EUGENE INVESTMENT & SECURITIES Annual Report 2008

Transcription

1 EUGENE INVESTMENT & SECURITIES Annual Report 2008

2 Future of Certainty Our financial philosophy is to provide greater soundness and safety which helps protect our clients wealth! Your wealth represents your life s work and your current dreams While it is impossible to predict CONTENTS 03 Introduction 10 Your Best Partner 12 Financial Highlights 14 CEO Message 16 Senior Management 20 Vision & Strategy 22 Human Resource 24 Business Overview 28 Partners in your success 30 Financial Statements 78 Reports how the future will unfold we remain confident that our scientific analysis, risk management know-how, and innovative financial strategies will enable us to continue to create wealth for our clients This annual report of Eugene Investment & Securities Co., Ltd. contains the company s financial information, business overview, and strategies. Please note that the summary of the report covers the fiscal year ending March 2009 (April 1, 2008 to March 31, 2009). C EUGENE INVERSTMENT & SECURITIES 2 3

3 Assets are source of hope, accomplishment and victory We are here to help grow your wealth safely. To provide our clients with the support they need-to succeed, to grow and to deliver resources that can transform people s lives, we deliver strong and sound solutions By intensifying our dialogue with clients, we will continuously renew our efforts to build a brighter world full of hope and promise 4 5

4 Our continued success of being the most trustworthy company depends upon adherence to our business principles and scientific in-depth analysis Finance cannot be defined in terms of simple investment or asset management It is the process that we build our future together with our clients While no one can predict the future during these uncertain global economic times, our solid business principles and unparalleled scientific analysis continue to position us as a market leader 6 7

5 For a safer and more secure asset management, we stress creativity and imagination in everything we do While recognizing that the old way may still be the best way, we constantly strive to find a better solution to a client s problems We challenge when everyone tells us to give up We always seek to be a pioneer to differentiate us for innovative financing 8 9

6 Section 1 Do we truly understand our clients needs? Could this provide superior returns to our shareholders? Are we fully committed to our business principles? Is this the best solution? We have formulated these four business principles to guide all our employees in their daily work To maximize our clients potential and shareholder value, we make an unusual effort to remain committed to the company s principles We are certain that creativity and sincerity will bring the best returns, and our commitment to these beliefs will enable us to maintain our capital strength 10 11

7 Financial Highlights At a Glance (In millions of Won) FY 2008 FY 2007 Balance sheet Total assets 1,841,393 1,855,803 Total liabilities 1,275,810 1,192,522 Total shareholders equity 565, ,282 Income statement Operating revenue 549, ,542 Operating expenses 696, ,747 Operating income (146,275) 45,795 Non-operating income 8,266 10,378 Non-operating expenses 13,579 11,656 Pre-tax earnings (151,587) 44,517 Income taxes (32,758) 14,346 Net income (118,830) 30,171 Earning per share (EPS) (210(KRW)) 58(KRW) Cash flow Cash flow from operating activities 109,837 (513,218) Cash flow from investing activities (38,992) (24,182) Cash flow from financial activities (76,614) 563,063 Decrease (increase) in cash (5,770) 25,662 Cash, beginning of the fiscal period 32,055 6,393 Cash, end of the fiscal period 26,285 32,055 Growth and activity index Return on assets (ROA) % Return on equity (ROE) % Dividends Common stock - 20(KRW) 12 13

8 CEO Message We sincerely offer our appreciation to your continuous support and interest, and we assure you of our absolute commitment to the long-term success of Eugene. Fellow shareholders: 2008 was the most difficult year our industry has experienced in recent times. The collapse of the U.S. real estate bubble triggered the subprime mortgage debacle of In September we entered a new and more severe phase with the insolvency of a large U.S. investment bank, Lehman Brothers. As the global financial system came under extreme stress, Korean equity markets slump down accordingly with the KOSPI plummeting to 938 points. We have not lost sight of the fact that many of the most important opportunities came about during times of stress. We were able to manage well in spite of this difficult environment owing to our preparations to move swiftly to reposition our platform and to expand competency-based systems. By the enforcement of the Financial Investment Services & Capital Markets Act on February 4, 2009, we have changed our vision and structures. However, Eugene Investment & Securities was no exception under this significant deterioration in market conditions. Fraudulent work of construction companies caused our real estate market to suffer as well. Eugene reported a net loss in the PF investments where massive investments were made. Though we are very disappointed at our loss in 2008, we are absolutely determined to take all necessary measures to restore Eugene to the path of profitability and performance for shareholders. We are convinced that the decisive action we have taken, and the strength of our platform, combined with the integrated business model, will enable Eugene to face the future with confidence. Eugene s entire staff members are committed to do the best to rank first in ROE among the medium-sized companies by The unwavering trust and encouragement of our shareholders will ensure that Eugene will reach this goal, and we will do our utmost to repay your support. Thank you. Hyo-Seung Na President and Chief Executive Officer Yours Sincerely, 14 15

9 Senior Management We stress our own and unique way! We pursue excellence, unique insights, and deliver innovative solutions. We do not take the easy way out. We constantly strive to find a better solution. We believe that without the very best solution, we cannot be the best firm. With our determined efforts of differentiated way, we will maintain our leading positions in our core areas of business and compete to be the leading Asian provider of financial solutions for demanding clients creating exceptional value for our shareholders and people. Ji-Chang Yoo Chairman Chang-Su Rue Vice chairman and Chairman of the Board 16 17

10 Senior Management ❶ ❷ ❸ ❹ ❺ ❻ ❼ ❽ ❾ ❿ ⓫ We aim to be the best firm with a strong profitability and financial stability The Board of Directors is the main decision-making body of Eugene. BOD has sole power to take decisions in important matters related to the company s management policies and ongoing operations. As of June 2009, the Board of Directors is composed of 7 directors including 2 outside directors. We have held 4 regular meetings and 10 extraordinary meetings during Board members along with 11 executive members are responsible for their own division and dedicated to complying fully to achieve the company s vision. Executive Members ❶ Sang-Hyun Park, Vice President ❷ Sang-Young Kim, Vice President ❸ Myung-Kwan Kim, Executive Vice President ❹ Ho Yeom, Executive Vice President ❺ Jin-Soon Kang, Vice President ❻ Keon-Ho Lee, Vice President ❼ In-Hwan Lee, Executive Vice President ❽ Byung-Moon Joe, Executive Vice President ❾ Soon-Kwon Choi, Inspection Commissioner ❿ Jae-Kil Lee, Vice President ⓫ Yong-Hun Oh, Vice President Board Members Chang-Su Rue Hyo-Seung Na Young-Min Joo Kwan-Hee Yoo Jae-Hoon Yoo Hong-Jae Lee Eugene Investment & Securities, Vice Chairman & Chairman of the Board Eugene Investment & Securities, President & CEO Eugene Group, Advisor Korea University, Prof. of Business Korea National Policy Forum, President & CEO (Law Firm) Lee Hong Jae, Managing Partner 18 19

11 Vision & Strategy Based on the integration of determined strategy and core value, we will lead towards to be the best financial investment companies We welcome changes and openness. Under this volatile market condition, we are confident that we have the profound vision and strategy to stay profitable. We pride ourselves on having intense effort to achieve superior returns, to build our capital and to keep our best people. Our clients interests always come first. They are our most important stakeholders in our business and the lifeblood of our business. Our clients Core Values Transparency We seek to create transparency. Integrity and honesty are at the heart of our business. VISION Financial Investment Company with the best profitability and strong financial status Our people Incremental progress Our assets are our people. We strengthen ourselves with the most qualified staff member and their continued training. Innovation Differentiation We commit ourselves to remain at the forefront of the financial industry by creating new, unique and innovative solutions. We continuously improves through unleashing the collective creativity and intelligence of all of our team members. Transition (~ FY2010) strengthen strategic planning part - reach break-even point in retail business - strengthen the capabilities - enlarge the size of proprietary trading profit Take off (~ FY2011) establish stable profit base - generate synergy between retail sales and asset management make Cash Cow - enlarge the size of proprietary trading and promote profitability Settlement (~ FY2012) Rank 1st in ROE among mid-sized companies - settle the total asset management business - produce professionalism in proprietary trading 20 21

12 Human Resource We constantly strive to identify and recruit the very best person for every job We remain committed to the core attributes that make Eugene a truly unique organization: our understanding of client s needs, our belief in our people, our quest for innovative solution, our commitment to incremental progress and transparency. Our competence depends on the ability of our staff, and we invest much in their professional and personal training to produce industry-leading returns for our shareholders over the cycle. Every employee shares a sense of ownership. Not surprisingly, this sense of ownership has long underpinned our rigorous approach to profitability. We take great pride in the professional quality of our work. HR philosophy While individual creativity is highly encouraged, we also attach great importance to team effort to perform at our very best towards to sole goal of the company. Objectives To participate fully in brining success with one s capability, professionalism, and dedication Management general management training by sectors Core capabilities Organizational structure organizational growth training Specialization general duties and financial specialties training Future values core talents training 22 23

13 Business Overview From core growth engines to future strategies, our outcomes are beyond expectations We have built new infrastructures upon the Financial Investment Services & Capital Markets Act, focusing on asset management and IB business. As the dynamics of the world economy shift, we continue to hold to the qualities that make us unique, such as the depth of our commitment to client relationships. The U.S. sub-prime mortgage crisis affected domestic real estate market to be filled with mounting uncertainty. This frozen real estate market affect hugely to our PF business. Owing to this, investment banking (IB) business models fell by 82%, leading to a 48% decline in net operation revenue year to year. However, the increase of corporate sales staffs and strengthen research functions reflected a 100% increase in brokerage market share. Also net revenues of branch offices increased slightly resulting 38% increase in 2008 year to year. Thanks to the corporate derivatives division showing extraordinary outcomes in ETF market, we have built trust and attracted more institutional investors. FY 2008 Sales Progress (In hundred millions of Won) FY2008 FY2007 Rate Brokerage 1,014 1,964-48% Asset management % IB % IB % Brokerage M/S 1.46% 1.06% 38% Off-line (Branches) 0.45% 0.43% 5% On-line (Branches) 0.37% 0.31% 19% Corporations 0.64% 0.32% 100% M/S by Sector Branches 1.14% 1.27% -10% Corporations 2.84% 1.54% 84% 24 25

14 Business Overview We set our clear vision of the best profitability with substantiality We have expanded and renewed our research center and asset management division to differentiate ourselves to meet the clients expectations. Focus on our research and asset management will continue to be the strongest catalysts for our long-term success. Research Center In the face of change, when analysts usually have a buy recommendation on most stocks whereas they rarely put out a sell recommendation on any stock, our research center has contributed to the firm s ability to find one-time information which help to enhance service quality by stressing teamwork for efficient communication and fair evaluation

15 Section 2 Eugene seeks to be Asia s premier financial investment companies In becoming a leading financial investment company, Eugene will continue to be the best partner in your success with challenge and innovative solution while approaching to the new business sectors as well as equipping ourselves with the advanced infrastructure, computerization investment, and research center 28 29

16 Independent Auditors Report Based on a report originally issued in Korean To: The Board of Directors and Stockholders Eugene Investment & Securities Co., Ltd. (Formally Seoul Securities Co., Ltd.): We have audited the accompanying non-consolidated balance sheet of Eugene Investment & Securities Co., Ltd. (the Company ) as of March 31, 2009, and the related non-consolidated statements of operations, appropriation of disposition of accumulated deficit, changes in equity and cash flows for the year then ended. These non-consolidated financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these non-consolidated financial statements based on our audit. The accompanying nonconsolidated financial statements of the Company as of March 31, 2008, were audited by other auditors, whose report thereon dated May 14, 2008, expressed an unqualified opinion on those statements. We conducted our audit in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the non-consolidated financial statements referred to above present fairly, in all material respects, the financial position of Eugene Investment & Securities Co., Ltd. as of March 31, 2009 and the results of its operations, disposition of its accumulated deficit, the changes in its equity and its cash flows for the year then ended in conformity with accounting principles generally accepted in the Republic of Korea. Without qualifying our opinion, we draw attention to the following: As discussed in note 2(a) to the non-consolidated financial statements, accounting principles and auditing standards and their application in practice vary among countries. The accompanying non-consolidated financial statements are not intended to present the financial position, results of operations, changes in equity and cash flows in accordance with accounting principles and practices generally accepted in countries other than the Republic of Korea. In addition, the procedures and practices utilized in the Republic of Korea to audit such non-consolidated financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report and the accompanying non-consolidated financial statements are for use by those knowledgeable about Korean accounting principles and auditing standards and their application in practice. KPMG Samjong Accounting Corp. Seoul, Korea May 8, 2009 This report is effective as of May 8, 2009, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying (non-consolidated) financial statements and notes thereto. Accordingly, the readers of the audit report should understand that there is a possibility that the above audit report may have to be revised to reflect the impact of such subsequent events or circumstances, if any. Non-Consolidated Balance Sheets As of March 31, 2009 and 2008 (In thousands of Won, except per share data) Note Assets Cash and deposits Cash and cash equivalents 30 26,285,017 32,054,769 Deposits from financial institutions for customers accounts 3, ,030, ,348,689 Other deposits 3 7,021,000 20,783,080 Securities Trading securities 4,6 941,896, ,009,236 Securities available for sale 5 150,231, ,608,285 Securities held to maturity 7 800,000 - Equity method investments 9 66,131,393 78,083,743 Derivatives combined securities 8 149,240, ,650,623 Loans receivable 11 Call Loans - 20,000,000 Broker s loan, net of allowances for doubtful accounts of 434,694 (2008: 803,257) 12 86,557, ,848,231 Loans receivable, net of allowances for doubtful account of 17,825 (2008: 16,729) 22 3,547,341 3,329,174 Loans purchased, net of allowances for doubtful account of 122,167,328 (2008: 983,500) 131,832, ,716,500 Advances for customers, net of allowances for doubtful accounts of 2,385,790 (2008: 2,318,874) , ,342 Dishonored bonds, net of allowances for doubtful accounts of 309,015 (2008: 385,296) 72,095 24,602 Property and equipment, net 14 Land 10,303,317 3,916,481 Buildings, net of accumulated depreciation of 1,921,358 (2008: 1,784,021) 15 5,197,271 4,334,447 Vehicles, net of accumulated depreciation of 159,679 (2008: 154,732) 30,955 49,186 Furniture and equipments, net of accumulated depreciation of 28,536,805 (2008: 25,108,830) 15 14,602,243 12,486,504 Other assets Accounts receivable, net of allowances for doubtful accounts of 5,234,696 (2008: 1,590,778) 11 35,403,649 17,934,345 Accrued income, net of allowances for doubtful accounts of 1,084,777 (2008: 70,505) 11,29 10,177,659 10,104,441 Advance payments 4,327,850 3,956,428 Prepaid expenses 2,012,906 1,950,805 Prepaid income tax ,432 - Guarantee deposits 26,938,131 27,238,049 Other investments 22,633,486 20,568,388 Joint compensation fund for default loss 17 2,821,677 2,283,252 Intangible assets, net 16 5,254,282 2,062,397 Derivatives instruments assets 10 69, ,506 Long position options 10 2,673,727 1,199,710 Deferred income tax assets 27 15,262,633 - Total assets 1,841,393,139 1,855,803,213 31

17 Non-Consolidated Balance Sheets As of March 31, 2009 and 2008 (In thousands of Won, except per share data) Note Liabilities Deposits Customers deposits 166,640, ,300,619 Other deposits 2,256,107 2,225,340 Borrowings Call money ,000, ,000,000 Borrowings 19 75,478,794 66,246,620 Bonds sold under repurchase agreements 6, ,513, ,208,712 Securities sold 18 36,201,743 58,599,704 Derivatives-combined securities sold 8 179,941, ,656,930 Subordinated convertible bond, net 20, 29 66,433,602 95,629,331 Other liabilities Accrued severance benefits, net 21 5,973,412 2,344,060 Income tax payable 27-5,881,037 Dividends payable 6,860 6,602 Other payable 36,712,056 42,768,340 Accrued expenses 13,644,674 11,277,784 Deposits for rents 29 1,418,100 1,633,731 Unearned revenues 136,337 3,736,468 Withholding taxes 3,937,297 4,927,597 Deferred income tax liabilities 27-23,097,239 Short position options , ,414 Total liabilities 1,275,810,174 1,192,521,528 Stockholders equity Capital stock 24 Common stock 343,084, ,933,960 Capital surplus Paid-in capital in excess of par value ,553, ,056,066 Consideration for conversion rights 2,291,622 3,465,811 Revaluation surplus 332, ,860 Gains on disposal of treasury stock 2,856,711 2,856,711 Other additional capital 372, ,496 Capital adjustments Treasury stock (276,942) (276,941) Stock options 26 1,633,752 1,771,729 Other cumulative comprehensive income and expense Gain on valuation of securities available for sale 57,130,361 57,631,791 Equity change in equity method investments 4,206,483 4,730,363 Retained earnings 25 Legal reserve 13,769,350 12,663,119 Reserve for loss on futures transactions 30,852 27,893 Unappropriated retained earnings (Undisposed accumulated deficit) (18,403,429) 112,597,827 Total stockholders equity 565,582, ,281,685 Total liabilities and stockholders equity 1,841,393,139 1,855,803,213 Non-Consolidated Statements of Disposition of Accumulated Deficit For the years ended March 31, 2009 and 2008 (In thousands of Won, except per share data) Note Operating revenue: Commissions income 29 Broker s commissions 63,548,812 89,367,047 Underwriting commissions 12,218,483 9,062,951 Broker s commissions on collective investment securities 5,699,768 7,593,611 Sales commissions on derivatives-combined securities 2,000,501 1,362,922 Other commissions received 8,573,353 29,022,055 Gain on sale and valuation of securities Gain on sale of trading securities 63,594,843 39,938,643 Gain on valuation of trading securities 8,619,881 2,475,583 Gain on sale of available-for-sale securities 1,841,637 6,475,456 Securities reduction loss Gain on valuation of securities sold 216,326 1,280,391 Gain on sale of derivatives-combined securities - 1,039,080 Gain on valuation of derivatives-combined securities 9,594,544 1,314,796 Gain on redemption of derivatives-combined securities 713,681 - Gain on redemption of derivatives-combined securities sold 37,371,290 14,182 Gain on valuation of derivatives-combined securities sold 54,893,713 9,504,138 Gain on derivatives transactions Gain on futures transactions 69,368,463 61,946,282 Gain on exchange trading option transactions 118,825,420 88,527,217 Gain on OTC derivatives transactions 1,755,402 1,723,782 Interest income 29 Interest on margin loans 5,046,916 8,253,483 Interest on loans 5,574,336 4,418,051 Interest on bonds 43,618,328 22,481,689 Interest on negotiable commercial papers 8,642,942 1,067,848 Interest on deposits with KSFC 1,190,195 1,080,765 Interest on certificate of deposits 200,599 2,164,128 Interest on call loans 462, ,327 Other interest income 12,304,117 11,976,239 Gain on foreign transaction 2,740, ,187 Other operating income Dividends income 2,548,865 1,707,427 Distribution income 414, ,873 Gain on valuation of deposits with KSFC 8,209,287 9,433, ,788, ,541,508 See accompanying notes to (non-consolidated) financial statements. 33

18 Non-Consolidated Statements of Disposition of Accumulated Deficit For the years ended March 31, 2009 and 2008 (In thousands of Won, except per share data) Note Operating expenses: Commissions expenses 29 Trading commissions 5,305,561 9,586,527 Investment consultant fees 2,403,415 3,629,532 Other commissions 2,308,294 1,150,622 Loss on sales and valuation of securities Loss on sales of trading securities 69,507,438 32,888,054 Loss on valuation of trading securities 5,309,977 2,896,784 Loss on sale of available-for-sales securities 1,159, ,883 Loss on valuation of securities sold 2,494, ,974 Impairment loss on available-for-sale securities 3,090, Loss on redemption of derivatives-combined securities 21,246,630 13,284 Loss on valuation of derivatives-combined securities 48,767,276 9,505,756 Loss on valuation of derivatives-combined securities sold 1,606,692 2,665,808 Loss on redemption of derivatives-combined securities sold 25,917, Loss on derivatives transactions Loss on futures transactions 68,416,709 54,012,679 Loss on exchange trading options transactions 105,009,235 74,192,726 Loss on OTC derivatives transactions 6,245,438 2,726,585 Interest expenses Interest on borrowings from KSFC 5,458,973 1,557,821 Interest on customer s deposits 1,253,168 2,090,248 Interest on bonds sold under repurchase agreements 25,823,977 12,634,160 Interest on call money 6,269,165 4,476,317 Interest on subordinate convertible bonds 5,304, ,268 Other interest expenses 138,656 14,519 Loss on disposal and valuation of loans 120,815,004 1,036,072 Loss on foreign transactions 1,003, ,618 General and administrative expenses ,414, ,587,140 Other operating expenses 4,791,600 1,391, ,063, ,746,956 Operating income (loss) (146,274,660) 45,794,552 Non-operating income: Gain on disposal of property and equipment 2,287,937 38,272 Gain on disposal of investments - 428,046 Rental income 29 3,187,503 4,525,177 Gain on valuation of equity method investments 2,701,482 4,782,471 Miscellaneous income 89, ,716 8,266,149 10,377,682 Non-Consolidated Statements of Disposition of Accumulated Deficit For the years ended March 31, 2009 and 2008 Note Non-operating expenses: Loss on disposal of property and equipment 45,161 87,721 Loss on valuation of equity method investments 9,979,211 6,496,564 Donations 253, ,400 Miscellaneous expenses 3,301,448 4,862,027 13,578,920 11,655,713 Income (loss) before income taxes (151,587,431) 44,516,521 Income taxes expenses 27 (32,757,667) 14,345,944 Net income (loss) (118,829,764) 30,170,577 Earnings per share 28 Earnings per share (210) 58 Diluted earnings per share (210) 58 Date of Disposition for 2008: May 29, 2009 Date of Appropriation for 2007: May 30, 2008 Note Undisposed (unappropriated) accumulated deficit (retained earnings) Balance at beginning of year (100,426,335) (82,427,250) Net loss (income) 118,829,764 (30,170,577) Balance at end of year before disposition (appropriation) 18,403,429 (112,597,827) Transfer from reserves Reserve for loss on futures transactions - (16) Undisposed (unappropriated) accumulated deficit (retained earnings) available for disposition (appropriation) 18,403,429 (112,597,843) Disposition (appropriation) of accumulated deficit (retained earnings) Legal reserve (Reversal) 13,769,350 (1,106,230) Reserve for loss on futures transactions (Reversal) 30,852 (2,975) Dividends (2008: 4% on par value at 20 Won per share) - (11,062,303) Gain from disposal of treasury stock 1,978,745 - Revaluation reserve 332,860 - Consideration for conversion rights 2,291,622 - Undisposed (unappropriated) accumulated deficit (retained earnings) to be carried over to subsequent year - (100,426,335) See accompanying notes to (non-consolidated) financial statements. See accompanying notes to (non-consolidated) financial statements. 35

19 Non-Consolidated Statements of Changes in Equity For the years ended March 31, 2009 and 2008 Note Common stock Capital surplus Capital adjustments Accumulated other comprehensive income Retained earnings Total stockholders equity Balance at April 1, ,561,580 34,828,699 1,556, , ,502, ,257,838 Dividends (5,383,763) (5,383,763) Retained earnings after appropriation ,118, ,874,075 Increase in paid-in capital 135,301,580 95,320, ,622,409 Net income ,170,577 30,170,577 Consideration for conversion rights - 3,465, ,465,811 Acquisition of treasury stock - - (261,717) - - (261,717) Disposal of treasury stock - 301,481 1,141, ,443,000 Exercise of stock option 6,070,800 10,025,495 (923,569) ,172,726 Withdrawal of grant of stock - 17,831 (17,831) option Gain on valuation of available-forsale ,911,881-56,911,881 securities Effect of equity method - 241,798-4,641,125-4,882,923 Balance at March 31, ,933, ,201,944 1,494,787 62,362, ,288, ,281,685 Balance at April 1, ,933, ,201,944 1,494,787 62,362, ,288, ,281,685 Dividends (11,062,303) (11,062,303) Retained earnings after appropriation ,226, ,219,382 Net income (loss) (118,829,765) (118,829,765) Exercise of stock option 160, ,296 (137,976) ,820 Gain on valuation of available-forsale (501,430) - (501,430) securities Effect of equity method - (117,663) - (523,879) - (641,542) Conversion of convertible bonds 12,990,378 20,125, ,115,501 Balance at March 31, ,084, ,407,700 1,356,811 61,336,845 (4,603,228) 565,582,966 See accompanying notes to (non-consolidated) financial statements. Non-Consolidated Statements of Cash Flows For the years ended March 31, 2009 and 2008 Note Cash flows from operating activities Net income (118,829,764) 30,170,576 Adjustments for: Depreciation 5,813,644 3,170,491 Severance pay 6,135,090 4,875,095 Amortization of intangible assets 1,421, ,411 Salary (Share-based payments) 66,709 1,299,666 Loss on sale of trading securities 69,507,437 32,888,053 Loss on valuation of trading securities 5,309,977 2,896,784 Loss on sale of available-for-sale securities 1,159, ,883 Impairment losses on available-for-sale securities 3,090, Loss on valuation of securities sold 2,494, ,973 Loss on valuation of derivatives-combined securities 48,767,276 9,505,756 Loss on redemption of derivatives-combined securities 21,246,629 13,284 Loss from disposal of property and equipment 45,161 85,081 Loss on valuation of derivatives-combined securities sold 1,606,691 2,665,808 Loss on redemption of derivatives-combined securities sold 25,917, Amortization of conversion right adjustment 3,965, ,759 Amortization of discount on bonds issued 16,518 - Loss from equity method investments 9,979,211 6,496,564 Loss on disposal and valuation of loans 125,606,604 2,427,531 Gain on sale of trading securities (63,594,842) (39,938,642) Gain on valuation of trading securities (8,619,880) (2,475,583) Gain on sale of available-for-sale securities (1,841,636) (6,475,456) Reversal of impairment losses on available-for-sale securities - (259) Gain on valuation of derivatives-combined securities (9,594,544) (1,314,796) Gain on redemption of derivatives-combined securities (713,680) (1,039,080) Gain on valuation of securities sold (216,326) (1,280,391) Gain on valuation of derivatives-combined securities sold (54,893,713) (9,504,138) Gain on redemption of derivatives-combined securities sold (37,371,289) (14,182) Gain from equity method investments (2,701,482) (4,782,471) Gain from disposal of property and equipment (2,287,937) (38,271) Gain from OTC derivatives transactions (69,418) - Gain from disposal of investments - (428,046) Changes in assets and liabilities: Decrease (increase) of deposits from financial institutions for customers accounts (4,682,259) 111,504,365 Decrease (increase) in other deposits 13,762,080 (20,575,708) Increase in trading securities (105,489,505) (570,011,295) Decrease (dividend paid) in equity method investments 7,524, ,000 Increase in derivatives-combined securities (68,295,157) (147,815,787) Decrease (increase) in call loans 20,000,000 (20,000,000) Decrease (increase) in broker s loans 73,658,603 (118,505,022) Decrease (increase) in loans (219,263) 480,203 Increase in loans purchased (57,300,000) (176,700,000) Decrease (increase) in advances for customers (100,400) 328,515 Decrease in dishonored bonds 28, ,279 Decrease (increase) in accounts receivables (21,228,199) (8,097,630) 37

20 Non-Consolidated Statements of Cash Flows For the years ended March 31, 2009 and 2008 (In thousands of Won, except per share data) Note Increase in accrued income (1,099,769) (5,614,082) Increase in advance payments (371,422) (2,401,293) Increase in prepaid expenses (62,101) (1,513,509) Increase in prepaid income tax (896,432) - Decrease (increase) in joint compensation fund for default loss (538,424) 346,176 Decrease in derivatives instruments assets 139,506 - Increase in long position options (1,474,017) (1,339,216) Decrease (increase) in deferred income tax debits (15,262,633) 1,997,369 Increase (decrease) in customers deposits 7,340,177 (49,009,165) Decrease in other deposits 30,767 - Increase in bonds sold under repurchase agreements 209,305, ,398,720 Increase (decrease) in securities sold (24,676,596) 60,395,535 Increase in derivatives-combined securities sold 83,025, ,509,408 Decrease in reserve for severance and retirement benefits (3,980,742) (3,927,831) Decrease (increase) in deposits for severance and retirement benefits 1,463,057 (682,672) Increase (decrease) in income tax payable (5,881,037) 1,928,451 Increase (decrease) in dividends payable 257 (251) Decrease in national pension fund for severance and retirement benefits 11,946 2,069 Increase (decrease) in other payable (6,056,283) 41,217,346 Increase (decrease) in accrued expenses 2,366,890 (1,007,995) Increase (decrease) in unearned revenue (3,600,131) 3,150,046 Increase (decrease) in withholding taxes (990,300) 1,681,477 Increase (decrease) in deferred income tax liabilities (17,350,620) 668,997 Decrease in short position options (466,677) - Decrease in deposits for rents (215,631) (1,020,171) Net cash provided by (used in) operating activities 109,836,804 (513,218,150) See accompanying notes to (non-consolidated) financial statements. (Non-Consolidated) Statements of Cash Flows (continued) For the years ended March 31, 2009 and 2008 Note Cash flows from investing activities Proceeds from sale of equity method investments - 5,379,134 Proceeds from sale of available-for-sale securities 12,467,448 36,440,688 Proceeds from disposal of land - 1,162,567 Proceeds from disposal of buildings - 737,432 Proceeds from disposal of vehicles 10,500 94,356 Proceeds from disposal of furniture and equipments 14,706 28,839 Proceeds from disposal of other investment assets 4,655,000 5,961,790 Collection of guarantee deposits 2,564,677 2,302,080 Acquisition of equity method investments (3,616,000) (18,727) Acquisition of available-for-sale securities (27,746,992) (40,300,000) Acquisition of held-to-maturity securities (800,000) - Acquisition of lands (6,386,836) - Acquisition of buildings (1,000,161) - Acquisition of vehicles (19,285) (30,086) Acquisition of furniture and equipment (7,802,676) (11,449,074) Increase in guarantee deposits (2,264,758) (6,408,690) Acquisition of other investment assets (4,454,383) (16,370,409) Acquisition of intangible assets (4,613,560) (1,712,321) Net cash provided by (used in) investing activities (38,992,320) (24,182,421) Cash flows from financing activities Proceeds from call money 28,534,200,000 18,218,300,000 Increase in borrowings 3,280,102,245 2,779,856,449 Issuance of subordinated convertible bond - 99,886,000 Exercise of stock option 278,245 13,873,060 Disposal of treasury stock - 1,498,717 Paid-in capital increase - 230,622,408 Redemption of call money (28,609,200,000) (18,033,300,000) Redemption of borrowings (3,270,870,071) (2,742,290,092) Stock issuance costs (62,353) - Payment of dividends (11,062,302) (5,383,762) Net cash provided by (used in) financing activities (76,614,236) 563,062,780 Net increase (decrease) in cash and cash equivalents (5,769,752) 25,662,209 Cash and cash equivalents at beginning of year 32,054,769 6,392,560 Cash and cash equivalents at end of year 26,285,017 32,054,769 26,285,017 32,054,769 See accompanying notes to (non-consolidated) financial statements. 39

21 1. Organization and Description of Business Eugene Investment & Securities Co., Ltd. (the Company ) was established on May, 1954 under the name of Seoul Securities Co., Ltd. On December 26, 2007, the Company changed its name to Eugene Investment & Securities Co., Ltd. under resolution of the Board of Directors. On August, 1987, the Company was listed on the Korea Exchange. Since incorporation, the Company had several increase of capital, increase in paid-in capital, and stock dividend that as of March 31, 2009, paid- in capital of the Company is 343,085 million, and its major stock holder is Eugene Corporation (including related parties) holding 14.36% of the total voting shares of the Company. 2. Basis of Presenting Financial Statements and Summary of Significant Accounting Policies (a) Basis of Presenting Financial Statements The Company maintains its accounting records in Korean Won and prepares statutory non-consolidated financial statements in the Korean language in conformity with accounting principles generally accepted in the Republic of Korea. Certain accounting principles applied by the Company that conform with financial accounting standards and accounting principles in the Republic of Korea may not conform with generally accepted accounting principles in other countries. Accordingly, these financial statements are intended solely for use by those who are informed about Korean accounting principles and practices. The accompanying non-consolidated financial statements have been condensed, restructured and translated into English with certain expanded descriptions from the Korean language non-consolidated financial statements. Certain information attached to the Korean language non-consolidated financial statements, but not required for a fair presentation of the Company s financial position, results of operations, cash flows or changes in equity is not presented in the accompanying nonconsolidated financial statements. The Company prepares the non-consolidated financial statements in accordance with generally accepted accounting principles in the Republic of Korea. Except for the items explained in note 30 related to accounting changes and the adoption of changes to Statements of Korean Accounting Standards ( SKAS ) No.15 Investments in Associates, the Company applied the same accounting policies that were adopted in the previous year s non-consolidated financial statements. (b) Revenue recognition The Company s revenue categories consist of commissions received, gain on sale and valuation of securities, gain on derivatives transactions, interest income, gain on foreign transactions, and other incomes. Considering recoverability of loans receivable, the Company categorizes receivables as normal, precautionary, substandard, doubtful and estimated loss and appropriates minimum of 0.5%, 2%, 20%, 75%, respectively, of receivable amounts, in accordance with Capital Market Consolidation Act. (d) Investments in Securities (Excluding Investments in Associates, Subsidiaries and Joint Ventures) Classification Upon acquisition, the Company classifies debt and equity securities (excluding investments in subsidiaries, associates and joint ventures) into the following categories: held-to-maturity, available-for-sale or trading securities. Investments in debt securities where the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity. Securities that are acquired principally for the purpose of selling in the short term are classified as trading securities. Investments not classified as either held-to-maturity or trading securities are classified as available-for-sale securities. Initial recognition Investments in securities (excluding investments in subsidiaries, associates and joint ventures) are initially recognized at moving average amount of consideration paid and incidental costs in relation to the acquisition. Subsequent measurement and income recognition Trading securities are subsequently carried at fair value. Gains and losses arising from changes in the fair value of trading securities are included in the income statement in the period in which they arise. Available-for-sale securities are subsequently carried at fair value. Gains and losses arising from changes in the fair value of available-for-sale securities are recognized as accumulated other comprehensive income, net of tax, directly in equity. Investments in available-for-sale securities that do not have readily determinable fair values are recognized at cost less impairment, if any. Held-to-maturity investments are carried at amortized cost with interest income and expense recognized in the income statement using the effective interest method. Fair value information The fair value of marketable securities is determined using quoted market prices as of the reporting date. Non-marketable debt securities are fair valued by discounting cash flows using the prevailing market rates for debt with a similar credit risk and remaining maturity. Credit risk is determined using the Company s credit rating as announced by accredited credit rating agencies in Korea. The fair value of investments in money market funds is determined by investment management companies. Impairment The Company reviews investments in securities whenever events or changes in circumstances indicate that the carrying amount of the investments may not be recoverable. Impairment losses are recognized when the reasonably estimated recoverable amounts are less than the carrying amount and it is not obviously evidenced that impairment is unnecessary. The Company measures revenue at fair value of considerations received or to be received in return for goods sold, services provided and use of assets. The Company reliably measures revenue and recognizes only when the inflow of economic benefits is probable. The Company recognizes commissions and gains and losses from trading securities on the date of contract. However, recognizes gains and losses in relation to over-the- counter (off-shore) securities on the date of settlement of the balances. (c) Allowance for Doubtful Accounts In accordance with accounting standards generally accepted for securities companies, the Company shall categorize customers as normal, precautionary and delinquent based on their financial status. Receivables of each customer shall be categorized as recoverable, uncertain and irrecoverable and write-off ratio on irrecoverable receivables shall be reasonably and objectively estimated. Allowance for doubtful accounts is amount of expected loss amount calculated by applying estimated write-off ratio on loans receivable and irrecoverable receivables are off-set with allowance for doubtful accounts. 41

22 (e) Investments in Associates and Subsidiaries (Equity method investments) The Company applies equity method to evaluate investments which the Company has significant influence on. Changes in ownership from changes in net assets of investees are added or subtracted from related investment accounts and are recognized as equity method gains and losses (profit or loss), other capital surpluses, retained earnings, and other equity method changes (other comprehensive income), based on origination. The cumulative post-acquisition movements are adjusted against the carrying amount of each investment. Changes in the carrying amount of an investment resulting from dividends by an associate or subsidiary are recognized when the associate or subsidiary declares the dividend. When the Company s share of losses in an associate or subsidiary equals or exceeds its interest in the associate or subsidiary, including preferred stock or other long term loans and receivables issued by the associate or subsidiary, the Company does not recognize further losses, unless it has incurred obligations or made payments on behalf of the associate or subsidiary. Amount of acquisition costs exceeding the Company s share of fair value of net assets of investees as of investee as of starting date of having significant influence on investees are amortized in straight line basis over the estimated years which economic benefit inflows are expected. The Company reviews property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized when the expected estimated undiscounted future net cash flows from the use of the asset and its eventual disposal are less than its carrying amount. (i) Intangible Assets Intangible assets of the Company are mainly research and development costs for implementing computer system. Intangible assets are stated net of accumulated amortization calculated using the straight-line method over estimated useful lives as follows: Estimated useful lives (years) Software development costs 4 When recoverable amount of intangible assets are below the carrying value, from becoming obsolete or sharp decrease in market value, the carrying value is adjusted down to recoverable amount and the difference is recognized as impairment losses (f) Derivatives-combined securities and Derivatives-combined securities sold Equity linked securities are recognized as derivatives-combined securities at cost, and as derivatives-combined securities sold at issue price upon issuance. Also, gains and losses from trading and redemption of derivatives-combined securities are recognized as trading gains and losses and gain and loss from redemptions, and difference between valuation at closing and book value is recognized as gains and losses from valuation. (g) Derivatives Instruments The Company recognizes rights and obligations arising from derivative contracts as assets and liabilities at fair value, and recognizes gains and losses incurred from the contacts in profit or loss when incurred. (h) Property and Equipment Property, plant and equipment are stated at cost, (except in the case of revaluations made in accordance with the Asset Revaluation Law, which allowed for asset revaluation prior to the Law being revoked on December 31, 2000.) Assets acquired through investment in kind or donations are recorded at their fair value upon acquisition. For assets acquired in exchange for a non-monetary asset, the fair value of the asset given up is used to measure the cost of the asset received unless the fair value of the asset received is more clearly evident. Significant additions or improvements extending the useful life of assets are capitalized. Normal maintenance and repairs are charged to expense as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets as follows: (j) Bonds Purchased (Sold) under Resale (Repurchase) Agreements When the Company sells securities under repurchase agreement, liabilities is recognized as securities sold under repurchase agreement at sales price, difference between repurchase price and resale price is recognized as interest from sale under repurchase agreement. (k) Convertible bond and Consideration for conversion rights The Company recognizes difference between issue price of convertible debentures and present value of debentures discounted at effective interest rate as consideration for conversion rights in other retained earnings, adjustment for conversion rights are subtracted from the face value of convertible debentures and premium on debentures are added to the face value of the convertible debentures. (l) Discount (Premium) on convertible bond Discount (premium) on debentures issued, which represents the difference between the face value and issuance price of debentures, is amortized (accreted) using the effective interest rate method over the life of the debentures. The amount amortized (accreted) is included in interest expense. (m) Securities sold The Company engages in lending and borrowing transactions. The Company recognizes securities sold upon sale of borrowed securities, and trading gains and losses at difference between sales price and acquisition cost upon redemption, and valuation gains and losses at changes in fair values upon closing. Useful lives (years) Buildings 50 Vehicles 4 Furniture and equipments 4 (n) Retirement and Severance Benefits Employees who have been with the Company for more than one year are entitled to lump-sum payments based on salary rates and length of service at the time they leave the Company. The Company s estimated liability under the plan, which would be payable if all employees left on the balance sheet date, is accrued in the accompanying (non-consolidated) balance sheets. A portion of the liability is covered by an employees severance benefits trust where the employees have a vested interest in the deposit with the insurance company (or the bank) in trust. The deposit for severance benefits held in trust is, therefore, reflected in the accompanying (non-consolidated) balance sheets as a reduction of the liability for retirement and severance benefits. 43

23 Through March 1999, under the National Pension Scheme of Korea, the Company transferred a certain portion of retirement allowances for employees to the National Pension Fund. The amount transferred reduced the retirement and severance benefit amount to be paid to the employees when they leave the Company and is accordingly reflected in the accompanying (non-consolidated) financial statements as a reduction of the retirement and severance benefits liability. However, due to regulation effective April 1999, such transfers to the National Pension Fund are no longer required. (o) Foreign Currency Translation Monetary assets and liabilities denominated in foreign currencies are translated into Korean Won at the foreign exchange rate on the balance sheet date, with the resulting gains or losses recognized in the income statement. Non-monetary assets and liabilities denominated in foreign currencies, which are stated at historical cost, are translated into Korean Won at the foreign exchange rate on the date of the transaction. (p) Income Taxes Expenses Income tax on the income or loss for the year comprises current and deferred tax. Income tax is recognized in the statement of income except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted. Deferred tax is provided using the asset and liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognized only to the extent that it is probable that future taxable income will be available against which the unused tax losses and credits can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized. Deferred tax assets and liabilities are classified as current or non-current based on the classification of the related asset or liability for financial reporting or the expected reversal date of the temporary difference for those with no related asset or liability such as loss carryforwards and tax credit carry-forwards. The deferred tax amounts are presented as a net current asset or liability and a net non-current asset or liability. (q) Reserve for Loss on Futures Transactions In accordance with the Futures Trading Act of the Republic of Korea ( FTA ), the Company is required to reserve 0.1% of brokerage commissions when unappropriated retained earning for the year exceeds brokerage commissions received (including that of foreign transactions), and amount of brokerage commissions when unappropriated retained earnings for the year does not exceed brokerage commissions received (including that of foreign transactions) as reserve for loss on future transactions, every accounting year. The reserve may be used to indemnify cosigner s losses from trader or its employees and refund of amount not used for 3 accounting years. 3. Restricted Deposits (a) Deposits which are restricted in use for payment of employees retirement and severance benefits or expenditures for certain business purposes as of March 31, 2009 and 2008 are summarized as follows: Other deposit Deposit to open current account 21,000 24,000 Sub total 21,000 24,000 Deposits Reserve for claims of customer deposits (trust account) 96,894,372 90,137,658 Reserve for claims of customer deposits for futures and options transaction (trust account) 20,409,650 19,164,684 Reserve for claims for futures and options transaction 1,356,450 3,739,025 Reserve for claims of customer deposits 323,510 1,307,322 Guarantee deposits for KSFC trading 47,966 - Sub total 119,030, ,689 Total 119,051, ,372,689 (b) The Financial Investment Services and Capital Markets Act requires reserve for claims of customer deposits excluding consignment guarantee money that the Company reserves over 100% of required amount in deposits with the Korea Securities Finance Corporation ( KSFC ) under Reserve for claims of customer deposits (trust) for customer s deposits for brokerage, savings, and Repo, under Reserve for claims of customer deposits futures and options transactions for deposits for futures and options transactions, under Reserve for claims of customer deposits or Guarantee deposits for KSFC trading for beneficiary deposits based on management method, and under Subscription deposits for subscribers deposits. Also, in conformity with provisions on lending borrowing transaction of securities by Korea Security Depository, the Company provides collateral between 100% and 110% of pledge amount of securities or cash are deposited with Korea Security Depository under Securities borrowed and over 100% of guarantee deposits for marginal loans are deposited with KSFC under other deposits. (r) Share-based Payments The board of directors of the Company may choose between equity settled share based payments or cash settled share based payments on the grant date of stock option, and the Company accounts for the stock options based on the method of settlement. The Company recognizes compensation costs under fair value approach applying option pricing model on the grant date (however, compensation costs for options granted before December 30, 2003 are recognized applying minimum value approach, assuming expected volatility of the stock on the grant date is 0 ), and the compensation costs are allocated in straight line basis over the service period and recognized as expenses and capital surpluses (stock option). When the option is exercised, difference between sum of exercise price with stock options and par value of the stock is recognized as paid in capital for newly issued stocks, and difference between sum of exercise price with stock options and book value of treasury stock is recognized as gains and losses from disposition of treasury stocks for treasury stocks. 45