendment Post-amendment Operating income (*) 15,611,388 15,644,291 Income tax expense 3,424,948 3,432,875 Net income Net income attributable to noncontrolling interests Basic earnings per share (in Korean won) Diluted earnings per share (in Korean won) Other comprehensive income 13,734,067 374,875 89,073 88,990 (502,271) 13,759,043 376,398 89,229 89,146 (887,485) (*) Operating income is calculated by retroactively applying the changes in the calculation method of operating income and expenses. K-IFRS 1001, `Presentation of financial statements' The amendment requires entities to group items presented in other comprehensive income based on whether they are potentially reclassifiable to profit or loss subsequently. The Company early adopted and applied the amendment retroactively in the preparation of the financial statements. (C) Standards Not Effective or Early Adopted New standards, amendments and interpretations issued but not effective for the financial year beginning January 1, 2012 and not early adopted are set out below: 61 K-IFRS 1113, `Fair value measurement' The standard aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across Financial Reporting Standards. The requirements, which are largely aligned between IFRS and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRS or US GAAP. The Company is still in the process of assessing the impact of the amendment on the consolidated financial statements and intends to adopt K-IFRS 1113 no later than the accounting period beginning January 1, 2013. K-IFRS 1110, `Consolidated financial statements' The standard explains the principle of control which is the basis for determining which entities are consolidated in the consolidated financial statements. An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The standard sets out further guidance where it is difficult to determine control. The standard will be effective for the fiscal year beginning January 1, 2013. The Company is in the process of assessing the impact of the standard on the consolidated financial statements. K-IFRS 1111, `Joint arrangements Introduction' The standard reflects the essence of joint arrangements and focuses on the rights and obligations of the parties to the joint arrangements rather than on the legal forms of the arrangements. The standard classifies joint arrangements into joint operations and joint ventures. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. joint operators) have rights to the assets, and obligations for the liabilities, relating to the arrangement. A joint operator accounts for the assets, liabilities, revenues and expenses in relation to its interest in the arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. joint venturers) have rights to the net assets of the arrangement. Joint venturers account for the investment using the equity method. The standard will be effective for the fiscal year beginning January 1, 2013. The Company is in the process of assessing the impact of the standard on the consolidated financial statements. K-IFRS 1111, `Joint arrangements Introduction' The standard provides disclosure requirements for all types of equity investments in other entities including subsidiaries, joint arrangements, associates, consolidated structured entities and unconsolidated structured entities. The standard will be effective for the fiscal year beginning January 1, 2013. The Company is in the process of assessing the impact of the standard on the consolidated financial statements. 2.3 Consolidation The Company prepares annual consolidated financial statements in accordance with K-IFRS 1027, Consolidated and Separate Financial Statements. (A) Subsidiaries The consolidated financial statements include the accounts of SEC and its controlled subsidiaries. Control over a subsidiary is presumed to exist when the Company has the power to govern the financial and operating policies of an entity to obtain benefits from its activities generally accompanying a shareholding of more than one half of the voting rights. The existence and effects of potential voting rights that are exercisable or convertible at the end of the reporting period are considered in determining whether the Company controls another entity. Moreover, K-IFRS 1027 requires the evaluation of whether the Company holds control over the financial and operating policies of a subsidiary where the Company's shareholding is less than or equal to 50%. Control is presumed to exist when the Company is considered to have control over the financial and operating policies of a subsidiary through its ownership relative to those of other shareholders. Subsidiaries are fully consolidated from the date when control is transferred to the Company and deconsolidated from the date which control ceases to exist. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Company. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the cost of acquisition over the fair value of the Company's share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the statement of income. For each business combination, the Company measures any non-controlling interest in the acquiree at the non-controlling interest's proportionate share of the acquiree's identifiable net assets. In a business combination achieved in stages, the acquisition date fair value of the acquirer's previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss. The Company recognizes the acquisition-date fair value of contingent consideration. Changes in the fair value of contingent consideration classified as an asset or a liability are recognized in profit or loss in accordance with K-IFRS 1039, `Financial Instruments: Recognition and Measurement'. Contingent consideration classified as equity shall not be remeasured and its subsequent settlement shall be accounted for within equity. The Company recognizes goodwill as of the acquisition date measured as the excess of (1) the aggregate of 1) the consideration transferred, 2) the amount of any non-controlling interest in the acquiree and 3) the acquisition-date fair value of the Company's previously held equity interest in the acquiree over (2) the net identifiable assets acquired. If the aggregate amount in (1) is less than the fair value of the acquiree's net assets (2), the difference is recognized in profit or loss. Inter-company transactions, balances, income, expenses and unrealized gains on inter-company transactions are eliminated. Unrealized losses are eliminated upon assessing the impairment of the transferred assets. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Company. (B) Changes in the ownership of a subsidiary without gain or loss of control Transactions with non-controlling interests that do not result in loss of control are accounted for as equity. transactions that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. 62 (C) Disposal of a subsidiary When the Company ceases to have control, any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognized in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the Company had directly disposed of the related assets or liabilities. This may mean that amounts previously recognized in other comprehensive income are reclassified to profit or loss. (D) Non-controlling interests Profit or loss and each component of other comprehensive income are attributed to the owners of the parent and to the non-controlling interests. Total comprehensive income is attributed to the owners of the parent and to the noncontrolling interests even if this results in the non-controlling interests having a deficit balance. Any changes in a parent's ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions (i.e. transactions among owners in their capacity as owners). (E) Associated companies Investments in companies in which the Company does not have the ability to directly or indirectly control the financial and operating decisions, but does possess the ability to exercise significant influence, are accounted for using the equity method. Generally, it is presumed that if at least 20% of the voting stock and potential voting rights is owned, significant influence exists. The Company's investment in associates includes goodwill identified upon acquisition, net of any accumulated impairment loss. If the ownership in associated companies decreases to the extent that the Company loses significant influence, the Company will reclassify the proportionate amount previously recognized in other comprehensive income to profit or loss. The Company's share of post-acquisition profit or loss is recognized in the income statement, and its share of post acquisition movements in other comprehensive income is recognized in other comprehensive income with a corresponding adjustment to the carrying amount of the investment. When the Company's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Company does not recognize further losses, unless it has incurred obligations or made payments on behalf of the associate or joint venture. The Company assesses at the end of each reporting period whether there is any objective evidence that the investments in associates are impaired. If any such evidence exists, the Company will recognize impairment loss as the difference between the recoverable amount and the carrying amount of investments in associates. The impairment loss will be separately disclosed in the statement of income as an impairment loss on associates. Unrealized gains on transactions between the Company and its associates are eliminated to the extent of the parent company's interest in the associates. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Company. Decrease in the interest in associates is recognized in profit or loss where the Company maintains significant influence over associates although its share has been decreased. (F) Joint ventures Joint ventures are entities in which the Company holds joint control with other participants based on an agreed upon contract. Investments in joint ventures are initially recognized at cost and then accounted for using the equity method. The Company's investment in joint ventures includes goodwill identified upon acquisition, net of any accumulated impairment loss. If the Company purchases assets from joint ventures, the Company does not recognize its share of postacquisition profit until it disposes of the acquired assets to a third party. The Company recognizes losses from these transactions where such losses provide evidence of an impairment of the assets or decrease of net realizable value. 2.4 Foreign Currency Translation (A) Functional and presentation currency Items included in the financial statements of each of the Company's entities are measured using the currency of the primary economic environment in which each entity operates (`the functional currency'). The consolidated financial statements are presented in Korean won, which is SEC's functional and presentation currency. (B) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at the exchange rate at the end of the reporting period of monetary assets denominated in foreign currencies are recognized as realized foreign exchange gains and losses under finance income and expense in the statement of income, except when deferred in other comprehensive income as qualifying cash flow hedges and qualifying net investment hedges. Changes in the fair value of monetary securities denominated in foreign currency classified as available-for-sale financial assets are analyzed between translation differences resulting from changes in the amortized cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in amortized cost are recognized in profit or loss, and other changes in carrying amount are recognized in other comprehensive income. Translation differences on non-monetary financial assets and liabilities are recognized in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets such as equity instruments held at fair value through profit or loss are recognized in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets, such as equities classified as available-for-sales are included in other comprehensive income. (C) Translation into presentation currency The results and financial position of all the foreign entities that have a functional currency different from the presentation currency of the Company are translated into the presentation currency as follows: Assets and liabilities are translated at the closing rate at the end of the reporting date. Income and expenses for each statement of income are translated at average exchange rates, unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case 63 income and expenses are translated at the rate on the dates of the transactions; and all resulting exchange differences are recognized in other comprehensive income. On consolidation, exchange differences arising from the translation of the net investment in foreign operations are recognized in other comprehensive income. When a foreign operation is partially disposed of or sold, the exchange differences that were recorded in equity are reclassified as part of gains and losses on disposition in the statement of income. When the Company loses control over foreign subsidiaries, the exchange differences that were recorded in equity are reclassified in the statement of income during the period when the gain or loss is recognized in profit or loss. Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments are treated as the foreign operation's assets and liabilities. The goodwill is expressed in the foreign operation's functional currency and is translated at the closing rate. Exchange differences should be recognized in other comprehensive income. 2.5 Cash and Cash Equivalents Cash and cash equivalents include cash on hand, deposits held at call with banks, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value. 2.6 Financial Assets (A) Classification The Company classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, available-for-sale, and held-to-maturity investments. The classification depends on the terms of the instruments and purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. (1) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short-term. Derivatives not subject to hedge accounting and derivatives separated from financial instruments such as embedded derivatives are also categorised as held for trading. Assets in this category are classified as current assets. (2) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than 12 months after the end of the reporting period which are classified as non-current assets. (3) Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless an investment matures or management intends to dispose of it within 12 months of the end of the reporting period. 64 (B) Recognition and measurement Regular purchases and sales of financial assets are recognized on the trade date. Investments are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognized at fair value, and transaction costs are expensed in the statement of income. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held-to-maturity investments are subsequently carried at amortized cost using the effective interest method. Gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss, including interest income, are presented as financial income in the statement of income in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognized as other non-operating income in the statement of income when the Company's right to receive payments is established. Changes in the fair value of monetary and non-monetary securities classified as available-for-sale are recognized in other comprehensive income. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments previously recognized in equity are transferred to the statement of income under other nonoperating income or other expense items. Interest on available-for-sale financial assets and held-to-maturity financial assets calculated using the effective interest method is recognized in the statement of income as part of finance income. Dividends on available-for-sale financial assets are recognized in the statement of income as part of other non-operating income when the Company's right to receive payments is established. (C) Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously. (D) Derecognition of financial assets Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire, when the Company transfers the contractual rights to receive the cash flows of the financial asset and substantially all the risks and rewards of ownership, or when the Company neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset and has not retained control of the financial asset. Financial liabilities that arise through a transfer of receivables in factoring arrangements with recourse do not qualify for derecognition since the Company retains substantially all the risks and rewards associated with the receivables.. Such liabilities are classified as short-term borrowings in the consolidated statement of financial position. 2.7 Impairment of Financial Assets (A) Assets carried at amortized cost The Company assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment loss is recognized only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset or group of financial assets (a `loss event') and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The following represent some of the factors that could lead the Company to assess that there is objective evidence that a financial asset or group of assets is impaired: - significant financial difficulty of the issuer or obligor; - delinquency in interest or principal payments; - the lender, for economic or legal reasons relating to the borrower's financial difficulty, grants to the borrower a concession that the lender would not otherwise consider; - it becoming probable that the borrower will enter bankruptcy or other financial reorganisation; - the disappearance of an active market for that financial asset because of financial difficulties; or - observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group, including: 1) adverse changes in the payment status of borrowers in the group; or 2) n ational or local economic conditions that correlate with defaults on the assets in the group. The amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognized in the consolidated statement of income. In cases of floating rate financial assets, the amount of the loss will be computed using the present effective interest rate determined by the contract. As a practical expedient, the Company may measure impairment on the basis of an instrument's fair value using an observable market price. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor's credit rating), the reversal of the previously recognized impairment loss is recognized in the consolidated statement of income. (B) Financial Instruments Classified as Available-for-sale The Company assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. Debt instruments are accounted for using the provisions described in (1). In the case of equity investments classified as available-for-sale, a 20% or greater decline in the fair value of the security below its cost or a continuous decline for more than 6 months is also evidence of impairment. If any such evidence exists for availablefor-sale financial assets, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss is removed from equity and recognized in the consolidated statement of income. Impairment losses on equity instruments recognized in the consolidated statement of income are not reversed through the consolidated statement of income. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through the consolidated statement of income. 2.8 Trade Receivables Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the Company if longer), they are classified as current assets. If not, they are presented as non-current assets. Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. 2.9 Inventories Inventories are stated at the lower of cost and net realizable value. Cost is determined using the average cost method, except for materials-in-transit. The cost of finished goods and work in progress comprises design costs, raw materials, direct labor, other direct costs and related production overheads (based on normal operating capacity). It excludes costs of idle plant and abnormal waste. Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Inventories are reduced for the estimated losses arising from excess, obsolescence, and decline in value. This reduction is determined by estimating market value based on future customer demand. The losses on inventory obsolescence are recorded as a part of cost of sales. 2.10 Disposal Groups Classified as Held for Sale When the carrying amount of certain assets and liabilities are expected to be recovered through sale and the sale of a disposable group is highly probable, such assets and liabilities are classified as held for sale and measured at the lower of their carrying amount and fair value. 2.11 Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Historical cost includes expenditures that are directly attributable to the acquisition of the items. Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of those parts that are replaced is derecognized and repairs and maintenance expenses are recognized in profit or loss in the period they are incurred. Depreciation on tangible assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives. Land is not depreciated. Costs that are directly attributable to the acquisition, construction or production of a qualifying asset, including capitalized interest costs, form part of the cost of that asset and are amortized over the estimated useful lives. 65 The Company policy is that assets should be depreciated over the following estimated useful lives: Buildings and auxiliary facilities Estimated useful lives Estimated useful lives 15, 30 years Tools and fixtures 5 years Structures 15 years Vehicles 5 years Machinery and equipment 5 years Tangible assets' depreciation methods, residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized within the statement of income as part of other non-operating income and expenses. 2.12 Intangible Assets (A) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the group's share of the net identifiable assets of the acquired subsidiary, associates, joint ventures and businesses at the date of acquisition. Goodwill on acquisitions of subsidiaries and businesses is included in intangible assets and goodwill on acquisition of associates and joint ventures are included in the investments in associates and joint ventures. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. For the purpose of impairment testing, goodwill acquired in a business combination shall, from the acquisition date, be allocated to each of the acquirer's cashgenerating units, or groups of cash-generating units, that is expected to benefit from the synergies of the combination, and the allocation shall be determined based on the operating segments. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Goodwill is tested for impairment annually or more frequently if there is any indication that it may be impaired. Goodwill is tested for impairment by comparing the carrying amount of the cash-generating units or groups of cash-generating units with the recoverable amount, which is the higher of its fair value less costs to sell and its value in use. An impairment loss is immediately recognized and is not subsequently reversed. (B) Capitalized development costs The Company capitalizes certain development costs when the outcome of a development plan is for practical enhancement, probability of technical and commercial achievement for the development plans are high, and the necessary cost is reliably estimable. Capitalized costs, comprising direct labor and related overheads, are amortized on a straight-line basis over their useful lives. In presentation, accumulated amortization and accumulated impairment amounts are deducted from capitalized costs associated with development activities. (C) Other intangible assets Certain membership dues are regarded as having an indefinite useful life because there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity, and such assets are not amortized. Trademarks and licenses which are separately acquired are presented at historical cost. Trademarks and licenses which are acquired in business combinations are recorded at the fair value at the acquisition date. They have definite useful lives and are measured at cost less any accumulated amortization and amortized on a straight-line basis over their 5 or 10 year estimated useful lives. The contractual customer relationships were acquired in a business combination and are recognized at fair value at the acquisition date. The contractual relationships have a definite useful life and are recorded at cost less any accumulated amortization and amortized on a straight-line basis over the estimated period of the customer relationship. Software is capitalized and amortized using the straight-line method over their useful lives, generally 5 to 10 years. Where an indication of impairment exists, the carrying amount of an intangible asset is assessed and written down to its recoverable amount. 2.13 Impairment of Non-Financial Assets Intangible assets that have an indefinite useful life, for example goodwill, are not subject to amortization and are tested annually for impairment. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cashgenerating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. 2.14 Financial Liabilities (A) Financial liabilities at fair value through profit or loss GFinancial liabilities are acquired or incurred principally for the purpose of selling or repurchasing in the near term. Financial liabilities at fair value through profit or loss of the Company consist of derivatives which are not subject to hedge accounting and derivatives separated from financial instruments such as embedded derivatives. (B) Financial liabilities measured at amortized cost Unless financial liabilities arise when transfer of financial assets or financial liabilities at fair value through profit or loss do not qualify for derecognition, all non-derivative financial liabilities are classified as financial liabilities measured at amortized cost. If a transfer does not result in derecognition, the Company continues to recognize the transferred asset and a financial liability for the consideration received. Financial liabilities measured at amortized cost, due within twelve months after the balance sheet date, are classified as current liabilities, otherwise, they are classified as noncurrent liabilities. 2.15 Trade Payables Trade payables are amounts due to suppliers for merchandise purchased or services received in the ordinary course of business. If payment is expected in one year or 66 less (or in the normal operating cycle of the Company if longer), they are classified as current liabilities. If not, they are presented as non-current liabilities. Non-current trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method. 2.16 Borrowings Borrowings are recognized initially at fair value, net of transaction costs and are subsequently measured at amortized cost. Any difference between cost and the redemption value is recognized in the statement of income over the period of the borrowings using the effective interest method. If the Company has an indefinite right to defer payment for a period longer than 12 months after the end of the reporting date, such liabilities are recorded as non-current liabilities, otherwise, they are recorded as current liabilities. employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The liabilities recognized in the statement financial position in respect of defined benefit pension plans are the present values of the defined benefit obligations at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating to the terms of the related pension liability. Actuarial gains and losses resulting from the changes in actuarial assumptions, and the differences between the previous actuarial assumptions and what has actually occurred, are recognized in other comprehensive income in the period in which it was incurred. Past service costs are immediately recognized in profit and loss. 2.17 Provisions A provision is recognized when the Company has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are not recognized for future operating losses. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognized as interest expense. When it is probable that an outflow of economic benefits will occur due to a present obligation resulting from a past event, and the amount is reasonably estimable, a corresponding provision is recognized in the financial statements. However, when such outflow is dependent upon a future event, that is not certain to occur, or cannot be reliably estimated, a disclosure regarding the contingent liability is made in the notes to the financial statements. 2.18 Defined Benefit Liabilities The Company has a variety of retirement pension plans including defined benefit or defined contribution plans. A defined contribution plan is a pension plan under which the Company pays fixed contributions into a separate entity. The Company has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. For defined contribution plans, the Company pays contributions to annuity plans that are managed either publicly or privately on a mandatory, contractual or voluntary basis. The Company has no further future payment obligations once the contributions have been paid. The contributions are recognized as employee benefit expense when they are due. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in the future payments is available. A defined benefit plan is a pension plan that is not a defined contribution plan. Typically defined benefit plans define an amount of pension benefit that an 2.19 Financial Guarantee Contract Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due. Financial guarantees are initially recognized in the financial statements at fair value on the date the guarantee was given. If the amount measured in subsequent periods exceeds the unamortized balance of the amount initially recognized, the excess is classified as another financial liability. 2.20 Income Tax Expense and Deferred Taxes The tax expense for the period comprises current and deferred tax. Tax is recognized in the statement of income, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case the tax is also recognized in other comprehensive income or directly in equity as appropriate. Deferred income tax is recognized on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements; it is the future tax consequences of the future recovery or settlement of the carrying amount. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. An entity shall recognize a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries, associates, and interests in joint ventures, except to the extent that the parent company is able to control the timing of the reversal of the temporary difference, and it is probable that the temporary difference will not reverse in the foreseeable future. An entity shall recognize a deferred tax asset for all deductible temporary differences arising from investments in subsidiaries and associates, and interests in joint ventures, to the extent that the temporary difference will reverse in the foreseeable future and taxable profits will be available against which the temporary difference can be utilized. 67 Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. 2.21 Derivative Instruments All derivative instruments are accounted for at fair value with the resulting valuation gain or loss recorded as an asset or liability. If the derivative instrument is not designated as a hedging instrument, the gain or loss is recognized in the statement of income in the period of change. Fair value hedge accounting is applied to a derivative instrument with the purpose of hedging the exposure to changes in the fair value of an asset or a liability or a firm commitment (hedged item) that is attributable to a particular risk. Hedge accounting is applied when the derivative instrument is designated as a hedging instrument and the hedge accounting criteria have been met. The gain or loss, both on the hedging derivative instrument and on the hedged item attributable to the hedged risk, is reflected in the statement of income. 2.22 Dividend Distribution Dividend distribution to SEC's shareholders is recognized as a liability in the Company's financial statements in the period in which the dividends are approved. 2.23 Share Capital and Premium Common shares and preferred shares with no repayment obligations are classified as equity. When the Company purchases its common shares, the acquisition costs including direct transaction costs are deducted from equity until the redemption or reissuance of treasury shares. Consideration received on the subsequent sale or issue of treasury shares is credited to equity. 2.24 Revenue Recognition Revenue mainly comprises the fair value of the consideration received or receivable for the sale of goods in the ordinary course of the Company's activities. Revenue is shown net of value-added tax, returns, sales incentives and discounts and after eliminating intercompany transactions. The Company recognizes revenue when specific recognition criteria have been met for each of the Company's activities as described below. The Company bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. (A) Sales of goods Sales of products and merchandise are recognized upon delivery when the significant risks and rewards of ownership of goods have transferred to the buyer, continuing managerial involvement usually associated with ownership and effective control have ceased, the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the Company and the costs incurred or to be incurred in respect of the transaction can be measured reliably. The Company records reductions to revenue for special pricing arrangements, price protection and other volume based discounts. If product sales are subject to customer acceptance, revenue is not recognized until customer acceptance occurs. (B) Sales of services Revenues from rendering services are generally recognized using the percentageof-completion method, based on the percentage of costs to date compared to the total estimated costs, contractual milestones or performance. (C) Other sources of revenue Interest income is recognized using the effective interest method. When a loan and receivable is impaired, the Company reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Royalty income is recognized on an accruals basis in accordance with the substance of the relevant agreements. Dividend income is recognized when the right to receive payment is established. 2.25 Government Grants Grants from the government are recognized at their fair value where there is a reasonable assurance that the grant will be received and the Company will comply with the conditions attached. Government grants relating to income are deferred and recognized in the statement of income over the period necessary to match them with the income that they are intended to compensate. Government grants relating to property, plant and equipment are included in non-current liabilities as deferred government grants and are credited to the statement of income on a straight-line basis over the expected lives of the related assets. 2.26 Earnings per Share Basic earnings per share is calculated by dividing net profit for the period available to common shareholders by the weighted-average number of common shares outstanding during the year. Diluted earnings per share is calculated using the weighted-average number of common shares outstanding adjusted to include the potentially dilutive effect of common equivalent shares outstanding. 2.27 Operating Segments Operating segments are disclosed in the manner reported to the chief operating decision-maker (please see footnote 33). The chief operating decision-maker is responsible for making strategic decisions on resource allocation and performance assessment of the operating segments. The management committee which makes strategic decisions is regarded as the chief operating decision-maker. 2.28 Convenience Translation into 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 in the financial statements represent supplementary information solely for the convenience of the reader. All Won amounts are expressed in U.S. dollars at the rate of 1,171.10 68 to US $1, the exchange rate in effect on December 31, 2012. Such presentation is not in accordance with generally accepted accounting principles, 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. 2.29 Approval of Financial Statements These consolidated financial statements were approved by the Board of Directors on January 25, 2013. 3. Critical Estimates and Judgments The Company makes estimates and assumptions concerning the future. The estimates and assumptions are continuously assessed, considering historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below. (A) Revenue recognition The Company uses the percentage-of-completion method in accounting for its fixed-price contracts to deliver installation services. Use of the percentage-ofcompletion method requires the Company to estimate the services performed to date as a proportion of the total services to be performed. Revenues and earnings are subject to significant change, effected by early steps in a long-term projects, change in scope of a project, cost, period, and plans of the customers. (B) Provision for warranty The Company recognizes provision for warranty on products sold. The Company accrues provision for warranty based on the best estimate of amounts necessary to settle future and existing claims. The amounts are estimated based on historical data. (C) Fair value of derivatives and other financial instruments The fair value of financial instruments that are not traded in an active market is determined by using a variety of methods and assumptions that are mainly based on market conditions existing at the end of each reporting period. (D) Pension benefits The pension obligations depend on a number of factors that are determined on an actuarial basis using a number of assumptions. Any changes in these assumptions will impact the carrying amount of pension obligations. The Company, in consideration of the interest rates of high-quality corporate bonds, determines the appropriate discount rate at the end of each year. This is the interest rate that is used to determine the present value of estimated future cash outflows expected to be required to settle the pension obligations. The principal actuarial assumptions associated with the defined benefit liability are based on the current market expectations. (E) Estimated impairment of goodwill The Company tests at the end of each reporting period whether goodwill has suffered any impairment in accordance with the accounting policy described in Note 2.12. The recoverable amounts of cash generating units have been determined based on value-in-use calculations. These calculations are based on estimates. (F) Income taxes The operating activities of SEC span across various countries in the world; likewise, income taxes on the taxable income from operating activities are subject to various tax laws and determinations of each tax authority. There is uncertainty in determining the eventual tax effects on the taxable income from operating activities. The Company has recognized current tax and deferred tax at the end of the fiscal year based on the best estimation of future taxes payable as a result of operating activities. However, the resulting deferred income tax assets and liabilities may not equal the actual future taxes payable and such difference may impact on the current tax and deferred income tax assets and liabilities upon the determination of eventual tax effects. 4. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, deposits held at call with banks, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value. Cash and cash equivalents as of December 31, 2012 and 2011, consist of the following: (In millions of Korean won) Cash on hand Bank deposits, etc. Total 2012 12,900 18,778,560 18,791,460 2011 16,042 14,675,719 14,691,761 5. Financial Assets Subject to Withdrawal Restrictions Financial instruments subject to withdrawal restrictions as of December 31, 2012 and 2011, consist of the following: (In millions of Korean won) Short-term financial instruments Other non-current assets - Long-term financial instruments 2012 46,489 29 2011 39,770 21 69 6. Financial Instruments by Category (A) Financial instruments by category consist of the following: (1) As of December 31, 2012 Assets Cash and cash equivalents Short-term financial instruments Short-term available-for-sale financial assets Trade and other receivables Long-term available-for-sale financial assets Deposits Others Total Assets at fair value through the profit and loss - - - - - - 47,227 47,227 Liabilities Trade and other payables Short-term borrowings Debentures Long-term borrowings Long-term other payables Others Total Liabilities at fair value through the profit and loss - - - - - 79,212 79,212 Loans and receivables 18,791,460 17,397,937 26,674,596 814,693 2,056,988 65,735,674 Financial liabilities measured at amortized cost 16,889,350 4,115,249 1,829,374 3,623,028 1,165,881 10,788,823 38,411,705 Available-for-sale financial assets - 1,258,874 - 5,229,175 - 6,488,049 (In millions of Korean won) Total 18,791,460 17,397,937 1,258,874 26,674,596 5,229,175 814,693 2,104,215 72,270,950 Other financial liabilities 4,328,503 4,328,503 Total 16,889,350 8,443,752 1,829,374 3,623,028 1,165,881 10,868,035 42,819,420 (2) As of December 31, 2011 Assets Cash and cash equivalents Short-term financial instruments Short-term available-for-sale financial assets Trade and other receivables Long-term available-for-sale financial assets Deposits Others Total Liabilities Trade and other payables Short-term borrowings Debentures Long-term borrowings Long-term other payables Others Total Assets at fair value through the profit and loss - 130,057 130,057 Liabilities at fair value through the profit and loss - 40,932 40,932 Loans and receivables 14,691,761 11,529,905 24,153,028 791,863 1,289,447 52,456,004 Financial liabilities measured at amortized cost 18,509,490 4,775,339 1,280,124 3,682,472 1,024,804 7,818,742 37,090,971 Available-for-sale financial assets - 655,969 - 3,223,598 - 3,879,567 (In millions of Korean won) Total 14,691,761 11,529,905 655,969 24,153,028 3,223,598 791,863 1,419,504 56,465,628 Other financial liabilities 4,878,383 4,878,383 Total 18,509,490 9,653,722 1,280,124 3,682,472 1,024,804 7,859,674 42,010,286 70 71 (B) Income and loss of financial instruments by category for the years ended December 31, 2012 and 2011, are as follows: (1) As of December 31, 2012 Financial Assets Gain on valuation (Other comprehensive gain) Assets at fair value through the profit and loss - Gain/(Loss) on valuation/disposal (74,609) Gain on disposal (Reclassification) - Interest income - Foreign exchange differences (Financial income) - Foreign exchange differences (Financial expense) - Dividend income - Impairment/Reversal (Profit or loss) - Loans and receivables 28,915 840,150 2,213,693 (2,569,682) - Available-for-sale financial assets 1,185,256 105,192 23,072 5,281 106,181 (94,466) (In millions of Korean won) Total 1,185,256 59,498 23,072 845,431 2,213,693 (2,569,682) 106,181 (94,466) Financial Liabilities Liabilities at fair value through the profit and loss Loss on valuation/disposal (Profit or loss) Interest expense Foreign exchange differences (Financial income) Foreign exchange differences (Financial expense) (125,553) - Financial liabilities measured at amortized cost - 277,512 4,037,004 (4,019,066) Other Financial Liabilities 321,494 43,909 - Total (125,553) 599,006 4,080,913 (4,019,066) (2) As of December 31, 2011 Financial Assets Loss on valuation (Other comprehensive loss) Assets at fair value through the profit and loss - Gain on valuation/disposal 113,401 Gain on disposal (Reclassification) - Interest income - Foreign exchange differences (Financial income) - Foreign exchange differences (Financial expense) - Dividend income - Impairment/Reversal (Profit or loss) - Loans and receivables - 702,198 4,025,356 (4,481,568) - Financial Liabilities Liabilities at fair value through the profit and loss Loss on valuation/disposal (Profit or loss) Interest expense Foreign exchange differences (Financial income) Foreign exchange differences (Financial expense) (1,865) - Financial liabilities measured at amortized cost - 270,929 2,056,604 (2,288,844) Available-for-sale financial assets (559,831) 102,350 134,202 3,455 (2,924) 34,423 (39) (In millions of Korean won) Total (559,831) 215,751 134,202 705,653 4,025,356 (4,484,492) 34,423 (39) Other Financial Liabilities 373,204 38,788 (12,229) Total (1,865) 644,133 2,095,392 (2,301,073) 72 7. Credit Quality of Financial Assets The credit quality of financial assets that are neither past due nor impaired is assessed by reference to external credit ratings as of December 31, 2012 and 2011 as follows: Superior ability to repay - A aa~Aa (Moody's), AAA~AA (S&P, Fitch), A1 (Credit rating agencies in Korea) Strong ability to repay - A (Moody's), A (S&P, Fitch), A2 (Credit rating agencies in Korea) Acceptable ability to repay - Baa (Moody's), BBB (S&P, Fitch), A3 (Credit rating agencies in Korea) Currently having the ability to repay - Ba~B (Moody's), BB~B (S&P, Fitch), B (Credit rating agencies in Korea) Group 1 - Customers with the trade payables guaranteed by credit insurance or collateral Group 2 - Customers experienced impairment of capital. As the trade payables are guaranteed by credit insurance or collateral, all default risk has been relieved (A) Accounts receivables Counterparties with external credit rating Superior ability to repay Strong ability to repay Acceptable ability to repay Currently having the ability to repay Counterparties without external credit rating Group 1 Group 2 (In millions of Korean won) 2012 2011 1,818,158 3,742,515 3,217,663 3,834,957 12,613,293 1,983,246 3,813,989 2,981,747 2,857,491 11,636,473 8,680,397 50,160 8,730,557 21,343,850 8,658,198 67,456 8,725,654 20,362,127 8. Transfers of Financial Assets Trade receivables have been discounted through factoring agreements with banks. Collateral (trade receivables and other) provided in transactions of discount and factoring of trade receivables do not meet the requirements for asset derecognition as risks and rewards are not substantially transferred in the event the debtor defaults. Financial liabilities recognized in relation to these transactions are included as short-term borrowings in the statement of financial position (Note 15). The following table presents a break down of discounted trade receivables as of December 31, 2012 and 2011: (In millions of Korean won) Carrying amount of the discounted trade receivables (*) Carrying amount of the related borrowing December 31, 2012 4,328,503 4,328,503 December 31, 2011 4,878,383 4,878,383 (*) The discounted trade receivables include intercompany balances. (B) Cash equivalents and short-term financial instruments (In millions of Korean won) 2012 2011 Superior ability to repay 2,850,476 1,378,015 Strong ability to repay 32,675,712 24,448,843 Acceptable ability to repay 505,631 278,216 Currently having the ability to repay 12,896 15,397 Others (*) 131,782 85,153 36,176,497 26,205,624 (*) Short-term financial instruments at financial institutions (Credit union etc.) without external credit rating. 73 9. Available-for-Sale Financial Assets The changes of available-for-sale financial assets are as follows: (In millions of Korean won) 2012 2011 Balance as of January 1 3,879,567 4,199,358 Acquisitions -Increase from business combinations Disposals 2,630,247 16,544 (1,171,666) 2,309,143 1,018 (2,004,296) Changes in value, net of tax 1,185,256 (559,831) Impairment losses (28,009) (39) Translation and exchange difference (19,302) 1,007 Others 11,956 (65,775) Balance as of December 31 6,488,049 3,879,567 A) Current portion 1,258,874 655,969 B) Non-current portion 5,229,175 3,223,598 (A) Short-term available-for-sale financial assets Short-term available-for-sale financial assets as of December 31, 2012 and 2011 consist of national bonds and beneficiary certificates whose maturities are within 1 year. (In millions of Korean won) 2012 2011 National bonds 1 - Beneficiary certificates (*) 1,258,873 655,969 1,258,874 655,969 (*) Beneficiary certificates as of December 31, 2012 and 2011 consist of follows: (In millions of Korean won) 2012 2011 Bonds 1,159,290 647,379 Time deposits 238 715 Call loan 85,200 - Others 14,145 7,875 1,258,873 655,969 For the years ended December 31, 2012 and 2011, changes in valuation gain (loss) recognized in equity (other comprehensive income) on short-term available-forsale financial assets are as follows: (In millions of Korean won) 2012 2011 Balance at January 1 Fair value gains 5,969 8,873 9,144 5,969 Net gains transferred from equity (5,969) (9,144) Balance at December 31 Deferred income tax and minority interest 8,873 (2,147) 6,726 5,969 (1,444) 4,525 (B) Long-term available-for-sale financial assets Long-term available-for-sale financial assets as of December 31, 2012 and 2011 are as follows: (In millions of Korean won) Detail 2012 2011 Equity securities-Listed (1) 4,435,856 2,526,187 Equity securities-Unlisted (2) 667,325 623,739 Debt securities (*) 125,994 73,672 5,229,175 3,223,598 (*) The maximum exposure to credit risk of debt securities that are available-forsale financial assets is the carrying value as of December 31, 2012 and 2011. (1) Equity securities-Listed (Except for Associates and Joint Ventures) Listed equity securities as of December 31, 2012 and 2011, are as follows: (In millions of Korean won) Samsung Heavy Industries Samsung Fine Chemicals Hotel Shilla Cheil Worldwide iMarket Korea A-Tech Solution1 SFA KT Skylife ASML CSR Rambus1 Seagate Technology Others (*) Number of Shares Owned 40,675,641 2,164,970 2,004,717 2,998,725 647,320 1,592,000 1,822,000 240,000 12,595,575 9,925,000 4,788,125 45,239,490 - 2012 Percentage of Ownership(%) Acquisition Cost 17.6 258,299 8.4 45,678 5.0 13,957 2.6 2,920 1.8 324 15.9 26,348 10.2 38,262 0.5 3,000 3.0 726,024 4.9 59,612 4.3 92,682 12.0 788,454 - 35,809 2,091,369 Book Value 1,568,046 132,063 88,107 64,623 18,416 11,606 85,998 8,028 856,253 58,765 24,976 1,474,032 44,943 4,435,856 2011 Book Value 1,134,850 132,063 77,182 56,826 10,487 17,830 111,142 6,576 41,692 855,665 81,874 2,526,187 (*) The impairment loss of 85,280 million is recognized relating to A-Tech Solution and Rambus,etc. as the fair value decreased steadily below the acquisition cost. The difference between the acquisition cost and the current fair value, after income tax effects, is recorded within other components of equity (unrealized gains or losses on available-for-sale financial assets). 74 75 (2) Equity securities-Unlisted (Except for Associates and Joint ventures) Unlisted equity securities as of December 31, 2012 and 2011 are as follows: Kihyup Technology Pusan Newport (*1) Samsung Venture Samsung Petrochemical Samsung General Chemicals icube Investment Maltani Lighting SK Telink CSOT (*2) Nanosys OpenX Voltaix Others (*3) Number of Shares Owned 1,000,000 1,135,307 980,000 514,172 1,914,251 40 9,000 14,609 13,100,436 8,899,172 7,785 - 2012 Percentage of Ownership (%) Acquisition Cost 17.2 5,000 1.0 5,677 16.3 4,900 13.0 8,040 3.9 19,143 16.2 4,000 15.0 16,544 1.1 4,357 15.0 278,130 13.0 17,861 3.5 10,738 5.8 13,671 - 157,934 545,995 (In millions of Korean won) 2011 Book Value Book Value 5,000 5,677 6,053 84,427 74,487 4,000 16,225 4,357 278,130 17,861 10,738 13,671 146,699 667,325 5,000 5,677 5,835 91,489 71,365 4,000 4,357 278,130 17,861 140,025 623,739 (*1) As of December 31, 2012, the Company's investments in Pusan Newport are pledged as collateral against the investee's debt (Note 19). (*2) Nonmarketable shares are measured at cost because the variation of reasonable fair value estimates is not insignificant and the probabilities of the various estimates and applicable discount rate cannot be reasonably assessed (Note 32). (*3) Impairment losses on unlisted equity securities resulting from the decline in realizable value below the acquisition cost amounted to2,235 million and39 million for the year ended December 31, 2012 and 2011, respectively. For the years ended December 31, 2012 and 2011, changes in valuation gain (loss) on long-term available-for-sale financial assets are as follows: (In millions of Korean won) 2012 2011 Balance at January 1 Fair value gains (losses) Net gains (losses) transferred from equity 1,367,331 1,176,383 29,041 2,058,189 (565,800) (125,058) Balance at December 31 2,572,755 1,367,331 Deferred income tax and minority interest (577,945) (331,008) Total 1,994,810 1,036,323 76 10. Trade and other receivables All current trade and other receivables are due within 1 year from the end of the reporting period. The carrying amount is a reasonable approximation of fair value for current trade and other receivables, with the effect of discounting being insignificant. (A) Trade and other receivables as of December 31, 2012 and 2011, are as follows: Receivables Less: Allowances for impairment Trade receivables, net Less: Non-current portion Current portion 2012 Trade 24,168,427 (276,787) 23,891,640 (30,405) 23,861,235 Non-Trade 2,834,187 (2,595) 2,831,592 (18,231) 2,813,361 (In millions of Korean won) 2011 Trade 22,133,741 Non-Trade 2,311,996 (214,597) (37,833) 21,919,144 (37,017) 21,882,127 2,274,163 (3,262) 2,270,901 The Company transferred receivable balances to financial institutions in exchange for cash. The outstanding balances of transferred receivable balances amounting to 4,328,503 million and 4,878,383 million have been accounted for as borrowings as of December 31, 2012 and 2011 (Note 15). (B) Movements on the provision for impairment of trade receivables are as follows: Balance on January 1 Provision for receivables impairment Receivables written off during the year as uncollectible Unused amounts reversed Others Balance on December 31 2012 Trade (214,597) (181,751) 18,752 98,163 2,646 (276,787) Non-Trade (37,833) (20,351) 28,203 26,721 665 (2,595) (In millions of Korean won) 2011 Trade (185,758) (78,202) Non-Trade (19,585) (11,478) 7,345 224 56,539 (14,521) (214,597) 11,561 (18,555) (37,833) (C) An aging analysis of trade and other receivables as of December 31, 2012 and 2011, is as follows: Receivables not past due Receivables past due, not impaired (*1): Less than 31 days overdue Bad debts (*2): 31 days to 90 days overdue 90 days overdue or more December 31, 2012 24,151,060 2,226,759 231,343 393,452 27,002,614 (*1) The Company does not consider receivables that are overdue for less than or equal to 31 days as impaired. (*2) The balance of allowance for doubtful debts as of December 31, 2012 amounts to 279,382 million (2011: 252,430 million). (In millions of Korean won) December 31, 2011 22,467,108 1,351,566 339,107 287,956 24,445,737 (D) The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. As of December 31, 2012, the Company has credit insurance with Korea Trade Insurance and overseas insurance companies against its export accounts receivables from approved foreign customers. 77 11. Inventories Inventories as of December 31, 2012 and 2011, are as follows: Finished goods Work in Process Raw materials and supplies Materials-in-transit Gross Amount 7,003,826 3,623,572 5,239,262 2,598,191 18,464,851 2012 Valuation Allowance (166,576) (392,996) (157,866) - (717,438) Book Value Gross Amount 6,837,250 3,230,576 5,081,396 2,598,191 17,747,413 6,105,312 3,454,823 4,673,143 2,252,853 16,486,131 (In millions of Korean won) 2011 Valuation Allowance (199,432) Book Value 5,905,880 (383,461) 3,071,362 (186,523) 4,486,620 - 2,252,853 (769,416) 15,716,715 The inventories recognized as expense and included in `cost of sales' amounted to125,746,083 million (2011: 110,802,871 million) in which inventory valuation loss of 367,279 million (2011: 575,332 million) is included. 12. Associates and Joint Ventures (A) Changes in investments in associates and joint ventures for the years ended December 31, 2012 and 2011, are as follows: Balance at January 1 Acquisition Disposal Share of profit Others (*) Balance at December 31 2012 9,204,169 279,022 (21,891) 986,611 (1,662,422) 8,785,489 (*) Others consist of dividends, business combination, and the effect of change in foreign exchange rates, etc. (In millions of Korean won) 2012 8,335,290 403,538 (298,375) 1,399,194 (635,478) 9,204,169 (B) Major associates and Joint Ventures as of December 31, 2012, consist of the following: (1) Associates Investee Industry Samsung Card Samsung Electro-Mechanics Samsung SDI Samsung SDS Samsung Techwin Finance Manufacture of electronic components, computers, videos, sound and communication equipments Manufacture of electronic components, computers, videos, sound and communication equipments Computer programming, system integration and management Manufacture of electronic components, computers, videos, sound and communication equipments (*) The ownership represents the Company's ownership of the voting rights in the entity. Percentage of Ownership (%) (*) 37.5 23.7 (In millions of Korean won) Percentage of Ownership (%) (*) Korea Korea 20.4 Korea 21.7 Korea 25.5 Korea 78 (2) Joint ventures Investee Industry Samsung Corning Precision Materials Samsung Corning Advanced Glass TFT- LCD components Manufacturing and retail Manufacture of other industrial glass devices (*)The ownership represents the Company's ownership of the voting rights in the entity. Percentage of Ownership (%) (*) 42.5 50.0 (In millions of Korean won) Percentage of Ownership (%) (*) Korea Korea (C) Details of investments in associates and joint ventures as of December 31, 2012 and 2011 are as follows: (1) Associates Investee Samsung Card Samsung Electro-Mechanics Samsung SDI Samsung SDS Samsung Techwin Others Total Acquisition cost 1,538,540 359,237 423,722 17,967 174,531 461,599 2,975,596 2012 Net asset value 2,221,201 887,933 1,450,811 689,874 401,146 513,580 6,164,545 (In millions of Korean won) Book value 2,238,073 890,460 1,174,183 701,808 360,739 457,016 5,822,279 Investee Samsung Card Samsung Electro-Mechanics Samsung SDI Samsung SDS Samsung Techwin Samsung LED Others Total Acquisition cost 1,538,540 359,237 423,722 17,967 174,531 180,916 269,787 2,964,700 2011 Net asset value 2,167,986 883,680 1,242,699 643,578 417,708 311,545 354,602 6,021,798 (In millions of Korean won) Book value 2,184,855 799,792 1,185,509 632,593 370,379 340,145 371,909 5,885,182 (2) Joint ventures Investee Samsung Corning Precision Materials Samsung Corning Advanced Glass Others Total 2012 Acquisition cost Net asset value 297,165 2,825,104 115,000 114,274 419,461 64,193 831,626 3,003,571 (In millions of Korean won) 2011 Book value Acquisition cost Net asset value Book value 2,794,617 297,165 3,191,077 3,089,298 114,274 - - - 54,319 419,461 145,870 229,689 2,963,210 716,626 3,336,947 3,318,987 79 (D) Gain/loss on valuation of equity (1) 2012 Balance at January 1 Gain/loss on valuation Samsung Card Samsung Electro-Mechanics Samsung SDI Samsung SDS Samsung Techwin Samsung LED Samsung Corning Precision Materials Samsung Corning Advanced Glass Others Total 2,184,855 799,792 1,185,509 632,593 370,379 340,145 3,089,298 - 601,598 9,204,169 264,688 102,946 31,256 89,157 39,356 (22,519) 644,242 (726) (161,789) 986,611 (*) Others include acquisitions, disposals, dividends and changes in currency exchange rates. Other comprehensive gains (181,217 ) 11,689 (30,531) (16,488) (27,171) (712) (10,300) (95,761) (350,491) (In millions of Korean won) Others (*) (30,253) (23,967) (12,051) (3,454) (21,825) (316,914) (928,623) 115,000 167,287 (1,054,800) Balance on December 31 2,238,073 890,460 1,174,183 701,808 360,739 - 2,794,617 114,274 511,335 8,785,489 (2) 2011 Balance at January 1 Gain/loss on valuation Samsung Card Samsung Electro-Mechanics Samsung SDI Samsung SDS Samsung Techwin Samsung LED Samsung Corning Precision Materials Others Total 2,201,154 793,932 1,172,130 569,678 269,360 306,005 2,599,010 424,021 8,335,290 132,331 78,179 63,242 74,382 65,684 30,669 975,221 (20,514) 1,399,194 (*) Others include acquisitions, disposals, dividends and changes in currency exchange rates. Other comprehensive gains (80,800) (50,307) (11,274) (2,939) 42,245 3,471 (7,588) (6,706) (113,898) (In millions of Korean won) Others (*) (67,830) (22,012) (38,589) (8,528) (6,910) (477,345) 204,797 (416,417) Balance on December 31 2,184,855 799,792 1,185,509 632,593 370,379 340,145 3,089,298 601,598 9,204,169 (E) Summarized financials of associates and joint ventures as of and for the year ended December 31, 2012 and 2011, are as follows: (1) Associates (In millions of Korean won) Investee Assets 2012 Liabilities Sales Net Income Assets 2011 Liabilities Sales Net Income Samsung Card Samsung Electro-Mechanics 16,287,816 10,357,253 3,817,670 6,891,464 2,925,816 7,912,830 749,875 16,135,253 9,991,910 3,196,455 440,803 7,455,731 3,579,943 7,624,623 374,831 349,473 Samsung SDI 10,895,087 3,330,606 5,771,185 1,471,502 8,527,411 2,212,884 5,443,883 320,109 Samsung SDS 4,465,407 1,220,467 6,105,858 395,805 4,027,597 1,057,695 4,765,178 324,767 Samsung Techwin 3,240,938 1,663,263 2,934,702 131,324 3,223,454 1,582,808 3,171,532 241,014 Samsung LED - - 367,423 (51,164) 1,454,193 831,104 1,292,245 64,783 80 (2) Joint Ventures - A listing of interests in significant joint ventures and the proportion of ownership interest held in jointly controlled entities is as follows: Current assets Non-current assets Total assets Current liabilities Non-current liabilities Net assets Sales Expense Net income Samsung Corning Precision Materials 1,457,132 1,585,498 3,042,630 183,321 34,205 2,825,104 1,465,702 889,924 575,778 2012 Samsung Corning Advanced Glass 93,842 25,834 119,676 5,351 51 114,274 17,913 18,639 (726) (In millions of Korean won) Others 179,238 336,801 516,039 153,440 298,406 64,193 724,437 788,540 (64,103) Total 1,730,212 1,948,133 3,678,345 342,112 332,662 3,003,571 2,208,052 1,697,103 510,949 Current assets Non-current assets Total assets Current liabilities Non-current liabilities Net assets Total sales Total expense Net income Samsung Corning Precision Materials 1,759,181 1,742,956 3,502,137 251,287 59,773 3,191,077 2,066,427 1,086,094 980,333 2011 Siltronic Samsung Wafer 100,952 343,751 444,703 76,932 300,929 66,842 157,084 194,764 (37,680) (In millions of Korean won) Others 176,899 40,346 217,245 138,217 79,028 749,809 740,522 9,287 Total 2,037,032 2,127,053 4,164,085 466,436 360,702 3,336,947 2,973,320 2,021,380 951,940 (F) Market value information of publicly listed associates as of December 31, 2012 is as follows: Samsung SDI Samsung Electro-Mechanics Samsung Card Samsung Techwin December 31, 2012 Number of shares held 9,282,753 17,693,084 43,393,170 13,526,935 Market value 1,401,696 1,755,154 1,583,851 807,558 (In millions of Korean won) December 31, 2011 Market value 1,239,248 1,374,753 1,687,994 719,633 81 13. Property, Plant and Equipment (A) Changes in property, plant and equipment for the years ended December 31, 2012 and 2011, are as follows: (In millions of Korean won) Balance at January 1, 2012 Acquisition cost Accumulated depreciation impairment Acquisition and capital expense (*) Business combinations Depreciation Sale/Disposal Impairment Others Balance at December 31, 2012 Acquisition cost Accumulated depreciation and impairment Land 7,214,734 7,214,734 54,960 (76,724) (40,829) 7,152,141 7,152,141 - Buildings and Structures 12,778,760 18,472,852 2012 Machinery and Equipment 33,453,220 Construction -In-Progress/ MachineryIn-Transit 6,982,473 96,618,176 6,982,473 (5,694,092) (63,164,956) - 1,681,106 - (1,121,614) (100,854) (3,992) (224,567) 13,008,839 19,624,030 18,302,895 654,490 (12,895,133) (604,989) (211,299) (653,008) 38,046,176 110,034,355 1,854,111 21,612 - (22,213) - (343,098) 8,492,885 8,492,885 (6,615,191) (71,988,179) - Others Total 1,614,764 4,683,845 (3,069,081) 956,723 29,007 (818,299) (114,292) (34) 116,833 1,784,702 5,011,914 (3,227,212) 62,043,951 133,972,080 (71,928,129) 22,849,795 705,109 (14,835,046) (919,072) (215,325) (1,144,669) 68,484,743 150,315,325 (81,830,582) (*) The capitalized borrowing costs are 36,129 million and the interest rate used to calculate the borrowing costs eligible for capitalization is 2.50%. (In millions of Korean won) Balance at January 1, 2011 Acquisition cost Accumulated depreciation impairment Acquisition and capital expense (*) Business combinations Depreciation Sale/Disposal Impairment Others Balance at December 31, 2011 Acquisition cost Accumulated depreciation and impairment Land 6,631,392 6,631,392 553,058 53,771 (22,394) (1,093) 7,214,734 7,214,734 - Buildings and Structures 10,312,316 15,055,715 2011 Machinery and Equipment Construction -In-Progress/ MachineryIn-Transit 26,474,573 8,243,827 81,456,534 8,243,827 (4,743,399) (54,981,961) - 3,443,087 55,605 (980,863) (49,794) (4,923) 3,332 12,778,760 18,472,852 18,596,927 5,522 (11,244,032) (376,727) (81,641) 78,598 33,453,220 96,618,176 (966,244) 451 - (295,561) 6,982,473 6,982,473 (5,694,092) (63,164,956) - Others Total 1,302,486 4,147,859 (2,845,373) 1,046,373 8,620 (709,379) (83,507) (55) 50,226 1,614,764 4,683,845 (3,069,081) 52,964,594 115,535,327 (62,570,733) 22,673,201 123,969 (12,934,274) (532,422) (86,619) (164,498) 62,043,951 133,972,080 (71,928,129) (*) The capitalized borrowing costs are 46,863 million and the interest rate used to calculate the borrowing costs eligible for capitalization is 4.35%. (B) Details of property, plant and equipment's depreciation by line item as of December 31, 2012 and 2011, are as follows: Cost of sales Selling, general and administrative expenses Research and development expenses 2012 13,666,700 442,080 726,266 14,835,046 (In millions of Korean won) 2011 11,945,495 368,123 620,656 12,934,274 82 14. Intangible Assets (A) Changes in intangible assets for the years ended December 31, 2012 and 2011, are as follows: At January 1, 2012 Internally generated (development costs) External acquisition Business Combinations Amortization Sale/Disposal Impairment Others Balance at December 31, 2012 Intellectual property rights 983,802 - 227,538 163,164 (169,668) (13,123) (124) (5,556) 1,186,033 Capitalized cost 473,024 359,639 - (229,186) - (1,203) - 602,274 2012 Membership 197,957 - 9,520 3,670 (39,095) (1,209) 170,843 Goodwill 523,409 - 259,961 - (204,746) (4,779) 573,845 At January 1, 2011 Internally generated (development costs) External acquisition Business Combinations Amortization Sale/Disposal Impairment Others Balance at December 31, 2011 Intellectual property rights 601,882 - 260,399 234,644 (125,636) (18,927) (85) 31,525 983,802 Capitalized cost 334,617 331,576 - (193,169) - 473,024 2011 Membership 191,431 - 3,494 - (93) - 3,125 197,957 Goodwill 571,412 - 135,118 - (183,145) 24 523,409 (In millions of Korean won) Others 1,177,044 - 64,832 71,917 (388,116) (980) (10,717) 282,730 1,196,710 Total 3,355,236 359,639 301,890 498,712 (786,970) (53,198) (216,790) 271,186 3,729,705 (In millions of Korean won) Others 1,080,097 - 68,209 181,455 (338,985) (5,109) (236) 191,613 1,177,044 Total 2,779,439 331,576 332,102 551,217 (657,790) (24,129) (183,466) 226,287 3,355,236 (B) Goodwill Goodwill is allocated to Cash-Generating Units at the end of the reporting period, and consists of the following: S. LSI business Memory business Health care equipment business Digital Imaging business LCD business LED business Others Total 2012 112,723 74,995 89,258 82,599 80,299 79,277 54,694 573,845 (In millions of Korean won) 2011 - 39,883 80,799 287,199 80,299 35,229 523,409 83 Goodwill impairment reviews are undertaken annually. Impairment tests suggest that, except for Samsung Digital Imaging, the carrying values of cash generating units do not exceed the recoverable amounts. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using the estimated growth rates stated below. The growth rate does not exceed the long-term average growth rate for the business in which Samsung Digital Imaging operates. In addition, a constant growth rate assumption is used for perpetual cash flow calculation. The Digital Imaging Division has posted consecutive deficits for several years and is not expected to be profitable in the near future so that the Company recognized an impairment of goodwill. The major assumptions calculating the value in use of the Digital Imaging Division are as followings: Samsung Digital Imaging Sales profit margin rate Sales growth rate (*1) Perpetual growth rate (*2) Pre-tax discount rate (*3) (*1) Future cashflow of 5 years are projected based on previous growth rate and the industry estimates. (*2) The projected growth rate beyond five years is consistent with industry estimates. (*3) Pre-tax discount rate applied to the cash flow projections. 2012 0.9 6.7 (2.4) 15.6 2011 2.3 13.6 2.1 13.6 Sales growth rate were determined on the basis of past performance and expectations of market fluctuations. The discount rate reflects the special risk related to the division. The carrying value of Samsung Digital Imaging exceeded the value in use by 204,600 million in 2012 and 183,145 million in 2011 and the amounts have been recognized as the other non-operating expenses - net in the consolidated income statements. (C) Amortization of intangible assets as of December 31, 2012 and 2011 is classified as follows: Account Cost of sales Selling general and administrative expenses Research and development expenses Total 2012 327,869 353,909 105,192 786,970 (In millions of Korean won) 2011 266,101 300,497 91,192 657,790 15. Borrowings (A) Borrowings as of December 31, 2012 and 2011, are as follows: Short-term Borrowings Financial Institutions Collateralized borrowings (*1) Shinhan Bank, etc Without collateralized borrowings BOA etc Total Current Portion of long-term Borrowings Bank borrowings MIZUHO Bank, etc Financial lease liabilities (*2) APCI, etc Total Long-term Borrowings Bank borrowings SMBC, etc Financial lease liabilities (*2) CSSD, etc Total Annual Interest Rates (%) as of December 31, 2012 0.9~5.1 0.5~15.1 1.6~4.6 2.2~15.7 0.7~5.3 2.2~15.7 (*1) Collateralized borrowings are secured by trade receivables (Note 8). (*2) Leased property, plant and equipment were pledged as collateral (Note 19). (B) Maturities of long-term borrowings, outstanding as of December 31, 2012, are as follows: For the Years Ending December 31 2013 2014 2015 2016 Thereafter Total 2012 4,328,503 4,115,249 8,443,752 480,567 13,293 493,860 3,521,257 101,771 3,623,028 (In millions of Korean won) 2011 4,878,383 4,775,339 9,653,722 10,820 13,936 24,756 3,559,554 122,918 3,682,472 (In millions of Korean won) Long-term borrowings in local currency 493,860 2,583,907 380,722 573,564 84,835 4,116,888 84 85 16. Debentures Debentures as of December 31, 2012 and 2011, consist of the following: Korean won denominated debenture(A) Foreign currency denominated debenture(B) Total 2012 697,822 1,131,552 1,829,374 (In millions of Korean won) 2011 1,197,079 83,045 1,280,124 (A) Korean won denominated debentures as of December 31, 2012 and 2011, consist of the following: Unsecured debentures Unsecured debentures Unsecured debentures Issue Date 2010.6.17 2011.11.17 2011.11.17 Less: Current portion Less: Discounts Total Due Date Annual Interest Rates (%) as of December 31, 2011 2013.6.17 4.7 2014.11.17 4.1 2016.11.17 4.2 Samsung Display, SEC's domestic subsidiary, issued Korean won denominated debentures as above table. (In millions of Korean won) 2012 500,000 500,000 200,000 (500,000) (2,178) 697,822 2011 500,000 500,000 200,000 (2,921) 1,197,079 (B) Debentures denominated in foreign currencies as of December 31, 2012 and 2011, consist of the following: Issue Date US dollar denominated straight bonds (*1) 1997.10.2 US dollar denominated unsecured bonds (*2) 2012.4.10 Less: Current portion Less: Discounts Total Due Date Annual Interest Rates (%) as of December 31, 2012 2027.10.1 7.7 2017.4.10 1.8 (In millions of Korean won) 2012 80,333 (US$75 million) 1,071,100 (US$ 1,000 million) (5,150) (14,731) 1,131,552 2011 92,264 (US$80 million) (5,536) (3,683) 83,045 (*1) US dollar straight bonds are repaid for twenty years after a ten-year grace period from the date of issuance. Interest is paid semiannually. (*2) Samsung Electronics America issued dollar denominated unsecured bonds. Repayment of these debentures is due on the date of maturity and interest is paid semi- annually. (C) Maturities of debentures outstanding as of December 31, 2012 are as follows: For the Years Ending December 31 2013 2014 2015 2016 Thereafter Total (In millions of Korean won) Debentures 505,356 505,356 5,356 205,356 1,130,009 2,351,433 86 17. Retirement Benefit Liabilities (A) Defined benefit liability recognized on the statements of finance position as of December 31, 2012 and 2011, is as follows: (In millions of Korean won) Present value of funded defined benefit obligation Present value of unfunded defined benefit Subtotal Fair value of plan assets 2012 4,593,284 76,183 4,669,467 (2,939,528) 2011 3,283,629 258,711 3,542,340 (2,423,152) Total 1,729,939 1,119,188 (B) The amounts recognized in the income statements for the years ended December 31, 2012 and 2011, are as follows: (In millions of Korean won) 2012 2011 Current service cost Interest cost The effect of any settlement or curtailment 670,123 58,591 8,033 736,747 508,958 39,901 11,941 560,800 (C) The amounts recognized as cost of defined contribution plan for the years ended December 31, 2012 and 2011, are 31,676 million and 23,296 million, respectively. (D) Remeasurement impact recognized as other comprehensive income for the years ended December 31, 2012 and 2011, are as follows: (In millions of Korean won) Remeasurement impact before income tax Income tax effect Remeasurement impact after income tax 2012 657,804 (153,684) 504,120 2011 508,928 (123,714) 385,214 (E) The pension expenses related to defined-benefit plans recognized in the statement of income for the years ended December 31, 2012 and 2011, are allocated to the following accounts: (In millions of Korean won) Cost of sales Selling, general and administrative expenses Research and development expenses 2012 291,355 185,125 260,267 736,747 2011 247,908 121,213 191,679 560,800 (F) Changes in the carrying amount of defined benefit obligations for the years ended December 31, 2012 and 2011, are as follows: (In millions of Korean won) Balance at the beginning of the year Current service cost 2012 3,542,340 670,123 2011 2,621,192 508,958 Interest cost 194,625 160,605 Remeasurement : - Loss from change in demographic assumptions - Loss from change in financial assumptions - Others 81,587 473,488 55,396 291,946 176,829 Benefits paid Foreign exchange (301,444) (22,028) (256,261) 18,591 Others (24,620) 20,480 Balance at the end of the year 4,669,467 3,542,340 (G) The movement in the fair value of plan assets for the years ended December 31, 2012 and 2011, are as follows: (In millions of Korean won) Balance at the beginning of the year Expected return on plan assets Remeasurement factor of plan assets Contributions by the employer Benefits paid Foreign exchange Others Balance at the end of the year 2012 2,423,152 136,034 (47,333) 595,420 (155,000) (8,812) (3,933) 2,939,528 2011 1,797,706 120,704 (40,153) 555,815 (72,179) (92) 61,351 2,423,152 Expected contributions to retirement benefit plans for the year ending December 31, 2013, are 947,072 million. (H) The principal actuarial assumptions as of December 31, 2012 and 2011 are as follows: (In %) 2012 2011 Discount rate Future salary increases (including inflation) 3.7 ~ 7.0 2.5 ~ 9.0 4.9 ~ 7.5 2.6 ~ 9.9 The expected return on plan assets is based on the expected return multiplied with the respective percentage weight of the market-related value of plan assets. The expected return is defined on a uniform basis, reflecting long-term historical returns, current market conditions and strategic asset allocation. 87 (I) The actual returns on plan assets for the years ended December 31, 2012 and 2011, are as follows: Actual return on plan assets 2012 88,701 (In millions of Korean won) 2011 80,551 (J) Plan assets as of December 31, 2012 and 2011, are comprised as follows: Equity instruments Debt instruments Other (*) Plan assets are mostly invested in instruments which have a quoted price in active market. 2012 59,988 2,859,415 20,125 2,939,528 (K) The analysis of the overall pension liability's sensitivity to changes in the weighted principal assumptions is as follows : Discount rate 1% increases 1% decreases Future salary increases 1% increases 1% decreases Change in value 4,201,001 5,235,704 5,220,723 4,203,970 (In millions of Korean won) 2011 68,375 2,325,392 29,385 2,423,152 (In millions of Korean won) Rate of change 90% 112% 112% 90% (L) Expected maturity analysis of undiscounted pension benefits as of December 31, 2012, is as follows: Pension benefits Less than 1 year 250,111 Between 1 and 2 years 256,194 Between 2 and 5 years Between 5 and 10 years 1,081,159 2,957,385 (In millions of Korean won) Total 4,544,849 18. Provisions The changes in the provisions during the year ended December 31, 2012, are as follows: January 1, 2012 Increase Decrease Others (*) December 31, 2012 Warranty (A) 1,680,534 2,403,512 (1,970,017) (81,212) 2,032,817 Royalty expenses (B) Long-term incentives (C) 1,590,079 510,901 1,510,409 199,566 (174,702) (134,138) (152,590) - 2,773,196 576,329 (*) Others include amounts from changes in foreign currency exchange rates. Others 96,245 (9,936) - (5,269) 81,040 (In millions of Korean won) Total 3,877,759 4,103,551 (2,278,857) (239,071) 5,463,382 (A) The Company accrues warranty reserves for estimated costs of future service, repairs and recalls, based on historical experience and terms of warranty programs. (B) The Company makes provisions for estimated royalty expenses related to technical assistance agreements that have not been settled. The amount of payment depends on the settlement of the agreement. (C) The Company has a long-term incentive plan for its executives based on a three-year management performance criteria and has made a provision for the estimated incentive cost for the accrued period. 19. Commitments and Contingencies (A) Guarantees Guarantees of debt for housing rental (*) 2012 151,817 (In millions of Korean won) 2011 153,989 (*) Represents the maximum amount of debt guarantee, which was provided for employees who took debt from financial institutions in order to finance employee housing rental. As of December 31, 2012, the Company's investments in Pusan Newport are pledged as collateral against the investee's debt (Note 9). 88 89 (B) Lease As of December 31, 2012, details of lease contracts held by the Company are as follows: Finance leases The Company leases certain property, plant and equipment under various finance lease arrangements. Assets recorded under finance lease agreements are included in property, plant and equipment with a net book value of 121,402 million (2011: 141,875 million). Depreciation expense for the finance lease assets amounted to 9,650 million for the year ended December 31, 2012 (2011:16,430 million). The minimum lease payments under finance lease agreements and their present value as of December 31, 2012 and 2011 are as follows: (In millions of Korean won) Within one year From one year to five years More than five years Total Present value adjustment Finance lease payables 2012 Minimum Lease payments 21,399 70,310 108,865 200,574 (85,510) 115,064 Present values 13,293 40,216 61,555 115,064 2011 Minimum Lease payments 25,968 81,970 131,263 239,201 (102,347) 136,854 Present values 13,936 49,486 73,432 136,854 (C) Litigation (1) Based on the agreement entered on August 24, 1999 with respect to Samsung Motor Inc.'s ("SMI") bankruptcy proceedings, Samsung Motor Inc.'s creditors ("the Creditors") filed a civil action against Mr. Kun Hee Lee, former chairman of the Company, and 28 Samsung Group affiliates including the Company under joint and several liability for failing to comply with such agreement. Under the suit, the Creditors have sought 2,450 billion (approximately $2.12 billion) for loss of principal on loans extended to SMI, a separate amount for breach of the agreement, and an amount for default interest. SLI completed its Initial Public Offering ("IPO") on May 7, 2010. After disposing 2,277,787 shares and paying the principal balance owed to the Creditors, 878 billion (approximately $0.76 billion) was deposited in to an escrow account. That remaining balance was to be used to pay the Creditors interest due to the delay in the SLI IPO. On January 11, 2011, the Seoul High Court ordered Samsung Group affiliates to pay 600 billion (approximately $0.52 billion) to the Creditors and pay 5% annual interest for the period between May 8, 2010 and January 11, 2011, and pay 20% annual interest for the period after January 11, 2011 until the amounts owed to the Creditors are paid. In accordance with the Seoul High Court order, 620.4 billion (which includes penalties and interest owed) was paid to the Creditors from the funds held in escrow during January 2011. On February 7, 2011, the Samsung Group affiliates and the Creditors appealed the Seoul High Court' ruling to the Korean Supreme Court and the appeal is currently in progress. The amount of loss related to this matter cannot be reasonably determined. Accordingly, the Company has concluded that no provision for loss should be reflected in the Company's consolidated financial statements at December 31, 2012. (2) The litigation with Apple Inc. in multiple regions including the U.S.A. and Germany is ongoing as of the reporting date. Regarding the ongoing lawsuit in the U.S.A, on August 24, 2012, the jury determined that the Company partially infringed Apple's design and utility patent. The first appeal is still ongoing and the final conclusion and the effect of the patent lawsuits with Apple are uncertain as of the reporting. (3)In addition, during the normal course of business with numerous companies, the Company has been involved in various claims, disputes, and investigations conducted by regulatory bodies. Although, the outflow of resources and timing of these matters are uncertain, the Company believes the outcome will not have a material impact on the financial condition of the Company. (D) Other commitments As of December 31, 2012, the Company has a trade financing agreement, trade notes receivable discounting facilities, and loan facilities with accounts receivable pledged as collateral with 12 financial institutions, including Woori bank, with a combined limit of up to 11,406,806 million. In addition, the Company has a trade financing agreement with 21 financial institutions, including Kookmin bank, for up to USD 5,134 million and 62,140 million, and has loan facilities with accounts receivable pledged as collateral with 7 financial institutions, including Kookmin bank, for up to 789,100 million. Samsung Display has a facility loan agreement with 6 financial institutions including SMBC for up to 400,000 million and JPY 80,000 million, and has overdraft agreement with Woori bank for up to 10,000 million Two foreign subsidiaries including SEA have a contract for issuing ABS (Asset Backed Securities) backed by accounts receivable with BTMU and other financial institutions 90 for up to USD 1,361 million and other 5 subsidiaries including SSL have a credit facility agreement with Bank of China and other financial institutions for up to CNY 1,540 million and EUR 30 million. 20. Share Capital and Premium The Company's number of authorized shares is 500,000,000 shares. The Company has issued 147,299,337 shares of common stock and 22,833,427 shares of preferred stock as of December 31, 2012, excluding retired shares. Due to retirement of shares, the total par value of the shares issued is 850,664 million (common stock 736,497 million, preferred stock 114,167 million), which does not agree with paid-in capital of 897,514 million. The changes in the number of shares outstanding as of December 31, 2012 and 2011, are as follows: (In millions of Korean won) Balance at December 31, 2010 Shares issued Disposal of treasury stock Balance at December 31, 2011 Shares issued Disposal of treasury stock Balance at December 31, 2012 Number of shares of Preferred stock (*1) Common stock (*2) 19,853,734 129,843,077 - 485,650 - 57,996 19,853,734 130,386,723 - 191,309 - 269,867 19,853,734 130,847,899 Share capital Share premium 897,514 4,403,893 - - - - 897,514 4,403,893 - - - - 897,514 4,403,893 Total 5,301,407 5,301,407 5,301,407 (*1) Non-cumulative, non-voting preferred stock with par value of5,000 per share that were all issued on or before February 28, 1997 and are entitled to an additional cash dividend of 1% of par value over common stock. (*2) Common stock with par value of5,000 per share. Issuance of shares SEC is 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. SEC has issued global depositary receipts ("GDR") to overseas capital markets. The number of outstanding GDR as of December 31, 2012 and 2011, are as follows: Outstanding GDR - Share of Stock - Share of GDR 2012 Non-voting Preferred Stock 3,323,283 6,646,566 2011 Common Stock Non-voting Preferred Stock 7,569,675 3,092,581 15,139,350 6,185,162 Common Stock 7,316,976 14,633,952 21. Retained Earnings Retained earnings as of December 31, 2012 and 2011, consist of the following: Appropriated Unappropriated Total 2012 87,915,275 32,070,414 119,985,689 (In millions of Korean won) 2011 78,713,318 18,909,554 97,622,872 91 22. Dividends SEC declared cash dividends to shareholders of common stock and preferred stock as interim dividends for the sixmonth periods ended June 30, 2012 and 2011 and as year-end dividends for the years ended December 31, 2012 and 2011. Details of interim dividends and year-end dividends are as follows: (A) Interim Dividends Number of shares eligible for dividends Dividend rate Dividend amount Common stock Preferred stock Common stock Preferred stock Total (In millions of Korean won and number of shares) 2012 2011 130,759,755 shares 19,853,734 shares 130,148,288 shares 19,853,734 shares 10% 10% 65,380 9,927 75,307 65,074 9,927 75,001 (B) Year-end Dividends Number of shares eligible for dividends Dividend rate Dividend amount Common stock Preferred stock Common stock Preferred stock Common stock Preferred stock Total (In millions of Korean won and number of shares) 2012 2011 130,847,899 shares 130,386,723 shares 19,853,734 shares 19,853,734 shares 150% 100% 151% 101% 981,359 149,896 651,934 100,261 1,131,255 752,195 (C) Dividend Payout Ratio (Including interim dividends). Dividend payout ratio 2012 5.20% 2011 6.18% (D) Dividend Yield Ratio (Including interim dividends) Dividend yield ratio (*) Common 0.54% 2012 StockPreferred Stock 0.95% (*) The average closing price in the stock market for a week before 2 trading days prior to dividend date. Common 0.52% 2011 StockPreferred Stock 0.85% 92 23. Other Components of Equity Other components of equity as of December 31, 2012 and 2011, consist of the following: Treasury stock (*) Stock option Unrealized gains on available-for-sale financial assets Share of associates and joint ventures accumulated other comprehensive gains Foreign-currency translation differences Remeasurement impact of employee benefit Others Total 2012 (7,350,927) 22,242 2,001,536 720,944 (2,623,963) (1,097,228) 134,352 (8,193,044) (*) As of December 31, 2012, the Company holds 16,451,438 common shares and 2,979,693 preferred shares as treasury stock. (In millions of Korean won) 2011 (7,539,561) 55,313 1,040,849 1,071,435 (834,086) (590,877) 963,031 (5,833,896) Number of shares Acquisition cost Preferred Stock 2,979,693 shares 621,843 2012 Common Stock 16,451,438 shares 6,729,084 (In millions of Korean won and number of shares) 2011 Preferred Stock Common Stock 2,979,693 shares 16,912,614 shares 621,843 6,917,718 93 24. Share Based Compensation 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. No share based compensation has been granted since December 20, 2005. All options currently in issue are fully vested. A summary of the terms and the number of outstanding stock options as of December 31, 2012 is as follows: At January 1, 2011 Exercised during 2011 At December 31, 2011 Exercised During 2012 At December 31, 2012 Exercise price Weighted average share price at the date of exercise during 2011 Weighted average share price at the date of exercise during 2012 Exercise period from the date of the grant March 9, 2001 176,072 176,072 197,100 943,994 3-10 years February 28, 2002 160,221 112,626 47,595 47,595 329,200 949,456 1,102,409 2-10 years Date of the Grant March 25, 2002 March 7, 2003 30,975 74,875 28,046 25,624 2,929 49,251 2,929 33,404 - 15,847 342,800 288,800 931,977 935,942 1,154,394 2-10 years 1,308,176 2-10 years April 16, 2004 344,568 143,282 201,286 102,381 98,905 580,300 998,175 December 20, 2005 10,000 - 10,000 5,000 5,000 606,700 - 1,276,208 2-10 years 1,404,000 2-10 years 25. Expenses by Nature Expenses by nature for the years ended December 31, 2012 and 2011 consist of the following: Raw materials and goods Wages and salaries Pension expenses Depreciation expenses Amortization expenses Welfare expenses Commission and service charges Other expenses Total (*) 2012 85,193,865 13,629,400 768,423 14,835,046 786,970 2,481,756 6,961,701 47,397,114 172,054,275 (*) Expenses above equal to the sum of cost of sales, selling, general and administrative expenses in the Statements of Income. (In millions of Korean won) 2011 75,329,188 11,906,674 584,096 12,934,274 657,790 1,998,559 5,936,770 40,010,129 149,357,480 94 26. Selling and Administrative Expenses Selling and administrative expenses for the years ended December 31, 2012 and 2011, are as follows: (In millions of Korean won) Wages and salaries Pension expenses Commission and service charges Depreciation expenses Amortization expenses Advertising expenses Sales promotion expenses Transportation expenses Warranty Public relation expenses Research and development expenses Others 2012 4,032,848 204,929 6,961,701 442,080 353,909 4,887,089 6,055,105 3,794,950 3,247,757 627,901 11,532,795 3,261,280 45,402,344 2011 3,551,588 140,587 5,936,770 368,123 300,497 2,982,270 4,649,293 3,789,476 2,805,696 523,149 9,955,164 2,209,747 37,212,360 27. Other Non-Operating Income and Expense Other non-operating income for the years ended December 31, 2012 and 2011, consists of the following: (In millions of Korean won) Dividend income Commission income Rental income Gain on disposal of investments Gain on disposal of property, plant and equipment Gain on disposal of business (*) Others 2012 106,181 100,535 98,462 113,886 147,645 986,280 1,552,989 2011 34,423 26,313 92,155 223,535 113,690 1,062,793 698,110 2,251,019 (*) Gain on disposal of business in 2011 relates to sales of the Solar battery business and the HDD business. Other non-operating expense for the years ended December 31, 2012 and 2011, consists of the following: (In millions of Korean won) Loss from disposal of property, plant and equipment Donations Impairment losses on intangible assets Impairment losses on property, plant and equipment Impairment losses on available-for-sale financial assets Others 2012 324,993 235,349 216,790 215,325 87,515 496,053 1,576,025 2011 109,338 272,275 186,759 97,517 39 946,762 1,612,690 28. Financial Income and Costs Financial income and costs for the years ended December 31, 2012 and 2011 are as follows: (In millions of Korean won) Finance income Interest income - Interest income from loans and receivables - Interest income from available-forsale financial assets Foreign exchange differences Gains on valuation of derivatives Gains on derivatives transaction Finance expense Interest expense - Interest expense from financial liabilities measured at amortized cost - Other financial liabilities Foreign exchange differences Losses on valuation of derivatives Losses on derivatives transaction 2012 2011 845,431 840,150 5,281 6,452,612 27,719 510,792 7,836,554 705,653 702,198 3,455 6,120,748 80,103 497,021 7,403,525 599,006 277,512 321,494 6,596,524 124,344 614,576 7,934,450 644,133 270,929 373,204 6,785,565 59,697 404,026 7,893,421 The Company recognizes foreign exchange gains and losses arising from foreign currency transactions and translation as financial income and expenses. 95 29. Income Tax (A) Income tax expense for the years ended December 31, 2012 and 2011, consists of the following: Current taxes : Current tax on profits for the year Adjustments in respect of prior years Deferred taxes : Deferred income taxes - tax credit Deferred income taxes - temporary difference Deferred income taxes - accumulated operating loss Others Items charged directly to equity Income tax expense 2012 5,656,298 95,296 5,751,594 235,640 19,885 (850) 60,654 2,809 6,069,732 (In millions of Korean won) 2011 3,051,406 95,670 3,147,076 (75,311) 381,715 (22,599) 1,994 3,432,875 (B) The tax on the Company's profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the Company as follows: (In millions of Korean won) Income before tax Tax calculated at weighted average tax rates applicable (*) Tax effects of: Permanent difference Temporary differences for which no deferred income tax was recognized Tax credit Subsidiaries, associates and interests in joint ventures Impact of changes in tax rates Other Income tax expense Effective tax rate 2012 29,915,017 7,664,722 (161,762) (7,930) (1,980,710) 650,000 (3,602) (90,986) 6,069,732 20.29% 2011 17,191,918 4,354,162 (393,004) 7,309 (1,633,452) 906,505 140,181 51,174 3,432,875 19.97% (*) Weighted average statutory tax rates that are applied differently for the profits of the Company at each tax authority as of December 31, 2012 and 2011. (C) Deferred income tax assets and liabilities resulting from the tax effect of temporary differences including available tax credit carryforwards and undisposed accumulated deficit as of December 31, 2012, are as follows: (In millions of Korean won) Deferred tax arising from temporary differences Special reserves appropriated for tax purposes Revaluation of land Subsidiaries, associates and interests in joint ventures Depreciation Capitalized interest expense Accrued income Provisions, accrued expenses and others Foreign currency translation Impairment losses on investments Others Subtotal Deferred tax assets arising from carryforwards Undisposed accumulated deficit Tax credit carryforwards Deferred items recognized in other comprehensive income Valuation of available-for-sale financial instruments Actuarial valuation Subtotal Deferred tax assets Deferred tax liabilities Total Temporary Differences Beginning Balance Increase (Decrease) Ending Balance Deferred Income Tax Assets (Liabilities) Beginning Balance Increase (Decrease) Ending Balance (18,146) (4,017,316) (13,450,537) 26,975 (40,522) (92,953) 7,144,431 150,908 52,901 779,626 (9,464,633) (14,951) (33,097) 539,625 (3,477,691) (11,813,329) (25,263,866) 1,229,250 21,690 (31,224) 3,217,777 (164,168) 37,755 (1,673,860) (8,651,435) 1,256,225 (18,832) (124,177) 10,362,208 (13,260) 90,656 (894,234) (18,116,068) (4,391) (972,191) (3,032,268) (52,318) (9,806) (21,337) 1,806,514 35,482 10,937 288,217 (1,951,161) (3,619) 130,590 (650,000) 250,219 5,249 (6,826) 750,331 (41,449) 5,587 (459,967) (19,885) (8,010) (841,601) (3,682,268) 197,901 (4,557) (28,163) 2,556,845 (5,967) 16,524 (171,750) (1,971,046) 100,401 1,512,052 30,591 (195,543) 130,992 1,316,509 26,961 1,495,747 850 (235,640) 27,811 1,260,107 (1,316,863) 813,514 (503,349) (1,264,765) 657,804 (606,961) (2,581,628) 1,471,318 (1,110,310) (318,052) 196,149 (121,903) (262,040) 153,684 (108,356) (580,092) 349,833 (230,259) 2,516,080 (3,429,467) (913,387) 96 97 Deferred income tax assets and liabilities resulting from the tax effect of temporary differences including available tax credit carryforwards and undisposed accumulated deficit as of December 31, 2011, are as follows: (In millions of Korean won Deferred tax arising from temporary differences Special reserves appropriated for tax purposes Revaluation of land Subsidiaries, associates and interests in joint ventures Depreciation Temporary Differences Beginning Balance Increase (Decrease) Ending Balance Deferred Income Tax Asset (Liabilities) Beginning Balance Increase (Decrease) Ending Balance (18,146) (3,984,173) (14,160,207) 130,396 (33,143) 709,670 (103,421) (18,146) (4,017,316) (13,450,537) 26,975 (3,992 ) (876,518) (2,109,299) (9,325) (399) (95,673) (922,969) (42,993) (4, 391) (972,191) (3,032,268) (52,318) Capitalized interest expense (39,867) (655) (40,522) (8,810) (996) (9,806) Accrued income (144,621) 51,668 (92,953) (34,930) 13,593 (21,337) Provisions, accrued expenses and others 3,742,343 3,402,088 7,144,431 926,713 879,801 1,806,514 Foreign currency translation (23,022) 173,930 150,908 (6,568) 42,050 35,482 Impairment losses on investments 45,420 7,481 52,901 9,994 943 10,937 Others 1,970,813 (1,191,187) 779,626 565,168 (276,951) 288,217 Deferred tax assets arising from carryforwards (12,481,064) 3,016,431 (9,464,633) (1,547,567) (403,594) (1,951,161) Undisposed accumulated deficit Tax credit carryforwards Deferred items recognized in other comprehensive income Valuation of available-for-sale financial instruments Actuarial valuation 40,822 1,581,825 59,579 (69,773) 100,401 1,512,052 4,362 1,420,436 22,599 75,311 26,961 1,495,747 (2,274,471) 304,586 957,608 508,928 (1,316,863) 813,514 (424,121) 72,435 106,069 123,714 (318,052) 196,149 Total (1,969,885) 1,466,536 (503,349) (351,686) 229,783 (121,903) Deferred tax assets Deferred tax liabilities 1,783,086 (2,333,442) Total (550,356) 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, deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Temporary differences whose deferred tax effects were not recognized due to the uncertainty regarding ultimate realizability of such assets as of December 31, 2012 and 2011 are as follows: (In millions of Korean won 2012 2011 Undisposed accumulated deficit Tax credit carryforwards 48,262 144,108 159,160 Expiry date of unused tax losses and unused tax credits for which no deferred tax asset is recognized in the balance sheet are as follows: Tax credit carryforwards 2013 1,103 2014 3,455 2015 22,313 (In millions of Korean won) 2016 and after 21,391 98 (D) The amount of income tax relating to each component of other comprehensive income is as follows: (In millions of Korean won Valuation of available-for-sale financial assets Foreign currency translation adjustment Actuarial valuation 2012 (580,092) 349,833 2011 (340,760) 22,708 196,149 Total (230,259) (121,903) (E) The liquidity analysis of deferred tax assets and deferred tax liabilities is as follows: (In millions of Korean won) 2012 2011 Current Non-current 1,898,481 (2,811,868) 2,869,404 (3,419,760) Total (913,387) (550,356) 30. Earnings per Share Basic earnings per share for the years ended December 31, 2012 and 2011, are calculated as follows: (In millions of Korean won, except for share amounts) Net income as reported on the statements of income Net income available for common stock Weighted-average number of common shares outstanding (in thousands) Basic earnings per share (in Korean won) 2012 23,185,375 20,130,020 130,698 154,020 2011 13,382,645 11,613,300 130,152 89,229 (In millions of Korean won, except for share amounts) Net income as reported on the statements of income Net income available for preferred stock Weighted-average number of preferred shares outstanding (in thousands) Basic earnings per preferred share (in Korean won) 2012 23,185,375 3,055,355 19,854 153,893 2011 13,382,645 1,769,345 19,854 89,119 Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Company has one category of dilutive potential ordinary shares: Stock options. A calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company's shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options. Diluted earnings per share for the years ended December 31, 2012 and 2011 are calculated as follows: (In millions of Korean won, except for share amounts) Net income available for common stock and common equivalent shares Weighted-average number of shares of common stock and common shares equivalent (in thousands) Diluted earnings per share (in Korean won) 2012 20,131,405 2011 11,614,952 130,766 153,950 130,292 89,146 (In millions of Korean won, except for share amounts) Net income available for preferred stock and preferred equivalent shares Weighted-average number of shares of preferred stock and preferred shares equivalent (in thousands) Diluted earnings per preferred share (in Korean won) 2012 3,053,970 19,854 153,823 2011 1,767,693 19,854 89,036 99 31. Cash Generated from Operations (A) Cash flows from operating activities as of December 31, 2012 and 2011, consist of the following: Adjustments for: Tax expense Finance income Finance expense Severance and retirement benefits Depreciation expenses Amortization expenses Bad debt expenses and etc. Gain on valuation of equity method Gain on disposal of property, plant and equipment Loss on disposal of property, plant and equipment Obsolescence and scrappage of inventories Gain on disposal of investments Gain on transfer of business Impairment losses on intangible assets Other income/expense Adjustments, total Changes in assets and liabilities: Increase in trade receivables Increase in other receivables Increase in advance payment Increase in prepaid expenses Increase in inventories Increase in trade payables Increase in other payables Increase in advance received (Decrease)/Increase in withholdings Increase in accrued expenses Increase in utilization of provisions Payment of severance benefits Increase in plan assets Others Changes in net working capital, total 2012 6,069,732 (2,068,888) 1,755,715 768,423 14,835,046 786,970 205,424 (986,611) (147,645) 324,993 1,212,222 (113,886) 216,790 (98,726) 22,759,559 2012 (2,032,126) (536,202) (277,329) (72,285) (4,011,553) (465,450) (416,870) 88,152 (663,733) 2,183,846 1,824,693 (301,444) (440,420) (657,228) (5,777,949) (In millions of Korean won) 2011 3,432,875 (1,821,379) 1,661,180 584,096 12,934,274 657,790 93,801 (1,399,194) (113,690) 109,338 1,353,320 (223,535) (1,062,793) 186,759 57,787 16,450,629 (In millions of Korean won) 2011 (2,015,177) (181,613) (147,387) (27,432) (3,919,683) 750,048 375,478 548,416 556,563 508,657 722,421 (256,261) (531,743) (439,632) (4,057,345) 100 (B) Significant transactions not affecting cash flows for the years ended, 2012 and 2011, are as follows: Valuation of available-for-sale financial assets Reclassification of construction-in-progress and machinery-in-transit to property, plant and equipment Increase in share of associates and joint ventures accumulated other comprehensive income Net assets acquired from business combination Net assets acquired in transfer of business 2012 1,185,256 19,567,010 (350,491) (633,708) - (In millions of Korean won) 2011 (559,831) 22,530,787 (113,898) - 788,454 (C) The Company reported on a net basis cash receipts and payments arising from transactions occurring frequently and short-term financial instruments, loans, and borrowings. (D) Among the net cash used in investing activities, cash outflows from business combination include the acquisition of assets and liabilities of CSR. 32. Financial Risk Management Financial risk factors The Company is exposed to credit risk, liquidity risk and market risk. Market risk arises from currency risk, interest rate risk and fair value risk associated with investments. The Company has a risk management program in place to monitor and actively manage such risks. Also, financial risk management officers are dispatched to the regional head quarters of each area including US, UK, Singapore, China, Japan, Brazil and Russia to run and operate a local financial center for global financial risk management. The Company's financial assets that are under financial risk management are composed of cash and cash equivalents, short-term financial instruments, availablefor-sale financial assets, trade and other receivables and other financial assets. The Company's financial liabilities under financial risk management are composed of trade and other payables, borrowings and debentures, and other financial liabilities. (A) Market risk (1) Foreign exchange risk The Company is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the United States of America, European Union, Japan, other Asian countries and South America. Revenues and expenses arise from foreign currency transactions and exchange positions, and the most widely used currencies are the US Dollar, EU's EURO, Japanese Yen and Chinese Yuan. Foreign exchange risk management of the Company is carried out by both SEC and its subsidiaries. To minimize foreign exchange risk arising from operating activities, the Company's foreign exchange management policy requires all normal business transactions to be in local currency, or cash-in currency be matched up with cash-out currency. The Company's foreign risk management policy also defines foreign exchange risk, measuring period, controlling responsibilities, management procedures, hedging period and hedge ratio very specifically. The Company limits all speculative foreign exchange transactions and operates a system to manage receivables and payables denominated in foreign currency. It evaluates, manages and reports foreign currency exposures to receivables and payables. 101 A summary of foreign assets and liabilities of the Company, presented in Korean won, as of December 31, 2012 and 2011 is as follows: (In millions of Korean won) 2012 2011 USD EUR JPY Other USD EUR JPY Other Financial Assets 12,709,235 1,085,390 178,373 1,577,076 12,310,076 660,482 568,204 1,288,309 Financial Liabilities 9,550,081 978,953 1,142,081 214,639 11,092,528 524,075 1,064,553 197,362 Foreign currency exposure to financial assets and liabilities of a 5% currency rate change against the Korean won are presented below. Financial assets Financial liabilities Net effect 2012 Increase 777,504 (594,288) 183,216 Decrease (777,504) 594,288 (183,216) 2011 Increase 741,354 (643,926) 97,428 (In millions of Korean won) Decrease (741,354) 643,926 (97,428) (2) Price risk The Company's investment portfolio consists of direct and indirect investments in equity securities classified as available-for-sale. The market values for the Company's equity investments for the year-ended December 31, 2012 and 2011 are 5,103,181 million and 3,149,926 million, respectively. Refer to Note 9. If there is a change in the price of equity investments by 1%, the amount of other comprehensive income changes for the year-ended December 31, 2012 and 2011 would be 44,359 million and 25,262 million, respectively. (3) Interest rate risk Interest rate risk is defined as the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk mainly arising through interest bearing liabilities and assets. The Company's position with regard to interest rate risk exposure is mainly driven by its debt obligations such as bonds, interest-bearing deposits and issuance of receivables. In order to avoid interest rate risk, the Company maintains minimum external borrowing by facilitating cash pooling systems on a regional and global basis. The Company manages exposed interest rate risk via periodic monitoring and handles risk factors on a timely basis. As of the reporting date, the interest rate profile of the Company's interest bearing assets and liabilities is presented in the table below: (In millions of Korean won) 2012 2011 Fixed rate Floating rate Fixed rate Floating rate Financial assets Financial liabilities 59,351,335 40,632,972 7,816,434 2,186,448 50,476,935 41,129,584 2,838,767 880,702 The sensitivity risk of the Company is determined based on the following assumptions: - Changes in market interest rates that could impact the interest income and expenses of floating interest rate financial instruments Based on the above assumption, changes to profit and net equity as a result of 1% increases in interest rate onborrowings are presented below: (In millions of Korean won) 2011 2012 Increase Decrease Increase Decrease Financial assets Financial liabilities 78,164 (21,864) (78,164) 21,864 28,388 (8,807) (28,388) 8,807 56,300 (56,300) 19,581 (19,581) (B) Credit risk Credit risk arises during the normal course of transactions and investing activities, where clients or another party fails to discharge an obligation. The Company monitors and sets the counterparty's credit limit on a periodic basis based on the counterparty's financial conditions, default history and other important factors. Credit risk arises from cash and cash equivalents, savings and derivative instruments transactions with financial institutions. To minimize such risk, the Company transacts only with banks which have strong international credit rating (S&P A above), and all new transactions with financial institutions with no prior transaction history are approved, managed and monitored by the Company's finance team and the local financial center. The Company requires separate approval for contracts with restrictions. Therefore, the Company estimates credit risk exposure to itself as limited and the carrying value of financial assets represents net of impairment loss to reflect the Company's maximum exposure to the credit risk. The top five customers account for approximately 12.9% and 12.9% and 3,074,791 million and 2,831,801 million of accounts receivables for the year ended 2012 and 2011, respectively, while the top three credit exposures by country amounted to 18.2%, 13.8% and 9.4% (December 31, 2011:16.0%, 14.7% and 10.4%). (C) Liquidity risk The Company manages its liquidity risk to maintain adequate net working capital by constantly managing projected cash flows. Beyond effective working capital and cash management, the Company mitigates liquidity risk by contracting with financial institutions with respect to bank overdrafts, Cash Pooling or Banking Facility agreements for efficient management of funds. The Cash Pooling programs allow sharing of funds among subsidiaries to minimize liquidity risk and reduce financial expense. 102 103 The following table is an undiscounted cash flow analysis for financial liabilities that are presented on the balance sheet according to their remaining contractual maturity. (In millions of Korean won) 2012 Less than 3 months 4-6 months 7-12 months 1-5 years More than 5 years Financial liabilities 32,257,940 1,690,825 2,371,879 7,006,975 76,236 2011 Financial liabilities Less than 3 months 31,045,236 4-6 months 1,134,966 7-12 months 3,951,111 1-5 years 6,467,585 (In millions of Korean won) More than 5 years 92,737 The Company's trading portfolio derivative instruments have been included at their fair value of 79,212 million (2011: 40,932 million) within the less than three month time bucket because the contractual maturities are not essential for an understanding of the timing of the cash flows. These contracts are managed on a net-fair value basis rather than by maturity date. Net settled derivatives consist of forward exchange contracts used by the Company to manage the exchange rate profile. The maximum liquidity risk exposure from other than financial liabilities (e.g. debt guarantee with rental housing) at December 31, 2012 is 151,817 million (December 31, 2011: 153,989 million). (D) Capital risk management The object of capital management is to maintain a sound capital structure. Consistent with others in the industry, the Company monitors capital on the basis of a total liabilities to equity ratio. This ratio is calculated as total liabilities divided by equity based on the consolidated financial statements. During 2012, the Company's strategy was to maintain a reliable credit rating. The Company has maintained an A credit rating from S&P and A1 from Moody's throughout the period. The gearing ratios at 31 December 2012 and 2011 were as follows: (In millions of Korean won) 2012 2011 Total liabilities Total equity 59,591,364 121,480,206 54,486,633 101,313,630 Gearing ratio 49.1% 53.8% (E) Fair value estimation (1) The following table presents the assets and liabilities that are measured by fair value hierarchy, by level. Derivatives Available-for-sale financial assets Total assets Derivatives Total liabilities Level 1 - 5,694,730 5,694,730 - - 2012 Level 2 47,227 125,994 173,221 79,212 79,212 Level 3 Total balance - 47,227 389,195 6,209,919 389,195 - - 6,257,146 79,212 79,212 Level 1 - 3,182,156 3,182,156 - - 2011 Level 2 130,057 73,672 203,729 40,932 40,932 (In millions of Korean won) Level 3 Total balance - 130,057 623,739 3,879,567 623,739 - - 4,009,624 40,932 40,932 The levels of the fair value hierarchy and its application to financial assets and liabilities are described below. ·Level 1 : Quoted prices (unadjusted) in active markets for identical assets or liabilities ·Level 2 : Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly ·Level 3 : Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) 104 The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length basis. The quoted market price used for financial assets held by the Company is the current bid price. These instruments are included in level 1. Instruments included in level 1 comprise exclusively of listed equity investments classified as trading securities or available-for-sale. The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. Specific valuation techniques used to value financial instruments include: · Quoted market prices or dealer quotes for similar instruments. · The fair value of forward foreign exchange contracts is determined using forward exchange rates at the balance sheet date, with the resulting value discounted back to present value. Other techniques, such as discounted cash flow analysis, are used to determine fair value for the remaining financial instruments. As for trade and other receivables, the book value approximates a reasonable estimate of fair value. (2) Changes in Level 3 instruments: Opening balance Purchases Disposals Gains and losses recognized in other comprehensive income Others (*) Closing balance 2012 623,739 82,508 (31,972) (6,294) (278,786) 389,195 (In millions of Korean won) 2011 326,359 397,865 (97,390) 69,004 (72,099) 623,739 (*) CSOT equity securities, which are non-marketable securities, are measured at cost as the range of reasonable fair value estimates is significant and the probabilities of the various estimates cannot be reasonably assessed. 33. Segment Information The chief operating decision maker has been identified as the Management Committee. The Management Committee is responsible for making strategic decisions based on review of the group's internal reporting. The Management Committee has determined the operating segments based on these reports. The Management Committee reviews operating profits of each operating segment in order to assess performance and make decisions about resources to be allocated to the segment. The operating segments are product based and include CE, IM, Semiconductor and LCD. In accordance with the changes of the Accounting Policies (Note 2) to provide consistent presentation, operating segment information of the previous year has been re-written to match with organizational changes made in 2012. Depreciation, amortization of intangible assets, and operating profit were prepared after the allocation of internal transaction adjustments. Assets and liabilities of each operating segment are excluded as it has not been provided regularly to the Management Committee. 105 The segment information provided to the Management committee for the reportable segments for the year ended 31 December 2012 and 2011 is as follows: 2012 Total (*) DMC CE IM Total (*) Total segment Revenue Inter-segment Revenue Revenue from external customers Depreciation 347,393,209 (189,065,192) 158,328,017 1,371,373 111,397,867 231,420,085 (62,954,118) (122,914,049) 48,443,749 108,506,036 565,310 497,607 136,724,256 (68,436,962) 68,287,294 13,354,303 Amortization Operating profit(loss) 376,956 21,612,818 70,370 2,301,431 188,740 19,440,840 274,568 7,416,325 (*) The total amount includes others not composing operating segments. DS Semi conductor 66,976,623 (32,090,017) 34,886,606 9,087,880 186,497 4,173,730 (In millions of Korean won) Total (*) Elimination Consolidated LCD 69,359,762 479,499,910 (278,396,297) 201,103,613 (36,360,406) (278,396,297) 278,396,297 - 32,999,356 201,103,613 4,179,088 77,047 3,214,750 14,835,046 786,970 29,049,338 - 201,103,613 - 14,835,046 - 786,970 - 29,049,338 2011 Total (*) DMC CE IM Total (*) Total segment Revenue Inter-segment Revenue Revenue from external customers Depreciation 249,807,647 (133,588,287) 116,219,360 1,194,509 103,530,319 (56,233,694) 47,296,625 589,010 142,127,410 (74,679,457) 67,447,953 356,902 132,790,577 (67,015,926) 65,774,651 11,732,649 Amortization Operating profit(loss) 244,284 9,523,446 57,207 1,256,788 158,394 8,122,626 213,002 6,062,934 (*) The total amount includes others not composing operating segments. DS Semi conductor 71,305,465 (34,315,914) 36,989,551 7,678,022 143,810 6,383,875 (In millions of Korean won) Total (*) Elimination Consolidated LCD 61,648,667 378,693,504 (213,691,733) 165,001,771 (32,405,595) (213,691,733) 213,691,733 - 29,243,072 165,001,771 4,027,032 61,943 (347,114) 12,934,274 657,790 15,644,291 - 165,001,771 - 12,934,274 - 657,790 - 15,644,291 The regional segment information provided to the Management Committee for the reportable segments for the years ended 31 December 2012 and 2011, is as follows: (In millions of Korean won) 2012 Total segment Revenue Inter-segment Revenue Revenue from external customers Non-current assets (*) Korea 179,434,349 (150,254,258) 29,180,091 60,591,343 America 81,440,718 (23,277,536) 58,163,182 6,890,648 Europe 75,448,403 (25,927,742) 49,520,661 1,030,437 Asia and Africa 57,246,033 (21,167,278) 36,078,755 1,749,330 China 85,930,407 (57,769,483) 28,160,924 2,574,796 Eliminations (278,396,297) 278,396,297 - (622,106) Consolidated 201,103,613 201,103,613 72,214,448 (*) The total of non-current assets other than financial instruments, deferred tax assets, associates, and interests in joint ventures. 106 (In millions of Korean won) 2011 Total segment Revenue Inter-segment Revenue Revenue from external customers Non-current assets (*) Korea 143,717,714 (117,185,100) 26,532,614 53,864,391 America 67,967,462 (20,441,236) 47,526,226 7,157,372 Europe 63,096,978 (24,028,163) 39,068,815 943,800 Asia and Africa 41,853,227 (13,035,182) 28,818,045 1,333,012 China 62,058,123 (39,002,052) 23,056,071 2,229,989 Eliminations (213,691,733) 213,691,733 - (129,377) Consolidated 165,001,771 165,001,771 65,399,187 (*) The total of non-current assets other than financial instruments, deferred tax assets, associates, and interests in joint ventures. 34. Related Parties (A) Associates The principal associate companies are Samsung SDI, Samsung Electro-mechanics, Samsung SDS, Samsung Techwin and Samsung card. Transactions with associates for the years ended December 31, 2012 and 2011 and the related receivables and payables as of December 31, 2012 and 2011, are as follows: (In millions of Korean won) Transactions Sales Purchases Receivables and Payables Receivables Payables 2012 806,658 9,710,610 85,701 955,349 2011 1,695,298 8,634,597 225,076 1,168,952 (B) Joint ventures The principal joint venture company is Samsung Corning Precision Materials as of December 31, 2012. Transactions with joint venture partners for the years ended December 31, 2012 and 2011, and the related receivablesand payables as of December 31, 2012 and 2011, are as follows: (In millions of Korean won) Transactions Sales Purchases Receivables and Payables Receivables Payables 2012 35,484 2,800,989 878 408,885 2011 7,195 3,210,831 6,379 379,944 107 (C) Other related parties Samsung Everland and other companies are defined as related parties for the Company as of December 31, 2012 Transactions with other related parties for the years ended December 31, 2012 and 2011, and the related receivables and payables as of December 31, 2012 and 2011, are as follows: (In millions of Korean won) 2012 2011 Transactions Sales Purchases 109,228 752,170 85,907 655,062 Receivables and Payables Receivables Payables 189,840 179,646 244,411 172,872 (D) Key management compensation Key management includes directors (executive and non-executive) and members of the Executive Committee. The compensation paid or payable to key management for employee services is shown below: (In millions of Korean won) 2012 2011 Salaries and other short-term benefits 10,062 15,808 Termination benefits 530 696 Other long-term benefits 5,865 5,096 35. Significant Changes of Non-Controlling Interests (A) Acquisition of non-controlling interests in 2012 are as follows: Date of acquisition Acquired percentage of non-controlling interests Ownership share after transaction Consideration paid to non-controlling interests Carrying amount of non-controlling interests acquired Capital Surplus (*) S-LCD January 19, 2012 50% 100% 1,067,082 1,764,927 697,845 Samsung Japan April 27, 2012 49% 100% 159,278 60,667 (98,611) (In millions of Korean won) Samsung Asia Private April 27, 2012 30% 100% 19,452 13,313 (6,139) (*) The difference between the carrying amount of non-controlling interests at the time of transaction and consideration paid has been accounted for as capital surplus which belongs to the owner of consolidated company. (B) I n 2012 Samsung Display Corporation, the subsidiary, merged other subsidiaries, Samsung Mobile Display and S-LCD. This transaction resulted in the reduced percentage of ownership of the Company of Samsung Display from 100% to 84.8% and increased non-controlling interests by 1,654,645 million, which was recognized as the decrease of the equity to the owner of consolidated company (Refer to Note 37 for further details). 108 36. Business Combinations (A) Samsung LED The Company acquired Samsung LED with a closing date of April 1, 2012 to improve shareholder value through the enhancement of business efficiency and maximization of business synergies. The approval of the Board of Directors of the Company replaces shareholders' meeting approval of the acquisition, as the acquisition of Samsung LED is a small and simple merger as defined in the commercial law. (1) Overview of the acquired company Name of the acquired company Headquarters location Representative director Classification of the acquired company Former relationship with the Company Samsung LED Giheung-gu, Yongin-si, Gyeonggi-do Nam-seong Cho Unlisted company Associates (2) Terms of the business combination The shareholders of Samsung LED received 0.0134934 shares of the Company's common stock for each share of Samsung LED common stock owned on the closing date. The Company transferred its treasury stock to the shareholders of Samsung LED, instead of issuing new stock. (3) Purchase price allocation The following table summarizes the consideration paid for Samsung LED and the amounts of the assets acquired and liabilities assumed as of the acquisition date. (In millions of Korean won) Classification Amount I. Consideration transferred Fair value of equity interest held before the business combination (*1) Fair value of additional consideration transferred (*2) 344,082 344,082 Total II. Identifiable assets and liabilities Cash and cash equivalents 688,164 54,454 Trade and other receivables 304,552 Inventories 146,141 Property, plant, and equipment Intangible assets Investments in Subsidiary, Associates and Joint Ventures Deferred income tax assets 699,803 59,512 68,839 62,733 Other financial assets 47,370 Trade and other payables 157,571 Borrowings Defined benefit liability 584,338 30,108 Other financial liabilities 62,500 Total III. Goodwill (*3) 608,887 79,277 (*1) The Company re-estimated the fair value of its Samsung LED shares, which represents 50% ownership, as of April 1, 2012 andrecognized gain on disposal of shares in the amount of 28,684 million. (*2) The Company distributed 269,867 of treasury shares to carry out the merger with Samsung LED and recognized a gain on disposal of treasury shares in the amount of 233,705 million based on the estimation of fair value of the treasury shares. (*3) Goodwill arising from the merger was recognized as the business combination will allow faster response to changes in the domestic and international business environments and strengthen manufacturing competitiveness. (4) Had Samsung LED been merged on January 1, 2012, the revenue would be increased by 293,273 million and net income would be decreased by 25,582 million. Revenue and net loss contributed by Samsung LED division after the merger date of April 1, 2012 amount to 923,358 million and 10,527 million, respectively. 109 (B) Mobile business of Cambridge Silicon Radio ("CSR") On October 4, 2012, the Company acquired tangible/intangible assets including patents, R&D workforce and equity shares of 4.9% of the company from UK-based semiconductor company CSR and its subsidiaries in attempt to expand its connectivity business such as Bluetooth, GPS and WiFi, etc. Consideration transferred amounts to $344 million and there could be additional payment or refund of $10 million depending on the outcome of an ongoing R&D project. Estimated fair value by weighted-average DCF is $113,000. (1) Purchase price allocation The following table summarizes the consideration paid for CSR and the amounts of the assets acquired recognized at the acquisition date. (In millions of Korean won) Classification I. Considerations transferred Cash and cash equivalents II. Identifiable assets and liabilities Cash and cash equivalents Trade and other receivables Property, Plant & Equipment Intangible assets (*1) Available-for-sales (*2) Long-term prepaid expenses Other financial assets Trade and other payables Other financial liabilities Total Identifiable net assets III. Goodwill (*3) Amount 383,498 1,753 304 3,714 158,117 59,572 54,339 15,779 374 1,687 291,517 91,981 (*1) This figure includes 102,442 million of Connectivity Semiconductor related patents and 55,675 million of other intangible assets. (*2) Samsung Electronics Europe Holdings (SEEH) acquired a 4.9% share in CSR plc according to the contract terms set by the Company. (*3) Goodwill arising from the acquisition was recognized as this transaction will allow faster response to changes in the domestic and international business environments and strengthen manufacturing competitiveness. 37. Business Restructuring within Consolidated Entity (A) Spin-off of LCD division The Company established Samsung Display Corporation through a spin-off of the LCD segment during the year. Name of the new company Headquarters location Business Date of Spin-off Samsung Display Corporation Giheung-gu, Yongin-si, Gyeonggi-do LCD April 1, 2012 (B) Merger of Samsung Display, Samsung Mobile Display and S-LCD On July 1, 2012, Samsung Display, a subsidiary, merged with two other subsidiaries: Samsung Mobile Display and S-LCD. (1) Overview of merged companies Headquarters location Representative director Classification of the acquired company Relationship with the Company Samsung Mobile Display Yong-In, Gyeonggi-do Soo-in Cho Unlisted company Associates S-LCD Asan, Chung-Nam Dong-geon Park Unlisted company Subsidiary (2) Share exchange ratio and distribution Type Name Merger Ratio Acquiring Company Samsung Display 1 Acquired Company Samsung Mobile Display 1.6487702 Acquired Company S-LCD - Samsung Display did not distribute common shares of Samsung Display as a result of its 100% ownership of S-LCD. Acquired assets and liabilities were recognized at book value in the consolidated financial statements as the acquisition is a business combination under common control. As a result, the Company does not recognize an additional goodwill. 110 (C) Merger of Samsung Medison and Prosonic On September 1, 2012, Samsung Medison merged with Prosonic. The merger was between subsidiaries of the same controlling company. (1) Overview of merged companies Headquarters location Representative director Classification of the acquired company Relationship with the Company Prosonic Gyeong-ju, Gyeongsangbuk-do Won Gil Son Unlisted company Subsidiary (2) Share exchange ratio and distribution Type Name Merger Ratio Acquiring Company Samsung Medison 1 Acquired Company Prosonic 17.5971363 The Company received 10,030,367 of newly issued common shares from Samsung Medison in exchange for 570,000 common shares of Prosonic which were previously owned by the Company. Acquired assets and liabilities were recognized at book value in the consolidated financial statements as the acquisition is a merger between subsidiaries. There is no additional goodwill. 38. Subsequent Events (A) Merger within Subsidiaries On January 1, 2013, SEMES, a subsidiary of SEC, merged with SECRON and GES in order to maximize synergies and enhance the competitiveness in the semiconductor/LCD equipment business. (1) Overview of the acquired company Headquarters location Representative director Classification of the acquired company Relationship with the Company SECRON Cheonan-si, Chungcheongnam-do Jae-kyung Lee Unlisted company Associates GES Hwaseong-si, Gyeonggi-do Min-seok Han Unlisted company Associates (2) Share exchange ratio and distribution Type Name Merger Ratio Acquiring Company SEMES 1 Acquired Company SECRON 0.4473688 Acquired Company GES 0.7684500 (D) Others (1) Merger of Samsung Electronics Asia Holdings(`SEAH') and Samsung Asia Private (`SAPL') On July 1, 2012, SEAH merged with SAPL and changed the company name to SAPL. The merger was between subsidiaries of the same controlling company and the accounting treatment for the merger was based on the carrying value in the consolidated financial statements. The merger did not result in the recognition of goodwill. (2) Acquisition of SEHF Korea On August 13, 2012, the Company acquired 100% ownership of SEHF Korea, previously a subsidiary of Samsung Electronics Hainan Fiberoptics (SEHF). SEHF is a subsidiary of the Company. Subsequently the Company merged SEHF Korea on December 1, 2012 to maximize business synergies. Acquirsed assets and liabilities of SEHF Korea were recognized at book value in the consolidated financial statements as the acquisition is a merger between parent company and subsidiary. There is no additional goodwill. 111 Global Network GLOBAL HEADQUARTERS Samsung Electronics Co., Ltd. 129, Samsung-ro, Yeongtong-gu, Suwon-si, Gyeonggi-do, Korea Tel: 82-2-2255-0114 www.samsung.com/sec SEOCHO OFFICE Samsung Electronics Co., Ltd. Samsung Electronic Bldg., 11, Seocho-daero 74-gil, Seocho-gu, Seoul, Korea REGIONAL HEADQUARTERS North America Samsung Electronics North America Headquarters 85 Challenger Road, Ridgefield Park, NJ 07660, USA Samsung Electronics America Headquarters (Device Solutions) 3655 North First Street, San Jose, CA 95134, USA Latin America Samsung Electronics Latin America Headquarters Avenida das Nacoes Unidas, 12901, 8 andar, Torre Oeste, Brooklin Novo, CEP 04578-000, São Paulo, Brazil Europe Samsung Electronics Europe Headquarters Samsung House, 1000 Hillswood Drive, Chertsey, Surrey, KT16 0PS, UK Samsung Electronics Europe Headquarters (Device Solutions) Kolner Str. 12, D-65760 Eschborn, Germany Southeast Asia Samsung Electronics Southeast Asia Headquarters 30 Pasir Panjang Road, #17-31/32 Mapletree Business City, Singapore 117440 Samsung Electronics Southeast Asia Headquarters (Device Solutions) 3 Church Street, #26-01 Samsung Hub, Singapore 049483 China Samsung Electronics China Headquarters 23F China Merchants Tower, No.118, Jian Guo Lu, Chao Yang District, Beijing, China 100022 Samsung Electronics China Headquarters (Device Solutions) 15F Cloud Nine Plaza, NO. 1118, Yan An (W) RD, Shanghai, China 200052 Japan Samsung Electronics Japan Headquarters (Device Solutions) 10F, Shinagawa Grand Central Tower, 2-16-4 Konan, Minato-Ku, Tokyo, 108-8240, Japan CIS Samsung Electronics Co., Ltd. CIS Headquarters Floor 5, B. Gnezdnikovsky Pereulok 1, Stroenie 2, 103009, Moscow, Russia Southwest Asia Samsung Electronics Southwest Asia Headquarters 2nd, 3rd & 4th Floors, Tower-C, Vipul Tech Square, Sector-43, Golf Course Road, Gurgaon, India 122002 Middle East Samsung Electronics Middle East Headquarters 43rd Floor, Business Central Tower A, Sheikh Zayed Road, P.O. Box 500047, Dubai Media City, Dubai, UAE Africa Samsung Electronics Africa Headquarters Medscheme Office Park Phase 1, 10 Muswell Road South, Bryanston, Johannesburg, South Africa, 2021 PRODUCTION NETWORK KOREA Suwon Complex 129, Samsung-ro, Yeongtong-gu, Suwon-si, Gyeonggi-do, Korea Tel: 82-31-200-1114 Gumi Plant 1 244, 1gongdan-ro, Gumi-si, Gyeongsangbuk-do, Korea Tel: 82-54-479-5114 Gumi Plant 2 302, 3gongdan 3-ro, Gumi-si, Gyeongsangbuk-do, Korea Tel: 82-54-479-5114 Giheung Complex 95, Samsung 2-ro, Giheung-gu, Yongin-si, Gyeonggi-do, Korea Tel: 82-31-209-7114 Hwaseong Plant 1, Samsungjeonja-ro, Hwaseong-si, Gyeonggi-do, Korea Tel: 82-31-209-7114 Onyang Plant 158, Baebang-ro, Asan-si, Chungcheongnam-do, Korea Tel: 82-41-540-7114 Gwangju Plant 107, Hanamsandan 6beon-ro, Gwangsan-gu, Gwangju, Korea Tel : 82-62-950-6114 ASIA PACIFIC China Tianjin Samsung Opto-Electronics Co., Ltd. (TSOE), Tianjin Tel: 86-22-2388-7788 Tianjin Samsung Electronics Company (TSEC), Tianjin Tel: 86-22-2532-1234 Tianjin Samsung Telecommunication Technology Co., Ltd. (TSTC), Tianjin Tel: 86-22-8396-9600 Tianjin Samsung LED Co., Ltd. (TSLED), Tianjin Tel: 86-22-2388-5588 Samsung Electronics Suzhou Computer (SESC), Suzhou Tel: 86-512-6253-8988 (6688) Samsung Electronics Suzhou Semiconductor (SESS), Suzhou Tel: 86-512-6761-1121 112 Suzhou Samsung Electronics Co., Ltd. (SSEC), Suzhou Tel: 86-512-6258-1234 Samsung Electronics Huizhou Company (SEHZ), Huizhou Tel: 86-752-389-7777 Shenzhen Samsung Kejian Mobile Telecommunication Technology Co., Ltd. (SSKMT), Shenzhen Tel: 86-755-2699-0888 Samsung Electronics Hainan Fiberoptics (SEHF), Haikou Tel: 86-898-6683-2100 Vietnam Samsung Electronics Vietnam (SEV), Hanoi Tel: 84-241-369-6049 Samsung Vina Electronics Co., Ltd. (SAVINA-P), Ho Chi Minh City Tel: 84-8-3896-5500 CIS Russia LLC Samsung Electronics Rus Kaluga (SERK), Kaluga Tel: 7-484-38-67-000 Samsung Electronics (Shandong) Digital Printing Co., Ltd. (SSDP), Weihai Tel: 86-631-562-6868 China Printed Board Assembly (China PBA), Zhoungshan Tel: 86-760-830-4848 (219) MIDDLE EAST Egypt Samsung Electronics Egypt (SEEG), Beni Suef Tel: 20-2-2528-5971 EUROPE India Samsung India Electronics of Production Ltd. (Product) (SIEL-P(N)), Noida Tel: 91-120-256-8251 Hungary Samsung Electronics Hungarian of Production Co., Ltd. (SEH-P), Jaszfenyszaru Tel: 36-57-522-200 Samsung India Electronics Product (Chennai) (SIEL-P(C)), Chennai Tel: 91-44-6710-3000 Slovakia Samsung Electronics Slovakia s.r.o. (SESK), Galanta Tel: 421-31-7882-111 Indonesia P.T. Samsung Electronics Indonesia (SEIN-P), Cikarang Tel: 62-21-8983-7114 Poland Samsung Electronics Poland Manufacturing (SEPM), Wronki Tel: 48-67-211-41-00 Malaysia Samsung Electronics Display (M) Sdn. Bhd. (SDMA), Seremban Tel: 60-6-678-7914 Samsung Electronics Malaysia Sdn. Bhd. (SEMA), Klang Tel: 60-3-3176-2050 Thailand Thai Samsung Electronics of Production Co., Ltd. (TSE-P), Sriracha Tel: 66-38-320-777 AMERICAs United States Samsung Austin Semiconductor LLC (SAS), Austin Tel: 1-512-672-1000 Brazil Samsung Electronica Da Amazonia Ltda. (Product-Manaus) (SEDA-P(M)), Manaus Tel: 55-92-4009-1141 Samsung Electronica Da Amazonia Ltda. (ProductCampinas) (SEDA-P(C)), Campinas Tel: 55-19-4501-2003 Mexico Samsung Electronics Mexico (Production) (SEM-P), Queretaro Tel: 52-442-296-9003 Samsung Mexicana S.A. De C.V. (SAMEX), Tijuana Tel: 1-619-671-1669 SALES NETWORK ASIA PACIFIC Australia Samsung Electronics Australia Pty. Ltd. (SEAU), Sydney Tel: 61-2-9763-9700 China Samsung China Investment Company (SCIC), Beijing Tel: 86-10-6566-8100 Hong Kong Samsung Electronics H.K. Co., Ltd. (SEHK), Hong Kong Tel: 852-2862-6300 (6900) India Samsung India Electronics of Sales Ltd. (SIEL-S), Gurgaon Tel: 91-124-488-1234 Indonesia P.T. Samsung Electronics Indonesia of Sales (SEIN-S), Jakarta Tel: 62-21-5299-1777 Japan Samsung Electronics Japan (SEJ), Tokyo Tel: 81-3-6238-4082 Malaysia Samsung Malaysia Electronics Sdn. Bhd. (SME), Kuala Lumpur Tel: 60-3-2165-0000 Philippines Samsung Electronics Philippines Corp. (SEPCO), Manila Tel: 63-2-241-7777 Singapore Samsung Asia Pte Ltd. (SAPL), Singapore Tel: 65-6833-3106 Taiwan Samsung Electronics Taiwan Co., Ltd. (SET), Taipei Tel: 886-2-6603-5168 Thailand Thai Samsung Electronics Co., Ltd. (TSE-S), Bangkok Tel: 66-2-695-9000 Vietnam Samsung Vina Electronics Co., Ltd. (SAVINA-S), Ho Chi Minh City Tel: 84-8-3821-1111 CIS Russia Samsung Electronics Russia Ltd. (SERC), Moscow Tel: 7-095-797-2344 Ukraine Samsung Electronics Ukraine Company (SEUC), Kiev Tel: 380-44-390-5333 Kazakhstan Samsung Electronics KZ and Central Asia LLP (SEKZ), Almaty Tel: 7-727-321-1212 EUROPE Austria Samsung Electronics Austria GmbH (SEAG), Vienna Tel: 43-1-516-1528 Serbia Samsung Electronics Adria (SEAD), Belgrade Tel: 381-11-4141-301 France Samsung Electronics France (SEF), Paris Tel: 33-1-4921-7000 113 Germany Samsung Electronics Gmbh (SEG), Schwalbach Tel: 49-6196-6660 Greece Samsung Electronics Greece S.A. (SEGR), Athens Tel: 30-213-016-3800 Hungary Samsung Electronics Hungarian Co., Ltd. (SEH-S), Budapest Tel: 36-1-453-1180 Rumania Samsung Electronics Romania SRL (SEROM), Bucharest Tel: 40-31-620-2333 Italy Samsung Electronics Italia S.P.A (SEI), Milan Tel: 39-02-921-891 Netherlands Samsung Electronics Benelux B.V. (SEBN), Delft Tel: 31-15-219-6100 Poland Samsung Electronics Polska (SEPOL), Warsaw Tel: 48-22-607-4400 Portugal Samsung Electronics Portuguesa S.A. (SEP), Lisbon Tel: 351-21-425-1000 Spain Samsung Electronics Iberia S.A. (SESA), Madrid Tel: 34-91-714-3700 Sweden Samsung Electronics Nordic AB (SENA), Stockholm Tel: 46-8-5550-5700 United Kingdom Samsung Electronics United Kingdom (SEUK), London Tel: 44-1932-455-000 Czech Samsung Electronics Czech (SECZ), Praha Tel: 420-225-020-710 Latvia Samsung Electronics Baltics (SEB), Riga Tel: 371-6750-8500 MIDDLE EAST & AFRICA United Arab Emirates Samsung Gulf Electronics Co., Ltd. (SGE), Dubai Tel: 971-4-440-6000 Turkey Samsung Electronics Turkey Ltd. (SETK), Istanbul Tel: 90-212-467-0600 Jordan Samsung Electronics Levant Co. Ltd. (SELV), Amman Tel: 962-6-580-7102 Israel Samsung Electronics Israel (SEIL), Tel Aviv-Jaffa Tel: 972-77-902-6276 Morocco Samsung Electronics Morocco Ltd. (SEMRC), Casablanca Tel: 212-22-335-383 Tunisia Samsung Electronics Tunisia (SETN), Tunis Tel: 216-1-860-234/275 Pakistan Samsung Electronics Pakistan (SEPAK), Lahore Tel: 92-42-3594-1283 South Africa Samsung Electronics South Africa (PTY) Ltd. (SSA), Johannesburg Tel: 27-11-549-1500 Nigeria Samsung Electronics West Africa Limited (SEWA), Lagos Tel: 234-80-6283-8483 Kenya Samsung Electronics East Africa (SEEA), Nairobi Tel: 254-20-3752-371 NORTH AMERICA Canada Samsung Electronics Canada Inc. (SECA), Toronto Tel: 1-905-542-3535 United States Samsung Electronics America Inc. (SEA), Ridgefield Park, N.J. Tel: 1-201-229-4000 Samsung Telecommunications America LLP (STA), Dallas, Tx. Tel: 1-972-761-7000 LATIN AMERICA Mexico Samsung Electronics Mexico (SEM-S), Mexico City Tel: 52-55-5747-5100 Argentina Samsung Electronics Argentina S.A. (SEASA), Buenos Aires Tel: 54-11-4109-4000 Brazil Samsung Eletronica Da Amazonia Ltda. (SEDA-S), São Paulo Tel: 55-11-5644-6400 Chile Samsung Electronics Co., Ltd. Chile (SECH), Santiago Tel: 56-2-485-8500 Colombia Samsung Electronics Colombia S.A. (SAMCOL), Bogota Tel: 57-1-487-0707 Panama Samsung Electronics Latin America S.A. (SELA), Panama City Tel: 507-210-1122 Peru Samsung Electronics Peru (SEPR), Lima Tel: 51-1-711-4801 114 www.samsung.comAdobe PDF Library 8.0 Adobe InDesign CS3 (5.0)