annual report 2000

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


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


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


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


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


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


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


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


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

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


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


Other

Exports

Digital Display

Digital Appliance

Digital Media


Other

1998

2,570

368

1,076

568

-

558

7,283

3,448

1,601

1,684

-

550

9,853


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


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


8.0%

4.8%

2.9%

Interest Expenses

1998 1999 2000


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


427419

706

R&D Expenditure

1998 1999 2000


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


Inventories


Investment

Other

1998

634

441

2,826

2,564

2,245

8,710


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 &notes receivables

1998 1999 2000


28.7

25.822.5


1998 1999 2000


4.55.2

8.0

Inventories

1998 1999 2000


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


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


39

1999

632

3,186

2000

1,031

4,008

Shareholders' Equity

Capital stock

Total shareholders' equity

1998

632

1,834


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


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.


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.


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.


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


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


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


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


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





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





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





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




<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 :


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


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 :


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 :


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

61

[ ]

[ ]

[ ]

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



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

[ ]



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.

63

[ ] [ ]

* 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


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 :


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

65

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 :

66

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:


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:


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.

69

19. Income Taxes:

Income tax expenses for the years ended December 31, 2000 and 1999 comprise the following:


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 :


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


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


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






















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

annual report 2000

Documents

digital lg

digital network company

digital appliance company

digital system company

digital leader

digital handset company

digital tvs

digital era