Financial Statements (With Independent Auditors Report Thereon)
Independent Auditors Report Based on a report originally issued in Korean The Board of Directors and Stockholders : We have audited the accompanying balance sheets of (the Company ) as of, and the related statements of income, appropriation of retained earnings and cash flows for the years then ended. These financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of as of, and the results of its operations, the appropriation of its retained earnings, and its cash flows for the years then ended in conformity with accounting principles generally accepted in the Republic of Korea. Without qualifying our opinion, we draw attention to following: As discussed in note 2 (a) to the financial statements, accounting principles and auditing standards and their application in practice vary among countries. The accompanying financial statements are not intended to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in countries other than the Republic of Korea. In addition, the procedures and practices utilized in the Republic of Korea to audit such financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report and the accompanying financial statements are for use by those knowledgeable about Korean accounting procedures and auditing standards and their application in practice. KPMG Samjong Accounting Corp. Seoul, Korea April 14, 2006 This report is effective as of April 14, 2006, 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 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.
Balance Sheets Assets Current assets: Cash and due from banks (note 3) W 1,163,840 446,524 Marginal deposits (notes 5 and 12) 311,506,526 163,572,964 Held-to-maturity securities (note 6) 24,772,280 19,968,272 Other accounts receivable (note 12) 2,067 502 Accrued income (note 12) 2,886,748 1,235,653 Allowance for loan losses (27,048) (11,291) Advance payments - 193,600 Prepaid expenses 91,903 125,680 Total current assets 340,396,316 185,531,903 Investment assets: Long-term financial instruments (notes 3 and 4) 3,000 8,000 Long-term available-for-sale securities (note 7) 3,000,000 3,000,000 Long-term loans to employees 1,173,690 1,358,135 Guarantee deposits 312,854 330,545 Collective funds for default loss 4,357,725 8,668,042 Deferred income tax assets (note 18) 6,797 - Other investment assets 2,092,062 1,478,862 10,946,128 14,843,584 Property and equipment, at cost (note 8): Vehicles 102,782 158,709 Furniture and fixtures 3,119,000 3,133,934 3,221,782 3,292,643 Less: Accumulated depreciation (2,835,967) (2,786,557) 385,815 506,086 Intangible assets, net of amortization (note 9) 233,896 292,009 11,565,839 15,641,679 Total assets W 351,962,155 201,173,582
Balance Sheets, Continued (In thousands of Won, except share data) Liabilities and Stockholders Equity Current liabilities: Customers marginal deposits (notes 11 and 12) W 301,992,871 160,869,013 Accrued expenses 1,530,167 1,176,515 Accounts payable 2,737 - Income tax payable (note 18) 2,426,660 583,928 Unearned revenue 493 - Deferred income tax liabilities (note 18) 55,442 - Total current liabilities 306,008,370 162,629,456 Retirement and severance benefits (notes 10 and 20) 459,251 380,762 Deferred income tax liabilities (note 18) - 32,356 Total liabilities 306,467,621 163,042,574 Stockholders equity (notes 1 and 14): Common stock of W10,000 par value Authorized 5,000,000 shares Issued and outstanding 2,500,000 shares 25,000,000 25,000,000 Retained earnings: Reserve for loss on futures transactions 82,541 68,065 Appropriated retained earnings for business improvement 670,000 670,000 Unappropriated retained earnings 19,741,993 12,392,943 20,494,534 13,131,008 Total shareholders equity 45,494,534 38,131,008 Commitments and contingencies (note 13) - - W 351,962,155 201,173,582 See accompanying notes to financial statements.
Statements of Income Years ended (In thousands of Won, except share data) Operating revenues: Brokerage commissions (note 20) W 19,067,991 14,629,017 Interest income (note 20) 9,547,710 6,474,930 Dividend income 76,474 - Gain on derivatives transactions 25,023 20,659 Gain on sale of trading securities - 3,382,803 Others 468-28,717,666 24,507,409 Operating expenses: Brokerage fees 2,698,418 2,206,358 Interest expense 3,105,543 2,209,228 Loss on derivatives transactions 72,395 48,536 General and administrative expenses (notes 16, 17 and 20) 12,377,924 12,269,853 Others 22,454 3,582 18,276,734 16,737,557 Operating income 10,440,932 7,769,852 Non-operating income: Gain on foreign currency transactions 4,385 1,264 Gain on disposal of property and equipment 9,946 835 Income tax refunds 1 923 Reversal of allowance for doubtful accounts - 23,434 Others 4,481 7,287 18,813 33,743 Non-operating expenses: Loss on disposal of property and equipment 14 77,177 Loss on disposal of other investment assets - 2,200 Loss on foreign currency transactions 9,794 3,214 Loss on foreign currency translations 1,414 - Donations 7,540 2,590 Additional taxes 64,014-82,776 85,181 Income before income taxes 10,376,969 7,718,414 Income taxes (note 18) 3,013,443 2,410,112 Net income W 7,363,526 5,308,302 Ordinary income per share in Won (note 19) W 2,945 2,123 Net income per share in Won (note 19) W 2,945 2,123 See accompanying notes to financial statements.
Statements of Appropriation of Retained Earnings Years ended Date of Appropriation for 2006 : May 26, 2006 Date of Appropriation for 2005 : May 31, 2005 Unappropriated retained earnings Balance at beginning of year W 12,378,467 7,084,641 Net income 7,363,526 5,308,302 19,741,993 12,392,943 Appropriation of retained earnings Legal reserve 250,000 - Dividends-10% on par value at 10,000 Won per share (note 15) 2,500,000 - Reserve for loss on futures transactions (note 14) 19,067 14,476 2,769,067 14,476 Unappropriated retained earnings to be carried over to subsequent year W 16,972,926 12,378,467 See accompanying notes to financial statements.
Statements of Cash Flows Years ended Cash flows from operating activities: Net income W 7,363,526 5,308,302 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Provision of retirement and severance benefits 459,394 448,999 Depreciation 215,708 547,441 Amortization of intangible assets 300,113 553,887 Bad debts expenses 15,757 - Loss on disposal of other investment assets - 2,200 Loss on disposal of property and equipment 14 77,177 Loss on foreign currency translation 1,414 - Reversal of allowance for doubtful accounts - (23,434) Gain on sale of trading securities - (3,382,803) Gain on disposal of property and equipment (9,946) (835) Interest income (161,276) (78,118) Increase in marginal deposits (147,934,976) (33,446,301) Decrease (increase) in other accounts receivable (1,565) 30,771 Increase in accrued income (1,651,095) (367,288) Increase in advance payments - (193,600) Decrease (increase) in prepaid expenses 33,776 (17,738) Decrease (increase) in deferred income tax assets (6,797) 1,122,696 Increase (decrease) in other accounts payable 2,737 (129,928) Increase in unearned revenue 494 - Increase in customers marginal deposits 141,123,858 38,080,476 Increase in accrued expenses 353,652 341,305 Increase (decrease) in income tax payable 1,842,732 (456,490) Increase in deferred income tax liabilities 23,085 32,356 Payment of severance benefits (289,279) (193,719) Decrease in transfer to National Pension Fund - 1,044 Increase in deposit for severance benefits (91,627) (140,544) Net cash provided by operating activities W 1,589,699 8,115,856
Statements of Cash Flows, Continued Years ended Cash flows from investing activities: Withdrawal of short -term financial instruments W 5,000 - Disposal of trading securities - 19,582,803 Collection of long-term loans 444,445 341,841 Collection of guarantee deposits 17,721 11,020 Disposal of property and equipment 21,420 21,890 Disposal of other investment assets - 100,000 Disposal of held-to-maturity securities 39,772,590 10,010,357 Collection of collective funds for default loss 4,569,625 - Acquisition of short-term financial instruments (700,000) (300,000) Acquisition of held-to-maturity securities (44,415,321) (29,900,511) Increase in long-term loans (260,000) (267,000) Payment of guarantee deposits (30) (12,170) Payment to collective funds for default loss (259,308) (2,269,483) Acquisition of property and equipment (106,925) (311,662) Acquisition of other investment assets (613,200) (625,332) Additions to other intangible assets (48,400) - Net cash used in investing activities (1,572,383) (3,618,247) Cash flows from financing activities: Proceeds from short -term borrowings - 21,500,000 Issuance of subordinated debts 5,000,000 - Repayment of short-term borrowings - (26,500,000) Repayment of subordinated debts (5,000,000) - Net cash used in financing activities - (5,000,000) Net increase (decrease) in cash and cash equivalents 17,316 (502,391) Cash and cash equivalents at beginning of year 146,524 648,915 Cash and cash equivalents at end of year W 163,840 146,524 See accompanying notes to financial statements.
(1) The Company (the Company ), a majority-owned subsidiary of Samsung Securities Co., Ltd. (the Parent ), executes and clears futures and options on behalf of institutional clients. Founded in 1992, the Company s principal office is located in Seoul, Korea and the Company is a member of the Korea Exchange, which commenced its trading in April 1999. As of March 31, 2006, the Company currently carries on all operations permitted by Futures Trading Act, including the receipt of trust funds, and is required by relevant laws to report any changes in the paid-in capital, major shareholders, members of the board of directors to the Financial Supervisory Commission. The Company is required to maintain its net capital ratio at or above 100% in accordance with the Futures Trading Act and Supervisory Regulations. Also, it is prohibited from owning securities issued by major investors and acting as a guarantor for another party. As of March 31, 2006, the Company s capital stock totals W25,000 million and its shareholders comprise as follows: Number of shares Ownership ratio (%) Samsung Securities Co., Ltd. 1,275,000 51.00 Samsung Life Insurance Co., Ltd. 1,025,000 41.00 Samsung Fire & Marine Insurance Co., Ltd. 100,000 4.00 Samsung Life Public Welfare Foundation 50,000 2.00 Employee Stock Ownership Association 31,357 1.25 Others 18,643 0.75 2,500,000 100.00
2 (2) Summary of Significant Accounting Policies (a) Basis of Presenting Financial Statements The Company maintains its accounting records in Korean Won and prepares statutory financial statements in the 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 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 for use only by those who are informed about Korean accounting principles and practices. The accompanying financial statements have been condensed, restructured and translated into English (with certain expanded descriptions) from the Korean language financial statements. Certain information included in the Korean language financial statements, but not required for a fair presentation of the Company's financial position, results of operations or cash flows, is not presented in the accompanying financial statements. Effective January 1, 2005, the Company adopted Statements of Korea Accounting Standards No. 16 Income Taxes. The adoption of this standard did not have a significant impact on the accompanying financial statements. As allowed by this standard, prior year balances were not reclassified to conform to the current year presentation. Certain accounts of prior year s financial statements were reclassified to conform to the current year s presentation. These reclassifications did not result in any change to reported net income or stockholders equity. The significant accounting policies followed by the Company in the preparation of its financial statements are summarized below. (b) Financial Instruments Cash and due from bank means cash and short-term financial instruments which are held for short-term cash management purposes or will mature within one year, including time deposits and installment deposits. Long-term financial instruments are financial instruments which are not classified to current asset. (c) Investments in Securities Upon acquisition, the Company classifies certain debt and equity securities into one of the three categories: held-to-maturity, available-for-sale, or trading securities. Investments in debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity. Securities that are bought and held principally for the purpose of selling them in the near term (thus held for only a short period of time) are classified as trading securities. Trading generally reflects active and frequent buying and selling, and trading securities are generally used to generate profit on short-term differences in price. Investments not classified as either held-to-maturity or trading securities are classified as available-for-sale securities.
3 (2) Summary of Significant Accounting Policies, Continued (c) Investments in Securities, Continued Trading securities are carried at fair value, with unrealized holding gains and losses included in income. Available-for-sale securities are carried at fair value, with unrealized holding gains and losses reported as a capital adjustment. Investments in equity securities that do not have readily determinable fair values are stated at cost. Declines in value judged to be other-thantemporary on available-for-sale securities are charged to current results of operations. Investments in debt securities that are classified into held-to-maturity are reported at amortized cost at the balance sheet date and such amortization is included in interest income. Marketable securities are at the quoted market prices as of the period end. Non-marketable debt securities are recorded at the fair values derived from the discounted cash flows by using an interest rate deemed to approximate the market interest rate. The market interest rate is determined by the issuers credit rate announced by the accredited credit rating agencies in Korea. Money market funds are recorded at the fair value determined by the investment management companies. Trading securities are classified as current assets, whereas available-for-sale securities and held-to-maturity securities are classified as long-term investments. However, available-forsale securities whose maturity dates are due within one year from the balance sheet date or whose likelihood of being disposed of within one year from the balance sheet date is probable are classified as current assets. Likewise, held-to-maturity securities whose maturity dates are due within one year from the balance sheet date are classified as current assets. (d) Collective Funds for Default Loss As of March 31, 2006, in accordance with the provisions of Article 27 of the Futures Trading Act, the Company has deposited a collective funds for default loss amounting to W4,357,725 thousand with the Korea Exchange as guaranty for the payment of related futures transactions. (e) Property and Equipment Property, plant and equipment are stated at cost, except in the case of revaluation made in accordance with the old Asset Revaluation Law. However, assets acquired through exchange, investment in kind or donation are recorded at their fair value. Depreciation is computed by the straight -line method over the estimated useful lives of the assets as follows: Useful lives (years) Vehicles 4 Furniture and fixtures 4~40 Significant additions or improvements extending useful lives of assets are capitalized. However, normal maintenance and repairs are charged to expense as incurred.
4 (2) Summary of Significant Accounting Policies, Continued (f) Intangible Assets Intangible assets are stated at cost less accumulated amortization, as described below. ( ) Research and Development Costs Expenditure on research activities, undertaken with the prospects of gaining new scientific or technical knowledge and understanding, is recognized in the statement of income as an expense as incurred. Expenditure on development incurred in conjunction with new products or technologies, in which the elements of costs can be identified and future economic benefits are clearly expected, is capitalized and amortized on a straight-line basis over the expected periods to be benefited, generally 4 years. The expenditure capitalized includes the cost of materials, direct labor and an appropriate proportion of overheads. ( ) Other Intangible Assets Other intangible assets are stated at cost less accumulated amortization and impairment losses. Such intangible assets are amortized using the straight -line method over a reasonable period, generally 4 years, based on the nature of the asset. When the recoverable amount of the intangible assets are substantially below the carrying amount of the assets due to obsolescence and sharp decline in its market value and others, the Company reduces its carrying amount to the recoverable amount and the amount impaired is recognized as impairment loss. (g) Leases The Company accounts for and classifies its lease transactions as either an operating or capital lease, depending on the terms of the lease under statement of Korea Accounting Standards. (h) Retirement and Severance Benefits Employees who have been with the Company for more than one year are entitled to lump-sum payments based on current rates of pay and length of service when 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 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 in trust. The deposit for severance benefits held in trust is, therefore, reflected in the accompanying balance sheets as a deduction from the liability for retirement and severance benefits.
5 (2) Summary of Significant Accounting Policies, Continued (h) Retirement and Severance Benefits, Continued Through March 1999, under the National Pension Scheme of Korea, the Company transferred a certain portion of retirement allowances of employees to the National Pension Fund. The amount transferred will reduce the retirement and severance benefit amount to be payable to the employees when they leave the Company and is accordingly reflected in the accompanying financial statements as a reduction from the retirement and severance benefit liability. Since April 1999, however, a new regulation applies and such transfers to the National Pension Fund are no longer required. (i) Foreign Currency Translation Monetary assets and liabilities denominated in foreign currencies are translated into Korean Won at the balance sheet date, with the resulting gains and losses recognized in current results of operations. Monetary assets and liabilities denominated in foreign currencies are translated into Korean Won at W975.90 to US$1, the rate of exchange on March 31, 2006 that is permitted by the Financial Accounting Standards. 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 ruling at the date of the transaction. Foreign currency assets and liabilities of foreign-based operations and companies accounted for using the equity method are translated at current rate of exchange at the balance sheet date while profit and loss items in the statement of income are translated at average rate and capital account at historical rate. The translation gains and losses arising from collective translation of the foreign currency financial statements of foreign-based operations are offset and the balance is accumulated as capital adjustment (j) Derivatives Derivative instruments are presented as assets or liabilities valued principally at the fair value of rights or obligations associated with the derivative contracts. The unrealized gain or loss from derivative transactions is recognized in current operations. (k) Revenue Recognition Commissions due from the brokerage of futures transactions are recorded as revenue when the brokerage services have been rendered and the service fees are determined. The Company performs trading of dollar futures, KTB futures, MSB futures, KSQ futures, CD futures, gold futures and others through the Korea Exchange for clients and the Company s own accounts. Deposits for customers futures trading kept by the external custodian institution are accounted for separately from the Company s own account and related valuation gains or losses are directly adjusted to deposits. Deposits for the Company s proprietary trading are also in custodian institution and valuation gains or losses from the proprietary trading are recorded in current operations.
6 (2) Summary of Significant Accounting Policies, Continued (k) Revenue Recognition, Continued In the previous year, the Company recognized net amount of brokerage commissions and brokerage fees of the overseas futures trading. From this year, the Company recognized gross amount of brokerage commissions and brokerage fees of overseas futures trading and reclassified prior year financial statement based on the current year s presentation. (l) Income Taxes 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 taxation 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 substantially 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. Prior to January 1, 2005, all deferred tax assets and liabilities were recorded as non-current. Effective January 1, 2005, the Company adopted Statement of Korea Accounting Standards ( SKAS ) No. 16, Income Taxes. In accordance with the statement, 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. The deferred tax amounts are presented as a net current asset or liability and a net non-current asset or liability. However, deferred income tax assets and liabilities as of March 31, 2005 were not reclassified based on the transitional clause of SKAS No. 16. (m) Earnings Per Share Earnings per common share are calculated by dividing net income by the weighted-average number of shares of common stock outstanding during each period. (n) Use of Estimates The preparation of financial statements in accordance with accounting principles generally accepted in the Republic of Korea requires management to make estimates and assumptions that affect the amounts reported in the financial statements and related notes to financial statements. Actual results could differ from those estimates.
7 (3) Financial Instruments Cash and due from banks and long-term financial instruments as of are as follows: Cash and due from banks: Cash on hand W 1,475 1,291 Demand deposits 162,365 145,233 Time deposits 1,000,000 300,000 1,163,840 446,524 Long-term financial instruments: Restricted deposits 3,000 8,000 (4) Restricted Deposits W 1,166,840 454,524 There are certain amounts included in long-term financial instruments which are restricted in use for expenditures for certain business purposes and guarantee deposit for current account as of March 31, 2006 and 2005 as follows: 2006 2005 Reference Long-term financial instruments W 3,000 8,000 Pledged as security for maintaining checking account (5) Marginal Deposits The Company places deposits with financial institutions or futures commission merchants (FCM) of which the amount is equal to the customers marginal deposits for its futures trading received from clients who are trading futures through the Company. Accordingly marginal deposits are restricted in use under Futures Trading Act. Marginal deposits as of are summarized as follows: Restricted: Deposits for domestic futures trading W 272,887,662 152,101,606 Deposits for overseas futures agency trading 13,905,190 8,649,730 Deposits for domestic futures agency trading 23,200,000 2,000,000 Other deposits 1,513,674 821,628 W 311,506,526 163,572,964
8 (6) Held-to-maturity Securities Held-to-maturity securities as of March 31, 2006 are summarized as follows: Interest Nominal Acquisition rate(%) amount cost Book value Industrial financial debentures 4.45 W 10,000,000 9,629,000 9,820,370 Monetary stabilization bonds 3.72~4.70 15,000,000 14,954,736 14,951,910 W 25,000,000 24,583,736 24,772,280 Held-to-maturity securities as of March 31, 2005 are summarized as follows: Interest Nominal Acquisition rate(%) amount cost Book value Monetary stabilization bonds 3.95~4.23 W 20,000,000 19,890,154 19,968,272 As of, held-to-maturity securities amounting to W24,722,280 thousand and W19,968,272 thousand, respectively, were pledged to the Korea Exchange as a guarantee deposit for the futures transactions. (7) Long-term Available-for-sale Securities Long-term available-for-sale securities as of March 31, 2006 are summarized as follows: 2005 Ownership Acquisition Net asset percentage (%) cost value Book value Korea Exchange 0.4 W 3,000,000 5,507,434 3,000,000 Long-term available-for-sale securities as of March 31, 2005 are summarized as follows: 2004 Ownership Acquisition Net asset percentage (%) cost value Book value Korea Exchange 0.4 W 3,000,000 4,894,703 3,000,000
9 (8) Property and Equipment The changes in the property and equipment for the year ended March 31, 2006 are as follows: March March 31, 2005 Acquisition Disposal Depreciation 31, 2006 Vehicles W 97,721-11,472 29,825 56,424 Furniture and fixtures 408,365 106,925 16 185,883 329,391 W 506,086 106,925 11,488 215,708 385,815 The changes in the property and equipment for the year ended March 31, 2005 are as follows: March March 31, 2004 Acquisition Disposal Depreciation 31, 2005 Vehicles W 116,694 34,434 23,054 30,353 97,721 Furniture and fixtures 723,402 277,228 75,177 517,088 408,365 W 840,096 311,662 98,231 547,441 506,086 (9) Intangible Assets Change in intangible assets for the years ended are as follows: March March 31, 2005 Acquisition Amortization 31, 2006 Development costs W 268,887 225,125 43,762 Others 23,122 242,000 74,988 190,134 W 292,009 242,000 300,113 233,896 March March 31, 2004 Acquisition Amortization 31, 2005 Development costs W 795,946-527,059 268,887 Others 49,950 26,828 23,122 W 845,896-553,887 292,009
10 (10) Retirement and Severance Benefits Changes in the retirement and severance benefits for the years ended are summarized as follows: Beginning balance W 965,988 710,708 Provision for severance benefits 459,395 448,999 Actual payment of severance benefits (289,279) (193,719) Ending balance 1,136,104 965,988 Less: Transfer to National Pension Fund (4,677) (4,677) Severance benefits insurance deposit (672,176) (580,549) Net balance at end of year W 459,251 380,762 Retirement and severance benefits are approximately 59 percent funded as of March 31, 2006, through an individual severance insurance plan of which the beneficiaries are respective employees. (11) Customers Marginal Deposits Customers marginal deposits as of are as follows: Customers deposits for domestic futures and option trading W 286,687,664 151,351,606 Customers deposits for overseas futures and option trading 15,168,939 9,421,358 Other deposits 136,268 96,049 W 301,992,871 160,869,013
11 (12) Assets and Liabilities Denominated in Foreign Currencies Assets and liabilities denominated in foreign currencies as of are summarized as follows: Foreign currency Won equivalent Assets: Marginal deposits USD 11,556,977 USD 8,420,740 W 11,278,453 8,625,364 JPY 473,766,241 JPY 83,566,300 3,940,409 795,994 Other accounts receivables USD 1,250 USD - 1,220 - Accrued income USD 111,089 USD 94,584 108,412 96,882 JPY 326,000 JPY 80,300 2,712 765 W 15,331,205 9,519,005 Liabilities: Customers marginal deposits USD 11,518,449 USD 8,420,740 W 11,240,855 8,625,364 JPY 473,766,241 JPY 83,566,300 3,940,409 795,994 W 15,181,264 9,421,358 (13) Commitments and Contingencies As of March 31, 2006, the Company has entered into overdraft credit facility agreements (including day night overdraft) with Woori Bank with limit of credit set at W2,000 million. As of March 31, 2006, the Company has entered into a secured loan agreement with The Korea Securities Finance Corporation up to 50% of customers marginal deposits. As of March 31, 2006, the customers securities are deposited in the Korea Exchange with the substitute price amounting to W614,438 million. As of March 31, 2006, the Company carries a professional indemnity liability insurance up to W500 million with Samsung Fire & Marine Insurance Co., Ltd. (14) Stockholders Equity
12 Common stock As of March 31, 2006, 5,000,000 shares are authorized and 2,500,000 shares of common stock with W10,000 of par value a share are issued. Reserve for Loss on Futures Transactions In accordance with the provisions of Article 50 of the Korea Futures Trading Act, the Company has reserved 0.1 percent of the brokerage commission as an appropriation of retained earnings for loss resulting from any default of payment of customer s futures transactions during the year. The portion of the reserve not utilized after three years from appropriation date can be reverted to unappropriated retained earnings. (15) Dividends Details of dividends for the years ended March 31, 2006 are as follows: 2005 Dividend amount Cash dividends W 2,500,000 Net income 7,363,526 Dividends as a percentage of net income 33.95% Par value in Won 10,000 Dividends as a percentage of par value 10% (16) Selling and Administrative Expenses
13 Details of selling and administrative expenses for the years ended March, 31, 2006 and 2005 are as follows: Salaries W 5,791,436 5,185,621 Provision for severance benefits 459,395 448,999 Employee welfare 1,024,543 892,469 Depreciation 215,708 547,441 Amortization 300,113 553,887 Travel 129,657 93,033 Repairs 22,831 430,093 Supplies 13,277 16,166 Communications 1,095,200 1,088,405 Taxes and dues 463,381 444,716 Electronic data processing 754,608 754,338 Commissions and fees 316,853 242,019 Rent 614,193 609,550 Entertainment 457,183 321,377 Insurance 100,787 131,806 Advertising 48,788 4,989 Conference 123,722 153,272 Utilities 25,197 36,016 Bad debts 15,757 - Miscellaneous 405,295 315,656 W 12,377,924 12,269,853 (17) Added Value The components of selling and general administrative expenses which are necessary in calculating added value at are as follows: Salaries W 5,791,436 5,185,621 Provision for severance benefits 459,395 448,999 Employee welfare 1,024,543 892,469 Depreciation 215,708 547,441 Amortization 300,113 553,887 Taxes and dues 463,381 444,716 Rent 614,193 609,550 W 8,868,769 8,682,683 (18) Income Taxes
14 The components of income taxes for the years ended are summarized as follows: Current W 2,997,155 1,255,060 Deferred 16,288 1,155,052 W 3,013,443 2,410,112 The changes in cumulative temporary differences during 2006 and related deferred income taxes as of are as follows: Beginning Addition Deduction Ending Provision for severance benefits W 574,915 220,410 118,340 676,985 Accrued income (86,950) (40,783) (86,950) (40,783) Deposit for severance benefits (574,915) (215,601) (118,340) (672,176) Suspense accounts 27,500 27,720 27,500 27,720 Allowance expense 19,909 - - 19,909 Interest income (78,118) (188,544) (78,118) (188,544) (117,659) (196,798) 137,568 (176,889) Statutory tax rate 27.5% 27.5% Deferred income tax assets W (32,356) (48,644) The effective tax rates, after adjustments for certain differences between amounts reported for financial accounting and income tax purposes, were approximately 29.04 % and 31.23 % in 2005 and 2004, respectively.
16 March 31, 2006 and 2004 (19) Ordinary Income Per Share and Net Income Per Share Ordinary income per share and net income per share are calculated as follows: Net income W 7,363,526 5,308,302 Extraordinary items - - Income tax on extraordinary items - - Ordinary income W 7,363,526 5,308,302 Weighted average number of common shares outstanding during the year 2,500,000 2,500,000 Ordinary income per share in Won W 2,945 2,123 Net income per share in Won W 2,945 2,123 (20) Related Party Transactions Significant transactions which occurred in the ordinary course of business with related companies of Samsung group during 2006 and 2005 and the related balances as of are as follows: 2005 General and Brokerage Interest administrative Accounts Accounts commissions income expenses receivable payable Samsung Life Insurance Co., Ltd. W 28,148 21,082 110,300-15,436 Cheil Industries Inc. - - 26,269 - - Samsung Securities Co., Ltd. 433,509-41,463 700 6,238 Samsung Fire & Marine Insurance Co., Ltd. 8,880-69,699-314 Samsung SDS Co., Ltd. - - 822,736-70,656 imarket Korea Inc. - - 12,154-586 Samsung Networks Inc. - - 7,069-330 Samsung Card Co., Ltd. - - 12,765 - - Samsung Everland Co., Ltd. - - - 600,000 - Other affiliated companies within the Samsung Group - - 5,232 - - W 470,537 21,082 1,107,687 600,700 93,560 The Company has deposited W672,176 thousand and W580,549 thousand for the retirement and
17 March 31, 2006 and 2004 severance insurance in Samsung Life Insurance, a related company, as of March, 31, 2006 and 2005, respectively. 2004 General and Brokerage Interest administrative Accounts Accounts commissions income expenses receivable payable Samsung Life Insurance Co., Ltd. W 26,880 25,884 315,763 15,697 28,920 Samsung Co., Ltd. - - 954 - - Samsung Securities Co., Ltd. 425,328-25,568 220 9,394 Samsung Fire & Marine Insurance Co., Ltd. 16,720-155,497-805 Samsung SDS Co., Ltd. - - 916,675-75,919 imarket Korea Inc. - - 56,107-1,573 Samsung Networks Inc. - - 13,010-1,192 Other affiliated companies within the Samsung Group - - 7,190 - - W 468,928 25,884 1,490,764 15,917 117,803