LG 2001 Annual Report Download - page 79

LG Electronics Inc. The
43
rd Annual Report
Notes to Financial Statements
for the years ended December 31, 2001 and 2000
On December 31, 2001, the Company is named as the defendant in legal actions which were brought
against the Company by AVS Corporation in Canada and Mahmood Saleh Abbar Co. in Saudi Arabia. In
addition, the Company is named as the defendant or the plaintiff in various foreign and domestic legal
actions arising from the normal course of business. The aggregate amounts of domestic claims as the
defendant and the plaintiff are approximately 193 million in 9 cases and 4,447 million in 7 cases,
respectively, as of December 31, 2001. The Company believes that the outcome of these matters is
uncertain but, in any event, they would not result in a material ultimate loss for the Company. Accordingly,
no provision for potential losses arising from these claims is reflected in the accompanying financial
statements.
Zenith Electronics Corporation ( Zenith ), a subsidiary, has experienced significant financial difficulties
resulting from continuous losses. Zenith filed a pre-packaged plan of reorganization under Chapter 11 of the
Bankruptcy Code of the United States of America, and the reorganization plan was approved by the court in
November 1999. As a result of the reorganization plan, the Company owns 100% of equity in the
restructured Zenith. However due to continuous losses and accumulated deficits, as of December 31, 2001
Zenith s total liabilities are greater than its total assets by 311,773 million (US$235 million). As of
December 31, 2001, the Company has 153,800 million (US$116 million) of senior secured notes issued
by Zenith, 79,566 million (US$60 million) of loans to Zenith, and 53,044 million (US$40 million) of
guarantees provided to Zenith (see Note 7).
In order to recover its accumulated deficits, Zenith has reduced costs through reduction of number of
employees and disposal of production lines, and changed to become a research & development and
marketing company instead of a manufacturing company. The Company s management expects that royalty
income to be incurred from VSB technology patents for digital TV owned by Zenith will significantly
contribute to the recovery of Zenith in the future.
Based on above mentioned factors, the Company s management believes that a reserve related to the
collectibility of the senior secured notes and loans to Zenith is not required and that the possible exercise of
the guarantee obligation for indebtedness of Zenith is a remote possibility.
Beginning in 1997, Korea and other countries in the Asia Pacific region experienced a severe
contraction in substantially all aspects of their economies. This situation is commonly referred to as the 1997
Asian financial crisis. In response to this situation, the Korean government and the private sector began
implementing structural reforms to historical business practices.
The Korean economy continues to experience difficulties, particularly in the areas of restructuring private
enterprises and reforming the banking industry. The Korean government continues to apply pressure to
Korean companies to restructure into more efficient and profitable firms. The banking industry is currently
undergoing consolidation and significant uncertainty exists with regard to the continued availability of
financing. The Company may be either directly or indirectly affected by the situation described above. In
addition, the Company has investments in, and receivables from affiliates located in Asia Pacific region. The
Company also has outstanding guarantees on the debt obligations of these affiliates. These affiliates have
been affected, and may continue to be affected, by the unstable economic situation in the Asia Pacific
region.