taking inovation one step further

The power of human thought is tremendous; change the way of thinking, and anything is
possible. On the threshold of the 21st century, Samsung Electronics has reached a crossroads
in corporate development. The capacity to produce large quantities of products is no longer
enough. Continued growth and prosperity for Samsung means having the world's best quality
and being the world's first to bring next-generation products to market. To make this happen,
Samsung is challenging conventional ways of thinking and transcending the bounds of existing
technology. . . The greatest invention of the nineteenth century was the invention of the method
of invention. A new method entered into life. In order to understand our epoch, we can neglect
all the details of change such as railways, telegraphs, radios, spinning machines, synthetic dyes.
We must concentrate on the method itself; that is the real novelty, which has broken up the
foundation of the old civilization."
A. N. Whitehead (1861-1947)

what does it takes to succeed in the cming century?

idea, technology, information and knowledge.

Q: What is Samsung Electronics' response to the current
economic difficulties in Korea?
A: The IMF bailout at the end of 1997 has resulted in unprecedented
high interest rates and low growth. Samsung Electronics is
restructuring business by focusing investment on carefully selected
areas. Our top priority is on bolstering fiscal soundness by improving
cash flow. We are also strengthening the intangible aspects of our
competitiveness by enhancing our brand image, design capabilities,
and product planning know-how. Indeed, Samsung Electronics is helping lead the nation out of
its current crisis.

Q: What is the current status of and future plans for Samsung Electronics' R&D
activities?
A: Strong technology support is critical for being a major world player in the 21st century. We
cannot afford to be lax in efforts to develop core technology if we are to keep up with the
constant flood of new technology. In fact, Samsung has some of the world's most advanced
technology, as evidenced by our development of a digital TV, 30" TFT-LCD monitor and 128M
synchronous DRAM. We will continue to increase our R&D expenditures and concentrate on
developing technology that accommodates international standards such as the IMT-2000 and
MPEG.

Q: What are Samsung Electronics' plans and direction as one of the world's leading
semiconductor makers?
A: We are now achieving a better balance between the memory and non-memory areas in order
to maintain our leading position in the world semiconductor business. To this end, we will
continue to increased our investment in TFT-LCDs and system large-scale integration, which
includes ASICs and Alpha CPUs. At the same time, we intend to maintain our top share of the
world DRAM market through the development of synchronous DRAMs and flash memory chips
as well as to diversify our involvement in the non-memory sector. The net results will be
increases in both sales and market share.

Q: Recently, Samsung Electronics has focused its corporate image on sports; thus it
began an aggressive sports marketing program. what are the reasons for this focus and
what are the company's future plans in this regard?
A: Competing successfully in the 21st century will require more than just outstanding product
quality and functions. Intangibles such as corporate image and brand image will be crucial
factors for achieving a competitive edge. We believe that the elements of sports, competition,
hard-work, striving to achieve one's best, are those elements that suit our industry and those we
want associated to Samsung's corporate image. Furthermore, sports sponsorship provides us
with a stage to demonstrate our technology to viewers from around the world. In 1998, we will
serve as sponsor, provider and organizer to various worldwide sporting events, from the
Bangkok Asian Games to the Samsung Nations Cup Series. And in future years, we will strive
to find means better to provide our support to the sporting world.

Q: As CEO of Samsung Electronics, what is your management philosophy?

A: First, I believe that we at Samsung Electronics must elevate our ways of thinking, which
means we have to be away from the fixed notions and formalism that have influenced us greatly
until now. I also think that meaningful change has to be initiated by the individual, who starts
with the small, everyday things. We must build a more streamlined, decentralized organization
that can respond quickly to changes in the business climate. At the same time, we have to
create new kinds of value for customers in order to ensure their full satisfaction. To make this
happen, I believe we must upgrade our work processes and boldly transfer decision-making
authority to lower organizational levels.

Jong-Yong Yun / President and CEO

1.9.97 The Consumer Electronics Manufacturers Association in Las Vegas conferred

Innovations '97 Awards on ten Samsung Electronics products in recognition of their
exceptional design and engineering.
2.5.97 Intel and Samsung Electronics announced a partnership agreement under which
Intel would invest in Samsung's new semiconductor plant in Austin, Texas.
5.9.97 Samsung Electronics and the International Olympic Committee (IOC) finalized an
agreement making Samsung the Olympic Partner in the wireless communications
equipment category for the 1998 Nagano Olympic Winter Games and 2000 Sydney
Olympic Games. . .
5.9.97 Samsung Electronics completed installation of a telephone switching system in
Ecuador. Ecuadorian President Fabian Alarcan and Korean Ambassador to
Ecuador Yong-ha Cho the ceremony marking the event.
5.30.97 An electromagnetic compatibility and quality assurance laboratory was opened in
 London's Yateley District to improve Samsung's ability to offer products that satisfy
a wider range of consumer demands and meet European market directives.
Samsung Electronics won an order to provide a CDMA digital cellular phone
system and follow-up services to Shanghai Great Wall Mobile Communications
Co., marking Samsung's entry into the vast Chinese wireless communications
market.
6.16.97 Samsung Electronics won an order to provide a CDMA digital cellular phone
system and follow-up services to Shanghai Great Wall Mobile Communications
Co., marking Samsung's entry into the vast Chinese wireless communications
market.
6.23.97 Samsung Telecommunications America, Inc. announced a one-year renewable
contract to supply more than US$18 million worth of cellular digital packet data
(CDPD) "Duette" smart phones to AT&T Wireless Services.
9.1.97 The Alpha chip, Samsung Electronics' most ambitious product to date in the area of
non- memory semiconductors, made its debut. The Alpha chip CPU operates
workstations and servers, and features such functions as 3D graphics, computer-
aided design, moving pictures and virtual reality.
10.15.97 Samsung Electronics announced that it had completed development of the world's
first single-panel 30" Ultra Extended Graphics Array (UXGA) TFT-LCD for use in
next-generation, high-definition multimedia displays and wide screen wall hanging
TVs.
10.16.97 Samsung Electronics joined the cdmaOne group, which was initially formed among
Lucent Technologies, Motorola, Northern Telecom and Qualcomm to develop and
implement International Mobile Telecommunications (IMT) 2000. . .Samsung
Electronics joined the cdmaOne group, which was initially formed among Lucent
Technologies, Motorola, Northern Telecom and Qualcomm to develop and
implement International Mobile Telecommunications (IMT) 2000. . .
11.3.97 Samsung Electronics unveiled the world's first fully functional prototype of the
double data rate synchronous DRAM (DDR SDRAM), a 64-megabit chip that can
support data rates up to four gigabits per second.
12.3.97 As a holder of "essential patents" related to MPEG-2 technology, Samsung was
qualified to join the MPEG Licensing Administrator (LA) patent pool. The
membership gives Samsung the right to receive royalty payments and enter cross-
licensing agreements with various other patent holders.
12.16.97 Industrie Forum Design Hannover (iF), one of the world's foremost industrial design
expositions, granted its Seal of Approval for Samsung's ND-101 digital audio
 player, the SyncMaster 4000 TFT-LCD monitor, the VC-7550 vacuum cleaner and
the CD-ROM titled "Sokkuram."

On the surface, Samsung's SV-D300 may seem like an ordinary camcorder. However, it has
three charge coupled devices (CCD), which produce the same quality pictures as a professional
TV studio camera and can be connected to a personal computer. The SV-D300 provides very
clean slow motion and clear pictures, while a built-in device keeps the image steady during
filming.

Consumer Reports?, One of America's most highly read Consumer magazines, rated Samsung
Electronics' TXE2546 25" color TV the best among all 25" stereo models, beating out rivals from
Sanyo, RCA, Sharp and Zenith. The TXE2546 was cited for its exceptional picture and sound
quality.

SEC is recognized for exceptional design by world famous design institutions. In 1997,
Samsung products received four awards at the International Design Excellence Awards (IDEA),
another four at the Industry Forum, two at the Design Innovation Essen, and one at the Osaka
International Design Exhibition.

world's lightest pcs handset

Samsung Electronics has come out with the

superslim SPH-5000.
The world's lightest PCS handset incorporates
Samsung's proprietary and innovative "flip-up"
design that allows you to see The display even
when the flip is closed
Low-power-consuming components allow a single battery to provide 4.5 hours of continuous
talk time or up to two and a half days on standby mode.

Value-added features include Voice Dialing, Voice Memo, Internet Access (U.P. Platform) , IS-99
and IS-657 data, Multi-lingual Full Graphics Display and so much more.

web videophone

A highly sophisticated but simple and well equipped

multimedia device that is based on H.323 protocol and
provides internet and e-mail access, as well as video-
conferencing capability.

The cost for long distance and international telephone calls

can be reduced to that of local rates, and if connected to a
LAN, the call is free.
Samsung's Web Video Phone comes with a large keyboard and a 5.6" color LCD with touch
screen for internet browsing and home banking/shopping services.

Samsung is playing an important role in the transition of telecommunications from analog to

digital and from wired to wireless. The company has dominated the domestic mobile phone
market and was the first in the world to commercialize a CDMA system. Today, Samsung is
supplying digital switching systems and other necessary hardware around the world.

To stay in the front of a highly competitive market, Samsung continues to come out with new
wireless digital handsets (CDMA-PCS handsets, cellular phones) that are ever lighter, easier to
use and loaded with more functions such as voice recognition dialing, sound amplification chips,
high-speed sound sampling software, and Enhanced Variable Rate Code (EVRC) chip to
ensure the best possible voice quality. In 1997, Samsung completed installation of a CDMA
switching system and sixty-seven base stations in Shanghai, a city with tremendous growth
potential for telecommunications infrastructure. In addition,

Samsung has established a joint venture company to market wireless local loops (WLLs) for
pager networks in Shanghai and has started supplying pagers and services. In the US,
meanwhile, Samsung is providing CDMA-PCS handsets to Sprint PCS and has completed an
agreement to supply GMPCS terminals in three formats (CDMA, GSM and CDMA/AMPS) to
Intermediate Circular Orbit Global Communications (ICO), which begins worldwide digital voice,
data, fax, cellular paging and global positioning services in 1999. Samsung now has the
capability to produce CDMA systems, handheld phones and WLL terminals, which means it can
offer a total package to customers in both developing and advanced markets. .

Lucent Technologies, Motorola, Northern Telecom and Qualcomm created the cdmaOne group
in June 1997 to develop standards for third-generation wireless communications based on the
CDMA format. In October 1997, Samsung Electronics became the first non-US company to join
the select group, which has emerged as the leading standard for digital wireless services in
North America and is rapidly gaining acceptance worldwide. Samsung Electronics is also a
member of the IMT-2000.

No place is Samsung's industry leading technology in greater evidence than in the

semiconductor field. Samsung Electronics has been the world's top producer of memory chips
and expects to have a 30% share, the top share of the 64M DRAM market in 1998. Samsung
also has the technology to be first in 256M and 1-gigabit DRAM markets.

To maintain its lead, the company is constantly coming out with next-generation, higher-
performance devices. Samsung's industry- leading break- throughs include functioning
prototypes of the world's first double-data-rate syn- chronous DRAM (DDR SDRAM).

The company also used 0.28-micron processing technology to complete development of the
world's first single-chip 128-megabit synchronous dynamic random access memory (SDRAM)
chip, the next-generation device to succeed the 64M SDRAM.

The company has completed

development of the 0.25-micron
Merged DRAM with Logic (MDL) chip
that is a fusion of the 64M DRAM and
a logic (non-memory) device. The new
chip is 43% smaller, 40% faster and
consumes 20% less power than MDLs
made with 0.35-micron design technology. The 0.25-micron MDL operates on just 2.5 volts.
The MDL-90, a 16M DRAM built In March 1997, Samsung
Samsung Electronics used 0.27-
onto an ASIC chip, offers rapid Electronics completed
micron design technology to
processing, low power development of the world's
develop the world's first 128M
consumption and improved first fully working die of a 1G
flash memory chip.
system reliability. DRAM.
Offshore Chip Plant: Samsung Electronics' state-of-the-art semiconductor fabrication plant in
Austin, Texas .

Samsung is using its front-running technology in memory devices and outstanding processing
technology to move into MDL chips and non-memory devices as well. Under a 1996 technology
lisensing agreement with Digital Equipment Corp. of the US,

Samsung introduced commercial samples of the 533MHz Alpha chip and prototype of the
700MHz Alpha CPU. Samsung has subsequently built on DEC's Alpha technology to introduce
the world's fastest microprocessor, the Alpha 21264. Taking advantage of Samsung's leading-
edge six-metal layer, high-speed logic process, Alpha 21264 processors are two to five times
faster than any other processors available for desktop and server computing platforms. The new
21264 processors feature motion video instruction sets (MVI), which enable true visual
computing and multimedia performance such as digital video disc (DVD) with AC3 playback as
well as DVD recording without the need for add-in hardware.
The 21264 platform also allows true real-time video-conferencing in a full-screen, true digital
studio environment on the desktop and true web environment.

Samsung Electronics has become the world's first to mas produce TFT-LCDs using 600mm x
720mm substrates. The improved productivity allows Samsung to respond to increased demand
for larger screen notebook PCs and for TFT-LCD monitors for desktop PCs.

Samsung Electronics knows that aggressive research and development

activities are critical for survival in today's fast-changing world. During
1997, Samsung spent US$904 million (7% of total sales) on research
activities, and US$1.14 billion has been earmarked for R&D in 1998.

This kind of aggressive investment will allow Samsung to take the lead in developing next-
generation versions of 128M SDRAMs and 256M DRAMs and getting them to the market first.
Meanwhile, Samsung has been heavily involved in digital technology research to remain in the
forefront of the new wave in consumer electronics. This effort has resulted in the development
of a digital video camera, multi-compatible DVD player, a 55" digital projection High Definition
TV (HDTV), and digital TV. Samsung's chip set and set-top boxes for digital TV have completed
successfully receiver transmitter compatibility tests at the Advanced Test Television Center in
Washington DC, and at the CBS Engineering Labs in New York. Now, the company is ready to
enter the commercial US HDTV market as soon as HDTV service becomes available.

During 1998, Samsung expects to receive over US$1 million in royalties for technology being
applied in DVD players, digital TVs and computers. Over the next decade or so, Samsung
stands to earn tens of millions of dollars for its patents. Samsung will also be able to enter into
cross-licensing agreements with companies owning patents on DVD players, digital TVs, set-top
boxes, digital camcorders and digital satellite broadcast receivers, boosting the competitiveness
of Samsung's own products.

Offshore Research: Nine overseas R&D centers are being operated in specific geographical
regions in order to develop products that better accommodate local needs.

Patents:
Samsung Electronics has applied for more than 1,500 patents related to digital TV parts and
finished products.

In addition to developing new products, Samsung Electronics is applying technology to make

existing products better. One salient example is the world's first 30" UXGA TFT-LCD that uses a
single glass panel rather than multiple panels. Although it has the effective size of a 33" Braun
tube TV, the new Samsung TFT-LCD is just 4.5cm thick, weighs only 4.5kg, and operates on 45
watts, one-fifth the electricity needed in a conventional TV of the same size. Of course, users
are not exposed to the potentially harmful electromagnetic radiation that Braun tubes emit.
Samsung Electronics is also the world's first to develop a "multimedia digital TV" that uses the
sophisticated Institute of Electrical Electronics Engineers (IEEE) 1394 digital interface
technology to link up to computers, digital VCRs and other audio/visual products. This is
considered the most important new technology related to information appliances and has put
Samsung in a position to propose a new standard for digital TV. In addition to developing new
products, Samsung Electronics is applying technology to make existing products better. One
salient example is the world's first 30" UXGA TFT-LCD that uses a single glass panel rather
than multiple panels. Although it has the effective size of a 33" Braun tube TV, the new
Samsung TFT-LCD is just 4.5cm thick, weighs only 4.5kg, and operates on 45 watts, one-fifth
the electricity needed in a conventional TV of the same size. Of course, users are not exposed
to the potentially harmful electromagnetic radiation that Braun tubes emit.

Samsung has now mastered core technology for super-high-definition displays as well as for
injecting liquid crystal into screens of 30 inches or larger. The company has already received 18
patents related to its new TFT-LCD. Another industry first is Samsung's multi-compatible VCR
that can be used throughout the world. The product can be programmed to record and play
back any of the world's six broadcast formats (NTSC3.58, NTSC4.43, PAL, PAL-M, PAL-N,
SECAM) or any of five different video tape types (NTSC, PAL, PAL-M, SECAM, MESECAM).
The flexibility of this truly global VCR will be especially popular with exchange students,
immigrants, and business people on overseas trips. Through technology development and
innovation, Samsung Electronics remains committed to making life more convenient and
enjoyable for people everywhere.

Technology: Samsung's unique "low-defect crystal wafers" provide production efficiency for high
density memory devices such as the 64M and 256M DRAMs.

Personnel: Samsung currently employs and constantly trains 13,200 R&D people, The research
staff represents 15.3% of the total workforce.

A Strategy for Leadership in the Digital Age

Sales of Samsung Electronics' information and communications products have been increasing
nearly 100% a year, evidence that Samsung's business structure is stabilizing around the
future-oriented areas of information & communications, multimedia and semiconductors.The
company will continue to restructure and focus investment on areas with strong growth potential.
At the top of this list there are products and technology required in the digital age, the time when
all electronic products and systems are linked together seamlessly.
The IMT-2000, digital cameras, digital TV, handheld PCs, and various information appliances
are rapidly being brought together to provide people with possibilities that were only the stuff of
dreams a few years ago.

Samsung remains in the forefront of this revolution, focusing its resources on the development
of the parts, components and finished products that are ushering in the digital age of the 21st
century. Samsung's long-term strategy is also netting immediate results. In spite of the current
slump in world DRAM prices, Samsung's combined sales of multimedia products and
semiconductors reached close to US$6.4 billion in 1997, an increase of about US$565 million
from the previous year. The company has set its 1998 total sales target at over US$14.8 billion,
including US$13 billion in exports, or 9% of the nation's total exports forecast for the year. This
would be an increase of 13.5% over Samsung's US$13 billion in total sales for 1997.

To the Shareholders and Board of Directors Samsung Electronics Co., Ltd.

We have audited the accompanying balance sheet of Samsung Electronics Co., Ltd. as of
December 31, 1997, and the related statement of income, appropriation of retained earnings
and cash flows for the year then ended, expressed in Korean Won. These financial statements
are the responsibility of the Company's management.

Our responsibility is to express an opinion, as independent auditors, on these financial

statements, as to whether they have been prepared in conformity with financial accounting
standards generally accepted in the Republic of Korea. For this purpose, we conducted our
audits in accordance with auditing standards generally accepted in the Republic of Korea. In our
opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of Samsung Electronics Co., Ltd. as of December 31, 1997, and the results of
its operations, the changes in its retained earnings and its cash flows for the year then ended, in
conformity with financial accounting standards generally accepted in the Republic of Korea.

As further explained in Note 2 to the financial statements, in 1997 the Company changed its
accounting policy for foreign currency translation and extended the estimated useful lives of
property, plant and equipment. As a result of these changes, with which we concur, 1997 net
income is approximately ￦152,275 million and shareholders' equity is approximately
￦3,176,319 million greater than what would have been reported under the previous accounting
methods.
As discussed in Note 2 to the financial statements, in accordance with the transition clause of
the addendum to the revised financial accounting standards generally accepted in the Republic
of Korea effective January 1, 1997, the Company has not presented financial statements for the
year ended December 31, 1996 for comparative purpose.

As more fully discussed in Note 6 to the financial statements, the Company is in the process of
revaluing a substantial portion of property, plant and equipment in accordance with the Asset
Revaluation Law. The estimated revaluation increment approximates ￦250,000 million. As
more fully discussed in Note 11 to the financial statements, the operations of the Company have
been significantly affected, and will continue to be affected for the foreseeable future, by the
unstable economy caused by currency volatility and unstable financial markets in Korea. As a
result, there are significant uncertainties that may affect future operations.

The ultimate outcome of these uncertainties cannot presently be determined. The financial
statements do not include any adjustments that might result from the resolution of these
uncertainties.

Samil Accounting Corporation

Seoul, Korea
January 30, 1998

Samil Accounting Corporation is a member of Coopers & Lybrand International, a limited liability
association incorporated in Switzerland.

December 31, 1997

In Thousands of. In Thousands of.
ASSETS
Korean Won U.S.Dollars(Note3)
Current assets:
Cash and bank deposits (Note 4) 1,367,157,250 966,189
Marketable securities 44,365,620 31,354
Accounts and notes receivable, less
allowance for doubtful accounts of 3,308,507,239 2,338,168
£Ü 29,871,528 thousand
Inventories (Note 5) 2,341,451,639 1,654,736
Guarantee deposits 331,116,907 234,005
Other 388,714,910 274,710
Total current assets 7,781,313,565 5,499,162
?/B>
Property, plant and equipment,including
revalued portion, net of accumulated 7,159,313,067 5,059,585
depreciation (Note 6)
Investments in subsidiaries and affiliated
companies,less valuation allowance of 2,509,654,756 1,773,607
5,584,116 thousand (Note 7)
Noncurrent deposits and other assets
2,438,895,146 1,723,601
(Note 4)
Deferred charges (Note 2) 3,176,340,631 2,244,764

Total Assets 23,065,517,165 16,300,719

The accompanying notes are an integral part of this statement.

LIABILITIES AND In Thousands of. In Thousands of.

SHAREHOLDERS'EQUITY Korean Won U.S.Dollars(Note 3)

Current liabilities:

Accounts and notes payable 1,946,117,338 1,375,348

Short-term borrowings (Note 8) 1,311,944,971 927,170

Current maturities of long-term

1,383,898,185 978,020
debt(Notes 9 and 10)

Accrued expenses 836,591,876 591,231

Dividends payable 59,969,415 42,381

Income taxes payable 8,981,053 6,347

Other 322,053,208 227,599

Total current liabilities 5,869,556,046 4,148,096

Long-term debt, net of current

8,394,519,378 5,932,523
maturities (Note 9)

Foreign currency notes and bonds 2,278,904,464 1,610,533

(Note 10)

Accrued severance benefits,

net of 즴72,107,419 thousand 692,574,539 489,452
transferred to national pension

Deferred liabilities (Note 2) 21,757 15

Total liabilities 17,235,576,184 12,180,619

Commitments and contingencies

(Note 11)

Shareholders'equity:
Capital stock (Note 1) :

Common stock 490,350,200 346,537

Preferred stock 119,467,135 84,429

Revaluation surplus (Note 6) 24,400,991 17,245

Other capital surplus (Notes 1, 9 and

1,451,541,645 1,025,825
10)

Retained earnings (Note 12):

Appropriated 4,030,347,930 2,848,302

Unappropriated 31,881 23

Capital adjustments:

Treasury stock (Note 13) (427,838,371) (302,359)

Consideration for conversion rights

142,549,059 100,741
(Note 10)

Loss on valuation of investments in

(909,489) (643)
equity securities (Note 2)

Total shareholders'equity 5,829,940,981 4,120,100

23,065,517,165 16,300,719

The accompanying notes are an integral part of this statement.

for the year ended December 31, 1997
In Thousands of. In Thousands of.
Korean Won U.S.Dollars(Note 3)
Sales (Note 15):

Domestic 8,013,718,934 5,663,406

Export 10,451,640,507 7,386,318
18,465,359,441 13,049,724
Cost of sales (Note 15) 12,701,065,224 8,976,018
Gross profit 5,764,294,217 4,073,706
Selling, general and administrative
2,908,073,790 2,055,176
expenses
Operating profit 2,856,220,427 2,018,530

Nonoperating income:

Interest and dividend income

171,182,036 120,977
(Note 10)
Gain on foreign currency transactions 1,869,713,309 1,321,352
Other 411,715,036 290,965
2,452,610,381 1,733,294

Nonoperating expenses:

Interest expenses 759,045,307 536,428

Amortization of deferred charges 1,581,287,365 1,117,517
Loss on foreign currency transactions 2,092,372,147 1,478,708
Other 720,061,983 508,878
5,152,766,802 3,641,531

Ordinary profit 156,064,006 110,293

Extraordinary income 65,610 46
Extraordinary loss 2,508,902 1,773
Net income before income taxes 153,620,714 108,566
Income taxes (Note 14) 30,115,805 21,283

Net income 123,504,909 87,283

Earnings per share
1,232 1
(in Korean Won and U.S. Dollars)
The accompanying notes are an integral part of this statement.

for the year ended December 31, 1997

In Thousands of. In Thousands of.
Korean Won U.S.Dollars(Note 3)
Cash flows from operating activities:
Net income 123,504,909 87,283
Items not involving cash flows:
Depreciation and amortization 3,051,141,146 2,156,283
Provision for severance benefits 109,072,654 77,083
Loss on disposal of property, plant and
26,792,411 18,935
equipment
Loss on disposal of investments in
1,416,553 1,001
subsidiaries and affiliated companies
Gain on disposal of investments in
(9,021,458) (6,376)
subsidiaries and affiliated companies
Loss on foreign currency translation 285,948,927 202,084
Gain on foreign currency translation (209,466,751) (148,033)
Other 147,877,613 104,507
3,527,266,004 2,492,767

Cash provided by (used in) operating

activities:
Accounts and notes receivable (1,127,275,330) (796,661)
Inventories (161,761,679) (114,319)
Guarantee deposits (168,446,519) (119,044)
Accounts and notes payable 249,883,421 176,596
Accrued expenses 424,971,148 300,333
Income taxes payable 4,685,879 3,312
Payment of severance benefits (70,088,204) (49,532)
Other 104,548,934 73,886
 2,783,783,654 1,967,338

The accompanying notes are an integral part of this statement.

for the year ended December 31, 1997

In Thousands of. In Thousands of.
Korean Won U.S.Dollars(Note 3)
Cash provided by (used in) investing activities:

Disposal of marketable securities 528,270,377 373,336

Acquisition of marketable securities (554,330,468) (391,753)
Proceeds from disposal of property,
20,842,796 14,730
plant and equipment
Acquisition of property, plant and
(2,542,946,267) (1,797,135)
equipment
Disposal of investments in subsidiaries
37,091,441 26,213
and affiliated companies
Acquisition of investments in
(548,874,765) (387,897)
subsidiaries and affiliated companies
Decreases in noncurrent deposits and
other assets 381,897,457 269,892
(Note 10)
Increases in noncurrent deposits and
other assets (909,332,725) (642,638)
(Note 10)
Increases in deferred charges
(776,765,405) (548,951)
(Note 10)
Other (186,973,691) (132,137)
(4,551,121,250) (3,216,340)

Cash provided by (used in) financing activities:

Proceeds from short-term borrowings 3,247,391,734 2,294,976

Repayment of short-term borrowings (2,778,036,371) (1,963,276)
Proceeds from long-term debt 1,929,033,866 1,363,275
Repayment of long-term debt (561,803,917) (397,035)
Proceeds from foreign currency notes
559,644,754 395,509
and bonds
Increases in deferred charges (14,405,595) (10,181)
Repayment of current maturities of long-
(517,484,507) (365,713)
term debt
Issuance of common stock 235,677,002 166,556
Payments of dividends (64,312,238) (45,450)
Other 135,758,153 95,942
2,171,462,881 1,534,603
Net increase in cash and bank deposits 404,125,285 285,601
Cash and bank deposits at beginning of
963,031,965 680,588
the year
Cash and bank deposits at end of the
1,367,157,250 966,189
year

The accompanying notes are an integral part of this statement.

1. The Company

Samsung Electronics Co., Ltd. (the "Company") is incorporated under the laws of the Republic
of Korea to manufacture and sell electronic goods, communication facilities, semiconductors,
telecommunication equipment and other similar products. The Company' stock is publicly traded,
and all issued and outstanding shares are listed on the Korean Stock Exchange. Under the
Articles of Incorporation, the Company is authorized to issue 200,000,000 shares of capital
stock (par value 즴5,000), of which 75,000,000 shares of cumulative, participating preferred
stock, which are non-voting and entitled to a minimum cash dividend (9% of par value). The
non-cumulative, non-voting preferred stock issued on or before February 28, 1997 is entitled to
an additional cash dividend (1% of par value) over common stock. At December 31, 1997,
98,070,040 shares of common stock and 23,893,427 shares of preferred stock were issued and
outstanding. In addition, the Company is authorized to issue convertible debentures and
debentures with stock purchase options up to 1,000,000 million and ￦400,000 million,
respectively. The Company is authorized to issue depository receipts free from any preemptive
rights by shareholders. In July 1997, the Company issued 2,288,000 shares of common stock
for cash at ￦46,500 per share. In November 1997, the Company issued 5,652,174 Global
Depository shares ("GDS") representing 2,826,087 shares of common stock for cash at US$23
per GDS. In addition, the Company issued 2,025,009 shares of common stock upon the
conversion of convertible bonds in the amount of ￦60,000 million and US$72,440,000 in 1997
(see Notes 9 and 10). The cash received in excess of par value of ￦210,106,567 thousand and
the conversion price in excess of par value of ￦109,804,503 thousand were credited to other
capital surplus, respectively. No debentures with stock purchase options have been issued as of
December 31, 1997.

2. Summary of Significant Accounting Policies (1)

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

Transitional Presentation of Comparative Financial Statements

In accordance with the transition clause of the addendum to the revised financial accounting
standards generally accepted in the Republic of Korea effective January 1, 1997, the Company
has not presented financial statements for the year ended December 31, 1996 for comparative
purpose.

Basis of Financial Statement Presentation

The official accounting records of the Company are maintained in Korean Won in accordance
with the laws and regulations of the Republic of Korea. For the convenience of the reader, the
accompanying financial statements have been condensed, restructured and translated into
English from the statutory Korean language financial statements, with certain expanded
descriptions. Certain supplementary information included in the statutory financial statements,
not required for a fair presentation of the Company's financial position or results of operations, is
not presented in the accompanying financial statements.

Marketable Securities
Marketable securities are stated at cost, which approximates market value.

Allowance for Doubtful Accounts

The Company provides an allowance for doubtful accounts and notes receivable based on the
aggregate estimated collectibility of the amounts receivable.

Inventory Valuation
Inventories are stated at the lower of cost or market, cost being determined by the average cost
method, except for materials in transit which are stated at actual cost as determined by the
specific identification method.

2. Summary of Significant Accounting Policies (2)

Property, Plant and Equipment and Related Depreciation

Property, plant and equipment are stated at cost, except for certain assets subject to upward
revaluation in accordance with the Asset Revaluation Law. The revaluation presents production
facilities and other buildings at their depreciated replacement cost, and land at the prevailing
market price, as of the effective date of revaluation. The revaluation increment, net of 3% tax, is
first applied to offset accumulated deficit, if any, and the remainder may either be credited to
capital surplus or may be transferred to common stock. A new basis for calculating depreciation
is established for revalued assets.
Depreciation is computed using the straight-line method, based on the estimated useful lives of
the assets as described below.

Estimated Useful Lives-years

Buildings and auxiliary facilities 7-60

Machinery and equipment 2-8

Tools and fixtures 2-10

Structures and other 2-40

In 1997, the Company extended the estimated useful lives of property, plant and equipment to
improve the matching of revenue and expenses in recognition of the changes in the Company's
business environment. Pursuant to revised Korean Corporate Income Tax Law, the residual
value of assets acquired on or before December 31, 1994, is depreciated over three years
following the year in which 90% of the cost is fully depreciated. If 1997 depreciation had been
computed on the same basis as that of the prior year, depreciation expense for the year ended
December 31, 1997 would be greater by approximately £Ü 623,910 million. As a result of this
change, net income for the year ended December 31, 1997 is approximately £Ü 458,517 million
greater than that which would have been reported under the previous accounting method
In conformity with Korean accounting practices, the Company recognizes special accelerated
depreciation expense on certain plant and equipment acquired on or before December 31, 1994
which are used in operations more than 12 hours a day on average. During 1997, the Company
recognized special depreciation of £Ü 2,650 million.
The Company capitalizes interest as part of the cost of constructing major facilities and
equipment. Interest costs of £Ü 62,325 million were capitalized in 1997.

Maintenance and Repairs

Routine maintenance and repairs are charged to expense as incurred. Expenditures which
enhance the value or extend the useful life of the related assets are capitalized.

Investments in Subsidiaries and Affiliated Companies

Investments in subsidiaries and affiliated companies are reported at cost, except where market
value or net book value declines significantly compared to acquisition cost and is not expected
to recover, in which case the investment is reduced to the market value or net book value.
Under generally accepted financial accounting standards in the Republic of Korea, neither
consolidation of subsidiaries nor the equity method of accounting for minority owned companies
is applied in the primary financial statements of the Company.
Pursuant to the revised generally accepted financial accounting standards effective January 1,
1997, equity investments in publicly traded companies excluding subsidiaries and affiliated
companies, classified as noncurrent deposits and other assets, are reported at market value
and the differences between the market value and the acquisition cost are treated as gains or
losses on the valuation of investments in equity securities, a component of shareholders' equity.
As a result of this change, shareholders'equity as of December 31, 1997 is approximately
£Ü 909 million less than that which would have been reported under the previous accounting
method.
The Company is required to prepare, in addition to these unconsolidated financial statements,
audited financial statements that are consolidated with those of certain domestic and overseas
subsidiaries as defined by Consolidation Financial Accounting Standards. Such audited
consolidated financial statements for 1997 are required to be prepared by April 30, 1998.

Deferred Charges

Research and development costs, as well as stock and debenture issuance costs are charged
to operations as incurred.
Deferred foreign exchange losses are amortized over the terms of the related debt using the
straight-line method.
Deferred discounts or premiums related to debentures are amortized to interest expense over
the terms of the related debentures using the straight-line method.
2. Summary of Significant Accounting Policies (3)

Accrued Severance Benefits

Employees and directors with more than one year of service are entitled to receive a lump-sum
payment upon termination of their employment with the Company, based on their length of
service and rate of pay at the time of termination. Accrued severance benefits which would be
payable assuming all eligible employees terminated their employment as of December 31, 1997
are £Ü 777,358,321 thousand.
Severance pay expense is calculated based on the net change in the accrued severance benefit
liability assuming the termination of all eligible employees as of the beginning and end of the
accounting period.
Under prevailing generally accepted accounting standards, as of December 31, 1990, accrued
severance benefits were underaccrued by approximately £Ü 42,254 million. The Company is
adjusting the underaccrued severance benefits over 10 years beginning in 1991 in accordance
with the provisions of the Addendum of the Financial Accounting Standards of the Republic of
Korea. Accordingly, for the year ended December 31, 1997, the Company deducted £Ü 4,225
million from retained earnings for additional accrued severance benefits.
Accrued severance benefits are funded approximately 45% at December 31, 1997 through a
group severance insurance plan with Samsung Life Insurance Company, Ltd. The amounts
funded under this insurance plan are classified as noncurrent deposits and other assets.
Subsequent accruals are to be funded at the discretion of the Company.
In accordance with the National Pension Act, a certain portion of accrued severance benefits is
deposited with the National Pension Fund and deducted from the accrued severance benefits
liability. The contributed amount shall be refunded from the National Pension Fund to employees
on their retirement.

Foreign Currency Translation

Monetary assets and liabilities denominated in foreign currencies are translated into Korean Won
at the rates prevailing at the balance sheet date(in the case of US Dollars, US$1=£Ü 1,415.20).
Resulting exchange losses and gains are included in operations.

Foreign Currency Translation, Continued

However, in accordance with the revision of financial accounting standards in 1997, net
unrealized losses and gains arising from long-term foreign currency assets and liabilities are
recorded as deferred charges or liabilities. Foreign exchange losses from long-term foreign
currency liabilities, previously charged to shareholders' equity as a foreign exchange debit have
been transferred to deferred charges. As a result of this change, 1997 net income is
approximately £Ü 306,242 million less and shareholders' equity is approximately £Ü 3,176,319
million greater than that which would have been reported under the previous accounting method.

Income Taxes
The provision for income taxes is comprised of corporate tax, resident tax and agriculture and
fishery development special tax surcharges, payable for the current year. In conformity with
accounting practices prevailing in the Republic of Korea, the Company does not recognize
deferred income taxes arising from temporary differences between amounts reported for financial
accounting and income tax reporting purposes.
Investment tax credits are recognized as a reduction of income tax expense in the year in which
they are utilized.

Earnings Per Share

Earnings per share are computed, after deduction of dividends declared on preferred stock,
using the weighted average number of common shares outstanding during the period.

Product Warranties and Performance Guarantees

In conformity with accounting practices prevailing in the Republic of Korea, costs related to
repairs, service and other work required in accordance with product warranties and performance
guarantees are charged to expense when incurred.

Prior Period Error Corrections

Pursuant to the revised generally accepted accounting standards in 1997, the Company
recorded prior period error corrections as extraordinary income or loss. Prior period error
corrections include refinements of estimates used in prior years and the resolution of matters
outstanding from prior years.

3. United States Dollar Amounts

The Company operates primarily in Korean Won and its official accounting records are
maintained in Korean Won. The U.S. Dollar amounts are provided herein as supplementary
information solely for the convenience of the reader. For 1997, Won amounts are expressed in
U.S. Dollars at the rate of £Ü 1,415 : US$1, the rate prevailing on December 31, 1997. This
presentation is not in accordance with either Korean or United States generally accepted
accounting principles, and should not be construed as a representation that the Won amounts
shown could be converted to, realized or settled in U.S. Dollars at this or any other rate.

4. Cash and Bank Deposits

Annual Interest
Thousands of Won
Rates (%)

Cash and bank deposits at December 31, 1997

comprise the following :

Cash on hand and in banks - 26,068,865

Passbook accounts 1 31,093,071

Installment and time deposits 8.5-24.5 1,207,995,182

Foreign currency deposits 0.5-5.75 129,835,851

Group severance insurance

deposits 8.5 346,654,387

Other deposits - 368,197

1,742,015,553

Less : portions classified as noncurrent (374,858,303)

1,367,157,250

At December 31, 1997, bank deposits of £Ü 208,926,766 thousand are pledged as collateral for
certain short-term loans, and are subject to restrictions on withdrawal (see Note 8). In addition,
group severance insurance deposits may only be withdrawn for the actual payment of
severance benefits.

5. Inventories

Thousands of Won

Inventories at December 31, 1997 comprise the

following :

Finished goods and merchandise 598,437,367

Semifinished goods and work in process 834,334,178

Raw materials and supplies 640,714,921

Materials in transit 267,965,173

2,341,451,639

Inventories are insured against fire and other casualty losses up to £Ü 2,133,012 million at
December 31, 1997.

6. Property, Plant and Equipment

Property, plant and equipment

at December 31, 1997 Thousands of Won
comprise the following:

Buildings and auxiliary facilities 1,719,615,673

Machinery and equipment 8,619,594,538

Tools and fixtures 1,303,330,322

Structures and other 203,533,117

11,846,073,650

Less : accumulated
(6,531,959,851)
depreciation

5,314,113,799

Land 872,069,235

Construction in progress 973,130,033

7,159,313,067

A certain portion of the Company's property, plant and equipment is pledged as collateral for
various loans from Korea Development Bank, Commercial Bank of Korea and Hanil Bank up to
a maximum of £Ü 1,395,957 million at December 31, 1997 (see Note 9).
Depreciable assets are insured against fire and other casualty losses up to £Ü 8,927,456 million
at December 31, 1997.
At December 31, 1997, the government appraised value of land is £Ü 1,226,532,971 thousand.
In accordance with the Asset Revaluation Law (see Note 2), effective January 1, 1980 and
1982, the Company revalued a substantial portion of its property, plant and equipment by
£Ü 18,563,482 thousand and £Ü 14,967,125 thousand, respectively, and its investments in equity
securities by £Ü 502,088 thousand and £Ü 648,892 thousand, respectively. The revaluation
increments, net of revaluation tax, were credited to revaluation surplus, a component of
shareholders'equity.
The Company is in the process of revaluing a substantial portion of property, plant and
equipment in accordance with the Asset Revaluation Law. The estimated revaluation increment
approximates £Ü 250,000 million. Upon conclusion of the revaluation process, the revaluation
increment, net of a 3% tax, shall be recorded as capital surplus effective January 1, 1998.

7. Investments in Subsidiaries and Affiliated Companies (1)

Investments in subsidiaries and affiliated companies, all of which are unconsolidated in the
accompanying financial statements at December 31, 1997, comprise the following:

Percentage Acquisition Market Value Recorded

of (Net book Book
Ownership Cost value) Value

Subsidiaries

Samsung Electronics
100.00 304,341,917 354,556,318 즴 304,341,917
America, Inc.

Samsung Electronica
100.00 5,126,072 3,788,334 5,126,072
Portuguesa S.A.

Samsung Electronics
100.00 10,301,256 8,280,517 10,301,256
AustraliaPty, Ltd.

Samsung Electronics
100.00 10,649,417 11,208,933 10,649,417
Canada Inc.

Samsung Electronics 100.00 349,200 13,276,536 349,200

Hong Kong Co., Ltd.

Samsung Electronics
100.00 47,766,973 68,330,579 47,766,973
Japan Co., Ltd.

Samsung Electronica
100.00 8,847,490 19,237,802 8,847,490
Espanola S.A.

Samsung Electronics
Panama, (ZONA 100.00 7,421,800 26,938,006 7,421,800
LIBRE) S.A.

Samsung Electronics
Hungarian RT Co., 100.00 20,763,117 25,155,726 20,763,117
Ltd.

Samsung Asia Private,

70.00 20,454,044 51,746,071 20,454,044
Ltd.

PT Samsung Maspion
50.00 1,957,250 1,327,275 1,957,250
Indonesia

Samsung Electronics
100.00 4,378,136 14,766,363 4,378,136
(M) SDN.BHD.

Samsung Electronica
Commercial Iberica S. 100.00 13,256,631 17,133,626 13,256,631
A.

Samsung Yokohama
100.00 33,991,706 41,090,540 33,991,706
Research Institute

Samsung Electronics
100.00 3,257,294 3,054,813 3,257,294
Svenska. AB.

Samsung Electronics
100.00 12,035,458 11,290,570 12,035,458
Italia, S.p.A.

Samsung Electronics
100.00 11,175,412 12,405,928 11,175,412
France S.A.

Samsung Electronics
96.33 9,236,618 19,961,922 9,236,618
Hui Zhou Co., Ltd.

Tian Jin Samsung

80.00 16,397,084 12,970,904 16,397,084
Electronics Co., Ltd
Samsung Electronics
100.00 77,607,621 127,572,809 77,607,621
Holding GmbH

Samsung Electronica
Comercio E Servicos 100.00 161,140 - 161,140
LTDA

Samsung Electronics
Moscow Service 95.00 113,322 277,050 113,322
Center, Ltd.

Lux corporation, Inc. 50.76 15,202,391 7,697,175 15,202,391

Varimetrix Corp. 51.00 400,145 480,782 400,145

Samsung Electronics
100.00 455,700 1,242,066 455,700
Taiwan Co., Ltd.

Tian Jin Tong Guang

Samsung Electronics 80.00 14,475,641 719,994 14,475,641
Co., Ltd.

7.Investments in Subsidiaries and Affiliated Companies (2)

Investments in subsidiaries and affiliated companies, all of which are unconsolidated in the
accompanying financial statements at December 31, 1997, comprise the following:

Percentage Acquisition Market Value Recorded

of (Net book Book
Ownership Cost value) Value

Subsidiaries :

Integrated Telecomm
89.70 11,879,709 - 11,879,709
Technology Inc.

Samsung Electronics Souzhou

100.00 25,093,560 44,178,726 25,093,560
Semiconductor Co., Ltd.

Samsung Electronics Mexico

100.00 4,022,040 2,556,460 4,022,040
S.A. de C. V.

Samsung Electronica Da 100.00 63,553,880 21,149,438 63,553,880

Amazonia LTDA.

Samsung Electronics South

90.00 1,365,840 - 1,365,840
Africa (Pty) Ltd.

Inversiones Hispano-Chilenas
100.00 112,630,756 177,488,402 112,630,756
Holding, B.V.

Samsung Europe PLC 100.00 74,382,605 114,574,394 74,382,605

Samsung Electronics Nederland

100.00 1,265,399 3,109,357 1,265,399
B.V.

Samsung Electronics Moscow

100.00 76,245 196,653 76,245
Co., Ltd.

Samsung Crosna Joint Stock

71.00 2,230,533 2,230,533 2,230,533
Company

Samsung Gulf Electronics Co.,

100.00 1,471,808 1,053,345 1,471,808
Ltd.

Samsung Vina Electronics Co.,

70.00 6,448,764 6,462,477 6,448,764
Ltd.

Samsung India Electronics Ltd. 51.00 3,710,377 10,062,878 3,710,377

Samsung Electronics
75.00 21,876,246 37,875,443 21,876,246
Display(M) SDN. OMD(HSD).

Shandong-Samsung
69.00 15,562,465 30,392,867 15,562,465
Telecommunications Co., Ltd.

Souzhou Samsung Electronics

80.00 25,704,000 24,934,632 25,704,000
Co., Ltd.

Samsung Electronics Argentina

100.00 4,696,200 5,171,700 4,696,200
S.A.

Samsung Electronics Poland,

100.00 5,461,100 - 5,461,100
SP.Zo.O

Samsung Electronics Overseas

100.00 119,898 119,898 119,898
B.V.

Samsung Ukraine Service Co.,

100.00 684,078 701,267 684,078
Ltd.
Samsung Mabuhay Corporation 51.00 1,674,126 271,134 674,126

Samsung Almaty Service Co.,

100.00 717,045 735,063 717,045
Ltd.

Samsung(CHINA)
100.00 23,253,000 26,011,311 23,253,000
InvestmentCo., Ltd.

Shanghai Samsung Kang

Cheng Communications 51.00 1,008,934 1,077,248 1,008,934
EquipmentCo., Ltd.

Cogent Technologies, Inc. 91.48 22,162,492 22,162,492 22,162,492

AST Research Inc. 75.80 260,737,562 - 260,737,562

Bethany Communications
71.40 4,586,563 2,479,751 4,586,563
Import & Export S.A.

Samsung Video Glass America,

61.14 1,781,246 1,781,246 1,781,246
Inc.

Samsung Electronics India

100.00 897,200 897,200 897,200
Private Ltd.

PT Samsung Electronics
99.90 12,766,316 8,619,829 12,766,316
Indonesia

Tian Jin Samsung Electronics

80.00 1,273,248 1,273,248 1,273,248
Display Co., Ltd.

PrimeTel Ltd. 50.00 6,636,000 6,636,000 6,636,000

Icheon Electricity Co., Ltd. 85.28 29,000,000 - 29,000,000

Kwangju Electronics Co., Ltd. 95.00 30,400,000 39,450,733 30,400,000

Samsung Card Co., Ltd. 54.37 81,561,475 75,442,379 81,561,475

Samsung Watch Co., Ltd. 100.00 77,949,940 7,674,913 77,949,940

Samsung Finance Co., Ltd. 74.75 89,700,000 75,115,343 89,700,000

STECO, Ltd. 51.00 12,239,960 12,513,999 12,239,960

Asan Electronics Co., Ltd. 60.00 3,046,107 2,446,687 3,046,107

Hanil Home Electrics Co., Ltd. 100.00 447,512 - 447,512

Total investments in subsidiaries - 1,694,197,064 1,621,357,685 1,694,197,064

7. Investmets in Subsidiaries and Affiliated Companies (3)

Investments in subsidiaries and affiliated companies, all of which are unconsolidated in the
accompanying financial statements at December 31, 1997, comprise the following:

Percentage Acquisition Market Value Recorded

of (Net book Book
Ownership Cost value) Value

Affiliated companies :

Samsung Aerospace
8.13 30,975,037 10,169,810 30,975,037
Industries Ltd.

Samsung Electro-
20.27 130,567,692 65,045,355 130,567,692
Mechanics Co., Ltd.

Samsung
9.93 2,530,860 12,687,615 2,530,860
Petrochemical Co., Ltd.

Samsung Heavy
18.93 122,818,074 52,360,000 122,818,074
Industries Co., Ltd.

Samsung Display
10.45 131,312,515 99,462,770 131,312,515
Devices Co., Ltd.

Hotel Shilla Co., Ltd. 5.49 6,682,901 3,974,763 6,682,901

Samsung-GE Medical
34.00 2,045,261 6,138,392 2,045,261
SystemsCo., Ltd.

Hewlett Packard Korea

45.00 7,245,000 11,607,216 7,245,000
Ltd.

Samsung Data Systems

29.94 17,966,660 21,958,237 17,966,660
Co., Ltd.

Samsung Corning Co.,

48.36 86,710,798 114,790,809 86,710,798
Ltd.

Samsung Economic
30.00 1,800,000 1,768,172 1,800,000
Research Institute

Samsung Fine 9.31 28,307,402 7,914,299 28,307,402

Chemicals Co., Ltd.

Samsung Motors Inc. 21.10 170,000,000 119,153,204 170,000,000

Samsung General
3.82 17,555,670 12,648,380 17,555,670
Chemical Co., Ltd.

Posco Huls Co., Ltd. 20.00 17,200,000 26,008,930 17,200,000

Towa Korea Co., Ltd. 40.00 800,000 2,572,462 800,000

Thai-Samsung
49.00 2,970,945 889,984 2,970,945
Electronics Co., Ltd.

Samsung Electronics
20.00 1,371,004 101,079 181,972
Ticaret S.A.

Seoul Commtech. Co.,

33.30 4,191,977 2,905,105 4,191,977
Ltd.

Samsung Portugal
Productos Electro- 40.00 2,123,880 1,927,391 2,123,880
mechanicos S.A.

VIDELCO Electronics
20.00 97,880 - -
S.R.L.

Array Microsystems,
29.10 4,171,133 - 330,38
Inc.

Joong-Ang Daily News

25.42 2,889,686 2,627,799 2,889,686
California Inc.

Samsung Display
10.00 3,110,100 3,110,100 3,110,100
Devices Do. Brasil.

DNS Korea Co., Ltd. 43.70 2,185,000 4,380,123 2,185,000

Samsung Lions Co.,

27.50 275,000 - 275,000
Ltd.

Norpak Corporation 21.54 1,018,116 561,660 561,660

Dagesttankaya Cellular
49.00 1,796,192 1,137,680 1,796,192
Network Ltd.

Union Optical Co., Ltd. 20.00 17,388,905 6,370,274 17,388,905

Syrian-Korean
Telecommunictation
Equipment 49.00 2,060,925 2,060,925 2,060,925
Manufacturing
Establishment Co., Ltd.

Other affiliated
873,195 1,818,865 873,195
companies

Total investments in
821,041,808 596,151,399 815,457,692
affiliated companies

2,515,238,872 2,217,509,084 2,509,654,756

At December 31, 1997, investments in affiliated companies of £Ü 190,031,879 thousand are

pledged as collateral for certain long-term loans (see Note 9).

8. Short-Term Borrowings

Annual
Thousands
Interest
of Won
Rates (%)

Short-term borrowings at December 31, 1997 comprise the

following:

Bank overdraft facilities 39-40 52,133,534

General term loans:

Commercial banks 10.25-18.0 755,100,931

Notes, discounted 10.9-25 191,000,000

Export financing 8.5-9.5 86,077,145

Usance financing LIBOR+3-5 133,472,458

LIBOR+0.7-
Foreign currency loans 94,160,903
0.825

1,311,944,971

Certain bank deposits are pledged as collateral for the above loans (see Note 4).
9. Long-Term Debt(1)

Thousands of
Reference
Won

Long-term debt at December 31, 1997 comprises the

following:

Won currency loans (A) 888,226,968

Foreign currency loans, in Won equivalent (B) 6,910,478,031

Debentures (C) 1,525,872,106

Other 390,156,458

9,714,733,563

Less : current maturities (1,320,214,185)

8,394,519,378

Annual
(A) Won currency loans at December 31, 1997 comprise Thousands of
Interest Rates
the following: Won
(%)

Hanil Bank 6.5-9 85,024,000

Korea Development Bank 8-13.2 490,825,400

Korea Long-Term Credit Bank 6.5-13.15 203,340,688

Chohung Bank 11 11,094,420

Korea Technology Banking Corporation 6.5 26,589,470

Housing & Commercial Bank 9.5 1,352,990

Korea Merchant Banking Corporation 12.69 30,000,000

Asian Banking Corporation 12.66 10,000,000

Korean French Banking Corporation 12.48-12.55 30,000,000

888,226,968

9. Long-Term Debt (2)

(B) Long-term debt denominated in
Annual Interest Thousands of U.S.
foreign currencies at December 31,
Rates (%) Dollars
1997 comprises the following:

The Long Term Credit Bank of Japan,

LIBOR+0.85 410
Ltd.

Credit Lyonnais LIBOR+1 830

Chase Manhattan Bank LIBOR+1 682

Tokai Bank LIBOR+0.85 973

ING LIBOR+0.45 8.533

Banque Paribas LIBOR+1.25 639

Citibank, N.A. LIBOR+0.6-1 235,380

Other foreign banks LIBOR+0.6-1.25 3,246

Korea Development Bank 9.0-10.0

or
1,096,182
LIBOR+0.35-2.0

Korea Exchange Bank LIBOR+0.375-1.0 134,894

Commercial Bank of Korea LIBOR+0.25-1.125 212,286

Hanil Bank LIBOR+0.25-1.2 403,250

Korea Long-Term Credit Bank LIBOR+0.375-0.9 50,137

Korea First Bank LIBOR+0.25-2 5,318

Chohung Bank LIBOR+0.25-1.25 83,416

The Export-Import Bank of Korea LIBOR+0.625-0.725 167,149

Bank of Seoul LIBOR+0.4-1 75,818

Housing & Commercial Bank LIBOR+1 48,213

Shinhan Bank LIBOR+1 69,916

Dong Hwa Bank Ltd. LIBOR+0.8 9,934

Hana Bank LIBOR+1 19,516

Boram Bank LIBOR+1 19,996

Korea Development Leasing LIBOR+0.65-1.1 1,808,492

Corporation and others

Korea Merchant Banking Companies LIBOR+0.625-1.5 427,830

U.S. Dollar equivalent of foreign

4,883,040
currencies

Won equivalent (in thousands) 6,910,478,031

(C) Debentures outstanding at

Annual Interest
December 31, 1997 comprise the Thousands of Won
Rates (%)
following:

Guaranteed by banks, payable through

11-25 910,000,000
2001

Floating rate notes, payable at 2001 CD+0.1 32,000,000

Other, payable through 1999 11-13 620,000,000

1,562,000,000

Add : premiums 1,869,758

Less : discounts (37,997,652)

1,525,872,106

On March 24, 1997, the Company issued unsecured convertible bonds of £Ü 60,000 million.
During 1997, £Ü 60,000 million of convertible bonds were converted to common stock at the
conversion price of £Ü 49,931 per share (see Note 1).
The Company recorded £Ü 4,678,880 thousand of consideration for conversion rights, the
difference between nominal value and the discounted present value at the 9% guaranteed
return rate, as an adjustment to debentures and shareholders'equity related to the issuance of
convertible bonds. The conversion rights account is amortized using the effective interest
method, and amortization of £Ü 405,828 thousand was recognized as interest expense during
1997. In relation to the conversion to common stock, the Company recorded £Ü 405,828
thousand as other capital surplus, the difference between conversion rights and related
consideration for conversion rights.
Certain investments and property, plant and equipment are pledged as collateral for the above
loans (see Notes 6 and 7). In addition, repayment of certain long-term debt is guaranteed by
various Korean financial institutions and/or certain affiliated companies.
Maturities of long-term debt outstanding, excluding premiums and discounts on debentures, at
December 31, 1997 are as follows:

10. Foreign Currency Notes and Bonds

Unsecured foreign currency notes and

bonds at December 31, 1997 comprise the
following:

Due Date Thousands of Won

(A) December 22,

US$ denominated floating rate notes 63,684,000
1998

US$ denominated floating rate notes (B) June 21, 1999 283,040,000

(C) December 29,

¡Í denominated floating rate notes 217,564,000
1999

ECU denominated floating rate notes (D) May 16, 2000 151,256,576

US$ denominated straight bonds (E) November 1, 2002 283,040,000

DM denominated straight bonds (F) March 24, 2000 237,285,000

US$ denominated straight bonds (G) October 1, 2002 321,250,400

US$ denominated straight bonds (H) October 1, 2027 141,520,000

¡Í denominated straight bonds (I) April 23, 2003 217,564,000

DM denominated straight bonds (J) December 16,2001 237,285,000

(K) December
Convertible bonds 63,940,464
31,2006

(L) December 31,

Convertible bonds 266,550,000
2007

2,483,979,440

Less: current maturities (63,684,000)

Less: discounts (6,944,665)

Add: premiums 1,248,133

Less: conversion rights (135,694,444)

2,278,904,464

(A) US$ denominated floating rate notes

On December 22, 1993, the Company issued US$45 million of floating rate notes.
These notes are listed on the Luxembourg Stock Exchange, bear interest at Libor plus
0.35% and will mature on December 22, 1998.

(B) US$ denominated floating rate notes

On June 21, 1994, the Company issued US$200 million of floating rate notes. These
notes are listed on the Luxembourg Stock Exchange, bear interest at Libor plus 0.3%
and will mature on June 21, 1999.

(C) ¡Í denominated floating rate notes

On September 26, 1994, the Company issued ¡Í 20,000 million of floating rate notes.
These notes are listed on the Luxembourg Stock Exchange, bear interest at Yen Libor
plus 0.35% and will mature on December 29, 1999.

(D) ECU denominated floating rate notes

On May 16, 1995, the Company issued ECU 80 million of floating rate notes. These
notes are listed on the Luxembourg Stock Exchange, bear interest at ECU Libor plus
0.375% and mature on May 16, 2000.

(E) US$ denominated straight bonds

On November 1, 1992, the Company issued US dollar denominated bonds of US$200

million at 99.5% of face value for the expansion of semiconductor product
manufacturing facilities. The bonds bear interest at 8.5% per annum and mature on
November 1, 2002.

(F) DM denominated straight bonds

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

(G) US$ denominated straight bonds

On October 2, 1997, the Company issued straight bonds of US$227 million at 93.11%
of face value. The bonds bear interest at 7.45% per annum and mature on October 1,
2002.

(H) US$ denominated straight bonds

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

(I) ￥ denominated straight bonds

On April 23, 1996, the Company issued straight bonds of ￥ 20,000 million at face
value. The bonds bear interest at 3.3% per annum and mature on April 23, 2003.

(J) DM denominated straight bonds

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

(K) Convertible bonds

On September 24, 1996, the Company issued foreign currency convertible bonds of
US$150 million for the expansion of manufacturing facilities. The bonds are listed on the
London Stock Exchange and will mature on December 31, 2006. During 1997,
US$ 72,440 thousand of convertible bonds were converted into 823,352 shares of
common stock at the conversion price of £Ü 72,784 per share. A summary of the terms
of bonds is as follows :

Interest: 0.25% per annum payable annually in arrears on December 31.

Conversion period: On and after November 24, 1996 through December
15, 2006. ?Conversion Price: Subject to adjustment based on certain
events, ￦72,329 per share, with a fixed exchange rate applicable to the
conversion of ￦827.3 : US$1.00.

Redemption: Redeemable at the option of the bondholders on September

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

The Company recorded £Ü 51,968,519 thousand of consideration for conversion rights,

the difference between nominal value and the discounted present value at the 5.796%
guaranteed return rate, as an adjustment to debentures and shareholders'equity related
to the issuance of foreign currency convertible bonds. The conversion rights account is
amortized using the effective interest method, and amortization of £Ü 3,177,478
thousand was recognized as interest expense during 1997.
During 1997, US$ 72,440,000 of convertible bonds were converted to common stocks
at the conversion price of £Ü 72,784 per share (see Note 1).
In relation to the conversion to common stock, the Company recorded £Ü 1,644,720
thousand as other capital surplus, the difference between conversion rights and related
consideration for conversion rights.

(L) Convertible bonds

On June 26, 1997, the Company issued foreign currency convertible bonds of US$300
million for the expansion of manufacturing facilities. The bonds are listed on the London
Stock Exchange and will mature on December 31, 2007. A summary of the term of
bonds is as follows:

° Interest: 0%
°Conversion period: On and after July 26, 1996 through December 15, 2007.
 °Conversion Price: Subject to adjustment based on certain events,
￦123,635 per share with a fixed exchange rate applicable to the conversion
of ￦888.5 : US$1.00
°Redemption: Redeemable at the option of the bondholders on June 26,
2002 at 131.1% of the principal amount, and at the option of the Company at
any time on or after June 26, 1999 at a declining redemption price. However,
no such redemption may be made prior to June 26, 2002 unless the closing
price of the Company's common shares has reached 135% of the
conversion price for a stipulated period.

The Company recorded £Ü 115,677,870 thousand of consideration for conversion rights,

the difference between nominal value and the discounted present value at the 5.558%
guaranteed return rate, as an adjustment to debentures and shareholders'equity related
to the issuance of foreign currency convertible bonds. The conversion rights account is
amortized using the effective interest method and amortization of £Ü 4,319,092
thousand was recognized as interest expense during 1997.

11. Commitments and Contingencies

At December 31, 1997, the Company was contingently liable for guarantees of indebtedness,
principally for affiliated companies, approximating £Ü 840,432 million and US$4,634,035
thousand. In addition, the Company is contingently liable for accounts and notes receivable sold
with recourse, but not matured, approximating £Ü 66,621 million.
At December 31, 1997, the Company has entered into technical assistance agreements with
certain foreign companies. Total royalty expense related to these agreements incurred during
1997 amounts to approximately £Ü 485,307,507 thousand.
At December 31, 1997, the Company has entered into lease agreements with several leasing
companies which are recognized as direct financing leases. These lease agreements are
summarized as follows:

Depreciation Expense Charged to

Acquisition Cost
Accounts 1997 Operations (Thousands of
(Thousands of Won)
Won)

Machinery and equipment 1,964,211,861 317,803,837

Scheduled future lease payments, net of interest, under these lease arrangements which are
included with long-term debt (Note 10) at December 31, 1997 are as follows:

Thousands of Won

1998 565,843,316

1999 646,138,712

2000 715,320,070

2001 697,089,524

Thereafter 540,451,150

3,164,842,772

In addition, at December 31, 1997, the Company has entered into lease agreements which are
recognized as operating leases. Related rental payments are charged to operations as incurred.
Rental expense under operating lease agreements amounts to £Ü 3,433,036 thousand in 1997.
As of December 31, 1997, the Company has entered into forward exchange contracts (buying
amounts of US$ 417,408 thousand, ¡Í13,752,000 thousand, DM 100,000 thousand, SGD 24,319
thousand and £Ü ?18,068,000 thousand and selling amounts of US$ 35,000 thousand,
¡Í6,850,000 thousand, DM 560,700 thousand, HKD 789,450 thousand, and SGD 24,319
thousand), currency SWAP contracts (buying amounts of DM 644,340 thousand and
¡Í11,845,000 thousand and selling amounts of US$ 492,487 thousand) and interest SWAP
contracts amounting to US$1,500,000 thousand and ¡Í20,000,000 thousand with certain
financial institutions. The SWAP contracts mature on or after January 1, 1999 and during 1998,
the unrealized losses expected from the above forward exchange contracts are approximately
£Ü 14,328 million. In accordance with generally accepted accounting principles in the Republic
of Korea, unrealized gains and losses on forward exchange or SWAP contracts are excluded
from operations and recognized upon settlement date.
At December 31, 1997, the Company has been brought nine legal actions for alleged patent
infringement, two legal actions in connection with sales and one environmental legal action from
abroad. In addition, the Company is party to various other legal claims and proceedings, all of
which are pending as of December 31, 1997. The Company's management believes that,
although the outcome of these matters is uncertain, the resolution of these matters will not have
a material adverse effect on the operations or financial position of the Company.
The Korean economy is experiencing severe difficulties relating to currency devaluation, volatile
stock markets and slowdown in growth. The operations of the Company have been significantly
affected, and will continue to be affected for the foreseeable future, by the country's unstable
economy. As a result, there are significant uncertainties that may affect future operations. The
ultimate outcome of these uncertainties cannot presently be determined. The financial
statements do not include any adjustments that might result from the resolution of these
uncertainties.

12. Retained Earnings

Retained earnings at December 31, 1997 comprise the following:

Appropriated: Reference Thousands of Won

Legal reserve (A) 187,789,000

Reserve for business rationalization (B) 712,100,829

Reserve for improvement of financial structure (C) 204,815,000

Reserve for overseas market development (D) 655,941,108

Reserve for overseas investment losses (D) 353,782,252

Reserve for technology development (D) 1,428,186,683

Reserve for export losses (D) 353,118,058

Reserve for facilities (E) 134,615,000

4,030,347,930

Unappropriated: 31,881

4,030,379,811

(A) The Korean Commercial Code requires the Company to appropriate as a legal reserve an
amount equal to a minimum of 10% of annual cash dividends declared, until the reserve equals
50% of capital stock. This reserve is not available for the payment of cash dividends but may be
transferred to capital stock or used to reduce accumulated deficit, if any.

(B) Pursuant to the Tax Exemption and Reduction Control Law, the Company is required to
appropriate as a reserve for business rationalization, an amount equal to the exemption of
income taxes resulting from investment tax credits and certain deductions from taxable income
specified by such law. This reserve may be used for the reduction of accumulated deficit, if any,
or transferred to capital stock.

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

(D) Pursuant to Korean tax laws, the Company is allowed to claim the amounts of retained
earnings appropriated for reserves for overseas market development, overseas investment
losses, technology development and export losses as deductions in determining taxable
income. These amounts are not available for dividends until used for the specified purposes or
reversed.

(E) The reserve for facilities represents amounts appropriated by the Company for capital
expenditures and may be used for any purpose through shareholders's resolution.

13. Treasury stock

At December 31, 1997, the Company acquired 3,457,318 shares of common stock and
869,693 shares of non-voting preferred stock under the authorization of the Board of
Directors. This treasury stock will be sold no earlier than six months from the date of
acquisition.

14. Income Taxes

The statutory income tax rate, including resident tax surcharges, applicable to the
Company in 1997 is approximately 30.8%. However, the actual income tax expense
reported by the Company differs from the expected income tax computed at the statutory
income tax rate as follows:

Tax Rates (%) Thousands of Won

Income tax expense computed at the statutory rate 30.8 47,315,180

Reversal of special reserves appropriated for

29.3 44,980,391
taxpurposes (see Note 13)

Investment tax credits (21.5) (33,056,154)

Capitalized interest expense (11.4) (17,570,762)

Foreign exchange losses (13.9) (21,340,190)

Timing differences from revenue recognition (0.1) (279,448)

Non-deductible donations 12.0 18,490,365

Others, net (5.6) (8,423,577)

Income tax, as reported 19.6 30,115,805

The accumulated temporary differences between amounts reported for financial accounting and
for tax purposes at December 31, 1997 are approximately £Ü 1,338,404,881 thousand, and their
effect will be to increase future taxable income. These differences arise primarily in connection
with foreign exchange losses and the appropriation of various reserves for tax purposes (see
Note 12).

15. Related Party Transactions

Significant transactions with related parties for the year ended December 31, 1997 and
the related amounts receivable and amounts payable at December 31, 1997 are as
follows:

Thousands of Won

Sales 6,812,691,329

Accounts and notes receivabl 129,116,540

Purchases 5,507,103,269

Accounts and notes payable 604,069,365

16. Research and Development Cost

Research and development cost incurred in 1997 comprise the following :

Thousands of
 Won

Increases in deferred charges 776,765,405

Ordinary research and development expenses 490,806,128

1,267,571,533

17. Accounts Relating to Gross Added Value

The accounts required for the calculation of gross added value for the year ended
December 31, 1997 are as follows :

Thousands of Won

Selling, general
Manufacturing Cost and administrative Total
expenses

Salaries 656,082,494 333,248,358 989,330,852

Provision for severance

44,456,351 31,843,596 76,299,947
benefits

Welfare expenses 206,170,010 91,970,384 298,140,394

Rent 39,663,426 45,72,656 84,736,082

Depreciation 1,165,341,178 89,599,025 1,254,940,203

Taxes and dues 29,990,588 21,931,374 51,921,962