SHI Annual Report 2007

Innovating Challenging Delivering Results
Samsung Heavy Industries Annual Report 2007
C O N T E N T S HIGhLIGhts FInAncIAL
00 Financial Highlights 02 CEO Letter 06 Board of Directors 08 At a Glance 09 Innovating, Challenging, Delivering (In millions of Korean won) Results Operating Results 25 Revenue Counting Our Successes 37 Operating Operations Overview income 46 Income Sustainable before Management income taxes 52 Net Milestones income 53 CAPEX Financials 86 Global Network Balance Sheets (In millions of Korean won) 87 Investor Information Total assets Cash & marketable securities Total liabilities Interest-bearing debt Shareholders equity 8,519,066 457,245 658,542 485,386 626,372 10,560,624 2,595,870 8,750,700 132,059 1,809,924 6,351,690 99,019 212,526 154,097 433,762 8,989,185 2,446,796 6,767,042 128,640 2,222,142 5,546,704 (4,254) 95,255 74,256 400,683 6,827,640 1,394,703 4,899,301 84,973 1,928,339
2007
2006
2005
Revenue
In millions of Korean won
Operating income
Total assets
Shareholders equity
10,560,624
8,519,066
49.1
2,222,142
32.6
30
20
30
50
457,245
8,989,185
1,809,924
6,351,690
20
5,546,704
20
22.5
16.2
10
6,827,640
30 20 10
42.1
40
99,019
10
10
0 07 06 05
0 07 06
(4,254)
0 07 06 05
0 07 06 05
05
24.0
1,928,339
26.3
2007
Financial Ratios (%) Net operating margin Net income margin Debt-to-equity* Return on equity Return on assets Shareholder Structure (%) Related parties Treasury stock Foreign Institutional Individual 24.25 5.90 28.81 10.04 31.00 5.4 5.7 7.3 26.8 4.6
2006
1.6 2.4 5.8 6.9 1.7 24.25 1.01 35.11 11.33 28.30
2005
(0.1) 1.3 4.4 3.9 1.1 24.25 1.24 36.74 12.12 25.65
(*) Debt-to-equity ratio = Interest-bearing debt/Shareholders equity
CONTENTS
00 Financial Highlights 02 CEO Letter 06 Board of Directors 08 At a Glance 09 Innovating, Challenging, Delivering Results 25 Counting Our Successes 37 Operations Overview 46 Sustainable Management 52 Milestones 53 Financials 86 Global Network 87 Investor Information
Samsung Heavy Industries

A YEAR OF INNOVATION, CHALLENGE, AND RELIABILITY
No matter how you measure it, 2007 was our most successful year ever. We took in a record-breaking number of orders, launched world-class ships, introduced new technologies that further streamline the manufacturing process and thoroughly satised our customers needs. In 2007, we solidied our reputation as a superior shipbuilder, construction manager, engineering company, and digital technology supplier.
SAMSUNG HEAVY INDUSTRIES
I believe we are on the right path to achieve our goal of being a world-leading company by the year 2010.
CEO Letter
TO OUR ESTEEMED CUSTOMERS, SHAREHOLDERS, and BUSINESS PARTNERS:

I am pleased to report that Samsung Heavy Industries had a successful year in 2007. Our nancial results were very satisfying, with reported KRW8.5 trillion in turnover, KRW658.5 billion in ordinary income, and KRW485.4 billion in net income. Thanks to our excellent numbers, we were able to pay a 10 percent cash dividend to shareholders. In 2007, SHI realized recordbreaking order receipts of US$21.2 billion, the highest in our history. It was a great year in terms of the quality of orders we received, with high value-added vessels (such as super-sized container ships, LNG carriers, and drillships) representing 84 percent of our orders. In particular, 10 of the orders we received were for drillships, out of a total of 14 placed worldwide, solidifying our position in this market. We maintained our No. 1 position in the super-sized container ship and LNG carrier markets, recording 34 orders out of 133 and 11 out of 23 placed respectively worldwide. I believe we are on the right path to achieve our goal of being a world-leading company by the year 2010. We introduced a new shipbuilding system called the tera-block method, which allows ship assembly from two large ship blocks. This represents an evolution of our mega-block method we debuted in 2001, which used ten large ship blocks. Now, terablock requires just two. By successfully applying technological innovations such as block building and underwater construction, we have dramatically reduced dock-based shipbuilding time. In 2007 every one of the 48 ships we delivered was defect-free. We also constructed one of the worlds largest oshore structures, the Sakhalin Piltun B platform, and introduced the worlds rst Arctic shuttle tanker and Arctic drillships. In China, our Ningbo Plant completed its Phase 3 facility expansion plan, increasing annual production capacity from 120,000 tons to 200,000 tons. Our Rongcheng Plant in Shandong concluded Phase 1 facility construction and is currently in operation. SHI design and engineering centers for shipbuilding and oshore facilities in the United States and India are expected to expand our basic design capacity from 5 platforms annually to 11 by the year 2011. In 2007, SHI developed 9 types of new vessels, including the worlds largest container ship at 16,000TEU, compressed natural gas carriers, and novel, concept-based drillships. These solidify our reputation as a pioneer in new markets. In 2007, our Construction & Engineering division outperformed its order targets as in 2006, despite unfavorable construction market conditions. The division is meeting customer satisfaction with industry-leading safety and perfect quality through ongoing safety management and quality innovation. The C&E division is expanding in housing and civil engineering markets, and also enhancing the quality of its products.
TAEAN INCIDENT
Late in the 2007, we learned of the unfortunate oil spill that took place near the Port of Daesan on the Yellow Sea coast of Taean county. As most are aware, this accident occurred when a crane barge operated by Samsung Heavy Industries collided with the Hong Kong-registered crude oil tanker Hebei Spirit. Unanticipated weather conditions were a major cause of the incident. Since the incident, SHI has given top priority to disaster recovery, fully acknowledging our social responsibilities. In addition, we have pledged KRW100 billion in nancial aid to the aected region and have oered disaster aid plans to assist with recovery of the ecosystem in the area. We deeply regret this incident, and the distress it has caused residents of the area and our country. We appreciate the support and encouragement our shareholders and partners have oered as this crisis unfolded, and the resolve of our executives and employees to help oset our nancial contributions through cost savings and productivity enhancements.
THE YEAR AHEAD

We anticipate a challenging year ahead. The eect of the subprime mortgage crisis in the United States is being felt around the world, and projected to continue to impact nancial markets and slow the global economy. The price of oil is another risk factor. Meanwhile, competitors in Korea and China are expanding facilities, exerting pressure on the availability and price of steel. In order to overcome such difficulties, we will work to continue our sustainable growth with following strategies. We have established an initiative that we believe will help us achieve our goal of becoming a world-leading company by 2010. It has three parts: promotion of new projects and products, encouraging creative innovation, and maintaining the highest standards of safety and quality.
KEYS TO SUSTAINABLE GROWTH Promoting new projects and products has proven key to sustainable growth time and time again. The ideal time to actively identify new business opportunities and develop new products is now, just as the shipbuilding industry gains momentum in world markets. We plan to capitalize on this momentum, and develop natural resources under the sea, as well as create a long-term plan to enter the prosperous cruise ship market. Creative innovation is our second initiative. We have already seen the benets of ingenious eorts such as our oating dock and mega block systems which enable shipbuilding at sea. These alone have expanded shipbuilding capacity from 30 to 50 vessels a year. Our Arctic shuttle tanker is another example of a creative breakthrough. We seek creativity from the bottom up in our organization. It can come from anywhere, at any time. We truly believe the most inconsequential inquiry can change the future of our organization. We actively promote company-wide participation in the process of creative innovation, and encourage continuous improvement of existing processes and technologies. Third, we must insist on the highest standards of safety and quality. Sustainable growth cannot be achieved without ensuring safety. Further enhancing current safety standards is all the more essential in this time of growth. Quality enhancement is equally critical. Safety and quality go hand-in-hand with competitive success. We would like to thank our employees, our shareholders, our customers, and our business partners for helping us make 2007 one of our most successful years in history, and look forward to working closely with you in the years to come. Respectfully,
Jing-Wan Kim
President and Chief Executive Officer
BOARD OF DIRECTORS
Directors
Jing-Wan Kim
1
Joong-Suk Koh
Outside Director Attorney
President, Chief Executive Officer Chairman, Korean-Norwegian Economic Cooperation Committee Chairman, Korean-Swedish Economic Cooperation Committee Chairman, Korean-Finnish Economic Cooperation Committee
Judge, the Constitutional Court of Korea
Soo-Il Sohn Hyung-Keun Seo

2
Outside Director Vice President, Korea Development Bank
Executive Vice President, C&E Division
Seo-Yoon Kim
Hang-Shoon Choi
Outside Director
Executive Vice President, Chief Financial Officer
Professor, Department of Naval Architecture and Ocean Engineering, Seoul National University
Current Title Other Principal Directorship & Titles Former Titles
Suk-Hwan Park
Outside Director
President, Jungbu Regional Tax Offices, National Tax Service
Corporate GoVernance
The Samsung Heavy Industries Board of Directors reviews, analyzes, and executes major management issues regarding SHIs basic policies and operations, with the exception of decisions made at general meetings based on the by-laws and articles of the company. There are seven members of the Board of Directors, of which three are Samsung executive directors and four are independent of the company. The term of office for each director is three years. Directors support the CEO and are responsible for specic tasks determined by the Board, including serving on committees of the Board. These committees include the Audit Committee, responsible for auditing company management, accounting, nancial status, and reporting on these matters at meetings. The Audit Committee is composed of three independent directors. The Chairman of the Board determines when meetings will be held and chairs the meetings of the Board. Decisions are made by majority vote The Board of Directors is committed to complying with all laws and the principles of ethical practices, and to forward the companys stated standards of maintaining a clean organizational culture; respecting customers, shareholders, and employees, caring for health, safety, and the environment; and being a socially responsible corporate citizen. The business of the Board includes calling for general meetings, revision of management policy, alterations of organizational structure and regulations, issuance of new stock or company bonds, borrowing of funds, and investments. The Chief Executive Officer is nominated by the Board. The CEO executes decisions and manages overall operations of the company. of the participating directors. At least four directors must be present to constitute a quorum.
AT A GLANCE
A Year of Record-breaking Orders

SHI broke all records in company history in 2007, with US$21.2 billion in orders placed. 84 percent of orders received were for high value-added ships, including 34 super-sized container ships, 11 LNG carriers, 10 drillships, and 2 FPSOs. SHI holds the worlds No. 1 market share position for orders received in several vessel types.
Block Plant Near Geoje Shipyard

SHI made plans to construct a mega-block factory with a 100,000 ton capacity across from the Geoje Shipyard, separated by water, enabling transport via sea. Development of the plot is expected to vitalize the regional economy, expanding production by US$585 million (KRW550 billion) annually, and create about 6,000 new jobs.
Ship Block Plants in China

SHI expanded ship block production capacity in Ningbo, China in June, completed the rst phase of construction of a plant in Rongcheng in September and, anticipates annual production capacity by 2009 of 500,000 tons of ship blocks. This will result in production of 70 ships per year by 2010, 20 more than its current capacity of 50 ships.
Tera-Block Construction Method

SHI held a keel laying ceremony in October for the rst vessel in the world built using the tera-block construction method. This technology constructs vessels by putting together two ultra-large blocks. Using tera-block construction shortens the dock periods by about a week, increasing turnover.
Shipbuilding Payments in Korean Won

SHI received payment for its shipbuilding work in Korean won instead of US dollars, a rst in Korean shipbuilding industry. This allows SHI to hedge against exchange rate uctuations, protecting prots while contributing to the stable exchange market situation.
Creative Innovation Idea Competition

SHI held a company-wide competition for a Creative Innovation Idea in early 2007. More than 90 percent of SHIs 21,000 employees participated, submitting 30,000 ideas. The Grand Prize was awarded for a method that increases shipbuilding capacity by more than 20 percent. Applying the ideas selected for prizes is expected to produce a KRW200 billion increase in net prot.
The Worlds Largest Oshore Platform

On May 29, SHI christened the worlds largest oshore platform, the Piltun B, which can produce and drill for crude oil and gas simultaneously. Construction began in January 2004 and took 41 months to complete. Piltun B can endure extreme weather conditions, as well as to withstand a seismic intensity of 7 on the Omori scale.
The Waterproof Academy

SHI C&E division introduced its Waterproof Academy in March, 2007. Equipped with a training and testing center, it oers education in advanced waterproof technology and construction standards developed by SHI. The Waterproof Academy has produced technologies that have signicantly enhanced the construction of waterproof buildings and structures.
Ships for the Arctic Region

SHI delivered an Arctic region running drillship, the Stena Drillmax, which can drill for crude oil and gas in deep sea areas unreachable by oshore platforms. SHI also launched an Artic shuttle tanker commissioned in 2005 by Sovcomot of Russia, the rst of three ships ordered.
Design Awards
SHIs Digital Business team won the President Award from the Korea Institute of Design Promotion in Good Design 2007 for its Samsung Ship Automation System Master, as well as iF Product Awards for other products. The iF Award is one of three most prestigious design awards in the world.
Innovating, Challenging, Delivering Results

Innovation, challenge, and reliability are the three inextricably entwined elements of success at Samsung Heavy Industries. Each individually provides a beacon to direct our company towards its goal of leading the world with products that are the best-in-class.
Innovation. It is an integral component of the culture at Samsung Heavy Industries. SHI actively promotes innovation in the way our people think, in what they produce, in how they produce it, and the services they oer.
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WORLDS FIRST ARCTIC SHUTTLE TaNKER

Recognized as a Best Vessel of 2007, SHIs Arctic shuttle tanker can turn 360 degrees to break ice in its path, setting a new course. It will greatly improve crude oil transportation in the Arctic regions of the HEAVY INDUSTRIES 11 world, operating safely at extremely SAMSUNG low temperatures.
Innovation is responsible for our growth in the past, and is essential to our growth in the future. It is what creates value for our customers, and what fuels our compelling quest to continually increase productivity and quality of our products and service. Thinking outside the box at SHI has led to remarkable creative innovations. In 2007, we introduced the worlds rst Arctic shuttle tanker, capable of rotating 360 degrees in ice to nd travel routes in extremely cold weather.
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TERA-BLOCK CONSTRUCTION
Block construction methods utilized by Samsung Heavy Industries dramatically reduce dock periods, and have progressively revolutionized vessel construction. Block construction has evolved from mega (10 blocks) to giga (5 blocks) to now tera blocks (just two, ultra-large).
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WORLDS FIRST DRILLSHIP fOR THE ARCTIC

Stena Drillmax can dig as deep as 11 kilometers and is equipped with technology that stabilizes it in high winds and waves, as well as enable it to withstand temperatures below minus 20 degrees Celsius.
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Our pioneering block construction methods dramatically reduce dock periods enabling more efficient turnover. Its innovation thats led to our outstanding success in shipbuilding in 2007, when we broke the industry record for taking in orders of US$21.2 billion. Creative innovation is SHIs competitive edge in all products and services.
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SUCCESSFUL CONSTRUCTION OF THE PILTUN B

SHI topped its own record for building the worlds largest oshore platform in 2007, opening the Piltun B in the Sakhalin area. The whole facility is constantly kept warm 16 enabling the Piltun B to operate in all seasons.
Challenge. Samsung Heavy Industries is constantly challenging itself to nd new and better ways to create ships, platforms, digital monitoring systemsvirtually everything we produce.
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We thrive on challenge. Its what motivates us to innovate. We nd challenge in every corner of our work: whether its the elements of nature, creating a need for durable vessels, or the challenge of defectfree manufacturing, or the challenge of meeting our customers explicit needs.
We challenge ourselves to be the worlds most competitive shipyard, pushing ourselves to improve even as we break records and win awards. Increasing dock turnover rates, reducing material costs, working to meet the new global expectations for minimizing fuel consumption, and helping make the world a greener place to live are all part of the challenge. SHIs groundbreaking work in building bigger and more efficient high value-added container ships is just one example of rising to the challenge of the worldwide need for cargo transport vessels.
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THE WORLDS LARGEST LNG CARRIER

SHI holds 11 of the 14 worldwide orders for LNG carriers of 260,000 cubic meters or greater in volume, making it No. 1 in this category in the world. In 2007, SHI christened the Tembek, currently the worlds largest LNG carrier, and received an order for four 266,000 cubic meter carriers that will include energy-efficient diesel engines.
65%Worlds highest automation rate

SHI is meeting the challenges of manufacturing efficiency through robotic technology such as the spider robot, a system for automatic transfer of the membrane plasma welding machine for LNG carriers, a vacuum-blasting robot for cleaning welding lines, and a pipe inspection and automated cleaning robot that replaces human inspectors.
CRUISING INTO NEW MARKETS

SHI is positioned to enter the lucrative cruise ship market by 2010, a category presently dominated by European manufacturers. With orders for two high-end passenger ships in 2007, SHI is actively demonstrating its capability to handle the construction of larger vessels in the cruise category.
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Reliability. SHI strives for the highest standards of reliability in every aspect of its business. Its reliability that makes our products world-leading.
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QUALITY MANAGEMENT GUARANTEED

In 2005, SHI established a corporate policy of zero tolerance for any complaint about any aspect of quality for any ship being built. Since that time, every ship that SHI has delivered has been defect-free. SHI rigorously maintains the highest standards of quality control, and will not hesitate to delay shipbuilding until the desired levels of quality are reached. SHIs quality management is an asset held in high esteem by clients. The company slogan, Perfect job from the start has inspired superior levels of quality improvement. Education of all employees about quality management is ongoing.
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Our entire culture is organized around the mission of creating a better global society through superior products and services, and we rmly believe that customer satisfaction begins and ends with the unsurpassed reliability on the high quality of our products.
At the same time, SHI can be relied upon to be innovative and meet all challenges. Thus reliability is the third leg of its corporate credo, establishing a standard for the other two. SHI has pledged to stand behind the reliability of its products even after the work has been completed. Its customer satisfaction program oers customers realtime access to progress on current orders and post-delivery service. Its through reliability that we build our reputation, and our reputation is for demonstrable safety, quality and environmental soundness-in other words, world-leading reliability.
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HSE ALLIANCE FOR SAFETY

SHI considers health, safety and the environment. The company holds regular SHI/Owner HSE Alliance meetings with clients to promote the highest standards of HSE management. SHI also operates the HSE Training Center to educate employees, creating awareness and standardized practices for safety so that accidents can be prevented at the outset. Through such activities focused on HSE management, the company has rmly established its reliability with its clients.
SHIPBUILDING IN THE 21ST CENTURY

Samsung Heavy Industries has taken the ancient art of shipbuilding to new levels through its computer aided design systems that simulate the manufacturing process through digitalization. This way, optimal solutions for minimal time and investment can be found. SHI utilizes its advanced suite of shipbuilding applications and integral part of the marine solution, GSCAD (Global Shipbuilding Computer Aided Design) to the design of every ship. The system enables required design information in 3D solid modeling by pre-simulation of the model. This increases product quality and reliability, resulting in faster, more efficient creation, transfer, and review of optimized design iterations at an early stage. It ensures efficient, consistent management of changes throughout the design process and supports concurrent engineering design activities while integrating a multidisciplinary engineering/manufacturing process throughout the enterprise.
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Innovation, Challenge, and Reliability

At Samsung Heavy Industries, the emphasis on innovation, challenge, and reliability has set the stage for success. Communicating these values throughout the company has created a culture focused on unlimited growth and relentless in seeking every opportunity to innovate, challenge ourselves, and to provide unwavering reliability.
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COunting OUR SUCCEssEs

SHI is proud of its accomplishments in 2007. Here is a gallery for all to admire. Together, they demonstrate that 2007 adds up to one terrific year!
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Zero-Defect Shipbuilding
SHI turned in another year of zero-defect shipbuilding in 2007 with a total of 48 aw-free ships.
US$
21.2 billion
Record-breaking Orders
SHI broke all records in the shipbuilding industry when it took in US$21.2 billion in orders in 2007the largest amount ever recorded in a year by a single shipbuilder.
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1st
28
First in the Marketplace

We hold the worlds No. 1 market share position of orders received in four categories in 2007: drillship (10 out of 14 ships ordered, 71 percent of the market), super-sized container ship over 10,000 TEU (34 out of 133 ships, 26 percent), LNG carrier (11 out of 23 ships, 48 percent), and FPSO (2 out of 3 ships, 67 percent).
Tera-block Construction
SHI introduced tera-block construction, an advanced technology using two blocks to build large vessels. Each block is 150 meters wide and weighs 10,000 tons; each is half the size of the ship to be built. This method improves on the mega-block system, increasing production of large ships by two to three ships in the same amount of time.
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11 km
11 Kilometers Deep
The Stena Drillmax is the worlds rst drillship built to navigate the Arctic regions and operate in severe weather conditions. It can drill as deep as 11 kilometers. Thats more than two kilometers deeper than Mount Everest is tall! Its Dynamic Positioning System stabilizes the vessel, enabling it to withstand waves of up to 16 meters and wind speeds of up to 41 meters per second.
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65
Shipbuilding Automation Rate

SHI has boosted its automation rate to 65 percent for shipbuildingnow the worlds highestthanks to technologies like our spider robot, a system that automates timeconsuming welding, our vacuum-blasting robot, which efficiently cleans welding lines, and a pipe inspection and cleaning robot equipped with a camera that works inside LNG pipelines.
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360
Tanker Turning Radius
Faced with an iceberg, our Arctic shuttle tanker can rotate 360 degrees, making it ideal for navigating in the Arctic regions. This ship is the worlds rst multidirectional oil tanker able to break the ice when the ship is trapped by icebergs.
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16,000 TEU
World's Largest Container Ship
SHI developed the worlds largest container ship measuring 400 meters in length. Its longer than the Eiel Tower by 73 meters and equal to four soccer elds in length. It can carry 16,000TEU containers.
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70,000 bbl
World's Largest Oshore Platform
Samsung Heavy Industries completed the worlds largest oshore platform, the Piltun B, in 2007. It can produce 70,000 barrels of oil and 2.6 million m3 of natural gas per day. It is 120 meters in height, as tall as a 40 story building, 105 meters long and 100 meters wide, the size of two soccer elds.
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KRW
1.51trillion
Successive Record-breaking Performances

In 2007, the SHI C&E division recorded KRW1.51 trillion orders, a 26 percent increaseover its targetof KRW1.2 trillion, despite unfavorable construction market conditions driven by the Korean governments market stabilization policy to curb real estate price ination. This is the second year in a row that SHI C&E outperformed its goal.
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The Grand Total

No matter how you look at it, 2007 adds up to a great year for Samsung Heavy Industries. And were looking forward to even better numbers in 2008.
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3
OPERATIONS OVERVIEW
The achievements of 2007 are tangible proof of
SHIs successful culture of innovation, challenge and reliability.
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SHI SHIPBUILDING & OFFSHORE FACILITIES

Samsung Heavy Industries is a recognized global leader in the shipbuilding and oshore market and digital technology markets. The company has demonstrated its capacity to grow continuously and its ability to succeed for years to come.
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SHIPBUILDING
Samsung Heavy Industries oers high quality, efficiently built, and environmentally-friendly vessels to the worldwide shipping industry. The outlook for SHI is extremely favorable. Record-breaking Performance The worldwide shipbuilding market continues to enjoy steady growth with 156 million gross tons of orders placed in 2007. Samsung Heavy Industries has orders at present guaranteeing more than 40 months worth of stable work load. In 2007, SHI received new building orders in the amount of US$21.2 billion, the largest in its history. This amount signicantly surpasses 2006 new building orders of US$12 billion, and represents an alltime record in the global shipbuilding industry. High value-added ships (such as drillships, super-size container ships over 10,000TEU, and LNG carriers) represented more than 80 percent of contracted orders. In mid-2007, Samsung Heavy Industries Geoje Shipyard Dock No. 3 recorded its 100th dock turnover, a record for the world shipbuilding industry. Turnover is a key measure of efficiency. Since 2001, Dock No. 3 has recorded at least 10 turnovers annually. SHI is currently building the worlds largest container ship at Dock No. 3, a 13,300TEU vessel with an innovative design that places the accommodation mid-ship and the engine room at the rear. This conguration will stabilize the ship and optimize facilities distribution for greater operating efficiency. SHI has also begun to penetrate the market for large passenger ships, traditionally dominated by European shipbuilders. In 2007, SHI received an order for two 31,000-ton luxury semi-cruise ships from Stena, a leading Swedish passenger liner company. Passenger ships are one class below cruise ships. The Stena ships will feature luxurious interiors, optimized energy efficiency, and enhanced stability, enabling navigation through oating ice in the North and Baltic Seas. Each vessel will be equipped with a hotel-class restaurant, a shopping mall, and a theatre. Leading the Market in Innovation Since the founding of SHI, the company has built and delivered close to 500 ships commissioned by leading global shipping companies. SHI has developed advanced technologies that have helped the company reach a leadership position in the world shipbuilding industry. Mega-block, giga-block, and now tera-block construction methodologies, and the Lift-O-Launch system have dramatically shortened dock periods and launching times. Mega-block construction was introduced in 2001. The mega-block system uses 10 large blocks; giga utilizes ve and tera just two in order to build a complete ship. Since 2005, SHI has streamlined the work process by positioning blocks and props at the design stage so they are ready for the next dock turnover after launching a ship. SHIs ship block factory in Ningbo, Zhejiang Province, China has expanded its capacity of ship block production from 120,000 tons to 200,000 tons. SHI has had a presence in China since 1997, well ahead of competitors. A second ship block factory in Rongcheng City, Shandong will have a similar capacity as the factory in Ningbo. This will enable SHI to build 70 ships a year by 2010, a substantial increase from its current capacity of 50 ships.
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Kudos from Experts and Customers In 2007, ve types of vessels built by Samsung Heavy Industries, including the worlds rst Arctic drillship, Arctic shuttle tanker, and largest-capacity LNG carrier, were named Ship of the Year by Naval Architect in the United Kingdom and Maritime Reporter and Marine Log in the United States, three major magazines specializing in shipbuilding and marine transportation. SHI has achieved the remarkable result of having its ships selected as Ship of the Year every year since 1984. Throughout 2007, SHI had received letters from customers expressing satisfaction with its excellent quality control. Since 2005, it has been one of SHIs top policies that no matter how minor a defect would be, SHI will remedy it prior to ship delivery. Under this strict policy for quality control, SHI delivered 48 ships consecutively without a single defect last year. Looking Forward The shipbuilding industry is heavily inuenced by the global economy, conditions in the global shipping market, global trade volume, and the amount of goods shipped by sea. The bulk shipping market continues to grow due to increasing demand for raw materials such as iron ore from newly emerging countries like China and India. Also, there is steady demand for container ships thanks to rising trade volumes in Asia, Europe, and the Americas. Enhanced interest in the environment and a preference for clean energy throughout the world are expected to raise demand for LNG carriers. A Promising Future Outlook For 2008, SHI has set a sales target of US$15 billion. Its strategy is to strengthen its presence in the high value-added market, continue to develop new products and technologies, and improve productivity to maximize new building capacity. SHI aims to lead the world shipbuilding industry in key categories such as container ships over 10,000TEU, and LNG carriers.
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OFFSHORE FACILITIES
Samsung Heavy Industries has experienced remarkable achievement in the construction of oshore facilities such as oil and gas production systems and drilling equipment. Its products are recognized globally for stability and reliability. Dominating the Global Oshore Market Samsung Heavy Industries accurately predicted in 1990s demand for oshore facilities. Since then, SHI has maintained a dominant position in the drillship market, and is recognized as a global leader for its expertise in design, technology, and construction. Large scale projects developing oshore oil elds have created strong demand for stable and reliable oshore facilities. These take the form of FPSO (Floating Productions Storage and Offloading), TLP (Tension Leg Platform), and xed oshore platforms. Samsung Heavy Industries dominated the global oshore market in 2007, and now holds the No. 1 position in the global oshore market. In 2007, SHI received a signicant order for a one million barrel FPSO that will be installed in the Skarv oil eld in January 2010. When completed, the ship will produce 85,000 barrels of oil and 19 million cubic meters of gas daily for 25 years. SHI has long focused on the Floating Production System market, anticipating growing demand for exploration and production of oshore oil elds. Samsung Heavy Industries received worldwide recognition when two units of the worlds largest oshore platform, ordered by the Sakhalin Energy Investment Company, were successfully delivered. Construction of the Piltun B Platform began in 2004 and took 41 months to complete. It is designed to endure extreme weather conditions as well as seismic activity, which enables production throughout the year. Solid Investments for future Growth SHI has made signicant investments in the design and engineering of oshore facilities, establishing new companies to reinforce its basic competitiveness. Samsung Heavy Industry India, Pvt. Ltd began operation last year, utilizing Indias strong infrastructure for design and engineering and its abundant, high-quality work force. In the United States, Oil & Gas Solutions, LLC has been established in Houston, TX, where numerous international oil companies are located. Drillship Success Stories SHI has achieved global recognition for its expertise in constructing drillships. The company dominated the market in 2007, receiving 10 contracts out of total 14 placed worldwide. Demand for drillships has surged since 2005, concurrent with the growing demand for deep sea drilling activities. Drillships are valued for their ability to reach oil and gas elds otherwise inaccessible with other types of oshore platforms. In 2007, SHI delivered Stena Drillmax, which can operate in the Arctic region. SHI handled the entire building process for this 228 -by-42-meter ship, from the basic design and engineering, procurement, contracting, and installation to pilot testing.
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Experts indicate that demand for drillships will continue due to skyrocketing oil prices. This will allow SHI to maintain a dominant position in this market in 2008 as well. SHIs expertise in advanced technologies received a global recognition in 2007 when the Stena Drillmax was identied as a Best Vessel of 2007 by the top shipping magazines Naval Architect, Maritime Reporter
and Marine Log . The Stena Drillmax can drill to depths of 11 kilometers, and is equipped with a Dynamic
Positioning System enabling it to endure harsh winds and waves. Future Prospects for Oshore Markets With international oil prices exceeding US$100 per barrel, demand for oshore drilling and producing facilities such as drillships and FPSOs is expected to grow steadily. New projects developing oil and gas elds have been growing at an annual rate of 6 to 8 percent, which has created an average of US$16 billion in new building orders per year, or 10 drilling and 20 producing facilities. SHIs strategy is to strengthen further solidify its leadership position in the high value-added vessel market, as well as continue to develop new types of ships for deployment in Arctic areas as a new engine for future growth.
Digital Business
The SHI Digital Business team develops and provides digital systems (navigation, automation, and power systems) for vessels as well as digital home and building systems, and switchboards. Digital expertise is acquired from SHIs shipbuilding and construction experiences and further advanced by digital technologies. These systems solutions have helped the company become more competitive in the international marketplace, with orders coming from major companies and through strategic alliances. Additionally, the SHI Digital Business team has more than 200 global patents. The reliability of its systems is derived from proven and certied technologies. The SHI Digital Business team is focused presently on developing the worlds best technologies and designs through continuous investigation, concentrating on customer safety and convenience. This makes SHI Digital competitively attractive and seals loyalty with customers. Enhancing Customer Value Major achievements in 2007 include receipt of orders from major shipbuilders to outt 115 ships with low voltage switchboards, and orders from Marine Technics in Russia to outt 152 ships with SVDR-Pro systems. Digital Home and Building Systems received 112 orders from major companies. Additionally, the Switchboard unit took in orders for 79 construction projects, including the SHI Rongcheng Plants phase 2 facility expansion plan and the SHI Construction & Engineering divisions Samsung SDS IT Center.
42
Digital Vessel Systems Systems are developed in ve key areas: marine automation, marine navigation, marine power, digital home and building, and switchboard systems. Digital Vessel Systems focus on navigation systems, automation systems, and marine switchboards, providing integrated systems for dierent types of ships. In 2007, Digital Vessel Systems introduced the SSAS Master, an integrated automation system for LNG carriers, drillships, and cruise ships. The Samsung Ship Automation System Master is an award-winning product, receiving a Good Design Certicate, and iF and Red Dot Design Awards. It controls major equipment such as engines, generators, boilers, and pumps. The Power System group of Digital Vessel Systems markets two product lines: medium and low voltage switchboards. These are designed for stability, reliability, optimal space usage, and stylish appearance, and are manufactured to meet the environmental and safety standards of the shipbuilding and oshore industries. Digital Home and Building Systems Digital Home and Building Systems, BaHa, oers premium home and building systems, including switchboards, for land-based structures. Advanced technologies used to stabilize, control, and manage large ships on the ocean are now being brought to home network systems, intelligent building systems and switchboards. Home and building control networks use home power lines as network communications tools, providing consolidated services such as remote metering, energy and remote control, and system monitoring through the Internet, mobile phones, and integrated control devices. In 2007, major products launched included a 7 inch and a 10.2 inch wall pad, both user-friendly and recipients of the Good Design and iF Design Awards.
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SHI Construction & Engineering

Samsung Heavy Industries Construction & Engineering engages in design, construction, and plant projects that include customized high-class apartment structures, roads, subways, bridges, and incineration plants.
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Samsung Heavy Industries Construction & Engineering technical expertise is highly acclaimed. Samsung Chereville is a customized, high-tech, and steel-frame housing building brand that reects personalities and lifestyles of residents. It is widely recognized as an exemplary luxury housing brand in a highly competitive marketplace. Chereville and Tower Palace, another notable luxury housing brand, are promoting a new kind of living in the 21st century. SHI C&E always gives top priority to customer satisfaction. The company oers a warranty system and a lifetime warranty service for frames. Strictly adhering to a safety rst policy, SHI C&E is one of the safest, most reliable construction rms in the industry, utilizing advanced technologies and engineering skills.
Innovations in the Construction Industry

SHI C&Es Architectural and Development Works division constructs office buildings, educational/medical facilities, cultural and research structures, and distribution and convenience buildings, as well as apartment complexes and hotels. The Civil Works division concentrates on roads, bridges, tunnels, and airports. Subway construction was recently completed in Seoul, Busan, and Daegu. Industrial complexes and harbor construction also fall under this category. The Plants division builds incinerator and other systems for the efficient treatment of industrial and municipal waste, as well as waste water and sewage treatment facilities. This division also constructs power generation and supply and general plants. In March, 2007, C&E introduced the rst Waterproof Academy in the industry. Equipped with a training and testing center, it oers an inspectors course. The Waterproof Academy has developed technologies that have signicantly enhanced the construction of waterproof buildings and structures. In its high-end residence business, C&E developed Paju Hermannhaus, an environmentally-friendly townhouse built in a natural setting, further enhancing the companys established reputation in the luxury housing marketplace.
The High Value of Customer Satisfaction

SHI C&E aims to lead the market in customer satisfaction. Toward this end, all projects follow a standard procedure for quality control, which includes compliance checklists, knowledge-sharing, active promotion of quality enhancement activities, and a best practices system. A Quality Tracking System is being established to further standardize practices and inspections. A safety rst culture is supported by on-the-job training programs, and the company supports an emphasis on environmental management. SHI C&Es Green Management initiative has reduced the environmental impact of its products and services.
Looking Ahead to the future

In 2007, C&E received orders amounting to KRW1.51 trillion, a 50 percent increase over 2006. For 2008, the company plans to build on its solid reputation in ports, shipyard, and incinerator construction to enter overseas markets. Several large-scale projects in Korea underway include Build Transfer Operate/Build Transfer Lease projects such as city rails and outer-ring highways, a Universal Studios theme park project, and ongoing office building, residence, and shipyard construction.
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Sustainable Management
Samsung Heavy Industries seeks to contribute to the welfare of current and future generations through its sustainable management programs. The company is actively committed to making a positive social contribution through volunteer eorts by employees that serve specic groups, such as teenagers, as well as the general community, and environmental, welfare, and educational causes. Commitment to green management has resulted in an environmental management system that promotes a clean world and environmentally-friendly workplaces. The company rigorously advocates ethical management practices, stressing the benets of honesty and the highest levels of transparency in corporate ethics throughout the organization as a means of increasing shareholder value and customer and community trust.
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Social Contributions
Since 1995, Samsung Heavy Industries has been actively committed to making a positive social contribution. SHIs focus for its volunteer eorts has been teenagers, but also serves the general community as well as environmental, welfare, and educational causes. Community service programs based at SHIs Geoje Shipyard in 2007 included an event for the Samsung Teen Volunteer Group, benetting secondary school students from the region and children of employees. This Marine Environment Preservation Event was staged to educate teens from Geoje City, renowned as the top shipbuilding and marine city in the world, teaching them about the importance of the marine environment. SHI also invited local residents to the Geoje shipyard in October for the Local Collaboration Week of 2007 Samsung Volunteer Service Grand Festival. The 3,000 attendees received tours of the yard, and enjoyed a large-scale cultural performance. Statistics collected for 2007 show that 165 groups consisting of 9,000 employees carried out 363,185 hours of volunteer activities. Databases to track social contributions were created in 2007, providing data to encourage employee participation. SHI launched a campaign to further enlist participants and developed activities that specically utilize employee expertise. Employees also participate in such voluntary activities as supporting areas damaged by natural disasters, improving facilities for the aged and young, sisterhood relationships with neighboring villages, constructing environmentally friendly parks, providing Internet-based education, promoting Korean language and culture classes for non-Korean employees and after class education of young teens, supporting construction of social welfare facilities, and supporting the elderly and orphaned children. SHIs eorts to contribute to numerous communities have been recognized through awards from regional organization and governments.
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Green Management
Since its Green Management proclamation in 1996, SHI has implemented a global standard of environmental management system to promote a clean world and environmentally-friendly workplaces. SHI earned its ISO 14001 certicate in 1996, the rst ever awarded in the worldwide shipbuilding industry. The company has strived to create environmentally-friendly workplaces, participate in environment-preserving activities and develop environmentally-friendly technologies. It has also applied a stricter environmental standard than legally required for managing sewage, waste water, dust, SOx, NOx, dioxin, wastes, and other chemicals. SHI established its environmental policy using an Environmental Management System that follows a Plan-Do-Check-Action cycle to produce the best results possible. External audits for the ISO 14001 are undertaken twice annually and recertications every three years by Lloyds Register Quality Assurance.
Environmental Management System Practices

The SHI Green Management Committee prepares a comprehensive report every year, focusing on improvements to management of the program. Policy is set based on this report. Semi-annual internal and external audits measure performance, increase awareness of ISO 14001-related information and education, and enhance internal Environmental Management policy. Implementation of Green Management involves distribution of environment-related information, records, and education, and managing Green Management performance.
2007 Environmental Management Highlights

The SHIs new Oil Spill Response Vessel seeks to remove or prevent environmental pollution of the sea, including oil and wastes. It is equipped with a suspended particles collector, an emulsifying agent sprinkler, an oil vacuum inhaler, a 150 meter oil fence, an oil skimmer, and an oil and water separator. A Regenerative Thermal Oxidizer(RTO) facility has been established in compliance with the Air Quality Preservation Act. This is an incinerated waste heat recovery facility that recycles waste heat from incinerators used in the drying process for painting plants. In March, SHI made a voluntary agreement with the Korean government for a reduction of Volatile Organic Compounds by 30 percent between 2007 and 2011. Investment in this project is KRW64.1 billion. SHI will achieve this reduction by building new incinerators, installing an RTO, expanding painting plants, and developing environmentally-friendly technologies.
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49
rising on the west coast of Taean

On December 7, 2007, we were heartbroken to hear the news about the Taean oil spill and the disaster it brought to the people of the region and the nation. It stunned us even more to learn that the crane barge involved in the collision was operated by our company.
A new hope
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We felt the pain of the people of Taean when the oil spilled in the sea and on the sands as if it was our own pain. We hastened to Taean to give a helping hand and assist in the clean up efforts. And we prayed for the return of clear blue waves on the sea and that the pain of those affected would soon ease. Perhaps our prayers were heard. Our clean up efforts as we worked side-by-side with volunteers from all over our nation brought hope to the region, helping restore the water and sand. We returned to Taean recently. The sands and blue sea have almost regained their beautiful colors. From the bottom of our hearts, we hope that Taean residents can again enjoy life and nature. We at Samsung Heavy Industries contributed KRW100 billion to restore the Taean regions. Besides nancial help, we believe its our duty to support recovery of the ecosystem and tend to the immediate needs of residents. We will be with them until we can see a new hope rising in Taean. Respectfully yours, The Employees of Samsung Heavy Industries
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Milestones
Foundation (1974-1982)
Samsung Heavy Industries was established in 1974, the year the companys Changwon Plant opened. SHI soon began to lay the foundation to become a major heavy industries player. Shipbuilding and construction of Geoje Shipbuilding facilities commenced and there was a merger with Daesung Heavy Industries.
Aug. 5 1974 Apr. 22 1977 Sep. 1 1979 Sep. 30 1979 Samsung Heavy Industries established Samsung Shipbuilding Co. established Steel cutting on rst ship order began Geoje Shipyard Dock No.1 completed
Moving Forward and Reorganization (1995-1999)

SHI became a heavy industries leader, continuing its growth across business sectors. With the organization growing in size, it realized the need to concentrate on core business areas. The company pushed for restructuring during the IMF period and was realigned to focus on shipbuilding, oshore and construction business units.
Aug. 19 1996 Oct. 1996 Nov. 28 1996 Dec. 1996 Dec. 22 1997 ISO 14001 environment management mark won First deepwater drillship order received Construction of Daedeok test towing tank and Cavitation tunnel First 138,000m3 LNG carrier order received Ningbo, China plant completed Construction of the rst drillship completed and WBA Award won Sold o construction equipment business to Volvo(Sweden) Sold o Power Generation Equipment business to HANJUNG(Korea) First 1000 Passenger ferry order received
Evolving into a Major Heavy Industries Player (1983-1989)

Samsung Heavy Industries was created after the merger between Samsung Shipbuilding and Daesung Heavy Industries in 1983. New technologies and product development ensued, as well expansion into construction equipment and construction.
Jan. 1 1983 Feb. 10 1983 Aug. 31 1983 Dec. 21 1985 Three heavy industries business units merged Geoje Shipyard Dock No.2 completed Purchase of construction equipment business of HANJUNG(Korea) completed A shipbuilding and oshore research institute opened
Mar. 15 1997 May 7 1998 Dec. 31 1998 Nov. 25 1998
Becoming Global No. 1 (2000-2007)

SHI began to build super-sized LNG carriers and large passenger ships with the intent of entering the cruise ship market in earnest, and exported shipbuilding technologies to the U.S. In addition, the company developed high value-added ships such as worlds rst Artic shuttle tanker and high-
Qualication and Expansion (1990-1994)

In line with globalization and market liberalization, SHI began to put more focus on quality management. While improving quality of management, it also sought to expand its business into new and strategic areas.
Jun. 21 1991 Mar. 24 1992 Jan. 12 1993 Mar. 15 1993 Oct. 19 1993 Jan. 28 1994 Oct. 19 1994 BV and KR LNG carrier quality assurance certicate acquired First FPSO facility order received ISO 9001 certicate acquired Daeduk R & D Center completed Lloyds Resister LNG carrier quality assurance certicate acquired Korea Stock Excange IPO completed Geoje Shipyard Dock No.3 completed
end drillship. It is set to continue to develop advanced technologies and create high value-added business to take a lead in the construction and IT market abroad as well as at home.
Mar. 6 2000 Mar. 23 2001 May 16 2001 Dec. 10 2001 Dec. 14 2004 Nov. 14 2005 Aug. 2006 May 29 2007 Sep. 12 2007 Oct. 16 2007 Nov. 10 2007 Dec. 18 2007 Expanded into digital control systems Won OHSAS 18001 safety health management system mark Exported Shipbuilding technology to U.S. Conoco Construction of worlds rst next-generation electrically- propelled LNG carrier completed 12,000 TEU-class container ship development completed First Arctic shuttle tanker order received The delivery of 500 ships exceeded Worlds largest oshore platform, Piltun B completed Rongcheng, China plant completed Worlds largest container ship with a capacity of 16,000 TEU developed Worlds rst drillship for Arctic regions built Worlds rst Arctic shuttle tanker completed
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FINANCIALS
SHIs successes in 2007 can be seen on land, on sea and in its financial reports.
Non-Consolidated Financial Statements

December 31, 2007 and 2006
54 56 58 59 60 61 63 84 85
Report of Independent Auditors Non-consolidated Financial Statements Balance Sheets Statements of Income Statements of Appropriations of Retained Earnings Statements of Changes in Shareholders Equity Statements of Cash Flows Notes to Financial Statements Report of Independent Accountants Review of Internal Accounting Control System Report on the Operations of the Internal Accounting Control System
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A member rm of
www.samil.com Kukje Center Building 191 Hangangno 2-ga, Yongsan-gu Seoul 140-702, KOREA (Yongsan P.O. Box 266, 140-600)
Report of Independent Auditors

To the Board of Directors and Shareholders of Heavy Industries Co., Ltd.
We have audited the accompanying non-consolidated balance sheets of Samsung Heavy Industries Co., Ltd.(the Company) as of December 31, 2007 and 2006, and the related non-consolidated statements of income, appropriations of retained earnings and cash ows for the years then ended and the statement of changes in shareholders equity for the year ended December 31, 2007, expressed in Korean won. These nancial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these nancial statements based on our audits. We did not audit the nancial statements of, Samsung Heavy Industries Ningbo Co., Ltd. and Samsung Heavy Industries Rongcheng Co., Ltd., the investments in which are reected in the accompanying nancial statements using the equity method of accounting. The investments in those subsidiaries represent 1% of the Companys total assets as of December 31, 2007 and 2006, and the equity in their net income represents 0.2% and 7% of the Companys net income before income tax for the years then ended, respectively. These statements were audited by other auditors whose reports have been furnished us and our opinion, insofar as it relates to the amounts included for the subsidiaries, is based solely on the reports of the other auditors. We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the nancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the nancial statements. An audit also includes assessing the accounting principles used and signicant estimates made by management, as well as evaluating the overall nancial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of other auditors, the non-consolidated nancial statements referred to above present fairly, in all material respects, the nancial position of Samsung Heavy Industries Co., Ltd. as of December 31, 2007 and 2006, and the results of its operations, the appropriations of its retained earnings and its cash ows for theyears then ended, and the changes in its shareholders equity for the year ended December 31, 2007 in conformity with accounting principles generally accepted in the Republic of Korea.
Without qualifying our opinion, we draw your attention to the following matters. As discussed in Note 15 to the accompanying non-consolidated nancial statements, the Company and 30 other Samsung Group affiliates (the Affiliates) entered into an agreement with the institutional creditors (the Creditors) of Samsung Motors Inc. (SMI) in September 1999. In accordance with this agreement, the Company and the Affiliates agreed to sell 3,500,000 shares of Samsung Life Insurance Co., Ltd., which were previously transferred to the Creditors in connection with the petition for court receivership of SMI by December 31, 2000. In the event that the sales proceeds fall short of 2,450 billion, the Company and the Affiliates have agreed to compensate the Creditors for the shortfall by other means, including the participation in any equity oering or subordinated debentures issued by the Creditors. Any excess proceeds over 2,450 billion are to be distributed to the Company and the Affiliates. In the event of delays, interest on the agreed sales proceeds amount of 2,450 billion has been agreed to be paid to the Creditors by the Company and the Affiliates. As of the balance sheet date, these transferred shares of Samsung Life Insurance Co., Ltd. have not yet been sold. As a result, on December 9, 2005, the Creditors led a civil lawsuit against Mr. Kun-Hee Lee, the Company and 27 other Samsung Group Companies, for losses arising from breach of this agreement.
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The Creditors are claiming for the agreed sales proceeds amount of 2,450 billion and damages for delays amounting to 2,287.9 billion, both with interest of 6% per annum from January 1, 2001, until the date the Company was served with court papers and 20% per annum thereafter until settlement. Interest on the damages for delays has been calculated on a monthly basis from January 1, 2001. In addition, the Creditors are claiming further damages for delay (calculated at 19% per annum on 2,450 billion) from December 1, 2005, until settlement. On January 31, 2008, the court ruled that the original agreement was valid, and that Mr. Kun-Hee Lee, the Company and 27 of the remaining Affiliates have a joint and severable liability for the principal less an amount related to Samsung Life shares that have already been disposed of by the Creditors, plus interest at a rate of 6% per annum. As of December 31, 2007, the outcome of this litigation is uncertain and accordingly, the ultimate eect of this matter on the nancial position of the Company cannot presently be determined. As discussed in Note 33 to the accompanying non-consolidated nancial statements, regarding to the accident of the oil spill o the west coast by the Hebei tanker the Company announced the plan to donate 100 billion of local development fund, which is separate from legal Compensation, with the approval of the board of directors on February 29, 2008. The amounts expressed in U.S. dollars are provided solely for the convenience of the reader and have been translated on the basis set forth in Note 3 to the accompanying non-consolidated nancial statements. Accounting principles and auditing standards and their application in practice vary among countries. The accompanying non-consolidated nancial statements are not intended to present the nancial position, results of operations and cash ows in conformity with accounting principles and practices generally accepted in countries and jurisdictions other than the Republic of Korea. In addition, the procedures and practices used in the Republic of Korea to audit such nancial statements may dier from those generally accepted and applied in other countries. Accordingly, this report and the accompanying non-consolidated nancial statements are for use by those who are informed about Korean accounting principles or auditing standards and their application in practice.
Seoul, Korea March 19, 2008
This report is eective as of March 19, 2008, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying non-consolidated nancial statements and notes thereto. Accordingly, the readers of the audit report should understand that there is a possibility that the above audit report may have to be revised to reect the impact of such subsequent events or circumstances, if any.
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Non-Consolidated Balance Sheets

(In thousands of Korean won, in thousands of U.S. dollars (Note 3))
2007
2006
2007
2006
Assets Current Assets Cash and cash equivalents (Note 4) Short-term nancial instruments (Note 4) Available-for-sale securities (Note 8) Held to maturity securities (Note 9) Trade accounts and notes receivable, net (Notes 6 and 24) Other accounts receivable, net (Note 6) Inventories (Note 7) Accrued income Advance payments Short-term loans receivable, net (Note 11) Prepaid expenses Prepaid taxes Current forward exchange contracts (Note 17) Other current assets Total current assets Property, plant and equipment including revaluation, net of accumulated depreciation (Note 12) Long-term available-for-sale securities (Note 8) Held to maturity securities (Note 9) Equity-method investments (Note 10) Long-term nancial instruments (Note 4) Long-term loans receivable, net (Note 11) Guarantee deposits Deferred income tax assets (Note 22) Intangible assets, net (Note 13) Forward exchange contracts (Note 17) Other non-current assets Total other assets Total assets Liabilities and Shareholders Equity Current liabilities Trade accounts and notes payable (Note 24) Short-term borrowings (Note 14) Current maturities of long-term debts, net (Note 14) Advance receipts Other accounts payable Accrued expenses Income tax payable Current forward exchange contracts (Note 17) Current deferred income tax liabilities (Note 22)
789,596,429 23,929,741 866,667 6,528,480,131 148,416,888 331,692,406 121,987,832 151,552,113 1,651,824 659,628,566 841,608 703,079 25,506 652 5,084,347 114,851 202,082 389,136 116,619 220,849,806 2,011,266,418 50,487,500 313,266,077 1,113,306,752 120,845,097 312,338,417 46,103,974 1,769,943,738 34,879,740 271,697,786 82,218,913 334,929,773 7,510,418 6,689,644,409 3,121,160,993 35,783,139 10,292,740 305,945,993 30,100 50,439,845 94,849,057 20,805 191,218,035 61,239,313 3,870,980,020 10,560,624,429 553,826,073 1,644,936,965 131,909,468 116,123,629 792,949,559 59,309,387 187,733,688 36,514,142 980,508,653 3,638,208 197,647,762 63,812,943 624,501,524 14,733,026 5,408,145,027 2,719,251,230 22,601,706 12,081,545 201,050,001 30,100 7,382,044 73,730,484 34,490,346 32,923 446,517,683 63,871,626 3,581,039,688 8,989,184,715 $ 235,397 2,143,750 53,813 333,901 1,186,641 128,805 332,912 49,141 1,886,531 37,177 289,595 87,635 356,992 8,007 $ 7,130,297 3,326,754 38,140 10,971 326,099 32 53,762 101,097 22 203,814 65,273 4,125,964 $ 11,256,261 $ 590,307 1,753,290 140,598 123,773 845,182 63,216 200,100 38,919 1,045,096 3,878 210,667 68,016 665,638 15,704 $ 5,764,384 2,898,372 24,090 12,877 214,293 32 7,868 78,587 36,762 35 475,930 68,080 3,816,926 $ 9,581,310
23,929,741 612,000 4,770,134,708 107,753,158 189,593,074 365,087,695 109,412,125
25,506 924 6,958,516 158,193 353,541 130,023 161,535 1,761
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2007
52,510,917 8,150,684,948 107,262,220 35,207,504 58,733,831 59,940,709 73,981,720 261,195,072 78,105 3,616,201 8,750,700,310
2006
31,202,170 6,257,353,237 104,089,371 67,028,533 41,450,014 7,834,688 89,429,945 181,149,852 18,706,800 6,767,042,440
2007
$ 55,970 $ 8,687,577 114,328 37,527 62,603 63,889 78,855 278,400 83 3,854 $ 9,327,116
2006
$ 33,258 $ 6,669,530 110,946 71,444 44,180 8,351 95,321 193,082 19,939 $ 7,212,793
Other current liabilities Total current liabilities Long-term debts, net of current maturities (Note 15) Guarantee deposits received Warranty provision (Notes 5 and 17) Provision for losses from construction contracts (Notes 5 and 17) Accrued severance benets, net (Note 16) Forward exchange contracts (Note 17) Deferred income tax liabilities Other long-term liabilities Total liabilities Shareholders' equity Capital stock (Note 1) Common stock Preferred stock Capital surplus Paid-in capital in excess of par value Other surplus(Notes 12 and 18) Capital adjustment Treasury stock Consideration for conversion rights Stock options (Note 21) Accumulated other comprehensive income and expense Unrealized gain on valuation of available-for-sale securities (Note 8) Unrealized gain on valuation of equity method investments (Note 10) Unrealized loss on valuation of equity method investments (Note 10) Unrealized gain from forward exchange contracts (Note 17) Retained earnings(Note 18) Legal reserve Discretionary reserve Unappropriated retained earnings Total shareholders' equity Total liabilities and shareholders' equity
1,154,376,930 574,225 417,172,244 78,884,503 (593,471,142) 1,015,615
1,154,362,810 574,225 417,110,276 82,628,551 (31,606,643) 31,778 1,302,244
1,230,417 612 444,652 84,081 (632,564) 1,082
1,230,402 612 444,586 88,071 (33,689) 34 1,388
9,622,319 50,036,655 (4,590,338) 22,100,000 188,269,854 485,933,254 1,809,924,119 10,560,624,429
1,384,364 34,154,098 (3,237,501) 297,349,910 16,300,000 97,269,854 154,518,309 2,222,142,275 8,989,184,715
10,256 53,333 (4,893) 23,556 200,671 517,942 1,929,145 $ 11,256,261
1,476 36,404 (3,451) 316,937 17,374 103,677 164,696 2,368,517 $ 9,581,310
The accompanying notes are an integral part of these non-consolidated nancial statements.
57
Non-Consolidated Statements of Income

Years ended December 31, 2007 and 2006
2007
741,647,726 7,777,418,527 8,519,066,253 7,774,351,877 744,714,376 287,469,568 457,244,808 145,279,875 27,509,310 32,875 128,715,849 53,206,343 9,222,219 363,966,471
2006 794,896,377
5,556,794,349 6,351,690,726 6,022,975,832 328,714,894 229,696,020 99,018,874 84,908,066 36,191,030 39,271,485 120,753,097 36,323,992 40,435,690 357,883,360 1,638,400 71,701,260 44,285,096 74,923,098 1,840,878 20,641,716 29,345,309 244,375,757 212,526,477 58,429,137 154,097,340 675 670
2007 $ 790,501
8,289,723 9,080,224 8,286,455 793,769 306,405 487,364 154,850 29,321 35 137,194 56,711 9,830 387,941 7,067 69,668 16,573 50,839 542 5,297 8,674 14,725 173,385 701,920 184,561 $ 517,359 $ 2.321 $ 2.304
2006
$ 847,257 5,922,825 6,770,082 6,419,714 350,368 244,826 105,542 90,501 38,575 41,858 128,707 38,717 43,099 381,457 1,746 76,424 47,202 79,859 1,962 22,001 31,279 260,473 226,526 62,278 $ 164,248 $ 0.719 $ 0.714
Sales (Notes 5 and 24) Domestic Export Cost of sales (Note 24) Gross income Selling and administrative expenses(Note 29) Operating income Non-operating income Interest and dividend income Realized and unrealized foreign exchange gains (Note 25) Realized and unrealized gains on available-for-sale securities Realized and unrealized gains from forward exchange contracts (Note 17) Gain on valuation of equity method investments (Note 10) Others Non-operating expenses Interest expenses Fee expenses Realized and unrealized foreign exchange losses (Note 25) Realized and unrealized losses from forward exchange contracts (Note 17) Loss on disposal of inventories Loss on disposal of tangible asset Loss on valuation of equity method investments(Note 10) Others Income before income taxes Income tax expense (Note 22) Net income Basic earnings per share (Note 23) (in Korean won and U.S. dollars) Diluted earnings per share (Note 23) (in Korean won and U.S. dollars)
6,629,808 65,362,731 15,548,626 47,696,769 508,804 4,969,631 8,138,351 13,815,053 162,669,773 658,541,506 173,155,617 485,385,889 2,178 2,162
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Non-Consolidated Statements of Appropriations Retained Earnings

Years ended December 31, 2007 and 2006 (Date of Appropriations : March 28, 2008 and February 28, 2007 for the years ended December 31, 2007 and 2006, respectively)
2007
547,365 485,385,889 485,933,254 485,933,254
2006
420,968 154,097,340 154,518,308 154,518,308 5,800,000 57,170,943
2007
$ 584 517,359 517,943 517,943 11,618 115,850
2006
$ 449 164,248 164,697 164,697 6,182 60,937
Retained earnings before appropriations Unappropriated retained earnings carried over from prior year Net income Transfer from discretionary reserve Appropriations of retained earnings Legal reserve Cash dividends (Note 19) (Common stock: 10% in 2007 and 5% in 2006) (Preferred stock: 11% in 2007 and 6% in 2006) Reserve for facility investment Unappropriated retained earnings carried forward to subsequent year
366,000,000 485,590,293 342,961 91,000,000 153,970,943 547,365 390,109 517,577 $ 366 96,994 164,113 $ 584 10,900,000 108,690,293
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Non-Consolidated Statements of Changes in Shareholders Equity

Years ended December 31, 2007
Capital stock
Capital surplus
Capital adjustment
Accumulated other comprehensive income and expense
Retained earnings
Total
2007
Balance as of January 1, 2007 Dividends Net income Conversion of convertible debentures Other surplus Treasury stock Stock purchase options Unrealized gain on valuation of investments with the equity method Unrealized loss on valuation of securities for using the equity method Unrealized gain on valuation of available-for-sale securities Unrealized gain from forward exchange contracts Balance as of December 31, 2007 Balance as of January 1, 2007 Dividends Net income Conversion of convertible debentures Other surplus Treasury stock Stock purchase options Unrealized gain on valuation of investments with the equity method Unrealized loss on valuation of securities for using the equity method Unrealized gain on valuation of available-for-sale securities Unrealized gain from forward exchange contracts Balance as of December 31, 2007
1,154,937,035 14,120 -
499,738,827 61,968 (3,744,048) -
(30,272,621) (31,778) (561,864,499) (286,629) -
329,650,871 8,237,955
268,088,163 (57,170,944) 485,385,889 -
2,222,142,275 (57,170,944) 485,385,889 44,310 (3,744,048) (561,864,499) (286,629) 8,237,955
15,882,556
15,882,556
1,154,951,155
496,056,747
(592,455,527)
3,237,501 (301,940,247) 55,068,636
696,303,108
3,237,501 (301,940,247) 1,809,924,119
$ 1,231,014 15 -
$ 532,657 66 (3,991) -
$ (32,266) (34) (598,875) (306) -
$ 351,365 8,780
$ 285,747 (60,937) 517,359 -
$ 2,368,517 (60,937) 517,359 47 (3,991) (598,875) (306) 8,780
16,929
16,929
$ 1,231,029
$ 528,732
$ (631,481)
3,451 (321,829) $ 58,696
$ 742,169
3,451 (321,829) $ 1,929,145
60
Non-Consolidated Statements of Cash Flows

Years ended December 31, 2007 and 2006
2007
485,385,889
2006
154,097,340
2007
$ 517,359
2006
$ 164,248
Cash ows from operating activities Net Income Adjustments to reconcile net income to net cash provided by operating activities Provision for severance benets Depreciation and amortization Bad debt expense Other bad debt expense Reversal of allowance for doubtful accounts Loss on disposal of short-term nancial instruments Loss on disposal of inventories Gain on disposal and valuation of available-for-sale securities Gain on disposal and valuation of investments Loss on disposal of property, plant and equipment Development expenses Loss(Gain) on foreign currency translation Gain on disposal and valuation of forward exchange contracts Amortization of discounts on debentures and conversion rights adjustment Gain on valuation of equity method investments Loss on valuation of equity method investments Warranty provision Provision of construction contracts loss Other Changes in operating assets and liabilities: Trade accounts and notes receivable Other accounts receivable Inventories Accrued income Advance payments Prepaid expenses Long-term prepaid expenses Deferred income tax assets Trade accounts and notes payable Advance receipts Accrued expenses Income taxes payable Current deferred tax liabilities Deferred tax liabilities Long-term other accounts payable
(321,111,400) (61,703,220) (123,884,608) (9,589,831) (789,435,086) (70,022,106) (1,158,906) 129,697,836 1,758,345,423 139,545,354 121,987,832 6,768,759 24,191,275 (15,090,600) 227,816,959 (15,639,968) 44,016,285 (9,371,608) (691,536,701) (31,641,054) (25,921,743) (3,157,459) 141,926,164 1,354,347,471 73,970,515 55,121,342 8,927,100 (342,263) (65,768) (132,045) (10,222) (841,436) (74,635) (1,235) 138,241 1,874,169 148,737 130,023 7,215 25,785 (16,085) 242,823 (16,670) 46,916 (9,989) (737,089) (33,725) (27,629) (3,365) 151,275 1,443,559 78,843 58,752 9,515 66,298,206 216,001,277 972,593 835,910 2,307 (720,122) (32,875) (378,875) 3,947,341 6,693,236 (81,019,080) 3,024 (53,206,343) 8,138,351 29,529,522 52,106,022 (9,176,597) 725,379,786 51,034,589 198,472,248 (9,040,748) 35,753 1,840,878 (39,260,150) (406,018) 20,170,354 19,250 (856,522) (45,830,000) 10,660 (36,323,992) 15,979,260 4,358,214 (359,817) 313,941,299 70,665 230,229 1,037 891 2 (768) (35) (404) 4,207 7,134 (86,356) 3 (56,711) 8,674 31,475 55,538 (9,779) 773,161 54,396 211,546 (9,636) 38 1,962 (41,846) (433) 21,499 21 (913) (48,849) 11 (38,717) 17,032 4,645 (383) 334,621
61
2007
(31,821,029) 20,572,593 (29,249,959) (87,546,484) 660,495,843
2006
7,006,078 5,570,302 (28,592,719) (36,536,216) 1,076,304,748
2007 $ (33,917)
21,928 (31,177) (93,312) 704,003
2006 $ 7,468
5,937 (30,476) (38,943) 1,147,202
Guarantee deposits received Withholdings Payment of severance benets Others Net cash provided by operating activities Cash ows from investing activities Acquision of short-term nancial instruments Disposal (Acquision) of available-for-sale securities Acquision of held-to-maturity securities Acquisition of equity-method investments Decrease(Increase) in short-term loans receivable Proceeds from disposal of property, plant and equipment Acquisition of property, plant and equipment Increase in long-term loans receivable Decrease (Increase) in guarantee deposits Others Net cash provided by (used in) investing activities Cash ows from nancing activities Issuance of debenture Repayment of short-term borrowings Changes in forward exchange contracts Repayment of current maturities of long-term debts Increase in other accounts payable Stock options Payment of dividends Acquisition of treasury stock Net cash provided by (used in) nancing activities Net increase in cash and cash equivalents Cash and cash equivalents Beginning of the year End of the year
1,385,875,629
(366,331,760) 79,636,107 (184,655,313) (33,935,507) (29,115,625) 4,525,714 (626,371,978) (45,372,107) (8,937,085) 317,786 (1,210,239,768) 75,930,812 (612,000) 40,663,730 3,473,380 (57,170,944) (570,897,106) (508,612,128) (332,976,267) 553,826,073 220,849,806
1,390,246,047
(377,781,621) (77,276,981) (85,763,137) (37,843,649) 7,205,284 21,426,950 (433,761,957) (9,819,248) 1,908,071 (51,606) (991,757,894) 93,320,000 (49,300,000) 14,113,357 (1,431,682) 46,808,133 4,811,960 (57,035,349) 51,286,419 449,774,572 104,051,501 553,826,073
1,477,164
(390,462) 84,882 (196,819) (36,171) (31,033) 4,824 (667,632) (48,361) (9,526) 339 (1,289,959) 80,932 (652) 43,343 3,702 (60,937) (608,503) (542,115) (354,910) 590,307 $ 235,397
1,481,823
(402,666) (82,367) (91,412) (40,336) 7,680 22,838 (462,334) (10,466) 2,034 (57) (1,057,086) 99,467 (52,547) 15,043 (1,526) 49,891 5,129 (60,792) 54,665 479,402 110,905 $ 590,307
62
Notes to Non-Consolidated Financial Statements

1. The Company
Samsung Heavy Industries Co., Ltd. (the Company) was incorporated in 1974 under the Commercial Code of the Republic of Korea to build ships, manufacture o-shore plants. The Company is a member of the Samsung Group of companies, which consists of numerous companies under a common management control. The Company's capital stock was oered for public ownership in December 1993, and all issued and outstanding shares were listed on the Korea Stock Exchange in January 1994. As of December 31, 2007, 230,990,231 shares, including 114,845 shares of preferred stock, are issued and outstanding. Under the Articles of Incorporation, the Company is authorized to issue 300 million shares of capital stock with a par value per share of 5,000, of which 60 million shares are non-voting preferred stock. The non-cumulative, non-voting preferred stock issued on or before March 14, 1997, are entitled to an additional cash dividend of 1% of par value over common stock. As of December 31, 2007, 114,845 shares of such preferred stock are issued and outstanding. Under the Articles of Incorporation, through a resolution of its board of directors or a committee authorised by it, the Company may issue cumulative, participating, non-voting preferred stock that is entitled to receive an annual cash dividend of more than 1% of par value. If the dividend rate for common stock exceeds that of preferred stock, such preferred stock is entitled to receive in cash dividends at the same dividend rate as that for common stock in addition to the dividend over such preferred stock or participate in cash dividend at the same rate as that of common stock. No such preferred stock has been issued as of December 31, 2007. In addition, the Company is authorized to issue convertible debentures of up to 800,000 million and debentures with stock purchase options of up to 800,000 million. No debentures with stock purchase options have been issued as of December 31, 2007. Also, the Company is authorized to issue capital stocks through general public subscriptions, up to a maximum 30% of issued shares, free from any preemptive rights by shareholders with the resolution of its board of directors. The Company may retire its stocks, within the amount equal to the distributable income, with the approval the board of directors. With the approval of the shareholders, the Company may grant employees and directors options to purchase common stock under a stock option plan within the limit specied by the Korean Security & Exchange Law. Certain stock options can be exercised within 7 after 2 years from the date of the resolution of the shareholders approving the stock option 5 grant, while others may be exercised within 8 years after 3 years of approved. As of December 31, 2007, stock options of 1,656,700 shares have been granted (Note 21).
2. Summary of Signicant Accounting Policies

Basis of presentation The Company maintains its accounting records in Korean won and prepares statutory nancial statements in Korean language (Hangul) in conformity with the accounting principles generally accepted in the Republic of Korea. Certain accounting principles applied by the Company that conform with nancial accounting standards and accounting principles in the Republic of Korea may not conform with generally accepted accounting principles in other countries. Accordingly, these nancial statements are intended for use by those who are informed about Korean accounting principles and practices. The accompanying nancial statements have been condensed, restructured and translated into English from the Korean language nancial statements. The following is a summary of signicant accounting policies followed by the Company in the preparation of its nancial statements. These policies have been consistently applied to all the years presented, unless otherwise stated. In 2007, the Company adopted the following new Statements of Korean Financial Accounting Standards (SKFAS) issued by the Korea Accounting Standards Board: SKFAS No. 21, Preparation and Presentation of Financial Statements I SKFAS No. 23, Earnings Per Share In accordance with SKFAS No. 21, Preparation and Presentation of Financial Statements I, the Companys nancial statements include the statements of changes in shareholders' equity. The Company classied its capital adjustments account into capital adjustments and accumulated other comprehensive income and expense, and also disclosed the details of its comprehensive income in the notes to the nancial statements. In addition, the Company disclosed its earnings per share on the face of its statements of income.
63
Certain prior year accounts, presented herein for comparative purposes, have been reclassied to conform to current years presentation within the nancial statements. Such reclassication does not impact the net income or net assets reported in the prior year. Revenue and Cost Recognition Revenues from construction contracts are recognized using the percentage-of-completion method, measured principally by the percentage of costs incurred up to the balance sheet date over the total estimated costs for each contract. Contract costs include all direct material and labor costs, and indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, and depreciation costs. Selling, general and administrative costs are charged to expense as incurred. Cash, Cash Equivalents Cash and cash equivalents include cash on hand and in banks, and nancial instruments with maturity of three months or less at the time of purchase. These nancial instruments are readily convertile into cash without signicant transaction costs and bear low risks from changes in value due to interest rate uctuations. Allowance for Doubtful Accounts The Company provides an allowance for doubtful accounts and notes receivable. Allowances are calculated based on the estimates made through a reasonable and objective method. Investments in securities Costs of securities are determined using the moving-weighted average method. Investments in equity securities or debt securities are classied into trading securities, available-for-sale securities and held-to-maturity securities, depending on the acquisition and holding purpose. Investments in equity securities of companies, over which the Company exercises a signicant control or inuence, are recorded using the equity method of accounting. Trading securities are classied as current assets while available-for-sale securities and held-to-maturity securities are classied as long-term investments, excluding those securities that mature or are certain to be disposed of within one year, which are then classied as current assets. Held-to-maturity securities are measured at amortized cost while available-for-sale and trading securities are measured at fair value. However, non-marketable securities, classied as available-for-sale securities, are carried at cost when the fair values are not readily determinable. Gains and losses related to trading securities are recognized in the income statement, while unrealized gains and losses of available-for-sale securities are recognized under other comprehensive income and expense. Realized gains and losses of available-for-sale securities are recognized in the income statement. Equity method investments Investees over which the Company can exercise signicant inuence should reect any changes in equity after the initial purchase date. Under the equity method, the Company records changes in its proportionate ownership in the book value of the investee in current operations, as capital adjustments or as adjustments to retained earnings, depending on the nature of the underlying change in the book value of the investee. All other changes in equity should be accounted for under other comprehensive income and expense. Currency translation for foreign operations Assets and liabilities of a foreign branch or company subject to the equity method of accounting for investments are translated into Korean won at the rates of exchange in eect at the balance sheet date, while their equity is translated at the exchange rate at the time of transaction, and income statement accounts at the average rate over the period. Resulting translation gains and losses are recorded as accumulated other comprehensive income and expense. Corresponding gains and losses are recognized as gain or loss when the foreign branch or company is liquidated or sold. Inventories The quantities of inventories are determined using the perpetual method and periodic inventory count, while the costs of inventories are determined using the moving-weighted average method. Inventories are stated at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expense. Replacement cost is used for the estimate of net realizable value of raw materials. If, however, the circumstances which caused the valuation loss cease to exist, the valuation loss is reversed up to the original carrying amount before valuation. The said reversal is deducted from cost of sales.
64
Property, Plant and Equipment and Related Depreciation Property, plant and equipment are stated at cost, which includes acquisition cost, production cost and other costs required to prepare the asset for its intended use. It also includes the present value of the estimated cost of dismantling and removing the asset, and restoring the site after the termination of the asset's useful life, provided it meets the criteria for recognition of provisions. Property, plant and equipment are stated net of accumulated depreciation calculated based on the following depreciation method and estimated useful lives: Estimated Useful Lives
Buildings and structures

Machinery and equipment Tools, furniture and xtures Vehicles and heavy equipment
5 - 60 years 4 - 25 years 5 - 20 years 5 - 18 years
Expenditures incurred after the acquisition or completion of assets are capitalized if they enhance the value of the related assets over their recently appraised value or extend the useful life of the related assets. Routine maintenance and repairs are charged to expense as incurred. Intangible Assets Exclusive facility use rights are stated at cost, net of accumulated amortization. Amortization of these rights is calculated using the straightline method over 5 to 10 years. Impairment of Assets When the book value of an asset is signicantly greater than its recoverable value due to obsolescence, physical damage or an abrupt decline in the market value of the asset, the said decline in value is deducted from the book value to agree with recoverable amount and is recognized as an asset impairment loss for the period. When the recoverable value subsequently exceeds the book value, the impairment amount is recognized as gain for the period to the extent that the revised book value does not exceed the book value that would have been recorded without the impairment. Reversal of impairment of goodwill is not allowed. Accrued Severance Benets Employees and directors with at least one year of service are entitled to receive a lump-sum payment upon termination of their employment with the Company based on their length of service and rate of pay at the time of termination. The Company has partially funded the accrued severance benets through severance insurance deposits with an insurance company. Deposits made by the Company are recorded as deductions from accrued severance benets. The Company deposits certain portion severance benets to National Pension Service according to National Pension Law. The deposit amount is recorded as deduction from accrued severance benets. Stock and Debenture Issuance Cost Stock issuance costs are charged directly to paid-in capital in excess of par value. Debenture issuance costs are recorded as a deduction from the proceeds of the issuance of debenture. Warranty Provision Subject to sales contracts, the Company is liable to repair any defects in its products arising during the warranty period. Accordingly, the Company provides, as of the balance sheet date, a provision for warranty to cover any obligations which may arise during the warranty period. Any unused warranty provision is recognized as non-operating income. Provision for Losses from Construction Contracts When foreseeable losses are expected from short-term and long-term contracts in progress, the Company recognizes the total expected loss from the contracts as a provision for losses from construction contracts.
65
Foreign Currency Translation Monetary assets and liabilities denominated in foreign currencies are translated into Korean won at the rates of exchange in eect at the balance sheet date(in case of U.S. dollars, US$1 to 938.2 and US$1 to 929.6 at December 31, 2007 and 2006, respectively), and the resulting translation gains and losses are recognized in current operations. Income tax and deferred income tax Income tax expense includes the current income tax under the relevant income tax law and the changes in deferred tax assets or liabilities. Deferred tax assets and liabilities represent temporary dierences between nancial reporting and the tax bases of assets and liabilities. Deferred tax assets are recognized for temporary dierences which will decrease future taxable income or operating loss to the extent that it is probable that future taxable income will be available against which the temporary dierences can be utilized. Deferred tax eects applicable to items in the shareholders equity are directly reected in the shareholders equity. Earnings Per Share Earnings per share is computed by dividing net income allocated to common stock, by the weighted average number of common shares outstanding during the year. Diluted earnings per share is computed by dividing diluted net income, which is adjusted by adding back the after-tax amount of interest expense on any convertible debt and compensation expense for stock option, by weighted average number of common shares and diluted securities outstanding during the year. Derivatives All derivative instruments are accounted for at their fair value according to the rights and obligations associated with the derivative contracts. The resulting changes in fair value of derivative instruments are recognized either under the income statement or shareholders equity, depending on whether the derivative instruments qualify as a cash ow hedge. Fair value hedge accounting is applied to a derivative instrument purchased with the purpose of hedging the exposure to changes in the fair value of an asset or a liability or a rm commitment that is attributable to a particular risk. The resulting changes in the fair value of derivatives that are designated and qualify as cash ow hedges are recognized under the shareholders equity under accumulated other comprehensive income and expense.
3. United States Dollar Amounts

The Company operates primarily in Korean won and its official accounting records are maintained in Korean won. The U.S. dollar amounts, provided herein, represent supplementary information solely for the convenience of the reader. All won amounts are expressed in U.S. dollars at the rate of US$1 : 938.2, the exchange rate in eect on December 31, 2007. Such presentation is not in accordance with generally accepted accounting principles in either the Republic of Korea or the United States, and should not be construed as a representation that the won amounts shown could be readily converted, realized or settled in U.S. dollars at this or at any other rate. The 2006 U.S. dollar amounts, which were previously expressed at 929.6 : US$1, the rate in eect on December 31, 2006, have been restated to reect the exchange rate in eect on December 31, 2007.
4. Restricted Deposits
As of December 31, 2007, 30 million of bank deposits are restricted to maintain checking accounts. Certain other nancial instruments amounting to 405,914 million are subject to withdrawal restrictions in relation to a retention for the guarantee of refunds of the advanced payments (Note 14).
5. Construction Contracts
Details of the outstanding construction contract amounts as of December 31, 2007, are as follows:
66
5. Construction Contracts
Details of the outstanding construction contract amounts as of December 31, 2007, are as follows:
Opening Balance of Contracts
17,247,776,459 4,125,599,820 467,832,196 24,201,869 21,865,410,344
(In thousands of Korean won)
Increase (Decrease)
11,070,024,062 3,949,517,240 938,178,199 59,515,134 16,017,234,635
Construction Revenue Recognized

6,263,934,684 1,630,265,447 586,544,202 38,321,920 8,519,066,253
Closing Balance of Contracts

22,053,865,837 6,444,851,613 819,466,193 45,395,083 29,363,578,726
Ship building contracts Plant-building contracts Construction contracts Other
As of December 31, 2007, the Company is guaranteed up to 377,638 million for the execution and 26,414 million for the warranty after completion in relation to the construction contracts. The Company is guaranteed for up to 422,513 million for the execution and 8,800 million for the warranty after completion in relation to the ship building contracts (Note 9). In addition, a warranty provision of 58,734 million is provided for completed contracts and provision of 59,941 million is provided for losses from construction contracts (Note 17).
6. Accounts and Notes Receivable

(A) Accounts and notes receivable and their allowance for doubtful accounts, as of December 31, 2007 and 2006, consist of the following:
2007
1,155,648,928 42,342,176 1,113 ,306,752
2006
836,669,136 43,719,577 792,949,559 71,343,698 12,034,311 59,309,387
Trade accounts and notes receivable Less: Allowance for doubtful accounts Other accounts and notes receivable Less: Allowance for doubtful accounts
133,358,096 12,512,999 120,845,097
(B) Long-term accounts and notes receivable and their allowance for doubtful accounts, as of December 31, 2007 and 2006, consist of the following:
2007
2,651,807 2,651,807 -
2006
2,651,807 2,651,807 13,492,289 13,492,289 -
Long-term trade accounts and notes receivable Less: Allowance for doubtful accounts Long-term other accounts and notes receivable Less: Allowance for doubtful accounts
13,492,289 13,492,289 -
67
7. Inventories
Inventories at December 31, 2007 and 2006, consist of the following:
2007
94,452,710 37,532,225 146,304,503 24,279,647 9,769,332 312,338,417
2006
83,677,743 25,846,758 53,301,905 24,863,949 43,333 187,733,688
Raw materials Supplies Materials in-transit Land Other
Inventories are insured against re and other casualty losses for up to 1,593,910 million as of December 31, 2007. In addition, the Company is insured against re and other casualty losses of up to approximately US$11,642 million for ships under construction as of December 31, 2007.
8. Available-For-Sale Securities
Available-for-sale securities as of December 31, 2007 and 2006, consist of the following:
2007
Percentage of Ownership (%)

17.0 3.9 0.03 9.7 1.0
Acquisition Cost
5,100,000 3,626,900 1,350,186 1,300,000 600,000 11,977,086
Market Value or Net book value

6,577,217 15,837,222 1,924,528 5,736,434 810,522 30,885,923 4,254,294 50,487,500 13,340,898 68,082,692 98,968,615
Recorded Book Value

5,100,000 15,837,222 1,924,528 1,300,000 600,000 24,761,750 804,500 50,487,500 10,216,889 61,508,889 86,270,639
Affiliated Companies Samsung Venture Investment Co., Ltd. Samsung Investment Trust Management Co., Ltd. Samsung Card Co., Ltd. iMarket Korea, Inc. Samsung Economic Research Institute Other investments Equity investments Beneciary certicates Other securities
15,010,000 50,000,000 10,216,889 75,226,889 87,203,975 2006

17.0 3.9 0.04 9.7 1.0 95.4
Acquisition Cost
Recorded Book Value
Affiliated Companies Samsung Venture Investment Co., Ltd. Samsung Investment Trust Management Co., Ltd. Samsung Card Co., Ltd. iMarket Korea, Inc. Samsung Economic Research Institute Samsung Commercial Vehicle Co., Ltd.
5,100,000 3,626,900 1,447,477 1,300,000 600,000 314,999,890 327,074,267 6,075,501 5,657,570 698,480 4,520,617 611,296 17,563,464 5,100,000 3,626,900 1,447,477 1,300,000 600,000 12,074,377
68
2006

-
Acquisition Cost
14,987,500 130,000,000 9,722,829 154,710,329 481,784,596

3,564,155 131,909,468 12,903,618 148,377,241 165,940,705
Recorded Book Value

804,500 131,909,468 9,722,829 142,436,797 154,511,174
Other investments Equity investments Beneciary certicates Other securities
The fair values of non-marketable equity securities except for Samsung Investment Trust Management Co., Ltd., Samsung Card Co., Ltd. and Beneciary certicates could not be reliably estimated due to the lack of nancial information. Accordingly, these equities were presented at their acquisition cost.
9. Held-To-Maturity Securities
Held-to-maturity securities as of December 31, 2007 and 2006, consist of the following:
2007 Recorded Book Value Government bonds Government bonds Government bonds
313,266,077 10,256,060 36,680 323,558,817
2006 Recorded Book Value

116,123,629 12,029,140 52,405 128,205,174
Due date 0 - 1 year 1 - 5 years 5 -10 years
Held-to-maturity securities amounting to
760 million are held as a guarantee for the performance of certain contracts (Note 5).
10. Equity-Method Investments

Equity-method investments as of December 31, 2007 and 2006, consist of the following:
2007
(In thousands of Korean won, except for number of shares and percentage information)
Number of Shares
1,920,000 300,000 -

100.0 32.0 100.0 100.0 30.0 100.0 100.0
Acquisition Cost
50,705,716 9,600,000 3,909 66,404,990 291,959 2,608,551 2,473,656 132,088,781
Market Value (Net book value)

68,913,940 159,409,847 10,675,254 61,572,785 291,960 2,608,551 2,473,656 305,945,993
Recorded Book Value

68,913,940 159,409,847 10,675,254 61,572,785 291,960 2,608,551 2,473,656 305,945,993
Samsung Heavy Industries Ningbo Co., Ltd. Doosan Engine Co., Ltd. Samsung Sakhalin LLC Samsung Heavy Industries Rongcheng Co., Ltd. MMHE-SHI LNG SDN BHD Samsung Heavy Industries India Pvt.Ltd. Camellia Consulting Corporation
69
2006
(In thousands of Korean won, except for number of shares and percentage information)
Number of Shares
1,920,000 300,000

100.0 32.0 100.0 100.0 30.0
Acquisition Cost
Market Value (Net book value)
Recorded Book Value
Samsung Heavy Industries Ningbo Co., Ltd. Doosan Engine Co., Ltd. Samsung Sakhalin LLC Samsung Heavy Industries Rongcheng Co., Ltd. MMHE-SHI LNG SDN BHD
38,678,629 9,600,000 3,909 37,551,690 291,960 86,126,188 56,982,761 102,829,176 3,394,414 37,551,690 291,960 201,050,001 56,982,761 102,829,176 3,394,414 37,551,690 291,960 201,050,001
MMHE-SHI LNG SDN BHD, Samsung Heavy Industries India Pvt. Ltd. and Camellia Consulting Corporation was not applied the equity as the change in equity of them is not material to the Companys nancial statements Financial information of signicant investee companies for the years ended December 31, 2007 and 2006, consist of the following:
2007
Assets
260,569,503 1,848,870,671 21,859,731 191,879,931 2,323,179,836
Liabilities
191,655,563 1,350,715,093 11,305,004 130,307,146 1,683,982,806
Sales
207,813,866 1,221,703,211 79,637,462 1,374,931 1,510,529,470
Net Income
6,810,842 124,466,053 6,566,364 (8,138,351) 129,704,908
Samsung Heavy Industries Ningbo Co., Ltd. Doosan Engine Co., Ltd. Samsung Sakhalin LLC Samsung Heavy Industries Rongcheng Co., Ltd.
2006
Assets
189,991,366 941,766,087 17,378,731 1,149,136,184
Liabilities
133,008,605 620,425,106 13,984,317 767,418,028
Sales
184,637,328 1,022,850,196 70,030,027 1,277,517,551
Net Income
14,843,724 56,541,331 3,387,042 74,772,097
Samsung Heavy Industries Ningbo Co., Ltd. Doosan Engine Co., Ltd. Samsung Sakhalin LLC
There are no unrealized gains or losses arising from the inter-company transactions between the Company and investees. As of December 31, 2007 and 2006, the cumulative net gain of the equity-method investments consists of the following:
2007
Gain from prior years

10,742,563 49,003,539 3,387,042 63,133,144
Unrealized gain (loss*)

654,820 64,337,171 717,939 3,306,146 69,016,076
Current year gain(loss)

6,810,842 39,829,137 6,566,364 (8,138,351) 45,067,992
Dividend
(3,360,000) (3,360,000)
Total
18,208,225 149,809,847 10,671,345 (4,832,205) 173,857,212
Samsung Heavy Industries Ningbo Co., Ltd. Doosan Engine Co., Ltd. Samsung Sakhalin LLC Samsung Heavy Industries Rongcheng Co., Ltd.
70
2006
Gain from prior years

7,925,926 30,910,313 38,836,239
Unrealized gain (loss*)

(4,465,518) 47,105,637 3,464 42,643,583
Current year gain(loss)

14,843,724 18,093,226 3,387,042 36,323,992
Dividend
(2,880,000) (2,880,000)
Total
18,304,132 93,229,176 3,390,506 114,923,814
Samsung Heavy Industries Ningbo Co., Ltd. Doosan Engine Co., Ltd. Samsung Sakhalin LLC
(*) The Company calculated its accumulated other comprehensive income by recognizing unrealized gain on valuation of equity method investments amounting to 50,037 million, unrealized gain and loss on valuation of equity method investments amounting to 34,154 million and 3,238 million, respectively, excluding tax eects as of December 31, 2007 and 2006.
11. Short-Term and Long-Term Loans Receivable

Short-term and long-term loans at December 31, 2007 and 2006, consist of the following:
Annual Interest Rates (%) as of December 31, 2007 0-4 0 - 16
2007
8,430,485 78,553,108 86,983,593 (1,664,008) (34,879,740) 50,439,845
2006
6,653,252 5,842,608 12,495,860 (1,475,608) (3,638,208) 7,382,044
Loans to employees Other loans receivable Less: Allowance for doubtful accounts Less: Short-term loans receivable
12. Property, plant and equipment

Changes in property, plant and equipment for the years ended December 31, 2007 and 2006, consist of the following:
2007
January 1, 2007
482,312,977 1,248,116,957 551,045,087 67,819,487 216,109,152 153,817,059 30,511 2,719,251,230
Acquisition
258,251 269,200 246,182 22,543,161 571,141,229 31,913,953 626,371,976
Transfer
12,092,937 117,277,256 85,489,436 33,044,357 99,810,925 (329,982,556) (17,732,355) -
Disposal
(529,842) (4,430,684) (733,719) (179,815) (2,598,994) (8,473,054)
Depreciation
(34,080,673) (88,829,932) (15,664,146) (77,414,408) 215,989,159
December 31, 2007

494,134,323 1,327,152,056 546,970,872 85,266,065 258,449,836 394,975,732 14,212,109 3,121,160,993
Land Buildings and structures Machinery and equipment Vehicles and heavy equipment Tools, furniture and xtures Construction inprogress Machinery in-transit
71
2006
January 1, 2007
454,331,750 1,216,156,002 516,360,099 60,255,721 190,049,016 88,413,369 2,525,565,957
Acquisition
933,293 2,187,155 6,062,748 14,056,678 404,919,586 5,602,497 433,761,957
Transfer
47,232,077 80,624,510 125,129,945 14,955,300 77,126,800 (339,496,646) (5,571,986) -
Disposal
(20,184,143) (18,358,789) (1,539,645) (218,982) (1,295,745) (19,250) (41,616,554)
Depreciation
(32,491,921) (88,905,312) (13,235,300) (63,827,597) (198,460,130)
December 31, 2007

482,312,977 1,248,116,957 551,045,087 67,819,487 216,109,152 153,817,059 30,511 2,719,251,230
Land Buildings and structures Machinery and equipment Vehicles and heavy equipment Tools, furniture and xtures Construction inprogress Machinery in-transit
As of December 31, 2007, the use of certain portions of the Company's property, plant and equipment are restricted to lease for real estate up to a maximum of 23,272 million. Depreciable assets are insured against re and other casualty losses for up to 2,322,178 million as of December 31, 2007. Land, recorded at cost of 494,134 million has a posted land price issued by the Korean tax authority of 611,042 million at December 31, 2007. In accordance with the Asset Revaluation Law, the Company revalued a substantial portion of its property, plant and equipment on July 1, 1998, by 408,432 million. The revaluation surplus increment of 26,763 million, net of 5,946 million of revaluation tax, 37,705 million in deferred foreign currency translation losses, 335,684 million of accumulated decit, and 2,334 million of revaluation reversal were credited to the revaluation surplus account in the shareholders equity. The 553 million in income tax expenses and 2,439 million of deferred income tax assets were also deducted directly against the revaluation surplus account. As of December 31, 2007, 76,709 million of revaluation surplus included the 52,939 million revaluation surplus of October 1, 1990.
13. Intangible Assets

Changes in intangible assets for the years ended December 31, 2007 and 2006, consist of the following
2007
January 1, 2007
32,923
Acquisition
-
Amortization
12,118 2006
Disposal and Impairment

-
December 31, 2007

20,805
Accumulated Amortization
78,204
Exclusive facility use rights
January 1, 2006
45,041
Acquisition
-
Amortization
12,118
Disposal and Impairment

-
December 31, 2007

32,923
Accumulated Amortization
66,086
Exclusive facility use rights
72
The amortization expense of intangible assets for the years ended December 31, 2007 and 2006, are distributed into the following accounts:
Account Selling and administrative expenses
2007
12,118
2006
12,118
Research and development expenses charged to current operations for the years ended December 31, 2007 and 2006, consist of following :
Account Research expenses Ordinary development expenses
2007
640,811 29,279,986 29,920,797
2006
491,267 28,792,584 29,283,851
14. Short-Term Borrowings and Current Maturities of Long-Term Debts

Short-term borrowings as of December 31, 2007 and 2006, consist of the following:
Annual Interest Rates (%) as of December 31, 2007 1.8 - 4.2
2007
23,929,741
2006
23,929,741
General term loans from commercial banks
Short-term nancial instruments are pledged as collaterals for the above loans (Notes 4 ). Current maturities of long-term debts as of December 31, 2007 and 2006, consist of the following:
2007
866,667
2006
612,000
Long-term debts in local currency (Note 15)
15. Long-Term Debts

Long-term debts as of December 31, 2007 and 2006, consist of the following:
Reference (A) (B)
2007
9,533,333 98,595,554 108,128,887 (866,667) 107,262,220
2006
10,145,333 94,556,038 104,701,371 (612,000) 104,089,371
Local currency loans Debentures Less: Current maturities (Note 14)
73
(A) Long-term debts denominated in local currencies as of December 31, 2007 and 2006, consists of the following:
Annual Interest Rates (%) as of December 31, 2007 1.0
2007
9,533,333 9,533,333
2006
612,000 9,533,333 10,145,333
Woori Bank and others Korea Housing Gurantee Co.,Ltd.
(B) Debentures outstanding as of December 31, 2007 and 2006 consist of the following:
Annual Interest Rates (%) as of December 31, 2007 LIBOR + 0.35 -
2007
98,595,554 98,595,554
2006
94,508,070 57,121 94,565,191 (9,153) 94,556,038
Floating rate notes Convertible debentures Less: Adjustment account for conversion rights
98,595,554
On December 19, 2006, the Company issued oating rate notes listed on the London Stock Exchange and entered into a currency swap agreement with nancial institutions to hedge interest rate and currency risk. The maturities of long-term debts outstanding at December 31, 2007 are as follows:
Local Currency Loans 866,667 866,667 866,667 6,066,665 8,666,666
Debentures
98,595,554 98,595,554
Total
866,667 866,667 99,462,221 6,066,665 107,262,220
2009 2010 2011 2012~
16. Accrued Severance Benets

Changes in accrued severance benets for the years ended December 31, 2007 and 2006, consist of the following:
2007
184,620,097 66,957,149 (29,908,902) 221,668,344 (1,792,885) (145,893,739) 73,981,720
2006
162,178,227 51,034,589 (28,592,719) 184,620,097 (2,044,594) (93,145,558) 89,429,945
Balance at the beginning of the year Provision for severance benets1 Actual severance payments Less: C umulative deposits to the National Pension Fund Severance insurance deposits Balance at the end of the year
1 Provision for severance benets contains
659 million under taken from the related company. As of December 31, 2007, the company funded 65.8% of
severance payable through severance insurance deposits with Samsung Life Insurance Co., Ltd.
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17. Liability provision, Commitments and Contingencies

A. Liability provision Liability provisions as of December 31, 2007, are as follows:
Reference
(A) (B) (C) (D)
January 1, 2007
18,706,800 41,450,014 7,834,688 21,287,840 89,279,342
Increase
15,380,400 29,642,257 56,872,026 196,940 102,091,623
Decrease
10,961,894 12,358,440 4,766,005 28,086,339
December 31, 2007

23,125,306 58,733,831 59,940,709 21,484,780 163,284,626
Provision for long-term incentives Warranty provision Provision for losses from Construction contracts Provision for performance guarantees
(A) The Company introduced long-term incentive plans for its executives based on a three-year management performance criteria and has made a provision for the estimated incentive cost for the current year. (B) Subject to sales contracts, the Company is liable to repair any defects in its products arising during the warranty period. Accordingly, the Company provides, as of the balance sheet date, a provision for warranty to cover any obligations which may arise during the warranty period. Any unused warranty provision is recognized as non-operating income. (C) When foreseeable losses are expected from short-term and long-term contracts in progress, the Company recognizes the total expected loss from the contracts as a provision for losses from construction contracts. (D) The Company has been named as a defendant in a lawsuit led by its customer for alleged breach of construction contract. As management believes that the nal outcome may not be favorable to the Company, the Company recognized the total expected loss from the lawsuit as a provision for performance guarantee. B. Contingencies (A) As of December 31, 2007, the Company is contingently liable for guarantees of indebtedness of suppliers approximating
4,370 million.
(B)A s of December 31, 2007, the Company provided four notes amounting to 5,514 million, three blank notes and two blank checks to Hankook Real Estate Trust Co., Ltd. and other seven companies, as collaterals in relation to performance guarantee, and others. (C) The Company and 30 other Samsung Group affiliates (the Affiliates) entered into an agreement with the institutional creditors (the Creditors) of Samsung Motors Inc. (SMI) in September 1999. In accordance with this agreement, the Company and the Affiliates agreed to sell 3,500,000 shares of Samsung Life Insurance Co., Ltd., which were previously transferred to the Creditors in connection with the petition for court receivership of SMI by December 31, 2000. In the event that the sales proceeds fall short of 2,450 billion, the Company and the Affiliates have agree to compensate the Creditors for the shortfall by other means, including the participation in any equity oering or subordinated debentures issued by the Creditors. Any excess proceeds over 2,450 billion are to be distributed to the Company and the Affiliates. In the event of delays, interest on the agreed sales proceeds of 2,450 billion has been agreed to be paid to the Creditors by the Company and the Affiliates. As of the balance sheet date, these transferred shares of Samsung Life Insurance Co., Ltd. have not yet been sold. As a result, on December 9, 2005, the Creditors led a civil lawsuit against Mr. Kun-Hee Lee, the Company and 27 other Samsung Group Companies, for losses arising from the breach of this agreement. T he Creditors are claiming for the agreed sales proceeds amount of 2,450 billion and damages for delays amounting to 2,287.9 billion, both with interest of 6% per annum from January 1, 2001, until the date the Company was served with court papers and 20% per annum thereafter until settlement. The interest on the damages for delays has been calculated on monthly basis from January 1, 2001. In addition, the Creditors are claiming further damages for delay (calculated at 19% per annum on 2,450 billion) from December 1, 2005, until settlement. O n January 31, 2008, the court ruled that the agreement was valid, and that Mr. Kun-Hee Lee, the Company and 27 of the remaining Affiliates have a joint and severable liability for the principal less an amount related to Samsung Life shares that have already been disposed of by the Creditors, plus interest at a rate of 6% per annum.
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As of December 31, 2007, the outcome of this litigation is uncertain and accordingly, the ultimate eect of this matter on the nancial position of the Company cannot presently be determined. (D) As of December 31, 2007, the Company has been named as a defendant in 27 legal cases arising except for the above(C). The aggregate amounts of claims as the defendant amounted to approximately 16,640 million. As of December 31, 2007, the Company believes that, although the outcome of these matters is uncertain in any event, the resolutions of these cases will not have a material adverse eect on the operations or nancial position of the Company. Main legal actions are as follows:
Legal actions Penalty for delay claims Claims for damages
Amount
3,572 4,877
C. Commitments As of December 31, 2007, the Company has entered into bank overdraft agreements with Woori Bank and ve other banks amounting to 86,000 million. As of December 31, 2007, the Company has technical assistance agreements with 8 foreign companies. Total royalty expenses incurred under these technical assistance agreements for the years ended December 31, 2007, approximate 83,618 million (2006 : 66,026 million). The terms of these agreements require the Company to pay royalties during the term of the agreements. As of December 31, 2007, the Company entered into agreements with the nancial institutions such as the Export-Import Bank of Korea that such institutions guarantee refunds of the advance payments made by the customers of the Company up to US$ 23,869 million when the Company does not perform its obligations in accordance with the ship building contracts. The ships under construction are pledged as collaterals for the guarantees provided by the nancial institutions. As of December 31, 2007, the Company has gain and loss on valuation of derivatives with various nancial institutions including Barclays Bank to hedge local cash ows risk on trade accounts receivable, trade accounts payable, debenture and interest. For the year ended December 31, 2007, the unrealized gains and losses recognized from the valuation of derivatives held to trade, amount to 7,063 million and 53 million, respectively. On the other hand, the ineective portion of unrealized gains and losses amounting to 79,688 million and 24,335 million, respectively, resulting from the derivatives used to hedge cash ows, are charged to the current operations. In addition, the Company recognized the eective portion of unrealized gains of 4,590 million from cash ow hedge instrument excluding tax eect as deferred gains and charged to accumulated other comprehensive income , of which 130,167 million is expected to be realized within one year from December 31, 2007. For the year ended December 31, 2007, the Company recognized realized gains of 41,965 million and losses of 23,309 million, charged to the current operations from the settlement of derivatives.
18. Retained Earnings

Retained earnings as of December 31, 2007 and 2006, consist of the following:
2007
22,100,000 188,269,854 210,369,854 485,933,254 696,303,108
2006
16,300,000 97,269,854 113,569,854 154,518,309 268,088,163
Appropriated Legal reserve (A) Voluntary reserve (B) Unappropriated
76
On October 1, 1990 and July 1, 1998, the Company revalued a substantial portion of its property, plant and equipment amounting to 171,584 million, and the revaluation increments of 335,684 million were used to oset accumulated decit. (A) The Korean Commercial Code requires the Company to appropriate, as a legal reserve, an amount equal to a minimum of 10% of annual cash dividends declared , until such reserve equals 50% of its capital stock. This reserve is not available for payment of cash dividends but may be transferred to capital stock or used to reduce accumulated decit, if any. (B) Voluntary reserves represent reserves for facility investment appropriated by the Company and may be used for any purpose under the shareholders resolution.
19. Dividends
Details of dividends declared for the years ended December 31, 2007 and 2006, are as follows:
2007
2006 Dividend Ratio(%)

5 6
Dividend Ratio(%)
10 11
Dividend Amount
108,627,128 63,165 108,690,293
Dividend Amount
57,136,491 34,452 57,170,943
Common shares Preferred shares
The Companys dividend payout ratios for the year ended December 31, 2007, is:
Total dividends (A) Net income (B) Dividend payout ratio (A/B)
108,690,293 485,385,889
22.4%
The Companys dividend yield ratios for the year ended December 31, 2007, is:
Common Shares
500 40,200 1.2%
Preferred Shares
550 46,000 1.2%
Dividend per share (A) Market price as of balance sheet date (B) Dividend yield ratio (A/B)
20. Treasury Stock

As of December 31, 2007, the Company holds 13,621,129 shares of its common stock amounting to recorded as a capital adjustment and is reserved for the exercise of stock options etc. 593,471 million. The treasury stock is
21. Stock Compensation Plans

The Company has a stock option plan that provides for granting stock purchase options to employees or directors who have contributed or are expected to contribute to the management and technology innovation of the Company.
77
A summary of the terms of stock options as of December 31, 2007, is as follows.

Date of the grant
March 24, 2000 Quantity of stock Will be issued Exercise price (1) Exercisable period from the date of the grant (2)
418,000 5,000 3~7 years
March 5, 2001
280,300 5,600 3~7 years
March 9, 2002 February 28, 2003

445,900 5,000 2~8 years 230,800 5,000 2~8 years
March 31, 2003

5,000 5,000 2~8 years
May 10, 2006

276,700 5,400 2~8 years
(1) The exercise price can be adjusted in case of issuing new shares, stock dividends, stock splits or stock merger. (2) The options can be fully vested after two or three years from the date of grant. Under the fair value method (minimum value method used for those which were granted prior to May 10, 2004), there is no compensation cost for stock options recognized for the year ended December 31, 2007. The compensation cost of stock options was estimated on the date of the grant using the fair value method (minimum value method used for those which were granted prior to May 10, 2004) with the following assumptions.
March 24, 2000 Expected dividend yield Expected stock price volatility Risk-free interest rate Expected exercise term in years
3.00% 79.56% 9.34% 4
March 5, 2001
3.00% 79.72% 6.39% 4
March 9, 2002 February 28, 2003

3.00% 77.04% 6.98% 4 3.00% 68.93% 4.77% 4
March 31, 2003

3.00% 68.94% 4.80% 4
22. Income Tax and Deferred Tax Assets

The statutory income tax rate applicable to the Company, including resident surtax, is 27.5%. Income tax expense for the years ended December 31, 2007 and 2006, consists of the following:
2007
140,673,850 32,481,767 173,155,617
2006
4,383,992 54,045,145 58,429,137
Current income taxes Changes in deferred income tax
The reconciliation between income before income taxes and taxable income for the year ended December 31, 2007 and 2006, follows:
2007
658,541,506 13,794,309 (43,404,143) 628,931,672
2006
212,526,477 32,599,083 (109,248,448) 135,877,112
Income before income taxes Add (deduct) : Increase due to permanent dierences Decrease due to temporary dierences Taxable income
78
The income tax eect of temporary dierences including available net operating loss carry-forwards and tax credits as of December 31, 2007, is as follows:
(In Korean won)
Current
13,492,647 1,741,163 12,189,359 27,423,169
Non-Current
Deferred tax assets Allowance for doubtful accounts Impairment losses on property, plant and equipment Severance and retirement benets Unrealized gain from forward exchange contracts Impairment losses on equity securities Warranty provision Provision for loss from construction contracts Depreciation Others
3,952,397 39,130,173 260,807 16,151,804 16,483,695 322,387 22,785,871 99,087,134
(In Korean won)
Current
15,960,793 12,643,224 470,976 29,074,993 (1,651,824)
Non-Current
58,152,629 100,515 39,130,173 1,781,922 99,165,239 (78,105)
Deferred tax liabilities Gain on valuation of investment securities Unrealized gain from forward exchange contracts Accrued interest income Capitalized interest Brokerage fees Others
The Company calculates the temporary dierence arising from gain on valuation of equity method investments, which will be eliminated by dividend payments, by subtracting an amount equal to the Companys portion of tax payments made by investee companies in order to avoid double taxation on dividend payments received from domestic investee companies according to Corporate Law Article 18, Section 3. The Company believes that it is highly probable that deferred income tax assets resulting from temporary dierences, net loss carriedforwards and carried forward tax deductions will be realized as the expected future average annual operating income will exceed the amounts of these deferred income tax assets. The Company did not recognize the temporary dierence amounting to 187,157 million as income tax liability pursuant to the Assets Revaluation Act as it is highly unlikely that the Company will dispose of its land in the near future. The eective tax rate for the year ended December 31, 2007, is 26.3%.
79
23. Earnings Per Share

Basic earnings per share for the year ended December 31, 2007, is calculated as follows:
Net income Adjustments: Dividends for preferred stock Undeclared participating preferred stock dividend Net income available for common stock Weighted average number of common stock Earnings per share in Korean won
485,385,889
34,454 227,738 485,123,697 222,733 2,178
Basic earnings per share for the year ended December 31, 2006, is 675. Diluted earnings per share for the year ended December 31, 2007, is 2,162( 2006 :
670).
24. Related Party Transactions

Signicant transactions with related parties for the years ended December 31, 2007 and 2006, and the related account balances as of December 31, 2007 and 2006, are as follows:
2007
329,785,950 475,324,694 933,009,847 186,762,765
2006
416,369,165 273,349,982 829,946,425 129,863,931
Sales, including exports Trade accounts, notes and other receivables Purchases Trade accounts, notes and other payables
Key Management Compensation For the year ended December 31, 2007, key management compensation includes short-term benets (including short-term incentives) of 3,082 million and long-term benets (including severance benets) of 2,949 million. Key management consists of registered executive ofcers who have authority and responsibility in the planning, directing and controlling of the operations of the Company.
80
25. Assets and Liabilities Denominated in Foreign Currencies

As of December 31, 2007, assets and liabilities denominated in foreign currencies and related gains and losses on foreign currency translation for the year ended December 31, 2007, is as follow:
Account Foreign currency assets Cash and cash equivalents Trade accounts and notes receivable
USD USD EUR JPY 113,071,170 866,503,196 169,729 537,123 790,711 190,235 16,471 11,680 1,009,097 51,472 51,472 270,027 2,598,323 4,087,483 6,955,833 7,007,305
Foreign Currencies
Korean Won Equivalent (In thousands)
Translation Gain (In thousands)
Translation Loss (In thousands)
Foreign currency liabilities Trade accounts and notes payable Accrued expenses Debenture
USD USD USD 14,713,826 178,876,111 98,595,554 44,211 44,211 1,053,308
26. Segment Information

A summary of information of the Companys operations by business segments as of and for the year ended December 31, 2007, follows: General information by business segment
Segment
Shipbuilding Construction
Sales type
product product
Items
Tanker, LNG, o-shore platform, others Engineering works, construction, others
Sales ratio (%)

93.11 6.89 100.00
Financial data by business segment

Local Currency Loans

7,932,522,051
Debentures
586,544,202 210,971,510 797,515,712 29,378,125 29,042,345 1,260,815
Total
8,519,066,253 361,619,338 8,880,685,591 525,847,101 3,121,181,799 216,001,277
Sales Sales to external customers Inter-segment sales Operating prot Property, plant and equipment & intangible assets Depreciation & amortization
150,647,828 8,083,169,879
496,468,976
3,092,139,454 214,740,462
81
Reconciliation to operating prot

Total business segments operating prot Inter-segment revenue Undivided selling & administrative expenses Operating prot per statement of income 525,847,101 68,602,293 457,244,808
27. Comprehensive Income

Comprehensive income for the years ended December 31, 2007 and 2006, consists of:
2007
485,385,889 (274,582,235) 8,237,955
2006
154,097,340 189,563,247 1,384,365 10,127,607 (1,765,507) 179,816,782 343,660,587
Net income Other comprehensive income (expense) Gain on valuation of available-for-sale securities, net of related income taxes of 3,125 million (2006: Gain on valuation of equity-method investments, net of related income taxes of 6,024 million (2006: 525 million)
15,882,556
3,842 million)
3,237,501 (301,940,247) 210,803,654
Loss on valuation of equity-method investments, net of related income taxes of 1,228 million (2006: 670 million) Unrealized gain(loss) from forward exchange contracts (2007: 114,529 million, 2006: 68,206 million)
28. Selling and administrative expenses

2007
132,838,184 7,415,676 33,362,755 23,482,044 13,151,423 77,219,486 287,469,568
2006
98,844,864 6,298,347 32,831,195 20,316,935 16,654,583 54,750,096 229,696,020
Salaries and wages Taxes and dues Commission Expenses Depreciation the cost of guarantee repairing other
82
29. Transactions Not Aecting Cash Flows

Signicant transactions not aecting cash ows for the years ended December 31, 2007 and 2006, are as follows:
2007
2,568,120 2,314,307 4,027,918 347,714,912 866,667
2006
5,338,685 5,979,458 25,733,617 345,068,632 612,000
Current maturities of held to maturities securities Current maturities of long-term loans receivable Current maturities of long-term prepaid expenses Reclassication of construction in-progress to other property, plant and equipment accounts Current maturities of long-term debentures
30. Final Interim Period Information

Financial information for the three-month period ended December 31, 2007, is as follows:
Sales Net income Basic earnings per share Diluted earnings per share
2,337,936,622
117,769,073 542 538
31. Approval of Financial Statements

The December 31, 2007 nancial statements of the company were approved by the board of directors on March 5, 2008.
32. Subsequent Events

The company announced the plan to donate 100 billion of local development fund, which is separate from legal compensation, with the approval of the board of directors on February 29, 2008 regarding to the accident of the oil spill o the west coast by the Hebei tanker. These announcement of the plan had no eect on nancial statements as of December 31, 2007.
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Report of Independent Accountants' Review of Internal Accounting Control System

To the President of Samsung Heavy Industries Co., Ltd.
We have reviewed the accompanying managements report on the operations of the Internal Accounting Control System (IACS) of Samsung Heavy Industries Co., Ltd. (the Company) as of December 31, 2007. The Companys management is responsible for designing and operating IACS and for its assessment of the eectiveness of IACS. Our responsibility is to review the managements report on the operations of the IACS and issue a report based on our review. The managements report on the operations of the IACS of the Company states that based on its assessment of the operations of the IACS as of December 31, 2007, the Companys IACS has been designed and is operating eectively as of December 31, 2007, in all material respects, in accordance with the IACS standards established by the Internal Accounting Control System Operations Committee (IACSOC) of the Korea Listed Companies Association. Our review was conducted in accordance with the IACS review standards established by the Korean Institute of Certied Public Accountants. Those standards require that we plan and perform, in all material respects, the review of managements report on the operations of the IACS to obtain a lower level of assurance than an audit. A review is to obtain an understanding of a companys IACS and consists principally of inquiries of management and, when deemed necessary, a limited inspection of underlying documents, which is substantially less in scope than an audit. A companys IACS is a system to monitor and operate those policies and procedures designed to provide reasonable assurance regarding the reliability of nancial reporting and the preparation of nancial statements for external purposes in accordance with accounting principles generally accepted in the Republic of Korea. Because of its inherent limitations, IACS may not prevent or detect a material misstatement of the nancial statements. Also, projections of any evaluation of eectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Based on our review, nothing has come to our attention that causes us to believe that managements report on the operations of the IACS, referred to above, is not presented fairly, in all material respects, in accordance with the IACS standards established by IACSOC. Our review is based on the Companys IACS as of December 31, 2007, and we did not review managements assessment of its IACS subsequent to December 31, 2007. This report has been prepared pursuant to the Acts on External Audit for Stock Companies in Korea and may not be appropriate for other purposes or for other users.
Samil PricewaterhouseCoopers March 19, 2007
84
Report on the Operations of the Internal Accounting Control System
To the Board of Directors and Audit Committee of Samsung Heavy Industries Co., Ltd.
I, as the Internal Accounting Control Officer (IACO) of Samsung Heavy Industries Co., Ltd. (the Company), assessed the status of the design and operations of the Companys internal accounting control system (IACS) for the year ended December 31, 2007. The Companys management including IACO is responsible for designing and operating IACS. I, as the IACO, assessed whether the IACS has been eectively designed and is operating to prevent and detect any error or fraud which may cause any misstatement of the nancial statements, for the purpose of establishing the reliability of nancial reporting and the preparation of nancial statements for external purposes. I, as the IACO, applied the IACS standard for the assessment of design and operations of the IACS. Based on the assessment on the operations of the IACS, the Companys IACS has been eectively designed and is operating as of December 31, 2007, in all material respects, in accordance with the IACS standards.
February 5, 2008 Seo Yoon Kim, Internal Accounting Control System Officer Jing Wan Kim, Chief Executive Officer and President
85
Global Network
OSLO MOSCOW LONDON NEWYORK HOUSTON ATHENS DUBAI SHANGHAI RONGCHENG NINGBO SINGAPORE TOKYO
USA
Houston Office
11777 Katy Freeway, suite 405, Houston, TX 77079 Tel: 1-281-679-8455 Fax: 1-281-679-8473
Europe
London Office
EC2V 5DE Samsung Heavy Ind., 17th Floor City Tower, 40 Basinghall Street, London, UK Tel: 44-207-562-4301 Fax: 44-207-562-4319
Asia
Samsung Heavy Industries Ningbo Co., Ltd.
Quingshi Industrial Zone Xiaogang, Ningbo 315803, China Tel: 86-574-8622-6688 Fax: 86-574-8622-4275
Singapore Office
3 Church Street # 21-03, Samsung Hub, Singapore 049483 Tel: 65-6-550-8181 Fax: 65-6-550-8188
New York Office

105 Challenger Road, 6th oor, Ridgeeld Park, NJ 07660 Tel: 1-201-229-5009 Fax: 1-201-229-5110
Oslo Office
Haakon VIIs Gate 1, Oslo 0160, Norway Tel: 47-22-83-3777 Fax: 47-22-83-3778
Samsung Heavy Industries Rongcheng Co., Ltd.

No.39 Li-Dao Jin, Rongcheng 264317, China Tel: 86-631-7767-888 Fax: 86-631-7767-009
Dubai Office
Al Selemiyah Tower, Flat No. 302, 3rd Floor, Dubai 64089, UAE Tel: 971-4-229-2254 Fax: 971-4-229-2257
Athens Office
229 Syngrou Avenue, Nea Smymi, Athens GR-17122, Greece Tel: 30-210-934-4866 Fax: 30-210-934-8163
Shanghai Office
Room907, Maxdo center, No.8 XingYi Road, Hongqiao Development Zone, Shanghai 200336, China Tel: 86-21-5208-1116 Fax: 86-21-5208-1117
Moscow Office
Office 1408, WTC, Entrance 3, 12 Krasnopresnenskaya Emb., Moscow 123610, Russia Tel: 7-495-258-2223 Fax: 7-495-258-2224
Tokyo Office
ROPPONGI T-CUBE, 3-1-1, Roppongi, Minato-ku, Tokyo 106-8532, Japan Tel: 81-3-6234-2191 Fax: 81-3-6234-2189
86
InvestoR InfoRmation
HEAD OFFICE Samsung Heavy Industries Co., Ltd. Samsung Life Insurance Seocho Tower 1321-15, Seocho-Dong, Seocho-Gu, Seoul, 137-857, Korea Tel: 82-2-3458-7000 DATE OF ESTABLISHMENT August 5, 1974 GeoJe ShiPYaRd 530, Jangpyeong-ri, Sinhyeon-up, Geoje, Kyeongsangnam-do, 656-710, Korea Tel : 82-55-630-3114 PResident & CEO Jing-Wan Kim NUmbeR of EmPloYees 11,023 (End of 2007) CaPital StocK KRW1,154,951,155,000 (End of 2007) SECURITIES LISTINGS Korea Stock Exchange: 010140.KS (Common Stock) 010145.KS (Preferred Stock) London Stock Exchange: Floating Rate Note TRANSFER AGENT AND REGISTRAR Common stock Stock Transfer Agent Team Hana Bank Tel: 82-2-368-5861
AVAILABLE FILINGS Form 20-F Form 6-K: Quarterly Reports, Proxy Statements and other material Announcements GENERAL SHAREHOLDERS MEETING March 28, 2008 4F Woonam Hall Gangnam Branch YMCA 225-6 Nonhyun-dong, Gangnam-gu Seoul, Korea INVESTOR RELATIONS OFFICE For any other investor inquiries, Contact: Tel: 82-2-3458-6177 Fax: 82-2-3458-6134 Email: william.t.park@samsung.com PAID IN CAPITAL KRW1,154,951 million as of December 31, 2007 NUMBER OF COMMON SHARES 230,875,386 Shares as of December 31, 2007
DISCLAIMER
The information in this annual report does not constitute an oer to sell or the solicitation of an oer to buy any securities and should not be relied upon in connection with any investment decision. With the exception of historical information, the matters discussed in the materials and documents of this annual report contain assumptions and forward-looking statements regarding the future prospects of Samsung Heavy Industries, involving growth initiatives, prot gures, strategies and objectives. The risks and uncertainties inherent in all statements regarding the future can lead to actual prots and development deviating substantially from what has been expressed or implied. For a more detailed description of these risks, uncertainties and other factors, see Samsung Heavy Industries lings with the U.S. Securities and Exchange Commission (and in particular its most recent annual report on Form 20-F). Samsung Heavy Industries disclaims any intention or obligation to update or revise any forward-looking statements. Moreover, Samsung Heavy Industries in no way guarantees that the information made available here is complete, accurate or up-to-date in all cases.
www.shi.samsung.co.kr www.shi.samsung.co.kr
CORPORATE HEADQUARTERS Samsung Life Insurance Seocho Tower 1321-15, Seocho-Dong, Seocho-Gu, Seoul, 137-857, Korea Tel.82-2-3458-7000 GEOJE SHIPYARD 530, Jangpyeong-ri, Sinhyeon-up, Geoje, Kyeongsangnam-do, 656-717, Korea Tel.82-55-630-3114

SHI Annual Report 2007

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Innovating Challenging Delivering Results

Samsung Heavy Industries Annual Report 2007

(*) Debt-to-equity ratio = Interest-bearing debt/Shareholders equity

Samsung Heavy Industries

SAMSUNG HEAVY INDUSTRIES

TO OUR ESTEEMED CUSTOMERS, SHAREHOLDERS, and BUSINESS PARTNERS:

SAMSUNG HEAVY INDUSTRIES

THE YEAR AHEAD

SAMSUNG HEAVY INDUSTRIES

Judge, the Constitutional Court of Korea

Soo-Il Sohn Hyung-Keun Seo

Outside Director Vice President, Korea Development Bank

Executive Vice President, C&E Division

Executive Vice President, Chief Financial Officer

Current Title Other Principal Directorship & Titles Former Titles

President, Jungbu Regional Tax Offices, National Tax Service

SAMSUNG HEAVY INDUSTRIES

A Year of Record-breaking Orders

Block Plant Near Geoje Shipyard

Ship Block Plants in China

Tera-Block Construction Method

Shipbuilding Payments in Korean Won

Creative Innovation Idea Competition

The Worlds Largest Oshore Platform

The Waterproof Academy

Ships for the Arctic Region

Innovating, Challenging, Delivering Results

SAMSUNG HEAVY INDUSTRIES

WORLDS FIRST ARCTIC SHUTTLE TaNKER

SAMSUNG HEAVY INDUSTRIES

WORLDS FIRST DRILLSHIP fOR THE ARCTIC

SAMSUNG HEAVY INDUSTRIES

SUCCESSFUL CONSTRUCTION OF THE PILTUN B

SAMSUNG HEAVY INDUSTRIES

THE WORLDS LARGEST LNG CARRIER

65%Worlds highest automation rate

CRUISING INTO NEW MARKETS

SAMSUNG HEAVY INDUSTRIES

QUALITY MANAGEMENT GUARANTEED

HSE ALLIANCE FOR SAFETY

SHIPBUILDING IN THE 21ST CENTURY

SAMSUNG HEAVY INDUSTRIES

Innovation, Challenge, and Reliability

COunting OUR SUCCEssEs

SAMSUNG HEAVY INDUSTRIES

SAMSUNG HEAVY INDUSTRIES

First in the Marketplace

Shipbuilding Automation Rate

Successive Record-breaking Performances

The Grand Total

SHIs successful culture of innovation, challenge and reliability.

SAMSUNG HEAVY INDUSTRIES

SHI SHIPBUILDING & OFFSHORE FACILITIES

SAMSUNG HEAVY INDUSTRIES

SAMSUNG HEAVY INDUSTRIES

SAMSUNG HEAVY INDUSTRIES

SHI Construction & Engineering

Innovations in the Construction Industry

The High Value of Customer Satisfaction

Looking Ahead to the future

SAMSUNG HEAVY INDUSTRIES

SAMSUNG HEAVY INDUSTRIES

Environmental Management System Practices