SAMSUNG ELECTRONICS Co., Ltd.Proxy Material2016 Annual General Meeting of ShareholdersNote about forward-looking statementsCertain statements in this proxy statement, other than purely historical information, including estimates, projections,statements relating to our business plans, objectives and expected operating results, and the assumptions upon which thosestatements are based, are “forward-looking statements” Forward-looking statements are based on current expectations andassumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forwardlooking statements. A detailed discussion of risks and uncertainties that could cause actual results and events to differmaterially from such forward-looking statements is included in our financial reports available on our website in.do
Letter to ShareholdersDear Shareholders,I wish you and your family good health and prosperity in the year of 2016.The global economic environment was challenging throughout 2015 due to the changes in themonetary policy of the U.S., an increase in volatility of emerging stock markets and exchange rates,and a sharp fall in the global oil prices. Amid global uncertainties, South Korea’s economy alsoremained weak. For Samsung Electronics, we continued to face a challenging business environmentas the growth of smartphone market slowed down and competition of major products intensified.However, despite these challenging circumstances, we maintained solid earnings thanks to theceaseless effort and devotion of all executives and employees. We also continued to make an effort toenhance shareholder value through our proactive shareholder return policy, including the specialbuyback program.We believe it was all possible thanks to the support and interest that you have shown to the companythroughout the year, so we would like to extend our deepest gratitude and share our performancesand the key progresses we made in 2015 with you.First, despite a slowdown in smartphone demand, we achieved solid earnings based onimproved earnings of the component businesses, including semiconductor and display.In 2015, the total revenue slightly declined from the previous year to KRW 201 trillion, but ouroperating profit and net profit were solid at KRW 26 trillion and KRW 19 trillion, respectively.For the memory business, despite a slowdown of the global economy and the IT industry, wecontinued to improve earnings by reinforcing cost competitiveness through expansion of leadingedge processes such as 20nm DRAM and V-NAND and by increasing sales of high value-addedproducts such as DDR4/SSD.In the System LSI business, we improved earnings compared to the previous year by reinforcingcompetitiveness of the mobile AP and foundry businesses based on our 14nm processcompetitiveness.For our display business, despite a decline in ASP due to the imbalance between LCD industry supplyand demand, we maintained solid earnings by improving cost efficiency. We also enhanced thefoundation for revenue growth by expanding the OLED customer base.
For our IM business, revenue and profit declined compared to the previous year due to weak salesfrom intensified competitions amid slowing market demand. But we enhanced competitiveness of ourline-ups by differentiating design, for example Galaxy S6 Edge, and by expanding competitive newmid-range products including Galaxy A and J series.In the TV business, despite difficulties in the first half of the year such as weak demand in Europe dueto the exchange rate impact, we maintained No.1 in market share for the tenth consecutive year since2006 by reinforcing our premium product competencies through the launch of SUHD TV with theQuantum Dot technology. Also, in the digital appliances business, we further enhanced ourcompetitiveness in the premium market by introducing innovative products such as the ChefCollection kitchenware and Active/Add Wash washing machine.Second, we focused on strengthening core competencies with our high-quality technologies,and solidified our technological leadership through continuous investments.In the current IT industry, the boundary between hardware and software companies is becomingblurred. Companies armed with contents, services, and the internet are creating new businesses andemerging as strong competitors.To cope with such changes in the market, we focused on securing software specialists and R&Dmanpower, as well as outstanding talents who will be the source of our competitiveness in the future.In addition, we operated the Global Innovation Center and the Samsung Strategy and InnovationCenter at Silicon Valley to respond to the changes in the IT industry in a timely manner, and openedthe R&D center in Umyeon-dong, Seoul, to reinforce our software competitiveness. Moreover, weinvested approximately KRW 14 trillion in R&D to create new technologies and values.As a result, we were able to widen the gap of technological competitiveness with others as we led the3D memory era by mass producing the world’s first ultra-high density 128GB DRAM module with 3DTSV additive manufacturing technology as well as the 3rd generation V-NAND. And for our S.LSIbusiness, we commercialize 14nm process as the first in the industry, strengthening SoC and foundrybusiness competitiveness. As for the IM business, we improved usability of smartphones through therelease of Galaxy S6 Edge with flexible OLED and the successful launch of Samsung Pay. Also, wesolidified our business foundation in the wearable market by launching round design Gear S2 andfollow-up models of Gear VR.As of 2015, we registered 5,072 U.S. patents (No.2 in the world), securing future growth engines. Wereceived eight ‘IDEA 2015’(design) awards and 38 Innovation Awards at ‘CES 2016’, including the BestInnovation Award for our smart TV.Our brand value in 2015 reached 45.3 billion (InterBrand), maintaining global No.7 for the secondconsecutive year.
Third, we implemented proactive shareholder return policies to enhance shareholder value.Despite the challenging business circumstances in 2015, we announced various shareholder returnpolicies, including the KRW 11.3 trillion of special buyback and cancellation program and theshareholder return plan for the next three years, as a part of our shareholder-friendly management.Of the total KRW 11.3 trillion special buyback program, we repurchased and cancelled KRW 4.25 trillionso far in the first phase. Currently, we are in the second phase of the program. The remaining amountwill also be repurchased and cancelled in the following phases. And along with this large-scalebuyback, we increased dividend per share from the previous year to KRW 21,000 per common shareand KRW 21,050 per preferred share, clearly demonstrating our commitment to enhance shareholdervalue even under the tough business circumstances.Meanwhile, we successfully held two Investor Forum events of 2015 in Seoul and Singapore toenhance investors’ understanding of our outstanding technologies and to strengthen communication.Dear Shareholders,In 2016, the overall global economy may slow down, and uncertainties such as financial risks inemerging markets are expected to increase. The IT industry will change in an unprecedented speed,and competitions will intensify further.We expect core products of our company, such as smartphone, TV, and memory, will face oversupplyissues and intensified price competition. Our competitors will follow close behind our leading positionin the global IT industry with aggressive investments and innovations. Moreover, innovative businessmodels such as O2O(Online to Offline) and sharing economy are undermining the importance ofhardware, which is our strength, and shifting the core competitiveness to software platform.To cope with these changes in the business environment, we will continue to implementgroundbreaking changes and innovations, and strive to secure differentiated competitiveness.We will secure differentiated competitiveness and become the first mover.Even under the challenging circumstances, we will renew everything from our product developmentand management to the organizational culture in order to lead the new era and become a true firstmover.We will better sense the trends of consumer lifestyle and behavior patterns to secure competenciesand a system that can lead a new competitive market. To do so, we will ensure internal stability byenhancing efficiency and create synergy among all divisions of the company based on active openinnovation, trust, and communication.
We will again strive for shareholder-friendly management this year.We will continue to remind ourselves that even under uncertainties of the capital markets and thedifficult business circumstances, generating solid earnings contributes greatly to shareholder return.As such, we will focus all our efforts on achieving solid results this year.We will of course carry out the mid to long-term shareholder return policy that we announced in 2015without any delays.In addition, as we have done in 2015, we will share with you our company’s value and vision throughdiverse IR activities and continue to strengthen communication with shareholders.Dear Shareholders,Samsung Electronics went through many difficulties last year, such as intensified competitions overour core products amid global economic recession. We expect that 2016 will also be a tough year.However, since the foundation of the company in 1969, we have many times turned crises intoopportunities by overcoming difficulties such as the Asian financial crisis and the global financial crisisthrough changes and innovation. Therefore, we promise you that we will again overcome the crisisbased on what we have accumulated so far.I would like to once again wish all of you and your family the best of health and happiness in 2016.Thank you.Respectfully yours,Oh-Hyun KwonVice Chairman & CEOSamsung Electronics Co., Ltd
Table of contentsNotice of 2016 AGM .1Proxy Summary .21. Agenda 1. Approval of Audited FinancialStatements and Annual Dividends (FY 2015)5. Financial Statements (FY 2015)Letter from Independent Auditor .30Overview .4Consolidated Statements of Financial Position .31Business Performance .4Consolidated Statements of Income .34Capital Expenditures and Other Investments .6Consolidated Statements of Comprehensive Income .35Return to Shareholders .7Consolidated Statements of Change in Equity .36Consolidated Statements of Cash Flows .402. Agenda 2. Election of DirectorsSeparate Statements of Appropriation of42Retained Earnings (Parent) .Overview .9Independent Director Nominees .106. Business ReportExecutive Director Nominees .13Business Overview .43Audit Committee Member Nominees .16Semiconductor .443. Agenda 3. Approval of the Remuneration Limit forthe Directors (FY 2016)Display Panel .44IM (IT & Mobile Communications) .45CE (Consumer Electronics) .45Overview .17Corporate Overview .46Director Remuneration Structure .17Compensation Committee .177. Information about the Meetingand Shareholder RightsFY 2015 Remuneration (Actual) .17FY 2016 Remuneration (To Be Approved) .619Overview .47Long-Term Incentive Plan (LTI) .20Operation.48Remuneration for Independent Directors .204. Agenda 4. Approval of Amendments to theArticles of Incorporation8. Corporate GovernanceOverview – The Board of Directors .49Overview .21Board Committees .51Main Details .21Profile of BOD Members .53Amendments .22BOD Activities .55Share Ownership Structure.59Independent Auditor Fees .61Global Code of Conduct .61Policy on Related Party Transaction .62Corporate Governance Website .62
Samsung Electronics Co., Ltd. and Subsidiaries(Seocho-dong) 11, 74-gilSeochodaero Seocho-gu, Seoul 137-965, KoreaDear Shareholders of Samsung Electronics,Notice is hereby given that the 2016 annual meeting of shareholders (the “AGM”) of Samsung Electronics Co., Ltd. will beheld on Friday, March 11, 2016 at 9:00 a.m. Korea Standard Time, in a multifunctional hall, on the fifth floor of SamsungElectronics building located at the address shown above for the following agenda (more details of agenda are described inaccompanying proxy material document):Notice of 2016 Annual General Meeting of ShareholdersDate:Time:Place:Record date:March 11, 20169:00 a.m. Korea Standard Time(Seocho-dong) 11, 74-gilSeochodaero Seocho-gu, Seoul 137-965, KoreaDecember 31, 2015Only common shareholders of record at the close of business on the record date are entitled toreceive notice of, and to vote at, the Annual General Shareholder Meeting.Proxy voting:Please vote your shares at your earliest convenience. This will ensure the presence of a quorum atthe meeting.Items of business:1. Approval of Audited Financial Statements for FY 2015 (From Jan 1, 2015 to Dec 31, 2015)- Approval of Statements of Financial Position, Income, and Cash Flow, etc.- The total dividend per share in 2015 is KRW 21,000 for common and KRW 21,050 for preferredshares, including interim dividend of KRW 1,000 per share paid in August 2015.2. Election of Directors- Independent Director Nominees Re-nominated: In-Ho Lee, Kwang-Soo Song Newly nominated : Jae-Wan Park- Executive Director Nominees Re-nominated: Boo-Keun Yoon, Jong-Kyun Shin, Sang-Hoon Lee- Audit Committee Member Nominees Re-nominated: In-Ho Lee, Kwang-Soo Song3. Approval of the Remuneration Limit for the Directors for FY 2016FY 2016ProposedKRW 39 BillionKRW 30 BillionKRW 9 BillionTotal Remuneration- General Compensation- Long-Term Incentive4. Approval of amendments to the Articles of Incorporation1FY 2015ApprovedKRW 39 BillionKRW 30 BillionKRW 9 BillionActualKRW 32 BillionKRW 24 BillionKRW 8 Billion
Proxy SummaryThis summary highlights information contained in the accompanying Proxy Material.Agenda 1.Approval of Audited Financial Statement for FY 2015Key Voting Items Statements of Financial Position, Income, and Cash Flow including KRW 3.1 trillion of annual dividends, etc. The audit on financial statements is not yet complete, but we have attached a letter from independent auditorconfirming that nothing has come to their attention so far. The final version of consolidated financial statements withthe independent auditor’s opinion is scheduled to be disclosed on February 26 th.Business highlightsIn FY 2015, despite a slowdown in smartphone demand, we achieved solid earnings based on improved earnings of thecomponent businesses, including semiconductor and display. KRW 200.7 trillion in revenue, a decrease of 2.7% from FY 2014 KRW 26.4 trillion in operating profit, an increase of 5.5% from FY 2014We delivered these results while preparing for the year ahead, including Invested KRW 25.5 trillion in capital expenditures (KRW 14.7 trillion in Semiconductor and KRW 4.7 trillion in Display) Invested KRW 13.7 trillion in R&DWe implemented proactive shareholder return policies to enhance shareholder value. Announced a special buyback and cancellation program and a shareholder return plan for the three years (2015-2017) Of the total KRW 11.3 trillion special buyback program, we repurchased and cancelled KRW 4.25 trillion of outstandingshares so far in the first phase. Currently, we are repurchasing approximately KRW 3 trillion of outstanding shares in thesecond phase of the program. The company will return 30 50% of annual FCF to shareholders for the three years.(2015-2017)The 2015 annual dividend per share increased from the previous year to KRW 21,000 for common shares and 21,050for preferred shares, including the interim dividend of KRW 1,000 per share, and the total dividend amount is KRW 3.1trillion. Through this proactive shareholder return policy, payout ratio including share buyback increased. (FY2014 23% FY2015 38%)Agenda 2. Election of DirectorsThe Board and the Committee on Independent Director Nomination believe that the combination of the variousqualifications and experiences of the Director nominees would contribute to an effective and well-functioning Board. Inaddition, the Director nominee as a member of the Audit Committee possess the necessary qualifications to provideeffective oversights of the company’s financial management and advice and counsel to the company’s management.Key Voting Items Independent Director Nominees Re-nominated: In-Ho Lee, Kwang-Soo Song Newly nominated : Jae-Wan Park Executive Director Nominees Re-nominated: Boo-Keun Yoon, Jong-Kyun Shin, Sang-Hoon Lee Audit Committee Member Nominees Re-nominated: In-Ho Lee, Kwang-Soo Song2
Agenda 3. Approval of the Remuneration Limit for the Directors for FY 2016* In FY 2015, we paid KRW 32 billion for total remuneration for Directors: KRW 24 billion general compensation and KRW 8billion Long-Term Incentive (LTI)Key Voting Items Total Remuneration Limit for FY 2016: KRW 39 billion (General Compensation KRW 30 billion and Long-Term IncentiveKRW 9 billion) Same as FY 2015Agenda 4. Approval of Amendments to the Articles of IncorporationThe Company determined that the Articles of Incorporation (“AOI”) need to be updated at this point as some of theapplicable laws have changed. In addition, we want to implement a new method for improving shareholder return andcorporate governance.Key Voting Items Amendments to the Articles of IncorporationMain Details Reflect changes in applicable and relevant law(s) The Securities and Exchange Act was replaced by the Financial Investment Services and Capital Markets Act;applicable provisions were revised to reflect this change. Reduce the issuance limit of subscription rights and new shares for public subscriptions (30% 20%) Add new language regarding issuance of quarterly dividends Amend applicable provisions to allow directors other than the CEO to serve as the chairman of the Board of Directors3
Agenda 1Approval of Audited FinancialStatements For FY 20151OverviewThe Board of Directors is seeking your approval of the following audited financial statements for FY 2015 beginning onJanuary 1, 2015 and ending on December 31, 2015. In addition, we are reporting the total dividend per share in 2015 isKRW 21,000 for Common Shares and KRW 21,050 for Preferred Shares, including interim dividend of KRW 1,000 per sharepaid in August 2015. Statements of Financial Position Statements of Income Statements of Comprehensive Income Statements of Change in Equity Statements of Cash Flows Separate Statements of Appropriation of Retained Earnings (Parent)The audit on financial statements is not yet complete, but we have attached a letter from independent auditorconfirming that nothing has come to their attention so far. The final version of consolidated financial statements withthe independent auditor’s opinion is scheduled to be disclosed on February 26 th.Business PerformanceThe global economic environment was challenging throughout 2015 due to the changes in the monetary policy of the U.S.,an increase in volatility of emerging stock markets and exchange rates, and a sharp fall in the global oil prices. Amid globaluncertainties, South Korea’s economy also remained weak. For Samsung Electronics, we continued to face a challengingbusiness environment as the growth of smartphone market slowed down and competition of major products intensified.Under these circumstances, the total revenue slightly declined from the previous year to KRW 201 trillion, but ouroperating profit and net profit were solid at KRW 26 trillion and KRW 19 trillion, respectively.Despite tough business circumstances, we delivered solid performance in terms of technologies and products with oureffort to reinforce core competitiveness through investments in R&D and facilities.For our component business, we were able to widen the gap of technological competitiveness with others as we led the3D memory era by mass producing the world’s first ultra-high density 128GB DRAM module with 3D TSV additivemanufacturing technology as well as the 3rd generation V-NAND. And for our S.LSI business, we commercialize 14nmprocess as the first in the industry, strengthening SoC and foundry business competitiveness.Moving onto our set business, for the IM, we improved usability of smartphones through the release of Galaxy S6 Edgewith flexible OLED and the successful launch of Samsung Pay. Also, we solidified our business foundation in the wearablemarket by launching round design Gear S2 and follow-up models of Gear VR. For our TV business, we reinforced ourpremium product leadership by launching the only SUHD TV with eco-friendly Quantum Dot technology in the world.In 2016, along with our efforts to secure profitability of each business in 2016, we will also focus on reinforcing mid tolong-term business competitiveness, including new business areas.4
For DRAM, as adoption of high-density/high value-added products such as DDR4/LPDDR4 in major applications increases,we plan to focus on reinforcing the differentiated profit structure based on our successful 20nm process. In addition, wewill further solidify the dominant position in DRAM technology through the introduction of 10nm-class process. For NAND,we will extend our superior product competitiveness and technological leadership by expanding mass production of the3rd generation V-NAND, as the only company in the industry. We will also lead the growth of high-density storage marketto strengthen the foundation for the mid to long-term growth.For System LSI, we will secure a stable profit foundation by diversifying foundry customer base and by expanding SoCproduct line ups based on our 14nm process competitiveness. We will continue to stay on leadership path on technologiesby bring 10nm process within this year. In addition we will continue to strengthen competitiveness of LSI products such asbio-processor and CIS.For the OLED business, we expect to secure mid to long-term growth capabilities in 2016 by enhancing technology leveland productivity of flexible display and by expanding new applications including transparent, mirror, HMD, automotive, andOLED for PC.For our IM business, going beyond differentiation of hardware, we will focus on reinforcing software competitiveness withthe new R&D organization dedicated to the development of software and services. In addition, we will continue to focus onstrengthening our wearable products, such as Gear S2 and VR.For our TV business, we will reinforce our premium market leadership with our SUHD-TV, which is the only TV with ecofriendly Quantum Dot technology in the world. And we plan to lead the era of Smart Home through our Smart TV withSmart Hub that provides connectivity with other devices with controlling/monitoring functions.For IoT, We not only have a portfolio of cutting-edge devices that covers the whole spectrum of mobile, IT, TV, andconsumer electronics, but also have innovative components such as Flexible OLED and IoT-exclusive chip solution ARTIK,as well as a powerful IoT platform such as SmartThings. Based on our competitiveness of the overall ecosystem, we plan tofocus initially on Smart Home and Smart Health, which have high growth potential. Summary of key financial metrics by Business Division (FY 2013 – FY 2015)(Unit: KRW Trillion)Division 2015Revenue37.4439.7347.59Operating profit6.898.7812.79Margin (%)18%22%27%Revenue29.8425.7327.49Operating profit2.980.662.30Margin (%)10%3%8%Revenue50.3350.1846.90Operating profit1.671.181.25Margin (%)3%2%3%Revenue138.82111.76103.55Operating profit24.9614.5610.14Margin (%)18%13%10%Revenue228.69206.21200.65Operating Profit36.7925.0326.41Margin (%)16%12%13%※ On a consolidated basis5
Capital Expenditures and Other InvestmentsIn 2015, we invested KRW 25.5 trillion in capital expenditures. Looking at the expenditures by business segment, weinvested about KRW 14.7 trillion in Semiconductor and about KRW 4.7 trillion in Display. The rest was used for thesmartphone production line and the CE complex in Vietnam, as well as the R&D Campus in Umyeon-dong, Seoul. TheCAPEX
release of Galaxy S6 Edge with flexible OLED and the successful launch of Samsung Pay. Also, we solidified our business foundation in the wearable market by launching round design Gear S2 and follow-up models of Gear VR. As of 2015, we registered 5,072 U.S. patent