Samsung Engineering Co., Ltd. Non-consolidated Financial Statements December 31, 2008 and 2007 Samsung Engineering Co., Ltd. Index December 31, 2008 and 2007
Page(s)
Report of Independent Auditors ...... 1 - 2
Non-Consolidated Financial Statements
Balance Sheets...... 3 - 4
Statements of Income...... 5 - 6
Statements of Appropriations of Retained Earnings ...... 7
Statements of Changes in Shareholders’ equity...... 8 - 9
Statements of Cash Flows ...... 10 - 11
Notes to the Non-Consolidated Financial Statements ...... 12 - 55
Report of Independent Accountants' Review of Internal Accounting Control System ...... 56
Report on the Operations of the Internal Accounting Control System ...... 57 A member firm of
www.samil.com LS Yongsan Tower 191 Hangangno 2-ga, Yongsan-gu Seoul 140-702, KOREA (Yongsan P.O. Box 266, 140-600)
Report of Independent Auditors
To the Shareholders and Board of Directors of Samsung Engineering Co., Ltd.
We have audited the accompanying non-consolidated balance sheets of Samsung Engineering Co., Ltd. (the “Company”) as of December 31, 2008 and 2007, and the related non-consolidated statements of income, appropriations of retained earnings, changes in shareholders' equity and cash flows for the years then ended, expressed in Korean won. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in conformity 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 provide a reasonable basis for our opinion.
In our opinion, the non-consolidated financial statements referred to above present fairly, in all material respects, the financial position of Samsung Engineering Co., Ltd. as of December 31, 2008 and 2007, and the results of its operations, the changes in its retained earnings, the changes in its shareholders' equity and its cash flows for the years then ended in conformity with accounting principles generally accepted in the Republic of Korea.
Samil PricewaterhouseCoopers is the Korean member firm of the PricewaterhouseCoopers. PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. 1 Without qualifying our opinion, we draw your attention to Note 14 to the accompanying non- consolidated financial statements, in which as discussed, the amount of Company’s obligation arising from the suit filed by Samsung Motors Inc.’s creditors is uncertain as of date of this report. Accordingly, the ultimate effect of this matter on the Company’s financial statements can not be reasonably determined.
The amounts expressed in U.S. dollars, provided solely for the convenience of the reader and have been translated on the basis set forth in Note 3 to the accompanying non-consolidated financial statements.
Accounting principles and auditing standards and their application in practice vary among countries. The accompanying non-consolidated financial statements are not intended to present the financial position, results of operations, changes in its shareholders’ equity and cash flows in conformity with accounting principles and practices generally accepted in countries and jurisdictions other than the Republic of Korea. In addition, the procedures and practices used in the Republic of Korea to audit such financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report and the accompanying financial statements are for use by those who are informed about Korean accounting principles or auditing standards and their application in practice.
Seoul, Korea February 16, 2009
This report is effective as of February 16, 2009, 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.
2 Samsung Engineering Co., Ltd. Non-Consolidated Balance Sheets December 31, 2008 and 2007
(In millions of Korean won, in thousands of US dollars (Note 3)) 2008 2007 2008 2007
Assets Current assets Cash and cash equivalents ￦ 137,588 ￦ 274,150 $ 109,457 $218,098 Short-term financial instruments (Note 4) 373,667 345,574 297,269 274,920 Current portions of held-to-maturity securities (Note 7) 1,236 2,814 983 2,239 Trade accounts and notes receivable, net of allowance for doubtful accounts (Notes 5) 577,134 326,631 459,136 259,849 Other accounts and notes receivable, net of allowance for doubtful accounts (Note 5) 20,306 39,912 16,154 31,751 Inventories 11,431 - 9,094 - Currency forwards (Note 14) 20,102 7,111 15,992 5,657 Accrued income 12,770 9,326 10,159 7,419 Advanced payments, net of allowance for doubtful accounts 104,388 36,017 83,045 28,654 Prepaid construction expenses 5,321 14 4,233 11 Prepaid expenses 37,889 31,170 30,144 24,797 Short-term deferred income tax assets 1,877 (Note 22) 5,809 2,360 4,621 Others - 42 - 35 Total current assets 1,307,641 1,075,121 1,040,287 855,307 Long-term available-for-sale securities (Note 6) 51,858 52,648 41,256 41,884 Held-to-maturity securities (Note 7) 4,317 4,519 3,434 3,595 Equity-method investments (Note 8) 53,852 24,953 42,842 19,851 Property, plant and equipment, net of accumulated depreciation (Note 9) 182,526 163,883 145,208 130,376 Intangible assets, net of accumulated amortization (Note 10) 3,557 4,048 2,830 3,220 Long-term deposits 75,369 51,907 59,960 41,295 Other non-current assets 729 819 578 652 Total other assets 372,208 302,777 296,108 240,873 Total assets ￦1,679,849 ￦1,377,898 $1,336,395 $1,096,180
3 Samsung Engineering Co., Ltd. Non-Consolidated Balance Sheets December 31, 2008 and 2007
(In millions of Korean won, in thousands of US dollars (Note 3)) 2008 2007 2008 2007
Liabilities and Shareholders' Equity Trade accounts and notes payable ￦ 366,636 ￦ 252,107 $ 291,675 $ 200,563 Other accounts and notes payable 60,222 53,069 47,909 42,219 Currency forwards (Note 14) 11,293 40 8,984 32 Advances from customers (Note 15) 459,216 389,435 365,327 309,813 Accrued expenses (Notes 12 and 13) 3,558 11,208 2,831 8,917 Income taxes payable (Note 22) 46,590 30,765 37,065 24,475 Provision for construction losses (Note 13) 50,221 15,740 39,953 12,522 Others 17,043 26,906 13,558 21,403 Total current liabilities 1,014,779 779,270 807,302 619,944 Guarantee deposits received 51,494 54,789 40,967 43,587 Long-term accrued expenses, net (Notes 12 and 13) 6,331 2,421 5,036 1,926 Accrued severance benefits, net (Note 11) 22,503 12,705 17,903 10,109 Provision for construction warranties (Note 13) 14,904 8,649 11,856 6,880 Long-term deferred income tax liabilities (Note 22) 8,039 6,709 6,395 5,337 Total liabilities 1,118,050 864,543 889,459 687,783
Commitments and contingencies (Note 14) Shareholders' equity Capital stock Common stock (Note 16) 200,000 200,000 159,109 159,109 Capital surplus Paid-in capital in excess of par value 56,624 56,624 45,047 45,047 Capital adjustments Treasury stock (Note 18) (153,430) (57,609) (122,062) (45,831) Loss on disposal of treasury stock (350) (408) (278) (324) Stock options (Note 20) 70 346 56 275 Accumulated other comprehensive income (Note 19) 12,292 9,316 9,779 7,411 Retained earnings (Note 17) 446,593 305,086 355,285 242,710 Total shareholders’ equity 561,799 513,355 446,936 408,397 Total liabilities and shareholders' equity ￦1,679,849 ￦1,377,898 $1,336,395 $1,096,180
The accompanying notes are an integral part of these financial statements.
4 Samsung Engineering Co., Ltd. Non-Consolidated Statements of Income Years ended December 31, 2008 and 2007
(In millions of Korean won, in thousands of US dollars (Note 3)) 2008 2007 2008 2007
Sales (Note 15) ￦2,635,598 ￦1,878,161 $2,096,737 $1,494,161 Cost of sales (Note 15) 2,243,115 1,533,655 1,784,499 1,220,091 Gross profit 392,483 344,506 312,238 274,070 Selling and administrative expenses (Note 28) 262,602 217,866 208,912 173,322 Operating income 129,881 126,640 103,326 100,748 Non-operating income Interest income 35,813 22,661 28,491 18,028 Dividend income 932 777 741 618 Commission income 7,454 7,510 5,930 5,974 Gain on foreign currency transactions 133,441 11,870 106,158 9,443 Gain on foreign currency translation (Note 21) 30,033 5,653 23,893 4,497 Gain on currency forwards transactions 8,943 4,342 7,114 3,454 Gain on valuation of currency forwards (Note 14) 19,662 6,968 15,642 5,544 Gain on valuation of equity-method investments (Note 8) 39,469 26,862 31,399 21,370 Reversal of allowance for doubtful accounts - 3,012 - 2,396 Rental income 3,870 3,706 3,079 2,949 Reversal of provision for construction Warranties 109 1,435 86 1,141 Others 1,038 3,106 827 2,471 280,764 97,902 223,360 77,885
5 Samsung Engineering Co., Ltd. Non-Consolidated Statements of Income Years ended December 31, 2008 and 2007
(In millions of Korean won, in thousands of US dollars (Note 3)) 2008 2007 2008 2007
Non-operating expenses Interest expenses ￦ 253 ￦ 576 $ 201 $ 459 Provision for other doubtful accounts 3,979 - 3,166 - Loss on foreign currency transactions 91,052 12,047 72,436 9,584 Loss on foreign currency translation (Note 21) 36,457 1,605 29,003 1,277 Commission expenses 1,286 1,431 1,023 1,138 Loss on currency forwards transactions 8,825 792 7,021 630 Loss on valuation of currency forwards (Note 14) 15,690 27 12,482 21 Loss on valuation of equity-method investments (Note 8) 1 - 1 - Donations 1,344 1,316 1,070 1,047 Others 1,435 562 1,140 447 160,322 18,356 127,543 14,603 Income before income taxes 250,323 206,186 199,143 164,030 Income tax expenses (Note 22) 61,954 51,225 49,287 40,752 Net income ￦ 188,369 ￦ 154,961 $ 149,856 $ 123,278
Basic earnings per share (Note 23) ￦ 4,925 ￦ 3,992 $ 3.92 $ 3.18 (in Korean won and U.S. dollars) Diluted earnings per share (Note 23) ￦ 4,917 ￦ 3,967 $ 3.91 $ 3.16 (in Korean won and U.S. dollars)
The accompanying notes are an integral part of these financial statements.
6 Samsung Engineering Co., Ltd. Non-Consolidated Statements of Appropriations of Retained Earnings Years ended December 31, 2008 and 2007 (Date of appropriations : March 13, 2009 and march 28, 2008 for the years ended December 31, 2008 and 2007, respectively)
(In millions of Korean won, in thousands of US dollars (Note 3)) 2008 2007 2008 2007
Retained earnings before appropriations Unappropriated retained earnings carried over from prior year ￦ 1,724 ￦ 1,625 $ 1,372 $ 1,293 Net income 188,369 154,961 149,856 123,278 190,093 156,586 151,228 124,571 Appropriation of retained earnings Legal reserve 20,000 16,000 15,911 12,729 Reserve for research and human resource Development 52,000 42,000 41,367 33,413 Reserve for investments 60,000 50,000 47,733 39,777 Reserve for loss on disposal of treasury Stock 349 408 279 324 Dividends Cash dividends (Note 17) 56,859 46,454 45,234 36,957 Dividends(ratio) per share Common stock: ￦1,500 (30%) in 2008, ￦1,200 (24%) in 2007 189,208 154,862 150,524 123,200 Unappropriated retained earnings carried forward to subsequent year ￦ 885 ￦ 1,724 $ 704 $ 1,371
The accompanying notes are an integral part of these financial statements.
7 Samsung Engineering Co., Ltd. Non-Consolidated Statements of Changes in Shareholders’ Equity Years ended December 31, 2008 and 2007
(In millions of Korean won, in thousands of U.S. dollars (Note 3)) Accumulated Accumulated other other Capital Capital Capital comprehensive Retained Capital Capital Capital comprehensive Retained Stock Surplus adjustments income earnings Total Stock Surplus adjustments income earnings Total
Balances as of January 1, 2007 ￦ 200,000 ￦ 56,624 ￦ (4,356) ￦ 879 ￦ 182,066 ￦ 435,213 $159,109 $ 45,047 $ (3,465) $ 698 $ 144,842 $ 346,231 Dividends - - - - (31,646) (31,646) - - - - (25,175) (25,175) Loss on disposal of treasury stock - 295 - (295) - - - 235 - (235) - Retained earnings after appropriation - - - - 150,125 403,567 - - - - 119,432 321,056 Purchase of treasury stocks - - (54,586) - - (54,586) - - (43,425) - - (43,425) Disposal of treasury stock - - 1,104 - - 1,104 - - 878 - - 878 Gain on valuation of available-for-sale securities (Note 6) - - - 5,300 - 5,300 - - - 4,217 - 4,217 Loss on valuation of available-for-sale securities (Note 6) - - - 1,949 - 1,949 - - - 1,550 - 1,550 Gain on valuation of equity-method investments (Note 8) - - - 768 - 768 - - - 612 - 612 Loss on valuation of equity-method investments (Note 8) - - - 420 420 - - - 334 - 334 Stock options - - (128) - - (128) - - (103) - - (103) Net income - - - - 154,961 154,961 - - - - 123,278 123,278 Balances as of December 31, 2007 ￦ 200,000 ￦ 56,624 ￦ (57,671) ￦ 9,316 ￦ 305,086 ￦ 513,355 $159,109 $ 45,047 $ (45,880) $ 7,411 $ 242,710 $ 408,397
8 Samsung Engineering Co., Ltd. Non-Consolidated Statements of Changes in Shareholders’ Equity Years ended December 31, 2008 and 2007
(In millions of Korean won, in thousands of U.S. dollars (Note 3)) Accumulated Accumulated other other Capital Capital Capital comprehensive Retained Capital Capital Capital comprehensive Retained Stock Surplus adjustments income earnings Total Stock Surplus adjustments income earnings Total
Balances as of January 1, 2008 ￦ 200,000 ￦ 56,624 ￦ (57,671) ￦ 9,316 ￦ 305,086 ￦ 513,355 $159,109 $ 45,047 $ (45,880) $ 7,411 $ 242,710 $ 408,397 Dividends (Note 17) - - - - (46,454) (46,454) - - - - (36,957) (36,957) Loss on disposal of treasury stock - - 408 - (408) - - - 324 - (324) - Retained earnings after appropriation - - - - 258,224 466,901 - - - - 205,429 371,440 Purchase of treasury stocks - - (97,724) - - (97,724) - - (77,744) - - (77,744) Disposal of treasury stock - - 1,553 - - 1,553 - - 1,235 - - 1,235 Gain on valuation of available-for-sale securities (Note 6) - - - (4,461) - (4,461) - - - (3,549) - (3,549) Loss on valuation of available-for-sale securities (Note 6) - - - (46) - (46) - - - (36) - (36) Gain on valuation of equity-method investments (Note 8) - - - 7,215 - 7,215 - - - 5,741 - 5,741 Loss on valuation of equity-method investments (Note 8) - - - 268 - 268 - - - 212 - 212 Stock options - - (276) - - (276) - - (219) - - (219) Net income - - - - 188,369 188,369 - - - - 149,856 149,856 Balances as of December 31, 2008 ￦ 200,000 ￦ 56,624 ￦ (153,710) ￦ 12,292 ￦ 446,593 ￦ 561,799 $159,109 $ 45,047 $ (122,284) $ 9,779 $ 355,285 $ 446,936
The accompanying notes are an integral part of these financial statements.
9 Samsung Engineering Co., Ltd. Non-Consolidated Statements of Cash Flows Years ended December 31, 2008 and 2007
(In millions of Korean won, in thousands of US dollars (Note 3)) 2008 2007 2008 2007
Cash flows from operating activities
Net income ￦ 188,369 ￦ 154,961 $ 149,856 $ 123,278 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 13,945 10,933 11,094 8,697 Amortization of intangible assets 2,970 2,783 2,363 2,214 Provision for severance benefits 25,623 18,869 20,384 15,011 Bad debts expense 5,961 - 4,742 - Provision for other doubtful accounts 3,979 - 3,166 - Loss on foreign currency translation 34,652 1,506 27,567 1,198 Gain on foreign currency translation (21,202) (2,989) (16,867) (2,377) Loss on valuation of equity-method investments 1 - 1 - Gain on valuation of equity-method investments (39,469) (26,862) (31,399) (21,370) Dividends from the equity-method investees 19,471 14,672 15,490 11,672 Loss on valuation of currency forwards 15,690 27 12,482 22 Gain on valuation of currency forwards (19,662) (6,968) (15,642) (5,544) Reversal of allowance for doubtful accounts - (3,012) - (2,396) Reversal of provision for construction warranties (109) (1,435) (86) (1,141) Others 850 433 675 345 42,700 7,957 33,970 6,331 Changes in operating assets and liabilities Decrease (Increase) in trade accounts and notes receivable (278,657) 141,088 (221,684) 112,241 Decrease (Increase) in other accounts and notes receivable 18,466 (10,345) 14,690 (8,230) Increase in advance payment (70,376) (16,818) (55,987) (13,379) Increase (Decrease) in trade accounts and notes payable 120,328 (71,060) 95,726 (56,531) Increase in other accounts and notes payable 6,145 11,019 4,889 8,766 Increase in advances 69,782 65,752 55,515 52,309 Payment of severance benefits (7,485) (10,979) (5,955) (8,735) Increase in severance benefit deposits 466 (5,090) 371 (4,050) Increase in pension plan assets (8,824) (5,091) (7,020) (4,050) Net increase in deferred tax assets and Liabilities (2,044) 4,936 (1,627) 3,927 Others 14,926 22,932 11,874 18,244 (137,273) 126,344 (109,208) 100,512 Net cash provided by operating activities 93,796 289,262 74,618 230,121
10 Samsung Engineering Co., Ltd. Non-Consolidated Statements of Cash Flows Years ended December 31, 2008 and 2007
(In millions of Korean won, in thousands of US dollars (Note 3)) 2008 2007 2008 2007
Cash flows from investing activities Net increase in short-term financial Instruments ￦ (27,713) ￦ (74,077) $ (22,047) $ (58,931) Proceeds from redemption of current portions of held-to- maturity securities 2,814 4,425 2,239 3,520 Acquisition of long-term available-for-sale Securities (6,512) (4,611) (5,180) (3,669) Acquisition of property, plant and equipment (32,684) (28,083) (26,002) (22,341) Acquisition of intangible assets (2,479) (3,101) (1,972) (2,467) Net increase in long-term deposits (20,650) (17,434) (16,428) (13,870) Others (98) (344) (78) (274) Net cash used in investing activities (87,322) (123,225) (69,468) (98,032) Cash flows from financing activities Exercise of share options 1,142 821 909 653 Payment of dividends (46,454) (31,646) (36,957) (25,176) Purchase of treasury stocks (97,724) (54,586) (77,743) (43,425) Net cash used in financing activities (143,036) (85,411) (113,791) (67,948) Net increase (decrease) in cash and cash Equivalents (136,562) 80,626 (108,641) 64,141 Cash and cash equivalents (Note 26) Beginning of the year 274,150 193,524 218,098 153,957 End of the year ￦ 137,588 ￦ 274,150 $ 109,457 $ 218,098
The accompanying notes are an integral part of these financial statements.
11 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
1. The Company
Samsung Engineering Co., Ltd. (the Company) was established on January 20, 1970, under the Commercial Law of the Republic of Korea to engage in the engineering services for plant and other construction. The Company listed its shares on the Korea Stock Exchange on December 24, 1996.
As of December 31, 2008, major shareholders of the Company are as follows:
Number Percentage of Name of Shareholder of Shares Ownership (%)
Cheil Industries Inc. 5,238,299 13.10% Korea Investment Trust Management Co., Ltd. 3,536,961 8.84% Samsung SDI Co., Ltd 2,036,966 5.10% Capital Research & Management Company 1,812,400 4.53%
2. Summary of Significant Accounting Policies
The significant accounting policies followed by the Company in the preparation of its non- consolidated financial statements are summarized below.
Basis of Financial Statement Presentation The Company maintains its accounting records in Korean won and prepares statutory financial statements in Korean language in conformity with the accounting principles generally accepted in the Republic of Korea. The accompanying non-consolidated financial statements have been condensed, restructured and translated into English from the Korean language non-consolidated financial statements. Certain accounting principles applied by the Company that conform with financial accounting standards and accounting principles in the Republic of Korea may not conform with generally accepted accounting principles in other countries. Accordingly, these financial statements are intended for use by those who are informed about Korean accounting principles and practices. Certain information attached to the Korean language non-consolidated financial statements, but not required for a fair presentation of the Company’s financial position, results of operations, cash flows or changes in shareholders’ equity is not presented in the accompanying non-consolidated financial statements.
12 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
Application of the Statements of Korean Financial Accounting Standards The Company’s non-consolidated financial statements were prepared in conformity with accounting principles generally accepted in Korea, including Korean Financial Accounting Standards Korean Financial Accounting Standards (“SKFAS”) No. 1 through No. 23.
Significant accounting policies adopted by the Company for the December 31, 2008 annual financial statements are identical to the accounting policies followed by the Company for the annual financial statements for the year ended December 31, 2007, except for SKFAS No. 20, which became effective on January 1, 2008. The Company’s non-consolidated financial statements for the year ended December 31, 2007, presented herein for comparative purposes, have been restated to reflect this change.
Use of Estimates The preparation of the financial statements requires management to make estimates and assumptions that affect amounts reported therein. Although these estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actual results may differ from these estimates.
Revenue Recognition Revenues from construction contracts are recognized using the percentage-of-completion method, measured principally by the percentage of costs incurred to date to total estimated contract costs.
Allowance for Doubtful Accounts The Company provides an allowance for doubtful accounts and notes receivable. Allowances are calculated based on the aggregate estimated collectability of the receivables.
Inventories Inventories are stated at the lower of cost or net realizable value. Cost is determined using the moving-average cost method. Losses on valuation of inventories and losses on inventory obsolescence are recorded as part of cost of sales.
Investments in Securities Costs of securities are determined using the moving-weighted average method. Investments in equity securities or debt securities are classified into trading securities, available-for-sale securities and held-to-maturity securities, depending on the acquisition and holding purpose. Investments in equity securities of companies, over which the Company exercises a significant control or influence, are recorded using the equity method of accounting. Trading securities are classified as current assets while available-for-sale securities and held-to-maturity securities are classified as long-term investments, excluding those securities that mature or are certain to be disposed of within one year, which are then classified as current assets.
13 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
Held-to-maturity securities are measured at amortized cost while available-for-sale and trading securities are measured at fair value. However, non-marketable securities, classified as available- for-sale securities, are carried at cost when the fair values are not readily determinable.
Gains and losses related to trading securities are recognized in the income statement, while unrealized gains and losses of available-for-sale securities are recognized under other comprehensive income and expense. Realized gains and losses of available-for-sale securities are recognized in the income statement.
Equity-Method Investments Investees over which the Company can exercise significant influence should reflect any changes in equity after the initial purchase date. Under the equity method, the Company records changes in its proportionate ownership in the book value of the investee in current operations, as capital adjustments or as adjustments to retained earnings, depending on the nature of the underlying change in the book value of the investee. All other changes in equity should be accounted for under other comprehensive income and expense.
Property, Plant and Equipment Property, plant and equipment are stated at cost, which includes acquisition cost, production cost and other costs required to prepare the asset for its intended use.
Property, plant and equipment are stated net of accumulated depreciation calculated based on the following depreciation method and estimated useful lives:
Estimated Useful Lives Depreciation Method
Building 20 - 40 years Straight line method Structures 20 - 40 years Straight line method Machinery 6 years Declining balance method Vehicles 4 years Declining balance method Furniture and Fixtures 4 - 20 years Declining balance method
Expenditures incurred after the acquisition or completion of assets are capitalized if they enhance the value of the related assets over their recently appraised value or extend the useful life of the related assets. Routine maintenance and repairs are charged to expense as incurred.
14 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
Intangible Assets Intangible assets are stated at cost, which includes acquisition cost, production cost and other costs required to prepare the asset for its intended use. Intangible assets are stated net of accumulated amortization calculated based on using the following depreciation method and estimated useful lives:
Estimated Useful Lives Depreciation Methods
Software 4 years Declining balance method
Impairment of Assets When the book value of an asset is significantly greater than its recoverable value due to obsolescence, physical damage or an abrupt decline in the market value of the asset, the said decline in value is deducted from the book value to agree with recoverable amount and is recognized as an asset impairment loss for the period. When the recoverable value subsequently exceeds the book value, the impairment amount is recognized as gain for the period to the extent that the revised book value does not exceed the book value that would have been recorded without the impairment.
Government Grants Government grants received, which are to be repaid, are recorded as liability, while grants without obligation to be repaid are offset against cost of assets purchased with such grants. Grants received for a specific purpose are offset against the specific expense for which it was granted, and other grants are recorded as a gain for the period.
Valuation of Assets and Liabilities at Present Value Receivables and payables resulting from on long-term installment payment transactions, long-term cash loans or other similar borrowings, are valued at their present values, discounted at an appropriate discount rate when the difference between the nominal value and present value is material. The present value discounts are amortized or recovered using the effective interest rate method and are recognized as interest income or expense over the term of the contract.
Accrued Severance Benefits Employees and directors with at least one year of service are entitled to receive a lump-sum payment upon termination of their employment with the Company based on their length of service and rate of pay at the time of termination. Accrued severance benefits represent the amount which would be payable assuming all eligible employees and directors were to terminate their employment as of the balance sheet date.
The Company has partially funded the accrued severance benefits through severance insurance deposits with an insurance company. Deposits made by the Company are recorded as deductions from accrued severance benefits. The excess portion of deposits over accrued severance benefits is recorded as other investments.
15 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
The Company also has a defined contribution pension plan, and accrues severance benefits for current employees and pension payables for retired employees. Pension plan assets are presented as a deduction from the total accrued severance benefits and pension payables. The excess of pension plan assets over pension plan liabilities is recorded as investment assets.
The Company deposits certain portion of severance benefits to National Pension Service according to National Pension Law. The deposit amount is recorded as deduction from accrued severance benefits.
Provisions and Contingent Liabilities When there is a probability that an outflow of economic benefits will occur due to a present obligation resulting from a past event, and whose amount is reasonably estimable, a corresponding amount of provision is recognized in the financial statements. However, when such outflow is dependent upon a future event, 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.
Translation of Assets and Liabilities Denominated in Foreign Currencies Monetary assets and liabilities denominated in foreign currencies are translated into Korean won at the rates of exchange in effect at the balance sheet date, and the resulting translation gains and losses are recognized in current operations.
Derivatives All derivative instruments are accounted for at their fair value according to the rights and obligations associated with the derivative contracts. The resulting changes in fair value of derivative instruments are recognized either under the income statement or shareholders’ equity, depending on whether the derivative instruments qualify as a cash flow hedge. Fair value hedge accounting is applied to a derivative instrument purchased with the purpose of hedging the exposure to changes in the fair value of an asset or a liability or a firm commitment that is attributable to a particular risk. The resulting changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognized under the shareholders’ equity under accumulated other comprehensive income and expense.
Income Tax and Deferred Income Tax Income tax expense includes the current income tax under the relevant income tax law and the changes in deferred tax assets or liabilities. Deferred tax assets and liabilities represent temporary differences between financial reporting and the tax bases of assets and liabilities. Deferred tax assets are recognized for temporary differences which will decrease future taxable income or operating loss to the extent that it is probable that future taxable income will be available against which the temporary differences can be utilized. Deferred tax effects applicable to items in the shareholders’ equity are directly reflected in the shareholders’ equity.
Approval of Financial Statements The December 31, 2008 financial statements of the Company were approved by the board of directors on January 22, 2009.
16 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
3. United States Dollar Amounts
The Company operates primarily in Korean won and its official accounting records are maintained in Korean won. The U.S. dollar amounts, provided herein, represent supplementary information solely for the convenience of the reader. All won amounts are expressed in U.S. dollars at the rate of ￦1,257 to US$1, the exchange rate in effect on December 31, 2008. Such presentation is not in accordance with generally accepted accounting principles in either the Republic of Korea or the United States, and should not be construed as a representation that the won amounts shown could be readily converted, realized or settled in U.S. dollars at this or at any other rate.
The 2007 U.S. dollar amounts, which were previously expressed at ￦938 to US$1, the rate in effect on December 31, 2007, have been restated to reflect the exchange rate in effect on December 31, 2008.
4. Financial Instruments Subject to Withdrawal Restrictions
As of December 31, 2008, cash deposits amounting to \1,891 million (2007: \2,027 million) are subject to withdrawal restrictions as they are related to government-sponsored research and development project. Time deposits amounting to \34,157 million (2007: nil) are subject to withdrawal restrictions as guarantees of indebtedness. Long-term financial instruments amounting to \18 million (2007: \18 million) are subject to withdrawal restrictions to maintain checking accounts.
5. Trade Accounts and Notes Receivable
Accounts and notes receivable and their respective allowance for doubtful accounts as of December 31, 2008 and 2007, consist of following:
(in millions of Korean won) 2008 2007
Trade accounts and notes receivable ￦ 595,360 ￦ 343,124 Less: Allowance for doubtful accounts (18,226) (16,493) ￦ 577,134 ￦ 326,631
Other accounts and notes receivable ￦ 22,281 ￦ 39,912 Less: Allowance for doubtful accounts (1,975) - ￦ 20,306 ￦ 39,912
17 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
6. Long-Term Available-For-Sale Securities
Long-term available-for-sale securities as of December 31, 2008 and 2007, consist of the following:
2008 2007 Market Recorded Recorded Acquisition Value or Net Book Book (In millions of Korean won) Detail Cost Book Value Value Value
Listed equities1 (1) ￦ 9,732 ￦ 15,380 ￦ 15,380 ￦ 22,025 Non-listed equities1 (2) 32,981 33,136 31,471 25,616 Investments in partnerships (3) 5,007 6,079 5,007 5,007 ￦ 47,720 ￦ 54,595 ￦ 51,858 ￦ 52,648
1 Excludes equity-method investees.
Listed equity (excluding equity-method investments) Listed equities as of December 31, 2008 and 2007, consist of the following:
2008 2007 Percentage Number of (In millions of of Shares Ownership Acquisition Market Recorded Recorded Korean won) Owned (%) Cost Value Book Value Book Value
Samsung Fine Chemicals Co., Ltd. 219,946 0.85 ￦ 7,813 ￦ 8,457 ￦ 8,457 ￦ 9,678 Samsung Heavy Industries Co., Ltd. 302,159 0.13 1,766 6,828 6,828 12,146 Daeyang Packing Co., Ltd. 280,000 0.29 95 66 66 127 IRPC PUBLIC Company Ltd. 369,482 0.34 58 29 29 74 ￦ 9,732 ￦ 15,380 ￦ 15,380 ￦ 22,025
The difference between the acquisition cost and market value of the investments is recorded under other comprehensive income, a separate component of shareholders’ equity.
18 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
Non-listed equity (excluding equity-method investments) Non-listed equities as of December 31, 2008 and 2007, consist of the following:
2008 2007 Percentage Number of of Shares Ownership Acquisition Net Book Recorded Recorded (In millions of Korean won) Owned (%) Cost Value Book Value Book Value
PT Samsung Engineering Indonesia1 250,000 100.00 ￦ 196 ￦ - ￦ - ￦ - SECL Philippines., Inc1. 1,998 39.96 7 - - - Samsung Engineering Consulting (Shanghai) Co., Ltd. 2 - - - - - 437 SETIS Co., Ltd. 3 - - - - - 157 Samsung Ingenieria Minatitlan, S.A de C.V.3 - - - - - 5 Samsung Engineering India Private Ltd. 1 15,749,990 99.99 3,230 376 3,230 3,230 Samsung Engineering Trinidad Co. 3 - - - - - 9 Samsung Ingenieria Tampico, S.A. De C.V. 1 99,900 99.90 10 371 10 10 Grupo Samsung Ingenieria Mexico Sa De C.V. 1 19,999 99.99 2,009 1,423 2,009 - Samsung Ingenieria Manzanillo, S.A. De C.V. 1 99,900 99.90 10 - 10 - Samsung Engineering America Inc. 1 2,500,000 100.00 2,520 2,448 2,520 - Samsung Engineering Kazakhstan LLP1 - 100.00 1 474 1 - iMarketKorea Inc. 190,000 7.05 950 5,498 950 950
19 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
2008 2007 Percentage Number of of Shares Ownership Acquisition Net Book Recorded Recorded (In millions of Korean won) Owned (%) Cost Value Book Value Book Value
Samsung Veolia Incheon WasteWater Co., Ltd. 4 1,436,298 19.90 ￦ 7,181 ￦ 5,359 ￦ 7,181 ￦ 7,181 Veolia Samsung Operating Co., Ltd. 1,990 19.90 10 816 10 10 KG Energy Co., Ltd. 1,997,750 11.10 1,998 1,679 963 963 Dongbu Environment Co., Ltd. 4 392,040 19.80 1,960 2,294 1,960 1,960 ENTECH ENC. Co., Ltd. 51,000 9.61 294 124 27 27 Hwasung Enviro Co., Ltd. 293,398 19.80 1,467 1,475 1,467 1,467 Incheon United Football Club 200 0.02 5 - -- Yong-in Clean Water Co., Ltd. 1,942,638 19.90 9,713 9,380 9,713 8,141 Thai Petrochemical Industry Polene Public Company Ltd.2 - - -- - 49 Purun Anseong Co., Ltd. 283,992 12.00 1,420 1,419 1,420 1,020 ￦ 32,981 ￦ 33,136 ￦ 31,471 ￦ 25,616
1 As of December 31, 2008, these investment were not valued using the equity method of accounting due to the immateriality of their total asset balance.
2 Samsung Engineering Consulting(Shanghai) Co., Ltd. was liquidated while Thai Petrochemical Industry Polene Public Company Limited was disposed of in 2008.
3 The equity method is applied to the investments in SETIS Co., Ltd., Samsung Ingenieria Minatitlan S.A de C.V and Samsung Engineering Trinidad Co. starting 2008 (Note 8).
4 The investments in Samsung Veolia Incheon Waste Water Co., Ltd. and Dongbu Environment Co., Ltd. are pledged as collaterals for project financing as of December 31, 2008 (Note 14).
20 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
Investments in Partnerships Investment in partnerships as of December 31, 2008 and 2007, consist of the following:
2008 2007 Percentage Number of Recorded Recorded (In millions of Korean of Shares Ownership Acquisition Net Book Book Book won) Owned (%) Cost Value Value Value
Engineering Financial Cooperative 113 0.02 ￦ 12 ￦ 34 ￦ 12 ￦ 12 Korea Electric Engineering Association 200 0.14 20 28 20 20 Information & Communication Financial Cooperative 100 0.01 21 27 21 21 Construction Guarantee 4,429 0.11 4,829 5,840 4,829 4,829 Electronic Contractors’ Financial Cooperative 300 0.01 58 83 58 58 Plant & Medichanical Contractors Financial Cooperative of Korea 74 0.01 67 67 67 67 ￦ 5,007 ￦ 6,079 ￦ 5,007 ￦ 5,007
21 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
Recognition of Impairment Non-listed equities and investments in partnerships under available-for-securities have been valued using the cost method of accounting as their fair values were not determinable. The Company has recognized impairment loss on the investments whose book values are not expected to recover in the near future.
Details of accumulated impairment losses on available-for-sale securities as of December 31, 2008, are as follows:
Accumulated (In millions of Korean won) Impairment Losses
PT Samsung Engineering Indonesia ￦ 197 SECL Philippines., Inc. 6 KG Energy Co., Ltd. 1,035 ENTECH ENC. Co., Ltd. 267 Incheon United Football Club 5 ￦ 1,510
Valuation from Available-For-Sale Securities Changes in gain and loss from available-for-sale securities recorded as other comprehensive income in 2008 and 2007 are as follows:
Valuation Gain on Available-For-Sale Securities (In millions of Balance at Valuation Included in Balance at Korean won) January 1, 2008 Amount Earnings December 31, 2008
Listed equities ￦ 8,913 ￦ (6,586) ￦ - ￦ 2,327 Deferred income taxes 2,125 ￦ 4,452
Valuation Loss on Available-For-Sale Securities (In millions of Balance at Valuation Included in Balance at Korean won) January 1, 2008 Amount Earnings December 31, 2008
Listed equities ￦ - ￦ 59 ￦ - ￦ 59 Deferred income taxes (13) ￦ 46
22 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
Valuation Gain on Available-For-Sale Securities (In millions of Balance at Valuation Included in Balance at Korean won) January 1, 2007 Amount Earnings December 31, 2007
Listed equities ￦ 3,613 ￦ 7,310 ￦ - ￦ 10,923 Deferred income taxes (2,010) ￦ 8,913
Valuation Loss on Available-For-Sale Securities (In millions of Balance at Valuation Included in Balance at Korean won) January 1, 2007 Amount Earnings December 31, 2007
Listed equities ￦ 1,949 ￦ (2,688) ￦ - ￦ (739) Deferred income taxes 739 ￦ -
7. Held-To-Maturity Securities
Held-to-maturity securities consist of government and public bonds. Details of held-to-maturity securities as of December 31, 2008 and 2007, are as follows:
(in millions of Korean won) 2008 2007 Acquisition Par Book Book Maturity Cost Value Value Value
Within a year ￦ 1,236 ￦ 1,236 ￦ 1,236 ￦ 2,814 Over 1 year and within 5 years 4,317 4,317 4,317 4,519 ￦ 5,553 ￦ 5,553 ￦ 5,553 ￦ 7,333
Interest income earned from held-to-maturity securities amounted to ￦207 million in 2008 (2007: ￦341 million).
23 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
8. Equity-Method Investments
Equity-method investments as of December 31, 2008 and 2007, are as follows:
(in millions of Korean won) 2008 Number of Net Shares Percentage Acquisition Asset Recorded Investee Owned of Ownership Cost Value Book Value
Samsung Engineering (Malaysia) SDN., BHD 2 250,000 100.00 ￦ 68 ￦ (167) ￦ - Samsung Ingenieria Mexico S.A. de C.V 2 148,500 99.66 18 (155) - Samsung Saudi Arabia Co., Ltd. 3,000 75.00 965 40,207 40,207 Samsung Engineering (Thailand) Co., Ltd. 2 82,500 33.00 277 (22,886) - Samsung Engineering Construction (Shanghai) Co., Ltd. - 100.00 1,006 4,460 4,460 Samsung Engineering Magyarorszag KFT - 100.00 13 4,247 4,247 Samsung Engineering Trinidad Co. 1 - 100.00 9 4,487 4,487 Samsung Ingenieria Minatitlan, S.A. De C.V. 1, 2 49,950 99.90 5 (1,612) - SETIS Co., Ltd. 1, 3 20,458 16.12 52 451 451 ￦ 2,413 ￦ 29,032 ￦ 53,852
1 The equity method is applied to the investments in Samsung Engineering Trinidad Co., Samsung Ingenieria Minatitlan, S.A de C.V and SETIS Co., Ltd. starting 2008 as each investee’s total assets were over ₩7 billion as of December 31, 2007. They were valued using cost method of accounting up to December 31, 2007.
2 The application of the equity method of accounting has been suspended as the Company’s share in the accumulated losses of the investee exceeded the costs of the investments.
3 The Company’s equity invest in SETIS Co., Ltd. is less than 20%. However, the equity method was applied as the Company can exert influence through its seat in the investee’s board of directors.
24 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
(in millions of Korean won) 2007 Number of Shares Percentage of Acquisition Net Recorded Investee Owned Ownership Cost Asset Value Book Value
Samsung Engineering (Malaysia) SDN., BHD 250,000 100.00 ￦ 68 ￦ (107) ￦ - Samsung Ingenieria Mexico S.A. de C.V 148,500 99.66 18 (52) - Samsung Saudi Arabia Co., Ltd. 3,000 75.00 965 6,908 6,908 Samsung Engineering (Thailand) Co., Ltd. 82,500 33.00 277 (19,583) - Samsung Engineering Construction (Shanghai) Co., Ltd. - 100.00 1,006 6,045 6,045 Samsung Engineering Magyarorszag KFT - 100.00 13 12,000 12,000 ￦ 2,347 ￦ 5,211 ￦ 24,953
Changes in the book values of equity-method investments in 2008 and 2007, are as follows:
(In millions of Korean won) 2008 Gain(Loss) on Valuation of Other Beginning Equity-Method Increase Ending Investee Balance Investments (Decrease) Balance
Samsung Engineering (Malaysia) SDN., BHD ￦ - ￦ - ￦ - ￦ - Samsung Ingenieria Mexico S.A. de C.V. - - - - Samsung Saudi Arabia Co., Ltd. 6,908 29,109 4,190 40,207 Samsung Engineering (Thailand) Co., Ltd. - - - - Samsung Engineering Construction (Shanghai) Co., Ltd. 6,045 4,537 (6,122) 4,460 Samsung Engineering Magyarorszag KFT 12,000 863 (8,616) 4,247 Samsung Engineering Trinidad Co. - 3,905 582 4,487 Samsung Ingenieria Minatitlan, S.A. De C.V. - (1) 1 -
SETIS Co., Ltd. 1,054 (603) 451
￦ 24,953 ￦ 39,467 ￦ (10,568) ￦ 53,852
25 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
(In millions of Korean won) 2007 Gain(Loss) on Valuation of Other Beginning Equity-Method Increase Ending Investee Balance Investments (Decrease) Balance
Samsung Engineering (Malaysia) SDN., BHD ￦ - ￦ - ￦ - ￦ - Samsung Ingenieria Mexico S.A. de C.V. - - - - Samsung Saudi Arabia Co., Ltd. 2,845 3,814 249 6,908 Samsung Engineering (Thailand) Co., Ltd. - - - - Samsung Engineering Construction (Shanghai) Co., Ltd. 8,229 6,638 (8,822) 6,045 Samsung Engineering Magyarorszag KFT - 16,410 (4,410) 12,000 ￦ 11,074 ￦ 26,862 ￦ (12,983) ￦ 24,953
26 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
Changes in gain and loss on valuation of equity-method investments recorded as other comprehensive income accounted for using the equity method in 2008 and 2007, are as follows:
(In millions of Korean won) 2008 Realized Beginning Valuation Valuation Deferred Ending Balance Gain/Loss Gain/Loss income tax Balance
Gain on valuation of equity-method investments (other comprehensive income) ￦ 768 ￦ 9,282 ￦ (107) ￦ (1,960) ￦ 7,983 Loss on valuation of equity-method investments (other comprehensive income) (365) 371 - (103) (97)
￦ 403 ￦ 9,653 ￦ (107) ￦ (2,063) ￦ 7,886
(In millions of Korean won) 2007 Realized Beginning Valuation Valuation Deferred Ending Balance Gain/Loss Gain/Loss income tax Balance
Gain on valuation of equity-method investments (other comprehensive income) ￦ - ￦ 1,059 ￦ - ￦ (291) ￦ 768 Loss on valuation of equity-method investments (other comprehensive income) (785) 615 - (195) (365)
￦ (785) ￦ 1,674 ￦ - ￦ (486) ￦ 403
27 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
As of December 31, 2008 and 2007, details of equity method investees whose financial statements were adjusted to reconcile their accounting policies with those of the Company’s, are as follows:
(In millions of Korean won) 2008 Net Asset Net Asset Before after Investee Adjustment Adjustment Adjustment
Samsung Engineering (Malaysia) SDN., BHD 1 ￦ (335) ￦ 168 ￦ (167) Samsung Engineering Construction (Shanghai) Co., Ltd. 1 8,740 (4,280) 4,460 Samsung Engineering Magyarorszag KFT 4,247 - 4,247 Samsung Engineering Trinidad Co. 1 5,753 (1,266) 4,487 Samsung Ingenieria Minatitlan, S.A. De C.V. 1 (1,579) (35) (1,614) SETIS Co., Ltd. 1 8,472 (5,674) 2,798
(In millions of Korean won) 2007 Net Asset Net Asset before after Investee Adjustment Adjustment Adjustment
Samsung Engineering (Malaysia) SDN., BHD 1 ￦ (269) ￦ 162 ￦ (107) Samsung Engineering Construction (Shanghai) Co., Ltd. 1 5,870 175 6,045 Samsung Engineering Magyarorszag KFT 1 17,209 (5,209) 12,000
1 The financial statements of the investees were adjusted to reconcile the accounting policies on revenue recognition of the Company.
28 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
As of December 31, 2008, details of investees from which the application of the equity method of accounting has been suspended, as the Company’s share in the accumulated losses of the investee exceeded the costs of the investments, are as follows:
Accumulative Recognized Unrecognized Acquisition Valuation Valuation Valuation (In millions of Korean won) Cost Losses Losses Losses
Samsung Engineering (Malaysia) SDN., BHD ￦ 68 ￦ (235) ￦ (68) ￦ (167) Samsung Ingenieria Mexico S.A. de C.V. 18 (173) (18) (155) Samsung Engineering (Thailand) Co., Ltd. 277 (23,163) (277) (22,886) Samsung Ingenieria Minatitlan, S.A. De C.V. 5 (1,617) (5) (1,612)
Summary of financial information of equity method investees is as follows:
(In millions of Korean won) 2008 Net Income Assets Liabilities Sales (Loss)
Samsung Engineering (Malaysia) SDN., BHD ￦ 678 ￦ 845 ￦ 2,566 ￦ 58 Samsung Ingenieria Mexico S.A. de C.V. 28 183 - (102) Samsung Saudi Arabia Co.,Ltd. 254,902 201,292 368,738 38,588 Samsung Engineering (Thailand) Co., Ltd. 34,704 104,055 54,971 (881) Samsung Engineering Construction (Shanghai) Co., Ltd. 17,568 13,108 28,300 4,581 Samsung Engineering Magyarorszag KFT 11,487 7,240 6,131 2,076 Samsung Engineering Trinidad Co. 16,487 12,000 41,701 3,635 Samsung Ingenieria Minatitlan, S.A. De C.V. 10,536 12,150 6,675 (1,826) SETIS Co., Ltd. 7,804 5,006 26,153 2,118
29 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
(In millions of Korean won) 2007 Net Income Assets Liabilities Sales (Loss)
Samsung Engineering (Malaysia) SDN., BHD ￦ 607 ￦ 715 ￦ 2,018 ￦ (6) Samsung Ingenieria Mexico S.A. de C.V. 121 173 24 (68) Samsung Saudi Arabia Co., Ltd. 169,761 160,552 251,953 5,085 Samsung Engineering (Thailand) Co., Ltd. 31,805 91,148 5,742 (5,175) Samsung Engineering Construction (Shanghai) Co., Ltd. 18,234 12,189 36,125 6,639 Samsung Engineering Magyarorszag KFT 22,831 10,831 57,654 10,229
9. Property, Plant and Equipment
Changes in property, plant and equipment as of December 31, 2008 and 2007, are as follows:
2008 (in millions of Furniture Construction Korean won) Land Buildings Structures Machinery Vehicles & Fixtures in Progress Total
Balance as of January 1, 2008 ￦ 51,950 ￦ 96,429 ￦ 103 ￦ 3,726 ￦ 612 ￦ 11,063 ￦ - ￦163,883 Acquisition - 1,163 - 4,478 783 8,966 17,294 32,684 Disposal -- - - (7) (89) - (96) Depreciation - (3,109) (6) (2,200) (562) (8,068) - (13,945) Balance as of December 31, 2008 ￦ 51,950 ￦ 94,483 ￦ 97 ￦ 6,004 ￦ 826 ￦ 11,872 ￦ 17,294 ￦ 182,526 Acquisition cost ￦ 51,950 ￦114,002 ￦ 132 ￦ 10,566 ￦ 4,016 ￦ 28,959 ￦ 17,294 ￦ 226,919 Accumulated Depreciation ￦ - ￦ 19,519 ￦ 35 ￦ 4,562 ￦ 3,190 ￦ 17,087 ￦ - ￦ 44,393
30 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
2007 (in millions of Furniture Korean won) Land Buildings Structures Machinery Vehicles & Fixtures Total
Balance as of January 1, 2007 ￦ 46,696 ￦ 90,651 ￦ 91 ￦ 1,904 ￦ 573 ￦ 6,889 ￦ 146,804 Acquisition 5,254 8,788 18 3,143 681 10,200 28,084 Disposal - - - - (1) (71) (72) Depreciation - (3,010) (6) (1,321) (641) (5,955) (10,933) Balance as of December 31, 2007 ￦ 51,950 ￦ 96,429 ￦ 103 ￦ 3,726 ￦ 612 ￦ 11,063 ￦ 163,883 Acquisition cost ￦ 51,950 ￦112,839 ￦ 132 ￦ 6,088 ￦ 3,566 ￦ 36,966 ￦ 211,541 Accumulated depreciation ￦ - ￦ 16,410 ￦ 29 ￦ 2,362 ￦ 2,954 ￦ 25,903 ￦ 47,658
As of December 31, 2008, buildings and furniture and fixtures are insured against fire and other casualty losses for up to ￦45,000 million (2007: ￦45,000 million) and ￦6,215 million (2007: ￦3,000 million), respectively. In addition, as of December 31, 2008, the Company maintains insurance policies for the performance of its construction work for up to ￦87,898 million and on its cargoes for up to ￦403,124 million.
As of December 31, 2008, the value of the Company’s land based on the posted price issued by the Korean tax authority was ￦87,298 million (2007: ￦79,992 million).
10. Intangible Assets
Changes in intangible assets as of December 31, 2008 and 2007, are as follows:
Software (in millions of Korean won) 2008 2007
Beginning balance ￦ 4,048 ￦ 3,730 Acquisition 2,479 3,101 Amortization (2,970) (2,783) Ending balance ￦ 3,557 ￦ 4,048 Acquisition cost ￦ 13,952 ￦ 11,473 Accumulated amortization ￦ 10,395 ￦ 7,425
Research and development costs charged to operations for the year ended December 31, 2008, are ￦1,176 million (2007: ￦885 million).
31 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
11. Accrued Severance Benefits
Changes in accrued severance benefits for the years ended December 31, 2008 and 2007, consist of the following:
(in millions of Korean won) 2008 2007
Beginning balance ￦ 47,567 ￦ 39,678 Increase 25,623 18,869 Payment 7,485 10,980 65,705 47,567 Less: Deposits to National Pension Fund (362) (380) Severance benefit insurance (14,215) (14,680) Pension plan assets (28,625) (19,801) Ending balance ￦ 22,503 ￦ 12,706
Pension plan assets as of December 31, 2008 and 2007, consist of the following:
(in millions of Korean won) 2008 2007
Cash and cash equivalents ￦ 2,799 ￦ 3,386 Short-term financial instruments 22,168 11,847 Available-for-sale securities 3,658 4,568
￦ 28,625 ￦ 19,801
12. Valuation of Assets and Liabilities at Present Value
Accrued expenses to executives and employees that are valued at present value as of December 31, 2008 (including current portions), are as follows:
(In millions of Korean won) Accounts Face Value Discount Present Value Maturity Discount rate
Accrued expenses to ￦ 3,212 ￦ - ￦ 3,212 December 31, 2008 5.21% executives and 1,777 95 1,682 December 31, 2009 6.02% employees 5,224 575 4,649 December 31, 2010 6.02% ￦ 10,213 ￦ 670 ￦ 9,543
32 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
13. Liability Provisions
Changes in material provisions in 2008 and 2007, are as follows:
Balance at Balance at (in millions of Korean won) Jan. 1, 2008 Increase Decrease Dec. 31, 2008
Provision for construction losses 1 ￦ 15,740 ￦ 39,900 ￦ (5,419) ￦ 50,221 Provision for construction warranties 2 8,649 9,008 (2,753) 14,904 Long-term incentives 3 13,628 6,711 (10,796) 9,543
Balance at Balance at (in millions of Korean won) Jan. 1, 2007 Increase Decrease Dec. 31, 2007
Provision for construction losses 1 ￦ 18,173 ￦ 3,520 ￦ (5,953) ￦ 15,740 Provision for construction warranties 2 10,337 2,452 (4,140) 8,649 Long-term incentives 3 6,044 7,750 (166) 13,628
1 The Company accrued provision for construction losses for the estimated losses of construction contracts.
2 The Company accrued provision for construction warranties for the estimated costs of future repairs, based on experience and the expectation of future repairs.
3 The Company introduced long-term incentive plans for its executives based on a three-year management performance criteria and has made a provision for the estimated incentive cost accruing for the period.
14. Commitments and Contingencies
(A) The Company pledged three blank notes and 26 notes with an aggregate face value of ￦113,414 million to customers as collateral for performance guarantees and construction warranties as of December 31, 2008.
(B) As of December 31, 2008, the Company has bank overdraft facilities with five Korean banks amounting to ￦20,800 million and a letter of credit facility agreement with five Korean banks with an aggregate credit limit of ￦25,000 million and USD 87 million.
(C) The Company has entered into foreign currency forward contracts to hedge the exposure to change into foreign exchange rates.
33 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
Details of foreign currency forwards outstanding as of December 31, 2008, which were entered into with banks, are as follows:
(Only Korean won in millions) Selling Buying Banks Currency Amount Currency Amount Forward rate
Korea Exchange Bank USD 26,192,466.48 EUR 18,664,565.40 1.4010 - 1.4183 Woori Bank USD 25,863,400.59 EUR 18,429,180.00 1.4015 - 1.4065 Calyon Bank USD 303,525.08 CHF 362,500.00 1.1943 USD 81,149,470.98 EUR 56,541,627.40 1.2485 - 1.5649 USD 5,000,578.44 GBP 2,598,000.00 1.8969 - 1.9349 USD 40,351,753.39 JPY 3,920,823,000.00 91.760 - 100.915 Citi Bank EUR 23,598,000.00 USD 36,310,848.00 1.5298 - 1.5709 USD 404,352.71 CHF 435,730.48 1.0776 USD 107,481,794.10 EUR 75,571,621.19 1.2584 - 1.5638 USD 16,587.68 GBP 11,071.00 1.4983 USD 10,733,445.86 JPY 1,027,945,143.00 93.68 - 103.64 Deutsche Bank KRW 375,777 EUR 269,500.00 1394.35 USD 10,705,846.26 EUR 7,170,536.00 1.4572 - 1.5154 USD 12,741,195.69 JPY 1,312,260,000.00 98.54 - 104.78 SC First Bank KRW 1,901,812 EUR 1,296,000.00 1373.30 - 1624.36 USD 32,507,289.03 EUR 22,985,613.40 1.3929 - 1.5487 USD 10,723,146.88 JPY 1,083,648,000.00 87.61 - 108.24 USD 1,202,678.31 SEK 7,360,000.00 6.0789 - 6.1610
As a result of the above foreign currency forward contracts, the Company recognized a foreign currency forwards transaction gain and loss of \8,943 million and \8,825 million, respectively, and the \19,662 million gain and \15,690 million loss on valuation of currency forward contracts are charged to current operations.
(D) 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 Samsung Group companies, 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 for loss of principal on loans extended to SMI, a separate amount for breach of the agreement, and an amount for default interest.
34 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
On January 31, 2008, Seoul Administrative Court made the ruling on this case. Under the ruling, Samsung Group affiliates were ordered to pay approximately ￦1,634 billion to the Creditors by disposing of 2,334,045 shares of Samsung Life Insurance Co., Ltd. (the “Shares”) donated by Mr. Lee, excluding 1,165,955 shares already sold by the Creditors. If the proceeds from sale of Shares are not sufficient to satisfy their obligations, Samsung Group affiliates were obligated to satisfy the shortfall by either participating in the Creditors’equity offering or purchasing subordinated debentures issued by the Creditors. In addition, Samsung Group affiliates were ordered to pay default interest on ￦1,634 billion at 6% per annum for the period from January 1, 2001, to the date of settlement.
The Company, other Samsung Group affiliates, Mr. Lee, and the Creditors all have appealed the ruling, and currently, the second trial for this case is pending at Seoul High Court. The ultimate outcome of this case can not be determined at this time. Since the amount of Company’s obligation is uncertain, the effects of this matter on the Company’s financial statements can not be reasonably determined.
(E) As of December 31, 2008, the Company is involved in two lawsuits as the defendant, excluding the Samsung Motors Inc. case mentioned above (D), amounting to approximately ￦6,023 million.
Company's management believes that although the outcome of these matters is uncertain, the outcome will not have a material adverse effect on the operations or financial position of the Company.
(F) As of December 31, 2008, short-term financial instruments amounting to ￦ 34,157 million were pledged as collaterals for guaranteeing of indebtedness. Long-term financial instruments amounting to ￦18 million were pledged as security for maintaining the Company’s checking accounts.
(G) As of December 31, 2008, the Company’s land amounting to ￦38,226 million has been provided as a collateral for the leasehold deposits with Kookmin Bank.
(H) As of December 31, 2008, Samsung Veolia Incheon Waste Water Co., Ltd. securities amounting to ￦7,181 million have been provided as collaterals for projects financed by Hana Bank, an agent of the creditor banks.
(I) As of December 31, 2008, Dongbu Environment Co., Ltd. securities amounting to ￦1,960 million have been provided as collaterals for projects financed by Kookmin Bank and Pusan Bank.
35 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
(J) As of December 31, 2008, the Company has been provided with guarantees in the amounts of ￦1,887,239 million, from various financial institutions in regard to construction contract performance, warranties and others.
(K) As of December 31, 2008, the Company has provided guarantees on the performance of joint project construction work jointly and severally with the other parties participating in the joint projects.
15. Engineering Contracts
Engineering and construction contract balances and related revenues recognized in 2008 and 2007, are as follows:
(in millions of Korean won) 2008 2007
Beginning balance ￦ 4,009,744 ￦ 2,015,782 Amendments 1,297,019 219,152 New contracts 2,631,017 3,652,971 7,937,780 5,887,905 Construction revenue 2,635,598 1,878,161 Ending balance ￦ 5,302,182 ￦ 4,009,744
The Company is responsible for contract performances and construction warranties related to the contracts. The Company has also been provided with guarantees by financial institutions with respect to the contracts (Notes 13 and 14).
The Company recognized ￦14,904 million (2007: ￦8,649 million) as a provision for construction warranties representing estimated costs of future repairs, as well as provision for construction losses amounting to ￦50,221 million (2007: ￦15,740 million) for the estimated losses of construction contracts (Note 13).
Details of the engineering and construction contracts outstanding as of December 31, 2008, are as follows:
Domestic Overseas (in millions of Korean won) contracts contracts Total
Cumulated construction cost ￦ 2,515,892 ￦ 2,920,668 ￦ 5,436,560 Cumulated construction income 398,848 597,372 996,220 Advances 112,608 346,608 459,216 Receivables 322,474 272,886 595,360 Billed amounts 182,980 247,218 430,198 Unbilled amounts 139,494 25,668 165,162
36 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
As of December 31, 2008, construction losses are estimated at ￦50,221 million (2007: ￦15,740 million), the details of which are as follows:
(in millions of Korean won) Expected Expected Construction Construction Expected Project Revenue Cost Loss
Construction of sinter facility of Hyundai-Steel ￦ 103,387 ￦ 132,377 ￦ 28,990 A9T9 ATM Project of Intel Co. 61,138 71,008 9,870 Construction of 4th section of Kyoungchun electric railway 18,691 26,782 8,091 Others 14,011 17,281 3,270 ￦ 197,227 ￦ 247,448 ￦ 50,221
The major joint-engineering projects as of December 31, 2008, are as follows:
(In millions of Korean won) Contract amount of the Share of the Contract Company’s Company Project amount Share (%) Lead Party
Yongin sewage treatment facility ￦ 467,209 ￦ 242,949 52.00% The Company Reclamation of land and appurtenant work in metropolitan area #3 195,461 150,505 77.00% The Company Pavement and expansion on four-lane road between Ulsan and Gangdong 203,223 94,677 46.59% The Company Construction of underground passage in Seongnam-Pankyo district 178,905 89,453 50.00% Pacific E&C Construction of office of Kyoung- Chun line railway 198,010 83,164 42.00% The Company Transfer of automobile inspection facility in Yongsan district 269,240 94,234 35.00% Samsung C&T Co.
37 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
16. Capital Stock
Under its Articles of Incorporation, the Company is authorized to issue 60,000 thousand shares with a par value of ￦5,000 per share, of which 3,500,000 shares are cumulative, participating preferred stock that are non-voting and entitled to a cash dividend approved by the Board of Directors, or a committee authorized by the Board of Directors, with a minimum cash dividend at 1% of par value. As of December 31, 2008, 40,000,000 shares of common stock are issued.
The Company is authorized, subject to the Board of Directors’ approval, to retire treasury stock in accordance with applicable laws up to the maximum amount of certain undistributed earnings.
In addition, the Company is authorized to issue to investors, other than current shareholders, convertible debentures and debentures with warrants with face values of up to ￦100 billion each. The convertible debentures amounting to ￦60 billion and ￦40 billion are assigned to common stock and preferred stock, respectively. The debentures with warrants amounting to ￦60 billion and ￦40 billion are likewise assigned to common stock and preferred stock, respectively. As of December 31, 2008, there is no outstanding preferred stock or debenture issued on these terms.
The Company is also authorized, subject to the Board of Directors’ approval, to issue shares of common or preferred stock to investors other than current shareholders for exercise of stock option, general public subscription, urgent financing with financial institutions, and strategic alliance up to 30% of number of shares authorized.
The Company has a stock option plan under which options to purchase shares of common stock may be granted to key employees or directors who have contributed or are expected to contribute to the management and technological innovation of the Company. There are 70,200 shares of stock options granted and outstanding as of December 31, 2008 (Note 20).
38 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
17. Retained Earnings
Retained earnings as of December 31, 2008 and 2007, consist of the following:
(in millions of Korean won) 2008 2007 Appropriated Legal Reserve ￦ 35,000 ￦ 19,000 Discretionary Reserve Reserve for research and human resource development 117,000 75,000 Reserve for investment 102,500 52,500 Reserve for loss on disposal of treasury stock 2,000 2,000 256,500 148,500 Unappropriated 190,093 156,586
￦ 446,593 ￦ 305,086
Legal Reserve The Commercial Code of the Republic of Korea requires the Company to appropriate as a legal reserve, an amount equal to a minimum of 10% of annual cash dividends declared, until the reserve equals 50% of its issued capital stock. The reserve is not available for the payment of cash dividends, but may be transferred to capital stock by the resolution of the Board of Directors or used to reduce accumulated deficit, if any, with the ratification of the shareholders.
Reserve under the Special Tax Treatment Control Law The Company appropriates a certain portion of its retained earnings as a reserve for research and human resource development under the Special Tax Treatment Control Law. This reserve may be transferred to discretionary reserve and distributed as dividends.
The Company declared year-end cash dividends to shareholders of common stock for the years ended December 31, 2008 and 2007.
2008 2007
Number of shares eligible for dividends: Common stock 37,906 thousand 38,712 thousand Dividend rate 30% 24% Dividend amount ￦ 56,859 million ￦ 46,454 million Dividend payout ratio (Dividends/Net income) 30.18% 29.98% Dividend yield ratio (Dividend per share/Market price) 3.45% 1.28%
39 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
18. Treasury Stock
As of December 31, 2008, the Company holds 2,094,238 common shares purchased at the market price, including 1,000,000 common shares purchased on the Korean Stock Exchange in 2008, recorded as treasury stock under the capital adjustment account. The Company intends to distribute the treasury shares upon exercise of stock options or to dispose of depending on the market conditions.
19. Accumulated Other Comprehensive Income
Accumulated other comprehensive income as of December 31, 2008 and 2007, consists of the following:
(in millions of Korean won) 2008 2007
Gain on valuation of available-for-sale securities (Note 6) ￦ 4,452 ￦ 8,913 Loss on valuation of available-for-sale securities (Note 6) (46) - Gain on valuation of equity method investments (Note 8) 7,983 768 Loss on valuation of equity method investments (Note 8) (97) (365)
￦ 12,292 ￦ 9,316
20. Share-Based Payments
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.
Details of stock options granted follow:
Date of the Grant March 17, March 5, February 28, February 28, February 27, 2000 2001 2002 2003 2004
Shares granted 240,000 300,000 66,000 55,000 75,000 Exercise price 1 ￦ 6,300 ￦ 5,000 ￦ 5,200 ￦ 5,000 ￦ 5,200 Exercise period from the date of the grant 2 3~10 years 3~10 years 2~10 years 2~10 years 2~10 years
40 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
1 The exercise price can be adjusted in the case of the issuance of new shares, stock dividends, stock splits, or stock mergers. Shares to be issued for stock options are nominative common stocks and the shares will be granted through issuance of shares or distribution of treasury shares.
2 The options will be fully vested after two years of continuous employment from the date of grant.
The fair value of each option grant was estimated using the Black-Scholes option-pricing model based on the date of the grant using the following assumptions:
Date of the Grant March 17, March 5, February 28, February 28, February 27, 2000 2001 2002 2003 2004
Risk-free interest rates 9.33% 6.31% 6.63% 4.99% 5.33% Expected stock price volatility 10.9292% 10.0452% 5.8349% 5.9953% 4.2721% Expected life 4 years 4 years 6 years 8 years 8 years Expected dividend yield - - -- -
Changes in stock options in 2008 and 2007 are as follows:
2008 2007 Weighted-avg. Stock Weighted-avg. Stock Options Exercise Price Options Exercise Price
Beginning 264,200 ￦ 5,684 418,400 ￦ 5,550 Grant - - -- Forfeiture - - -- Exercise (194,000) 5,888 (154,200) 5,338 Ending 70,200 ￦ 5,119 264,200 ￦ 5,684
The weighted-average market price per share measured on the exercise date is ￦76,571 and the weighted-average remaining period, from December 31, 2008 to expiration, is 4.05 years
The company had fully recognized the compensation expenses of stock options prior to January 1, 2008.
41 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
21. Monetary Assets and Liabilities Denominated in Foreign Currencies
As of December 31, 2008 and 2007, assets and liabilities dominated in foreign currencies and related gains and losses on foreign currency translation for the year ended December 31, 2008, are as follows:
(Only Korean won in millions) 2008 2007 Foreign Korean won Translation Translation Korean won Account Currencies Equivalent Loss Gain Equivalent
Cash and AED 8,247,367 ￦ 2,823 ￦ 1 ￦ 2,682 ￦ - cash equivalents EUR 8,866 16 4 - 14,286 INR 342,606,581 8,980 431 632 45 SKK 60,239,408 3,540 132 1,805 - THB 793,416,761 28,650 1,052 3,545 - USD 22,579,282 28,393 185 166 55,044 others 213 - 2 41 72,615 1,805 8,832 69,416
Short-term financial THB 72,364,000 2,613 - 379 - instruments 2,613 - 379 -
Trade accounts INR 469,215,950 12,298 710 147 62 and notes SKK - - - - 9,372 receivable THB 776,830,068 28,051 3,722 - 30,974 USD 152,446,901 191,702 19,831 2,251 164,853 others 5,651 363 91 1,563 237,702 24,626 2,489 206,824
Other accounts MYR 2,000,000 723 - 151 566 and notes USD 3,170,150 3,986 48 781 - receivable others 1,595 71 22 131 6,304 119 954 697
Other assets USD 11,659,266 14,662 119 2,928 5,045 others 226 16 27 66 14,888 135 2,955 5,111
42 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
(Only Korean won in millions) 2008 2007 Foreign Korean won Translation Translation Korean won Account Currencies Equivalent Loss Gain Equivalent
Trade accounts EUR 12,347,790 ￦ 21,932 ￦ 1 ￦ 830 ￦ 15,514 and notes INR 509,918,088 13,365 75 984 4,122 payable JPY 644,787,465 8,988 - 601 318 THB 392,054,564 14,157 3 736 53 USD 109,326,420 137,478 7,592 10,019 56,348 others 2,002 1 301 5,080 197,922 7,672 13,471 81,435
Other accounts USD 8,393,425 10,555 1,621 672 6,642 and notes payable others 693 90 31 206 11,248 1,711 703 6,848
Accrued expenses THB 9,599,507 347 177 3 - 347 177 3 -
Other long-term SKK 1,287,688 76 2 3 6,867 liabilities THB 57,000,246 2,058 73 104 - others 2,537 137 140 238 4,671 212 247 7,105
Total ￦ 36,457 ￦ 30,033
43 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
22. Income Tax
The statutory income tax rate applicable to the Company, including resident surtax, is 27.5%.
Income tax expense for the years ended December 31, 2008 and 2007, consists of the following:
(in millions of Korean won) 2008 2007
Current income taxes ￦ 63,900 ￦ 47,921 Deferred income taxes (2,154) 6,385 Items charged directly to shareholders’ equity 208 (3,081) Income tax expenses ￦ 61,954 ￦ 51,225
The following table reconciles the expected amount of income tax expense based on statutory rates to the actual amount of taxes recorded by the Company for the years ended December 31, 2008 and 2007.
(in millions of Korean won) 2008 2007
Income before tax ￦ 250,323 ￦ 206,186 Statutory tax rate 27.5% 27.5% Expected taxes at statutory rate 68,839 56,701 Tax credit (6,734) (6,936) Changes in tax rates 915 - Others, net (1,066) 1,460 Actual taxes ￦ 61,954 ￦ 51,225
Effective tax rate 24.75% 24.84%
44 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
Deferred income tax assets and liabilities from the tax effects of temporary differences as of December 31, 2008 and 2007, are as follows:
2008 Temporary differences Deferred income tax assets (liabilities) Beginning Increase Ending Beginning Increase Ending (in millions of Korean won) Balance (Decrease) Balance Balance (Decrease) Balance
Deferred tax arising from temporary differences Accrued income ￦ (9,326) ￦ (3,409) ￦ (12,735) ￦ (2,565) ￦ (517) ￦ (3,082) Reserve for technology developments (17,667) 3,000 (14,667) (4,858) 1,492 (3,366) Severance insurance deposits (30,539) (11,807) (42,346) (8,398) (918) (9,316) Capitalized interest expenses (4,312) 124 (4,188) (1,186) 262 (924) Equity method investments (22,291) (19,996) (42,287) (6,130) (3,173) (9,303) Reserve for loss on disposal of treasury stock (506) 506 - (139) 139 - Severance benefits 30,539 11,807 42,346 8,398 918 9,316 Impairment loss on investment securities 1,788 707 2,495 492 57 549 Deemed dividends 2,125 - 2,125 584 (117) 467 Bad debt allowances 12,700 2,391 15,091 3,493 149 3,642 Provision for construction losses 15,740 34,481 50,221 4,329 6,720 11,049 Provision for construction warranties 8,649 6,255 14,904 2,378 900 3,278 Gain on valuation of derivatives (7,071) (1,738) (8,809) (1,944) (187) (2,131) Governments grants 3,140 920 4,060 864 30 894 Long-term incentives 13,793 (3,580) 10,213 3,793 (1,546) 2,247 Foreign exchange translation - (8,404) (8,404) - (2,034) (2,034) Others 395 (494) (99) 107 (130) (23) (2,843) 10,763 7,920 (782) 2,045 1,263 Items charged directly to shareholders’ equity (12,885) (2,901) (15,786) (3,543) 70 (3,473) ￦ (15,728) ￦ 7,862 ￦ (7,866) ￦ (4,325) ￦ 2,115 (2,210)
Valuation allowance for deferred tax assets and liabilities (20) ￦ (2,230)
45 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
2007 Temporary differences Deferred income tax assets (liabilities) Beginning Increase Ending Beginning Increase Ending (in millions of Korean won) Balance (Decrease) Balance Balance (Decrease) Balance
Deferred tax arising from temporary differences Accrued income ￦ (8,833) ￦ (493) ￦ (9,326) ￦ (2,429) ￦ (136) ￦ (2,565) Reserve for technology developments (15,671) (1,996) (17,667) (4,309) (549) (4,858) Severance insurance deposits (23,369) (7,170) (30,539) (6,426) (1,972) (8,398) Capitalized interest expenses (4,436) 124 (4,312) (1,220) 34 (1,186) Equity method investments (10,101) (12,190) (22,291) (2,778) (3,352) (6,130) Reserve for loss on disposal of treasury stock (1,172) 666 (506) (322) 183 (139) Severance benefits 23,369 7,170 30,539 6,426 1,972 8,398 Impairment loss on investment securities 1,788 - 1,788 492 - 492 Deemed dividends 2,125 - 2,125 584 - 584 Bad debt allowances 14,573 (1,873) 12,700 4,008 (515) 3,493 Provision for construction losses 18,172 (2,432) 15,740 4,997 (668) 4,329 Provision for construction warranties 10,337 (1,688) 8,649 2,843 (465) 2,378 Gain on valuation of derivatives 186 (7,257) (7,071) 51 (1,995) (1,944) Goverments grants 1,636 1,504 3,140 450 413 863 Long-term incentives 6,600 7,192 13,792 1,815 1,978 3,793 Others (89) 485 396 (25) 133 108 15,115 (17,958) (2,843) 4,157 (4,939) (782) Items charged directly to shareholders’ equity (1,212) (11,673) (12,885) (333) (3,210) (3,543) ￦ 13,903 ￦ (29,631) ￦ (15,728) ￦ 3,824 ￦ (8,149) (4,325) Valuation allowance for deferred tax assets and liabilities (24) ￦ (4,349)
The gross balances of deferred tax assets and liabilities are as follows:
2008 Deferred Tax Deferred Tax (in millions of Korean won) Assets Liabilities
Current ￦ 14,589 ￦ (8,780) Non - current 16,989 (25,028)
Deferred tax assets and liabilities are computed based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities by applying enacted tax rates in effect in the years in which the differences are expected to reverse. The enacted income tax rates are 24.2% and 22% for 2009 and thereafter, respectively. Accordingly, deferred tax assets as of December 31, 2008, decreased by ￦41 million compared to the amount computed at statutory income tax rate of 27.5% for 2008.
46 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
The Company periodically assesses its ability to realize deferred income tax asset. In the event of significant regarding the Company’s ultimate ability to realize such assets, a valuation allowance is recorded to reduce the assets to their estimated realizable value.
Deferred income taxes charged directly to the shareholders’ equity as of December 31, 2008, are as follows:
2008 2007 Income Tax Income Tax Expenses Expenses (in millions of Korean won) Amount (Deferred Tax) Amount (Deferred Tax)
Loss on disposal of treasury stock ￦ (482) ￦ (133) ￦ (562) ￦ (155) Loss on valuation of available-for-sale Securities (6,645) (2,138) 9,998 2,750 Gain on valuation of equity-method Investments 9,546 2,063 1,675 486
23. Earnings Per Share
Earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the year.
Basic Earnings Per Share Basic earnings per share for the years ended December 31, 2008 and 2007, are calculated as follows:
(in millions of Korean won, except per share amounts) 2008 2007
Net income attributable to common stocks ￦ 188,369 ￦ 154,961 Weighted average number of common stocks outstanding 38,246,534 38,814,257
Basic earnings per share (in Korean won) ￦ 4,925 ￦ 3,992
47 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
Diluted Earnings Per Share Diluted earnings per share for the years ended December 31, 2008 and 2007, are calculated as follows:
(in millions of Korean won, except per share amounts) 2008 2007
Net income available for common stock ￦ 188,369 ￦ 154,961 Adjustment Compensation expense for stock options - - Net income available for common stock and common equivalent shares 188,369 154,961 Weighted-average number of shares of common stock and common equivalent 1 shares outstanding 38,311,955 39,060,970
Diluted earnings per share (in Korean won) ￦ 4,917 ￦ 3,967
1 Common equivalent shares:
2008 Common Stock Number of Shares Weight Equivalent
Stock options 65,421 365/365 65,421
2007 Common Stock Number of Shares Weight Equivalent
Stock options 246,713 365/365 246,713
The number of dilutive shares of outstanding stock options is calculated by applying the treasury stock method.
Under the treasury stock method, the proceeds from the exercise of the stock options are assumed to be used to purchase common stock at the average market price. The incremental number of shares which is the difference between the number of shares assumed to be issued and the number of shares assumed to be purchased, is included in the denominator in calculating diluted earnings per share.
48 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
24. Comprehensive Income
Comprehensive income for the years ended December 31, 2008 and 2007, consists of:
(in millions of Korean won) 2008 2007
Net income ￦ 188,369 ￦ 154,961 Other comprehensive income Gain on valuation of available-for-sale securities, net of related income taxes of (-)￦2,125 million (2007: ￦2,010 million) (4,461) 5,300 Loss on valuation of available-for-sale securities, net of related income taxes of (-)￦13 million (2007: ￦739 million) (46) 1,949 Gain on valuation of equity-method investments, net of related income taxes of ￦1,960 million (2007: ￦291 million) 7,215 768 Loss on valuation of equity-method investments, net of related income taxes of ￦103 million (2007: ￦195 million) 268 420 Comprehensive income ￦ 191,345 ￦ 163,398
25. Related Party Transactions
Consolidated subsidiaries as of December 31, 2008, are as follows:
Subsidiaries
Samsung Engineering(Malaysia) SDN., BHD Samsung Ingenieria Mexico, S.A. de C.V. Samsung Saudi Arabia Co., Ltd. Samsung Engineering Construction (Shanghai)Co., Ltd. Samsung Ingenieria Minatitlan,S.A. De C.V. Samsung Engineering India Private Ltd. 1 PT Samsung Engineering Indonesia1 SECL Philippines., Inc. 1 Samsung Engineering Magyarorszag KFT Samsung Engineering Trinidad Co., Ltd. Samsung Engineering Tampico, S.A. De C.V. 1 Grupo Samsung Ingenieria Mexico Sa De C.V. 1 Samsung Ingenieria Manzanillo, S.A. De C.V. 1 Samsung Engineering America Inc. 1 Samsung Engineering Kazakhstan LLP1
49 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
1 The Company’s percentage of ownership exceeds 20%. However, the equity method was not applied as the change in equity of investee is not material to the Company’s financial statement.
Significant transactions with related parties for the years ended December 31, 2008 and 2007, and the related receivables and payables as of December 31, 2008 and 2007, are as follows:
(in millions of Korean won) 2008 Sales Purchases Receivables Payables
Subsidiaries Samsung Saudi Arabia Co., Ltd. ￦ 76 ￦ - ￦ 692 ￦ - Samsung Engineering India Private Ltd. - 9,182 - - Samsung Engineering Construction (Shanghai)Co., Ltd. - 848 - 171 Samsung Ingenieria Manzanillo, S.A.De C.V. 26,169 - - 23,518 ￦ 26,245 ￦ 10,030 ￦ 692 ￦ 23,689 Equity Method Investee SETIS Co. Ltd. ￦ - ￦ 41 ￦ - ￦ -
(in millions of Korean won) 2007 Sales Purchases Receivables Payables
Subsidiaries Samsung Ingenieria Minatitlan S.A. De C.V. ￦ 15,305 ￦ - ￦ 5,600 ￦ - Samsung Engineering India Private Ltd. - 5,364 - 25 ￦ 15,305 ￦ 5,364 ￦ 5,600 ￦ 25 Equity Method Investee Samsung Engineering(Thailand) Co., Ltd. ￦ - ￦ 2,456 ￦ - ￦ -
The Company recognized in the balance sheet as of December 31, 2008, ￦616 million (2007: ￦8,715 million) as trade accounts and notes receivable from related parties based on the percentage-of-completion method. This amount is not included in the receivable balances from each related party above.
A portion of the accrued severance benefits of the Company are funded through a group severance insurance plan and a pension plan assets with Samsung Life Insurance Co., Ltd.
The Company also insured its buildings, and furniture and fixtures against fire and other casualty losses with Samsung Fire & Marine Insurance Co., Ltd. in 2008 and 2007.
50 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
Key Management Compensation For the year ended December 31, 2008, the Company recognized expenses for short-term benefits of ￦15,037 million (2007: ￦12,249 million), long-term benefits of ￦6,519 million (2007: ￦7,354 million) and severance benefits of ￦1,908 million (2007: ￦2,304 million) as key management compensation. Key management consists of registered executive officers who have the authority and responsibility in the planning, directing and controlling of Company operations.
Details of guarantees the Company provided to related parties as of December 31, 2008 and 2007, are as follows:
(in thousands of US dollars) 2008 Guaranteed Type of Guarantee Maturity Amount Related Company Samsung Saudi Arabia Ltd Guarantees of indebtness May 31, 2009 $ 3,600 Samsung Ingenieria Minatitlan, S.A de C.V Guarantees of indebtness July 11, 2009 10,000 Samsung Engineering (Malaysia) SDN., BHD Guarantees of indebtness January 3, 2010 500 Samsung Ingenieria Manzanillo S.A de C.V Guarantees of indebtness August 4, 2009 10,000 Samsung Ingenieria Manzanillo S.A de C.V Guarantees of indebtness August 31, 2011 29,000 $ 53,100
(in thousands of US dollars) 2007 Guaranteed Type of Guarantee Maturity Amount Related Company Samsung Saudi Arabia Co., Ltd. Guarantees of indebtness May 31, 2008 $ 6,000 Samsung Ingenieria Minatitlan, S.A de C.V Guarantees of indebtness July 11, 2008 10,000 Samsung Engineering(Malaysia) SDN.,BHD Guarantees of indebtness January 3, 2008 500 $ 16,500
51 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
26. Supplemental Cash Flow Information
Significant transactions not affecting cash flows are as follows:
(in millions of Korean won) 2008 2007
Write off trade receivables ￦ 4,227 ￦ - Current maturities of other long-term liabilities - 185 Current maturities of held-to-maturity securities 1,236 3,086 Reclassification of available-for-sale securities to equity-method investments 171 13 Current maturities of long-term accounts payables 2,463 11,037 Reclassification of severance insurance deposits to pension plan assets - 14,710 Loss on disposal of treasury stock 482 562 Decrease(Increase) in gain on valuation of available-for-sale securities 4,461 (5,300) Decrease(Increase) in loss on valuation of available-for-sale securities (46) 1,949 Gain on valuation of equity-method investments (other comprehensive income) 7,215 768 Increase in loss on valuation of equity-method investments (other comprehensive income) 268 420
27. Segment Information
The Company has three reportable operating segments. General information on segments of the Company as of December 31, 2008, is as follows:
Line Products Major Customers
Hydrocarbon Petrochemical, Oil& Saudi Ethylene&Polyethylene Corp., plants Refinery, Gas and others S-Oil Corporation. Environmental Environmental infrastructure Environmental Management Corp., facilities and others Yong-in Clean Water Co., Ltd. Industrial plants Industrial plants and others Hankook tire Co., Ltd., Samsung SDI Co., Ltd.
52 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
Financial information by segments as of December 31, 2008 and 2007, is as follows:
2008 Hydrocarbon Environmental Industrial (in millions of Korean won) Plants Facilities Plants Total
Sales ￦ 1,750,035 ￦ 502,018 ￦ 383,545 ￦ 2,635,598 Operating income 86,241 24,739 18,901 129,881 Property, plant and equipment, and intangible assets 1 186,083 - - 186,083 Depreciation and amortization 1 16,915 - - 16,915
2007 Hydrocarbon Environmental Industrial (in millions of Korean won) Plants Facilities Plants Total
Sales ￦ 1,121,871 ￦ 439,810 ￦ 316,480 ￦ 1,878,161 Operating income 75,645 29,655 21,339 126,639 Property, plant and equipment, and intangible assets 1 167,931 - - 167,931 Depreciation and amortization 1 13,715 - - 13,715
1 Property, plant and equipment, intangible assets, depreciation and amortization could not be segregated into the environmental facilities and industrial plants. Accordingly, these are included in the hydrocarbon plants segment.
The Company conducts business globally and is managed geographically. The following tables provide information for each geographical segment as of and for the years ended December 31, 2008 and 2007.
2008 Southeast The Middle East (in millions of Korean won) Domestic China Asia Europe and others Total
Segment revenue ￦ 881,279 ￦ 7,770 ￦672,060 ￦ 29,141 ￦ 1,045,348 ￦2,635,598 Operating income 43,429 383 33,119 1,436 51,514 129,881 Property, plant and equipment, and intangible assets 1 186,083 - - - - 186,083 Depreciation and amortization 1 16,915 - - - - 16,915
53 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
2007 Southeast The Middle East (in millions of Korean won) Domestic China Asia Europe and others Total
Segment revenue ￦ 887,634 ￦ 6,895 ￦123,143 ￦ 83,513 ￦ 776,976 ￦1,878,161 Operating income 59,851 465 8,303 5,631 52,389 126,639 Property, plant and equipment, and intangible assets 1 167,931 - - - - 167,931 Depreciation and amortization 1 13,715 - - - - 13,715
1 Property, plant and equipment, intangible assets, depreciation and amortization could not be segregated into segment geographically. Accordingly, these are included in the domestic segment.
28. Selling and Administrative Expenses
Detailed selling and administrative expenses in 2008 and 2007 are as follows:
(in millions of Korean won) 2008 2007
Salaries and wages ￦ 121,509 ￦ 102,884 Commissions and fees 18,635 15,795 Employee fringe benefits 16,595 14,711 Subcontractor payment 16,097 11,468 Depreciation 13,022 10,933 Provision for severance benefits 11,339 10,197 Travel 10,180 7,624 Training 8,577 8,575 Rent 6,924 2,613 Miscellaneous expenses 6,242 4,788 Bad debts expense 5,961 - Utility expenses 3,665 1,568 Conference expense 3,197 2,568 Amortization 2,970 2,783 Taxes and dues 2,874 7,785 Event 2,861 2,582 Communication expenses 2,426 1,878 Research and development expense 1,176 885 Others 8,352 8,229 ￦ 262,602 ￦ 217,866
54 Samsung Engineering Co., Ltd. Notes to the Non-Consolidated Financial Statements December 31, 2008 and 2007
29. Supplementary Information for Computation of Value Added
The accounts and amounts needed for the computation of value added for the years ended December 31, 2008 and 2007, are as follows:
Selling and (in millions of Korean won) Administrative Expenses Cost of Sales Total 2008 2007 2008 2007 2008 2007
Salaries and wages ￦ 121,509 ￦102,884 ￦156,464 ￦ 89,714 ￦277,973 ￦192,598 Severance benefits 11,339 10,197 14,284 8,672 25,623 18,869 Employee fringe benefits 16,595 14,711 16,661 10,678 33,256 25,389 Rent 6,924 2,613 5,774 2,745 12,698 5,358 Depreciation 13,022 10,933 923 - 13,945 10,933 Amortization 2,970 2,783 - - 2,970 2,783 Taxesanddues 2,874 7,785 1,925 1,474 4,799 9,259
30. Interim Period Information
Financial information for the three-month periods ended December 31, 2008 and 2007, are as follows:
(in millions of Korean won, except per share amounts) 2008 2007
Sales ￦ 814,861 ￦ 559,088 Operating income 24,783 28,458 Net income 33,418 40,102 Basic earnings per share (in Korean won) 882 1,037
55 Report of Independent Accountants’ Review of Internal Accounting Control System
To the President of Samsung Engineering Co., Ltd.
We have reviewed the accompanying management’s report on the operations of the Internal Accounting Control System (“IACS”) of Samsung Engineering Co., Ltd. (the “Company”) as of December 31, 2008. The Company’s management is responsible for designing and operating IACS and for its assessment of the effectiveness of IACS. Our responsibility is to review the management’s report on the operations of the IACS and issue a report based on our review. The management’s report on the operations of the IACS of the Company states that “based on its assessment of the operations of the IACS as of December 31, 2008, the Company’s IACS has been designed and is operating effectively as of December 31, 2008, in all material respects, in accordance with the IACS standards established by the Internal Accounting Control System Operations Committee (IACSOC) of the Korea Listed Companies Association.”
Our review was conducted in accordance with the IACS review standards established by the Korean Institute of Certified Public Accountants. Those standards require that we plan and perform, in all material respects, the review of management’s report on the operations of the IACS to obtain a lower level of assurance than an audit. A review is to obtain an understanding of a company’s IACS and consists principally of inquiries of management and, when deemed necessary, a limited inspection of underlying documents, which is substantially less in scope than an audit.
A company’s IACS is a system to monitor and operate those policies and procedures designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the Republic of Korea. Because of its inherent limitations, IACS may not prevent or detect a material misstatement of the financial statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Based on our review, nothing has come to our attention that causes us to believe that management’s report on the operations of the IACS, referred to above, is not presented fairly, in all material respects, in accordance with the IACS standards established by IACSOC.
Our review is based on the Company’s IACS as of December 31, 2008, and we did not review management’s assessment of its IACS subsequent to December 31, 2008. This report has been prepared pursuant to the Acts on External Audit for Stock Companies in Korea and may not be appropriate for other purposes or for other users.
Samil PricewaterhouseCoopers February 16, 2009
56 Report on the Operations of the Internal Accounting Control System
To the Board of Directors and Audit Committee of Samsung Engineering Co., Ltd.
I, as the Internal Accounting Control Officer (“IACO”) of Samsung Engineering Co., Ltd. (“the Company”), assessed the status of the design and operations of the Company’s internal accounting control system (“IACS”) for the year ended December 31, 2008.
The Company’s management including the IACO is responsible for designing and operating the IACS. I, as the IACO, assessed whether the IACS has been effectively designed and is operating to prevent and detect any error or fraud which may cause misstatements to the financial statements, for the purpose of establishing the reliability of financial reporting and the preparation of financial statements for external purposes. I, as the IACO, applied the IACS standards to assess the design and operations of the IACS.
Based on the assessment on the operations of the IACS, in all material respects, the design and operations of the Company’s IACS were effective as of December 31, 2008, in accordance with the IACS standards.
January 22, 2009
Sohn Byungbok Internal Accounting Control System Officer
Jung Yeon-Joo Chief Executive Officer and President
57