Samsung 2005 Annual Report Download - page 115

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113
Note 18: Liability Provisions
The changes in main liability provisions for the year ended December 31, 2005, are as follows:
(in millions of Korean won) Reference January 1,
2005
Increase Decrease December 31,
2005
Warranty reserves (A) \ 237,758 \ 368,066 \ 403,376 \ 202,448
Royalty expenses (B) 700,052 349,513 227,767 821,798
Long-term incentives (C) - 133,579 - 133,579
(A) The Company accrues warranty reserves for estimated
costs of future service, repairs and recalls, based on historical
experience and terms of guarantees (1~4 years).
(B) The Company makes provisions for estimated royalty
expenses related to certain technical assistance agreements
that have not been renewed. The schedule of payment is still
under negotiation.
(C) The Company introduced long-term incentive plans for its
executives based on a three-year management performance
criteria and has made a provision for the estimated incentive cost
for the current year. The incentive is expected to be paid in 2008.
In addition, the Company’s domestic and overseas subsidiaries
accrue warranty reserves totaling \376,914 million.
Note 19: Commitments and Contingencies
(A) As of December 31, 2005, the Company is contingently
liable for guarantees of indebtedness, principally for related
parties, approximating \8,307 million and US$885,918
thousand with a maximum limit of US$1,905,000 thousand.
In addition, as of December 31, 2005, the Company’s
overseas subsidiaries enter into “Cash Pooling Arrangement”
contracts and “Banking Facility” agreements with overseas
financial institutions for funds employment and provide mutual
guarantees of indebtedness.
(B) As of December 31, 2005, SEC and its domestic
subsidiaries are insured against future contract commitments
up to \137,079 million. In addition, Samsung Card Co.,
Ltd. is insured against future contract commitments relating
American Express from Woori Bank up to US$500 thousand.
(C) As of December 31, 2005, the Company has technical
assistance agreements with certain companies.
(D) As of December 31, 2005, SEC and its Korean subsi-
diaries have a bank overdraft facility agreement with various
Korean financial institutions with a combined maximum limit
of \718,500 million.
(E) The Company leases certain property, plant and equipment
under various capital lease arrangements. Assets recorded
under capitalized lease agreements are included in property,
plant and equipment with a total acquisition cost of \32,008
million. Depreciation expense for the capital lease assets
amounted to \1,917 million for the year ended December
31, 2005.
As of December 31, 2005, future minimum lease payments
under scheduled capital leases are as follows:
Area Participating
Subsidiaries
Financial
Institutions
Europe SEUK and 17 other subsidiaries Citibank and another bank
Asia SAPL and 6 other subsidiaries Bank of America
Asia SEMA and 2 other subsidiaries Standard Chartered bank
Year (in millions of Korean won)
2006 \4,346
2007 4,346
2008 4,346
2009 4,346
Thereafter 54,148
Total minimum payments 71,532
Amount representing interest (47,968)
Obligations
under capital leases \23,564