Digital LG 3 / Financial Highlights 4 / Message to Our Shareholders 6 / LGE Vision 8 /
LGE Strategy 10 / LGE Innovation 11 / Business Overview 16 / Economic Overview 18 /
Industry Overview 19 / Digital Display Company 20 / Digital Appliance Company 22 / Digital
Media Company 24 / Digital Handset Company 26 / Digital System Company 28 / Digital
Network Company 29 / Management's Discussion & Analysis 30 / LGE Network 76 /
Management & Board of Directors 78 / LGE Chronology 79 / Corporate Information 80 /
Shareholder Information 81 / Glossary 82
Since its establishment in 1958, LG Electronics (LGE) has been a consistent leader in the
Korean electronics industry. The Company's innovative steps and practical technology
have enabled LGE to grow into a world-renown electronics manufacturer.
In 2000, LGE operated six companies: Digital Display, Digital Appliance, Digital Media,
Digital System, Digital Handset and Network. Each company has been managed
autonomously based on a flexible decision making system. With more than 70
subsidiaries in 40 countries and a worldwide marketing network, LGE's operations reach
every corner of the globe.
LGE's strength derives from its diverse leading-edge products which include home
appliances, PC-related multimedia products and electronic products. Telecommunication
products such as handsets, mobile telecommunication systems and network systems are
also examples of internationally acclaimed LGE products.
2000 was especially meaningful for LGE in light of a merger with LG Information and
Communication. LGE's stronghold in the field of electronics was complimented by
LGIC's expertise in telecommunication systems creating a powerful synergistic effect.
As we enter the digital era, LGE aims to push itself to the global forefront as a digital
l e a d e r. To this end, LGE will concentrate its operations on global competitiveness,
particularly with regard to digital TVs, PDPs, and IMT 2000 systems.
Digital LG
3
Financial Highlights
2000
Balance Sheet
Total assets
Trade accounts & notes receivable
Inventories
Property, plant & equipment
Investments
Other
Total liabilities
Short-term borrowings
Current maturities of long-term debt
Trade accounts & notes receivable
Other current liabilities
Debentures
Long-term debt
Other non-current liabilities
Total shareholders’ equity
Capital stock
Capital surplus
Retained earnings
Capital adjustments
1998
8,710
634
441
2,826
2,564
2,245
6,876
507
1,381
741
694
2,562
573
418
1,834
632
879
302
21
1999
9,092
481
550
2,726
4,120
1,215
5,906
130
1,366
981
1,495
1,399
398
137
3,186
632
863
1,441
250
2000
11,880
800
1,192
3,337
4,211
2,340
7,872
658
1,664
1,391
1,583
1,848
543
185
4,008
1,031
2,355
1,674
(1,052)
35.5 30.1 34.4
1999 41.3 29.7 29.0
1998 43.6 30.6 25.8
According to the sum of sales of the Digital Display Company, the Digital Appliance
Company, and the Digital Media Company, the Digital Display Company has exhibited a
decreasing share in total sales since 1998, while those of the Digital Media Company have
increased. The main reasons for this trend are the slowdown of the Digital Display Company’s
CRT sales and growth of the Digital Media Company’s optical storage.
In billions of Korean won
4
In percent
9,853
10,546
14,836
Sales
1998 1999 2000
LGE’s total sales in 2000amounted to W14,836 billion,increases of 40.7% and50.6% from 1999 and 1998,respectively.
1998 1999 2000
1.3%
22.5%
4.8%
79.9%
14.0%
ROA
1998 1999 2000
Return on assets was 4.8% in2000, 22.5% in 1999, 1.3% in1998. Excluding asset sales,ROA amounted to 4.9% in2000, a significantimprovement from 3.7% in1999.
ROE
Return on equity was 14.0% in2000, 79.9% in 1999 and 6.7%in 1998. Without considerationfor asset sales, ROE lowered to18.2% in 2000, following an19.4% in 1999.
8,7109,092
11,880
6,876
5,906
7,872
1,834
3,186
4,008
Assets
1998 1999 2000
Total assets in 2000 wereW11,880 billion, a 30.7%increase from 1999. Notaccounting for assetsgenerated through themerger of LGIC, totalassets increased 15.8%.
Liabilities
The total of current andlong-term liabilities in 2000was W7,872 billion, a 33.3%increase from 1999.
Shareholders’ Equity
1998 1999 2000
Shareholders’ equityincreased to W4,008 billionin 2000 through capitalincreases generated bythe LGIC share exchange program, the issuance ofredeemable preferredstocks, and a net income ofW502 billion.
1998 1999 2000
Statements of Income
Sales
Cost of sales
Gross profit
Selling & administrative expenses
Operating profit
Non-operating income
Non-operating expenses
Ordinary profit
Extraordinary loss
Income taxes
Net income
1998
9,853
7,809
2,044
1,291
753
1,496
2,082
167
12
43
112
1999
10,546
8,356
2,190
1,506
684
3,224
1,320
2,588
-
583
2,005
2000
14,836
11,821
3,015
2,094
921
1,042
1,234
729
-
227
502
In billions of Korean won
6.7%
5
Message to Our Shareholders
Let me take this opportunity to convey my sincere appreciation for your patronage and support for LGE
over the last fiscal year. As the first year of the new millennium, the year 2000 was greeted all over the
world with great hope and anticipation. LGE also started the year with aspirations, motivated more than
ever to becoming of the leader of the global digital market.
Focused on these goals, LGE’s performance in 2000 far surpassed those of previous years. Despite
adversity and uncertainty in the business environment, the Company attained sales of W14.8 trillion, a
40.7% increase over the previous year. Not taking into account LGE's merger with LG Information &
Communications (LGIC), total sales in 2000 were W13.8 trillion, 30.5% higher than sales in 1999 and
almost W2 trillion more than our original target of W12 trillion. Ordinary income amounted to W728.5
billion, a new record, and operating income totaled W921.1 billion.
Another substantial gain this year was consolidation of the Company's business performance base. In 2000,
LGE merged with LG Information & Communication to become a world-leading company in electronics
and telecommunications. The establishment of strategic alliances with world-class companies and
promising venture companies has also facilitated the Company's progress. One of our numerous successful
collaborations is the joint venture with Philips to produce cathode ray tubes. LGE also entered into a
business alliance with Hitachi in the area of optical storages. These strategic alliances and restructuring
efforts are part of our plan to focus on profitability through unbeatable quality and competitiveness.
Despite our record-breaking business performance and restructuring, there were many challenges in 2000.
Among these, the biggest was the merger with LGIC. While the immediate market response to the merger
was less than encouraging, we are certain that our vision will be realized in the long run. In connection with
the merger, LGE bought back 42 million shares which, in turn, shot the Company's liability to equity ratio
up to 284%. The temporary deterioration of our financial position raised concerns over our ability to
finance our participation in the third generation telecommunications market. LGE swiftly undertook diverse
measures to remedy the situation and succeeded in bringing the liability to equity ratio down to 196.4% by
the end of 2000. In 2001, LGE will continue to make financial soundness a top priority.
Since 1999, LGE has pursued the "Digital LG" idea. In line with this goal, we are aiming to be the top
producer of digital TV and telecommunication equipment in the world. To secure our dominance in the
emerging digital TV and third generation telecommunication markets, we have set the following strategies:
First, we will cultivate our core businesses to lead the global electronics market, team up with top-tier
electronics manufacturers, and make a determined drive into the digital TV business.
6
John Koo
Vice Chairman & CEO
Second, we will focus on cash-flow-oriented management, and accelerate restructuring to ensure financial
soundness and a solid earning base.
Finally, we will foster a digital corporate culture. Thus, LGE employees will be encouraged to develop with
flexibility and proficiency in accordance with digitization tides. To enhance the competitiveness of our
staff, we will renew the Company's human resource structure through a stringent evaluation system and
transparent reward program. We will also build a corporate environment that welcomes challenge and
inspires creativity.
Aware that shareholder support is instrumental to LGE’s success, we are committed to fostering a
shareholder-oriented corporate culture. As part of our commitment to maximize shareholder benefits, our
shareholders have received a 20% dividend ratio since 1999. We will also adopt a clearer and more
transparent management policy to ease market-prompted concerns.
I look forward to your success and ours as LGE becomes
the digital leader of the 21st century.
Digital LeaderWe believe that the advent of a digital society means more speed, more intelligence and
more convenience.
LGE has laid the foundation of its "Digital LG" vision through the acquisition of essential
technology, the creation of a sound financial base and the implementation of a "digital"
corporate culture. With the aim of becoming a global digital leader, LGE has been an
industry pioneer in the development and marketing of its digital TVs, Internet accessible
home appliances, and other digital products.
LGE Vision
8
PartnershipTo enhance its global competitiveness, LGE continues to forge strategic partnerships with
major players including Intel, Microsoft, Sony, Philips and Hitachi. Building an
"Infotainment" platform that integrates consumer electronics and information products,
LGE strives to deliver maximum value to its customers.
The Merger
The merger with LG Information & Communications presented LGE with a new challenge. However, the
move was part of LGE's plan to become a major player in the digital world through the development of
home and mobile networks. LGE's home network operations use information technology and applied
multimedia technology for the development of digital TVs, while its mobile network operations utilize IMT
2000 technology.
Reorganization
In 2001, LGE reorganized into five separate companies to create a corporate structure that is paralleled with
the "Digital LG" idea. The five companies are: Digital Display & Media, Digital Appliance, Digital
Handset, Digital System and Digital Network. The existing Digital Devices Company is being separated to
form a CRT-producing joint venture with Philips Electronics in 2001.
Strengthening its global operations and upgrading its business lines, LGE is directing its resources towards
the development of value-added products and areas with high growth potential. LGE is continuing to
increase the portion of high value-added products in its product line, such as flat cathode ray tubes, large-
sized refrigerators, high-end air conditioners, compact disc rewriters, and DVD-ROM drives.
While strengthening its fundamentals, LGE divested from several marginal businesses including its office
automation products. LGE also stopped manufacturing desktop personal computers and sold off its casting
& molding business in the form of an employee buy-out. In addition, production was relocated overseas for
several of its lower-tech electronic products. As well, LGE's CRT business will be separated in 2001.
Global Partnership
To enhance its global competitiveness, LGE continues to forge strategic partnerships with major players
including Intel, Microsoft, Sony, Philips and Hitachi. Building an "Infotainment" platform that integrates
consumer electronics and information products, LGE strives to deliver maximum value to its customers.
3LGE Strategy
10
As the above timeline illustrates, LGE has successfully overcome challenges to the Korean electronic
industry through dynamic innovation activities. Beginning with its resolution of labor disputes in the early
1990s, LGE has withstood severe deterioration of the market through implementation of innovative
measures such as 3-by-3 and 6 sigma.
As of 2000, an e-business strategy to facilitate innovative activities has been adopted.
e-Business
The e-business sector is another source of LGE growth. Through its attempts to reap the benefits of the
Internet age, LGE has sought the most efficient means of resource evaluation and management. According
to the results of resource assessment, the "value chain" system was implemented for proper functioning of
LGE's e-business program.
LGE e-business programs have been carried out in five separate areas: e-R&D, e-procurement, e-SCM
(supply chain management), e-CRM (customer relations management), and e-management. Focusing on
business-to-business relationships in 2000, LGE enhanced its e-business systems for procurement, supplier
management, and customer relations.
MajorManagement Tasks
Quality ImprovementActivities
Innovative Activities
11
1990 ~Labor RelationsRefinement
1994 ~Price ErosionChallenges
1998 ~Overcoming F/XCrisis
1989 ~Total Productivity Control
1995 ~3-by-3
2000 ~e-Business
AQL 1992 ~100PPM (4 Sigma)
1996 ~ 6 Sigma
2000 ~Progression TowardsDigital Leadership
LGE Innovation
Efficiency and transparency in the procurement process have been enhanced with diverse and innovative
on-line systems. For example, in 2000, LGE launched the warehouse management system and the Internet
purchasing system (IPS). Also introduced in 2000 were Web GISVAN and X-Net, on-line systems
providing information to orders, shipping, and settlement for domestic and overseas suppliers. Through the
standardization of electronic components and the initiation of an Internet electronics mall (E2open),
transparency in procurement was enhanced even further and relations with suppliers improved.
E-SCM fundamentally enhanced the internal processes of LGE, from the purchase of materials to the
delivery of finished products. The GPSI system enabled LGE to manage its inventories in real-time around
the world while the M-project assisted in the efficient management of overseas resources.
With the launching of LG Nara (an Internet shopping mall) and Premier Page (LGE's customer information
site), LGE has made efforts to establish closer relations with its customers. Premier Page was designed to
offer diverse information regarding LGE's new products, delivery schedules, and after-sales services to its
major customers.
In 2001, LGE will operate its e-business with focus upon business-to-customer relationships. E-CRM shall
be promoted, a new e-HR (human resources) systems shall be established, and LGE will advance e-
procurement. E-CRM will be comprised of an e-sales system and e-service networks while e-HR will
include e-recruitment and e-academy, a cyber education program.
R&D Activities
The essence of LGE's innovation are its research and development activities. There are currently 25
domestic and 13 foreign-based technology institutes and research centers. The research network supports
all LGE operations in the development of production technologies, core electronic parts, design concepts,
and next-generation product lines. Current projects also include research to improve fundamental
technologies, product quality, and customer satisfaction.
LGE believes that, in order to achieve the world's best technology, it is necessary to sufficiently invest
capital and workers in R&D activities. Presently, LGE's 7,200 researchers at home and abroad comprise
22.9 percent of LGE's total staff. In 2000, LGE's investment in R&D activities totaled W705.7 billion,
increasing from W419.3 billion in 1999. On an increasing level, LGE will invest W950.0 billion in R&D
in 2001, 55.2 percent of total investment.
12
With sights set on profit-oriented technology development, LGE has launched its TL2005 strategy. This
strategy aims to secure global technological leadership in selected businesses. Through TL2005, LGE
expects to acquire an advantage in next-generation electronic products, advancing to the forefront of the
global digital market.
Design
LGE's innovative designs are also one of the Company's key strengths. Its 15-inch liquid crystal display
was described by Innovation and Design Review magazines as excellent in design. The LG 21-inch video
television and the LG 17-inch monitor also received design recognition from the Japan Industrial Design
Promotion Organization.
With solid support, LGE's R&D network has accomplished remarkable achievements in 2000. . The world's first set top box for high-density broadcasting. The world's first high density private video recorder . The world's largest Digital LCD TV, measuring 29 inches. A high-density video disk player. ASIC, a key chip for digital video cassette recorder. The world's first audio compact disc recorder for MP3 files. A 12x CD-Rewriter. A 4.7 GB digital video display. A linear compressor. The world's first completely flat, 15-inch cathode ray tube. An LCD monitor with finger print recognition. The world's first completely flat, multi-cathode ray tube . Next generation private branch exchange utilizing both voice and data. A highly functional, "smart" phone. The first-ever recipient of the Bluetooth Certificate
13
People
LGE experienced no staff reduction in 2000, stressing the recruitment and safeguarding of competent
individuals. Along those lines, the differential compensation system, the performance-based retention
incentive with long-term insight, creates a well-utilized management system structured on performance-
based personnel.
In 2001, LGE shall maintain efficient levels of personnel management for operation effectiveness and
performance maximization. Particular emphasis shall be placed on the recruitment and retention of capable
R&D employees to cope with dramatic shifts in the digital sector.
Personnel management strategies for 2001 are as follows;
1. Recruitment of elite individuals. Selection of people qualified for e- and R&D-business . Appropriate job placement of individuals according to talents and abilities
2. Flexible operations based on successful business strategies. Elimination of inefficient factors. Enhancement of accountability. Soft outflow of surplus personnel and outsourcing of low-valued businesses
3. Effective recruitment and cultivation through e-human resources. Introduction of the Internet recruitment system, the internet HR administration automation,
and the personnel information system for officials
4. E-learning portal formation. Offering specialized on-line education to create effective individuals and a formidable company
In 2000, the labor market was faced with major difficulties for several reasons: restructuring of the
corporate and financial sectors, strikes at Kookmin Bank, and strikes at Daewoo Motors. According to the
Korean Management Association, it was reported that labor-management relations are expected to remain
unstable.
In a step preceding other domestic large enterprises, LGE reached an early agreement with the labor union
and devoted itself to management. In addition, stock has been distributed to LGE staff in compensation for
dedicated services, generating interest in the stock price among the work force.
14
Brand & Reputation
Since its name was changed from Goldstar in 1995, LG has been earnestly working to enhance its brand
image and increase its public awareness.
There has been no deviation from the "Digital LG" mission of 1999 and focus is continuously placed on
the advertising and marketing of its corporate headquarters and businesses abroad. Consequently,
worldwide brand recognition of LG has improved to 16% from 9% in 1996, achieving equal status in India
with companies such as CIS and Sony Electronics. Similarly, brand recognition in China has increased to
19% from 5% in past years.
In an effort to enhance brand recognition, there are currently plans to invest greater resources in people and
implement the "brand squad."
LGE also sponsors various community events such as the improvement of cultural events & leisure
activities, and encouraging the development of talented individuals. One example is the "LG Scholarship
Quiz," a TV quiz show for outstanding high school students that is broadcast in Vietnam, Thailand,
Kazakhstan, and Indonesia.
15
Business Overview
In 2000, LGE reached new heights in terms of performance and technology. Starting the
year with the development of a high definition video disc player, LGE's six divisions
achieved record sales of W14.8 trillion, an increase from W10.5 trillion in 1999.
The merger with LG Information & Communications in September 2000 has
strengthened LGE's presence in the world market. LGE is a global leader in a variety of
digital products, flat TV/monitors and air conditioners. It has also secured leading
positions in the areas of optical storage and mobile internet phones.
Aiming to be a world leading digital company, LGE has continued to form strategic
alliances with other global electronic companies. A major achievement in the year was
the Company's agreement with Philips to establish a joint company to produce cathode-
ray tubes.
Combining cutting-edge technology, global production networks and fruitful
partnerships, LGE is confident of its continued growth in 2001.
8
The Most Internationally Acclaimed Among LGE Companies
Display
The Biggest Beneficiary Under The IMT 2000 Project
System
Benefited Greatly From The Rapid Growth Of Internet Business
Network
A Proven Leader In The Fast Growing Global Handset Market
Handset
Committed to R&D And A Sharpened Leadership Position
Media
A Provider of a Wide Range of Home Appliances For The Internet Age
Appliance
Economy Overview
World Economy
In 2000, the global economic growth rate reached
4.8 percent, the highest since 1988. This growth
was due primarily to the economic surge of the
United States and widespread economic recovery in
Europe, Japan, and newly emerging markets in
Asia and Latin America.
Despite interest rate increases since June 1999 and
jumps in the price of oil, the United States'
economy made progress in 2000. Its annual growth
rate reached 5 percent in 2000, boosted by
increases in consumption, facility investment, and
exports. Comparatively, Japan's rebound from the
economic slowdown was low but strong, exhibiting
2 percent growth in 2000. The European economy
was similarly strong in 2000, generating growth
greater than 3 percent, mainly due to economic
expansion in the region and a weak euro for most
of the year. Among Latin American countries,
Brazil, Chile, and Mexico surged while Argentina,
Venezuela and Ecuador displayed slower growth.
Inflation - except in Japan - and a lowered
unemployment rate were the result of outstanding
world trade growth. Compared with 5.1 percent in
1999, it grew more than 10 percent on the basis of
volume. This increase was facilitated through
boosts in imports of advanced countries and in
exports of emerging economies.
In 2001, the world economy's growth rate is
expected to drop below 4 percent, while the volume
of world trade is anticipated to slow to 7 percent
growth. These lower figures are attributable to the
following factors: a worsening American economy,
instability of the euro, an uncertain global financial
market, and mounting concerns regarding political
unrest, rising oil prices, and currency instability in
Asia.
The Korean Economy
The Korean economy continued to recover in 2000,
with a GDP growth rate of 9.2 percent through the
third quarter of 2000. The growth rate for fiscal
1999 was 10.9 percent. Based on factory prices,
Korea's global trade increased 36.9 percent,
compared to 16.8 percent in 1999. Despite these
signs of recovery, there is now general concern
about an economic downturn.
The foreign exchange rate abruptly increased in the
last two months of 2000, reflecting widespread
frustration from sluggish economic reforms and the
sharp depreciation of the Japanese yen. As of
November 30, 2000 and December 31, 2000, the
prevailing exchange rates were W1,214.3 and
W1,260 per US$1.00, respectively, an increase
from W1,139.0 on October 31, 2000 and W1,134.5
on December 31, 1999. The Korean stock market
also wildly fluctuated, closing the Korea
Composite Stock Price Index (KOSPI) with 504.6
points. In the previous year, KOSPI amounted to
1,028.1 points.
As the global economy slows, the Korean economy
in 2001 will be unfavorably affected by domestic
and external factors. The GDP growth rate is
expected to decline to approximately 5 percent. The
export of information technology (IT)-related
products, a decisive factor in the recent growth
spurt, is expected to significantly decline due to
falling international semiconductor prices and less
demand for IT products.
18
Industry Overview
Growth of for Korea's electronic industries,
principally semiconductors, computers, and IT
products, remained healthy in 2000. This growth
was primarily supported by recovery of the world
economy and the global IT boom. Computer and IT
industries grew by more than 20 percent while the
electronic appliance industry grew by
approximately 16 percent.
Based on factory prices, production in the
electronic appliance industry increased 16 percent
to W13 trillion in 2000. As demand for digital and
home appliances increased abroad, exports grew 21
percent year-on-year. Similarly, domestic sales rose
22 percent over the previous year. High-value-
added, multi-functional appliances, including large-
flat screen televisions, large-sized refrigerators, and
air conditioners, performed very well. In spite of
the recent entrance of Japanese suppliers in the
domestic market, new product development and
fresh marketing activities kept domestic suppliers
in a comfortable position.
Korea's computer industry performed splendidly
with a 33 percent production increase in 2000, in
addition to growth from 1999. Exports increased 34
percent through the rapid development of DVD-
ROM drives and LCD monitors. Domestic sales
rose 41 percent in accordance with increased use of
the Internet and the expansion of e-commerce.
Production growth of telecommunication devices
reached 20 percent in 2000. The manufacture of
mobile handsets, totaling 70 percent of
telecommunication devices production, increased
28 percent from 1999. Total exports of
telecommunication devices amounted to US$8
billion, a 37 percent increase from the previous
year. Of all exports, mobile handsets accounted for
US$5 billion, a 45 percent increase from 1999.
Domestically, telecommunication devices and
mobile handsets had increased sales of 25 and 13
percent, respectively. In the first half of 2000,
mobile handsets exhibited 59 percent production
growth, but the second half of the year showed a 26
percent decrease, due to the government's
cancellation of mobile phone subsidies to buyers.
Due to adverse conditions, both domestic and
abroad, all appliances, computers, and
telecommunication devices are expected to
slowdown in 2001, in comparison with 2000.
Appliances will grow 11 percent while computers
and telecommunication devices will increase 13
percent.
The economy and industry reviews herein are, in large part, based on
working papers compiled by the LG Economic Research Center.
19
117.8
118.8
121.5
1998
1999
2000
CPI
-6.7%
10.9%
8.8%
1998
1999
2000 P
GDP Growth1995=100
Digital Display Company is the most internationally-
acclaimed among LGE companies. A producer of
televisions, monitors, color picture tubes (CPTs), color
display tubes (CDTs), and other display-related parts,
Digital Display Company is especially proud of its top-tier
technology and full line of television products including
wide-screen televisions, digital televisions, projection
televisions, fully flat monitors, flat cathode-ray tubes
(CRTs) and plasma display panels (PDPs).
Digital Display Company is a leading manufacturer of
monitors and wide and flat-screen televisions to attain the
number one position in the British digital television
market in terms of market share. The Company's monitors
have also seen great success in Germany, Brazil and
China.
In response to the growing demand for monitors in China,
Digital Display Company is now constructing a CDT
production site in China to add to its existing four
production sites which currently manufacture CRTs, TVs,
monitors and CRT parts. The investment, which is also a
part of LGE's strategy to invest in areas with great growth
potential, will strengthen the Division's international
competitiveness in the display business.
Digital Display Company
Digital Edge
22” TFT-LCD MONITOR
20
64” HIGH DEFINITION DIGITAL TV
During 2000, Digital Display Company's diverse efforts to
answer to customer needs led the Company to some first-
in-the-world technological achievements. For example,
the Company developed an ultra-thin, ultra-light digital
LCD TV with a 29-inch-wide screen, the largest in the
world. Meanwhile, the Company's new organic
electroluminescence display (OELD) for IMT 2000,
featuring high-speed response, exceptional picture quality
and low power consumption, marked a significant
advance in the development of display products.
In 2001, Digital Display Company inaugurated the
"Digital Up-Scale" marketing strategy, launching its 60-
inch-wide digital PDP televisions under the Zenith brand
name in the United States in January. This advance in its
US operations represents significant progress since
Goldstar became the first Korean electronics company to
break into the American market with its radios in 1962.
The wide-screen TV was unbeatably priced. By pursuing
this strategy, the Company expects to claim 25 percent of
the North American market in digital PDP TVs by 2005.
10.2%
10.2%
8.9%
1998
1999
2000
30.9%
Sales portion
3,8154,205
4,580
Sales
2000
1999
1998
In billions of Korean won
Sales Growth
60” PDP
21
Digital Appliance Company produces a wide range of
home appliances including refrigerators, air conditioners,
washing machines, vacuum cleaners, microwave ovens,
gas ovens and compressors for refrigerators and air
conditioners. Backed by strong sales bases both at home
and abroad, Digital Appliance Company continued to
grow in 2000. Holding on to its number one position in
the global air conditioner market, the Company's high
quality refrigerators, such as DIOS, are also gaining in
popularity. In Great Britain, the Company's microwave
ovens are earning a good reputation, resulting in a third
place ranking in market share in the British microwave
oven business.
Digital Appliance Company has done especially well with
its air conditioners, which have consistently been a strong
cash generator. In 2000, more than 60 percent of the
Company's air conditioner sales came from exports spread
evenly throughout the globe. Further growth is expected to
expand the Company's share of the global air conditioner
market, - already the largest - from 12.4 percent in 2000 to
more than 14 percent in 2001.
In an effort to expand its air conditioner sales in Europe,
the Middle East and Africa, Digital Appliance Company
jointly established an air conditioner plant in Turkey with
Koc Holding A.S., the largest business group in Turkey.
With the new plant, the Digital Appliance Company's
m a n u f a c t u r i ng network now consists of three plants in
Digital Appliance Company
Leadership
26.2%
Sales portion
2,6773,032
3,882
Sales
2000
1999
1998
In billions of Korean won
22
Korea and ten overseas production subsidiaries in seven
countries. Among the overseas subsidiaries, six are
equipped with air conditioner production lines.
Keeping abreast of the changing needs of its customers,
the Company continues to introduce sophisticated new
products. Seizing the opportunities offered by the Internet,
Digital Appliance Company became the first in the world
to introduce web-connected products with its Internet
DIOS refrigerators, Internet Turbodrum washing
machines and Internet microwave ovens. These products
operate automatically by tapping the abundant information
of the Internet.
Aware of the growing opportunities for Internet
appliances and home networks, the Company has set up a
strategic alliance with Intel Corporation. Digital
Appliance Company's leading-edge technology in the field
of Internet appliances, combined with Intel's expertise in
core IT solutions, is sure to accelerate advancements in
the field of home networks and Internet appliances.
3-WAY DISCHARGE AIR CONDITIONER, WHISEN
DIGITAL NETWORK REFRIGERATOR
INTERNET INTELLOWAVE OVEN
TURBODRUM WASHING MACHINE
INTELLO WASHER
-6.7%
13.3%
28.0%
1998
1999
2000
Sales Growth
VACUUM CLEANER, CYCLONE
23
With the booming information technology industry
worldwide, Digital Media Company made the most
impressive progress among LGE companies in year 2000.
The Company's products include video cassette recorders
(VCRs), personal computers (PCs), CD-ROM drives, CD-
RW (Rewritable) drives, DVD-ROM drives, and printed
circuit boards (PCBs). In recent years, the Company has
found great success among the younger generation with
the introduction of its MP3 players, videophones and
DVD players.
The Company's optical storage business unit, which
consists of CD-ROM drives, CD-RW drives, and DVD-
ROM drives, has been number one in the global market
since 1998. The Division is a leader in Germany, the
largest market in Europe, and also enjoys large market
shares in Italy, Spain, Great Britain, Poland and Hungary.
It's total market share in Europe last year amounted to 17
percent and is expected to increase further in 2001.
Meanwhile, in Korea, the Company controls over 50
percent of the market. Digital Media Company's
remarkable success in optical storage operation is largely
attributable to its tireless commitment to R&D and
marketing activities.
Over the last year, Digital Media Company strove to
strengthen its audio-related products. This led to the
establishment of a strategic collaboration with Harman
Digital Media Company
Progress
VIDEOPHONE
DIGITAL AUDIO CD RECORDER
24
USB PC CAMERA
MP3 PLAYER
International, which is well-known for its JBL brand.
Another output of its efforts was the development of the
world's first audio compact disc recording (ACDR) player
for MP3 files.
Not content with its current successes, Digital Media
Division is sharpening its leadership position. In 2000, the
Company became the first in the world to develop a video
disc recorder featuring high definition and user-friendly
functions. Other R&D achievements for the year included
high speed CD-RW drives and a web pad, which serves as
a core device of the next generation PC product line,
enabling Internet connection and AV data transmission
and reception.
To further enhance its optical storage division, the
Company entered an agreement in October 2000 with
Hitachi of Japan to establish Hitachi-LG Data Storage,
Inc., a joint company to be engaged in optical storage
research and marketing activities. Scheduled for launch in
January 2001, the joint venture will provide a stable sales
network and strengthen LGE's research capabilities.
-6.1%
31.1%
50.8%
1998
1999
2000
30.0%
Sales portion
2,2532,953
4,453
Sales
2000
1999
1998
In billions of Korean won
Sales Growth
25
MP3 PLAYER, “MP FREE”
Digital Handset Company produces mobile internet
phones, high-tech handsets for code division multiple
access (CDMA) protocol and for wireless local loop
(WLL), cordless/coded telephones and keyphones.
Since its release of the world's first CDMA handset in
1995, the Company has positioned itself as a strong leader
in the fast growing domestic and overseas markets.
Following efforts to reduce production costs while
improving product function and design, CYON (LGE's
brand name) became one of the most popular and trusted
handset brands with a diverse product of line up of digital
cellular network (DCN) and PCS models. With the launch
of I-Plus and I-Book (wireless application protocol
phone), Digital Handset Company became the top
performer in the domestic mobile internet market and
second in the overall domestic handset market.
In 2000, Digital Handset Company received considerable
recognition for its achievements in technology and
business performance. Positioned well ahead of its
competitors, the Division's mobile telephone was selected
among "The Best Product of 2000" by Business Week
magazine. In another example of the Company's unrivaled
supremacy in the industry, Digital Handset Division
became the first among domestic competitors to be
granted TL9000 certification for its CDMA mobile
phones.
Digital Handset Company
Growth Opportunity
CYON CYBERFOLDER
MESSENGER
LG GSMHANDSET
CDMA2000 CYON 'CYBER-IX1'
LG GPRS HANDSET LG BLUETOOTH TERMINAL
LG TECHPHONE 900
26
With success in Korea and as the domestic mobile market
matures, Digital Handset Company is seeking greater
growth opportunities in the export market, primarily in
North America and Latin America. Efforts to secure stable
earning sources resulted in two important sales contracts
in 2000: a long term sales contract with Sprint for mobile
internet phones and another contract for CDMA digital
mobile phones with Verizon Wireless, the largest wireless
telecommunications service company in the United States.
Digital Handset Company is a winner in the Brazilian
mobile internet phones market, and the Company's
handsets for CDMA have performed strongly in Brazil,
Venezuela, Peru and Chile. Boosted by the agreement and
with the launch of GSM mobile handsets in first quarter
2001, the Company has expanded its export target to 6.3
million handsets from 3.4 million handsets in 2000.
Digital Handset Company is currently working on
developing Korean and European-style multi-media phone
for IMT 2000, aiming to release the new products by
2002. In line with a strategy to enhance its presence in
China, the Company has agreed to establish Langchao
Digital Mobile Communication Technology R&D Center
Co., Ltd. in consortium with three Chinese companies.
The joint venture will expand its operations to production
and sales in the near future.
73.4%
24.0%
3.1%
1998
1999
2000
The Digital Handset Company,
the Digital System Company, and the
Digital Network Company, which were
originally a component of LG Information
& Communications, have operated under
LGE since the September 2000 merger.
The figures reported here are being presented
as pro forma statements without consideration
for internal transactions.
128 158 163
Sales
2000
1999
1998
In billions of Korean won
Sales Growth
27
As a manufacturer of diverse switching products,
transmission equipment and IMT 2000 mobile systems,
Digital System Company's contributions are essential to
the progress of other LGE companies.
Encouraged by the rapid expansion of Internet subscribers
and the growing demand for related transmission
equipment, Digital System Division experienced swift
growth in 2000. Last year, the Company exported its
CDMA WLLs to Russia, India and Belize, and its ATM
systems to Japan.
With proven technological leadership in the field of W-
CDMA, the Company expects to be the biggest
beneficiary under the IMT 2000 project. Determined to be
the first among its competitors to break into the European
market, the Company has shared its core technology on
W-CDMA with Marconi Mobile S.P.A. in Italy. Under the
strategic alliance with Marconi Mobile, an W-CDMA test-
bed will be set up in Italy and the two companies will
pursue joint marketing activities in Europe.
Digital System Company
Initiatives
-11.8%
6.5%
24.9%
1998
1999
2000
8792
115
Sales
2000
1999
1998
In billions of Korean won
Sales Growth
ACCESSTAR
QUDAC CELLGATE GENEREX2000
CELLBIT
28
As a provider of routers, switches, adapters, hubs, ADSL
solutions and private branch exchanges (PBXs), Digital
Network Company has benefited greatly from the rapid
growth of Internet businesses.
In 2000, the Company entered a contract to cooperate with
Genesys Telecommunications Laboratories, Inc., a
subsidiary of Alcatel in the United States. The
collaboration will enhance LGE's capability to integrate
telephone and computer functions while upgrading the
quality of its PBXs.
To become a top notch global player in selected products,
the Company is developing voice/data integrated products
and web-based interactive solutions. Utilizing the global
sales network of LGE and its partners, the Company is
expanding its reach in the global market.
Digital Network Company
-12.3%
30.1%
13.3%
1998
1999
2000
2026
30
Sales
2000
1999
1998
In billions of Korean won
Sales Growth
VOICE & DATA CONVERGENCE IP-PBXNCS100
MIDDLE-SIZE VOIP GATEWAY AX3000
SMALL-SIZE VOIPGATEWAY AX1000
CONVERGED VOICE/DATA/FAX SERVICE IN A SINGLE PLATFORM LR4108
ADVANCED & COST-EFFECTIVELAYER 3 GIGABIT SOLUTION LS6508
802.11B 11MBPS WIRELESS ROUTER LW1100
29
Management’s Discussion & Analysis
30
Report of Independent Accountants 43 / Non-Consolidated Balance Sheets 44 /
Non-Consolidated Income Statements 46 /
Non-Consolidated Statements of Appropriations of Retained Earnings 47 /
Non-Consolidated Statements of Cash Flows 48 /Notes to Financial Statements 50
31
Management’s Discussion & Analysis
Non-consolidated Statements
The following discussion is based on the non-consolidated financial statements of LG
electronics and should therefore be read in conjunction with those statements. The non-
consolidated financial statements were presented in accordance with generally accepted
accounting principles (GAAP) in Korea, which may differ in some respect from generally
accepted accounting principles of other countries.
Forward-looking Statements
Several statements in this management's discussion and analysis are "forward-looking"
with respect to LGE's operations, financial position, plans, and objectives. Such
statements are indicated by any of the following terms: "will," "plan," "strive," "aim,"
"pursue," "expect," "intend," and "estimate."
The forward-looking statements included in this report involve significant risks and
uncertainties and are subject to change based on various factors. Factors that may be
beyond LGE's control include the following: interest rate volatility, foreign exchange
fluctuation, changes in consumer tastes, technical advances, social changes in LGE-based
economies, competition, and a changing business environment.
In addition to the aforementioned, a portion of this financial review is derived from
internal management reporting sources, prepared without consideration for GAAP,
Korean or otherwise.
Merger Results
As of September 1, 2000, LG Information & Communication Co., Ltd. was merged with
LGE for support of mobile phone and telecommunication system production.
As a result of the merger, LGE cancelled its stake in LGIC and issued common stock to
compensate those shareholders with shares in LGIC. As of September 1, 2000, LGE
acquired LGIC assets and assumed LGIC liabilities. Sales and profits of LGIC have since
been reported in the accounts of LGE.
32
Results of Operations
S a l e s
LGE experienced favorable economic conditions both at home and abroad in 2000. The
Korean economy began to recover after a severe two-year setback. The U.S economy
continued to expand amidst concerns of an economic soft landing, while Western
European economies steadily advanced. Worldwide demand for media, information, and
communication devices and products increased dramatically.
LGE's total sales in 2000 increased to W14,836 billion, 40.7% higher than W10,546
billion in 1999 and 50.6% higher than W9,853 billion in 1998. Not taking into account
LGE's merger with LG Information & Communications (LGIC), whose operations have
been included in LGE since September 2000, total sales in 2000 were W13,760 billion,
30.5% higher than sales in 1999. This increase is attributable largely to the Digital
Appliance Company and the Digital Media Company. The Digital Media Company has
exhibited particularly strong growth for a second consecutive year with growth rates of
50.8% in 2000 and 31.1% in 1999. The Digital Appliance Company grew by 28.0% in
2000, compared with 13.3% in 1999.
With regard to sales timing, personal computers, air conditioners and optical storages
were major contributors in the first quarter while high value added products increased in
the second quarter. However, total sales were sluggish in the third quarter due to
decreased domestic sales of air conditioners and handsets. Handset sales were particularly
affected by the government's cancellation of telecommunication promotion subsidies to
mobile phone consumers.
Excluding LGIC sales, the Digital Media Company's share of total LGE sales increased
from 28.0% in 1999 to 32.4% in 2000. This expansion resulted mainly from improved
sales of optical storage products, which were heightened through outstanding brand
recognition and increased demand for CD-RW and DVD-ROM drives both domestically
and abroad. In the course of its efforts to secure a stable customer base, the Digital Media
Company supplemented its strong relationships with Compaq by adding a new IBM line.
Sales
LGE's total sales in 2000
amounted to W14,836
billion, a 40.7% increase
from the W10,546 billion in
1999. The Digital Media
Company has exhibited
particularly strong growth for
a second consecutive year
with growth rates of 50.8% in
2000 and 31.1% in 1999.
The Digital Appliance
Company grew by 28.0% in
2000, compared with 13.3%
in 1999.
1999
4,205
3,032
2,953
-
356
10,546
2000
4,580
3,882
4,453
1,076
845
14,836
Sales
Digital Display
Digital Appliance
Digital Media
Information & Communications
Other
1998
3,815
2,677
2,253
-
1,108
9,853
In billions of Korean won
33
Domestic Sales &Exports
Domestic sales totaled
W4,881 billion in 2000, an
80.5% increase from W2,704
billion in 1999. Exports
amounted to W9,955 billion in
2000, a 26.9% increase from
W7,842 billion in 1999.
Supported by improvements
in the economy, consumer
products such as personal
computers, air conditioners,
and high-value-added home
appliances were sold beyond
e x p e c t a t i o n s .
The Digital Display Company represented the largest share of total LGE sales, although
total sales dropped from 39.9% in 1999 to 30.9% in 2000. This reduction reflects the
comparatively low sales of cathode ray tubes. Sales of cathode ray tubes, comprising the
second largest product of the Digital Display Company's sales, remained at the 1999 sales
level. This sluggishness was primarily due to fierce competition among major
participants. To overcome this situation, LGE established a CRT-manufacturing joint
venture with its major competitor, Phillips Electronics. In comparison with LGE's other
digital companies, a temporary lull in the growth of the Digital Display Company can be
expected due to current development of the future star display products such as OELDs
and PDPs.
Sales of the Digital Appliance Company products were generated largely by air
conditioners and refrigerators, representing 26.2% of total LGE sales in 2000 and 28.8%
in 1999. LGE's refrigerator and air conditioner sales increased 33.4% and 46.1%,
respectively, from 1999.
LG Information & Communications - the Digital Handset Company, the Digital System
Company, and the Digital Network Company - had sales of W1,076 billion or 7.3 % of
LGE’s total sales in 2000. The following contribute to sales of the Digital Handset
Company: long-term sales contracts with Sprint and Verizon, and the launching of WAP
phones into major markets. The Digital System Company and the Digital Network
Company similarly had notable achievements in given heightened market for Internet
c o m m u n i c a t i o n s .
Domestic sales totaled W4,881 billion in 2000, increasing 80.5% from W2,704 billion in
1999. Exports amounted to W9,955 billion in 2000, a 26.9% increase from W7,842
billion in 1999. Supported by improvements in the economy, consumer products such as
personal computers, air conditioners, and high-value-added home appliances were sold
beyond expectations.
1999
2,704
520
1,277
595
-
312
7,842
3,686
1,755
2,357
-
44
10,546
2000
4,881
715
1,771
915
641
839
9,954
3,866
2,111
3,538
435
5
14,836
Domestic Sales & Exports
Domestic Sales
Digital Display
Digital Appliance
Digital Media
Information & Communications
Other
Exports
Digital Display
Digital Appliance
Digital Media
Information & Communications
Other
1998
2,570
368
1,076
568
-
558
7,283
3,448
1,601
1,684
-
550
9,853
In billions of Korean won
73.9%
74.4%
67.1%
Exports
1998 1999 2000
As a percent of sales
34
Domestic sales represented 32.9% of total sales in 2000, increasing from 25.6% in 1999.
Although there was high growth in exports during the year, its share of total annual sales
decreased from 74.4% in 1999 to 67.1%. The Digital Media Company expanded its
proportion of total sales in both domestic sales and exports while the Digital Display
Company and Digital Appliance Company experienced decreased shares in domestic
sales and exports. The Digital Media Company's domestic sales and exports increased
from 5.6% and 22.4% of total sales in 1999 to 6.2% and 23.8% in 2000, respectively.
From a geographical perspective, sales in 2000 grew in all regions, particularly Europe
and Asia. Exports were strongly backed by LGE's efforts for market diversification.
Exports to Asia were US$3.6 billion, representing the largest share of total sales at 43.8%.
Air conditioner and refrigerator sales to Southeast Asia were a main factor for its
dominance. Exports to Europe and the CIS had the fastest growth rates, equaling US$1.6
billion in 2000, a rise of 36.2% from US$1.1 billion in 1999. The sharp rise in Europe was
prompted by optical storage products and selective home appliances. North America
recorded a 15.0% sales increase as a result of successful marketing techniques and a
nationwide economic boom. In the future, LGE will increase its North American sales
with the Zenith brand, high-value-added consumer products such as flat-wide screen TVs,
DVDs, and mobile internet phones. Exports to Central and South America grew
substantially through LGE's strong marketing activities in Brazil, Peru, and Chile.
Sales Costs
Sales costs for 2000 increased 41.5% to W11,821 billion from W8,356 billion in 1999,
primarily due to the merger and increases in R&D expenses.
Materials representing 70% of total sales costs increased from W5.6 trillion in 1999 to
W8.3 trillion in 2000. The increase was well over the average increase of each item's cost
in 2000. Total R&D expenses, the sum of R&D expenses in sales costs, and sales and
administrative expenses rose 68.3% to W706 billion in 2000, compared with W419
billion in 1999. Major R&D expenses were the result of the Digital Display Company
products such as PDPs, PCBs, flat monitors, and IMT 2000-related systems and products.
1999
2,023
319
1,148
1,784
1,017
298
6,589
2000
2,326
470
1,564
2,106
1,526
298
8,290
Exports by Area
North America
Central & South America
Europe & CIS
Asia(excluding China)
China
Oceania & Africa
1998
1,198
657
1,051
1,373
773
275
5,327
In millions of US dollars
2,044 2,190
3,015
20.7% 20.8%20.3%
Gross Profit
Gross margin
1998 1999 2000
In billions of Korean won
7.4%
12.4%
5.8%
-7.1%
Operating Margin
Display Appliance Media Information&
Communications
35
FOB Standard
When annualized, Information &
Communication Companies had a
positive 7.0% operating margin in 2000.
Gross profit in 2000 amounted to W3.0 trillion, 37.7% higher than W2.2 trillion in 1999.
Gross profit as a percentage of sales declined from 20.8% to 20.3%, reflecting an increase
in total sales costs.
Sales and administrative expenses amounted to W2.1 trillion in 2000, a 39.0% increase
from W1.5 trillion in 1999. Operating profit after expenses in 2000 totaled W921 billion
in comparison to W684 billion in 1999.
The greatest generator of profits in 2000 among all LGE companies was the Digital
Appliance Company, achieving W481 billion in operating profits and a 12.4% operating
margin. Supported by the in-house production of core parts and a successful "6 sigma"
campaign, profitability also improved in 2000. The Digital Display Company, the Digital
Media Company, and the Information & Communications Company (full year) recorded
operating margins of 7.4%, 5.8% and 7.0%, respectively.
As a result, the average operating margin in 2000 was 6.2%, a decrease from W6.5% in
1999. Excluding the performance of the Information & Communications Company, which
was included in LGE operations since its merger with LG Information and
Communications in September 2000, operating profit as a percent of sales came to 7.2%
in 2000. Therefore, LGE expects substantial improvements in profitability in 2001 when
restructuring is completed.
Non-operating Income
LGE's non-operating income included interest and dividend income earned from financial
instruments held by LGE; foreign exchange gains resulting from trade in currencies other
than the Korean won and from currency conversion; gains on the disposal of investments,
property, plants, and other fixed assets; and earnings from LGE affiliates when
calculating the equity method (Please refer to page 51 of “Notes to Financial Statements”
for an explanation of the equity method). Non-operating income in 2000 was W1,042
billion, 67.7% lower than W3,224 billion in 1999. The difference was caused by
transactions in 1999 with Philips Electronics and Hyundai Electronics. In 1999, LGE sold
its LG. Philips LCD securities with warrant to Philips for a gain of W1,180 billion. In
addition, LGE transferred an LCD-related patent to LG Philips LCD for gain of W281
billion in 1999. In May 1999, LGE also sold its shares in LG Semiconductor to Hyundai
Electronics. As a result of the sale, LGE had gain on sale of investment securities
equivalent to W1,102 billion in 1999.
1999
115
228
2,694
-
187
3,224
2000
67
186
257
287
244
1,042
Non-operating Income
Interest & dividends
Foreign exchange gains
Gain on disposal of noncurrent assets
Equity in earnings of affiliates
Other
1998
159
966
98
-
274
1,496
In billions of Korean won
8.0%
4.8%
2.9%
Interest Expenses
1998 1999 2000
As a percent of sales
36
Special Gains in 1999
In 1999, LGE sold its LG
Philips LCD securities with
warrant to Philips for a gain of
W1,180 billion. In May 1999,
LGE sold its shares in LG
Semiconductor to Hyundai
Electronics. As a result of the
sale, LGE had gain on sale of
investment securities
equivalent to W1,102 billion in
1 9 9 9 .
Earnings from LGE affiliates shifted from a negative gain of W146 billion in 1999 to a
positive gain of W287 billion in 2000.
Non-operating expenses were W1,234 billion in 2000, 6.5% lower than W1,320 billion in
1 9 9 9 .
The major reason for such improvement was the significant decrease in interest expenses,
equaling W437 billion in 2000. The decrease reflects a consistently falling interest rate as
well as LGE's effort to reduce interest expenses through diverse fund-raising channels.
Interest expenses as a percentage of sales decreased from 4.8% in 1999 to 2.9% in 2000
while interest expenses as a proportion of operating profit significantly improved from
74.5% to 47.4%.
Affected by the abrupt depreciation of Korean won, loss of foreign currency translation
rose from W17 billion in 1999 to W133 billion in 2000. The direct causes of this loss
were increased foreign currency debts resulting from Usance equivalent to US$91 million
and Y250 million, and foreign currency floating rate notes amounting to US$221 million.
Furthermore, LGE underwent the write-off of LGIC's bad assets equaling W54 billion and
the loss on cancellation of LGIC shares totaling W56 billion. Another factor for non-
operating expenses was the W196 billion loss from transfer of trade accounts and notes
receivable. Of this loss, the negotiation of foreign currency receivables resulted in a W180
billion loss, and the issuance of asset (receivables)-backed securities led to W10 billion
l o s s .
EBITDA & Profitability
With consistency and adherence to 1998 and 1999 accounting principle amendments,
EBITDA (earnings before interest expenses, taxes, depreciation and amortization)
increased in all of the last four years. In 2000, EBITDA amounted to W1,445 billion.
Following depreciation and amortization, EBIT (earnings before interest expenses and
taxes) were W921 billion, a significant rise from W684 billion of 1999.
1999
509
261
106
97
146
201
1,320
2000
437
275
196
109
-
217
1,234
Non-operating Expenses
Interest expenses
Foreign exchange losses
Loss from transfer of trade
accounts & notes receivable
Loss from disposal of noncurrent
assets
Equity in losses of affiliates
Other
1998
793
827
-
25
26
42
1,713
In billions of Korean won
427419
706
R&D Expenditure
1998 1999 2000
In billions of Korean won
37
1999
481
550
2,726
4,120
1,215
9,092
2000
800
1,192
3,337
4,211
2,340
11,880
Assets
Trade accounts & notes receivable
Inventories
Property, plant & equipment
Investment
Other
1998
634
441
2,826
2,564
2,245
8,710
In billions of Korean won
2000
729
1,445
502
4,431
4,430
4,368
4,367
Profitability
Income (In billions of Korean won)
Ordinary Income
EBITDA
Net Income
Per Share (In Korean won)
Basic earnings
Basic ordinary income
Diluted earnings
Diluted ordinary income
1999
2,588
1,055
2,005
18,494
18,494
18,258
18,258
In spite of the setback of overall profitability, LGE sustained its profitability throughout
2000. Excluding asset sales in 1999, ROA improved from 3.7% in 1999 to 4.9% in 2000
while ROE declined from 19.4% to 18.2%, reflecting 2000 capital increases.
Financial Position
Total Assets
LGE's total assets in 2000 were W11.9 trillion, a 30.7% increase from 1999. Not
accounting for the W1.3 trillion in assets generated through the merger of LGIC, total
assets increased by 15.8%. The most noticeable change in the structure of assets in 2000
was an increase of intangible assets from W106 billion in 1999 to W1.1 trillion in 2000.
Such tangible assets included goodwill of W375 billion and industrial property rights of
W559 billion.
Reflecting LGE's extensive operations network, investments are the largest part of its
assets. Investments represented 35.4% of total assets in 2000, dropping from 45.3% in
1999. This reduction was attributable to increases of receivables, inventories, and
g o o d w i l l .
6.4
4.6
5.4
Trade accounts ¬es receivables
1998 1999 2000
As a percent of sales
28.7
25.822.5
Property, plant & equipment
1998 1999 2000
As a percent of sales
4.55.2
8.0
Inventories
1998 1999 2000
As a percent of sales
38
1999
130
1,366
981
1,495
3,972
1,399
398
137
1,934
5,906
2000
658
1,664
1,391
1,583
5,296
1,848
543
185
2,576
7,872
Liabilities
Short-term borrowings
Current maturities of long-term debt
Trade accounts & notes payable
Other current liabilities
Debentures
Long-term debt
Other noncurrent liabilities
1998
507
1,381
741
694
3,323
2,562
573
418
3,553
6,876
In billions of Korean won
Trade accounts & notes receivable increased from W481 billion to W800 billion. Based
on average receivables, net sales to receivables turnover improved from 19 times in 1999
to 23 times in 2000, despite high growth in sales. This improvement was in response to
the diversity of LGE's receivables collection policies and its efforts to secure proper
liquidity from its ordinary operations. Inventories doubled from W550 billion to W1,192
billion, comprised of LGIC inventories amounting to W373 billion, ready-manufactured
air conditioners worth W105 billion, and IT-related inventories totaling W99 billion.
Inventory turnover (the ratio of the cost of goods sold to average inventory) dropped to 17
times in 2000 while overall fixed assets efficiency improved. To maintain adequate
inventory levels, LGE is doing its utmost to reduce procurement and manufacturing lead-
time and restructure its logistics network.
Regarding the composition of the W4.2 trillion in investments in 2000, W760 billion was
due to equity investment in LG. Philips LCD, W991 billion resulted from equity
investment in Dacom, and W149 billion was due to investment in senior secured notes
issued by Zenith.
F u n d i n g
The total of current and long-term liabilities in 2000 was W7,872 billion in 2000, 33.3%
higher than W5,906 billion in 1999. Mirroring the results of 1999, current liabilities and
long-term liabilities represented 67.3% and 32.7% of total liabilities, respectively.
With regard to current liabilities, trade accounts & notes payable increased from W981
billion to W1,391 billion. This increase was largely the result of an additional W278
billion from the LGIC merger and a W173 billion rise in foreign currency payables.
Foreign currency payables increased due to a boost in sales of products that are highly
dependent upon overseas materials such as PCs, CD-ROM drives, monitors, CRTs, and
air conditioners.
Investments
Reflecting LGE's extensive
operations network,
investments are the largest
part of its assets.
Investments represented
35.4% of total assets in
2000, dropping from 45.3%
in 1999. This reduction was
attributable to increases of
receivables, inventories, and
g o o d w i l l .
5,023
3,293
4,713
Debt
1998 1999 2000
In billions of Korean won
39
1999
632
3,186
2000
1,031
4,008
Shareholders' Equity
Capital stock
Total shareholders' equity
1998
632
1,834
In billions of Korean won
LGE issued debentures equivalent to W1,101 billion in 2000. As of December 31, 2000,
LGE's outstanding debentures including current maturities reached W3,259 billion, a
27.7% increase from W2,553 billion in 1999.
Total debt (the sum of short-term borrowings, current maturities of long-term debt,
debentures, and long-term debt) amounted to W4.7 trillion. Total debt rose 43.1% from
W3.3 trillion in 1999, mainly due to LGE's buyback of W1.3 trillion in LGIC shares.
The ratio of debt to equity worsened to 117.5% in 2000 from 103.3% in 1999, while the
ratio of liabilities to equity rose to 196.4% from 185.4%. This deterioration resulted
primarily from the LGIC merger but was partially offset by capital increases for the LGIC
share exchange program in September 2000 as well as the issuance of redeemable
preferred stocks in December.
Despite the setback, there are many encouraging points. For example, with a 284.0%
liabilities to equity ratio at the time of the merger, it sought out methods for improvement.
Such methods include a capital increase by issuing redeemable preferred stock equivalent
to W544 billion, the issuance of W107 billion in asset-backed securities, and W136
billion in sales of treasury stock. As a result, its debt-related ratios began to improve in
late 2000. LGE predicts even greater soundness in 2001, primarily through profit growth,
sales of its treasury stock, and gain on property investment. As a result of the excessive
value of LGE's property investment through its CRT manufacturing joint venture with
Philips Electronics, LGE expects to be compensated US$1.1 billion from the new CRT
joint venture in 2001.
Through capital increases generated by the LGIC share exchange program, the issuance of
redeemable preferred stocks, and a net income of W502 billion, shareholders' equity
increased from W3,186 billion in 1999 to W4,008 billion in 2000. The increase was offset
by W876 billion in treasury stock, W177 billion in valuation loss, and W145 billion in
dividend payments. Treasury stock, amounting to 42 million shares at the time of the
merger, decreased from the resale of 11 million shares in 2000.
LGE is now exploring ways to effectively dispose of its treasury stock and minimize its
impact upon the market. Such methods include: granting incentives to employees, the
listing of LGE on over-the-counter stock markets overseas, the issuance of depository
receipts, and other resale methods.
Cash Flow
LGE incessantly strives to maintain proper levels of liquidity. Sustaining such levels is
especially important with regard to its ability to promptly act upon growth opportunities
and unexpected adversities.
375.0
185.4196.4
Liabilities to equity
1998 1999 2000
In percent
273.9
103.3117.5
Debt to equity
1998 1999 2000
In percent
40
From its operating activities in 2000, LGE had cash and cash equivalent in the amount of
W925 billion. This was then utilized for investment (W229 billion) and financial activities
(W612 billion). During the year, LGE expended a total of W1,585 billion for facilities
investment and R&D, a significant increase from W954 billion in 1999. Cash and cash
equivalents rose from W86 billion in 1999 to W171 billion in 2000, and will improve
even more in 2001 with cash inflow from the new CRT Joint Venture, treasury stock
disposition, and expansion of LGE operations.
Risk Management
Material Challenges
As LGE expands its operations throughout the world, its risks and uncertainties become
more complicated. In order to maintain control, LGE continuously analyzes its business
environment and anticipates possible challenges.
Material challenges that LGE may face in 2001 include, but are not limited to, an increase
in the price of oil, depreciation of the euro, and a sudden setback in the Korean economy.
To mitigate such impacts, LGE has prepared for a variety of situations and focuses on
manufacturing high-value-added products.
Foreign Exchange Risk
To manage foreign exchange volatility within acceptable limits, LGE is engaged in a
variety of hedging transactions. The net cash flow of foreign currencies maturing within
one year is hedged through hedging transactions with value dates up to three months. For
more effective management of its medium- and long-term profitability, LGE is currently
involved in hedging transactions with value dates up to six months and has increased its
minimum hedge ratio.
Preparation for Anti-Dumping Lawsuits
With the rise of its market share in major commercial markets, LGE is prepared for the
possibility of anti-dumping lawsuits. In order to keep the likelihood to a minimum, LGE
monitors its cost structures, market positions, and the performance of its competitors. As
well, it pursues strategic alliances with local manufacturers and distributors while
increasing construction of local manufacturing sites.
Outlook for 2001
LGE will not be exempt from the effects of worldwide economic deterioration. Although
strong fundamentals enabled 40% growth last year, an adverse economic situation in
combination with the proposed spin-off of its cathode ray tube manufacturing business
have compelled LGE to lower its 2001 target sales increase rate to 13%.
Risk Management
Material challenges that LGE
may face in 2001 include,
but are not limited to, an
increase in the price of oil,
depreciation of the Euro, and
a sudden setback in the
Korean economy. To
mitigate such impacts, LGE
has prepared for a variety of
situations and focuses on
manufacturing high-value-
added products.
1999
954
86
2000
1,585
171
Cash Flow
Capital expenditure
Cash flow
1998
998
260
In billions of Korean won
41
Regarding slow-down of the information technology industry, it is forecasted that the
Digital Media Company will have 13% sales growth in 2001 despite having 50% year-on-
year growth in 2000. The Digital Appliance Company, a cash generator for LGE, will
reach 5% sales growth in 2001. Sales of the Digital Appliance Company will be heavily
supported by air conditioners and refrigerators.
LGE expects that the LGIC merger will create further synergies in 2001, providing the
telecommunication division with advancements, enabling it to reach a W3.9 trillion sales
target. Through the cultivation of new telecommunication markets, progress will
primarily be created through the Digital Handset Company.
In addition to earnings generated from ordinary business operations, a 4-5% recurring
margin is expected due to a depreciating won.
In 2001, LGE will focus its energies on cash-flow-oriented management and financial
soundness. Cash inflow is expected to be generated from net income, continuous shedding
of treasury stock, and ongoing disposition of non-strategic operations. Cash outflow will
primarily be utilized for investment in digital TVs, plasma display panels, and IMT 2000
equipment. With an expected net cash flow in 2001, LGE is striving to improve its
financial soundness to a new height.
42
43
To the Board of Directors and Shareholders of
LG Electronics Inc.
We have audited the accompanying non-consolidated balance
sheets of LG Electronics Inc. (the “Company”) as of December
31, 2000 and 1999, and the related non-consolidated
statements of income, appropriations of retained earnings 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 accordance with auditing standards
generally accepted in the Republic of Korea. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
LG Electronics Inc. as of December 31, 2000 and 1999, and
the results of its operations, the changes in its retained earnings
and its cash flows for the years then ended, in conformity with
financial accounting standards generally accepted in the
Republic of Korea.
As discussed in Note 22 to the accompanying financial
statements, for the years ended December 31, 2000 and 1999,
the Company entered into various transactions with affiliated
companies such as LG Electronics U.S.A. Inc., including sales
of W7,028,871 million and W4,725,470 million, respectively,
and purchases of W1,504,114 million and W1,049,335 million,
respectively. As of December 31, 2000 and 1999, related
accounts receivable approximate W806,155 million and
W372,491 million, respectively, and related accounts payable
approximate W425,381 million and W275,529 million,
respectively.
As discussed in Note 25 to the accompanying financial
statements, LG Information & Communications, Ltd.
(“LGIC”), an affiliate, was merged into the Company effective
September 1, 2000. In connection with the merger, the
Company issued 47,790,404 shares of common stock (issue
value : W1,347,645 million) to the shareholders of LGIC.
As discussed in Note 15 to the accompanying financial
statements, pursuant to the resolution by the board of directors
on December 12, 2000, the Company issued W542,952 million
(32,000,000 shares) of redeemable preferred stock on
December 23, 2000.
As discussed in Note 1 to the accompanying financial
statements, pursuant to the resolution by the board of directors
on November 27, 2000, the Company entered into a LOI (letter
of intent) regarding a joint venture of Cathode Ray Tubes
(“CRT”) business with Koninklijke Philips Electronics N.V.
Currently, detailed matters to establish the joint venture are
being negotiated.
Without qualifying our opinion, we draw attention to Note 14
of the accompanying financial statements. The operations of
the Company have been significantly affected, and may
continue to be affected for the foreseeable future, by the
general adverse economic conditions in the Republic of Korea
and in the Asia Pacific region. The ultimate effect of these
significant uncertainties on the financial position of the
Company as of the balance sheet date cannot presently be
determined and accordingly, no adjustments have been made
in the accompanying financial statements related to such
uncertainties.
The accompanying financial statements are not intended to
present the financial position, results of operations and cash
flows in accordance with accounting principles and practices
generally accepted in countries and jurisdictions other than the
Republic of Korea. The procedures and practices utilized to
audit such financial statements may differ from those generally
accepted and applied in other countries and jurisdictions.
Accordingly, this report and the accompanying financial
statements are not intended for use by those who are not
informed about Korean accounting principles or auditing
standards and their application in practice.
Seoul, Korea
February 3, 2001
Report of Independent Accountants
In millions of Korean won 2000 1999
Assets
Current Assets :
Cash and cash equivalents (Note 5) W 170,829 W 85,965
Short-term financial instruments (Note 3) 6,750 11,680
Marketable securities (Note 7) 1,895 –
Trade accounts and notes receivable (Notes 4, 5 and 22) 799,601 480,718
Other accounts receivable (Notes 4 and 5) 164,141 172,728
Inventories (Note 6) 1,191,879 550,447
Prepaid expenses 48,145 66,264
Accrued income (Notes 4 and 5) 191,539 80,971
Advances (Note 4) 158,780 60,838
Other current assets (Note 4) 6,845 24,741
Total current assets 2,740,404 1,534,352
Property, plant and equipment, less accumulated depreciation (Note 8) 3,337,088 2,726,249
Long-term financial instruments (Note 3) 13,091 25,610
Investments (Note 7) 4,210,506 4,119,959
Refundable deposits (Note 5) 167,668 228,432
Long-term trade accounts receivable (Note 4) 4,502 8,556
Long-term other accounts receivable (Note 4) – 45,439
Long-term prepaid expenses 37,769 28,121
Deferred tax assets, net (Note 19) 159,609 238,289
Long-term loans (Notes 4 and 5) 116,977 31,202
Intangible assets (Note 9) 1,092,512 106,109
Total assets W11,880,126 W9,092,318
The accompanying notes are an integral part of these financial statements.Continued;
44
Non-Consolidated Balance SheetsAs of December 31, 2000 and 1999
In millions of Korean won 2000 1999
Liabilities
Current Liabilities :
Short-term borrowings (Note 10) W 658,355 W 129,781
Current maturities of long-term debt (Note 10) 1,663,716 1,366,092
Trade accounts and notes payable (Notes 5 and 22) 1,390,900 981,343
Other accounts payable (Note 5) 797,178 486,765
Income taxes payable (Note 19) 94,327 547,582
Accrued expenses (Note 5) 310,896 196,406
Withholdings 50,239 40,288
Advances from customers 159,808 96,324
Dividends payable (Note 21) 144,948 127,431
Other current liability (Note 14) 25,644 –
Total current liabilities 5,296,011 3,972,012
Debentures, net of current maturities and
discounts(premiums) on debentures (Note 11) 1,848,203 1,399,007
Long-term debt, net of current maturities (Note 11) 543,047 397,983
Long-term other accounts payable (Note 11) 2,287 5,205
Accrued severance benefits, net (Note 13) 181,211 128,730
Other long-term liabilities 1,725 3,051
Total liabilities 7,872,484 5,905,988
Commitments and contingencies (Note 14)
Shareholders’ Equity
Capital stock (Note 15) 1,031,068 632,116
Capital surplus :
Additional paid-in capital (Note 15) 1,985,154 493,508
Gain on merger (Note 16) 29,732 29,732
Revaluation surplus (Note 16) 339,619 339,676
Total capital surplus 2,354,505 862,916
Retained earnings (Note 17) :
Legal reserve 55,999 41,499
Other reserves 1,618,203 1,399,154
Unappropriated retained earnings carried forward 24 44
Total retained earnings 1,674,226 1,440,697
Capital adjustments (Note 18) (1,052,157) 250,601
Total shareholders’ equity 4,007,642 3,186,330
Total liabilities and shareholders’ equity W11,880,126 W9,092,318
The accompanying notes are an integral part of these financial statements.
45
Non-Consolidated Balance Sheets, continuedAs of December 31, 2000 and 1999
In millions of Korean won except for EPS amounts 2000 1999
Sales (Note 22) W14,835,674 W10,546,099
Cost of sales (Note 22) 11,820,761 8,356,103
Gross profit 3,014,913 2,189,996
Selling and administrative expenses 2,093,828 1,505,984
Operating income 921,085 684,012
Non-operating income :
Interest income 66,933 87,553
Dividends income 299 27,278
Foreign exchange gains 185,552 228,425
Gain on disposal of property, plant and equipment 2,359 14,431
Gain on disposal of investments (Note 7) 254,910 2,398,007
Gain on valuation of investments – 40,644
Gain on disposal of intangible assets (Note 7) – 281,391
Equity in earnings of affiliates, net (Note 7) 287,368 –
Royalty income 56,154 43,114
Other 188,145 102,940
1,041,720 3,223,783
Non-operating expenses :
Interest expense 436,870 509,269
Foreign exchange losses 275,389 260,780
Loss from transfer of trade accounts and notes receivable 196,222 106,437
Loss from disposal of property, plant and equipment 24,675 63,500
Loss from disposal of investments 83,865 33,256
Loss from redemption of debentures 664 75,718
Equity in losses of affiliates, net – 146,371
Donations 6,875 95,846
Other bad debt expenses 53,657 –
Other 156,052 28,713
1,234,269 1,319,890
Ordinary income 728,536 2,587,905
Extraordinary gains 188 –
Extraordinary losses – –
Income before income tax expenses 728,724 2,587,905
Income tax expenses (Note 19) 226,541 582,884
Net income 502,183 2,005,021
Ordinary income and earnings per share (Note 20) (in Korean won)
Basic ordinary income per share 4,430 18,494
Basic earnings per share 4,431 18,494
Diluted ordinary income per share 4,367 18,258
Diluted earnings per share W 4,368 W 18,258
The accompanying notes are an integral part of these financial statements.
46
Non-Consolidated Income StatementsFor the years ended December 31, 2000 and 1999
In millions of Korean won 2000 1999
Unappropriated retained earnings before appropriations :
Unappropriated retained earnings carried over from prior year W 44 W 33
Additional provision of severance benefits – (11,907)
Cumulative effect of retroactive adoption of the revised accounting standards 2,074 (727,055)
Net income for the year 502,183 2,005,021
504,301 1,266,092
Reversal of other reserves
Reserve for business rationalization 115,115 –
Reserve for technological development 407,237 11,290
Reserve for export losses 14,000 –
1,040,653 1,277,382
Appropriations of retained earnings (Note 17) :
Legal reserve 14,500 12,800
Reserve for business rationalization 70,000 200,000
Reserve for technological development 141,400 937,160
Reserve for redemption of redeemable preferred stock 544,000 –
Loss from disposal of treasury stock 125,868 –
Cash dividends (Note 21) 144,861 127,378
1,040,629 1,277,338
Unappropriated retained earnings to be carried forward to subsequent year W 24 W 44
The accompanying notes are an integral part of these financial statements
47
Non-Consolidated Statements of Appropriations of Retained EarningsFor the years ended December 31, 2000 and 1999Dates of appropriations : March 9, 2001 and March 17, 2000
In millions of Korean won 2000 1999
Cash flows from Operating Activities :
Net income W 502,183 W 2,005,021
Adjustments to reconcile net income to net cash provided by operating activities :
Depreciation 524,050 370,763
Amortization of discounts and premiums on debentures 27,234 28,250
Provision for severance benefits 127,087 92,070
Bad debt expense 117,546 74,569
Loss on valuation of investments, net – (40,644)
Foreign currency translation losses (gains), net 85,460 (24,089)
Gain on disposal of investments, net (171,045) (2,364,752)
Loss on disposal of property, plant and equipment, net 22,317 49,069
Loss on redemption of debentures 664 75,718
Equity in losses (earnings) of affiliates, net (287,368) 146,371
Gain on disposal of intangible assets – (281,392)
Others, net 29,429 (1,953)
Changes in assets and liabilities :
Decrease (increase) in trade accounts and notes receivable 272,942 (33,953)
Decrease in other accounts receivable 4,116 42,284
Increase in inventories (265,654) (107,553)
Decrease (increase) in prepaid expenses 28,654 (1,884)
Decrease (increase) in advances (90,079) 37,213
Increase in other current assets (24,598) (7,534)
Decrease in deferred income tax assets 134,249 15,991
Increase in trade accounts and notes payable 121,455 242,387
Increase in other accounts payable 199,956 113,456
Increase in accrued expenses 54,286 47,153
Increase in advances from customers 58,660 17,841
Increase (decrease) in income taxes payable (457,980) 533,953
Decrease in withholdings (7,523) (24,709)
Payment of severance benefits (85,046) (135,293)
Decrease in contribution to national pension fund 6,709 5,947
Other (2,210) 8,854
Net cash provided by operating activities W 925,494 W 883,154
The accompanying notes are an integral part of these financial statementsContinued;
48
Non-Consolidated Statements of Cash flowsFor the years ended December 31, 2000 and 1999
In millions of Korean won 2000 1999
Cash flows from Investing Activities :
Decrease in short-term financial instruments W 7,152 W 162,820
Proceeds from disposal of marketable securities 453 6,640
Proceeds from disposal of investments 576,897 3,124,663
Proceeds from disposal of property, plant and equipment 26,887 67,738
Proceeds from disposal of intangible assets – 288,000
Decrease in long-term financial instruments 19,796 90,170
Decrease in long-term other accounts receivable 54,766 –
Decrease (increase) in refundable deposits 122,232 (4,560)
Increase in long-term financial instruments (2,752) (40,467)
Increase in severance insurance deposits (6,249) (86,300)
Acquisition of marketable securities (7) (10,371)
Acquisition of investments (282,127) (2,216,799)
Acquisition of property, plant and equipment (755,821) (422,424)
Acquisition of intangible assets (98,250) (36,600)
Decrease (increase) in short and long-term loans (73,123) 11,921
Increase in cash by merger 178,700 –
Others 2,601 1,297
Net cash provided by (used in) investing activities (228,845) 935,728
Cash Flows from Financing Activities :
Decrease in short-term borrowings (677,062) (377,167)
Increase in debentures 1,100,672 153,758
Increase in long-term debt 296,843 83,493
Payment of current maturities of long-term debt (1,485,652) (1,386,056)
Payment of debentures (20,704) (299,230)
Payment of long-term debt – (16,577)
Payment of dividends (127,349) (13,512)
Proceeds from disposal of treasury stock 136,400 –
Acquisition of treasury stock (377,859) –
Issuance of redeemable preferred stock 542,952 –
Other (26) (5,988)
Net cash used in financing activities (611,785) (1,861,279)
Increase (Decrease) in Cash and Cash Equivalents 84,864 (42,397)
Cash at Beginning of the Year (Note 24) 85,965 128,362
Cash at End of the Year (Note 24) W 170,829 W 85,965
The accompanying notes are an integral part of these financial statements
49
Non-Consolidated Statements of Cash flows, continuedFor the years ended December 31, 2000 and 1999
1. The Company:
LG Electronics Inc. (the “Company”) was incorporated in 1959 under the Commercial Code of the Republic of Korea to
manufacture and sell electronic products. The Company is a member of the LG Group, which comprises affiliated companies under
common management direction. In 1970, the Company offered its shares for public ownership. As of December 31, 2000, the
Company has outstanding capital stock of W1,031,068 million, including non-voting preferred stock of W95,478 million and
redeemable preferred stock of W160,000 million (see Note 15). The Company’s common shares are listed on the Korean stock
exchange and its depositary receipts (“DRs”) are listed on the London and Luxembourg stock exchanges.
The Company entered into a merger agreement with LG Information & Communications, Ltd. (“LGIC”), an affiliate, which was in
the business of selling and manufacturing mobile telecommunication systems, mobile phones, electronic switching systems,
transmission equipment, network equipment and other related products, on June 8, 2000. The merger was approved at the
shareholders’ meeting on July 22, 2000. As a result, LGIC was merged into the Company effective September 1, 2000.
Pursuant to the resolution by the board of directors on November 27, 2000, the Company entered into a LOI (letter of intent)
regarding a joint venture of Cathode Ray Tubes (“CRT”) business with Koninklijke Philips Electronics N.V. (“Philips”). Currently,
detailed matters to establish the joint venture are being negotiated.
2. Summary of Significant Accounting Policies:
The significant accounting policies followed by the Company in the preparation of its financial statements are summarized below.
Basis of Financial Statement Presentation - The accompanying financial statements have been extracted from the Company’s
Korean language financial statements that were prepared using accounting principles, procedures and reporting practices generally
accepted in the Republic of Korea. These standards vary from International Accounting Standards and the accounting principles
generally accepted in the country of the reader. The financial statements have been translated from Korean into English, and have
been formatted in a manner different from the presentation under Korean financial statement practices. Certain supplementary
information included in the Korean language statutory financial statements, but not required for a fair presentation of the Company’s
financial position or results of operations, is not presented in the accompanying financial statements.
Accordingly, the accompanying financial statements are not intended to present the financial position, results of operations and cash
flows in accordance with accounting principles and practices generally accepted in countries and jurisdictions other than Korea.
The preparation of financial statements requires management to make estimates and assumptions that affect amounts reported
therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may differ from those
estimates.
Revenue Recognition - Sales of finished products and merchandise are recognized when delivered. Revenue from installation
service contracts is recognized using the percentage-of-completion method.
Marketable Securities and Investments in Debt and Equity Securities - All marketable securities and investments in equity and
debt securities are initially carried at cost determined by the weighted average method, including incidental expenses. In the case of
debt securities, cost includes the premium paid or discount received at the time of purchase. The following paragraphs describe the
subsequent accounting for securities by the type of security.
Marketable securities and investments in marketable equity securities of non-controlled investees are carried at fair value.
Temporary changes in fair value are recorded in current operations for marketable securities and accounted for in the capital
adjustment account, a component of shareholders’ equity, for investments in marketable equity securities.
Investments in non-marketable equity securities of non-controlled investees are carried at cost, except for declines in the Company’s
proportionate ownership of the underlying book value of the investee which are anticipated to be permanent, which are recorded in
current operations. Subsequent recoveries are also recorded in current operations up to the original cost of the investment.
50
Notes to Financial StatementsFor the years ended December 31, 2000 and 1999
Investments in equity securities of companies over which the Company exerts significant control or influence (controlled investees)
are recorded using the equity method of accounting. Differences between the initial purchase price and the Company’s initial
proportionate ownership of the net book value of the investee are amortized over 5 years using the straight-line method, except for
investees in the telecommunications industry, which are amortized over 10 years reflecting the industry’s longer term of realizing its
profit. Under the equity method, the Company records changes in its proportionate ownership of the book value of the investee as
current operations, capital adjustments or adjustments to retained earnings, depending on the nature of the underlying change in book
value of the investee.
Unrealized profit arising from sales by the Company to the equity-method investees is fully eliminated. Unrealized profit arising
from sales by the equity-method investees to the Company or sales between equity-method investees is also eliminated.
Premiums and discounts on debt securities are amortized over the life of the debt using the effective interest method. Investments in
debt securities which the Company has the intent and ability to hold to maturity are generally carried at cost, adjusted for the
amortization of discounts or premiums (amortized cost). Other investments in debt securities are carried at fair value. Temporary
differences between fair value and amortized cost are accounted for in the capital adjustment account.
Allowance for Doubtful Accounts - The Company provides an allowance for doubtful accounts and notes receivable based on the
aggregate estimated collectibility of the accounts and notes receivable.
Inventories - Inventories are stated at the lower of cost or market, cost being determined using the weighted average method, except
for materials in transit which are determined using the specific identification method.
Property, Plant and Equipment - Property, plant and equipment are recorded at cost except for upward revaluation in accordance
with the Korean Asset Revaluation Law. Such revaluation presents land at the prevailing market price and buildings and other
production facilities at their depreciated replacement cost, as of the effective date of revaluation. Depreciation is computed using the
straight-line method over the following estimated useful lives of the assets.
Estimated useful life (years)
Buildings 20 - 40
Structures 20 - 40
Machinery and equipment 5 - 10
Tools 5
Furniture and fixtures 5
Vehicles 5
Routine maintenance and repairs are charged to expense as incurred. Expenditures which enhance the value or materially extend the
useful lives of the related assets are capitalized.
Interest expense and other similar expenses incurred during the construction period of assets on funds borrowed to finance
construction are capitalized. Capitalized financing costs for the year ended December 31, 2000 and 1999 were approximately
W20,643 million and W11,982 million, respectively.
Lease Transactions - Lease agreements that include a bargain purchase option, result in the transfer of ownership at the end of the
lease term, have a term longer than 75 percent of the estimated economic life of the leased property, or have a present value of the
minimum lease payments at the beginning of the lease term more than 90 percent of the fair value of the leased property are
accounted for as capital leases. Leases that do not meet these criteria are accounted for as operating leases, of which the total
minimum lease payments are charged to expense over the lease period on a straight-line basis.
Research costs are expensed as incurred. Development costs directly relating to new technology or new products of which the
estimated future benefits are probable are recognized as intangible assets. Amortization of development costs is computed using the
straight-line method over five years from the commencement of commercial production of related products. Such costs are subject to
continual analysis of recoverability. In the event that such amounts are estimated to be not recoverable, they are written-down or
written-off.
Intangible Assets - Intangible assets are stated at cost, net of accumulated amortization. Amortization is computed using the
straight-line method over the estimated useful lives ranging from five to ten years.
51
Discounts (Premiums) on Debentures - Discounts (premiums) on debentures are amortized using the effective interest rate method
over the repayment period of the debentures. The amortized amount is included in interest expense.
Treasury Debentures - When treasury debentures are acquired, the face value and any discount or premium is subtracted from the
related accounts. The difference between the book value and acquisition cost of the treasury debentures is charged to current
operations as a gain or loss on redemption of debentures.
Treasury stock - Treasury stocks are stated at cost and recorded as capital adjustment in shareholders’ equity. Gain on disposal of
treasury stock is recorded as capital surplus. Any loss on disposal of treasury stock is offset against prior gains on disposal of
treasury stock included in capital surplus. The remaining loss is offset against retained earnings.
Accrued Severance Benefits - Employees and directors with more than one year of service are entitled to receive a lump-sum
severance 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.
Contributions made under the National Pension Plan and severance insurance deposits are deducted from accrued severance benefits.
Contributed amounts are refunded from the National Pension Plan and the insurance companies to employees on their retirement.
Income Taxes - The Company recognizes deferred income taxes for anticipated future tax consequences resulting from temporary
differences between amounts reported for financial accounting and income tax purposes. Deferred tax assets and liabilities are
computed on such temporary differences by applying enacted statutory tax rates applicable to the years when such differences are
expected to be reversed. Deferred tax assets are recognized to the extent that it is more likely than not that such deferred tax assets
will be realized. The total income tax provision includes current tax expenses under applicable tax regulations and the change in the
balance of deferred tax assets and liabilities.
Tax credits for investments and development of technology and manpower are accounted for using the flow-through method,
whereby they reduce income taxes in the period the assets giving rise to such credits are placed in service. To the extent such credits
are not currently utilized, deferred tax assets, subject to realizability as stated above, are recognized for the carry-forward amount.
Sale of Accounts and Notes Receivables - The Company sells certain accounts or notes receivable to financial institutions at a
discount, and accounts for the transactions as sales of the receivables if the rights and obligations relating to the receivables are
substantially transferred to the buyers. The gains and losses from the sales of the receivables are charged to operations as incurred.
Foreign Currency Translation - Monetary assets and liabilities denominated in foreign currencies are translated into Korean Won
at the basic rates in effect at the balance sheet date, and resulting translation gains and losses are recognized currently.
The exchange rates used to translate U.S. Dollar denominated monetary assets and liabilities at December 31, 2000 and 1999 are
W1,259.7 : US$1 and W1,145.4 : US$1, respectively.
Foreign currency dominated convertible bonds are translated at the historical exchange rates prevailing as of the date of issuance.
Derivative Financial Instruments - The Company utilizes several derivative financial instruments (“derivatives”) such as forward
exchanges, swaps and option contracts to reduce its exposure resulting from fluctuations in foreign currency and interest rates. The
derivatives are carried at fair market value. Unrealized gains or losses on derivatives for trading or fair value hedging purposes are
recorded in current operations. Unrealized gains or losses on derivatives for cash flow hedging purposes are recorded in current
operations for the portion of the hedge that is not effective. For the portions of cash flow hedges which are effective, unrealized
gains or losses are accounted for in the capital adjustment account and recorded in operations in the period when underlying
transactions have effect on operations.
Reclassifications - Certain amounts in the 1999 financial statement have been reclassified to conform to the 2000 presentation.
These reclassifications have no effect on previously reported net income or shareholders’ equity.
3. Restricted Financial Instruments :
As of December 31, 2000 and 1999, short-term financial instruments of W3,013 million and W5,923 million, respectively, and long-
term financial instruments of W208 million and W6,846 million, respectively, are deposited in connection with maintaining
52
checking accounts, various short-term borrowings and long-term debt, and research and development projects funded by the
government. The withdrawal of these financial instruments is restricted (see Notes 10 and 11).
In addition, long-term financial instruments of W16,882 million as of December 31, 1999 represent deposits made under group
severance insurance plans. The withdrawal of such deposits is restricted to the actual payment of severance benefits (see Note 13).
4. Receivables :
Receivables, including trade accounts and notes receivable, as of December 31, 2000 and 1999 comprise the following (Millions of
Won) :
2000 1999
Allowance Discounts Carrying
Allowance Discounts CarryingCosts for doubtful for present
valueCosts for doubtful for present
valueMillions of won accounts value accounts value
Trade accounts and
notes receivable W 896,516 W 94,208 W2,707 W 799,601 W521,656 W38,259 W 2,679 W480,718
Other accounts
receivable 185,700 21,559 – 164,141 175,702 2,974 – 172,728
Accrued income 225,637 34,098 – 191,539 81,789 818 – 80,971
Advances 160,225 1,445 – 158,780 62,011 1,173 – 60,838
Other current assets 6,910 65 – 6,845 24,800 59 – 24,741
Long-term trade
accounts receivable 4,547 45 – 4,502 8,642 86 – 8,556
Long-term other
accounts receivable – – – – 60,174 602 14,133 45,439
Long-term loans 148,082 31,105 – 116,977 31,517 315 – 31,202
W1,627,617 W182,525 W2,707 W1,442,385 W966,291 W44,286 W16,812 W905,193
Maturities of certain trade accounts and notes receivable from customers which are suffering financial difficulties and are in process
of corporate reorganization under the court are rescheduled and the receivables are discounted to record present value. Future annual
maturities of such receivables outstanding as of December 31, 2000 are as follows :
Millions of won
For the year ending December 31,Amount to be
Present value* Discountcollected
2001 W 3,407 W 2,377 W 1,030
2002 2,510 2,094 416
2003 2,980 2,400 580
2004 2,041 1,691 350
2005 2,001 1,670 331
W 12,939 W 10,232 W 2,707
*Weighted average interest rate of long-term debt of the Company for the year ended December 31, 1999 (11.0%) is used to calculate discounted present value.
As of December 31, 2000, the outstanding balance of notes receivable, sold at discount to financial institution with recourse, from
Hyundai Electronics Industries Co., Ltd. in relation to the Company’s share transfer of LG Semicon Co., Ltd. in 1999 is W550,024
million.
53
5. Assets and Liabilities Denominated in Foreign Currencies:
As of December 31, 2000 and 1999, monetary assets and liabilities denominated in foreign currencies, other than those disclosed in
Notes 10 and 11, are as follows:
2000 1999
Foreign currencies Won equivalent Foreign currencies Won equivalent
(In millions) (Millions of won) (In millions) (Millions of won)
Cash and cash equivalents USD 69 W 86,723 USD 39 W 45,004
JPY 439 4,833 JPY 287 3,220
ESP 168 1,195 ESP 180 1,247
AUD 2 1,456 AUD 2 1,473
GBP 1 1,624 GBP 2 3,157
ITL 1,447 887 ITL 1,891 1,123
Others 20,780 Others 13,951
117,498 69,175
Trade accounts receivable USD 235 296,564 USD 198 227,067
DEM 6 3,386 DEM 10 6,066
JPY 259 2,854 JPY 71 799
HKD 118 19,082 HKD 40 5,853
Others 12,488 Others 7,057
334,374 246,842
Accrued income USD 55 69,788 USD 29 33,017
GBP 1 1,830 Others 47
71,618 33,064
Other accounts receivable USD 1 210 USD 3 2,893
ITL 436 267 ITL 436 259
FRF 10 1,812 FFR 7 1,261
Others 3 Others 48
2,292 4,461
Refundable deposits JPY 26 289 JPY 26 294
USD 1 1,755 USD 2 1,799
2,044 2,093
Long-term loan USD 85 W107,069 W –
Trade accounts payable USD 445 W561,083 USD 342 W391,569
JPY 9,280 102,231 JPY 8,975 100,682
DEM 4 2,507 DEM 2 1,183
ITL 416 255 ITL 1,076 639
EUR 1 1,032
Others 16 Others 14
667,124 494,087
Other accounts payable USD 114 144,205 USD 67 77,103
DEM 38 23,050 DEM 7 3,855
ESP 293 2,091 FFR 44 7,714
JPY 863 9,507 ESP 167 1,153
Others 11,736 JPY 199 2,235
Others 6,112
190,589 98,172
Accrued expenses USD 33 41,684 USD 11 12,695
AUD 8 5,902
DEM 1 638 DEM 2 1,069
Others 1,145 Others 143
W 49,369 W 13,907
54
6. Inventories:
Inventories as of December 31, 2000 and 1999 comprise the following:
Millions of won 2000 1999
Merchandise W 33,517 W 15,582
Finished products 474,415 251,799
Work in process 172,231 85,983
Raw materials 406,664 122,099
Parts and supplies 105,052 74,984
W1,191,879 W550,447
At December 31, 2000 and 1999, inventories are insured against fire and other casualty losses up to approximately W652,806
million and W501,787 million, respectively.
In addition, at December 31, 2000, inventories and property, plant and equipment are collectively insured against fire and other
casualty losses up to approximately W872,563.
7. Investments :
Marketable securities as of December 31, 2000 consist of government and municipal bonds which are due within one year.
Investments as of December 31, 2000 and 1999 are as follows :
Percentage of
Ownership(%) at 2000 1999
December 31, Acquisition Net asset Carrying Acquisition Net asset Carrying
Millions of won 2000 cost value value cost value value
<Equity method of accounting>
LG Construction Co., Ltd. 8.56 W 35,148 W 61,091 W 61,091 W 35,148 W 70,244 W 70,244
LG Micron Ltd. 17.24 5,000 29,040 29,040 5,000 35,375 35,375
LG Department Store Co., Ltd. 57.70 72,706 46,933 46,933 66,012 44,179 44,179
LG International Corp. 2.94 20,253 18,527 18,527 20,253 18,074 18,074
LG Sports Ltd. 39.25 2,204 1,949 1,949 1,896 1,715 1,715
LG Innotek Co., Ltd.
(formerly, LG Precision Co., Ltd.) 53.41 31,135 79,062 79,062 24,592 72,571 72,57
LG Cable Ltd. 5.96 29,313 52,724 52,724 – – –
LG Capital Co., Ltd. 6.17 24,651 54,810 54,810 18,482 29,085 29,085
LG Investments Security Inc. 7.15 262,432 170,177 170,177 233,833 194,359 194,359
LG Hitachi Ltd. 49.00 6,060 7,275 7,275 12,150 18,487 18,487
LG-Caltex Oil Corp. 3.07 50,004 102,350 102,350 50,004 95,314 95,314
LG-EDS Systems Inc. 10.00 360 6,469 6,469 360 4,605 4,605
LG. Philips LCD Co., Ltd. 50.00 726,169 759,815 759,815 726,169 692,782 692,782
LG Internet Inc. – – – – 29,988 8,170 8,170
LG Information &
Communications Co., Ltd. – – – – 352,013 413,402 413,402
Kukdong City Gas Inc. – – – – 17,088 12,823 12,823
Hitachi/LG Data Storage Inc. (*2) 49.00 7,684 7,684 7,684
Dacom Corporation (*3) 49.06 1,299,943 991,139 991,139 746,669 787,312 787,312
Goldstar Electronics Tailand
Co., Ltd. (G.S.T.) (*2) 49.00 36 36 36 36 36 36
LG Electronics Almaty Kazak
Co., Ltd. (LGEAK) (*3) 100.00 3,746 3,584 3,584 3,746 3,965 3,965
LG Electronics Antwerp
Logistics N.V. (LGEAL) (*3) 100.00 967 315 315 967 115 115
LG Electronics Australia
PTY, Ltd. (LGEAP) (*1) 100.00 1,558 – – 1,558 – –
55
Percentage of
Ownership(%) at 2000 1999
December 31, Acquisition Net asset Carrying Acquisition Net asset Carrying
Millions of won 2000 cost value value cost value value
<Equity method of accounting>
LG Electronics Argentina
S.A. (LGEAR) (*2) 100.00 W 1,111 W 1,111 W 1,111 W – W – W –
Arcelik-LG Klima Sanayi ve
Ticaret A.S. (LGEAT) (*3) 50.00 14,718 7,874 7,874 9,764 9,764 9,764
LG Electronics da Amazonia
Ltda. (LGEAZ) 100.00 34,663 18,773 18,773 34,663 15,941 15,941
Beijing LG Electronics Components
Co., Ltd. (LGEBJ) 58.33 4,269 7,205 7,205 2,025 2,248 2,248
LG Electronics Columbia,
Ltda. (LGECB) (*2) 60.00 3,330 3,330 3,330 – – –
LG Electronics (China) Co., Ltd.
(LGECH) (*3) 100.00 37,614 49,923 49,923 37,614 38,146 38,146
LG Electronics Canada, Inc.
(LGECI) (*3) 100.00 13,779 13,470 13,470 13,780 11,032 11,032
LG Collins Electronics Manila
Inc. (LGECM) (*3) 92.25 20,302 8,235 8,235 20,302 9,226 9,226
Taizhou LG-Chunlan Home
Appliances Co., Ltd. (LGECT) (*3) 50.00 22,953 21,153 21,153 22,953 29,388 29,388
LG Electronics Deutschland
GMBH (LGEDG) 100.00 26,938 14,652 14,652 26,938 686 686
PT LG Electronics Display
Devices Indonesia (LGEDI) 100.00 79,543 133,099 133,099 79,543 115,692 115,692
LG Electronics Design
Tech, Ltd. (LGEDT) (*2) 100.00 1,002 1,002 1,002 1,002 1,002 1,002
LG Electronics Egypt
S.A.E (LGEEG) (*3) 51.00 1,577 2,825 2,825 1,577 3,109 3,109
LG Electronics Espana S.A.
(LGEES) (*1) 100.00 3,374 – – 3,374 1,292 1,292
LG Electronics Gulf FZE
(LGEGF) (*3) 100.00 2,489 1,803 1,803 2,489 2,966 2,966
LG Electronics HK
Limited (LGEHK) (*3) 100.00 4,316 748 748 4,316 246 246
LG Hotline CPT Ltd. (LGEHL) (*1) 50.00 10,561 – – 10,561 – –
LG Electronics (Huizhou)
Inc. (LGEHZ) (*3) 45.00 1,277 6,037 6,037 1,277 2,704 2,704
LG Electronics India PVT
Ltd. (LGEIL) (*3) 100.00 32,076 49,776 49,776 32,076 42,426 42,426
PT LG Electronics
Indonesia (LGEIN) (*3) 100.00 29,431 11,058 11,058 29,431 9,850 9,850
LG Electronics Italy S.P.A. (LGEIS) 100.00 14,136 5,712 5,712 3,106 - -
LG Electronics Japan Inc.
(LGEJP) (*3) 100.00 12,978 885 885 12,978 - -
LG Electronics Mlawa
SP.Zo.O.(LGEMA) (*3) 100.00 7,066 5,323 5,323 7,066 7,066 7,066
LG Electronics Morocco
S.A.R.L (LGEMC)(*2) 85.00 2,774 2,774 2,774 - - -
LG Electronics Middle East
Co., Ltd. (LGEME) (*3) 100.00 462 440 440 462 462 462
LG-MECA Electronics Haiphong,
Inc. (LGEMH) (*3) 70.00 1,690 1,598 1,598 1,690 1,690 1,690
56
Percentage of
Ownership(%) at 2000 1999
December 31, Acquisition Net asset Carrying Acquisition Net asset Carrying
Millions of won 2000 cost value value cost value value
<Equity method of accounting>
LG Electronics Magyar Kft
(LGEMK) (*3) 100.00 W 5,575 W 6,680 W 6,680 W 5,575 W 5,136 W 5,136
LG Electronics (M) SDN. BHD
(LGEML) (*2) 100.00 11 11 11 – – –
LG Electronics Monterrey Mexico
S.A de C.V. (LGEMM) (*2) 100.00 8,906 8,906 8,906 – – –
LG Electronics Mexico
S.A.de C.V. (LGEMS) 98.48 1,936 2,859 2,859 1,936 8,764 8,764
LG MITR Electronics
Co., Ltd. (LGEMT) (*3) 87.74 15,925 4,590 4,590 15,925 3,531 3,531
LG Electronics North of
England Ltd. (LGENE) (*3) 100.00 11,229 12,060 12,060 11,229 10,555 10,555
Nanjing LG-Tontru Color
Display System Co., Ltd.
(LGENT) (*3) 70.00 14,571 6,654 6,654 14,571 6,861 6,861
LG Electronics Polska
SP.Zo.O. (LGEPL) (*3) 100.00 4,117 5,167 5,167 4,117 3,798 3,798
Nanjing LG Panda Appliances
Co., Ltd. (LGEPN) (*3) 40.00 3,737 6,467 6,467 3,737 3,980 3,980
LG Electronics Peru S.A.
(LGEPR) (*1) 100.00 1,879 – – 1,879 – –
LG Electronics Panama
S.A. (LGEPS) 100.00 2,333 4,077 4,077 2,333 3,571 3,571
LG Electronics (Qinhuangdao)
Co., Ltd. (LGEQH) (*3) 80.00 3,284 4,788 4,788 3,284 3,392 3,392
Triveni (formerly, LGERCA) (*2) 100.00 899 899 899 899 899 899
LG Electronics Russia Inc.
(LGERI) (*2) 95.00 391 391 391 391 391 391
LG Electronics S.A. Pty Ltd.
(LGESA) (*3) 100.00 3,382 270 270 3,382 3,722 3,722
LG Electronics Service Europe
Netherland B.V. (LGESE) (*1) 100.00 3,978 – – 3,978 3,978 3,978
Shuguang LG Electronics
Co., Ltd. (LGESG) (*3) 42.55 81,105 73,618 73,618 56,511 75,682 75,682
Shanghai LG Electronics
Co., Ltd. (LGESH) (*3) 50.00 3,021 4,585 4,585 3,021 3,571 3,571
LG Electronics Da
Saopaulo Ltda (LGESP) 100.00 28,481 15,503 15,503 28,481 14,628 14,628
LG SEL Electronics Vietnam
Ltd. (LGESV) (*3) 55.00 1,711 4,150 4,150 1,711 4,092 4,092
LG Electronics Sweden AB
(LGESW) (*2) 100.00 5,668 5,658 5,658 2,319 2,319 2,319
LG Electronics (Shenyang)
Inc. (LGESY) (*3) 57.50 12,822 14,673 14,673 5,795 3,684 3,684
LG Electronics Tianjin
Appliances Co., Ltd. (LGETA) 70.00 42,948 76,619 76,619 42,948 49,953 49,953
LG Electronics Thailand
Co., Ltd. (LGETH) (*3) 49.00 3,407 7,263 7,263 3,407 4,444 4,444
LG. Philips LCD Taiwan Co., Ltd.
(LGPLT) (formerly, LGETW) (*4) – – – – 4,281 4,281 4,281
57
Percentage of
Ownership(%) at 2000 1999
December 31, Acquisition Net asset Carrying Acquisition Net asset Carrying
Millions of won 2000 cost value value cost value value
<Equity method of accounting>
LG Electronics United Kingdom Ltd.
(LGEUK) (*1) 100.00 W 10,486 W – W – W 10,486 W 1,359 W 1,359
LG Electronics Ukraine
Co., Ltd. (LGEUR) (*2) 100.00 1,041 1,041 1,041 1,041 1,041 1,041
LG Electronics U.S.A., Inc.
(LGEUS) 100.00 37,985 25,236 25,236 15,673 – –
LG Electronics Wales Ltd.
(LGEWA) 100.00 101,813 67,313 67,313 101,812 77,249 77,249
LG Soft India PVT, LTD
(LGSI) (*2) 88.00 2,920 2,920 2,920 2,920 2,920 2,920
Zenith Electronics
Corporation (Zenith) (*1) 100.00 236,860 – – 236,860 – –
LG TOPS (*2) 40.00 1,799 1,799 1,799 – – –
Escort Communication Ltd. (*2) 100.00 6,400 6,400 6,400 – – –
NeoPoint, Inc. (*5) 16.67 1,604 – – – – –
Electromagnetica
Goldstar S.R.L (*2) 50.00 508 508 508
LG Telecom Corp. (*2) 75.00 369 369 369
Vietnam SLD TEL (*2) 44.00 250 250 250
Others (*3) - 820,828 689,015 689,015 618,698 526,272 526,272
Investments applying the equity
method of accounting 4,447,977 3,822,525 3,822,525 3,914,151 3,637,622 3,637,622
<Marketable equity securities>
Hyundai Electronics Industries
Co., Ltd. 0.38 24,298 7,569 7,569 28,221 52,634 52,634
Korea stock market stabilization fund 2.41 20,841 10,977 10,977 23,235 22,806 22,806
P.D.I – – – – 336 1,258 1,258
Hanaro Telecom Inc. 4.66 147,547 25,591 25,591 117,428 117,900 117,900
Vodavi Technology Inc. 18.71 2,928 1,184 1,184 – – –
195,614 45,321 45,321 169,220 194,598 194,598
<Non-marketable equity securities>
Domestic Companies
Media Valley Inc. 1.81 300 187 300 300 310 300
Nara Mold & Die Co., Ltd. 19.90 812 2,648 812 597 1,220 597
Lotis Co., Ltd. 14.01 1,900 1,060 1,900 1,900 1,900 1,900
LG OTIS Elevator Co., Ltd. 19.90 89,550 87,890 89,550 89,550 89,550 89,550
Dreamwiz 10.00 11,111 1,513 11,111 – – –
Korea Information Certificate Authority 10.00 1,852 1,841 1,852 – – –
STIC 94.00 28,200 28,829 28,200 – – –
Shinsegi Telecom 1.64 4,514 4,514 4,514 – – –
IT Telecom 19.03 456 456 456 – – –
Airlinktek 10.00 589 589 589 – – –
QMTel 9.53 1,200 1,200 1,200 – – –
Msoltech 10.00 635 635 635 – – –
Other 3,354 4,042 3,354 557 719 557
Overseas Companies
TAISTAR 11.85 760 990 760 760 995 760
GEMFIRE 4.41 1,835 170 1,835 1,835 191 1,835
58
Percentage of
Ownership(%) at 2000 1999
December 31, Acquisition Net asset Carrying Acquisition Net asset Carrying
Millions of won 2000 cost value value cost value value
<Non-marketable equity securities>
Overseas Companies
Nakhodka FEZ
Telecommunication Co., Ltd. 5.00 W 129 W 129 W 129 W – W – W –
NICE Telecom 15.00 105 105 105 – – –
Erlang Technology 8.40 1,129 1,129 1,129 – – –
Mainstreet Networks (*5) 5.45 – – – 1,468 – 1,468
iTV Corporation (*5) 13.08 – – – 1,957 – 1,957
PocketScience (*5) 4.42 – – – 473 – 473
Nextwave (*5) 3.47 – – – – – –
148,431 137,927 148,431 99,397 94,885 99,397
<Debt securities>
Bonds issued by government 30,034 21,843 21,843 58,015 45,668 45,668
Senior secured note issued by Zenith 135,195 148,686 148,686 147,519 142,674 142,674
ABS subordinated bond 13,700 13,700 13,700 – – –
Corporate bond (*6) 10,000 10,000 10,000 – – –
188,929 194,229 194,229 205,534 188,342 188,342
532,974 377,477 387,981 474,151 477,825 482,337
W4,980,951 W4,200,002 W4,210,506 W4,388,302 W4,115,447 W4,119,959
(*1) The equity method of accounting has been suspended due to accumulated losses. (*2) Investments in small sized subsidiaries and affiliates whose total assets at the previous year-end are less than W7,000 million are stated at cost
in accordance with financial accounting standards generally accepted in the Republic of Korea. (*3) The equity method of accounting is applied based on most recent unaudited financial statements of subsidiaries and affiliates.(*4) The Company sold its shares of LG. Philips LCD Taiwan Co., Ltd. (LGPLT) to LG. Philips LCD Co., Ltd. on May 31, 2000.(*5) Acquisition cost was written off due to negative net book value of the investment as of December 31, 2000.(*6) This corporation bond was issued by LG Investment and Securities Inc., an affiliate.
Reconciliation of acquisition cost of investments in subsidiaries and affiliates accounted for using the equity method to their carrying
value as of December 31, 2000 is as follows :
Capital Retained
Millions of won adjustment earningsNet income Total
Acqusition Cost W4,447,977
Adjustment :
Change in accounting standards W(89,425) W 31,668 W – (57,757)
Capital surplus and capital adjustments 12,894 – – 12,894
Prior years’ net loss – (499,567) – (499,567)
Current year’s net income – – 358,236 358,236
Elimination of unrealized profit – – (70,868) (70,868)
Dividends income – (311,673) – (311,673)
Sub total 3,879,242
Disposal of investment securities (56,717)
Carrying Value W3,822,525
At December 31, 2000 and 1999, except for the Korea stock market stabilization fund, of which the differences between the market
value and the acquisition cost are charged to current operations, the differences between the market value and the acquisition cost of
the investments in marketable equity securities are accounted for as capital adjustments.
Pursuant to a share transfer agreement dated May 20, 1999, the Company transferred 61,512,076 shares of LG Semicon Co., Ltd. to
Hyundai Electronics Industries Co., Ltd. in exchange for W1,726,208 million and recognized a gain on disposal of investment of
W1,102,930 million for the year ended December 31, 1999. Pursuant to the agreement, the Company recognized a loss from price
adjustment of W59,600 million for the year ended December 31, 2000.
59
Pursuant to a joint venture agreement with Koninklijke Philips Electronics N.V. (“Philips”) in July 1999, the Company transferred
certain of the Company’s stock rights in LG.Philips LCD Co., Ltd. to Philips. As a result, the Company reduced its ownership of
LG.Philips LCD Co., Ltd. to 50% and recognized a gain on disposal of investment of W247,800 million and W1,179,939 million for
the years ended December 31, 2000 and 1999, respectively.
In 1999, the Company transferred its own patents in relation to Thin Film Transistor Liquid Crystal Displays (“TFT-LCD”) to
LG.Philips LCD Co., Ltd. in exchange for W288,000 million and recognized a gain on disposal of intangible assets amounting to
W281,391 million. According to the equity method of accounting, unrealized profit of approximately W253,252 million, net of
realized profit, arising from the sales of the patents by the Company to LG. Philips LCD Co., Ltd., an equity-method investee, is
fully eliminated and charged to investment in LG. Philips LCD Co., Ltd.
Senior secured note issued by Zenith outstanding at December 31, 2000 and 1999, was converted from the Company’s receivables
from Zenith according to the reorganization plan of Zenith approved by the court in the United States of America on November 5,
1999 (see Note 14). The note’s terms and conditions are as follows :
Interest : Effective August 1, 2000, terms were changed from LIBOR+6.5% on a quarterly basis to LIBOR+3.0% on an annual
basis
Maturity of principal : November 1, 2009
8. Property, Plant and Equipment:
Property, plant and equipment as of December 31, 2000 and 1999 comprise the following :
Millions of won 2000 1999
Buildings W1,095,616 W1,000,223
Structures 107,578 94,673
Machinery and equipment 1,282,603 985,193
Tools 776,989 697,789
Furniture and fixtures 484,019 405,810
Vehicles 27,099 24,777
3,773,904 3,208,465
Accumulated depreciation (1,500,218) (1,270,871)
2,273,686 1,937,594
Land 794,384 702,810
Construction in progress 218,694 77,973
Machinery in transit 50,324 7,872
W3,337,088 W2,726,249
As of December 31, 2000 and 1999, the value of the Company’s land, as determined by the local government in Korea for property
tax assessment purpose, approximates W655,189 million and W581,759 million, respectively.
As of December 31, 2000 and 1999, property, plant and equipment, other than land and certain construction in progress, are insured
against fire and other casualty losses up to approximately W3,871,698 million and W4,009,987 million, respectively. See Note 6 for
additional insurance policies for property, plant and equipment.
A substantial portion of property, plant and equipment as of December 31, 2000 and 1999 is pledged as collateral for various loans
from banks, including Korea Development Bank, up to a maximum Won equivalent amount of approximately W649,139 million and
W583,009 million, respectively (see Notes 10 and 11).
9. Intangible Assets :
Intangible assets as of December 31, 2000 and 1999 comprise the following :
60
Millions of won 2000 1999
Goodwill W 375,170 W –
Development costs 120,557 82,938
Industrial property rights 558,702 15,979
Other 38,083 7,192
W1,092,512 W106,109
Details of research and development costs incurred for the years ended December 31, 2000 and 1999 are as follows :
Millions of won 2000 1999
Capitalized W 76,836 W 74,271
Expensed 295,776 179,697
W372,612 W253,968
As a result of the merger with LG Information & Communications, Ltd., the Company recognized goodwill of W393,820 million
and acquired industrial property rights of W578,788 million. Related amortization expenses of goodwill and industrial property
rights approximate W21,275 million and W38,180 million, respectively, for the year ended December 31, 2000 (Note 25).
10. Short-Term Borrowings:
Short-term borrowings as of December 31, 2000 and 1999 comprise the following :
Annual interest rates (%) In millions
as of December 31, 2000 2000 1999
Bank overdrafts 10.5 – 11.5 W 430 W 16,957
Won currency loans :
General term loans 7.5 – 8.25 171,500 81,500
Notes discounted 7.05 – 7.86 357,100 –
Loans from insurance companies – – 20,000
528,600 101,500
Foreign currency loans LIBOR + 1 - 1.5 11,849 11,324
US$ 9 US$ 1
¥ 897
Trade loans 1.48 – 9.3 117,476 –
US$ 91
¥ 250
W658,355 W129,781
See Notes 3 and 8 for collateral arrangements for these borrowings.
Current maturities of long-term debt as of December 31, 2000 and 1999 comprise the following :
Millions of won 2000 1999
Debentures W1,410,500 W1,154,450
Discount on debentures, net (11,263) (6,158)
Long-term debt 261,197 217,800
Long-term other accounts payable 3,282 –
W1,663,716 W1,366,092
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[ ]
[ ]
11. Long-Term Debt :
Long-term debt as of December 31, 2000 and 1999 comprises the following:
Annual interest rate (%)
In millions at December 31, 2000 2000 1999
Debentures
Public, guaranteed payable through 2001 22.0 - 25.0 W 55,500 W 787,100
Private, non-guaranteed payable through 2004 7.25 - 16.5 460,000 311,000
Public, non-guaranteed payable through 2003 7.0 - 12.0 2,410,000 1,320,000
Floating rate notes in foreign currency,
payable through 2002 (*1) LIBOR+1.2-1.4 278,394 83,350
(US$ 221) HK$ 550
US$ 2
3,203,894 2,501,450
Convertible Bonds
Foreign currency, issued in 1991 (*2) – – 40
(US$ –) (US$ –)
Foreign currency, issued in 1996 (*3) 1.25 33,096 33,096
(US$ 40) (US$ 40)
Won currency, issued in 1998 1.00 – 100,000
33,096 133,136
Exchangeable Bonds (*4)
Foreign currency, issued in 1997 0.25 66,623 66,623
(US$ 75) (US$ 75)
3,303,613 2,701,209
Less : treasury debentures (17,171) (117,171)
current maturities (1,410,500) (1,154,450)
discount on debentures (28,045) (38,170)
premium on debentures 306 7,589
1,848,203 1,399,007
Annual interest rate (%)
In millions at December 31, 2000 2000 1999
Won currency loans
Kookmin Bank 5.0 – 10.0 94,728 4,439
Korea Development Bank 5.5 – 9.95 196,659 91,266
Housing and Commercial Bank 3.0 843 853
Hana Bank 5.5 – 8.0 2,694 920
Hanvit Bank 8.08 30,000 30,000
Korea Technology Banking Corporation 6.0 – 7.5 15,061 6,104
Korea Development Capital Corporation 7.0 1,280 –
Korea Network Research Association 7.0 467 –
W 341,732 W 133,582
62
[ ]
Annual interest rate (%)
In millions at December 31, 2000 2000 1999
Foreign currency loans
Korea Development Bank Libor + 0.5 - 1.95 W 94,753 W 45,816
Libor + 2.95 10,565 12,022
Korea Exchange Bank Libor + 0.45 188,955 171,810
Kookmin Bank Libor + 2.5 896 1,987
Libor + 0.75 79 –
Hanvit Bank Libor + 0.4 - 2.5 11,111 66,386
Korea First Bank Libor + 1.5 15,080 10,205
Export-Import Bank of Korea Libor + 0.625-1.175 7,115 4,503
Chohung Bank Libor + 0.6 34,012 –
– – 96,848
Development Bank of Singapore Libor + 1.6 12,507 –
NOVASCOTIA Libor + 1.5 26,626 –
Banque Paribas Libor + 0.7 8,257 9,384
Societe General Libor + 0.6 18,443 21,561
Sumitomo Bank Libor + 0.65 11,389 14,903
Bank One Libor + 2.5 4,206 11,472
Libor + 1.4 5,039 –
Citi Bank – – 13,678
Bank of Tokyo-Mitsubishi Libor + 0.74 13,479 1,626
462,512 482,201
US$ 367 US$ 415
¥ – ¥ 646
804,244 615,783
Less : current maturities (261,197) (217,800)
W543,047 W397,983
In relation to guaranteed debentures, the Company pays guarantee fees of 0.1% ~ 0.5% per annum.
Treasury debentures of W17,171 million held by the Company as of December 31, 2000 are a portion of exchangeable bonds, and
Won currency convertible bond of W100,000 million was cancelled in 2000.
(*1) In 2000, the Company issued U.S. dollar denominated floating rate notes aggregating US$221 million, which are due in 2002. (*2) In 2000, the foreign currency convertible bond issued in 1991 has been redeemed earlier than its maturity.(*3) In 1996, the Company issued foreign currency denominated convertible bonds aggregating US$40 million, bearing interest at 1.25% per
annum. The bonds are convertible into common stock through October 2006, unless previously redeemed, at a specified conversion price,subject to adjustment based on the occurrence of certain events as provided for in the offering agreement. The adjusted conversion price as ofDecember 31, 2000 is W22,174 per share. The fixed rate of exchange applicable to the exercise of the conversion rights is W827.40 perUS$1.00. The bonds will mature on November 26, 2006 at par value, unless previously converted or redeemed. Any bondholder may redeem allor some of the bonds held on November 26, 2001 at 133.20% of the principal amount of such bonds, together with interest accrued to the date ofredemption.
(*4) In 1997, the Company issued foreign currency denominated exchangeable bonds totaling US$ 75 million bearing interest at 0.25% per annum.The bonds are exchangeable into common stock of Hyundai Electronics Industries Co., Ltd. (“Hyundai Electronics,” formerly “LG SemiconCo., Ltd.”) through November 2007, unless previously redeemed. Each bond can be exchanged for 250 shares of Hyundai Electronics commonstock with a par value of W5,000. The exchange price was initially determined to be W35,430 per share based on a fixed exchange rate for U.S.dollars of US$1.00 = W888.30. The terms and conditions of the exchangeable bonds are as follows :
* Basic exchange price for each share of Hyundai Electronics common stock : US$ 39.88 (W35,430 / W888.30)* Payment of interest : At the end of each year* Final redemption : Unless previously redeemed, purchased or exchanged, the bonds will be redeemed on December 31, 2007 at their
principal amount, plus accrued interest.* Redemption at the option of the Company : The Company may redeem any or all of the bonds at their principal amount, plus accrued
interest. However, no such redemption can be made before July 9, 2002, unless the closing price (converted into U.S. dollars at theprevailing exchange rate) for each of the 30 consecutive trading days, the last of which occurs not more than 30 days prior to the date uponwhich the notice of redemption is published, has been at least 135% of the exchange price in effect on each such trading day converted intoU.S. Dollars at a fixed exchange rate of US$1.00 : W888.30.
* Redemption at the option of the bondholders : The bondholders may require the Company to redeem any or all (in multiples of US$ 10,000)of the bonds held by such holders on July 8, 2002 at 133.67% of the principal amount of such bonds, plus accrued interest.
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[ ] [ ]
* Exchange by bondholder: Each bond is exchangeable for a pro rata share of the exchange property until November 30, 2007. The exchangeproperty initially comprised 1,880,397 common shares of Hyundai Electronics, calculated by dividing the aggregate principal amount(converted into Won at a fixed exchange rate of US$1.00 : W888.30) by the exchange price, but is subject to change as a result of anyadjustment to the exchange price or an offer made for the common shares.
In July 1996, relating to construction of the Bundang research center, the Company entered into a land purchase agreement with
Korea Land Corporation under which the Company has acquired certain land and is obligated to pay the contracted amount on an
installment basis through 2001. As of December 31, 2000 and 1999, the Company has outstanding long-term other accounts payable
for the agreement amounting to W2,287 million and W5,205 million, respectively.
See Notes 3 and 8 for the related collateral arrangements for the Company’s long-term debt.
The maturities of long-term debt outstanding as of December 31, 2000 are as follows:
Millions of won
For the year ending Debentures and Long-term debt Total
December 31, Convertible bonds (*)
2002 W1,203,394 W415,267 W1,618,661
2003 510,000 59,761 569,761
2004 80,000 33,218 113,218
2005 – 23,168 23,168
2006 and thereafter 82,547 11,633 94,180
W1,875,941 W543,047 W2,418,988
(*) No early redemption of bonds or debentures is assumed.
12. Leases:
The Company has entered into various lease agreements for the rental of certain machinery and equipment. The Company accounts
for these leases as operating leases under which lease payment are charged to expense as incurred.
As of December 31, 2000, future lease payments under operating lease agreements are as follows :
For the year ending December 31, Millions of won
2001 W31,687
2002 6,085
2003 2,450
2004 260
W40,482
The Company acquired certain machinery and equipment under capital lease agreements. At December 31, 2000, the acquisition cost
of machinery and equipment under capital leases was W 695 million and related depreciation expense recognized in 2000 was W 69
million.As of December 31, 2000, future minimum lease payments under capital lease obligations, are as follows :
Year ending December 31, Millions of won
2001 W 1,857
13. Accrued Severance Benefits:
Accrued severance benefits as of December 31, 2000 and 1999 are as follows:
64
Millions of won 2000 1999
Beginning balance W 434,842 W 456,071
Severance payments (85,046) (135,293)
Transfer-in by merger 66,263 –
Transfer-in from affiliated companies 238 8,854
Provisions 128,943 99,300
Additional provisions – 11,907
Conversion to severance insurance deposit 5,997 (5,997)
551,237 434,842
Contribution to National Pension Fund (39,196) (40,277)
Severance insurance deposits (330,830) (265,835)
W 181,211 W 128,730
At December 31, 2000 the severance benefits are funded approximately 60% through employees severance insurance plans with
Kyobo Life Insurance Co, Ltd. and other life insurance companies. The amounts funded under employees severance insurance plans
(severance insurance deposits) is presented as deduction from accrued severance benefits.
At December 31, 1999 the severance benefits are funded approximately 65% through group severance insurance plans and
employees severance insurance plans with Kyobo Life Insurance Co, Ltd. and other life insurance companies. The amounts funded
under group severance insurance plans are recorded as long-term financial instruments (Note 3) and the amounts funded under
employees severance insurance plans (severance insurance deposits) are presented as deduction from accrued severance benefits.
14. Commitments and Contingencies:
At December 31, 2000, the Company provided several notes and checks to financial institutions as collateral in relation to various
borrowings and guarantees of indebtedness.
At December 31, 2000, the Company has entered into bank overdraft facility agreements with various banks amounting to
W375,000 million.
At December 31, 2000, the outstanding balance of domestic trade notes receivable and export trade accounts receivable sold at
discount to various financial institutions with recourse is W3,825,833 million.
At December 31, 2000, the Company has entered into factoring agreements with LG Capital Co., Ltd. and Shinhan Bank. In relation
to the agreements, at December 31, 2000, the outstanding balance of factored accounts receivable is W 114,416 million.
At December 31, 2000, the Company was a party to various technical assistance agreements with various foreign companies for the
manufacture of certain product lines.
At December 31, 2000, the Company has entered into sales contracts with several companies, which comprise approximately W
65,226 million of sales to LG Telecom, Ltd., W 8,364 million of sales to Korea Telecom, W 41,773 million of sales to SK Telecom
Co., and W 67,278 million of sales to Hanaro Telecom, Inc., and others.
At December 31, 2000 and 1999, the Company was contingently liable for guarantees approximating W1,594,887 million and
1,492,126 million, respectively, on indebtedness of its subsidiaries and affiliates as follows :
Millions of won 2000 1999
Domestic companies LG Telecom, Ltd. W 125,970 W 114,540
Other 26,465 31,738
152,435 146,278Overseas companies LG Electronics Wales Ltd. 252,225 264,759
PT LG Electronics Display Device Indonesia 130,829 127,630
LG Electronics Alabama Inc. 205,331 166,083
LG Electronics U.S.A., Inc. 144,865 116,831
LG Electronics North of England Ltd. 40,847 80,873Shuguang LG Electronics Co., Ltd. 78,605 74,577
Other 589,750 515,095
1,442,452 1,345,848Total W 1,594,887 W 1,492,126
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At December 31, 2000 and 1999, the Company has received guarantees approximating W58,767 million and W874,078 million,
respectively, from various banks for the repayment of certain debentures of the Company.
On December 21, 2000, the Company entered into a treasury stock sales and call option contract with Credit Suisse First Boston
International (“CSFB”). The terms and conditions of the contract are as follows :
(1) Treasury stock sales
* Trade date: December 21, 2000
* Number of shares: 11,000,000 shares of common stock
* Total sales amount: W136,400 million (US$ 112 million)
* Sales price: the closing trade price on the trade date per share (W12,400 per share)
* Price adjustment : Sales price will be adjusted to the weighted average trade price during the initial valuation period
determined based on CSFB’s executions.
* Initial valuation period: period from the trade date through the date ending on the earlier of (a) four month plus five
business days following trade date; or (b) the business day on which CSFB completes its execution
(2) Call option contract
* Call option buyer: the Company
* Call option seller: CSFB
* Effective date : the last day of the initial valuation period
* Termination date: 3 years and 6 months after effective date
* Initial share price : the weighted average trade price of shares during the initial valuation period
* Call option contract amounts: initial share price multiplied by number of shares (11 million shares)
* Call option premium: 17.34% of call option contract amounts
* Exercise of call options: Call option buyer has the right to exercise the call options on the expiry date, which is the fifth
business day immediately preceding the termination date. On the termination date, the call options exercised shall be cash
settled and the call option seller shall pay an amount per the call options exercised equal to: Max(final share price minus
initial share price, 0), subject to a maximum of 30.0% of initial share price.
* Final share price : equal to the arithmetic average of the seven interim share prices, calculated based on the closing trade
prices during the period from 36 months following the effective date through the expiry date.
At December 31, 2000, the call option contract is not reflected in the accompanying financial statements because the contract is not
effective and initial share price has not been determined yet.
In order to reduce the impact of changes in exchange rates on future cash flows, the Company enters into foreign currency forward
contracts. As of December 31, 2000, the Company has outstanding forward contracts for selling US dollars amounting to US$ 181
million (contract rates : W1,124.0 : US$ 1~W1,131.5 : US$ 1, contract due dates : January through December 2001) and an
unrealized loss of W 21,936 million was charged to operations for the year ended December 31, 2000.
In order to reduce the impact of changes in interest rates, the Company enters into interest rate swap contracts and an unrealized loss
of W1,091 million was recorded as a capital adjustment. A summary of the terms of outstanding interest rate swap contracts at
December 31, 2000 is as follows (see Note 18) :
Amount Buying Selling Contract
(In million) rate (%) rate (%) due date
Korea Exchange Bank US$ 50 5.45%(*) 6M LIBOR June 5, 2001
ABN AMRO Bank US$ 70 7.35% 6M LIBOR June 14, 2002
(*) If 6 month LIBOR is over 6.25%, the rate deducting 0.1% point from 6 month LIBOR would be applied.
In order to reduce the impact of changes in exchange rates on future cash flows, the Company enters into foreign currency interest
rate swap contracts to convert long-term debt denominated in US Dollars to Hong Kong Dollars. An unrealized gain of W1,896
million was credited to operations for the year ended December 31, 2000. A summary of the terms of outstanding currency interest
rate swap contracts at December 31, 2000 is as follows :
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Amount Exchange Buying Selling Contract
(In millions) rate rate rate due date
Citi Bank US$40.0 HK$7.765:US$1 5.35% 7% August 30, 2001
Deutsche Bank US$40.0 HK$7.765:US$1 5.34% 7% August 30, 2001
CSFB US$45.5 HK$7.765:US$1 5.35% 7% August 30, 2001
In order to reduce the impact of changes in exchange rates, the Company enters into foreign currency option contracts. An unrealized
loss of W1,434 million was charged to operations for the year ended December 31, 2000. A summary of the terms of outstanding
currency option contracts at December 31, 2000 and 1999 is as follows :
Option Amount Exercising Contract
Type (In millions) price due date
Standard Chartered Bank Put US$ 20.0 W 1,100.00 May 17, 2001
Call US$ 20.0 W 1,211.00 May 17, 2001
Fleet Boston Financial Put US$1.792 EUR 0.8960 March 6, 2001
Call US$0.896 EUR 0.8960 March 6, 2001
As a result of the above derivatives contracts, a gain of W10,563 million and a loss of W20,338 million were realized for the year
ended December 31, 2000.
At December 14, 2000, the Company has entered into a leasehold deposits sales agreement with LG Shinhan Securitization L.L.C.
(“SPC”) to securitize the leasehold deposits owned by the Company. The Company has sold leasehold deposits whose book value is
W133,854 million to the SPC for W120,400 million. The Company has also provided the SPC with a long-term loan of W3,300
million as of December 31, 2000. The Company provides management services related to the leasehold deposits owned by the SPC
and receives a service fee from the SPC. The holders of the bonds issued by the SPC based on the leasehold deposits have rights to
request the Company to purchase the bonds under certain adverse conditions within two years after the date upon which the bond
sales are completed.
At December 31, 2000, the Company is named as the defendant in legal actions which were brought against the Company by AVS
Corporation in Canada and Mahmood Saleh Abbar Co. in Saudi Arabia. In addition, the Company is named as the defendant or the
plaintiff in various foreign and domestic legal actions arising from the normal course of business. The aggregate amounts of
domestic claims as the defendant and the plaintiff are approximately W7,269 million in 10 cases and W18,891 million in 28 cases,
respectively, as of December 31, 2000. The Company believes that the outcome of these matters is uncertain but, in any event, they
would not result in a material ultimate loss for the Company. Accordingly, no provision for potential losses arising from these claims
is reflected in the accompanying financial statements.
At December 31, 2000, the Company has a loan of W30,725 million (US$ 24 million), due from NextWave Telecom, Inc.
(“NextWave”) in the United States of America. NextWave is a development stage enterprise which has been awarded PCS licenses
from the Federal Communication Commission (FCC) in the United States of America. In 1998, NextWave filed a lawsuit against the
FCC for reduction of its license fees and other issues. At the same time, it also filed for debt restructuring under Chapter 11 of the
Bankruptcy Code of the United States of America. NextWave lost the suit in 2000 and the collectibility of the loan is uncertain,
therefore, as of December 31, 2000, the Company provided a reserve for the entire amount of the loan (W30,725 million).
Zenith Electronics Corporation (“Zenith”), a subsidiary, has experienced significant financial difficulties resulting from continuous
losses. Zenith filed a pre-packaged plan of reorganization under Chapter 11 of the Bankruptcy Code of the United States of America
in August 1999. The reorganization plan was approved by the court in November 1999. As a result of the reorganization plan, the
Company owns 100% of equity in the restructured Zenith and has W148,686 million (US$ 118 million) of senior secured notes
issued by Zenith (see Note 7) and W75,582 million (US$ 60 million) of loans to Zenith as of December 31, 2000.
Beginning in 1997, Korea and other countries in the Asia Pacific region experienced a severe contraction in substantially all aspects
of their economies. This situation is commonly referred to as the 1997 Asian financial crisis. In response to this situation, the Korean
government and the private sector began implementing structural reforms to historical business practices.
67
The Korean economy is currently experiencing additional difficulties, particularly in the areas of restructuring private enterprises
and reforming the banking industry. The Korean government continues to apply pressure to Korean companies to restructure into
more efficient and profitable firms. The banking industry is currently undergoing consolidations and significant uncertainty exists
with regard to the availability of short-term financing during the coming year. The Company may be either directly or indirectly
affected by the situation described above. In addition, the Company has investments in, and receivables from affiliates in Thailand,
Indonesia and other Asia Pacific countries. The Company also has outstanding guarantees on the debt obligations of these affiliates.
These affiliates have been affected, and may continue to be affected, by the unstable economic situation in the Asia Pacific region.
The accompanying financial statements reflect management’s current assessment of the impact to date of the economic situation on
the financial position of the Company. Actual results may differ materially from management’s current assessment.
15. Capital Stock :
As of December 31, 2000 and 1999, capital stock is as follows :
2000 1999
Number of Millions of Number of Millions of
issuance (shares)Par value
won issuance (shares)Par value
won
Common stock 155,118,070 W 5,000 W 775,590 107,327,666 W 5,000 W 536,638
Preferred stock(*1) 19,095,547 5,000 95,478 19,095,547 5,000 95,478
Redeemable
preferred stock(*2) 32,000,000 5,000 160,000 – – –
206,213,617 W1,031,068 126,423,213 W 632,116
As of December 31, 2000 and 1999, the number of shares authorized is 500,000,000 shares.
Summary of changes in capital and capital surplus in 2000 is as follows (In millions of won) :
Date of Issuance TypeThe number
Par valueCapital in excess Cash
of shares of par value(*) received(*)
September 1, 2000 Common stock issued 47,790,404 W238,952 W1,108,693 W1,347,645
in merger of LGIC
December 23, 2000 Redeemable preferred 32,000,000 160,000 382,952 542,952
stock issued
W398,952 W1,491,645 W1,890,597
(*) Paid-in capital in excess of par value and cash received are net of new stock issuance costs.(*1) As of December 31, 2000 and 1999, 19,095,547 shares of non-voting preferred stock are issued and outstanding. The preferred shareholders
have no voting rights and are entitled to non-participating and non-cumulative preferred dividends at a rate of one percentage point over thosefor common stock. This preferred dividend rate is not applicable to stock dividends.15. Capital Stock, Continued :
(*2) Pursuant to the resolution by the board of directors on December 12, 2000, the Company issued convertible redeemable preferred stock(“RPS”) on December 23, 2000.The terms and conditions of the RPS are as follows :
* Date of issuance: December 23, 2000* Number of shares issued: 32,000,000 shares* Per-share issue price: W17,000 per share (par value : W5,000)* The shareholders of RPS are entitled to cumulative and non-participating preferred dividends subordinate to other preferred stocks at a
fixed dividend rate of 7.5% of the per-share issue price per annum, and are not entitled to stock dividends or stock rights.* Redemption: The Company may redeem RPS during the period from the next date following the first annual shareholders’ meeting after the
issuance date through one month after the annual shareholders’ meeting for the fiscal year of 2003.* The shareholders of the RPS have no voting rights, except for the period from the next shareholders’ meeting following the shareholders’
meeting in which dividends at a rate less than 7.5% of the per-share issue price are declared through the other shareholders’ meeting inwhich dividends at 7.5% of the per-share issue price are declared.
* The RPS will be redeemable at the per-share issue price from retained earnings available for dividends.* The shareholders of the RPSs shall have the right, at their discretion, to convert all or any portion of the RPSs into common shares of the
Company (par value W5,000) at any time after December 23, 2001. The conversion price is W17,000 per share at the issuance date and willbe adjusted to the relevant market price as of every 23rd of March, June, September, and December in case the market price is lower thanconversion price.
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16. Capital Surplus:
In cases where the net assets of the combined enterprises exceed the consideration paid, the Company records the excess amount as a
gain on merger.
The Company revalued a substantial portion of its property, plant and equipment, effective January 1, 1981 and 1993, and October 1,
1998, in accordance with the Korean Asset Revaluation Law and obtained relevant governmental approval. As of December 31,2000
and 1999, the revaluation increments of W339,619 million and W339,676 million, respectively, net of tax, transfer to capital stock
and offset against deferred foreign currency translation losses, are credited to revaluation surplus.
17. Retained Earnings :
Retained earnings as of December 31, 2000 and 1999 are as follows:
Millions of won 2000 1999
Legal reserve (*1) W 55,999 W 41,499
Other reserves
Reserve for business rationalization (*2) 281,065 326,180
Reserve for improvement of financial structure (*3) 84,458 84,458
Reserve for technological development (*4) 708,680 974,516
Reserve for export loss (*4) – 14,000
Reserve for redemption of redeemable preferred stock 544,000 –
1,618,203 1,399,154
Unappropriated retained earnings carried forward to subsequent year 24 44
W1,674,226 W1,440,697
(*1) 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 cash dividends paid until such reserve equals 50% of its issued capital stock. The reserve is not available for payment of cash dividends, butmay be transferred to capital stock through an appropriate resolution by the Company’s board of directors or used to reduce accumulateddeficit, if any, through appropriate resolution by the Company’s shareholders.
(*2) Pursuant to the Tax Exemption and Reduction Control Law, the Company is required to appropriate, as a reserve for business rationalization, aportion of retained earnings equal to tax reductions arising from investment and other tax credits. This reserve is not available for dividends butmay be transferred to capital stock through an appropriate resolution by the Company’s board of directors or used to reduce accumulateddeficit, if any, through appropriate resolution by the Company’s shareholders.
(*3) In accordance with the regulations regarding securities’ issuance and disclosure (formerly, the provisions of the Financial Control Regulationfor publicly listed companies), the Company is required to appropriate, as a reserve for improvement of financial structure, a portion ofretained earnings equal to a minimum of 10% of its annual income plus at least 50% of the net gain from the disposal of property, plant andequipment after deducting related taxes, until equity equals 30% of total assets. This reserve is not available for dividends, but may betransferred to capital stock through an appropriate resolution by the Company’s board of directors or used to reduce accumulated deficit, ifany, through an appropriate resolution by the Company’s shareholders.
(*4) Pursuant to the Tax Exemption and Reduction Control Law, the Company is allowed to appropriate retained earnings as a reserve fortechnological development and export loss. These reserves are not available for dividends until used for the specified purposes or reversed.
18. Capital Adjustments:
As of December 31, 2000 and 1999, capital adjustments are as follows:
Millions of won 2000 1999
Treasury stock W (875,604) W –
Gain (Loss) on valuation of investment securities (175,462) 250,430
Gain (Loss) on valuation of derivative financial instruments (Note 14) (1,091) 171
W(1,052,157) W250,601
In 2000, the Company purchased its own stocks amounting to 40,835,200 shares of common stock and 1,508,876 shares of preferred
stock mainly in relation to specified money trust agreements and the stock repurchase request option executed by shareholders who
objected to the merger with LGIC. As of December 31, 2000, the Company retains treasury stocks amounting to 29,729,300 shares
of common stock and 1,508,876 shares of preferred stock. The Company has intention to sell the treasury stock in the future.
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19. Income Taxes:
Income tax expenses for the years ended December 31, 2000 and 1999 comprise the following:
Millions of won 2000 1999
Current income taxes W196,960 W566,892
Deferred income taxes 29,581 15,992
W226,541 W582,884
The statutory income tax rate applicable to the Company, including resident tax surcharges, is approximately 30.8%. The following
table reconciles the expected amount of income tax expense based on statutory rates to the actual amount of taxes recorded by the
Company :
Millions of won 2000 1999
Income before taxes W728,724 W2,587,905
Statutory tax rate 30.8% 30.8%
Expected taxes at statutory rate 224,447 797,075
Permanent differences 33,267 (134,777)
Tax exemption and tax credits (31,173) (79,414)
Actual taxes W226,541 W 582,884
Effective tax rate 31.1% 22.5%
Components of deferred taxes as of December 31, 2000 and 1999 are as follows :
December December
Millions of won 31, 1999Increases Decreases
31, 2000
Deferred tax assets
Deferred foreign exchange loss, net W 22,411 W – W 12,252 W 10,159
Losses from sales of receivables 33,130 36,845 24,406 45,569
The equity method of accounting 175,658 80,037 85,603 170,092
Bad debt expenses 24,682 53,190 10,700 67,172
Other 28,635 7,956 15,204 21,387
Deferred tax assets 284,516 178,028 148,165 314,379
Deferred tax liabilities
Amortization of intangible assets (18,299) (18,911) (4,575) (32,635)
Gain on valuation of investments (11,097) (1,421) – (12,518)
Custom duty drawback (8,198) (4,644) (8,198) (4,644)
Reserve for technological development (1,868) (97,205) (760) (98,313)
Other (6,765) (6,872) (6,977) (6,660)
Deferred tax liabilities (46,227) (129,053) (20,510) (154,770)
Net deferred tax assets W238,289 W 48,975 W127,655 W 159,609
The Company periodically assesses its ability to recover deferred tax assets. In the event of significant uncertainty regarding the
Company’s ultimate ability to recover such assets, a valuation allowance is recorded to reduce the asset to its estimated net realizable
value.
70
20. Earnings Per Share:
Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding
during the year. Basic ordinary income per share is computed by dividing ordinary income allocated to common stock, which is net
income allocated to common stock as adjusted by extraordinary gains or losses, net of related income taxes, by the weighted average
number of common shares outstanding during the year.
Basic earnings per share for the years ended December 31, 2000 and 1999 are calculated as follows:
Millions of won (except for EPS data) 2000 1999
Basic earnings per share
Net income as reported on the statements of income W 502,183 W 2,005,021
Less : Preferred stock dividends (19,472) (20,050)
Net income allocated to common stock 482,711 1,984,971
Weighted average number of common shares outstanding 108,942,560 107,327,666
Basic earnings per share W 4,431 W 18,494
Basic ordinary income per share for the year ended December 31, 2000 is W4,430, and basic ordinary income per share for the year
ended December 31, 1999 is the same as basic earnings per share, because there were no extraordinary gains or losses.
Diluted earnings per share is computed by dividing diluted net income, which is adjusted to add back the after-tax amount of interest
expenses on any convertible debt and dividends on any convertible preferred stock, by the weighted average number of common
shares and diluted securities outstanding during the year. Diluted ordinary income per share is computed by dividing diluted ordinary
income allocated to common stock, which is diluted net income allocated to common stock as adjusted by extraordinary gains or
losses, net of related income taxes, by the weighted average number of common shares and diluted securities outstanding during the
year.
Diluted earnings per share for the years ended December 31, 2000 and 1999 are calculated as follows:
Millions of Won (except for EPS data) 2000 1999
Net income allocated to common stock W 482,711 W 1,984,971
Add : Interest expenses on convertible bonds, net of tax 2,070 1,906
Redeemable preferred stock dividends 1,006 –
485,787 1,986,877
Weighted average number of common shares and diluted securities outstanding 111,224,159 108,820,224
Diluted earnings per share W 4,368 W 18,258
Diluted ordinary income per share for the year ended December 31, 2000 is W4,367, and diluted ordinary income per share for the
year ended December 31, 1999 is the same as diluted earnings per share, because there were no extraordinary gains or losses.
The diluted securities outstanding for the years ended December 31, 2000 and 1999 are as follows :
Number of common ConversionDiluted security Issue price Conversion period
stocks to be issued price
Foreign currency denominated W33,096 million December 26, 1996 1,492,558 shares W22,174
convertible bonds, issued in 1996 (US$ 40 million) through October per share
26, 2006
Convertible redeemable preferred W544,000 million From December 32,000,000 shares W17,000
stock, issued in 2000 23, 2001 per share
71
21. Dividends:
Details of dividends for the years ended December 31, 2000 and 1999 are as follows :
Dividends
2000 1999
Dividend Dividend Dividend Dividends
Millions of won ratio (%) amount ratio (%) amount
Common shares 20.0% W125,389 20% W107,328
Preferred shares 21.0% 18,466 21% 20,050
Redeemable preferred stock 25.5% 1,006 – –
W144,861 W127,378
Dividend Payout Ratio
Millions of won 2000 1999
Total dividends (A) W 144,861 W 127,378
Net income (B) 502,183 2,005,021
Dividend payout ratio ((A)/(B)) 28.85% 6.35%
Dividend Yield Ratio
2000 1999
Common Preferred Common Preferred
In won shares shares shares shares
Dividend per share (A) W 1,000 W1,050 W 1,000 W 1,050
Market price as of balance sheet date (B) W11,950 W6,310 W47,000 W25,060
Dividend yield ratio ((A)/(B)) 8.37% 16.64% 2.13% 4.19%
22. Transactions with Related Parties:
Significant transactions entered into in the ordinary course of business with related parties for the years ended December 31, 2000
and 1999 and the related account balances outstanding at December 31, 2000 and 1999 are summarized as follows.
Millions of won Sales Purchases Receivables Payables
LG Electronics U.S.A., Inc. W 711,847 W 7,654 W 3,900 W 9,674
LG Electronics Alabama, Inc. 427,811 16,308 16,741 7,195
LG Goldstar France S.A.R.L. 243,772 298 4,098 5,128
PT LG Electronics Display Devices Indonesia 111,146 37,667 26,085 462
Zenith Electronics Corporation 46,264 6 246,043 –
Other 5,488,031 1,442,181 509,288 402,922
2000 Total W7,028,871 W1,504,114 W806,155 W425,381
1999 Total W4,725,470 W1,049,335 W372,491 W275,529
23. Segment Information:
The Company has organized four reportable business divisions: display division, home appliances division, multimedia division and
information & communications division. Additionally, the Company has a centralized supporting division to provide general and
administrative, marketing and sales and research and development services to each business division.
72
Main products each business division manufactures and sells are as follows :
Display division : TV, CPT/CDT, monitor, DY, FBT, electron gun, magnetron and PDP
Home appliances division : refrigerator, washing machine, air conditioner, microwave oven and vacuum cleaner
Multimedia division : VCR, PC, computer, CD-ROM and audio
Information & communications division : mobile telecommunication systems, mobile phones, electronic switching systems,
transmission equipment, network equipment
Financial Data by Business Division
Business Division
Home Information & Supporting Millions of won Total Multimedia appliance Display communications division
Sales
External sales W14,835,674 W4,453,202 W3,881,806 W4,580,250 W1,075,726 W 844,690
Inter-division sales 279,463 37,634 13,125 127,245 6,429 95,030
15,115,137 4,490,836 3,894,931 4,707,495 1,082,155 939,720
Operating income (loss) 921,085 260,459 481,029 340,630 (75,923) (85,110)
Fixed assets
Property, plant &
equipment 3,337,088 450,877 782,751 946,522 348,518 808,420
Intangible assets 1,092,512 6,140 5,395 55,617 563,871 461,489
Total 4,429,600 457,017 788,146 1,002,139 912,389 1,269,909
Depreciation W 524,050 W 67,967 W 109,822 W 175,194 W 61,429 W 109,638
Financial Data by Geographic Area
Central &North South Europe & Central
Millions of won Total Domestic America America CIS Asia Asia Oceania
External sales W14,835,674 W4,881,185 W2,662,159 W472,826 W1,931,543 W779,659 W3,922,189 W186,113
Inter-division sales 279,463 279,463 – – – – – –
Sales W15,115,137 W5,160,648 W2,662,159 W472,826 W1,931,543 W779,659 W3,922,189 W186,112
24. Supplemental Cash Flow Information :
The Company considers cash on hand, bank deposits and highly liquid marketable securities with original maturities of three months
or less to be cash and cash equivalents.
Significant transactions not affecting cash flows for the year ended December 31, 2000 and 1999 are as follows :
73
Millions of won 2000 1999
Transfer to property, plant and equipment from construction in progress W 75,196 W 35,735
Transfer to machinery and equipment from machinery in transit 86,596 79,602
Additional provision of severance benefits – 11,907
Reclassify current maturities of debenture 1,275,736 1,154,450
Reclassify current maturities of long-term debt 223,923 217,800
Retroactive adoption of the revised standards on prior year’s research cost – 425,582
Retroactive adoption of the revised standards on deferred income tax – 254,280
Retroactive adoption of the revised standards on sales of receivables – 34,734
Changes in retained earnings and capital adjustments by
equity method of accounting on investments 304,103 251,797
Transfer to investments from receivables from Zenith – 433,119
Increase in assets by merger of LGIC 3,060,233 –
Increase in liabilities by merger of LGIC 2,534,043 –
25. Merger :
Effective September 1, 2000, the Company merged LG Information & Communications, Ltd., (“LGIC”), an affiliate, in accordance
with a merger agreement with LGIC on June 8, 2000 and subsequent approval by shareholders on July 22, 2000.
LGIC was incorporated to manufacture and sell electronic switching systems, transmission equipment, network equipment, mobile
telecommunication systems, and mobile phones.
The Company owned 8,374,357 shares of LGIC (27.10%) at the time of merger but the Company cancelled those shares without
issuing common stock.
In connection with the merger, the Company issued 47,790,404 shares of common stock (W1,347,645 million) exchanging 2.1216
shares of its common stock for each share of LGIC. The Company acquired the assets and assumed the liabilities of LGIC at their
fair value as of September 1, 2000. As a result of the merger, the Company recognized goodwill of W393,820 million.
Changes in goodwill are as follows :
Millions of won
Goodwill at the merger W 393,820
Amortization (21,275)
Goodwill as of December 31, 2000 W 372,545
Condensed balance sheets of LGIC as of August 31, 2000 and December 31, 1999 and the related statements of income are as
follows (Millions of won) :
Condensed balance sheets
As of August As of December
31, 2000 31, 1999
Current assets W1,221,105 W 894,135
Investment 1,571,884 1,473,054
Property, plant and equipment 228,085 198,261
Intangible assets 36,176 30,508
Total assets W3,057,250 W2,595,958
Current liablities W1,910,295 W1,021,601
Non-current liabilities 623,748 403,647
Total liabilities 2,534,043 1,425,248
Shareholders’ equity 523,207 1,170,710
Total liabilities and shareholders’ equity W3,057,250 W2,595,958
74
Condensed income statements
For the eight-month
period ended For the year ended
August 31, 2000 December 31, 1999
Sales W2,006,376 W2,768,022
Cost of sales 1,436,022 2,025,206
Gross profit 570,354 742,816
Selling and administrative expenses 327,183 511,005
Opreating income 243,171 231,811
Non-operating income (expenses) (57,801) 185,308
Income before income taxes 185,370 417,119
Income taxes 59,671 119,327
Net income W 125,699 W 297,792
26. Subsequent Events:
Through a resolution by the board of directors on January 19, 2001, the Company has determined to grant employees a certain
portion of its treasury stock to encourage successful corporate restructuring.
75
LGEDT Dublin
LGEWA Newport
LGENE Newcastle
LGEUK LondonSt.Petersburg
LGERI MoscowLGTC
LGEMA MlawaLGEPL Warsaw
LGEAT Istanbul
LGEUR KievEMGS Bucharest
LGEMK Budapest
Vienna
Athens
LGESW Stockholm
LGEDG Dusseldorf
LGEMC Casablanca
LGESA Johannesburg
LGEIS Milano
LGEES Madrid
LGEEG CairoLGEEC
Portugal
Algiers
Abidjan
Tunis
Amman
TehranTashkent
LGEAK Almaty Vladivosto
LGESY Shenyang
LGEJP Tokyo
LGEQH Qinhuangdao
LG-TOPS Guangzhou
LGESG Changsha
Chengdu
Wuhan
LGENT, LGEPN Nanjing
LGECT Taizhou
LGEBJ Beijing
LGETA Tianjin
LGESH Shanghai
Taipei
LGECM ManilaSLD Hochiminh
LGEHK Hong Kong
LGEHZ Huizhou
LGEMH HaiphongLGESV HanoiVKX
LGEMT BankokLGETHLGICTH
SingaporeLGEML Kuala Lumpur
LGEIN JakartaLGEDIVGI
Karachi
LGSI
Jeddah LGEGF DubaiLGEME
LGEHL New DelhiLGEILLGSYS
LGESE Benelux
LGEAL Antwerp
LGEFS Paris
EUROPELGEWA LG Electronics Wales Ltd.
LGEMA LG Electronics Mlawa Sp.Z.O.O.
LGENE LG Electronics North of England Ltd.
LGEUK LG Electronics United Kingdom Ltd.
LGEFS LG Electronics France S.A.R.L.
LGEDG LG Electronics Deutschland GmbH
LGEIS LG Electronics Italia S.p.A.
LGEMK LG Electronics Magyar KFT.
LGEPL LG Electronics Polska Sp Z.O.O.
LGEES LG Electronics Espana S.P.A.
LGESE LG Electronics Service Europe B.V.
LGEDT LG Electronics Design-Tech Ltd.
LGESW LG Electronics Sweden
EMGS Electromagnetica Goldstar, S.R.L.
LGEAL LG Electronics Antwerp Logistics NV
CISLGEAK LG Electronics Almaty Inc. Kazak Ltd.
LGERI LG Electronics Russia Inc.
LGEUR LG Electronics Ukraine Co., Ltd.
LGTC LG Telecom Corporation, Ltd.
MIDDLE EAST AND AFRICALGEEG LG Electronics Egypt S.A.E.
LGEEC LG Electronics Egypt Cairo S.A.E.
LGEGF LG Electronics Gulf FZE
LGEAT LG Electronics Arcelik Turkey
LGESA LG Electronics S.A. ( Pty) Ltd.
LGEMC LG Electronics Morocco S.A.R.C.
LGEME LG Electronics Middle East Co., Ltd.
CHINALGESG LG Electronics Shuguang Electronics Co., Ltd.
LGEBJ Beijing LG Electronics Components Co., Ltd.
LGESY LG Electronics Shenyang Inc.
LGENT LG Tontru Color Display System Co.
LGEPN Nanjing LG Electronics Panda Appliances Co., Ltd.
LGETA LG Electronics Tianjin Appliances Co., Ltd.
LGEQH LG Electronics Qinhuangdao Co., Ltd.
LGECT Taizhou LG Chunlan Home Appliances Co., Ltd.
LGESH Shanghai LG Electronics Co., Ltd.
LGEHZ LG Electronics Huizhou Inc.
LG-TOPS Guangzhou LG Tops Comm. Tech. Co., Ltd.
LGEHK LG Electronics HK Ltd.
ASIALGEDI P.T.LG Electronics Display Devices Indonesia
VGI Video Display Glass Indonesia Product
LGEIN P.T.LG Electronics Indonesia
LGECM LG Collins Electronics Manila Inc.
LGESV LG SEL Electronics Vietnam Inc.
VKX Vietnam Korea Exchange, Ltd.
SLD SLD Telecom Pte, Ltd.
LGETH LG Electronics Thailand Co., Ltd.
LGICTH LG Srithai Electronics, Inc.
LGEMT LG Mitr Electronics Co., Ltd.
LGEMH LG-MECA Electronics Haiphong Inc.
LGEAP LG Electronics Australia Pty, Ltd.
LGEML LG Electronics Malaysia Sdn. Bhd.
INDIALGEHL LG Electronics Hotline Ltd.
LGEIL LG Electronics India Ltd.
LGSYS LG Electronics System India, Ltd.
LGSI LG Soft India Pvt. Ltd.
76
LGE Network
stok
LGEAP Sydney
San Jose
LGEMX MexicaliLGICUS Sandiego
LGERS Reynosa
LGEMM Monterrey
ZENITH Chicago
LGECI Toronto
Boston
LGEUS New JerseyTRIVENI
DallasLGEAI Huntsville / Service
Houston
Miami
LGEMS Mexico City
LGEPS Panama
LGECB Bogota
LGEPR Lima
LGESP Sao Paulo
Santiago
LGEAR Buenos Aires
LGEAZ Manaus
LA
production
production / sales
service
branch
sales
R&D / design
logistics
JAPANLGEJP LG Electronics Japan, Inc.
NORTH AMERICALGEAI LG Electronics Alabama, Inc.
LGEMX LG Electronics Mexicalli S.A.DE C.V.
LGEUS LG Electronics U.S.A., Inc.
LGICUS LG Electronics LG InforComm, U.S.A.
LGECI LG Electronics Canada, Inc.
LGEMS LG Electronics Mexico S.A. DE C.V.
LGERS LG Electronics Reynosa S.A.DE C.V.
LGEMM LG Electronics Mexico Monterrey S.A.DE C.V.
ZENITH Zenith Electronics Inc.
TRIVENI Triveni Digital Inc.
LATIN AMERICALGESP LG Electronics da Sao Paulo Ltda.
LGEAZ LG Electronics da Amazonia Ltda.
LGEPS LG Electronics Panama S.A.
LGEPR LG Electronics Peru S.A.
LGECB LG Electronics Colombia Ltda.
LGEAR LG Electronics Argentina S.A.
77
78
Vice Chairman & CEO
Vice Chairman | Head of LG China
President & CFO
President | Head of Display Device Company
President
President | Head of Digital Appliance Company
President & CTO
Executive Vice President
Executive Vice President
Executive Vice President
Executive Vice President
Executive Vice President
Executive Vice President
Executive Vice President
Executive Vice President
Executive Vice President
Executive Vice President
Executive Vice President
Executive Vice President
Executive Vice President
Executive Vice President
Executive Vice President
Executive Vice President
Executive Vice President
Executive Vice President
Executive Vice President
Executive Vice President
Executive Vice President
Executive Vice President
John Koo
Yong Ak Ro
Byung Chul Jung
Seung Pyeong Koo
Gyu Seog Jeong
Ssang Su Kim
Woo Hyun Paik
Jong Eun Kim
Nam Kyun Woo
Hee Gook Lee
Yong Il Choi
Ju Ik Song
Kwang Soo Jeong
Jin Bang Son
Ki Song Cho
Kyeong Ji Lee
Ghung Gun Park
Kie Hong Suh
Chul Ho Kim
Kwang Ro Kim
One Suck Sung
Dal Ung Kim
Jeong Rhul Lee
Myeong Kyu Ahn
Young Kee Kim
Tok Joo Lee
Seong Tae Kwon
Young Yong Park
Young Soo Kim
Board of DirectorsAs of March, 2001
ManagementAs of March, 2001
S t a n d i n g
Bon Moo Koo
John Koo
Byung Chul Jung
N o n - S t a n d i n g
Chang Soo Huh
Outside Directors
Yong Chin Kim
Byung Nak Song
Jae Hyung Lee
Young Chan Kim
Corporate Chronology
1958 › Founded as GoldStar
1959 › Developed and produced Korea’s first transistor radio
1962 › Exported South Korea’s first consumer products (radios)
1965 › Developed South Korea’s first refrigerator
1966 › Developed South Korea’s first television
1969 › Developed South Korea’s first washing machine, air conditioner, and elevator
1975 › Established South Korea’s first private R&D facility (GoldStar Central Research Laboratory)
1978 › Established first overseas sales subsidiary in the USA (GoldStar Electronics International)
› Became South Korea’s first electronics maker to surpass US$100 million in exports
1980 › Established first European sales subsidiary in Germany (GoldStar Deutschland)
1982 › Established South Korea’s first overseas TV plant in Huntsville, Alabama, USA (GoldStar America)
› Developed South Korea’s first microcomputer and video camera
1983 › Developed South Korea’s first and the world’s second 8mm camcorder
1986 › Established first European VCR production plant in Germany (GoldStar Europe)
1987 › Floated a US$30 million convertible Euro bond issue
1989 › Established joint ventures in the Philippines, Thailand, and the UK
1990 › Established joint venture in Egypt, Italy, and Indonesia
› Established first overseas design center in Ireland (GoldStar Design Technology)
1991 › Floated a US$70 million convertible Euro Bond issue
› Purchased of 5 percent equity stake in Zenith Electronics of America
1992 › Completed corporatewide restructuring
1993 › Broke ground for a TFT-LCD plant in South Korea
1994 › Developed FMV, VOD, and multimedia PCs
› Acquired Zenith Electronics of America
1996 › Declaration of LEAP2005, the corporate’s new vision
1997 › Launched “LG” brand in the world market replacing the former “GoldStar” label
› Developed the world’s first IC set for digital TVs
1998 › Reinforced business restructuring activities
1999 › Declaration of Digital LG Vision
2000 › Merged LG Information & Communication
› Secured next generation digital technology standard (MPEG-21)
79
80
Date of Establishment: October 1, 1958 (as a private company)
| February 17, 1959 (as an incorporated company)
Corporate Office: LG Twin Towers, 20, Yoido-dong, Youngdungpo-gu, Seoul 150-721, Korea
| Tel: (02) 3777-1114
Paid-in Capital: 1,031,068 million won
Common Stock: Issued and Outstanding, 155,118,070
Preferred Stock: Issued and Outstanding, 51,095,547
Total Stock: 206,213,617
Independent Public Accountants: Samil Accounting Corporation
Overseas Network: 72 subsidiaries
Number of Employees: 64,000 ( including overseas)
Shareholders’ Meeting: The annual shareholders’ meeting is held within 3 months following the end of the fiscal year at the
company’s corporate office located at 20, Yoido-dong, Youngdungpo-gu, Seoul, Korea.
Investor Relations: LG Twin Tower, 12th Fl., West Building, 20, Yoido-dong, Youngdungpo-gu, Seoul
| Tel: 82-2-3777-3429, 3430, 3424, 3425
| Fax: 82-2-3777-5017
Corporate InformationAs of December 31, 2000
LG Twin Tower, 12th Fl., West Building, 20, Yoido-dong, Yungdungpo-gu, Seoul
| Tel: 82-2-3777-3429, 3430, 3424, 3425
| Fax: 82-2-3777-5017
Investor Relations
Shareholder InformationAs of December 31, 2000
Listing
Capital Stock
Korea Stock Exchange (stocks)
London Stock Exchange (CBs)
Luxembourg Stock Exchange (CBs)
Major Common Shareholders
LG Chemical & LG related entities 37.3%
Credit Swiss First Boston 7.0%
Common stock
Number of issuance(Shares)
Par value Millions of Won
Number of issuance(Shares)
Par value Millions of Won
155,118,070 W5,000 W 775,590 107,327,666 W5,000 W536,638
2000 1999
Preferred stock* 19,095,547 5,000 95,478 19,095,547 5,000 95,478
Redeemable preferred stock** 32,000,000 5,000 160,000 - - -
206,213,617 W1,031,068 W632,116
Changes in Capital & Capital Surplus in 2000
September 1, 2000
Date of issuance Type The number of shares
Par value Capital in excess of par value*
Cash received
Common stockissued in mergerof LGIC
Redeemablepreferred stockissued
47,790,404 W238,952 W1,108,693 W1,347,645
32,000,000 160,000 382,952 542,952December 23, 2000
* Paid-in capital in excess of par value and cash received are net of new stock issuance costs
** As of December 31, 2000 and 1999, 19,095,547 shares of non-voting preferred stock are issued and outstanding.
The preferred shareholders have no voting rights and are entitled to non-participating and non-cumulative preferred dividends at a rate of one
percentage point over those for common stock. This preferred dividend rate is not applicable to stock dividends.
Earnings per Share
Basic earnings per share
Diluted earnings per share
2000
W4,431
4,368
1999
W18,494
18,258
Dividend Ratio
Common shares
Preferred shares
Redeemable preferred shares
2000
20.0%
21.0%
25.5%
1999
20.0%
21.0%
-
126,423,213
81
82
ACDR Audio Compact Disk Recorder
A CD recording/writing component which connects to existing
audio sources and makes CD-R disks compatible with all CD
players.
Bluetooth
A wireless personal area network (PAN) technology from the
Bluetooth Special Interest Group, founded in 1998. Bluetooth is
an open standard for short-range transmission of digital voice
and data between mobile devices and desktop devices.
CDMA Code Division Multiple Access
A technology for digital transmission of radio signals between,
for example, a mobile telephone and a radio base station,
dividing a frequency into several codes.
CD-RW Compact Disk Rewritable
A rewritable CD-ROM technology. CD-RW drives can also be
used to write CD-R discs, and they can read CD-ROMs.
Initially known as CD-E (for CD-Erasable), a CD-RW disk can
be rewritten a thousand times.
CPT Color Picture Tube
A component of a television which boils off electrons from a
cathode at one end, and accelerates them towards a grid at the
other end to create a color picture.
CDT Color Display Tube
Similar to a color picture tube, but the phosphors are much
smaller, the resolution is higher, and the image is sharper.
CRT Cathode Ray Tube
Moves an electron beam back and forth across the back of the
screen, lighting up phosphor dots and illuminating active
portions of the screen.
DVD Digital Versatile Disc
A family of optical discs. DVDs are also double sided, whereas
CDs are single sided. It is expected to become the next CD-
ROM and primary digital movie medium, superseding Video
CDs, analog Laser Discs and eventually VHS tape.
LCD Liquid Crystal Display
Used in digital watches and many portable devices, an electric
current is passed through a liquid crystal solution causing the
crystals to align and create an image.
OELD Organic Electroluminescence Display
Organic EL cell structure consists of a stack of thin organic
layers sandwiched between a transparent anode and a metallic
cathode. When an appropriate voltage is applied to the cell, the
injected positive and negative charges recombine in the
emissive layer to produce light.
PBX Private Branch Exchange
A telephone controller used in medium-size to large businesses
to provide switching between thousand business telephones.
PCB Printed Circuit Board
A flat board that holds chips and other electronic components.
The board is made of layers that interconnects components via
copper pathways.
PDP Plasma Display Panel
A plasma discharge that releases energy in the form of
ultraviolet emissions of He-Kr-Xe or Ne gases to excite red,
green and blue phosphors.
PVR Personal Video Recorder
A service that automatically and digitally allows multiple
television programs to be simultaneously recorded and saved to
a hard drive without the use of videotape.
TDX Time Division Switching System
An upgraded digital telephone switching system to handle
demand for telephone services and digital exchange technology.
TFT Thin Film Transistor
A type of LCD in which each pixel is controlled by one to four
transistors. The TFT technology provides the best resolution of
all flat penal techniques.
VDP Video Disk Player
An optical disk-based high-definition player with four times the
capacity of a standard DVD and compatible with conventional
DVD disks.
WLL Wireless Local Loop
A wireless connection of a telephone in a home or office to a
fixed telephone network.
Glossary