2009LGAnnual Report

Simon Kang

Dear Shareholders, Consumers, Business Partners, and Employees:

“CREATING GREATER VALUE FOR EVERY STAKEHOLDER IS OUR ONE AND ONLY GOAL”

The volatility and uncertainty in the financial markets are unprecedented. Never before in LG Electronics’ history have we witnessed such rapid deterioration and retrenchment in major markets. However, regardless of whether or not countries emerge from recession in 2009 or 2010 or even 2011, we will take a longer-term view of our priorities. I believe that we need to stay even more focused on the six strategic pillars laid out before to guide our innovation.

These pillars are as follows: 1) Enhance Performance Management, with a balanced emphasis on growth and ROIC, 2) Restructure our business portfolio for profitable growth, 3) Align our product market strategies against clear customer insights, 4) Invest in building a global brand, 5) Emphasize design, as well as product innovation, and 6) Globalize our organization and processes. While we are determined to press ahead with these initiatives, our primary focus has, as always, been the overall health of our businesses rather than mere short-term performance. That is why we pay such close attention to the health of our product pipeline, channel collaborations, consumer relationships, business portfolios, brands, organization, and finances.

These careful and conscientious operational strategies consistently resulted in a number of dramatic operational adjustments and took concrete steps to respond to the economic environment. LG Electronics sharpened its focus on maintaining and building profitability, backed by a dedicated staff with the talent, commitment, and desire to serve customers in every way. In the past two years, we’ve had record-breaking performances in terms of both revenues and profitability, while our stock price also outperforms that of most of our peers. But more important than congratulating this impressive performance, we will keep our efforts to make significant strides to improve the underlying health of our business. Those strategic pillars are not just “slogans,” subject to the latest management trends. Instead, I believe that these serve as “anchors” for us to tailor our actions even more relevant in these uncertain economic times. With the six “anchors” still guiding our direction, we believe that we need to set our sights on a few broad themes.

Mobile Communications

LEADING TECHNOLOGY TRENDS

LG is driving the global market for mobile phones with innova-tive products and breakthrough technologies designed to pro-vide con- sumers with a fuller mobile experience. Our long list of technology triumphs includes the first viable 4G Long-Term Evolution (LTE) chipset, the 3D S-Class UI and wearable de-vices like the 3G Watch Phone. Added to this are a number of eco-friendly initiatives that are at the forefront of the industry. We have created four categories of mobile devices to fit differ-ent consumer needs: Entertain- ment, Convergence, Style, and Simple Connect.

STYLE LG’s trendsetting, style-focused phones incorporate innova-tive materials and designs. We first made our name in style phones with our best selling Black Label Series and The Second PRADA Phone by LG, which now comes with a wearable PRADA Link accessory. We have also released the world’s first transparent phone, the LG-GD900 Crystal.

ENTERTAINMENT

LG’s Entertainment phones deliver vivid, high-resolution video, rich sound and music, and include cameras with creative shot modes and enhanced photo editing. LG ARENA (LG-KM900), the flagship handset in this category, is a multimedia powerhouse that delivers an exhilarating audio and videoexperience, enhanced by LG’s 3D S-Class UI.

Leading Innovation

Balance at January 1, 2007

Cumulative effect of changes in accounting principles

Restated balanceCash dividends

Retained ernings after dividendsNet incomeChange in equity from equity methodChange in negative equity from equity methodGain on valuation of available-for-sale-securitiesBalance at december 31, 2007

Balance at January 1, 2008Cumulative effect of changes in accounting principles

Restated balanceCash dividends

Retained earnings after dividendsNet incomeChange in capital surplusChange in equity from equity methodChange in negative equity from equity methodLoss of valuation of available-for-sale securitiesTransfer to other comprehensive income

Balance at December 31, 2008

Adjustments to reconcile net income to net cash provided by operating activities Depreciation Amortization Amortization of discounts on debentures Provision for severance benefits Loss from transfer of trade accounts receivable Bad debt expense Loss of foreign currency translation, net Gain from disposal of investment securities, net Loss on impairment of investment securities Loss on impairment of property, plant and equipment Loss on impairment of intangible assets Gain on disposal of property, plant and equipment, net Gain on valuation of equity-method investments, net Loss on valuation of derivatives, net Loss on settlement of derivatives, net Provision for product warranty, net Stock compensation costs Gain on redemption of debentures Reversal of bad dept expense Others

809,169

*

809,169-

--

-

-

-809,169

809,169

-

809,169-

---

-

-

-

-

809,169

2,219,993

339,612 2,559,605-

--

-

-

-2,559,605

2,219,993

339,612

2,559,605-

--92,306

-

-

-

-

2,651,911

[44,893]

-

[44,893]-

--

-

-

-[44,893]

[44,893]

-

[44,893]-

---

-

-

-

-

[44,893]

687,981

[764,163]

[76,182]-

--

23,152

151,733

26598,968

703,467

[604,499]

98,968-

---

603,106

130,988

[564]

40,887

,395

2,466,926

219,004

2,685,930[121,659]

2,564,2711,222,395

-

-

-3,786,666

3,522,966

290,123

3,813,089[137,765]

3,675,324482,786-

-

-

-

[40,887]

4,117,223

6,139,176

[205,547]

5,933,629[121,659]

5,811,9701,222,395

23,152

151,733

2657,209,515

7,210,702

25,236

7,235,938[137,765]

7,098,173[482,78692,306

603,106

130,998

[564]

-

8,406,805

588, 793124,1061,945166,715151,878-393,684[53,626]3,06290,292-[7,048][590,786]124,25498,530385,582--[5,659]19,503

595,605116,7772,294218,572202,5943,64336,426[28,656]19,07926,35555,761[7,730][1,293,945]70,7724,429401,42311,256[8,240-3,178

Annual Report

v

CES Innovations Award 2009

LCD TV

LG

Rebuilding Design

LG Communicating Nationwide

LG

Paving Perfection

Life’s good when you are with LG. Every day we’re bombarded with communications extolling the benefits of a brand, with messages ap-pealing to all our senses and emotions and shouting out their claims of creating greater value. At LG Electronics, we’re more then just promises. We are committed to creating products that fit perfectly into users’ lives through the fusion of stylish designs and smart tech-nologies. In addiction, we continue to invest in next-generation tech-nologies, redefining expectations for the future. These efforts will help us create new consumer value and achieve a higher level of

consumer satisfaction.

Life’s Good......With LG

LG

Lifes Good

LG