As filed with the Securities and Exchange Commission on April 29, 201527, 2018

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form20-F

(Mark One)

 ¨REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 20142017

OR

 ¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 ¨SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report            

For the transition period from             to            

Commission file number1-13368

POSCO

(Exact name of Registrant as specified in its charter)

 

POSCO

 The Republic of Korea

(Translation of Registrant’s name into English)

 (Jurisdiction of incorporation or organization)

POSCO Center, 440Teheran-ro,Gangnam-gu

Seoul, Korea 135-77706194

(Address of principal executive offices)

Kee, HyojinLim,Sung-Su

POSCO Center, 440Teheran-ro,Gangnam-gu

Seoul, Korea 135-77706194

Telephone: +82-2-3457-2671; +82-2-3457-1098;E-mail: irenekee@posco.com; s2blue@posco.com; Facsimile: +82-2-3457-1982+82-2-3457-1997

(Name, telephone,e-mail and/or facsimile number and address of company contact person)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of Each Class

 Name of Each Exchange on Which Registered

American Depositary Shares, each representing

one-fourth of one share of common stock

 New York Stock Exchange, Inc.

Common Stock, par value Won 5,000 per share *

 New York Stock Exchange, Inc. *

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

As of December 31, 2014,2017, there were 79,993,02879,999,604 shares of common stock, par value Won 5,000 per share, outstanding (not

(not including 7,193,8077,187,231 shares of common stock held by the company as treasury shares)

Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes  x        No   ¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.Yes  ¨        No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yesx        No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes¨        No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer or a non-accelerated filer.an emerging growth company. See definition of “large accelerated filer,” “accelerated filerfiler” and large accelerated filer”“emerging growth company” inRule 12b-2 of the Exchange Act. (Check one):

Large accelerated filerx    Accelerated filer¨    Non-accelerated    Non-accelerated filer¨    Emerging growth company

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.    U.S. GAAP  ¨    IFRS  x        Other  ¨

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.    Item 17  ¨    Item 18  ¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).    Yes  ¨        No  x

 

*Not for trading, but only in connection with the registration of the American Depositary Shares.

 

 

 


TABLE OF CONTENTS

 

GLOSSARY

   1 

PART I

   2 

ITEM 1.

 IDENTITY OF DIRECTORS, SENIOR MANAGERS AND ADVISERS   2 
 

Item 1.A.

  Directors and Senior Management   2 
 

Item 1.B.

  Advisers   2 
 

Item 1.C.

  AuditorsAuditor   2 

ITEM 2.

 OFFER STATISTICS AND EXPECTED TIMETABLE   2 
 

Item 2.A.

  Offer Statistics   2 
 

Item 2.B.

  Method and Expected Timetable   2 

ITEM 3.

 KEY INFORMATION   2 
 

Item 3.A.

  Selected Financial Data   2 
 

Item 3.B.

  Capitalization and Indebtedness   4 
 

Item 3.C.

  Reasons for Offer and Use of Proceeds   4 
 

Item 3.D.

  Risk Factors   54 

ITEM 4.

 INFORMATION ON THE COMPANY   2221 
 

Item 4.A.

  

History and Development of the Company

   2221 
 

Item 4.B.

  Business Overview   2221 
 

Item 4.C.

  Organizational Structure   4035 
 

Item 4.D.

  Property, Plants and Equipment   4035 

ITEM 4A.

Item 4.E.  UNRESOLVED STAFF COMMENTSUnresolved Staff Comments   4337 

ITEM 5.

 OPERATING AND FINANCIAL REVIEW AND PROSPECTS   4337 
 

Item 5.A.

  Operating Results   4337 
 

Item 5.B.

  Liquidity and Capital Resources   71 
 

Item 5.C.

  Research and Development, Patents and Licenses, Etc.   74 
 

Item 5.D.

  Trend Information   7574 
 

Item 5.E.

  Off-balance Sheet Arrangements   75 
 

Item 5.F.

  Tabular Disclosure of Contractual Obligations   75 
 

Item 5.G.

  Safe Harbor   75 

ITEM 6.

 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES   75 
 

Item 6.A.

  Directors and Senior Management   75 
 

Item 6.B.

  Compensation78
Item 6.C.Board Practices   79 
 

Item 6.C.

6.D.
  Board PracticesEmployees   80 
 

Item 6.D.

Employees81

Item 6.E.

  Share Ownership   8281 

ITEM 7.

 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS   8483 
 

Item 7.A.

  Major Shareholders   8483 
 

Item 7.B.

  Related Party Transactions   8483 
 

Item 7.C.

  Interests of Experts and Counsel   8583 

ITEM 8.

 FINANCIAL INFORMATION   8583 
 

Item 8.A.

  Consolidated Statements and Other Financial Information   8583 
 

Item 8.B.

  Significant Changes   8685 

ITEM 9.

 THE OFFER AND LISTING   8685 
 

Item 9.A.

  Offer and Listing Details   86

Item 9.B.

Plan of Distribution88

Item 9.C.

Markets8885 

i


 

Item 9.B.

Plan of Distribution87
Item 9.C.Markets87
Item 9.D.

  Selling Shareholders   92 
 

Item 9.E.

  Dilution   9392 
 

Item 9.F.

  Expenses of the Issuer   9392 

ITEM 10.

 ADDITIONAL INFORMATION   9392 
 

Item 10.A.

  Share Capital   9392 
 

Item 10.B.

  Memorandum and Articles of Association   9392 
 

Item 10.C.

  Material Contracts   9897 
 

Item 10.D.

  Exchange Controls   9897 
 

Item 10.E.

  Taxation   102 
 

Item 10.F.

  Dividends and Paying Agents   107 
 

Item 10.G.

  Statements by Experts   107 
 

Item 10.H.

  Documents on Display   107 
 

Item 10.I.

  Subsidiary Information   107 

ITEM 11.

 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   107 

ITEM 12.

 DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES   109 
 

Item 12.A.

  Debt Securities   109 
 

Item 12.B.

  Warrants and Rights   109110 
 

Item 12.C.

  Other Securities   109110 
 

Item 12.D.

  American Depositary Shares   110 

PART II

   111 

ITEM 13.

 DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES   111 

ITEM 14.

 MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS   111 

ITEM 15.

 CONTROLS AND PROCEDURES   111 

ITEM 16.

 [RESERVED]   112 

ITEM 16A.

Item 16.A.  AUDIT COMMITTEE FINANCIAL EXPERTAudit Committee Financial Expert   112 

ITEM 16B.

Item 16.B.  CODE OF ETHICSCode of Ethics   112 

ITEM 16C.

Item 16.C.  PRINCIPAL ACCOUNTANT FEES AND SERVICESPrincipal Accountant Fees and Services   113 

ITEM 16D.

Item 16.D.  EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESExemptions from the Listing Standards for Audit Committees   113 

ITEM 16E.

Item 16.E.  PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSPurchases of Equity Securities by the Issuer and Affiliated Purchasers113
Item 16.F.Change in Registrant’s Certifying Accountant   114 

ITEM 16F.

Item 16.G.  CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTCorporate Governance   114 

ITEM 16G.

Item 16.H.  CORPORATE GOVERNANCEMine Safety Disclosure   114115 

ITEM 16H.

MINE SAFETY DISCLOSUREPART III   116

PART III

116115 

ITEM 17.

 FINANCIAL STATEMENTS   116115 

ITEM 18.

 FINANCIAL STATEMENTS   116115 

ITEM 19.

 EXHIBITS   116 

ii


GLOSSARY

 

“ADR”

  American Depositary Receipt evidencing ADSs.

“ADR depositary”

  Citibank, N.A.

“ADS”

  American Depositary Share representingone-fourth of one share of Common Stock.

“Australian Dollar” or “A$”

  The currency of the Commonwealth of Australia.

“Commercial Code”

  Commercial Code of the Republic of Korea.

“common stock”

  Common stock, par value Won 5,000 per share, of POSCO.

“deposit agreement”

  Deposit Agreement, dated as of July 19, 2013, among POSCO, the ADR Depositary and all holders and beneficial owners from time to time of ADRs issued thereunder.

“Dollars,” “$” or “US$”

  The currency of the United States of America.

“FSCMA”

  Financial Investment Services and Capital Markets Act of the Republic of Korea.

“Government”

  The government of the Republic of Korea.

“IASB”

  International Accounting Standards Board.

“IFRS”

  International Financial Reporting Standards.

“Yen” or “JPY”

  The currency of Japan.

“Korea”

  The Republic of Korea.

Korean GAAP”

Generally accepted accounting principles in the Republic of Korea.

Gwangyang Works”

  Gwangyang Steel Works.

“We”

  POSCO and its consolidated subsidiaries.

“Pohang Works”

  Pohang Steel Works.

“POSCO Group”

  POSCO and its consolidated subsidiaries.

“Renminbi”

  The currency of the People’s Republic of China.

“Securities Act”

  The United States Securities Act of 1933, as amended.

“Securities Exchange Act”

  The United States Securities Exchange Act of 1934, as amended.

“SEC”

  The United States Securities and Exchange Commission.

“tons”

  Metric tons (1,000 kilograms), equal to 2,204.6 pounds.

“U.S. GAAP”

  Generally accepted accounting principles in the United States of America.

“Won” or “

  The currency of the Republic of Korea.

Any discrepancies in any table between totals and the sums of the amounts listed are due to rounding.

PART I

Item 1.1.  Identity of Directors, Senior Managers and Advisers

Item 1.A.1.A.  Directors and Senior Management

Not applicable

Item 1.B.1.B.  Advisers

Not applicable

Item 1.C.1.C.Auditors  Auditor

Not applicable

Item 2.Offer Statistics and Expected Timetable

Not applicable

Item 2.A.  Offer Statistics

Not applicable

Item 2.B.  Method and Expected Timetable

Not applicable

Item 3.  Key Information

Item 3.A.  Selected Financial Data

The selected financial data presented below should be read in conjunction with our Consolidated Financial Statements and related notes thereto and “Item 5. Operating and Financial Review and Prospects” included elsewhere in this annual report. The selected financial data in Won as of December 31, 20132016 and 20142017 and for each of the years in thethree-year period ended December 31, 20142017 were derived from our Consolidated Financial Statements included elsewhere in this annual report. Our Consolidated Financial Statements are prepared in accordance with IFRS as issued by the IASB.

In addition to preparing financial statements in accordance with IFRS as issued by the IASB included in this annual report, we also prepare financial statements in accordance with Korean International Financial Reporting Standards(“K-IFRS”) as adopted by the Korean Accounting Standards Board (the “KASB”), which we are required to file with the Financial Services Commission and the Korea Exchange under the Financial Investment Services and Capital Markets Act of Korea.FSCMA. English translations of such financial statements are furnished to the Securities and Exchange CommissionSEC under Form 6-K. During6-K.K-IFRS differs in certain respects from IFRS as issued by the three years ended December 31, 2014, we are required to adopt certain amendments and interpretations to K-IFRS, relating toIASB in the presentation of operating profit. Additionally, underK-IFRS, revenue from the development and sale of certain real estate is recognized using the percentage of completion method. However, under IFRS as issued by the IASB, revenue from the development and sale of real estate is recognized when an individual unit of residential real estate is delivered to the buyer. As a result, our consolidated statements of comprehensive income and our consolidated statements of financial position prepared in accordance with IFRS as issued by the IASB included in this annual report differ from our consolidated statements of comprehensive income and consolidated statements of financial position prepared in accordance withK-IFRS. See “Item 5.A. Operating Results—Results — Explanatory Note Regarding Presentation of Certain Financial Information underK-IFRS.”

The information set forth below is not necessarily indicative of the results of future operations and should be read in conjunction with “Item 5. Operating and Financial Review and Prospects” and our consolidated financial statements and related notes included in this annual report.

Selected consolidated statement of comprehensive income data

 

  For the Year Ended December 31, 

 

   For the Year Ended December 31, 
      2010           2011         2012         2013         2014         2014           2013         2014         2015         2016         2017     
  (In billions of Won and millions of Dollars, except per share data)   (In billions of Won, except per share data) 

Revenue(1)

       47,887         68,890        63,345        61,766        64,759   US$    58,914        61,766      64,759      58,522      52,940      60,187 

Cost of sales(2)

   39,722     59,784    55,921    54,914    57,465    52,279     54,914   57,465   52,018   46,271   51,916 
  

 

   

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

Gross profit

   8,165     9,105    7,425    6,852    7,293    6,635     6,852   7,293   6,504   6,668   8,271 

Administrative expenses

   1,492     2,035    2,129    2,232    2,310    2,101     2,232   2,310   2,395   2,292   2,177 

Selling expenses

   1,120     1,612    1,679    1,632    1,760    1,601     1,632   1,760   1,729   1,554   1,557 

Other operating income

   223     307    448    229    269    245     229   269   549   215   451 

Other operating expenses

   342     367    809    651    980    891     651   980   1,442   756   792 
  

 

   

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

Operating profit

   5,434     5,398    3,255    2,566    2,513    2,286     2,566   2,513   1,486   2,282   4,196 

Share of profit (loss) of equity-accounted investees, net

   183     51    (23  (180  (300  (273   (180  (300  (506  (89  11 

Finance income

   1,739     3,190    2,897    2,381    2,397    2,180     2,381   2,397   2,557   2,232   2,373 

Finance costs

   2,088     3,867    2,798    2,829    3,222    2,931     2,829   3,222   3,387   3,014   2,484 
  

 

   

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

Profit before income tax

   5,267     4,773    3,332    1,938    1,388    1,263     1,938   1,388   150   1,412   4,095 

Income tax expense

   1,081     1,066    974    589    824    749     589   824   267   380   1,186 
  

 

   

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

Profit

   4,186     3,707    2,358    1,349    564    513  

Total comprehensive income

   4,765     2,435    1,720    1,363    108    99  

Profit (loss)

   1,349   564   (116  1,032   2,909 

Total comprehensive income (loss)

   1,363   108   (278  1,486   2,348 

Profit (loss) for the period attributable to:

              

Owners of the controlling company

   4,106     3,641    2,437    1,371    633    576     1,371   633   171   1,355   2,756 

Non-controlling interests

   80     65    (79  (22  (69  (63   (22  (69  (288  (323  153 

Total comprehensive income (loss) attributable to:

              

Owners of the controlling company

   4,640     2,524    1,887    1,439    182    165     1,439   182   24   1,814   2,184 

Non-controlling interests

   126     (89  (167  (75  (73  (66   (75  (73  (302  (328  164 

Basic and diluted earnings per share (3)(1)

   53,297     47,138    31,552    17,338    7,514    6.84     17,338   7,514   1,731   16,521   34,040 

Dividends per share of common stock

   10,000     10,000    8,000    8,000    8,000      8,000   8,000   8,000   8,000   8,000 

Dividends per share of common stock (in Dollars)(4)

   US$    8.78     US$    8.67    US$    7.47    US$    7.58    US$    7.28   

Selected consolidated statements of financial position data

 

  As of December 31,   

 

   As of December 31, 
  2010   2011   2012   2013   2014   2014       2013           2014           2015           2016           2017     
  (In billions of Won and millions of Dollars)   (In billions of Won) 

Working capital(5)(2)

       9,395         13,942         11,993         11,681        10,833     US$    9,855        11,681       10,833       9,148       10,711       12,354 

Total current assets

   27,672     33,547     31,817     32,039     33,208     30,211     32,039    33,208    29,502    29,655    31,844 

Property, plant and equipment, net

   25,438     28,453     32,276     35,760     35,241     32,061     35,760    35,241    34,523    33,770    31,884 

Total non-current assets

   41,746     44,854     47,711     52,802     52,636     47,885     52,802    52,636    51,246    50,483    47,941 

Total assets

   69,418     78,401     79,527     84,841     85,844     78,096     84,841    85,844    80,748    80,138    79,786 

Short-term borrowings and current portion of long-term borrowings

   10,476     10,792     10,509     10,714     12,195     11,095  

Long-term borrowings, excluding current portion

   10,664     16,020     14,412     15,533     15,233     13,858  

Short-term borrowings and current installments oflong-term borrowings

   10,714    12,195    12,371    10,195    11,275 

Long-term borrowings, excluding current installments

   15,533    15,233    12,849    12,510    9,789 

Total liabilities

   30,881     37,679     37,133     39,060     40,586     36,923     39,060    40,586    35,735    34,372    32,459 

Share capital

   482     482     482     482     482     439     482    482    482    482    482 

Total equity

   38,537     40,722     42,394     45,781     45,257     41,173     45,781    45,257    45,013    45,765    47,327 

Selected consolidated statements of cash flows data

 

  For the Year Ended December 31,   For the Year Ended December 31, 
  2010 2011 2012 2013 2014 2014   2013 2014 2015 2016 2017 
  (In billions of Won and millions of Dollars)   (In billions of Won) 

Net cash provided by operating activities

       3,582        1,692        7,319        4,858        3,412    US$    3,104        4,858      3,412      7,602      5,269      5,607 

Net cash used in investing activities

   (6,915  (5,517  (6,169  (8,752  (3,745  (3,406   (8,752  (3,745  (4,535  (3,755  (3,818

Net cash provided by (used in) financing activities

   4,588    4,900    (908  3,532    135    123     3,532   135   (2,242  (3,951  (1,566

Net increase (decrease) in cash and cash equivalents

   1,248    1,078    82    (472  (187  (170   (472  (186  849   (2,424  165 

Cash and cash equivalents at beginning of the year

   2,273    3,521    4,599    4,681    4,209    3,829     4,681   4,209   4,022   4,871   2,448 

Cash and cash equivalents at end of the year

   3,521    4,599    4,681    4,209    4,022    3,659     4,209   4,022   4,871   2,448   2,613 

 

 

(1)Includes sales by our consolidated subsidiaries of steel products purchased by such subsidiaries from third parties, including trading companies to which we sell steel products.

(2)Includes purchases of steel products by our consolidated subsidiaries from third parties, including trading companies to which we sell steel products.

(3)See Note 36 of Notes to Consolidated Financial Statements for method of calculation. The weighted average number of common shares outstanding used to calculate basic and diluted earnings per share was 77,032,878 shares as of December 31, 2010, 77,251,818 shares as of December 31, 2011, 77,244,444 shares as of December 31, 2012, 78,009,654 shares as of December 31, 2013, and 79,801,539 shares as of December 31, 2014.2014, 79,993,834 shares as of December 31, 2015, 79,996,389 shares as of December 31, 2016 and 79,998,600 shares as of December 31, 2017.

 

(4)Translated into Dollars by applying the exchange rate at the end of the applicable year as announced by Seoul Money Brokerage Services, Ltd.

(5)(2)“Working capital” means current assets minus current liabilities.

EXCHANGE RATE INFORMATION

The following table sets out information concerning the market average exchange rate for the periods and dates indicated.

 

Period

  At End
of Period
   Average Rate (1)   High   Low   At End
of Period
   Average Rate (1)   High   Low 
  (Per US$1.00) 

2010

   1,138.9     1,156.3     1,261.5     1,104.0  

2011

   1,153.3     1,108.1     1,199.5     1,049.5  

2012

   1,071.1     1,126.9     1,181.8     1,071.1  

2013

   1,055.3     1,095.0     1,159.1     1,051.5     1,055.3    1,095.0    1,159.1    1,051.5 

2014

   1,099.2     1,053.2     1,118.3     1,008.9     1,099.2    1,053.2    1,118.3    1,008.9 

2015

   1,172.0    1,131.5    1,203.1    1,068.1 

2016

   1,208.5    1,160.5    1,240.9    1,093.2 

2017

   1,071.4    1,130.8    1,208.5    1,071.4 

October

   1,054.0     1,060.3     1,072.3     1,047.0     1,125.0    1,131.6    1,145.7    1,124.7 

November

   1,101.1     1,095.1     1,113.1     1,058.8     1,082.4    1,105.0    1,121.2    1,082.4 

December

   1,099.2     1,104.2     1,118.3     1,088.1     1,071.4    1,085.8    1,093.4    1,071.4 

2015 (through April 28)

   1,074.5     1,097.8     1,133.9     1,074.5  

2018 (through April 26)

   1,078.7    1,071.0    1,094.3    1,057.6 

January

   1,090.8     1,088.9     1,108.7     1,077.3     1,071.5    1,066.7    1,071.5    1,061.3 

February

   1,099.2     1,098.4     1,109.8     1,088.3     1,071.0    1,079.6    1,094.3    1,068.0 

March

   1,104.2     1,112.6     1,133.9     1,096.5     1,066.5    1,071.9    1,081.9    1,064.3 

April (through April 28)

   1,074.5     1,090.6     1,109.4     1,074.5  

April (through April 26)

   1,078.7    1,066.7    1,078.7    1,057.6 

 

Source: Seoul Money Brokerage Services, Ltd.

 

(1)The average rate for each year is calculated as the average of the market average exchange rates on the last business day of each month during the relevant year (or portion thereof). The average rate for a month is calculated as the average of the market average exchange rates on each business day during the relevant month (or portion thereof).

Item 3.B.Capitalization and Indebtedness

Not applicable

Item 3.C.  3.C.  Reasons for Offer and Use of Proceeds

Not applicable

Item 3.D.Risk Factors

You should carefully consider the risks described below.

The global economic downturn may adversely affect our business and performance. The global economic outlook for the near future remains uncertain.

Our business is affected by highly cyclical market demand for our steel products from a number of industries, including the construction, automotive, shipbuilding and electrical appliances industries as well as downstream steel processors, which are sensitive to general conditions in the global economy. Macroeconomic factors, such as the economic growth rate, employment levels, interest rates, inflation rates, exchange rates, commodity prices, demographic trends and fiscal policies of governments can have a significant effect on such industries. From time to time, these industries have experienced significant and sometimes prolonged downturns, which in turn have negatively impacted our steel business. TheWhile global economic outlookconditions have generally stabilized and improved in recent years, the overall prospects for the near future remains uncertain, particularlyglobal economy remain uncertain. Financial markets have experienced significant volatility in lightrecent years as a result of, concerns regardingamong other things, the financial difficulties affecting many governments worldwide, including southern Europe and Latin America, as well as the recent slowdown of economic growth in China and other major emerging market economies, in addition to adverse economic and political conditions in Europe and Latin America and continuing geopolitical and social instability in North Korea and various countries inparts of the Middle East, and Northern Africa, including Syria, Iraq Syria and Yemen, as well as the United Kingdom’s decision in Ukraine and Russia.June 2016 to exit from the European Union (“Brexit”).

An actual or anticipated further deterioration of global economic conditions may result in a decline in demand for our products that could have a negative impact on the prices at which they can be sold. In such a case, we will likely face pressure to reduce prices and we may need to rationalize our production capacity and reduce fixed costs. In the past, we have adjusted our crude steel production levels and sales prices in response to sluggish demand from our customers in industries adversely impacted by the deteriorating economic conditions. We recordedproduced 42.0 million tons of crude steel production of 39.7and stainless steel in 2015, 42.2 million tons in 2012, 38.32016 and 42.2 million tons in 2013 and 37.7 million tons in 2014.2017. The average unit sales prices for oursemi-finished and finished steel products were Won 1,071798 thousand per ton in 2012,2015, Won 998745 thousand per ton in 20132016 and Won 936904 thousand per ton in 2014.2017.

We expect that fluctuation in demand for our steel products and trading services to continue to prevail at least in the near future. We may decide to further adjust our future crude steel production or our sales prices on anon-going basis subject to market demand for our products, the production outlook of the global steel industry and global economic conditions in general. In addition, economic downturns in the Korean and global economies could result in market conditions characterized by weaker demand for steel products from a number of industries as well as falling prices for export and import products and reduced trade levels. Deterioration of market conditions may result in changes in assumptions underlying the carrying value of certain assets, which in turn could result in impairment of such assets, including intangible assets such as goodwill. In addition, our ability to reduce expenditures for production facilities and research and development during an industry downturn is limited because of the need to maintain our competitive position. If we are unable to reduce our expenses sufficiently to offset reductions in price and sales volume, our margins will suffer and our business, financial condition and results of operations may be materially and adversely affected.

Korea is our most important market, and our current business and future growth could be materially and adversely affected if economic conditions in Korea deteriorate.

We are incorporated in Korea, and a substantial portion of our operations and assets are located in Korea. Korea is our most important market, accounting for 44.6%39.0% of our total revenue from steel products produced and sold by us in 2014.2017. Domestic demand for our products is affected by the condition of major steel consuming industries, such as construction, shipbuilding, automotive, electrical appliances and downstream steel processors, and the Korean economy in general. In addition, the trading operations of POSCO Daewoo International Corporation (“Daewoo International”POSCO Daewoo”), our consolidated subsidiary in which we hold a 60.3% interest, are affected by the general level of trade between Korea and other countries, which in turn tends to fluctuate based on general conditions in the Korean and

global economies. As a result, we are subject to political, economic, legal and regulatory risks specific to Korea. The economic indicators in Korea in recent years have shown

mixed signs, and future growth of the Korean economy is subject to many factors beyond our control, including developments in the global economy.

Due toIn recent liquidity and credit concernsyears, adverse conditions and volatility in the globalworldwide financial markets, fluctuations in oil and commodity prices and the general weakness of the global economy have contributed to the uncertainty of global economic prospects in general and have adversely affected, and may continue to adversely affect, the Korean economy. The value of the Won relative to the Dollar and othermajor foreign currencies has fluctuated significantly and, as a result of adverse global and Korean economic conditions, there has been volatility in the stock prices of Korean companies have fluctuated significantly in recent years. In particular, there has been increased volatility in light of concerns regarding the financial difficulties affecting many governments worldwide, including southern Europe and Latin America, as well as the recent slowdown of economic growth in China and other major emerging market economies. In addition, political and social instability in various countriesFuture declines in the Middle EastKorea Composite Stock Price Index (the “KOSPI”) and Northern Africa, including Iraq, Syrialarge amounts of sales of Korean securities by foreign investors and Yemen, as well assubsequent repatriation of the proceeds of such sales may adversely affect the value of the Won, the foreign currency reserves held by financial institutions in UkraineKorea and Russia, have resulted in an increase in volatility in the global financial markets. Accordingly, the overall prospects for theability of Korean and global economies in the remainder of 2015 and beyond remain uncertain.companies to raise capital. Any future deterioration of the Korean or global economy could adversely affect our business, financial condition and results of operations.

Developments that could have an adverse impact on Korea’s economy include:

 

difficulties in the financial sectors in Europe and elsewhere and increased sovereign default risks in select countries and the resulting adverse effects on the global financial markets;

declines in consumer confidence and a slowdown in consumer spending;spending in the Korean or global economy;

deterioration in economic or diplomatic relations between Korea and its trading partners or allies, including deterioration resulting from territorial or trade disputes or disagreements in foreign policy (such as the controversy between Korea and China regarding the deployment of a Terminal High Altitude Area Defense system in Korea by the United States commencing in March 2017 and the economic and other retaliatory measures imposed by China against Korea during the remainder of 2017);

adverse conditions in the economies of countries and regions that are important export markets for Korea, such as China, the United States, Europe and Japan, or in emerging market economies in Asia or elsewhere, as well as increased uncertainties in the wake of Brexit;

 

adverse changes or volatility in foreign currency reserve levels, commodity prices (including oil prices), exchange rates (including fluctuation of the Dollar, theU.S. dollar, Euro, Chinese Renminbi or theJapanese Yen exchange rates or revaluationand the overall impact of Brexit on the value of the Renminbi)Won), interest rates, inflation rates or stock markets;

 

continuing adverse conditionsincreased sovereign default risk in the economies ofselect countries and regions that are important export markets for Korea, such as the United States, Europe, Japan and China, or in emerging market economies in Asia or elsewhere;resulting adverse effects on the global financial markets;

 

investigations of large Korean business groups and their senior management for possible misconduct;

a continuing rise in the level of household debt and increasing delinquencies and credit defaults by retail andsmall- andmedium-sized enterprise borrowers;borrowers in Korea;

 

the continued emergence of the Chinese economy, to the extent its benefits (such as increased exports to China) are outweighed by its costs (such as competition in export markets or for foreign investmentsocial and the relocation of the manufacturing base from Korea to China), as well as a slowdownlabor unrest;

decreases in the growthmarket prices of China’s economy;Korean real estate;

 

the economic impact of any pending or future free trade agreements;

social and labor unrest;

substantial decreasesagreements or changes in the market prices of Korean real estate;existing free trade agreements;

 

a decrease in tax revenues andrevenue or a substantial increase in the Government’s expenditures for fiscal stimulus measures, unemployment compensation and other economic and social programs that together, would lead to an increased government budget deficit;

financial problems or lack of progress in the restructuring of Korean conglomerates,business groups, other large troubled companies (including those in the shipbuilding and shipping sectors), their suppliers or the financial sector;

 

loss of investor confidence arising from corporate accounting irregularities andor corporate governance issues concerningat certain Korean conglomerates;companies;

 

increases in social expenditures to support an aging population in Korea or decreases in economic productivity due to the declining population size in Korea;

 

geo-political uncertainty and the risk of further attacks by terrorist groups around the world;

the occurrence of severe health epidemics in Korea andor other parts of the world including(such as the recent Ebola outbreak;Middle East Respiratory Syndrome outbreak in Korea in 2015);

 

deterioration innatural orman-made disasters that have a significant adverse economic or diplomatic relations betweenother impact on Korea andor its major trading partners or allies, including deterioration resulting from trade disputes or disagreements in foreign policy;partners;

 

political uncertainty or increasing strife among or within political parties in Korea;

 

hostilities or political or social tensions involving oil producing countries in the Middle East and North Africa and any material disruption in the global supply of oil or sudden increase in the price of oil;

 

increased reliance on exports to service foreign currency debts, which could cause friction with Korea’s trading partners;

the occurrence of severe earthquakes, tsunamis and other natural disasters in Korea and other partscontinued growth of the world, particularly in trading partnersChinese economy, to the extent its benefits (such as increased exports to China) are outweighed by its costs (such as competition in export markets or for foreign investment and the March 2011 earthquake in Japan, which also resulted inrelocation of manufacturing bases from Korea to China);

political or social tensions involving Russia and any resulting adverse effects on the releaseglobal supply of radioactive materials from a nuclear plant that had been damaged byoil or the earthquake);global financial markets; and

 

an increase in the level of tensions or an outbreak of hostilities between North Korea and Korea or the United States.

We rely on export sales for a significant portion of our total sales. Adverse economic and financial developments in Asia in the future may have an adverse effect on demand for our products in Asia and increase our foreign exchange risks.

Our export sales and overseas sales to customers abroad accounted for 55.4%61.0% of our total revenue from steel products produced and sold by us in 2014.2017. Our export sales volume to customers in Asia, including China, Japan, Indonesia, Thailand and Malaysia, accounted for 66.7%63.1% of our total export sales revenue from steel products produced and exported by us in 2014,2017, and we expect our sales to these countries especially to China, to remain important in the future. In particular, our export volume to China has increased in recent years and accounted for 28.5% of our total export sales revenue from steel products produced and exported by us in 2017. Accordingly, adverse economic and financial developments in these countries may have an adverse effect on demand for our products. Unfavorable or uncertain economic and market conditions, which can be caused, among others, by difficulties in the financial sector, corporate, political or other scandals that may reduce confidence in the markets, declines in business confidence, increases in inflation, natural disasters or pandemics, outbreaks of hostilities or other geopolitical instability. Deterioration in economic or diplomatic relations between Korea and its trading partners or allies, including deterioration resulting from territorial or trade disputes or disagreements in foreign policy (such as the controversy between Korea and China, which is Korea’s largest export market, regarding the deployment of a Terminal High Altitude Area Defense system in Korea by the United States in March 2017 and the economic and other retaliatory actions by

China during the remainder of 2017), or a combination of these or other factors, have, in the past adversely affected, and may in the future adversely affect, demand for our products.

Economic weakness in Asia may also adversely affect our sales to the Korean companies that export to the region, especially companies in the construction, shipbuilding, automotive, electrical appliances and downstream steel processing industries. Weaker demand in these countries, combined with addition of new steelan increase in global production capacity, particularly in China, may also reduce export prices in Dollar terms of our principal products.products sold to customers in Asia. For a discussion of productionover-capacity in the global steel industry, see “— We operate in the highly competitive steel, trading and construction industries, and our failure to successfully compete would adversely affect our market position and business.” We attempt to maintain and expand our export sales to generate foreign currency receipts to cover our foreign currency purchases and debt service requirements. Consequently, any decrease in our export sales could also increase our foreign exchange risks.

Depreciation of the value of the Won against the Dollar and other major foreign currencies may have a material adverse effect on the results of our operations and on the price of the ADSs.

Our consolidated financial statements are prepared from our local currency denominated financial results, assets and liabilities and our subsidiaries around the world, which are then translated into Won. A substantial proportion of our consolidated financial results is accounted for in currencies other than the Won. Accordingly, our consolidated financial results and assets and liabilities may be materially affected by changes in the exchange rates of foreign currencies. In 2014, 55.4%2017, 61.0% of our total revenue from steel products produced and sold by us was in overseas markets outside of Korea. To the extent that we incur costs in one currency and make sales in another, our profit margins may be affected by changes in the exchange rates between the two currencies. Since the currency in which sales are recorded may not be the same as the currency in which expenses are incurred, foreign exchange rate fluctuations may materially affect our results of operations. Depreciation of the Won may materially affect the results of our operations because, among other things, it causes:

 

an increase in the amount of Won required for us to make interest and principal payments on our foreigncurrency-denominated debt;

an increase in Won terms in the costs of raw materials and equipment that we purchase from overseas sources and a substantial portion of our freight costs, which are denominated primarily in Dollars; and

 

foreign exchange translation losses on liabilities, which lower our earnings for accounting purposes.

Appreciation of the Won against major currencies, on the other hand, causes:

 

our export products to be less competitive by raising our prices in Dollar, Yen and Renminbi terms; and

 

a reduction in net sales and accounts receivables in Won from export sales, which are primarily denominated in Dollars and to a lesser extent in Yen and Renminbi.

The overall net impact from fluctuations of the Won against major currencies is difficult to estimate and varies from year to year. We strive to naturally offset our foreign exchange risk by matching foreign currency receivables with our foreign currency payables and our overseas subsidiaries have sought to further mitigate the adverse impact of exchange rate fluctuations by conducting business transactions in the local currency of the respective market in which the transactions occur. In particular, Daewoo International’sPOSCO Daewoo’s exposure to fluctuations in exchange rates, including the Won/Dollar exchange rate, is limited because trading transactions typically involve matched purchase and sale contracts, which result in limited settlement exposure, and because Daewoo International’s

POSCO Daewoo’s contracts with domestic suppliers of products for export and with domestic purchasers of imported products are generally denominated in Dollars. Although the impact of exchange rate fluctuations is partially mitigated by such strategies, we and our subsidiaries, particularly POSCO Daewoo International and POSCO Engineering & Construction Co., Ltd. (“POSCO E&C”), also periodically enter into derivative contracts, primarily foreign currency swaps and forward exchange contracts, to further hedge some of our foreign exchange risks. However, our results of operations have historically been affected by exchange rate fluctuations and there can be no assurance that such strategies will be sufficient to reduce or eliminate the adverse impact of such fluctuations in the future. Because of the larger positive effects of the appreciation of the Won (i.e., the reverse of the negative effects caused by the depreciation of the Won, as discussed above), depreciation of the Won generally has a negative impact on our results of operations.

Fluctuations in the exchange rate between the Won and the Dollar will also affect the Dollar equivalent of the Won price of the shares of our common stock on the KRX KOSPI Market and, as a result, will likely affect the market price of the ADSs. These fluctuations will also affect the Dollar conversion by the depositary for the ADRs of cash dividends, if any, paid in Won on shares of common stock represented by the ADSs.

We are dependent on imported raw materials, and significant increases in market prices of essential raw materials could adversely affect our margins and profits.

We purchase substantially all of the principal raw materials we use from sources outside Korea, including iron ore and coal. POSCO imported approximately 53.852.9 million dry metric tons of iron ore and 28.427.4 million wet metric tons of coal in 2014.2017. Iron ore is imported primarily from Australia, Brazil and Canada. Coal is imported primarily from Australia, Canada Russia and the United States.Russia. Although we have not experienced significant unanticipated supply disruptions in the past, supply disruptions, which could be caused by political or other events in the countries from which we import these materials, could adversely affect our operations. In addition, we are particularly exposed to increases in the prices of coal, iron ore and nickel, which represent the largest components of our cost of goods sold. The prices of our key raw materials have fluctuated significantly in recent years. For example, the average market price of coal per wet metric ton (benchmark free on board price of Peak Downs Australian premium hard coking coal) was US$209102 in 2012,2015, US$159114 in 20132016 and US$125217 in 2014.2017. The average market price of iron ore per dry metric ton (free on board price of Platts Iron(Iron Ore 62% Fe, CFR China index with iron (Fe) 62% content)announced by Platts) was US$12251 in 2012,2015, US$12654 in 20132016 and US$8864 in 2014.

2017.

Ourlong-term supply contracts generally have terms of three to ten years and provide for periodic price adjustments to thethen-market prices. We typically adjust the prices on a quarterly basis and maintain approximately one month of inventory of raw materials. Such price negotiationsadjustments are driven by various factors, including the global economic outlook, global market prices of raw materials and steel products, supply and demand outlook of raw materials and production costs of raw materials. Typically,In the case of coal, globally influencedinfluential buyers and sellers of raw materialscoal determine benchmark prices of raw materials,coal, based on which other buyers and sellers negotiate their prices after taking into consideration the quality of raw materialscoal and other factors. In the case of iron ore, if we fail to agree on the quarterly price adjustment within a predetermined deadline, the supplier and we typically agree on the purchase price primarily based on the price formula that reflects the spot market price as well as the quality of iron ore and transportation expense.periodically announced by Platts (Iron Ore 62% Fe, CFR China Index). As of December 31, 2014, 1372017, 116 million tons of iron ore and 3218 million tons of coal remained to be purchased underlong-term supply contracts. Future increases in prices of our key raw materials and our inability to pass along such increases to our customers could adversely affect our margins and profits. Increased prices may also cause potential customers to defer purchase of steel products, while rapidly falling prices may increase loss on valuation of raw material inventory purchased when prices were higher, either of which wouldcould have an adverse effect on our business, financial condition and results of operations.

We operate in the highly competitive steel, trading and constructingconstruction industries, and our failure to successfully compete would adversely affect our market position and business.

Steel. The markets for our steel products are highly competitive and we face intense global competition. In recent years, driven in part by strong growth in steel consumption in the developing world, particularly in China, the global steel industry has experienced renewed interest in expansion of steel production capacity. China is the largest steel producing country in the world by a significant margin, with the

balance between its domestic production and demand being an important factor in the determination of global steel prices. In recent years, a slowdown in domestic demand for steel products in China resulting from slowed economic growth, combined with an expansion in steel production capacity, has led to production over-capacity in the Chinese steel industry, which in turn has led the Chinese government to pursue aggressive consolidation in the Chinese steel industry. In addition, the global steel industry has experienced consolidation in the past, decade, including through the merger of Mittal and Arcelor in 2006 that created a company with approximately 10% of global steel production capacity.2006. Competition from global steel manufacturers with expanded production capacity such as ArcelorMittal S.A. and new market entrants,as well as larger competitors from emerging markets, especially from China and India, havehas resulted in significant price competition and may result in declining margins and reductions in revenue.revenue in the future. Our larger competitors may use their resources, which may be greater than ours, against us in a variety of ways, including by making additional acquisitions, investing more aggressively in product development and capacity and displacing demand for our export products.

TheIn the past, increased production capacity, combined with a decrease indecreased demand due to the recentresulting from a slowdown of the global economy, has from time to time resulted in productionover-capacity in the global steel industry. Productionover-capacity in the global steel industry may intensify if the slowdown of the global economy is prolongedeconomic growth slows or demand from developing countries, particularly from China, does not meetcontinues to lag behind the recent growth in production capacity. Productionover-capacity in the global steel industry is likely to:

 

reduce export prices in Dollar terms of our principal products, which in turn may reduce our sales prices in Korea;

 

increase competition in the Korean market as foreign producers seek to export steel products to Korea as other markets experience a slowdown;

 

negatively affect demand for our products abroad and our ability to expand export sales; and

 

affect our ability to increase steel production in general.

Steel also competes with other natural and synthetic materials that may be used as steel substitutes, such as aluminum, cement, composites, glass, plastic and wood. Government regulatory

initiatives mandating the use of such materials instead of steel, whether for environmental or other reasons, as well as the development of attractive alternative substitutes for steel products, may reduce demand for steel products and increase competition in the global steel industry.

As part of our strategy to compete in this challenging landscape, we will continue to invest in developing innovative products that offer the greatest potential returns and enhance the overall quality of our products, as well as make additional investments in the development of new manufacturing technologies. However, there is no assurance that we will be able to continue to compete successfully in this economic environment or that the prolongeda slowdown of the global economy or productionover-capacity will not have a material adverse effect on our business, results of operations or financial condition.

Trading. POSCO Daewoo International competes principally with six other Korean general trading companies, each of which is affiliated with a major domestic business group, as well as global trading companies based in other countries. In the domestic market, competition for export transactions on behalf of domestic suppliers and import transactions on behalf of domestic purchasers was limited, as most affiliated general trading companies of large Korean business groups generally relied on affiliate transactions for the bulk of their trading business. However, in recent years, many of these Korean general trading companies have reduced their reliance on their affiliated business group and transactions carried out on behalf of their member companies and instead have generally evolved to focus on segments of the import and export markets in which they have a competitive advantage. As a result, competition among Korean general trading companies in the area of traditional trade has become more intense.

The overseas trading markets in which POSCO Daewoo International operates are also highly competitive. Daewoo International’sPOSCO Daewoo’s principal competitors in the overseas trading markets include Korean trading

companies that operate in various international markets, as well as foreign trading companies, particularly those based in Japan. As POSCO Daewoo International diversifies into businesses other than traditional trading such as natural resources development, it also increasingly competes with other Korean and international companies involved in these businesses. Some of Daewoo International’sPOSCO Daewoo’s competitors may be more experienced and have greater financial resources and pricing flexibility than POSCO Daewoo, International, as well as more extensive global networks and wider access to customers. There is no assurance that POSCO Daewoo International will be able to continue to compete successfully in this economic environment or that the prolonged slowdown of the global economy will not have a material adverse effect on its business, results of operations or financial condition.

Construction.POSCO E&C, our consolidated subsidiary, in which we hold an 89.5% interest, operates in the highly competitive construction industry. Competition is based primarily on price, reputation for quality, reliability, punctuality and financial strength of contractors. Intense competition among construction companies may result in, among other things, a decrease in the price POSCO E&C can charge for its services, difficulty in winning bids for construction projects, an increase in construction costs and difficulty in obtaininghigh-quality contractors and qualified employees.

In Korea, POSCO E&C’s main competition in the construction of residential andnon-residential buildings, EPC (or engineering, procurement and construction) projects, urban planning and development projects and civil works projects consists of approximately ten major domestic construction companies, allmany of which are member companies of other large business groups in Korea and are capable of undertakinglarger-scale,higher-value-added projects that offer greater potential returns. A series of measures introduced by the Government over the past few years to regulate housing prices in Korea, as well as increasing popularity oflow-bid contracts in civil works project mandates, have contributed to increased competition in the Korean construction industry in recent years.

Competition for new project awards in overseas markets is also intense. In these markets, POSCO E&C faces competition from local construction companies, as well as international

construction companies from other countries, including other major Korean construction companies with overseas operations. Construction companies from other developed countries may be more experienced, have greater financial resources and possess more sophisticated technology than POSCO E&C, while construction companies from developing countries often have the advantage of lower wage costs. Some of these competitors have achieved higher market penetration than POSCO E&C has in specific markets in which it competes, and POSCO E&C may need to accept lower margins in order for it to compete successfully against them. POSCO E&C’s failure to successfully compete in the domestic or overseas construction markets could adversely affect its market position and its results of operations and financial condition.

We may not be able to successfully execute our diversification strategy.

In part to prepare for the eventual maturation of the Korean steel market, our overall strategy includes securingwe have made investments in the past decade to secure new growth engines by diversifying into new businesses related to our steel operations that we believe will offer greater potential returns, such as participation in EPC projects in the steel sector and natural resources development, as well as entering into new businesses not related to our steel operations such as power generation and alternative energy solutions, and production of comprehensive materials such as lithium, magnesium sheet, nickel silicon, carbon and magnesium, information and technology consulting services, and automation and system integration engineering services.cobalt. From time to time, we may selectively acquire or invest in companies to pursue such diversification strategy. For example, in September 2010, we acquired a controlling interest in Daewoo International for Won 3.37 trillion. Daewoo International is a global trading company that primarily engages in trading of steel and raw materials as well as investing in energy and mineral development projects.

The success of the overall diversification strategy will depend, in part, on our ability to realize the growth opportunities and anticipated synergies. The realization of the anticipated benefits depends on numerous factors, some of which are outside our control, including the availability of qualified personnel, establishment of new relationships and expansion of existing relationships with various

customers and suppliers, procurement of necessary technology andknow-how to engage in such businesses and access to investment capital at reasonable costs. The realization of the anticipated benefits may be impeded, delayed or reduced as a result of numerous factors, some of which are outside our control. These factors include:

 

difficulties in integrating the operations of the acquired business, including information and accounting systems, personnel, policies and procedures, and in reorganizing or reducing overlapping operations, marketing networks and administrative functions, which may require significant amounts of time, financial resources and management attention;

 

unforeseen contingent risks or latent liabilities relating to the acquisition that may become apparent in the future;

 

difficulties in managing a larger business; and

 

loss of key management personnel or customers.

Accordingly,In addition, in order to finance these acquisitions, we intend to use cash on hand, funds from operations, issuances of equity and debt securities, and, if necessary, financings from banks and other sources as well as entering into consortiums with financial investors. However, no assurance can be given that we will be able to obtain sufficient financing for such acquisitions or investments on terms commercially acceptable to us or at all. We cannot assure you that our diversification strategy can be completed profitably or that the diversification efforts will not adversely affect our combined business, financial condition and results of operations.

Expansion of our production operations abroad is important to ourlong-term success, and our limited experience in the operation of our business outside Korea increases the risk that our international expansion efforts will not be successful.

We conduct international trading and construction operations abroad, and our business relies on a global trading network comprised of overseas subsidiaries, branches and representative offices. Although many of our subsidiaries and overseas branches are located in developed countries, we also

operate in numerous countries with developing economies. In addition, we intend to continue to expand our steel production operations internationally by carefully seeking out promising investment opportunities, particularly in China, India, Southeast Asia and Latin America, in part to prepare for the eventual maturation of the Korean steel market. We may enter into additional joint ventures with foreign steel producers that would enable us to rely on these businesses to conduct our operations, establish local networks and coordinate our sales and marketing efforts abroad. To the extent that we enter into these arrangements, our success will depend in part on the willingness of our partner companies to dedicate sufficient resources to their partnership with us.

In other situations, we may decide to establish manufacturing facilities by ourselves instead of relying on partners. The demand and market acceptance for our products produced abroad are subject to a high level of uncertainty and are substantially dependent upon the market condition of the global steel industry. We cannot assure you that our international expansion plan will be profitable or that we can recoup the costs related to such investments.

Expansion of our trading, construction and production operations abroad requires management attention and resources. In addition, we face additional risks associated with our expansion outside Korea, including:

 

challenges caused by distance, language and cultural differences;

 

higher costs associated with doing business internationally;

 

legal and regulatory restrictions, including foreign exchange controls that might prevent us from repatriating cash earned in countries outside Korea;

longer payment cycles in some countries;

 

credit risk and higher levels of payment fraud;

 

currency exchange risks;

 

potentially adverse tax consequences;

 

political and economic instability; and

 

seasonal reductions in business activity during the summer months in some countries.

We have limited insurance coverage and may incur significant losses resulting from operating hazards, product liability claims from customers or business interruptions.

The normal operation of our manufacturing facilities may be interrupted by accidents caused by operating hazards, power supply disruptions and equipment failures, as well as natural disasters. As with other industrial companies, our operations involve the use, handling, generation, processing, storage, transportation and disposal of hazardous materials, which may result in fires, explosions, spills and other unexpected or dangerous accidents causing property damage as well as personal injuries or death. We are also exposed to risks associated with product liability claims in the event that the use of the products we sell results in injury. We maintain property insurance for our property, plant and equipment that we believe to be consistent with market practice in Korea. However, we may not have adequate resources to satisfy a judgment in excess of our insurance coverage in the event of a successful claim against us. Any occurrence of accidents or other events affecting our operations could result in potentially significant monetary damages, diversion of resources, production disruption and delay in delivery of our products, which may have a material adverse effect on our business, financial condition and results of operations.

We may from time to time engage in acquisitions for which we may be required to seek additional sources of capital.

From time to time, we may selectively acquire or invest in companies or businesses that may complement our business. In order to finance these acquisitions, we intend to use cash on hand, funds from operations, issuances of equity and debt securities, and, if necessary, financings from banks and other sources as well as entering into consortiums with financial investors. However, no assurance can be given that we will be able to obtain sufficient financing for such acquisitions or investments on terms commercially acceptable to us or at all. We also cannot assure you that such financings and related debt payment obligations will not have a material adverse impact on our financial condition, results of operations or cash flow.

Further increases in, or new impositions of,anti-dumping, safeguard or countervailing duty proceedings may have an adverse impact on our export sales.

In recent years,As a steel producer with global sales and operations, we have become subject to a number of anti-dumping dutiesare involved in trade remedy proceedings in markets worldwide, including in the United States, Canada, India, Indonesia, Australia, Thailand, Brazil, TaiwanStates. We proactively participate in and Malaysiaplan for such proceedings to minimize any adverse effects and safeguard dutiesassociated risks. While there has been an increase in Thailand. We are also subject to athe number of on-going anti-dumpingtrade cases in recent years, and safeguard investigationsan increased focus on trade issues by government officials, all such cases have been product andmarket-specific, and thus have been limited in Malaysia, the European Union, Indonesia, India and Thailand. In addition, the Mexican government initiated an anti-dumping investigation in October 2012 relatingscope relative to our exportsglobal sales and operations. We continue to carefully monitor developments with respect to trade remedy policy in all markets in which we participate and, where necessary, vigorously defend our rights through litigation before tribunals such as the U.S. Court of cold rolled steel products, and the investigation was suspended until 2018 on condition that we comply with supply undertakings.International Trade. Our products that are subject toanti-dumping duties, safeguard duties, countervailing duties, quotas or countervailing duty proceedingstariffs in the aggregate currently do not account for a material portion of our total sales, and such proceedings have not had a material adverse impact on our business and operations in recent years. However, there can be no assurance that increases in, or new impositions of,anti-dumping duties, safeguard duties, countervailing duties, quotas or tariffs on our exports of products abroad may not have a material adverse impact on our exports in the future. See “Item 4. Information on the Company — Item 4.B. Business Overview — Markets — Exports.”

We participate in overseas natural resources exploration, development and production projects abroad, which expose us to various risks.

As part of consortia or through acquisitions of minority interests, we engage in overseas natural resources exploration, development and production projects in various locations, including a gas field exploration project in Myanmar in which Daewoo International had invested approximately US$ 1,808 million as of December 31, 2014 and plans to make further investments in the future. Daewoo International began recognizing revenue from the Myanmar gas field project starting in November 2013.Wethrough POSCO Daewoo. We may also selectively acquire or invest in companies or businesses that engage in such activities. As part of our efforts to diversify our operations, we intend to continue toselectively expand our operations by carefully seeking out promising

exploration, development and production opportunities abroad. To the extent that we enter into these arrangements, our success in these endeavors will depend in part on the willingness of our partner companies to dedicate sufficient resources to their partnership with us.us, as well as our ability to finance such investments.

The demand and market acceptance for such activities abroad are subject to a substantially higher level of uncertainty than our traditional steel business and are substantially dependent upon the market condition of the global natural resources industry as well as the political and social environment of the target countries. The performance of projects in which we participate may be adversely affected by the occurrence of military hostility, political unrest or acts of terrorism. In addition, some of our current exploration, development and production projects involve drilling exploratory wells on properties with no proven amount of natural resource reserves. Although all drilling, whether developmental or exploratory, involves risks, exploratory drilling involves greater risks of dry holes or failure to find commercial quantities of natural resources. Other risks to which such activities are subject include obtaining required regulatory approvals and licenses, securing and maintaining adequate property rights to land and natural resources, and managing local opposition to project development. A decrease in the market price of raw materials may also adversely impact the value of our investments related to natural resources projects. For example, in connection with our disposition of a minority interest in Nacional Minerios S.A., an iron ore mining company in Brazil in which we had invested in December 2008, we recognized Won 96 billion of impairment loss on assets held for sale in 2015 as well as an additional loss of Won 189 billion from our disposal of such assets in 2015. We have limited experience in this business, and we cannot assure you that our overseas natural resources exploration, development and

production projects will be profitable, that we will be able to meet the financing requirements for such projects, or that we can recoup the costs related to such investments, which in turn could materially and adversely affect our business, financial condition and results of operations.

We may encounter problems with joint overseas natural resources exploration, development and production projects andlarge-scale infrastructure projects, which may materially and adversely affect our business.

In recent years, we have begun to focus increasingly on overseas natural resources exploration, development and production projects. We typically pursue theseour natural resources exploration, development and production projects jointly with consortium partners or through acquisition of minority interests in such projects, and we expect to be involved in other joint projects in the future. We sometimes hold a majority interest in the projects among the consortium partners, but we often lack a controlling interest in the joint projects. Therefore, we may not be able to require that our joint ventures sell assets or return invested capital, make additional capital contributions or take any other action without the vote of at least a majority of our consortium partners. If there are disagreements between our consortium partners and us regarding the business and operations of the joint projects, we cannot assure you that we will be able to resolve them in a manner that will be in our best interests. Certain major decisions, such as selling a stake in the joint project, may require the consent of all other partners. These limitations may adversely affect our ability to obtain the economic and other benefits we seek from participating in these projects.

In addition, our consortium partners may:

 

have economic or business interests or goals that are inconsistent with us;

 

take actions contrary to our instructions, requests, policies or objectives;

 

be unable or unwilling to fulfill their obligations;

 

have financial difficulties; or

 

have disputes with us as to their rights, responsibilities and obligations.

Any of these and other factors may have a material adverse effect on the performance of our joint projects and expose us to a number of risks, including the risk that the partners may be incapable

of providing the required financial support to the partnerships and the risk that the partners may not be able to fulfill their other obligations, resulting in disputes not only between our partners and us, but also between the joint ventures and their customers. Such a material adverse effect on the performance of our joint projects may in turn materially and adversely affect our business, results of operations and financial condition.

Cyclical fluctuations based on macroeconomic factors may adversely affect POSCO E&C’s business and performance.

In order to complement our steel operations, weWe engage in engineering and construction activities through POSCO E&C, an 89.5%-owned subsidiary.&C. The construction segment, which accounted for approximately 12.5% of our consolidated sales in 2014 after adjusting for inter-company sales and not taking into account the basis difference described in Note 42 of Notes to Consolidated Financial Statements,Construction Segment is highly cyclical and tends to fluctuate based on macroeconomic factors, such as consumer confidence and income, employment levels, interest rates, inflation rates, demographic trends and policies of the Government. Although we believe that POSCO E&C’s strategy of focusing on high-value-added plantFrom time to time, the construction industry has experienced significant and urban planningsometimes prolonged downturns, and development projects such as Songdo New City has enabled it to be exposed to a lesser degree to general economic conditions in Korea in comparison to some of its domestic competitors, our construction revenues have fluctuated in the past depending on the level of domesticpublic and private sector construction activity including new construction orders.activities in Korea and abroad. In addition, the performance of POSCO

E&C’s domestic residential property business is highly dependent on the general condition of the real estate market in Korea. The Government has taken measures to support the Korean construction operations could sufferindustry in recent years, including easing of regulations imposed on redevelopment of apartment buildings and resale restrictions in the futuremetropolitan areas, as well as reductions in property taxes. Although the eventKorean residential real estate market has shown signs of arecovery in recent years, the demand for construction activities abroad remains weak and the overall prospects for Korean construction companies in 2018 and beyond remain uncertain. A prolonged general downturn in the construction market resulting in weaker demand which couldmay adversely affect POSCO E&C’sour business, results of operations or financial condition.

Many of POSCO E&C’s domestic and overseas construction projects are on afixed-price basis, which could result in losses for us in the event that unforeseen additional expenses arise with respect to the project.

Many of POSCO E&C’s domestic and overseas construction projects are carried out on afixed-price basis according to a predetermined timetable, pursuant to the terms of afixed-price contract. Under suchfixed-price contracts, POSCO E&C retains all cost savings on completed contracts but is also liable for the full amount of all cost overruns and may be required to pay damages for late delivery. The pricing offixed-price contracts is crucial to POSCO E&C’s profitability, as is its ability to quantify risks to be borne by it and to provide for contingencies in the contract accordingly.

POSCO E&C attempts to anticipate costs of labor, raw materials, parts and components in its bids onfixed-price contracts. However, the costs incurred and gross profits realized on afixed-price contract may vary from its estimates due to factors such as:

 

unanticipated variations in labor and equipment productivity over the term of a contract;

 

unanticipated increases in labor, raw material, parts and components, subcontracting and overhead costs, including as a result of bad weather;

 

delivery delays and corrective measures for poor workmanship; and

 

errors in estimates and bidding.

If unforeseen additional expenses arise over the course of a construction project, such expenses are usually borne by POSCO E&C, and its profit from the project will be correspondingly reduced or eliminated. For example, we incurred losses in recent years in connection with a delay in the construction ofCSP-Companhia Siderurgia do Pecem steel plant complex in Brazil. If POSCO E&C experiences significant unforeseen additional expenses with respect to its fixed price projects, it may incur losses on such projects, which could have a material adverse effect on its financial condition and results of operations.

POSCO E&C’s domestic residential property business is highly dependent on the real estate market in Korea.

The performance of POSCO E&C’s domestic residential property business is highly dependent on the general condition of the real estate market in Korea. The construction industry in Korea is experiencing a downturn due to excessive investment in recent years in residential property development projects, stagnation of real property prices and reduced demand for residential property, especially in areas outside of Seoul. In addition, as liquidity and credit concerns and volatility in the global financial markets increased significantly starting in September 2008, there has been a general decline in the willingness by banks and other financial institutions in Korea to engage in project financing and other lending activities to construction companies, which may adversely impact POSCO E&C’s ability to meet its desired funding needs. The Government has taken measures to support the Korean construction industry, including easing of regulations imposed on redevelopment of apartment buildings and resale restrictions in the metropolitan areas, as well as reductions in property taxes. Although the Korean real estate market temporarily recovered in the second half of 2009 and into 2010, declines in demand and price took place in the Korean real estate market in recent years due to the downturn of the domestic economic cycle and financial risk in Europe, and the overall prospects for the Korean real estate market in 2015 and beyond remain uncertain.

We are subject to environmental regulations, and our operations could expose us to substantial liabilities.

We are subject to national and local environmental laws and regulations, including increasing pressure to reduce emission of carbon dioxide relating to our manufacturing process, and our steel manufacturing and construction operations could expose us to risk of substantial liability relating to environmental or health and safety issues, such as those resulting from discharge of pollutants and carbon dioxide into the environment, the handling, storage and disposal of solid or hazardous materials or wastes and the investigation and remediation of contaminated sites. We may be responsible for the investigation and remediation of environmental conditions at currently and formerly operated manufacturing or construction sites. For example, we recognized provisionincurred expenses of Won 89 billion in 2014 relatedrecent years relating to restoration costscontamination of contaminated land near our magnesium smelting plant located in Gangneung, Korea.Korea and gas treatment plant located in our Pohang Works. We may also be subject to associated liabilities, including liabilities for natural resource damage, third party property damage or personal injury resulting from lawsuits brought by the Government or private litigants. In the course of our operations, hazardous wastes may be generated at thirdparty-owned or operated sites, and hazardous wastes may be disposed of or treated at thirdparty-owned or operated disposal sites. If those sites become contaminated, we could also be held responsible for the cost of investigation and remediation of such sites, for any associated natural resource damage, and for civil or criminal fines or penalties.

If our cybersecurity measures are breached, we may incur significant legal and financial exposure, damage to our reputation and a loss of confidence of our customers.

Our business involves the storage and transmission of large amounts of confidential information, and cybersecurity breaches expose us to a risk of loss of this information, which may lead to improper use or disclosure of such information, ensuing potential liability and litigation, any of which could harm our reputation and adversely affect our business. Although there has been no material instance where an unauthorized party was able to obtain access to our data or our customers’ data, there can be no assurance that we will not be vulnerable to cyber-attacks in the future. Our cybersecurity measures may also be breached due to employee error, malfeasance or otherwise. Instituting appropriate access controls and safeguards across all our information technology infrastructure is challenging. Furthermore, outside parties may attempt to fraudulently induce employees to disclose sensitive information in order to gain access to our data or our customers’ data or accounts, or may otherwise obtain access to such data or accounts. Because the techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach of our cybersecurity occurs or the market perception of the effectiveness of our cybersecurity measures is harmed, we may incur significant legal and financial exposure, including legal claims and regulatory fines and penalties, damage to our reputation and a loss of confidence of our customers, which could have an adverse effect on our business, financial condition and results of operations.

Failure to protect our intellectual property rights could impair our competitiveness and harm our business and future prospects.

We believe that developing new steel manufacturing technologies that can be differentiated from those of our competitors, such as FINEX, strip casting and silicon steel manufacturing technologies, is critical to the success of our business. We take active measures to obtain protection of our intellectual property by obtaining patents and undertaking monitoring activities in our major markets. However, we cannot assure you that the measures we are takingtake will effectively deter competitors from improper use of our proprietary technologies. Our competitors may misappropriate our intellectual property, disputes as to ownership of intellectual property may arise and our intellectual property may otherwise become known or independently developed by our competitors. Any failure to protect our intellectual property could impair our competitiveness and harm our business and future prospects.

We rely on trade secrets and other unpatented proprietaryknow-how to maintain our competitive position, and unauthorized disclosure of our trade secrets or other unpatented proprietaryknow-how could negatively affect our business.

We rely on trade secrets and unpatented proprietaryknow-how and information. We enter into confidentiality agreements with each of our employees and consultants upon the commencement of an employment or consulting relationship. These agreements generally provide that all inventions, ideas, discoveries, improvements and patentable material made or conceived by the individual arising out of the employment or consulting relationship and all confidential information developed or made known to the individual during the term of the relationship is our exclusive property. We cannot assure the enforceability of these types of agreements, or that they will not be breached. We also cannot be certain that we will have adequate remedies for any breach. The disclosure of our trade secrets or otherknow-how as a result of such a breach could adversely affect our business.

We face the risk of litigation proceedings relating to infringement of intellectual property rights of third parties, which, if determined adversely to us, could cause us to lose significant rights, pay significant damage awards or suspend the sale of certain products.

Our success depends largely on our ability to develop and use our technology andknow-how in a proprietary manner without infringing the intellectual property rights of third parties. The validity and

scope of claims relating to technology and patents involve complex scientific, legal and factual questions and analysis and, therefore, may be highly uncertain. In addition, because patent applications in many jurisdictions are kept confidential for an extended period before they are published, we may be unaware of other persons’ pending patent applications that relate to our products or manufacturing processes. Accordingly, we face the risk of litigation proceedings relating to infringement of intellectual property rights of third parties. See “Item 8.A. Consolidated Statements and Other Financial Information — Legal Proceedings.”

The plaintiffs in actions relating to infringement of intellectual property rights typically seek injunctions and substantial damages. Although patent and other intellectual property disputes are often settled through licensing or similar arrangements, there can be no assurance that such licenses can be obtained on acceptable terms or at all. Accordingly, regardless of the scope or validity of disputed patents or the merits of any patent infringement claims by potential or actual litigants, we may have to engage in protracted litigation. The defense and prosecution of intellectual property suits, patent opposition proceedings and related legal and administrative proceedings can be both costly and time consuming and may significantly divert the efforts and resources of our technical and management personnel. An adverse determination in any such litigation or proceedings could subject us to pay substantial damages to third parties, require us to seek licenses from third parties and pay ongoing royalties or redesign certain products, or subject us to injunctions prohibiting the manufacture and sale of our products or the use of technologies in certain jurisdictions. The occurrence of any of the foregoing could have a material adverse effect on our reputation, business, financial condition and results of operations.

We may be exposed to potential claims for unpaid wages and become subject to additional labor costs arising from the Supreme Court of Korea’s interpretation of ordinary wages.

Under the Labor Standards Act, an employeeemployee’s “ordinary wage” is legally entitled to “ordinary wages.” Underused as the guidelines previously issued by the Ministry of Employment and Labor (formerly the Ministry of Labor), ordinary wages include base salary and certain fixed monthly allowancesbasis for overtime work performed during night shifts and holidays.calculating various statutory benefits. Prior to the Supreme Court of Korea’s decision described below, we and other companies in Korea had interpreted thesethe guidelines issued by the Ministry of Employment and Labor as excluding fixed bonuses that are paid other than on a monthly basis, (suchsuch as bi-monthly,bi monthly, quarterly or biannually paid bonuses)bonuses, from the scope ofemployees’ ordinary wages.

On December 18, 2013, the Supreme Court of Korea ruled that regularly paid bonuses, including those that are paid other than on a monthly basis, shall be deemedare included in the scope of employees’ ordinary wages if these bonuses are paid “regularly” and “uniformly” on a “fixed basis” notwithstanding

differential amounts based on seniority. The Supreme Court of Korea ruled that if regular bonus payments are limited to only those working for the employer on a specific date, such bonuses are not fixed and thus do not constitute part of ordinary wage. In addition, underUnder this decision, any provision of a collective bargaining agreement or labor-management agreementother agreements that attemptsattempt to exclude such regular bonuses from employees’ ordinary wagewages will be deemed void for violation of the mandatory provisions of Korean law. However, the Supreme Court of Korea further ruled that an employee’s claim for underpayments under the expanded scope of ordinary wages for the past three years within the statute of limitations may be denied based on principles of good faith if (i) there is an agreement between the employer and employees that the regular bonus shall be excluded from ordinary wage in determining the total amount of wage, (ii) such claim results in further wage payments that far exceed the level of total amount of wage agreed between the employer and employees, and (iii) such claim would cause an unexpected financial burden to the employer leading to material managerial difficulty or a threat to the employer’s existence. The principles of good faith, however, do not apply to an agreement on wages entered into between the employer and employees after December 18, 2013, the date of the above decision of the Supreme Court of Korea.

In light of theThe Supreme Court of Korea’s decision above,clarified that if payment of a regular bonus is limited only to those working for the employer on a specific date, such bonus is not fixed and thus does not constitute part of an employee’s ordinary wage. The Ministry of Employment and Labor subsequently published its new guidelines (the “Guidelines”) on January 23, 2014.2014 (the “Guidelines”). According to the Guidelines, the

Government excludes, from ordinary wage,wages, regular bonuses contingent on employment on a specific date. Based on the Supreme Court of Korea’s decision and the Guidelines, we believe that regular bonuses that we have paid to our employees are likely not required to be excluded fromincluded in their ordinary wage sincewages because we have paid regular bonuses only to only those working for us on the initial date of payment calculation, the 15th day of each month. However, if we are nonetheless determined to have underpaid employees by under-calculating their ordinary wages over the Supreme Court decision may result in additional labor costs to uspast three years or in the form offuture, we may be liable for additional payments underreflecting the expanded scope of employees’ ordinary wages applicable in the past three years as well as to be incurred in the future, whichwages. Any such additional payments may have an adverse effect on our financial condition and results of operations.

Escalations in tensions with North Korea could have an adverse effect on us and the market value of our common shares and ADSs.

Relations between Korea and North Korea have been tense throughout Korea’s modern history. The level of tension between the two Koreas has fluctuated and may increase abruptly as a result of current and future events. In particular, since the death of Kim Jong-il in December 2011, there has been increased uncertainty with respect to the future of North Korea’s political leadership and concern regarding its implications for political and economic stability in the region. Although Kim Jong-il’s third son, Kim Jong-eun, has assumed power as his father’s designated successor, the long-term outcome of such leadership transition remains uncertain.

In addition, there have been heightened security concerns in recent years stemming from North Korea’s nuclear weapon and long-rangeballistic missile programs as well as its hostile military actions against Korea. Some of the significant incidents in recent years include the following:

 

In April 2013, North Korea blocked access to the inter-Korean industrial complex in its border city of Gaeseong to South Koreans, while the U.S. deployed nuclear-capable stealth bombers and destroyers to Korean air and sea space.

In March 2013, North Korea stated that it had entered “a state of war” with Korea, declaring the 1953 armistice invalid, and put its artillery at the highest level of combat readiness to protest the Korea-United States allies’ military drills and additional sanctions imposed on North Korea for its missile and nuclear tests.

North Korea renounced its obligations under the NuclearNon-Proliferation Treaty in January 2003 and conducted threesix rounds of nuclear tests betweensince October 2006, to February 2013,including claimed detonations of hydrogen bombs, which increased tensions inare more powerful than plutonium bombs, and warheads that can be mounted on ballistic missiles. Over the regionyears, North Korea has also conducted a series of ballistic missile tests, including missiles launched from submarines and elicited strong objections worldwide.intercontinental ballistic missiles that it claims can reach the United States mainland. In response, the Government has repeatedly condemned the provocations and flagrant violations of relevant United Nations Security Council resolutions. In February 2016, the Government also closed the inter-Korea Gaesong Industrial Complex in response to North Korea’s fourth nuclear test in January 2016. Internationally, the United Nations Security Council unanimouslyhas passed a series of resolutions that condemnedcondemning North Korea forKorea’s actions and significantly expanding the nuclear tests and expandedscope of sanctions againstapplicable to North Korea, most recently in March 2013.December 2017 in response to North Korea’s intercontinental ballistic missile test in November 2017. Over the years, the United States and the European Union have also expanded their sanctions applicable to North Korea.

 

In December 2012,August 2015, two Korean soldiers were injured in a landmine explosion near the Korean demilitarized zone. Claiming the landmines were set by North Koreans, the Korean army reinitiated its propaganda program toward North Korea launched a satellite into orbit using a long-range rocket, despite concernsutilizing loudspeakers near the demilitarized zone. In retaliation, the North Korean army fired artillery rounds on the loudspeakers, resulting in the international community that such a launch would be in violationhighest level of the agreement with the United States as well as the United Nations Security Council resolutions that prohibit North Korea from conducting launches that use ballistic missile technology.military readiness for both Koreas.

 

In March 2010, a Korean naval vessel was destroyed by an underwater explosion, killing many of the crewmen on board. The Government formally accused North Korea of causing the sinking, while North Korea denied responsibility. Moreover, in November 2010, North Korea fired more than one hundred artillery shells that hit Korea’s Yeonpyeong Island near the Northern Limit Line, which acts as the de facto maritime boundary between Korea and North Korea on the west coast of the Korean peninsula, causing casualties and significant property damage. The Government condemned North Korea for the attack and vowed stern retaliation should there be further provocation.

North Korea on the west coast of the Korean peninsula, causing casualties and significant property damage. The Government condemned North Korea for the attack and vowed stern retaliation should there be further provocation.

North Korea’s economy also faces severe challenges, thatwhich may further aggravate social and political pressures within North Korea. There

Although a bilateral summit between the two Koreas was held on April 27, 2018 and there has been an announcement in March 2018 of a potential summit between the United States and North Korea, there can be no assurance that the level of tensions affecting the

Korean peninsula will not escalate in the future. Any further increase in tensions, which may occur, for example, if North Korea experiences a leadership crisis,high-level contacts between Korea and North Korea break down or further military hostilities occur, could have a material adverse effect on the Korean economy and on our business, results of operations and financial condition and the market valueresults of our common shares and ADSs.operations.

If you surrender your ADRs to withdraw shares of our common stock, you may not be allowed to deposit the shares again to obtain ADRs.

Under the deposit agreement, holders of shares of our common stock may deposit those shares with the ADR depositary’s custodian in Korea and obtain ADRs, and holders of ADRs may surrender ADRs to the ADR depositary and receive shares of our common stock. However, under current Korean laws and regulations, the depositary bank is required to obtain our prior consent for the number of shares to be deposited in any given proposed deposit that exceeds the difference between (i) the aggregate number of shares deposited by us for the issuance of ADSs (including deposits in connection with the initial and all subsequent offerings of ADSs and stock dividends or other distributions related to these ADSs) and (ii) the number of shares on deposit with the depositary bank at the time of such proposed deposit. It is possible that we may not give the consent. As a result, if you surrender ADRs and withdraw shares of common stock, you may not be able to deposit the shares again to obtain ADRs. See “Item 10. Additional Information — Item 10.D. Exchange Controls.”

You may not be able to exercise preemptive rights for additional shares of common stock and may suffer dilution of your equity interest in us.

The Commercial Code and our articles of incorporation require us, with some exceptions, to offer shareholders the right to subscribe for new shares in proportion to their existing ownership percentage whenever new shares are issued. If we issue new shares to persons other than our shareholders (See “Item 10.B. Memorandum and Articles of Association — Preemptive Rights and Issuance of Additional Shares”), a holder of our ADSs will experience dilution of such holding. If none of these exceptions is available, we will be required to grant preemptive rights when issuing additional common shares under Korean law. Under the deposit agreement governing the ADSs, if we offer any rights to subscribe for additional shares of our common stock or any rights of any other nature, the ADR depositary, after consultation with us, may make the rights available to you or use reasonable efforts to dispose of the rights on your behalf and make the net proceeds available to you. The ADR depositary, however, is not required to make available to you any rights to purchase any additional shares unless it deems that doing so is lawful and feasible and:

 

a registration statement filed by us under the Securities Act is in effect with respect to those shares; or

 

the offering and sale of those shares is exempt from or is not subject to the registration requirements of the Securities Act.

We are under no obligation to file any registration statement under the Securities Act to enable you to exercise preemptive rights in respect of the common shares underlying the ADSs, and we cannot assure you that any registration statement would be filed or that an exemption from the

registration requirement under the Securities Act would be available. Accordingly, if a registration statement is required for you to exercise preemptive rights but is not filed by us, you will not be able to exercise your preemptive rights for additional shares and may suffer dilution of your equity interest in us.

U.S. investors may have difficulty enforcing civil liabilities against us and our directors and senior management.

We are incorporated in Korea with our principal executive offices located in Seoul. The majority of our directors and senior management are residents of jurisdictions outside the United States, and

the majority of our assets and the assets of such persons are located outside the United States. As a result, U.S. investors may find it difficult to effect service of process within the United States upon us or such persons or to enforce outside the United States judgments obtained against us or such persons in U.S. courts, including actions predicated upon the civil liability provisions of the U.S. federal securities laws. It may also be difficult for an investor to enforce in U.S. courts judgments obtained against us or such persons in courts in jurisdictions outside the United States, including actions predicated upon the civil liability provisions of the U.S. federal securities laws. It may also be difficult for a U.S. investor to bring an action in a Korean court predicated upon the civil liability provisions of the U.S. federal securities laws against our directors and senior management andnon-U.S. experts named in this annual report.

We could be adversely affected if the U.S. government were to determine that our affiliate’s Iran-related business activities are sanctionable under the U.S. Iranian sanction laws and regulations.

We acquired a controlling interest in Sungjin Geotec Co., Ltd. (“Sungjin Geotec”), a manufacturer of specialized equipment used in the power and energy industries in May 2010. Sungjin Geotec merged with POSCO Plantec Co., Ltd. (“POSCO Plantec”) in July 2013, and we currently hold a 73.9% interest in POSCO Plantec. Prior to the merger, Sungjin Geotec entered into contracts with various suppliers to supply equipment for the development of natural gas fields in Iran, including natural gas fields located in South Pars that is led by Pars Oil and Gas Company, a subsidiary of National Iranian Oil Company. Sungjin Geotec recognized revenues of approximately Won 27 billion in 2010, Won 240 billion in 2011 and Won 134 billion in 2012, and net profits of approximately Won 1 billion in 2010, Won 15 billion in 2011 and Won 25 billion in 2012 related to such activities. Sungjin Geotec has completed or terminated all of its remaining outstanding supply contracts to sell equipment for the development of natural gas fields in Iran, and neither Sungjin Geotec nor POSCO Plantec (subsequent to the merger with Sungjin Geotec in July 2013) recognized any revenues nor profits from such activities in 2013 and 2014. POSCO Plantec does not plan to engage in any sale of equipment in Iran related to the country’s development of petroleum resources.

In July 2010, the United States adopted legislation that expands U.S. economic sanctions against foreign companies doing business with Iran in certain sectors. The Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (the “CISADA”) expands the scope of sanctionable activities by, among other things, broadening the definition of “investment” under the Iran Sanctions Act (the “ISA”) arguably to include the supply of goods for use in petroleum and gas production. The CISADA also expands the severity of potential sanctions available under the ISA and imposes mandatory investigation and reporting requirements designed to increase the likelihood of enforcement. The CISADA requires the imposition of sanctions against parties found by the U.S. administration, following an investigation, to have engaged in conduct sanctionable under the ISA, subject to certain waiver provisions and exceptions.

Under the ISA, as amended, sanctions can also be imposed against a company that has actual knowledge of, or should have known of, sanctionable conduct engaged in by another company that it owns or controls. A range of sanctions may be imposed on companies that engage in sanctionable activities, including among other things the blocking of any property subject to U.S. jurisdiction in which the sanctioned company has an interest, which could include a prohibition on transactions or dealings involving securities of the sanctioned company. By its terms, the CISADA is applicable to certain investments in Iran that commenced on or after July 1, 2010.

There can be no assurance that Sungjin Geotec’s Iran-related business activities did not constitute sanctionable activities or that we will not be subjected to sanctions under the ISA as amended by the CISADA. Our business and reputation could be adversely affected if the U.S. government were to determine that Sungjin Geotec’s Iran-related business activities constituted sanctionable activity attributable to us. Investors in our securities may also be adversely affected if we

are sanctioned under the CISADA or if their investment in our securities is restricted under any sanctions regimes with which the investors are required to comply. As noted above, sanctions under the ISA could include the blocking of any property in which we have an interest, which would effectively prohibit all U.S. persons from receiving any payments from us, or otherwise acquiring, holding, withholding, using, transferring, withdrawing, transporting, importing, or exporting any property in which we have any interest.

We expect to continue operations and investments relating to countries targeted by United States and European Union economic sanctions.

The U.S. Department of the Treasury’s Office of Foreign Assets Control, or “OFAC,” enforces certain laws and regulations (“OFAC Sanctions”) that impose restrictions upon U.S. persons and, in some instances, foreign entities owned or controlled by U.S. persons, with respect to activities or transactions with certain countries, governments, entities and individuals that are the subject of OFAC Sanctions (“U.S. Sanctions Targets”). U.S. persons are also generally strictly prohibited from facilitating such activities or transactions. Similarly, the European Union enforces certain laws and regulations (“E.U. Sanctions”) that impose restrictions upon nationals of E.U. member states, persons located within E.U. member states, entities incorporated or constituted under the law of an E.U. member state, or business conducted in whole or in part in E.U. member states with respect to activities or transactions with certain countries, governments, entities and individuals that are the subject of E.U. Sanctions (“E.U. Sanctions Targets” and together with U.S. Sanctions Targets, “Sanctions Targets”). E.U. persons are also generally prohibited from activities that promote such activities or transactions.

We engage in limited business activities in countries that are deemed Sanctions Targets, including Cuba, Iran, SyriaSudan and Sudan.Cuba. We produce and export, typically through our sales subsidiaries, steel products to such countries, including automotive steel sheets and other steel materials to Iranian entities. Our subsidiaries also engage in limited business activities in countries that are deemed Sanctions Targets. In particular, POSCO Daewoo International, a global trading company in which we hold a 60.3% interest, engages in the trading of steel, raw materials and other items with entities in countries that are deemed Sanctions Targets, including Iran, Sudan and Sudan. WeCuba.We believe that such activities and investments do not involve any U.S. goods or services. Our activities in Iran, Sudan and investments in Cuba Iran, Syria and Sudan accounted for approximately 1.4%0.7% of our consolidated revenues in 2012, 0.2%2015, 0.5% in 20132016 and 0.1%0.6% in 2014.2017.

We expect to continue to engage in business activities and make investments in countries that are deemed Sanctions Targets over the foreseeable future. Although we believe that OFAC Sanctions under their current terms are not applicable to our current activities, our reputation may be adversely affected, some of our U.S. investors may be required to divest their investments in us under the laws of certain U.S. states or under internal investment policies or may decide for reputational reasons to divest such investments. We are aware of initiatives by U.S. governmental entities and U.S. institutional investors, such as pension funds, to adopt or consider adopting laws, regulations or

policies prohibiting transactions with or investment in, or requiring divestment from, entities doing business with countries identified as state sponsors of terrorism. We cannot assure you that the foregoing will not occur or that such occurrence will not have a material adverse effect on the value of our securities.

This annual report contains “forward-looking“forward-looking statements” that are subject to various risks and uncertainties.

This annual report contains “forward-looking“forward-looking statements” that are based on our current expectations, assumptions, estimates and projections about our company and our industry. Theforward-looking statements are subject to various risks and uncertainties. Generally, theseforward-looking statements can be identified by the use offorward-looking terminology such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “project,” “should,” and similar expressions. Those statements include, among other things, the discussions of our business strategy and expectations

concerning our market position, future operations, margins, profitability, liquidity and capital resources. We caution you that reliance on anyforward-looking statement involves risks and uncertainties, and that although we believe that the assumptions on which ourforward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and, as a result, theforward-looking statements based on those assumptions could be incorrect. The uncertainties in this regard include, but are not limited to, those identified in the risk factors discussed above. In light of these and other uncertainties, you should not conclude that we will necessarily achieve any plans and objectives or projected financial results referred to in any of theforward-looking statements. We do not undertake to release the results of any revisions of theseforward-looking statements to reflect future events or circumstances.

Item 4.4.  Information on the Company

Item 4.A.  History and Development of the Company

We were established by the Government on April 1, 1968, under the Commercial Code, to manufacture and distribute steel rolled products and plates in the domestic and overseas markets. The Government owned more than 70% of our equity until 1988, when the Government reduced its ownership of our common stock to 35% through a public offering and listing our shares on the KRX KOSPI Market. In December 1998, the Government sold all of our common stock it owned directly, and The Korea Development Bank completed the sale of our shares that it owned in September 2000. The Government no longer holds any direct interest in us, and our outstanding common stock is currently held by individuals and institutions. See “Item 7. Major Shareholders and Related Party Transactions — Item 7A. Major Stockholders.”

Our legal and commercial name is POSCO. Our principal executive offices are located at POSCO Center, 440Teheran-ro,Gangnam-gu, Seoul, Korea 135-777,06194, and our telephone number is (822)3457-0114.

Item 4.B.Business Overview

The Company

We are the largest fully integrated steel producer in Korea, and one of the largest steel producers in the world, based on annual crude steel production. We produced approximately 37.742.2 million tons of crude steel and stainless steel in 2014 and approximately 38.3 million tons in 2013,2017, a substantial portion of which was produced at Pohang Works and Gwangyang Works. As of December 31, 2014, Pohang Works2017, we had 17.4approximately 47.6 million tons of annual crude steel and stainless steel production capacity, including 17.6 million tons of production capacity Pohang Works and Gwangyang Works had an annual crude steel24.8 million tons of production capacity of 20.8 million tons. WeGwangyang

Works.We believe Pohang Works and Gwangyang Works are two of the most technologically advanced integrated steel facilities in the world. We manufacture and sell a diversified line of steel products, including cold rolled and hot rolled products, stainless steel products, plates, wire rods and silicon steel sheets, and we are able to meet a broad range of customer needs from manufacturing industries that consume steel, including automotive, shipbuilding, home appliance, engineering and machinery industries.

We sell primarily to the KoreanKorea is our most important market. Domestic sales accounted for 44.6%39.0% of our total revenue from steel products produced and sold by us in 20142017 and 48.8%39.4% in 2013.2016. On anon-consolidated basis, we believe that we had an overall market share of approximately 41%43% of the total sales volume of steel products sold in Korea in 20142017 and approximately 43%41% in 2013.2016. Our export sales and overseas sales to customers abroad accounted for 55.4%61.0% of our total revenue from steel products produced and sold by us in 20142017 and 51.2%60.6% in 2013.2016. Our major export market is Asia, with China accounting for 28.5%, Asia other than China and Japan accounting for 28.3%, China accounting for 26.6%23.3%, and Japan accounting for 11.7%11.3% of our total steel export revenue from steel products produced and exported by us in 20142017 and China accounting for 30.2%29.0%, Asia other than China and Japan accounting for 27.7%23.9%, and Japan accounting for 12.5%10.4% of our total steel export revenue from steel products produced and exported by us in 2013.2016.

We also engage in businesses that complement our steel manufacturing operations as well as carefully seek out promising investment opportunities to diversify our businesses both vertically and horizontally, in part to prepare for the eventual maturation of the Korean steel market. POSCO E&C our consolidated subsidiary in which we hold an 89.5% interest, is one of the leading engineering and construction companies in Korea that primarily engages in the planning, design and construction of industrial plants and architectural works and civil engineering. POSCO Daewoo International, our consolidated subsidiary in which we hold a 60.3% interest, is a global trading company that primarily engages in trading of steel and raw materials as well as investing in energy and mineral development projects throughout the world. POSCO Energy Corporation our wholly-owned consolidated subsidiary in which we hold an 89.0% interest, is the largest private power generation company in Korea.

We generated revenue of Won 64,75952,940 billion and profit of Won 5641,032 billion in 2014,2016, compared to revenue of Won 61,76660,187 billion and profit of Won 1,3492,909 billion in 2013.2017. We had total assets of Won 85,84480,138 billion and total equity of Won 45,25745,765 billion as of December 31, 2014,2016, compared to total assets of Won 84,84179,786 billion and total equity of Won 45,78147,327 billion as of December 31, 2013.2017.

Business Strategy

Leveraging on our success during the past four decades, our goal is to strengthen our position as one of the leading steel producers in the world through focusing on core technologies, further solidifying our market leading position in Korea, and pursuing operational efficiencies to increase our margins in markets abroad. In order to compete effectively in the dynamic global market environment driven by emerging economies and increasing demand for more environmentally friendly products, we are committed to leveraging our competitive advantages and further enhancing our leadership positions. We believe that our proprietary technologies and expertise in developing environmentally-friendly steel production facilities, ability to independently construct such facilities, and know-how in their efficient operation and management enables us to develop differentiated steel products at a highly competitive cost structure. We also plan to selectively explore opportunities in growth industries that are integral to our overall business model, and we have identified steel, comprehensive materials, energy and new businesses as our key areas of focus.

We seek to strengthen our competitiveness and pursue growth through the following core business strategies:

Seek Opportunities to Further Strengthen Our Position in Global Markets as well as Selectively Expand Our Production Infrastructure Abroad

We plan to pursue higher margin businesses in various key markets abroad as well as further strengthen our competitiveness in new markets that we have entered in recent years. In China, which is showing signs of slowdown in economic growth and oversupply of steel products, we plan to focus on higher-margin products and pursue strategic entry or exit of various segments and regions. In Southeast Asia, we plan to pursue stabilization of our production operations in Indonesia as well as focus on increasing our market share of key products in Thailand, particularly for the automotive industry. We also plan to pursue differentiated strategies in each of our other key regions.

Drawing on our expertise in steel production, we also plan to carefully seek out promising business opportunities abroad to expand our production infrastructure. We seek out promising investment opportunities abroad, primarily in India and Southeast Asia. We believe that India and Southeast Asia continue to offer substantial growth opportunities, and we plan to selectively seek investment opportunities to construct steel production facilities.

Maintain Technology Leadership in Steel Manufacturing

As part of our strategy, we have identified core products that we plan to further develop, such as premium automotive steel sheets, silicon steel and API-grade steel, and we will continue to invest in developing innovative products that offer the greatest potential returns and enhance the overall quality

of our products. In order to increase our competitiveness and the proportion of our sales of higher margin, higher value-added products, we plan to make additional investments in the development of new manufacturing technologies and upgrade our facilities through continued modernization and rationalization.

We will continue to refine FINEX, a low cost, environmentally friendly steel manufacturing process that optimizes our production capacity by utilizing non-agglomerated iron ore fines and using non-coking coal as an energy source and a reducing agent. We believe that FINEX offers considerable environmental and economic advantages through elimination of major sources of pollution such as sintering and coking plants, as well as reducing operating and raw material costs. In recent years, we have developed proprietary manufacturing technology using a compact endless cast rolling mill that combines the FINEX process with an advanced basic oxygen steelmaking process that uses more scrap in place of pig iron, which enables us to manufacture products at a highly competitive cost structure with lower carbon dioxide emission. Our compact endless cast rolling mill directly casts coils from liquid steel and uses a rolling process that rolls hot rolled coils up to 40 slabs at a time.

Diversify into Production of Comprehensive Materials

We plan to leverage our expertise in production of various steel-applied materials and venture into the fast-growing and high value-added business of producing environmentally friendly comprehensive materials. We have identified lithium and nickel as our main investment areas.Demand for lithium, which is used as an anode material in lithium ion batteries, has been increasing in recent years, and we have developed proprietary technology to extract lithium from its brine in approximately one month compared to twelve months through conventional production processes. We believe we are also able to leverage our expertise in production of crude steel to cost-effective production of carbon and magnesium, which have wide application of industrial use.

Further Develop Our Capabilities to become an Integrated Provider of Energy Solutions

We plan to pursue strategic synergies with our member companies of the POSCO Group to further strengthen our capabilities in the energy industry. POSCO Energy Corporation is the largest private power generation company in Korea. POSCO E&C is one of the leading engineering and construction companies in Korea with expertise in the design and construction of power plants. Daewoo International engages in various natural resources procurement and energy development projects around the world. In order to secure adequate procurement of principal raw materials, we have also invested in and will continue to explore additional investment opportunities in various raw material development projects abroad, as well as enter into long-term contracts with leading suppliers of iron ore, coal and nickel, principally in Australia and Brazil. We believe that the energy industry is a sustainable business area that offers us attractive opportunities. We will continue to seek opportunities in natural resources development and further expand our power generation and alternative energy solutions businesses, as well as pursue participation in additional power plant projects abroad.

Pursue Cost-Cutting through Operational and Process Innovations

We seek to achieve cost reductions in this era of increasing raw material costs through our company wide process for innovation and enhancing efficiency of operations. We believe that strategic cost cutting measures through utilization of efficient production methods and management discipline will strengthen our corporate competitiveness. We will also strive to invest more in human resources development to nurture employees who are capable of working in the global environment.

Selectively Seek Opportunities in Growth Industries

We will continue to selectively seek opportunities in growth industries to diversify our business both vertically and horizontally. Through POSCO ICT Co., Ltd., a 65.4%-owned subsidiary, we engage in information and technology consulting services as well as automation and system integration engineering services. POSCO E&C is one of the leading engineering and construction companies in

Korea that primarily engages in the planning, design and construction of industrial plants and architectural works and civil engineering. On September 20, 2010, we acquired a controlling interest in Daewoo International Corporation for Won 3.37 trillion. Daewoo International is a global trading company that primarily engages in trading of steel and raw materials as well as investing in energy development projects. We will continue to selectively seek opportunities to identify new growth engines and diversify our operations.

Major Products

We manufacture and sell a broad line of steel products, including the following:

 

cold rolled products;

 

hot rolled products;

 

stainless steel products;

 

plates;

 

wire rods; and

 

silicon steel sheets.

The table below sets out our revenue of steel products produced by us and directly sold to external customers (either by us or through POSCO Processing & Service Co., Ltd. (“POSCO P&S”), our former sales subsidiary that primarily engaged in sale of steel products produced by us, prior to its merger into POSCO Daewoo in March 2017), which are recognized as external revenue of the Steel Segment, by major steel product categories for the periods indicated. Such amounts do not include steel products produced by us and sold to our consolidated subsidiaries.subsidiaries other than POSCO P&S (including POSCO Daewoo). Although our external revenue of the Steel Segment increased in 2017 compared to 2016, they were negatively impacted in 2017 by the recognition of the external revenue of

POSCO P&S under the Trading Segment commencing March 2017 following its merger into POSCO Daewoo.

 

  For the Year Ended December 31,   For the Year Ended December 31, 
  2012 2013 2014   2015 2016 2017 

Steel Products

  Billions of
Won
           %         Billions of
Won
           %         Billions of
Won
           %           Billions of
Won
       %         Billions of
Won
           %         Billions of
Won
           %         

Cold rolled products

  11,421     32.4 9,879     31.1 9,336     29.3  8,373    29.6 8,467    31.5 9,441    31.2

Hot rolled products

   6,291     17.8    5,134     16.1    5,346     16.8     4,685    16.6   4,377    16.3   5,101    16.9 

Stainless steel products

   7,305     20.7    7,425     23.4    6,830     21.5     6,085    21.5   6,064    22.6  ��6,624    21.9 

Plates

   3,620     10.3    3,266     10.3    3,519     11.1     2,809    9.9   2,762    10.3   3,087    10.2 

Wire rods

   1,906     5.4    1,867     5.9    2,160     6.8     1,932    6.8   1,747    6.5   1,880    6.2 

Silicon steel sheets

   1,556     4.4    1,476     4.6    1,267     4.0     1,323    4.7   1,100    4.1   1,025    3.4 
  

 

   

 

  

 

   

 

  

 

   

 

   

 

   

 

  

 

   

 

  

 

   

 

 

Sub-total

   32,099     91.0    29,047     91.4    28,458     89.4     25,208    89.1   24,517    91.3   27,159    89.8 
  

 

   

 

  

 

   

 

  

 

   

 

   

 

   

 

  

 

   

 

  

 

   

 

 

Others

   3,160     9.0    2,748     8.6    3,384     10.6     3,085    10.9   2,327    8.7   3,072    10.2 
  

 

   

 

  

 

   

 

  

 

   

 

   

 

   

 

  

 

   

 

  

 

   

 

 

Total

      35,259     100.0     31,795     100.0     31,842     100.0      28,293    100.0     26,844    100.0     30,230    100.0
  

 

   

 

  

 

   

 

  

 

   

 

   

 

   

 

  

 

   

 

  

 

   

 

 

The table below sets out our sales volume of the principal categories of steel products produced by us and directly sold to external customers (either by us or through POSCO P&S prior to its merger into POSCO Daewoo in March 2017), which are recognized as external sales volume of the Steel Segment, by major steel product categories for the periods indicated. Such amounts do not include steel products produced by us and sold to our consolidated subsidiaries.subsidiaries other than POSCO P&S (including POSCO Daewoo). In 2017, our external sales volume of the Steel Segment was negatively impacted by the recognition of the external sales volume of POSCO P&S under the Trading Segment commencing March 2017 following its merger into POSCO Daewoo.

 

  For the Year Ended December 31,   For the Year Ended December 31, 
  2012 2013 2014   2015 2016 2017 

Steel Products

   Thousands 
of Tons
           %           Thousands  
of Tons
           %           Thousands  
of Tons
           %           Thousands
of Tons
           %         Thousands
of Tons
           %         Thousands
of Tons
           %         

Cold rolled products

   11,863     39.6  11,915     40.9  11,881     39.1   11,995    38.0  12,713    38.7  11,279    37.5

Hot rolled products

   8,540     28.5    7,589     26.1    7,783     25.6     8,541    27.0   8,632    26.2   7,786    25.9 

Stainless steel products

   2,760     9.2    2,883     9.9    2,650     8.7     2,758    8.7   3,027    9.2   2,874    9.6 

Plates

   4,145     13.8    3,849     13.2    4,638     15.3     4,588    14.5   4,748    14.4   4,896    16.3 

Wire rods

   1,531     5.1    1,735     6.0    2,400     7.9     2,667    8.4   2,737    8.3   2,333    7.8 

Silicon steel sheets

   1,143     3.8    1,134     3.9    1,038     3.4     1,031    3.3   1,032    3.1   877    2.9 
  

 

   

 

  

 

   

 

  

 

   

 

   

 

   

 

  

 

   

 

  

 

   

 

 

Total(1)

   29,983     100.0  29,104     100.0  30,390     100.0   31,580    100.0  32,888    100.0  30,046    100.0
  

 

   

 

  

 

   

 

  

 

   

 

   

 

   

 

  

 

   

 

  

 

   

 

 

 

 

(1)Not including sales volume of steel products categorized under “others.”

In addition to steel products produced by us and directly sold to external customers (either by us or through POSCO P&S prior to its merger into POSCO Daewoo in March 2017), we engage our consolidated sales subsidiaries (including Daewoo International)POSCO Daewoo) to sell our steel products produced by us. Our revenue from steel products produced by us and sold to our consolidated sales subsidiaries that in turn sold them to their external customers amounted to Won 10,3448,365 billion in 2012,2015, Won 8,3916,403 billion in 20132016 and Won 9,1767,385 billion in 2014.2017. Sales of such steel products by our consolidated sales subsidiaries to external customers are recognized as external revenue of the Trading Segment.

Cold Rolled Products

Cold rolled coils and further refined galvanized cold rolled products are used mainly in the automotive industry to produce car body panels. Other users include the household goods, electrical appliances, engineering and metal goods industries.

Our deliveries of cold rolled products produced by us and directly sold to external customers amounted to 11.911.3 million tons in 2014,2017, representing 39.1%37.5% of our total sales volume of principal steel products produced by us and directly sold to external customers.

Cold rolled products constitute our largest product category in terms of sales volume and revenue from steel products produced by us and directly sold to external customers. In 2014,2017, our sales volume of cold rolled products produced by us and directly sold to external customers remained relatively unchangeddecreased by 11.3% compared to our sales volume in 2013.2016 primarily due to the impact of the merger of POSCO P&S into POSCO Daewoo described above as well as rationalization of our production facilities in 2017 that reduced production of cold rolled products.

Including sales of cold rolled products produced by us and sold through our consolidated sales subsidiaries in addition to cold rolled products produced by us and directly sold to external customers, we had a domestic market share for cold rolled products of approximately 42%40% on anon-consolidated basis. basis in 2017.

Hot Rolled Products

Hot rolled coils and sheets have many different industrial applications. They are used to manufacture structural steel used in the construction of buildings, industrial pipes and tanks, and automobile chassis. Hot rolled coil is also manufactured in a wide range of widths and thicknessthicknesses as the feedstock for highervalue-added products such as cold rolled products and silicon steel sheets.

Our deliveries of hot rolled products produced by us and directly sold to external customers amounted to 7.8 million tons in 2014,2017, representing 25.6%25.9% of our total sales volume of principal steel products produced by us and directly sold to external customers. The largest customers of our hot rolled products are downstream steelmakers in Korea which use the products to manufacture pipes and cold rolled products.

Hot rolled products constitute our second largest product category in terms of sales volume and third largest product category in terms of revenue from steel products produced by us and directly sold to external customers. In 2014,2017, our sales volume of hot rolled products produced by us and directly sold to external customers increaseddecreased by 2.6%9.8% compared to 2013our sales volume in 2016 primarily due to the commencementimpact of the merger of POSCO P&S into POSCO Daewoo described above as well as rationalization of our production by our no. 4facilities in 2017 that reduced production of hot rolling mill at Gwangyang Works in July 2014.rolled products.

Including sales of hot rolled products produced by us and sold through our consolidated sales subsidiaries in addition to hot rolled products produced by us and directly sold to external customers, we had a domestic market share for hot rolled products of approximately 38%39% on anon-consolidated basis. basis in 2017.

Stainless Steel Products

Stainless steel products are used to manufacture household goods and are also used by the chemical industry, paper mills, the aviation industry, the automotive industry, the construction industry and the food processing industry.

Our deliveries of stainless steel products produced by us and directly sold to external customers amounted to 2.72.9 million tons in 2014,2017, representing 8.7%9.6% of our total sales volume of principal steel products produced by us and directly sold to external customers.

Stainless steel products constitute our second largest product category in terms of revenue from steel products produced by us and directly sold to external customers. Although sales of stainless steel products accounted for only 8.7%9.6% of total sales volume of the principal steel products produced by us and directly sold to external customers in 2014,2017, they represented 21.5%21.9% of our total revenue from such steel products in 2014. Our2017. In 2017, our sales volume of stainless steel products produced by us and directly sold to external customers decreased by 8.1% in 20145.1% compared to 2013 due to the rationalization of a stainless cold-rolling mill at Pohang Worksour sales volume in 2014.2016.

Including sales of stainless steel products produced by us and sold through our consolidated sales subsidiaries in addition to stainless steel products produced by us and directly sold to external

customers, we had a domestic market share for stainless steel products of approximately 38%43% on anon-consolidated basis. basis in 2017.

Plates

Plates are used in shipbuilding, structural steelwork, offshore oil and gas production, power generation, mining, and the manufacture ofearth-moving and mechanical handling equipment, boiler and pressure vessels and other industrial machinery.

Our deliveries of plates produced by us and directly sold to external customers amounted to 4.64.9 million tons in 2014,2017, representing 15.3%16.3% of our total sales volume of principal steel products produced by us and directly sold to external customers. The Korean shipbuilding industry, which uses plates to manufacture chemical tankers, rigs, bulk carriers and containers, and the construction industry are our largest customers of plates.

In 2014,2017, our sales volume of plates produced by us and directly sold to external customers increased by 20.5%3.1% compared to 2013our sales volume in 2016 primarily due to an increase in sales to domestic shipbuilding companies and an increase in demandof plates from the energy industry.PT. Krakatau POSCO.

Including sales of plates produced by us and sold through our consolidated sales subsidiaries in addition to plates produced by us and directly sold to external customers, we had a domestic market share for plates of approximately 37%48% on anon-consolidated basis. basis in 2017.

Wire Rods

Wire rods are used mainly by manufacturers of wire, fasteners, nails, bolts, nuts and welding rods. Wire rods are also used in the manufacture of coil springs, tension bars and tire cords in the automotive industry.

Our deliveries of wire rods produced by us and directly sold to external customers amounted to 2.42.3 million tons in 2014,2017, representing 7.9%7.8% of our total sales volume of principal steel products produced by us and directly sold to external customers. The largest customers for our wire rods are manufacturers of wire ropes and fasteners.

In 2014,2017, our sales volume of wire rods produced by us and directly sold to external customers increaseddecreased by 38.3%14.7% compared to 2013,2016 primarily reflecting increase in production of wire rods from full-scale operationdue to the impact of the no. 4 wire rod mill in 2014, which expansion was completed in May 2013.merger of POSCO P&S into POSCO Daewoo described above.

Including sales of wire rods produced by us and sold through our consolidated sales subsidiaries in addition to wire rods produced by us and directly sold to external customers, we had a domestic market share for wire rods of approximately 52%57% on anon-consolidated basis. basis in 2017.

Silicon Steel Sheets

Silicon steel sheets are used mainly in the manufacture of power transformers and generators and rotating machines.

Our deliveries of silicon steel sheets produced by us and directly sold to external customers amounted to 1.00.9 million tons in 2014,2017, representing 3.4%2.9% of our total sales volume of principal steel products produced by us and directly sold to external customers.

In 2014,2017, our sales volume of silicon steel sheets produced by us and directly sold to external customers decreased by 8.5%15.1% compared to 20132016 primarily due to our decision to focus more on production and salea decrease in sales of higher margin silicon steel sheet products.sheets in China.

Including sales of silicon steel sheets produced by us and sold through our consolidated sales subsidiaries in addition to silicon steel sheets produced by us and directly sold to external customers,

we had a domestic market share for silicon steel sheets of approximately 81% on anon-consolidated basis. basis in 2017.

Others

Other products include lower value-added semi-finishedvalue-addedsemi-finished products such as pig iron, billets, blooms and slab.

Markets

Korea is our most important market. Domestic sales represented 44.6%39.0% of our total revenue from steel products produced and sold by us in 2014.2017. Our export sales and overseas sales to customers abroad represented 55.4%61.0% of our total revenue from steel products in 2014.2017. Our sales strategy has been to devote our production primarily to satisfy domestic demand, while seeking export sales to utilize capacity to the fullest extent and to expand our international market presence.

Domestic Market

We primarily sell in Korea highervalue-added and other finished products toend-users andsemi-finished products to other steel manufacturers for further processing. Local distribution companies and sales affiliates sell finished steel products tolow-volume customers. We provide service technicians for large customers and distributors in each important product area.

The table below sets out our estimate of the market share of steel products sold in Korea for the periods indicated based on sales volume.

 

  For the Year Ended December 31,   For the Year Ended December 31, 

Source

      2012         2013         2014           2015         2016         2017     

POSCO’s sales(1)

   41.9  43.4  40.6   40.8  40.6  43.4

Other domestic steel companies’ sales

   23.4    23.6    27.6     27.7   27.6   28.2 

Imports

   34.8    33.0    31.8     31.5   31.8   28.4 
  

 

  

 

  

 

   

 

  

 

  

 

 

Total

   100.0  100.0  100.0   100.0  100.0  100.0
  

 

  

 

  

 

   

 

  

 

  

 

 

 

 

(1)POSCO’s sales volume includes steel products produced by us (but not by our subsidiaries) and sold through our consolidated sales subsidiaries in addition to steel products produced by us (but not by our subsidiaries) and directly sold to external customers.

Exports

Our export sales and overseas sales to customers abroad represented 55.4%61.0% of our total revenue from steel products produced and sold by us in 2014, 66.7%2017, 63.1% of which was generated from

exports sales and overseas sales to customers in Asian countries. Our export sales and overseas sales to customers abroad in terms of revenue from such products increased by 10.4%13.9% from Won 20,58720,163 billion in 20132016 to Won 22,73122,963 billion in 2014.2017.

The tables below set out our export sales and overseas sales to customers abroad in terms of revenue from steel products produced and sold by us (including our consolidated sales subsidiaries), by geographical market and by product for the periods indicated.

 

  For the Year Ended December 31,   For the Year Ended December 31, 
  2012 2013 2014   2015   2016   2017 

Region

    Billions of  
Won
           %           Billions of  
Won
           %           Billions of  
Won
           %           Billions of
Won
   %   Billions of
Won
   %   Billions of
Won
   % 

China

  5,541    25.3%   5,840    29.0%   6,542    28.5% 

Asia (other than China and Japan)

  5,834     26.7 5,707     27.7 6,434     28.3   6,174    28.2    4,821    23.9    5,354    23.3 

China

   6,328     28.9    6,220     30.2    6,057     26.6  

Japan

   3,084     14.1    2,583     12.5    2,668     11.7     2,075    9.5    2,089    10.4    2,601    11.3 

Europe

   942     4.3    999     4.9    1,428     6.3     1,751    8.0    1,914    9.5    2,181    9.5 

Middle East

   528     2.4    381     1.8    323     1.4     372    1.7    187    0.9    163    0.7 

North America

   1,288     5.9    1,145     5.6    2,131     9.4     2,162    9.9    2,019    10.0    1,947    8.5 

Others

   3,884     17.7    3,552     17.3    3,689     16.2     3,826    17.5    3,292    16.3    4,176    18.2 
  

 

   

 

  

 

   

 

  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total

      21,888     100.0     20,587     100.0     22,731     100.0      21,901    100.0%       20,163    100.0%       22,963    100.0% 
  

 

   

 

  

 

   

 

  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

 

   For the Year Ended December 31, 
   2012  2013  2014 

Steel Products

    Billions of  
Won
           %            Billions of  
Won
           %            Billions of  
Won
           %         

Cold rolled products

  7,245     33.1 6,653     32.3 6,907     30.4

Hot rolled products

   3,783     17.3    3,300     16.0    3,646     16.0  

Stainless steel products

   5,302     24.2    5,125     24.9    5,615     24.7  

Plates

   1,573     7.2    1,238     6.0    1,596     7.0  

Wire rods

   598     2.7    569     2.8    783     3.4  

Silicon steel sheets

   840     3.8    837     4.1    771     3.4  

Others

   2,546     11.6    2,863     13.9    3,412     15.0  
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Total

      21,888     100.0     20,587     100.0     22,731     100.0
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

The table below sets out the world’s apparent steel use for the periods indicated.

   For the Year Ended December 31, 
           2012                  2013                  2014         

Apparent steel use (million metric tons)

   1,439    1,528    1,537  

Percentage of annual increase

   2.0  6.2  0.6

Source: World Steel Association.

Recent difficulties affecting the European Union and global financial sectors, adverse conditions and volatility in the European Union and worldwide credit and financial markets, fluctuations in oil and commodity prices, the general weakness of the global economy and the slowdown in growth of the Chinese economy have increased the uncertainty of global economic prospects in general and have adversely affected the global and Korean economies. The World Steel Association forecasts that global apparent steel use is expected to increase by 3.3% to 1,576 million metric tons in 2015.

In recent years, driven in part by strong growth in steel consumption in emerging economies, the global steel industry has experienced renewed interest in expansion of steel production capacity. The Organisation for Economic Co-operation and Development estimated the global crude steel production capacity to be 2,241 million tons in 2014. The increased production capacity, combined with weakening demand due primarily to the recent slowdown of the global economy, has resulted in production over-capacity in the global steel industry. Production over-capacity in the global steel industry may intensify if the slowdown of the global economy continues or demand from developing countries that have experienced significant growth in recent years does not meet the growth in production capacity.

   For the Year Ended December 31, 
   2015   2016   2017 

Steel Products

  Billions of
Won
   %   Billions of
Won
   %   Billions of
Won
   % 

Cold rolled products

  6,373    29.1%   6,852    34.0%   9,224    40.2% 

Hot rolled products

   4,032    18.4    2,999    14.9    2,604    11.3 

Stainless steel products

   5,265    24.0    5,227    25.9    5,345    23.3 

Plates

   1,465    6.7    1,486    7.4    2,000    8.7 

Wire rods

   674    3.1    585    2.9    606    2.6 

Silicon steel sheets

   807    3.7    821    4.1    950    4.1 

Others

   3,284    15.0    2,194    10.9    2,235    9.7 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

      21,901    100.0%       20,163    100.0%       22,963    100.0% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

We distribute our export products mostly through Korean trading companies, including POSCO Daewoo, International, and our overseas sales subsidiaries. Our largest export market in 20142017 was China, which accounted for 28.5% of our export revenue from steel products produced and sold by us. The principal products exported to China were cold rolled products, including continuous galvanized products. Our exports to China amounted to Won 5,840 billion in 2016 and Won 6,542 billion in 2017. Our exports to China increased by 12.0% in 2017 primarily due to an increase in sales of automotive steel sheets.

Our second largest export market in 2017 was Asia (other than China and Japan), which accounted for 28.3%23.3% of our export revenue from steel products produced and sold by us. The principal products exported to Asia (other than China and Japan) were hotcold rolled products, and cold rolledincluding continuous galvanized products. Our exports to Asia (other than China and Japan) amounted to Won 5,707 billion in 2013 and Won 6,434 billion in 2014. Our exports to Asia (other than China and Japan) increased by 12.7%11.1% from Won 4,821 billion in 20142016 to Won 5,354 billion in 2017 primarily due to an increase in sales of plates and slabs produced by PT Krakatau POSCO Co., Ltd., which completed a new production plantautomotive steel sheets in December 2013.

Our second largest export market in 2014 was China, which accounted for 26.6% of our export revenue from steel products produced and sold by us. The principal products exported to China were cold rolled products. Our exports to China decreased by 2.6% from Won 6,220 billion in 2013 to Won 6,057 billion in 2014 primarily due to a decrease in our export prices to China as a result of a slowdown in growth of the Chinese economy. On the other hand, we recorded an increase in our exports to North America by 86.1% from Won 1,145 billion in 2013 to Won 2,131 billion in 2014 primarily due to an increase in demand from automotive parts manufacturers in North America, as well as an increase in our exports to Europe by 42.9% from Won 999 billion in 2013 to Won 1,428 billion in 2014 primarily due to an increase in demand from the energy industry.Southeast Asia.

Anti-Dumping, Safeguard and Countervailing Duty Proceedings

From time to time, our exporting activities have become subject toanti-dumping, safeguard and countervailing proceedings. In recent years,As a steel producer with global sales and operations, we have become subject to a number of anti-dumping dutiesare involved in trade remedy proceedings in markets worldwide, including in the United States, Canada, India, Indonesia, Australia, Thailand, Brazil, TaiwanStates. We proactively participate in and Malaysiaplan for such proceedings to minimize any adverse effects and safeguard dutiesassociated risks. While there has been an increase in Thailand. We are also subject to athe number of on-going anti-dumpingtrade cases in recent years, and safeguard investigationsan increased focus on trade issues by government officials, all such cases have been product andmarket-specific, and thus have been limited in Malaysia, the European Union, Indonesia, India and Thailand. In addition, the Mexican government initiated an anti-dumping investigation in October 2012 relatingscope relative to our exportsglobal sales and operations. We continue to carefully monitor developments with respect to trade remedy policy in all markets in which we participate and,

where necessary, vigorously defend our rights through litigation before tribunals such as the U.S. Court of cold rolled steel products, and the investigation was suspended until 2018 on condition that we comply with supply undertakings.International Trade. Our products that are subject toanti-dumping duties, safeguard duties, countervailing duties, quotas or countervailing duty proceedingstariffs in the aggregate currently do not account for a material portion of our total sales, and such proceedings have not had a material adverse impact on our business and operations in recent years.

Pricing Policy

We determine the sales price of our products based on market conditions. In setting prices, we take into account our costs, including those of raw materials, supply and demand in the Korean market, exchange rates, and conditions in the international steel market. Our prices can fluctuate considerably over time, depending on market conditions and other factors. The prices of our highervalue-added steel products in the largest markets are determined considering the prices of similar products charged by our competitors.

Both our export prices and domestic sales prices decreased from 20122014 to 2014,2016, reflecting productionover-capacity in the global steel industry. In 2017, our export prices and domestic sales prices increased, as consolidation of the steel industry in China led to a decrease in export volume from China, which in turn had a positive impact on global steel prices. We may decide to adjust our sales prices in the future subject to market demand for our products, prices of raw materials, the production outlook of the global steel industry and global economic conditions in general.

Raw Materials

Steel Production

The principal raw materials used in producing steel through the basic oxygen steelmaking method are iron ore and coal. We require approximately 1.7 tons of iron ore and 0.8 tons of coal to produce one ton of steel.Westeel. We import all of the coal and virtually all of the iron ore that we use. In 2014,2017, POSCO imported approximately 53.852.9 million dry metric tons of iron ore and 28.427.4 million wet metric tons

of coal. Iron ore is imported primarily from Australia, Brazil and Canada. Coal is imported primarily from Australia, Canada Russia and the United States. In 2014, we purchasedRussia.

We purchase a substantial portion of our iron ore and coal imports pursuant tolong-term contracts. TheOurlong-term supply contracts generally have terms of onethree to ten years and the long-term contracts generally provide for periodic price adjustments to thethen-market prices. The long-term contracts to purchase iron oreWe typically adjust the prices on a quarterly basis and coal generally provide for quarterly adjustments to the purchase prices to be determined through negotiation between the supplier and us.maintain approximately one month of inventory of raw materials. Such price negotiationsadjustments are driven by various factors, including the global economic outlook, global market prices of raw materials and steel products, supply and demand outlook of raw materials and production costs of raw materials. Typically,In the case of coal, globally influencedinfluential buyers and sellers of raw materialscoal determine benchmark prices of raw materials,coal, based on which other buyers and sellers negotiate their prices after taking into consideration the quality of raw materialscoal and other factors. In the case of iron ore, the supplier and we typically agree on the purchase price primarily based on the spot market price periodically announced by Platts (Iron Ore 62% Fe, CFR China Index). We or the suppliers may cancel thelong-term contracts only if performance under the contracts is prevented by causes beyond our or their control and these causes continue for a specified period.

We also make investments in exploration and production projects abroad to enhance our ability to meet the requirements forhigh-quality raw materials, either as part of a consortium or through an acquisition of a minority interest. We securedIn 2017, we purchased approximately 41%37% of our iron ore imports and 21% of our coal imports in 2014 from foreign mines in which we have made investments. Our major investments to procure supplies of coal, iron ore and nickel are primarily located in Australia, Brazil, New Caledonia and Canada, and our significant investments are as follows:

We made an investment of US$500 million in December 2008 to acquire a 6.48% interest in Nacional Minérios S.A., an iron ore mining company in Brazil, in a consortium with Japanese steel manufacturers and trading companies. We secured approximately 3.7 million tons of iron ore in 2014, and we have the right to secure up to such amount of iron ore per year.

We made an initial investment of A$249 million in 2010 to acquire a 3.75% interest in Roy Hill Holdings Pty., Ltd., an iron ore mining company in Australia. We subsequently entered into a contract in March 2012 to invest an additional A$1,495 million to increase our interest to 15% but sold a 2.5% interest in April 2012 to China Steel Corporation for A$305 million. In November 2013, we invested an additional A$47 million in order to maintain our interest of 12.5% in Roy Hill Holdings Pty. Ltd. Through our ownership interest, we expect to secure up to approximately 15.1 million tons of iron ore per year starting in 2015.

In July 2010, we acquired a 24.5% interest in the Australian Premium Iron (API) iron ore joint venture in Pilbara, Australia for A$184 million, which expects to supply approximately 9.8 million tons of iron ore per year starting in 2020.

As part of a consortium including China Steel Corporation and domestic financial investors, we made an investment of US$277 million in March 2013 to acquire a minority interest of 3.78% in an iron ore mining asset of ArcelorMittal Mines Canada Inc. in Quebec. We secured approximately 2.7 million tons of iron ore in 2014, and we have the right to secure up such amount of iron ore per year.

Canada. We will continue to selectively seek opportunities to enter into additional strategic relationships that would enhance our ability to meet the requirements for principal raw materials.

The average market price of coal per wet metric ton (benchmark free on board price of Peak Downs Australian premium hard coking coal) was US$209102 in 2012,2015, US$159114 in 20132016 and US$125217 in 2014.2017. The average market price of iron ore per dry metric ton (free on board price of Platts Iron(Iron Ore 62% Fe, CFR China index with iron (Fe) 62% content)announced by Platts) was US$12251 in 2012,2015, US$12654 in 20132016 and US$8864 in 2014.2017. We currently do not depend on any single country or supplier for our coal or iron ore.

Stainless Steel Production

The principal raw materials for the production of stainless steel are ferronickel, ferrochrome and stainless steel scrap. We purchase a majority of our ferronickel primarily from suppliers in Korea that

procure nickel ore from New Caledonia, and the remainder primarily from leading suppliers in Indonesia, Japan Indonesia and Ukraine. Our primary suppliers of ferrochrome are located in South Africa, India and Kazakhstan. Our stainless steel scraps are primarily supplied by domestic and overseas suppliers in Japan and the European Union.Southeast Asia. Revert scraps from the Pohang Steelworks are also used for our stainless steel production. The average market price of nickel per ton on the London Metal Exchange was US$17,53611,836 in 2012,2015, US$15,0229,599 in 20132016 and US$16,87110,402 in 2014.2017.

Transportation

In order to meet our transportation needs for iron ore and coal, we have entered intolong-term contracts with shipping companies in Korea to retain a fleet of dedicated vessels. These dedicated vessels transported approximately 80%82% of the total requirements in 2014,2017, and the remaining approximately 20%18% was transported by vessels retained through short to medium term contracts, depending on market conditions. Australia and Brazil are the main countries where the vessels are loaded, and they accounted for 65% and 15%, respectively, of our total requirements in 2014. We plan to continue to optimize the fleet of dedicated vessels that we use by 2020 in order to cope with changes in the global shipping environment, as well as upgrade some of the existing vessels with others that utilize moreenergy-efficient technologies.

The Steelmaking Process

Our major production facilities, Pohang Works and Gwangyang Works, produce steel by the basic oxygen steelmaking method. The stainless steel plant at Pohang Works produces stainless steel by the electric arc furnace method. Continuous casting improves product quality by imparting a homogenous structure to the steel. Pohang Works and Gwangyang Works produce all of their products through the continuous casting.

Steel — Basic Oxygen Steelmaking Method

First, molten pig iron is produced in a blast furnace from iron ore, which is the basic raw material used in steelmaking. Molten pig iron is then refined into molten steel in converters by blowing pure oxygen at high pressure to remove impurities. Different desired steel properties may also be obtained by regulating the chemical contents.

At this point, molten steel is made intosemi-finished products such as slabs, blooms or billets at the continuous casting machine. Slabs, blooms and billets are produced at different standardized sizes and shapes. Slabs, blooms and billets aresemi-finished lower margin products that we either use to produce our further processed products or sell to other steelmakers that produce further processed steel products.

Slabs are processed to produce hot rolled coil products at hot strip mills or to produce plates at plate mills. Hot rolled coils are an intermediate stage product that may either be sold to our customers as various finished products or be further processed by us or our customers into highervalue-added products, such as cold rolled sheets and silicon steel sheets. Blooms and billets are processed into wire rods at wire rod mills.

Stainless Steel — Electric Arc Furnace Method

Stainless steel is produced from stainless steel scrap, chrome, nickel and steel scrap using an electric arc furnace. Stainless steel is then processed into highervalue-added products by methods similar to those used for steel production. Stainless steel slabs are produced at a continuous casting mill. The slabs are processed at hot rolling mills into stainless steel hot coil, which can be further processed at cold strip mills to produce stainless cold rolled steel products.

Competition

Domestic Market

We are the largest fully integrated steel producer in Korea. In hot rolled products, where we had a market share of approximately 38%39% on anon-consolidated basis in 2014,2017, we face competition from a Korean steel producer that operatesmini-mills and produces hot rolled coil products from slabs and from various foreign producers, primarily from China and Japan. In cold rolled products and stainless steel products, where we had a market share of approximately 42%40% and 38%43%, respectively, on anon-consolidated basis in 2014,2017, we compete with smaller specialized domestic manufacturers and various foreign producers, primarily from China and Japan. For a discussion of domestic market shares, see “— Markets — Domestic Market.”

We may face increased competition in the future from new specialized or integrated domestic manufacturers of steel products in the Korean market. Our biggest competitorscompetitor in Korea areis Hyundai Steel Co., Ltd. with an annual crude steel production of approximately 21 million tons and Dongbu Steel Co., Ltd. with an annual crude steel production of approximately 3 million tons. In February 2015, Hyundai Steel Co., Ltd. received conditional approval from the Fair Trade Commission to take over Dongbu Special Steel Co., Ltd., an affiliate of Dongbu Steel Co., Ltd. Dongbu Specialty Steel Co., Ltd. has an annual production capacity of 400 thousand tons of specialty steel.

The Korean Government does not impose quotas on or provide subsidies to local steel producers. As a World Trade Organization signatory, Korea has also removed all steel tariffs.

Export Markets

The competitors in our export markets include all the leading steel manufacturers of the world. In the past decade, there has been a trend toward industry consolidation among our competitors, and smaller competitors in the global steel market today may become larger competitors in the future. For example, Mittal Steel’s takeover of ArcelorIn recent years, a slowdown in 2006 created a companydomestic demand for steel products in China resulting from slowed economic growth, combined with approximately 10% of globalan expansion in steel production capacity.capacity, has led to production over-capacity in the Chinese steel industry, which in turn has led the Chinese government to pursue aggressive consolidation in the Chinese steel industry. Competition from global steel manufacturers with expandedsignificant production capacity such as ArcelorMittal S.A., and new market entrants,as well as larger competitors from emerging markets, especially from China and India, could result in a significant increase in competition. Major competitive factors include range of products offered, quality, price, delivery performance and customer service. Our larger competitors may use their resources, which may be greater than ours, against us in a variety of ways, including by making additional acquisitions, investing more aggressively in product development and capacity and displacing demand for our export products.

Various export markets currently impose tariffs on different types of steel products. However, we do not believe that tariffs significantly affect our ability to compete in these markets.

Subsidiaries and Global Joint Ventures

Steel Production

In order to effectively implement our strategic initiatives and to solidify our leadership position in the global steel industry, we have established various subsidiaries and joint ventures in Korea and elsewhere around the world that engage in steel production activities.

Korea.In order to expand our sale of value-added products, we established POSCO Coated and Color Sheet Co., Ltd. by merging a coated steel manufacturer and a color sheet manufacturer in March 1999. POSCO Coated and Color Sheet has an aggregate annual production capacity of 600 thousand tons of galvanized and aluminized steel sheets widely used in the construction, automotive parts and home appliances industries. POSCO Coated and Color Sheet also has an aggregate annual production capacity of 350 thousand tons of color sheets that are mainly used for

interior and exterior materials and home appliances. In 2014, POSCO Coated and Color Sheet produced 594 thousand tons of galvanized and aluminized steel sheets and 312 thousand tons of color sheets.

POSCO Specialty Steel produces high-quality steel products for the automotive, machinery, nuclear power plant, shipbuilding, aeronautics and electronics industries. In March 2015, SeAH Besteel Corp., Shinyoung Securities Co., Ltd. and Shinhan Investment Corp. acquired an aggregate of 52.3% of our interest in POSCO Specialty Steel for approximately Won 419 billion. As a result, we hold a 19.9% interest in the company. Production facilities operated by POSCO Specialty Steel have an aggregate annual production capacity of 1,000 thousand tons of wire rods, round bars, steel pipes and semi-finished products. POSCO Specialty Steel produced 606 thousand tons of such products in 2014.

China.We entered into an agreement with Sagang Group Co. to establish Zhangjiagang Pohang Stainless Steel Co., Ltd., a joint venture company in China for the manufacture and sale of stainless cold rolled steel products. We have an 82.5% interest in the joint venture (including 23.9% interest held by POSCO China Holding Corporation). The plant, which commenced production of stainless cold rolled steel products in December 1998. The joint venture also completed the construction of new mills in July 2006 with additional annual production capacity of approximately 800 thousand tons of stainless hot rolled products. Zhangjiagang Pohang Stainless Steel produced 1,1001,159 thousand tons of stainless steel products in 2014.

We established Qingdao2017.See “— Production Facilities Abroad — Zhangjiagang Pohang Stainless Steel Co., Ltd., a wholly owned subsidiary set up to manufacture and sell stainless cold rolled steel products in China. The plant became operational in December 2004, with an annual production capacity of 180 thousand tons of stainless cold rolled steel products. Qingdao Pohang Steel produced 180 thousand tons of such products in 2014.

In August 2003, we entered into a joint venture agreement with Benxi Iron and Steel Group in China to establish Benxi Steel POSCO Cold Rolled Sheet Co., Ltd. The cold rolling mill with an annual production capacity of 1.9 million tons became operational in March 2006 and the company produced 1.9 million tons of such products in 2014. We currently hold a 25.0% interest in this joint venture.

Vietnam.We entered into an agreement with Nippon Steel & Sumitomo Metal Corporation to establish POSCO Vietnam Co., Ltd., a joint venture company in Vietnam for the manufacture and sale of cold rolled steel products. We have an 85.0% interest in the joint venture. We completed the construction of a plant in September 2009 with an annual production capacity of 1.2 million tons of cold rolled products and commenced commercial production. POSCO Vietnam produced 930 thousand tons of such products in 2014.

Thailand.In order to secure an alternative sales source for stainless cold rolled steel products and an export base for expanding into the Southeast Asia stainless steel markets, we acquired a controlling interest in Thainox Stainless Public Company Limited, a major stainless steel manufacturer in Thailand, in September 2011. We renamed the company as POSCO Thainox Public Company Limited in October 2011 and currently hold an 84.9% interest in the company. The company produced 165 thousand tons of stainless cold rolled products in 2014.Steel.”

Indonesia. We entered into an agreement with PT. Krakatau Steel (Persero) Tbk. to establish PT. Krakatau POSCO Co., Ltd. (“PT. Krakatau POSCO”), a joint venture company in Indonesia for the manufacture and sale of plates and slabs. We hold a 70.0% interest in the joint venture. We completed the construction of a steel manufacturing plant in December 2013 with an annual production capacity of 3.0 million tons of plates and slabs. PT. Krakatau POSCO produced 2.12.9 million tons of plates and slabs in 2014.2017. See “— Production Facilities Abroad — PT. Krakatau POSCO.”

United States.Vietnam. We entered into 50-50 joint venture between U.S. Steel Corporation and us called USS-POSCO Industries Corporation. We sell hot rolled products to USS-POSCO Industries, which uses such products to manufacture cold rolled and galvanized steel products and tin-plate products for saleestablished POSCO SS VINA Co., Ltd., a wholly owned subsidiary engaged in the United States. USS-POSCO Industries produced 862 thousand tonsmanufacture and sale of such productsshape steel and steel reinforcement products. The plant became operational in 2014.

We entered into a joint venture in March 2007 with US Steel and SeAH to establish United Spiral Pipe LLC to produce American Petroleum Institute-compliant pipes (“API Pipes”) and non-API pipes. We hold a 35% interest in United Spiral Pipe LLC and it is in the process of selling its facilities and equipment.

Mexico.In Mexico, POSCO Mexico S.A. de C.V. completed the construction of a plant in August 2009June 2015, with an annual production capacity of 0.41.1 million tons of cold rolled productsshape steel and commenced commercial production to supply automotive manufacturers in Mexico, Southeastern United States and South America.steel reinforcement products. POSCO Mexico expanded its annual production capacity to 0.9 million tons of galvanized steel products in December 2013, andSS VINA Co., Ltd. produced 474905 thousand tons of cold rolledshape steel and steel reinforcement products in 2014.2017. See “Production Facilities Abroad — POSCO SS VINA.”

Others.In addition to the above investments, we are carefully seeking out additional promising investment opportunities abroad. In June 2005, we entered into a memorandum of understanding with Odisha State Government of India for the construction of an integrated steel mill and the development of iron ore mines in Odisha State. We estimate the aggregate costs of the initial phase of construction and mine development to be approximately $3.7 billion and an additional cost of approximately $8.3 billion in order to increase the annual production capacity to 12 million tons of plates and hot rolled products. The Government of India reissued clearance for the construction of the steel mill in January 2014 and is currently in the process of preparing the land on which the integrated steel mill will be constructed. With respect to development of iron ore mines in Odisha State, we obtained a final ruling from the Indian Supreme Court in May 2013 with respect to authority of the central government to issue permission, and we are waiting for approval from the Government of India to start our exploration and development activities.

We have also established supply chain management centers around the world to provide processing and logistics services such as cutting flat steel products to smaller sizes to meet customers’ needs. In 2014, our 34 supply chain management centers recorded aggregate sales of 5.4 million tons of steel products.

Trading

Our trading activities consist primarily of trading activities of Daewoo International. We acquired a controlling interest in Daewoo International for Won 3.37 trillion on September 20, 2010, and we currently hold a 60.3% interest in Daewoo International.POSCO Daewoo. Our consolidated subsidiaries that also engage in trading activities include POSCO Processing & Service Co., Ltd. that primarily focuses in the domestic market, and POSCO Asia Company Limited located in Hong Kong, POSCO Japan Co., Ltd. located in Tokyo, Japan, POSCO America Corporation located in New Jersey,Georgia, U.S.A. and POSCO South Asia Co., Ltd. located in Bangkok, Thailand. In March 2017, POSCO P&S, which primarily engaged in sale of steel products produced by us, merged into POSCO Daewoo.

POSCO Daewoo International is a global trading company that primarily engages in trading of steel and raw materials as well as investing in energy and mineral development projects. It also manufactures and sells textiles and operates a department store in Korea.textiles. POSCO Daewoo International was established in December 2000 when the international trading and construction businesses of Daewoo Corporation were spun off into three separate companies as part of a debt workout program of Daewoo Corporation.

The following table sets forth a breakdown of Daewoo International’sPOSCO Daewoo’s total consolidated sales by export sales, domestic sales and third-partythird-country trades as well as product category for the periods indicated:

 

  For the Year Ended December 31,   For the Year Ended December 31, 

Product Category

  2012 2013 2014   2015 2016 2017 
  (In billions of Won, except percentages)   (in billions of Won, except percentages) 

Export Sales

       

Trading sales:

       

Export trading sales:

       

Steel and metal

      6,203    35.8     5,397    31.5     5,051    24.8  4,648   26.5 4,185   25.4 5,059   22.4

Chemical and commodities

   1,686    9.7    1,535    9.0    1,836    9.0     1,445   8.2   1,277   7.7   1,429   6.3 

Automobile and machinery parts

   1,469    8.5    1,625    9.5    1,965    9.6     2,003   11.4   1,986   12.0   2,224   9.9 

Electronics and miscellaneous items

   120    0.7    72    0.4    44    0.2     42   0.2   3   0.0       

Natural resources development

   2    0.0         ��        

Natural resources items

         2   0.0       
  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Sub-total

   9,480    54.7    8,630    50.4    8,895    43.6     8,138   46.4   7,453   45.2   8,712   38.6 
  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Manufactured product sales

   13    0.1    13    0.1    22    0.1  

Miscellaneous

   25    0.1    14    0.1    60    0.3  
  

 

  

 

  

 

  

 

  

 

  

 

 

Total export sales

   9,517    54.9    8,657    50.6    8,977    44.0  
  

 

  

 

  

 

  

 

  

 

  

 

 

Domestic Sales

       

Trading sales:

       

Domestic trading sales:

       

Steel and metal

  609    3.5  686    3.9  737    3.6  506   2.9 473   2.9 2,322   10.3

Chemical and commodities

   69    0.4    71    0.4    81    0.4     92   0.5   90   0.5   23   0.1 

Automobile and machinery parts

   3    0.0    34    0.2    56    0.3     62   0.4   40   0.2   59   0.2 

Electronics and miscellaneous items

   7    0.1    4    0.0    11    0.1                     

Other goods

   58    0.3    54    0.3    49    0.2     23   0.1         17   0.1 
  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Sub-total

   746    4.3    849    5.0    935    4.6     683   3.9   603   3.7   2,421   10.7 
  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Miscellaneous

   8    0.0    12    0.1    11    0.1  

Manufactured product sales

  6   0.0  13   0.1  502   2.2 
  

 

  

 

  

 

  

 

  

 

  

 

 

Total domestic sales

   754    4.3    861    5.1    946    4.7  
  

 

  

 

  

 

  

 

  

 

  

 

 

Third-Country Trades

       

Trading

      10,220    59.0     10,598    61.9       14,284    70.0  

Natural resources development

   78    0.5    132    0.8    550    2.7  

Third-Country Trades:

       

Trading(1)

      11,569   66.0     10,376   62.9     14,969   66.3

Natural resources development(1)

   714   4.1   1,504   9.1   573   2.5 

Manufactured product trading

   312    1.8    261    1.5    266    1.3     242   1.4   192   1.2   221   1.0 
  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Total third-country trades

   10,610    61.3    10,991    64.2    15,100    74.0     12,525   71.5   12,072   73.2   15,763   69.8 
  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Consolidation adjustments

   (3,561  (20.5  (3,399  (19.9  (4,615  (22.7   (3,910  (22.3  (3,649  (22.1  (4,826  (21.4
  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Total sales

  17,320    100.0 17,109    100.0 20,408    100.0  17,527   100.0 16,492   100.0 22,572   100.0
  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

(1)In 2015 and 2017, revenues from trading of raw materials were included as trading revenues. However, in 2016, revenues from trading of raw materials were included as natural resources development revenues.

Trading Activities.Daewoo International’sPOSCO Daewoo’s trading activities consist of exporting and importing a wide variety of products and commodities, including iron and steel, raw materials for steel production,non-ferrous metals, chemicals, automotive parts, machinery and plant equipment, electronics products, agricultural commodities and textiles. POSCO Daewoo International is also engaged inthird-country trade that does not involve exports from or imports to Korea. The products are obtained from and supplied to numerous suppliers and purchasers in Korea and overseas, which are procured through a global trading network comprised of overseas trading subsidiaries, branches and representative offices. Such subsidiaries and offices support Daewoo International’sPOSCO Daewoo’s trading activities by locating suitable local suppliers and purchasers on behalf of customers, identifying business opportunities and providing information regarding local market conditions.

In most cases, POSCO Daewoo International enters into trading transactions after the underlying sale and purchase contracts have been matched, which mitigates inventory and price risks to POSCO Daewoo. POSCO Daewoo International. Daewoo International has not experienced material losses related to such risks. Daewoo International typically enters into trading transactions as a principal, and in limited cases as an import or export agent. When acting as a principal or an agent, POSCO Daewoo International derives its gross trading profit from the margin between the selling price of the products and the purchase price it pays for such products. In the case of principal transactions, the selling price is recorded as sales and the purchase price is recorded as cost of sales, while only the margin is recorded as sales in the case of agency transactions in which POSCO Daewoo International does not assume the risks and rewards of ownership of the

goods. In the case of principal transactions, it takes an average of approximately 52 days between Daewoo International’s payment of goods and its receipt of payment from its customers. In the instances in which it acts as an arranger for a third country transaction, POSCO Daewoo International derives its gross trading profit from, and records as sales, the commission paid to it by the customer. The sizes of margins and commissions for Daewoo International’sPOSCO Daewoo’s trading activities vary

depending on a number of factors, including prevailing supply and demand conditions for the product involved, the cost of financing, insurance, storage and transport and the creditworthiness of the customer, and tends to decline as the product or market matures.

In connection with its export and import transactions, POSCO Daewoo International has accounts receivable and payable in a number of currencies, but principally in Dollars. Daewoo International’sPOSCO Daewoo’s exposure to fluctuations in exchange rates, including the Won/Dollar exchange rate, is limited because trading transactions typically involve matched purchase and sale contracts, which result in limited settlement exposure, and because Daewoo International’sPOSCO Daewoo’s contracts with domestic suppliers of products for export and with domestic purchasers of imported products are generally denominated in Dollars.AlthoughDollars. Although the impact of exchange rate fluctuations is substantially mitigated by such strategies, POSCO Daewoo International also periodically enters into derivative contracts, primarily currency forward contracts, to further hedge its foreign exchange risks.

In connection with its trading activities, POSCO Daewoo International arranges insurance and product transport at the request of customers, the costs of which generally become reflected in the sales price of the relevant products, and also provides financing services to its purchasers and suppliers as necessary. In the case of trading transactions involvinglarge-scale industrial or construction projects, POSCO Daewoo International also provides necessary project planning and organizing services to its customers.

Natural Resources Development Activities.POSCO Daewoo International also invests in energy and mineral development projects throughout the world. In particular, POSCO Daewoo International joined a consortium with Korea Gas Corporation, ONGC Videsh Ltd. and the Gas Authority of India Ltd.holds interests in November 2002, which made a successful bid in the gas exploration, development and production project in the Myanmar A-1 gas field. In October 2005, the consortium made a successful bid in the gas exploration, development and production project in the Myanmar A-3 gas field, located adjacent to the Myanmar A-1 gas field. In December 2008, the consortium entered into a sales agreement with China National United Oil Corporation to sell the gas produced from the A-1 and A-3 gas fields for a period of 30 years after the commencement of production. In August 2010, Myanmar Oil & Gas Enterprise, the national oil and gas company of Myanmar, acquired a 15% interest in each of the projects. As of December 31, 2014, Daewoo International had invested approximately US$1,281 million in the A-1 and A-3several gas field projects approximately US$230 million in a relatedoff-shore pipeline project and approximately US$137 million in a related on-shore pipeline project. Daewoo International plans to make further investments in these gas fields in the future. Daewoo International holds a 51.0% interest in each of the A-1, A-3 and off-shore pipeline projects and a 25.0% interest in the on-shore pipeline project. ProductionMyanmar, where production of gas from these gas fields commenced in July 20132013. POSCO Daewoo recognized revenues of approximately Won 652 billion in 2015, Won 530 billion in 2016 and Daewoo International recognized revenueWon 498 billion in 2017 from the Myanmar gas field project starting in November 2013. Daewoo International recognized revenues of approximately Won 467 billion from the Myanmar gas field project in 2014.

projects. Such natural resources development projects, while entailing higher risks than the traditional trading business, offer higher potential returns. POSCO Daewoo International intends to continue to expand its operations by carefully seeking out promising energy development projects abroad. Daewoo International mitigates the risks associated with such investments through subsidies from the Special Account for Energy Related Funds that is administered, among others, by Korea National Oil Corporation and Korea Resources Corporation, government agencies that promote natural resources development activities of the fund. The fund subsidizes a portion of the investment amount in the event the investor fails to develop viable deposits. If the natural resources development activities are

successful, the investor must reimburse the Fund for the subsidy amount, together with accrued interest. In most instances, Daewoo International is required to obtain consent from the Ministry of Trade, Industry & Energy prior to investing in natural resources development projects.

Competition. POSCO Daewoo International competes principally with six other Korean general trading companies, each of which is affiliated with a major domestic business group, as well as global trading companies based in other countries. In the domestic market, competition for export transactions on behalf of domestic suppliers and import transactions on behalf of domestic purchasers was limited, as most affiliated general trading companies of large Korean business groups generally relied on affiliate transactions for the bulk of their trading business. However, in recent years, many of these Korean general trading companies have reduced their reliance on their affiliated business group and transactions carried out on behalf of their member companies and instead have generally evolved to focus on segments of the import and export markets in which they have a competitive advantage. As a result, competition among Korean general trading companies in the area of traditional trade has become more intense. Daewoo International’sPOSCO Daewoo’s principal competitors in the overseas trading markets include Korean trading companies that operate in various international markets, as well as foreign trading companies, particularly those based in Japan. As POSCO Daewoo International diversifies into businesses other than traditional trading such as natural resources development, it also increasingly competes with other Korean and international companies involved in these businesses.

Construction

POSCO E&C our consolidated subsidiary in which we hold an 89.5% interest, is one of the leading engineering and construction companies in Korea, primarily engaged in the planning, design and construction of industrial plants and architectural works and civil engineering projects. In particular, POSCO E&C has established itself as one of the premier engineering and construction companies in Korea through:

 

its strong and stable customer base; and

itscutting-edge technological expertise obtained from construction of advanced integrated steel plants, as well as participation in numerous modernization and rationalization projects at our Pohang Works and Gwangyang Works.

Leveraging its technicalknow-how and track record of building some of the leading industrial complexes in Korea, POSCO E&C has also focused on diversifying its operations into construction ofhigh-end apartment complexes and participating in a wider range of architectural works and civil engineering projects, as well as engaging in urban planning and development projects and expanding its operations abroad. One of its landmark urban planning and development projects includes the development of a5.7 million-square meter area of Songdo International City in Incheon, which POSCO E&C isco-developing with Gale International, a respected real estate developer based in the United States. In September 2015, we completed the sale of our 38.0% interest in POSCO E&C to PIF, the sovereign wealth fund of Saudi Arabia, for US$1.05 billion. In connection with the sale, POSCO E&C and PIF agreed to jointly explore additional business opportunities in Saudi Arabia, including participating in various infrastructure projects sponsored by the Saudi Arabian government.

POSCO E&C also has substantial experience in the energy field obtained from the construction of various power plants for member companies of the POSCO Group, specializing primarily in engineering and construction of liquefied natural gas (“LNG”) andcoal-fired thermal power plants. In recent years, POSCO E&C has obtained various orders for such power plants, includingLNG-fired power plants in Incheon, Korea andcoal-fired thermal power plants in Ventanas and Angamos, Chile. In response to increasing demand from the energy industry, POSCO E&C plans to continue to target opportunities in power plant construction, which it believes offers significant growth potential, and therebypotential. In order to further promote efficiency among the member companies of the POSCO Group as well as to enhance its know-how and profitability.the engineering expertise of POSCO E&C, POSCO Engineering Co., Ltd. merged into POSCO E&C in February 2017.

Competition. Competition in the construction industry is based primarily on price, reputation for quality, reliability, punctuality and financial strength of contractors. In Korea, POSCO E&C’s main competition in the construction of residential andnon-residential buildings, EPC projects, urban planning and development projects and civil works projects consists of approximately ten major domestic construction companies, all of which are member companies of other large business groups

in Korea and are capable of undertakinglarger-scale,higher-value-added projects that offer greater potential returns. A series of measures introduced by the Government over the past few years to regulate housing prices in Korea, as well as an increasing popularity oflow-bid contracts in civil works project mandates, have contributed to increased competition in the Korean construction industry in recent years. In the overseas markets, POSCO E&C faces competition from local construction companies, as well as international construction companies from other countries, including other major Korean construction companies with overseas operations. Construction companies from developed countries may be more experienced, have greater financial resources and possess more sophisticated technology than POSCO E&C, while construction companies from developing countries often have the advantage of lower wage costs.

Others

As part of our diversification efforts, we strive to identify business opportunities that supplement our steel, trading and construction segments, including power generation, LNG logistics and network and system integration.

POSCO Energy CorporationCorporation.. In 2006, we acquired the largest domestic private power utility company that operates LNG combined cycle power generation facilities with total power generation capacity of 1,800 megawatts and renamed it POSCO Energy Corporation. Since our acquisition, POSCO Energy Corporation has expanded its power generation capacity by constructing additional power plants in Korea. As part of its efforts to geographically diversify its power generation facilities, POSCO Energy Corporation is constructing two 1,200 megawatts class coal power plants in Vietnam with Applied Energy Services Corporation. In Indonesia, POSCO Energy Corporation partnered with PT. Krakatau Daya ListrikKorea and completed construction of a 200 megawatts by-product gas power plant, which is used to power our integrated mill.Southeast Asia. POSCO Energy Corporation’s total power generation

capacity was approximately 3,9504,526 megawatts as of December 31, 2014.

2017. POSCO Energy Corporation is also selectively seeking opportunities to expand into solar, wind and other renewable energy businesses in order to become an integrated provider of energy solutions. In order to meet the increasing demand and regulatory requirements for clean energy, POSCO Energy Corporation signed a strategic partnership agreement in February 2007 with FuelCell Energy, a global leader in the field of molten carbonate fuel cell technology, pursuant to which POSCO Energy Corporation is exploring opportunities to expand its business into the stationary fuel cell market. In consultation with FuelCell Energy, POSCO Energy Corporation completed construction of a fuel cell stack manufacturing plant with an annual production capacity of 34 megawatts in 2011 with the objective of enhancing POSCO Energy Corporation’s capability to meet the growing domestic demand for fuel cell energy.

LNG Logistics. In an effort to reduce our dependency on oil, we became the first private company in Korea to import LNG in 2005, and we have steadily increased the use of natural gas for energy generation at our steel production facilities. We operate an LNG receiving terminal that is equipped with two 100,000 kiloliters storage tanks, two 165,000 kiloliters storage tanks and additional facilities with an aggregate capacity to process up to 2.4 million tons of LNG annually in Gwangyang. In order to achieve maximum operational efficiency of our LNG terminal, we participate in the LNG trading and LNG ship gas trial businesses. We are also buildingoperate a synthetic natural gas production plant with an annual capacity of 500,000 tons in Gwangyang that is scheduled for completion by mid-2015. We believe that the synthetic natural gas production plant will provide us with a stable supply of LNG substitutes that we can utilize to meet our growing needs for energy generation.Gwangyang.

Others.We acquired or established several subsidiaries that address specific services to support the operations of Pohang Works and Gwangyang Works. POSCO ICT Co., Ltd., founded in 1989, provides information and technology consulting and system network integration and outsourcing services. POSCO Processing & Service Co., Ltd., founded in 1994, provides material processing and

fabrication services. POSCO Plantec, created from the merger of POSCO Machinery & Engineering Co., Ltd. and POSCO Machinery Co., Ltd. in January 2010, provides engineering services related to plant construction and operations. Sungjin Geotec, a manufacturer of specialized equipment used in the power and energy industries, merged with POSCO Plantec in July 2013. POSCO Chemtech Company Ltd., formerly POSCO Refractories and Environment Company, Ltd., specializes in the manufacturing of refractories and lime used in steel manufacturing processes as well as a wide range of chemical products.

Insurance

We maintain property insurance for our property, plant and equipment that we believe to be consistent with market practice in Korea.

Item 4.C.  Organizational Structure

The following table sets out the jurisdiction of incorporation and our ownership interests of our significant subsidiaries:

 

Name

  Jurisdiction of
Incorporation
   Percentage of
Ownership
 

POSCO Daewoo International Corporation

   Korea    60.362.9

POSCO Engineering & Construction Co., Ltd

   Korea    89.552.8

POSCO Energy Corporation

   Korea    89.0

Zhangjiagang Pohang Stainless Steel Co., Ltd.

   China   82.5%

POSCO Processing & Service Co., Ltd.

Korea96.0 (1)

POSCO ICT Co., Ltd.

   Korea    65.4

(1)POSCO holds a 58.6% interest and POSCO-China holds a 23.9% interest.

Item 4.D.  Property, Plants and Equipment

Our principal properties are Pohang Works, which is located at Youngil Bay on the southeastern coast of Korea, and Gwangyang Works, which is located in Gwangyang City in the southwestern region of Korea. We expect toalso maintain and operate production properties abroad, including plants operated by Zhangjiagang Pohang Stainless Steel in China, PT. Krakatau POSCO in Indonesia and POSCO SS Vina in Vietnam. We may increase our production capacity in the future when we increase our capacity as part of our facilities expansion or as a result of continued modernization and rationalization of our existing facilities. For a discussion of major items of our capital expenditures currently in progress, see “Item 5. Operating and Financial Review and Prospects — Item 5.B. Liquidity and Capital Resources — Liquidity — Capital Expenditures and Capital Expansion.”

We are vigorous in our efforts to engage in environmentally responsible management of, and to protect the environment from damage resulting from, our operations. Our levels of pollution control are higher than those mandated by Government standards. We established anon-line environmental monitoring system withreal-time feedback on pollutant levels and a forecast system of pollutant concentration in surrounding areas. We also undergo periodic environmental inspection by both internal and external inspectors in accordance with ISO 14001 standards to monitor execution and maintenance of our environmental management plan. We also operate a certification program targeting our suppliers and outsourcing partners, pursuant to which they are encouraged to establish environmental management systems of their own.

Production Facilities in Korea

Pohang Works

Construction of Pohang Works began in 1970 and ended in 1983. Pohang Works currently has an annual crude steel and stainless steel production capacity of 17.417.6 million tons. Pohang Works produces a wide variety of steel products. Products produced at Pohang Works include hot rolled sheets, plates, wire rods and cold rolled sheets, as well as specialty steel products such as stainless steel sheets and silicon steel sheets. These products can also be customized to meet the specifications of our customers.

Situated on a site of 8.9 million square meters at Youngil Bay on the southeastern coast of Korea, Pohang Works consists of 43 plants, including iron-making, crude steelmaking and continuous casting and other rolling facilities. Pohang Works also has docking facilities capable of accommodating ships as large as 200,000 tonsships for unloading raw materials, storage areas for up to 34 days’ supply of raw materials and separate docking facilities for ships carrying products for export. Pohang Works consumed approximately 340 thousand tons of LNG and approximately 11,662 gigawatt hours of electricity in 2014. Pohang Works is equipped with a highly advanced computerizedproduction-management system allowing constant monitoring and control of the production process.

The following table sets out Pohang Works’ capacity utilization rates for the periods indicated.

       As of or for the Year Ended December 31,      
   2012   2013   2014 

Crude steel and stainless steel production capacity as of end of the year (million tons per year)

   16.65     17.30     17.40  

Actual crude steel and stainless steel output (million tons)

   16.54     16.18     16.18  

Capacity utilization rate (%)(1)

   99.3     93.5     93.0  

(1)Calculated by dividing actual crude steel and stainless steel output by the actual crude steel and stainless steel production capacity for the relevant period as determined by us.

Gwangyang Works

Construction of Gwangyang Works began in 1985 on a site of 13.7 million square meters reclaimed from the sea in Gwangyang City in the southwestern region of Korea. Gwangyang Works currently has an annual crude steel production capacity of 20.824.8 million tons. Gwangyang Works specializes in high volume production of a limited number of steel products. Products manufactured at Gwangyang Works include both hot and cold rolled types.

Gwangyang Works is comprised of 47 plants, including iron-making plants, steelmaking plants, continuous casting plants, hot strip mills andthin-slab hot rolling plants. The site also features docking and unloading facilities for raw materials capable of accommodating ships of as large as 300,000 tonsships for unloading raw materials, storage areas for 38 days’ supply of raw materials and separate docking facilities for ships carrying products for export. Gwangyang Works consumed approximately 225 thousand tons of LNG and approximately 13,880 gigawatt hours of electricity in 2014.

We believe Gwangyang Works is one of the most technologically advanced integrated steel facilities in the world. Gwangyang Works has a completely automated, linear production system that enables the whole production process, fromiron-making to finished products, to take place without interruption. This advanced system reduces the production time for hot rolled products to only four hours. Like Pohang Works, Gwangyang Works is equipped with a highly advanced computerizedproduction-management system allowing constant monitoring and control of the production process.

Capacity utilization has kept pace with increases in capacity. Utilization Rates

The following table sets out Gwangyang Works’the capacity utilization rates of our production facilities in Korea for the periods indicated.

       As of or for the Year Ended December 31,      
   2015  2016  2017 

Crude steel and stainless steel production capacity as of end of the year (million tons per year)

   42.41   42.39   42.39 

Actual crude steel and stainless steel output (million tons)

   37.97   37.50   37.21 

Capacity utilization rate (%) (1)

   89.5  88.5  87.8

(1)Calculated by dividing actual crude steel and stainless steel output by the actual crude steel and stainless steel production capacity for the relevant period as determined by us.

Production Facilities Abroad

Our various subsidiaries and joint ventures around the world, including Zhangjiagang Pohang Stainless Steel Co., Ltd. in China, PT. Krakatau POSCO in Indonesia and POSCO SS Vina Co., Ltd. in

Vietnam, engage in steel production activities. For a discussion of such operations, see “Item 4. Information on the Company — Item 4.B. Business Overview — Subsidiaries and Joint Ventures.”

Zhangjiagang Pohang Stainless Steel

The following table sets out Zhangjiagang’s capacity utilization rates for the periods indicated.

 

       As of or for the Year Ended December 31,      
   2012   2013   2014 

Crude steel production capacity as of end of the year (million tons per year)

   20.80     20.80     20.80  

Actual crude steel output (million tons)

   21.45     20.23     21.47  

Capacity utilization rate (%)(1)

   103.1     97.3     103.2  
       As of or for the Year Ended December 31,      
   2015  2016  2017 

Crude steel and stainless steel production capacity as of end of the year (million tons per year)

   1.10   1.10   1.10 

Actual crude steel and stainless steel output (million tons)

   1.17   1.16   1.16 

Capacity utilization rate (%) (1)

   106.1  105.2  105.4

(1)Calculated by dividing actual crude steel and stainless steel output by the actual crude steel and stainless steel production capacity for the relevant period as determined by us.

PT. Krakatau POSCO

The following table sets out PT. Krakatau POSCO’s capacity utilization rates for the periods indicated.

       As of or for the Year Ended December 31,      
   2015  2016  2017 

Crude steel production capacity as of end of the year (million tons per year)

   3.00   3.00   3.00 

Actual crude steel output (million tons)

   2.72   2.91   2.92 

Capacity utilization rate (%) (1)

   90.7  97.0  97.4

(1)Calculated by dividing actual crude steel output by the actual crude steel capacity for the relevant period as determined by us.

POSCO SS VINA Co., Ltd.

The following table sets out POSCO SS VINA’s capacity utilization rates for the periods indicated.

       As of or for the Year Ended December 31,      
   2016  2017 

Crude steel production capacity as of end of the year (million tons per year)

   1.10   1.10 

Actual crude steel output (million tons)

   0.64   0.91 

Capacity utilization rate (%) (1)

   58.0  82.3

 

 

(1)Calculated by dividing actual crude steel output by the actual crude steel production capacity for the relevant period as determined by us.

The Environment

We are vigorous in our efforts to engage in environmentally responsible management of, and to protect the environment from damage resulting from, our operations. Our levels of pollution control are higher than those mandated by Government standards. We established an on-line environmental monitoring system with real-time feedback on pollutant levels and a forecast system of pollutant concentration in surrounding areas. We also undergo periodic environmental inspection by both internal and external inspectors in accordance with ISO 14001 standards to monitor execution and maintenance of our environmental management plan. As we continue to diversify our production

operations abroad and the importance of comprehensive environmental management continues to grow, we announced an integrated environmental management system in December 2010, pursuant to which all of our subsidiaries located in Korea as well as abroad acquired the ISO 14001 certification. We also operate a certification program targeting our suppliers and outsourcing partners, pursuant to which they are encouraged to establish environmental management systems of their own.

We have taken additional measures to ensure that we are appropriately addressing environmental issues. We recycle most of the by-products from the steelmaking process. A vital part of our production process requires consumption of water, and many of our operations are located on coastal sites or adjacent to major lakes and rivers. Recognizing the importance of water resources, we established mid-to-long-term water management strategies to more effectively utilize water resources, including increasing water recycling, reducing usage volume, developing substitute sources and reducing manufacturing discharge harmful to the environment. As part of our efforts to preserve biological diversity, we supply steel slag that is used in the construction of underwater facilities designed to restore marine ecosystems damaged by rising seawater temperatures. In addition, we have been developing environmentally friendly products such as chrome-free steel sheets in an effort to compete with products from the European Union, the United States and Japan and to meet strengthened environmental regulations. Anticipating the trend toward increasing regulation of chrome in various steel products, we introduced chrome-free steel products meeting international environmental standards in 2006 that are used to manufacture automotive oil tanks.

We plan to continue to invest in developing more environmentally friendly steel manufacturing processes. We commenced research and development for a new steel manufacturing technology called FINEX in 1992 jointly with the Research Institute of Industrial Science and Technology and VOEST Alpine, an Austrian company, and we completed the construction of our first FINEX plant in May 2003 with an annual steel production capacity of 0.6 million tons, a second FINEX plant in May 2007 with an annual steel production capacity of 1.5 million tons, and a third FINEX plant in January 2014 with an annual steel production capacity of 2.0 million tons. The first FINEX plant ceased production in July 2014, and the total annual steel production capacity of our FINEX plants is 3.5 million tons. We will continue to refine FINEX, a low cost, environmentally friendly steel manufacturing process that we believe optimizes our production capacity by utilizing non-agglomerated iron ore fines and using non-coking coal as an energy source and a reducing agent. We believe that FINEX offers considerable environmental and economic advantages by eliminating major sources of pollution such as sinter and coke plants, as well as decreasing operating and raw material costs.

Our climate change response program seeks to minimize the risks from changes in climate as well as to maximize the opportunities available in such environment by enhancing the energy efficiency of our production process. We have disclosed our carbon dioxide emission levels and efforts to deal with climate changes through various channels, including participating in the Carbon Disclosure Project. The Carbon Disclosure Project is an organization based in the United Kingdom that works with major corporations around the world to disclose their greenhouse gas emission levels. We are also in compliance with the Korea Emissions Trading Scheme, which was launched by the Government in January 2015 to reduce greenhouse gas emissions by limiting the total amount of allowable greenhouse gas emission by a manufacturer.

While we believe we are in compliance with applicable environmental laws and regulations in all material respects, we may be responsible for the investigation and remediation of environmental conditions at currently and formerly operated manufacturing or construction sites. For example, we recognized a provision of Won 89 billion in 2014 related to restoration costs of contaminated land near our magnesium plant in Gangneung, Korea. We spent Won 634 billion in 2012, Won 295 billion in 2013 and Won 299 billion in 2014 on anti-pollution facilities.

Item 4A.  4.E.Unresolved Staff Comments

We do not have any unresolved comments from the Securities and Exchange Commission staff regarding our periodic reports under the Exchange Act of 1934.

Item 5.Operating and Financial Review and Prospects

Item 5.A.Operating Results

The following discussion and analysis is based on our consolidated financial statements, which have been prepared in accordance with IFRS, as issued by the IASB. Unless otherwise noted, the amounts included in Item 5.A. are presented on a consolidated basis.

Overview

We are the largest fully integrated steel producer in Korea. We have four reportable operating segments—segments — a steel segment, a trading segment, an engineering and construction segment and a segment that contains operations of all other entities which fall below the reporting thresholds. The steel segment includes production of steel products and sale of such products. The trading segment consists primarily of global trading activities and natural resources development activities of POSCO Daewoo. POSCO Daewoo International, exportingexports and importingimports a wide range of steel products that are both obtained from and supplied to POSCO, as well as between other suppliers and purchasers in Korea and overseas. The construction segment includes planning, designing and construction of industrial plants, civil engineering projects and commercial and residential buildings, both in Korea and overseas. The “others” segment includes power generation, LNG logistics, and network and system integration. See Note 4240 of Notes to Consolidated Financial Statements.

One of the major factors contributing to our historical performance has been the growth of the Korean economy, and our future performance will depend at least in part on Korea’s general economic growth and prospects. For a description of recent developments that have had and may continue to have an adverse effect on our results of operations and financial condition, see “Item 3. Key Information—Information — Item 3.D. Risk Factors—Factors — Korea is our most important market, and our current business and future growth could be materially and adversely affected if economic conditions in Korea deteriorate.” A number of other factors have had or are expected to have a material impact on our results of operations, financial condition and capital expenditures. These factors include:

 

our sales volume, unit prices and product mix;

 

costs and production efficiency; and

 

exchange rate fluctuationsfluctuations.

As a result of these factors, our financial results in the past may not be indicative of future results or trends in those results.

Sales Volume, Prices and Product Mix

In recent years, our net sales have been affected by the following factors:

 

the demand for our products in the Korean market and our capacity to meet that demand;

 

our ability to compete for sales in the export market;

 

price levels; and

 

our ability to improve our product mix.

Domestic demand for our products is affected by the condition of major steel consuming industries, such as construction, shipbuilding, automotive, electrical appliances and downstream steel processors, and the Korean economy in general.

In 2013,2016, unit sales prices in Won for alleach of our principal product lines of steel products produced by us and directly sold to external customers decreased. The weighted average unit price for such products decreased by 6.8%6.6% from 20122015 to 2013,2016, despite a depreciation in part duethe average value of the Won against the Dollar in 2016 that increased our export prices in Won terms. The average exchange rate of the Won against the Dollar depreciated from Won 1,131.5 to US$1.00 in 2015 to Won 1,160.5 to US$1.00 in 2016.

The unit sales price of silicon steel products, which accounted for 3.1% of total sales volume of the principal steel products produced by us and directly sold to external customers, decreased by 17.0% in 2016. The unit sales price of wire rods, which accounted for 8.3% of total sales volume of such products, decreased by 11.9% in 2016. The unit sales price of stainless steel products, which

accounted for 9.2% of total sales volume of such products, decreased by 9.2% in 2016. The unit sales price of hot rolled products, which accounted for 26.2% of total sales volume of such products, decreased by 7.6% in 2016. The unit sales price of plates, which accounted for 14.4% of total sales volume of such products, decreased by 5.0% in 2016. The unit sales price of cold rolled products, which accounted for 38.7% of total sales volume of such products, decreased by 4.6% in 2016.

In 2017, unit sales prices in Won for each of our principal product lines of steel products produced by us and directly sold to external customers increased. The weighted average unit price for such products increased by 21.3% from 2016 to 2017, despite an appreciation in the average value of the Won against the Dollar in 20132017 that decreased our export prices in Won terms. The average exchange rate of the Won against the Dollar appreciated from Won 1,126.91,160.5 to US$1.00 in 20122016 to Won 1,095.01,130.8 to US$1.00 in 2013.2017.

The unit sales price of coldhot rolled products, which accounted for 40.9%25.9% of total sales volume of the principal steel products produced by us and directly sold to external customers, decreasedincreased by 13.9%29.2% in 2013.2017. The unit sales price of wire rods, which accounted for 6.0%7.8% of total sales volume of such products, decreasedincreased by 13.5%26.2% in 2013.2017. The unit sales price of hotcold rolled products, which accounted for 26.1%37.5% of total sales volume of such products, decreasedincreased by 8.2%25.7% in 2013. The unit sales price of silicon steel sheets, which accounted for 3.9% of total sales volume of such products, decreased by 4.4% in 2013. The unit sales price of plates, which accounted for 13.2% of total sales volume of such products, decreased by 2.8% in 2013.2017. The unit sales price of stainless steel products, which accounted for 9.9%9.6% of total sales volume of such products, decreasedincreased by 2.7%15.0% in 2013.

In 2014, unit sales prices in Won for our principal product lines of steel products produced by us and directly sold to external customers, other than hot rolled products and stainless steel products, decreased. The weighted average unit price for such products decreased by 6.2% from 2013 to 2014, in part due to an appreciation in the average value of the Won against the Dollar in 2014 that decreased our export prices in Won terms. The average exchange rate of the Won against the Dollar appreciated from Won 1,095.0 to US$1.00 in 2013 to Won 1,053.2 to US$1.00 in 2014.

2017. The unit sales price of wire rods,silicon steel products, which accounted for 7.9%2.9% of total sales volume of the principal steelsuch products, producedincreased by us and directly sold to external customers, decreased by 16.4%9.7% in 2014.2017. The unit sales price of plates, which accounted for 15.3% of total sales volume of such products, decreased by 10.6% in 2014. The unit sales price of silicon steel sheets, which accounted for 3.4% of total sales volume of such products, decreased by 6.2% in 2014. The unit sales price of cold rolled products, which accounted for 39.1% of total sales volume of such products, decreased by 5.2% in 2014. On the other hand, the unit sales price of hot rolled products, which accounted for 25.6%16.3% of total sales volume of such products, increased by 1.5%8.4% in 2014. The unit sales price of stainless steel products, which accounted for 8.7% of total sales volume of such products, increased by 0.1% in 2014.2017.

We gradually decreased our export prices from 2012 to 2014. We may decide to adjust our export sales prices in the future subject to market demand for our products, the production outlook of the global steel industry and global economic conditions in general. See “Item 4. Information on the Company — Item 4.B. Business Overview — Markets — Exports.”

The table below sets out the average unit sales prices for oursemi-finished and finished steel products for the periods indicated.

 

  For the Year Ended December 31,   For the Year Ended December 31, 

Products

      2012           2013           2014           2015           2016           2017     
  (In thousands of Won per ton)   (In thousands of Won per ton) 

Cold rolled products

  963    829    786    698   666   837 

Hot rolled products

   737     677     687     549    507    655 

Stainless steel products

   2,646         2,576         2,577         2,207        2,003        2,304 

Plates

   873     849     759     612    582    631 

Wire rods

   1,245     1,076     900     724    638    806 

Silicon steel sheets

   1,362     1,302     1,221     1,284    1,065    1,169 
  

 

   

 

   

 

 

Average(1)

      1,071    998    936    798   745   904 

 

 

(1)“Average” prices are based on the weighted average, by sales volume, of our sales for the listed principal products produced by us and directly sold to external customers. See “Item 4. Information on the Company — Item 4.B. Business Overview — Major Products.” The average unit sales price calculation does not include sales results of steel products categorized as “others.”

Costs and Production Efficiency

Our major costs and operating expenses are raw material purchases, depreciation, labor and other purchases. The table below sets out our cost of sales and selling and administrative expenses as a percentage of our revenue as well as gross profit margin and operating profit margin for the periods indicated.

 

              For the Year Ended  December 31,                           For the Year Ended December 31,             
      2012         2013         2014           2015         2016         2017     
  (Percentage of net sales)   (Percentage of net sales) 

Cost of sales

   88.3  88.9  88.7   88.9  87.4  86.3

Selling and administrative expenses

   6.0    6.3    6.3     7.0   7.3   6.2 

Gross margin

   11.7    11.1    11.3     11.1   12.6   13.7 

Operating profit margin

   5.1    4.2    3.9     2.5   4.3   7.0 

Our operating profit margin decreasedincreased from 5.1%2.5% in 20122015 to 4.2%4.3% in 20132016 and increased further decreased to 3.9%7.0% in 2014, reflecting the current challenging business environment2017, as discussed below.

We are closely monitoring changes in market conditions and we implemented the following measures in recent years to address challenges posed by the global economic downturn:improve our profit margins:

 

pursuing cost reduction through enhancing product designs, improving productivity and reducing transportationfixed costs;

 

focusing on marketing activities to increase the sales of higher margin, highervalue-added products and to strengthen our domestic market share and export sales;position;

pursuing synergies among member companies of the POSCO Group through corporate restructurings; and

 

establishing a special sales committee to more effectively respond to changes in market trends and preparing responses to various scenarios of future sales.

Production capacity represents our maximum production capacity that can be achieved with an optimal level of operations of our facilities. The table below sets out certain information regarding our production capacity and efficiency in the production of steel products for the periods indicated.

 

               For the Year Ended  December 31,             
       2012          2013          2014     

Crude steel and stainless steel production capacity
(million tons per year) (1)

   39.6    40.4    43.5  

POSCO

   37.5    38.1    38.2  

POSCO Specialty Steel Co., Ltd.(1)

   1.1    1.2    1.2  

Zhangjiagang Pohang Stainless Steel Co., Ltd.

   1.0    1.1    1.1  

PT. Krakatau POSCO Co., Ltd.

           3.0  

Actual crude steel and stainless steel output (million tons) (2)

   39.7    38.3    41.4  

POSCO

   38.0    36.4    37.7  

POSCO Specialty Steel Co., Ltd.(1)

   0.7    0.7    0.7  

Zhangjiagang Pohang Stainless Steel Co., Ltd.

   1.0    1.1    1.2  

PT. Krakatau POSCO Co., Ltd.

           1.9  

Capacity utilization rate (%)(1)

   100.3  94.6  95.2

POSCO

   101.4  95.5  98.6

POSCO Specialty Steel Co., Ltd.(1)

   63.3  61.8  60.1

Zhangjiagang Pohang Stainless Steel Co., Ltd.

   103.3  100.3  104.9

PT. Krakatau POSCO Co., Ltd.

           63.4

(1)In March 2015, we sold an aggregate of 52.3% of our interest in POSCO Specialty Steel to SeAH Besteel Corp., Shinyoung Securities Co., Ltd. and Shinhan Investment Corp. for approximately Won 419 billion. As a result, we hold a 19.9% interest in POSCO Specialty Steel.

(2)Reflects production capacity of POSCO, POSCO Specialty Steel Co., Ltd., Zhangjiagang Pohang Stainless Steel Co., Ltd and PT. Krakatau POSCO Co., Ltd.

           For the Year Ended December 31,          
   2015  2016  2017 

Crude steel and stainless steel production capacity (million tons per year)

   47.6   47.6   47.6 

POSCO

   42.4   42.4   42.4 

Zhangjiagang Pohang Stainless Steel Co., Ltd.

   1.1   1.1   1.1 

PT. Krakatau POSCO

   3.0   3.0   3.0 

POSCO SS VINA Co., Ltd.

   1.1   1.1   1.1 

Actual crude steel and stainless steel output (million tons)

   42.0   42.2   42.2 

POSCO

   38.0   37.5   37.2 

Zhangjiagang Pohang Stainless Steel Co., Ltd.

   1.2   1.2   1.2 

PT. Krakatau POSCO

   2.7   2.9   2.9 

POSCO SS VINA Co., Ltd.

   0.2   0.6   0.9 

Capacity utilization rate (%)

   88.3  88.7  88.7

POSCO

   89.5  88.5  87.8

Zhangjiagang Pohang Stainless Steel Co., Ltd.

   106.1  105.2  105.4

PT. Krakatau POSCO

   90.7  97.0  97.4

POSCO SS VINA Co., Ltd.

   15.8  58.0  82.3

Exchange Rate Fluctuations

Our consolidated financial statements are prepared from our local currency denominated financial results, assets and liabilities and our subsidiaries around the world, which are then translated into Won. A substantial proportion of our consolidated financial results is accounted for in currencies other than the Won. Accordingly, our consolidated financial results and assets and liabilities may be materially affected by changes in the exchange rates of foreign currencies. In 2014, 55.4%2017, 61.0% of our total revenue from steel products produced and sold by us was in overseas markets outside of Korea. To the extent that we incur costs in one currency and make sales in another, our profit margins may be affected by changes in the exchange rates between the two currencies. Since the currency in which sales are recorded may not be the same as the currency in which expenses are incurred, foreign exchange rate fluctuations may materially affect our results of operations. Depreciation of the Won may materially affect the results of our operations because, among other things, it causes:

 

an increase in the amount of Won required for us to make interest and principal payments on our foreigncurrency-denominated debt;

an increase in Won terms in the costs of raw materials and equipment that we purchase from overseas sources and a substantial portion of our freight costs, which are denominated primarily in Dollars; and

 

foreign exchange translation losses on liabilities, which lower our earnings for accounting purposes.

Appreciation of the Won against major currencies, on the other hand, causes:

 

our export products to be less competitive by raising our prices in Dollar terms; and

 

a reduction in net sales and accounts receivables in Won from export sales, which are primarily denominated in Dollars.

We strive to naturally offset our foreign exchange risk by matching foreign currency receivables with our foreign currency payables and our overseas subsidiaries have sought to further mitigate the adverse impact of exchange rate fluctuations by conducting business transactions in the local currency of the respective market in which the transactions occur. In particular, Daewoo International’sPOSCO Daewoo’s exposure to fluctuations in exchange rates, including the Won/Dollar exchange rate, is limited because trading transactions typically involve matched purchase and sale contracts, which result in limited settlement exposure, and because Daewoo International’sPOSCO Daewoo’s contracts with domestic suppliers of products for export and with domestic purchasers of imported products are generally denominated in Dollars. Although the impact of exchange rate fluctuations is partially mitigated by such strategies, we and our subsidiaries, particularly POSCO Daewoo International and POSCO E&C, also periodically enter into derivative contracts, primarily foreign currency swaps and forward exchange contracts, to further hedge our foreign exchange risks. However, our results of operations have historically been affected by exchange rate fluctuations and there can be no assurance that such strategies will be sufficient to reduce or eliminate the adverse impact of such fluctuations in the future. Because of the larger positive effects of the appreciation of the Won (i.e., the reverse of the negative effects caused by the depreciation of the Won, as discussed above), depreciation of the Won generally has a negative impact on our results of operations.

Inflation

Inflation in Korea, which was 2.2%0.7% in 2012, 1.3%2015, 1.0% in 20132016 and 1.3%1.9% in 2014,2017, has not had a material impact on our results of operations in recent years.

Critical Accounting Estimates

We have prepared our consolidated financial statements in accordance with IFRS as issued by the IASB. These accounting principles require us to make certain estimates and judgments that affect

the reported amounts in our consolidated financial statements. Our estimates and judgments are based on historical experience, forecasted future events and various other assumptions that we believe to be reasonable under the circumstances. Estimates and judgments may differ under different assumptions or conditions. We evaluate our estimates and judgments on an ongoing basis. We believe the critical accounting policies discussed below are the most important to the portrayal of our financial condition and results of operations. Each of them is dependent on projections of future market conditions, and they require us to make the most difficult, subjective or complex judgments.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts for exposures in our receivable balances that represent our estimate of probable losses in ourshort-term andlong-term receivable balances from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate and negatively impact their ability to make payments, additional allowances may be

required. Determining the allowance for doubtful accounts requires significant management judgment and estimates including, among others, the credit worthiness of our customers, experience of historical collection patterns, potential events and circumstances affecting future collections and the ongoing risk assessment of our customer’s ability to pay.

Trade account receivables are analyzed on a regular basis and, upon our becoming aware of a customer’s inability to meet its financial commitments to us, the value of the receivable is reduced through a charge to the allowance for doubtful accounts. In addition, we record a charge to the allowance for doubtful accounts upon receipt of customer claims in connection with sales that management estimates are unlikely to be collected in full. As of December 31, 2014,2017, the percentage of allowance for doubtful accounts to gross accounttrade accounts and notes receivable and other receivables was 6.04%8.23%. Our allowance for doubtful accounts increased by 44.2%11.9%, or Won 292117 billion, from Won 662978 billion as of December 31, 20132016 to Won 9541,094 billion as of December 31, 2014 primarily due to recognition of bad debt expenses related to project financing incurred by POSCO E&C.2017. See Note 23 of Notes to Consolidated Financial Statements. Assumptions and judgments related to the allowance for doubtful accounts did not change in 2014.2017.

Specifically, allowances for doubtful accounts are recorded when any of the following loss events occur: (i) there is objective evidence as to the uncollectibilityuncollectability of the account observed through bankruptcy, default or involuntary dissolution of the customer; (ii) we lose a lawsuit against the customer or our right of claim gets extinguished; (iii) our costs to collect the account exceed the payments to be received; or (iv) a dispute with the customer over the collection of the account persists for more than three years.

The actual average annual uncollected percentage rate of accounts receivables resulting inwrite-offs for the three years in the period ended December 31, 20142017 was 0.11%1.02%. These historical results, as well as current known conditions impacting the collectability of our accounts receivable balances, are significant factors for us when we estimate the amount of the necessary allowance for doubtful accounts. Historically,accounts.Historically, losses from uncollectible accounts receivables have been within expectations and in line with the allowances established. However, unforeseen circumstances such as adverse market conditions that deviate significantly from our estimates may require us to change the timing of, and make additional allowances to, our receivable balances. In this case, our results of operations, financial condition and net worth could be materially and adversely affected.

Valuation of Financial Instruments including Debt and Equity Securities and Derivatives

We invest in various financial instruments including debt and equity securities and derivatives. Depending on the accounting treatment specific to each type of financial instrument, an estimate of fair value is required to determine the instrument’s effect on our consolidated financial statements.

If available, quoted market prices provide the best indication of fair value. We determine the fair value of our financial instruments using quoted market prices when available, including quotes from

dealers trading those securities. If quoted market prices are not available, we determine the fair value based on pricing or valuation models, quoted prices of instruments with similar characteristics, or discounted cash flows. Determining the fair value of unlisted financial instruments involves a significant degree of management resources and judgment as no quoted prices exist and such securities are generally very thinly traded. Derivatives for which quoted market prices are not available are valued using valuation models such as the discounted cash flow method. The key inputs used in the valuation of such derivatives depend upon the type of derivative and the nature of the underlying instrument and include interest rate yield curves, foreign exchange rates, the spot price of the underlying instrument, volatility and correlation. The fair values based on pricing and valuation models and discounted cash flow analysis are subject to various assumptions used that, if changed, could significantly affect the fair value of the investments.

We assess at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity investments classified as

available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is also evidence that the asset is impaired. As part of this impairment review, the investee’s operating results, net asset value and future performance forecasts as well as general market conditions are taken into consideration in order to assess whether there is any objective evidence such as significant financial difficulty of the issuer.

We have estimated fair values of materialnon-marketable securities. We estimated these fair values based on pricing or valuation models, quoted prices of instruments with similar characteristics, or discounted cash flow models. The discounted cash flow model valuation technique is based on the estimated cash flow projections of the underlying investee. Key assumptions and estimates include market conditions, revenue growth rates, operating margin rates, income tax rates, depreciation and amortization rates, the level of capital expenditures, working capital amounts and the discount rates. These estimates are based on historical results of the investee and other market data. In these cash flows projections, the two most significant estimates are the discount rates and revenue growth rates. If the discount rates used in these valuations were increased by 1%, then the estimated fair values would have decreased by 28%12% in total. Intotal.In addition, if the revenue growth rate assumptions were decreased by 1% in the cash flow models, then the estimated fair values would have decreased by 23%13% in total.

We recognized impairment losses onavailable-for-sale investments financial assets of Won 280143 billion in 20132015, Won 248 billion in 2016 and Won 370123 billion in 2014. Losses on impairment2017.See Note 8 of investments increased in 2014 primarily dueNotes to an impairment loss of Won 174 billion resulting from a significant and prolonged decline in the fair value of shares of Hyundai Heavy Industries Co., Ltd. below cost.Consolidated Financial Statements.

Historically, ourOur estimates and assumptions used to evaluate impairment of investments have been within expectations.are made taking into consideration our assessment of the latest information available. However, unforeseen circumstances such as adverse market conditions that deviate significantly from our estimates may require us to recognize additional losses on impairment of investments. We base our fair value estimates on assumptions we believe to be reasonable, but which are unpredictable and inherently uncertain. The use of alternative estimates and assumptions could increase or decrease the estimated fair values of our investments and potentially result in different impacts on our results of operations.

Long-lived Assets

At each reporting date, we review the carrying amounts of our tangible and intangible assets (excluding goodwill) to determine whether there is any indication that the carrying amount of those assets may not be recoverable through continuing use. If any such indication exists, the recoverable amount of the asset (or cash generating unit) is reviewed in order to determine the amount of the impairment, if any. The recoverable amount is the higher of the asset’s net selling price (fair value reduced by selling costs)less costs to sell) and its value in use. When the book value oflong-lived asset exceeds the recoverable valueamount of the asset due to obsolescence, physical damage or a decline in market value and

such amount is material, the impairment of the asset is recognized and the asset’s carrying value is reduced to its recoverable valueamount and the resulting impairment loss is charged to current operations. Such recoverable valueamount is based on our estimates of the future use of assets and is subject to changes in market conditions. Based on an impairment test as of December 31, 2014,2017, we recognized impairment loss ofon property, plant and equipment amounting to Won 65117 billion in 2014.2017, which related primarily to impairment of long-lived assets of Suncheon Eco Trans Co., Ltd.

The depreciable lives and salvage values of ourlong-lived assets are estimated and reviewed each year based on industry practices and prior experience to reflect economic lives oflong-lived assets. Effective January 1, 2011, we changed our estimated useful lives for certain machinery and equipment in our steel operating segment from the previous eight years to fifteen years based on an asset life study. Our depreciation expense decreased by Won 1,227 billion in 2011 as a result of such changes in our estimated useful lives.

Our estimates of the useful lives and recoverable valuesamount oflong-lived assets are based on historical trends adjusted to reflect our best estimate of future market and operating conditions. Also, our estimates include the expected future period in which the future cash flows are expected to be generated from continuing use of the assets that we review for impairment and cash outflows to prepare the assets for use that can be directly attributed or allocated on a reasonable and consistent basis. If applicable, estimates also include net cash flows to be received or paid for the disposal of the

assets at the end of their useful lives. As a result of the impairment review, when the sum of the discounted future cash flows expected to be generated by the assets is less than the book value of the assets, we recognize impairment losses based on the recoverable valueamount of those assets. We make a number of significant assumptions and estimates in the application of the discounted cash flow model to forecast cash flows, including business prospects, market conditions, selling prices and sales volume of products, costs of production and funding sources. The estimated cash flow forecast amounts are derived from the most recent financial budgets for the next three to five years. For periods beyondBeyond the five year forecastspecifically forecasted period, we use a terminal value approach to estimateextrapolate the cash flows for the remaining years based on an expected estimated growth rate. This estimated growth rate is based on actual historical results.does not exceed the long-term average growth rate of our industry. As of December 31, 2014,2017, for the applicable cash generating units, we estimated an averagea discount rate of 6.10%7.6% to 14.0% and an averagea revenue growth rate of revenue growth of 1.17%1.0%. However, given the current economic environment, it is likely that the estimates and assumptions will be more volatile than they have been in the past. Further impairment charges may be required if triggering events occur, such as adverse market conditions, that suggest deterioration in an asset’s recoverability or fair value. Assessment of the timing of when such declines become other than temporary and the amount of such impairment is a matter of significant judgment. Results in actual transactions could differ from those estimates used to evaluate the impairment of suchlong-lived assets. If our future cash flow projections are not realized, either because of an extended recessionary period or other unforeseen events, impairment charges may be required in future periods.

If the estimated average discount rates used in these valuations were increased by 1%, then the estimated fair valuesrecoverable amount would have decreased by 17%5.0% to 6.1% in total. If the estimated average rate of revenue growth rate were decreased by 1%, then the estimated fair valuesrecoverable amount would have decreased by 15%0.6% to 2.5% in total. These sensitivity analyses do not affecttotal.We believe that any reasonably possible negative change in the key assumptions on which the recoverable amount is based would result in impairment loss due to the absence of an impairment loss indicator for our long-lived assets.

Goodwill

Goodwill is tested for impairment annually at the level of the groups of cash generating units or whenever changes in circumstances indicate that the carrying amount may not be recoverable. The recoverable amounts of the groups ofcash-generating units are determined from the higher of their fair value less cost to sell or theirvalue-in-use calculations. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period.

Our management estimates discount rates usingpost-tax rates that reflect current market rates for investments of similar risk. Growth rates are based on industry growth forecasts, and changes in

selling prices and direct costs are based on historical experience and expectations of future changes in the market. Cash flow forecasts are derived from the most recent financial budgets for the next five years. Beyond the specifically forecasted period, we extrapolate cash flows for the remaining years based on an estimated growth rate. This rate does not exceed the averagelong-term growth rate for the relevant markets. Once recognized, impairment losses recognized for goodwill are not reversed.

In validating the value in use determined for the cash generating units, the sensitivity of key assumptions used in the discountedcash-flow model such as discount rates and the terminal growth rate was evaluated. If the estimated average discount rates used in these valuations were increased by 0.25%, the estimatedvalue-in-use for the respective cash generating units would have decreased by 2.71%3.02% to 3.45% in total. If the estimated terminal growth rates were decreased by 0.25%, the estimatedvalue-in-use for the respective cash generating units would have decreased by 1.64%1.78% to 2.06% in total. If the discount rate assumptions were increased by 0.25% or the terminal growth rate assumptions were decreased by 0.25%, there would be no impact on goodwill impairment. Basedtotal.Based on an impairment test as of December 31, 2014,2017, we recognized impairment loss on goodwill of Won 21 billion in 2017, which related primarily to impairment of goodwill of Won 11 billion in 2014.POSCO E&C. We believe that determining the existence and impairment of goodwill is a critical accounting estimate because significant management judgment is involved in the evaluation of the value of goodwill,the cash-generating groups, and any reasonably possible changes in the key assumptions on which the recoverable amount is based would cause a change in impairment loss ofon goodwill. See Note 15 of Notes to Consolidated Financial Statements.

Inventories

Inventories are stated at the lower of cost or net realizable value. Costs of inventories are determined using themoving-weighted average or weighted average method.Materials-in-transit are determined using the specific identification method. Amounts of inventory are written down to net realizable value due to losses occurring in the normal course of business and the allowance is reported as a contra inventory account, while the related charge is recognized in cost of goods sold.

The net realizable value is determined based on the latest selling price available at the end of each quarter taking into account the directly attributable selling costs. The latest selling price is the base price which is the negotiated selling price based upon the recent transactions entered into with major customers. Considering that our inventory turnover is approximately two months and inventories at the balance sheet date would be sold during the following two months, we perform valuation of inventories using the base price as of the balance sheet date and adjust for significant changes in selling price occurring subsequent to the reporting date. The selling price range used for determining the net realizable value of our inventories ranged from 94.2% to 116.0% of the inventory cost amount less 12.1% of gross profit margin to the inventory cost amount plus 24.8% of gross profit margin. Foramount.For inventories in which expected selling prices are less than the cost amount, the necessary adjustment towrite-down the inventories to net realizable value is made. There was no recovery in 2012, 20132015, 2016 and 2014.2017. The valuation losses of inventories recognized within cost of goods sold were Won 76153 billion in 2012,2015, Won 49152 billion in 20132016 and Won 4279 billion in 2014.2017.

Investments in Associates and Joint Ventures

We hold a significant amount of investments in associates and joint ventures, which interests are accounted for using the equity method. As of December 31, 2017, the book value of our investments in associates and joint ventures was Won 3,558 billion. The carrying amounts of our investments in associates and joint ventures are reviewed at the end of the reporting period to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated.

We estimate the recoverable amount of an individual asset. If it is impossible to measure the individual recoverable amount of an asset, then we estimate the recoverable amount ofcash-generating unit (“CGU”), which is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. The value in use is estimated by applying apost-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU for which estimated future cash flows have not been adjusted, to the estimated future cash flows expected to be generated by the asset or CGU. We treat individual operating entities as CGUs, and an impairment loss is recognized if the carrying amount of an asset or a CGU exceeds its recoverable amount. Impairment losses are recognized in profit or loss.

As part of our impairment review, the operating results, net asset value and future performance forecasts of our associates and joint ventures as well as general market conditions are taken into consideration in order to assess whether there is any objective evidence of impairment, such as significant financial difficulty of the associate or joint venture. Unforeseen circumstances such as adverse market conditions that deviate significantly from our estimates may require us to recognize additional losses on impairment of our interest in our associates and joint ventures. We base our value in use estimates on assumptions we believe to be reasonable, but which are unpredictable and inherently uncertain. The use of alternative estimates and assumptions could increase or decrease the estimated fair values used to evaluate impairment of our interest in our associates and joint ventures and potentially have different impacts on our results of operations.

Revenue Recognition for Construction Contracts

POSCO E&C, our consolidated subsidiary, engages in various construction activities, including construction of industrial plants and commercial and residential buildings, and revenue recognition are different based on types of contracts. When the outcome of a construction contract can be estimated reliably, contract revenue is recognized in profit or loss in proportion to the stage of completion of the project. Contract revenue includes the initial amount agreed in the contract plus any variation in contract work, claims and incentive payments, to the extent that it is probable that they will result in revenue and can be measured reliably. The stage of completion of a contract is determined based on the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs. On the other hand, when the outcome of a construction contract cannot be estimated reliably, the revenue is recognized only to the extent of contract costs incurred that are likely to be recoverable. An expected loss on the construction contract is recognized as an expense immediately.

Our contract revenue recognition policy requires our management to exercise judgment in estimating the outcome of our contracts and measuring the percentage of completion and actual costs incurred in respect of our projects, which affects the amount and timing of recognition of revenues and cost of sales, provisions for estimated losses, charges against current earnings, trade account receivables and advances. For example, due to factors causing variation in costs for 2017, the estimated total contract costs were changed. Details of changes in estimated total contract costs and the impact on profit before income taxes for 2017 and future periods are as follows:

Amount
(In millions of Won)

Changes in estimated total contract costs

    164,812

Changes in profit before income taxes of construction contracts:

Current period

(69,656

Future periods

(6,041

The effect on current and future profit is estimated based on circumstances that have occurred from the commencement date of the contract to the end of 2017. The estimation is evaluated for total contract costs and expected total contract revenue as of the end of the period. Such estimate may change in future periods.

Our ability to measure reliably the estimated total cost of a project has a significant effect on the amount and timing of recognizing our sales and cost of sales. The timing of recognition of sales we report may differ materially from the timing of actual contract payments received. In addition, to the extent that sales recognized by us exceed the amount of payments to be received by us, such amount is reflected as trade account receivables on our balance sheet. To the extent payments received by us exceed the sales recognized, such amount is reflected under advances from customers on our balance sheet. Thus our ability to measure reliably the estimated total costs and the percentage of completion also affects the amount of our trade account receivables and advances from customers. For a discussion of uncertainty of estimates related to contract revenues and costs, see Note 29(d) of Notes to Consolidated Financial Statements.

Deferred Income Taxes

Our deferred income tax assets and liabilities reflect the tax consequences that would follow from the manner in which we expect, at the end of the reporting period, to recover or settle the carrying mount of our assets and liabilities. We recognize deferred income tax liability for all taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, except to the extent that we are able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. We recognize deferred income tax asset for deductible temporary differences to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against

which they can be utilized. However, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill or the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting profit or loss nor taxable income. The carrying amount of a deferred income tax asset is reviewed at the end of each reporting period and is reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized.

We believe that recognition of deferred tax assets and liabilities is a significant accounting policy that requires our management’s estimates and assumptions regarding, among other things, the level of future taxable income, interpretation of the tax laws and tax planning. Changes in tax laws, projected levels of taxable income and tax planning could affect the effective tax rate and tax balances recorded by us in the future.

Employee Benefits

Our accounting of employee benefits for defined benefit plans involves judgments about uncertain events including, but not limited to, discount rates, life expectancy, future pay inflation and expected rate of return on plan assets. The discount rates are determined by reference to the yield at the reporting date on high quality corporate bonds that have maturity dates approximating the terms of our benefits obligations and that are denominated in the same currency in which the benefits are expected to be paid. We determine the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to thethen-net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments, net interest

expense, and other expenses related to defined benefit plans that are recognized in profit or loss. Due to changing market and economic conditions, the underlying key assumptions may differ from actual developments and may lead to significant changes in our defined benefit plan. We immediately recognize all actuarial gains and losses arising from defined benefit plans in retained earnings. If the estimated average discount rates by actuarial assumptions used in these valuations were increased by 1%, then the estimated provision for severance benefits would have decreased by Won 127124 billion, or 7.4%6.7% in total. If the estimated future pay inflation rates were decreased by 1%, then the estimated provision for severance benefits would have decreased by Won 107124 billion, or 6.2%6.7% in total.

Recent Accounting Changes

For a discussion of new standards, interpretations and amendments to existing standards that have been published, see Note 3 of Notes to Consolidated Financial Statements.

IFRS No. 9 “Financial Instruments”

IFRS No. 9 “Financial Instruments” regulates requirements for measurement and recognition of certain contracts in relation to trading financial assets and liabilities ornon-financial items. It replaces existing guidance in IAS No. 39 “Financial Instruments: Recognition and Measurement.” We will apply IFRS No. 9 “Financial Instruments” for the year beginning on January 1, 2018.

The standard will generally be applied retrospectively with some exemptions allowing an entity not to restate the comparative information for prior periods in relation to classification and measurement (including impairment) changes. We will apply such exemptions. We will recognize the accumulated effect resulting from initial application of IFRS No. 9 as reserves, retained earnings andnon-controlling interests of the company at the date of initial application.

IFRS No. 15 “Revenue from Contracts with Customers”

IFRS No. 15 “Revenue from Contracts with Customers” provides a unified five-step model for determining the timing, measurement and recognition of revenue. It replaces existing revenue

recognition guidance, including IAS No. 18 “Revenue,” IAS No. 11 “Construction Contracts,” SIC No. 31 “Revenue-Barter transactions involving advertising services,” IFRIC No. 13 “Customer Loyalty Programs,” IFRIC No. 15 “Agreements for the construction of real estate,” and IFRIC No. 18 “Transfers of assets from customers.” We will apply IFRS No. 15 “Revenue from Contracts with Customers” for the year beginning on January 1, 2018.

We intend to apply the modified retrospective approach by recognizing the cumulative impact of applying the revenue standard as of January 1, 2018, the date of initial application. We also decided to apply the practical expedients as allowed by IFRS No. 15 by applying the new standard only to those contracts that are not considered as completed contracts at the date of initial application. Accordingly, we will not restate the financial statements for comparative periods.

Existing IFRS standards and interpretations including IAS No. 18 provide revenue recognition guidance by transaction types such as sales of goods, rendering of services, interest income, royalty income, dividend income and construction revenue. However, under the new standard of IFRS No. 15, the five-step approach (step 1: identify the contract(s) with a customer; step 2: identify the performance obligations in the contract; step 3: determine the transaction price; step 4: allocate the transaction price to the performance obligations under the contract; step 5: recognize revenue when the entity satisfies a performance obligation) is applied for all types of contracts or agreements.

IFRS No. 16 “Leases”

IFRS No. 16 “Leases” will replace IAS No. 17 “Leases” and IFRIC No. 4 “Determining whether an Arrangement contains a Lease.” It is effective for annual periods beginning on or after January 1, 2019, with early adoption permitted for companies that have adopted IFRS No. 15.

As a lessee, we plan to adopt IFRS No. 16 using one of the two following methods: (a) retrospectively to each prior reporting period presented in accordance with IAS No. 8 “Accounting Policies, Changes in Accounting Estimates and Errors” but using the practical expedients for completed contracts (i.e. completed contracts as of the beginning of the earliest prior period presented are not restated); or (b) retrospectively with the cumulative effect of initially applying this standard recognized at the date of initial application.

We have not yet initiated the preparation for the application of IFRS No. 16 and have not performed an assessment of the impact resulting from the application of IFRS No. 16. We will complete the analysis of financial impacts arising from applying this standard in 2018.

Explanatory Note Regarding Presentation of Certain Financial Information underK-IFRS

In addition to preparing financial statements in accordance with IFRS as issued by the IASB included in this annual report, we also prepare financial statements in accordance withK-IFRS as adopted by the KASB, which we are required to file with the Financial Services Commission and the Korea Exchange under the Financial Investment Services and Capital Markets Act of Korea.

FSCMA.

DuringK-IFRS differs in certain respects from IFRS as issued by the three years ended December 31, 2014, we are required to adopt certain amendments and interpretations to K-IFRS, relating toIASB in the presentation of operating profit. Additionally, underK-IFRS, revenue from the development and sale of real estate is recognized using the percentage of completion method. However, under IFRS as issued by the IASB, revenue from the development and sale of certain real estate is recognized when an individual unit of residential real estate is delivered to the buyer. As a result, our consolidated statements of comprehensive income and our consolidated statements of financial position prepared in accordance with IFRS as issued by the IASB included in this annual report differ from our consolidated statements of comprehensive income and consolidated statements of financial position prepared in accordance withK-IFRS. The table below sets forth a reconciliation of our operating profit and net income or loss as presented in our consolidated statements of comprehensive income prepared in accordance with IFRS as issued by the IASB for each of the years ended December 31, 2012, 20132015, 2016 and 20142017 to our

operating profit and net income or loss in our consolidated statements of comprehensive income prepared in accordance withK-IFRS, for each of the corresponding years, taking into account such differences:

 

  For the Year Ended December 31, 
  2012  2013  2014 
  (In millions of Won) 

Operating profit under IFRS as issued by the IASB

 3,255,139   2,566,269   2,512,998  

Additions:

   

Other bad debt expenses

  44,115    111,065    96,373  

Loss on disposals of assets held for sale

  9,510    26,498    14  

Impairment loss on assets held for sale

  258,451    1,814    17,205  

Loss on disposals of property, plant and equipment

  65,486    121,133    50,006  

Impairment loss of property, plant and equipment

  12,977    9,742    64,833  

Impairment losses on intangible assets

  21,776    125,316    55,220  

Idle tangible assets expenses

  31,297    17,624    12,214  

Impairment loss on other non-current assets

  36,453    9,000    38,137  

Other provision expenses

      65,896    126,601  

Donations

  73,963    60,940    69,544  

Loss on disposal of investments in associates

  15,119    19,404    2,556  

Loss on disposal of wastes

  45,480    15,231    16,386  

Penalty and default losses

  149,437    19,340    352,173  

Others

  45,401    47,803    78,412  
 

 

 

  

 

 

  

 

 

 
  809,465    650,806    979,674  

Deductions:

   

Gain on disposal of assets held for sale

  (193,333  (101,611  (48,231

Gain on disposals of investment in associates

  (39,441  (7,668  (41,258

Gain on disposals of property, plant and equipment

  (42,290  (14,177  (15,039

Reversal of impairment loss on intangible assets

  (530  (122  (2,794

Reversal of provision expenses

  (16,037  (2,924  (19,769

Rental revenues

  (1,898  (1,588  (1,743

Outsourcing income

  (29,136  (25,428  (14,200

Gain on disposal of wastes

  (38,597  (16,541  (11,357

Gain from claim compensation

  (31,613  (14,525  (29,171

Penalty income from early termination of contracts

  (15,054  (16,477  (34,606

Grant income

  (3,198  (2,287  (1,441

Others

  (36,993  (25,725  (49,796
 

 

 

  

 

 

  

 

 

 
  (448,120  (229,073  (269,406
 

 

 

  

 

 

  

 

 

 

Revenue recognition related to development and sale of real estate

  258,893    98,907    339,820  

Cost of sales recognition related to development and sale of real estate

  (222,269  (90,775  (349,556
 

 

 

  

 

 

  

 

 

 

Operating profit under K-IFRS

   3,653,108     2,996,134     3,123,530  
 

 

 

  

 

 

  

 

 

 
   For the Year Ended December 31, 
   2015  2016  2017 
   (In millions of Won) 

Operating profit under IFRS as issued by the IASB

      1,486,380      2,282,496      4,196,121 

Additions:

    

Impairment losses on assets held for sale

   133,547   24,890    

Loss on disposal of assets held for sale

   190,357   254   608 

Loss on disposal of investments in subsidiaries, associates and joint ventures

   18,996   22,499   19,985 

Loss on disposal of property, plant and equipment

   101,732   86,622   151,343 

Impairment losses on property, plant and equipment

   136,269   196,882   117,231 

Impairment losses on goodwill and intangible assets

   161,412   127,875   167,995 

Other bad debt expenses

   158,071   50,225   100,920 

Loss on valuation of firm commitment

         43,164 

Idle tangible assets expenses

   12,773   6,437   10,490 

Increase to provisions

   18,396   53,058   33,964 

Donations

   62,957   43,810   51,424 

Others

   447,788   143,168   95,172 
  

 

 

  

 

 

  

 

 

 
   1,442,298   755,720   792,296 

Deductions:

    

Gain on disposal of assets held for sale

   (227,956  (23,112  (1,180

Gain on disposal of investments in subsidiaries, associates and joint ventures

   (88,718  (23,305  (81,794

Gain on disposal of property, plant and equipment

   (22,730  (23,826  (32,145

Gain on disposal of intangible assets

   (1,432  (671  (23,391

Recovery of allowance for other doubtful accounts

   (10,452  (12,658  (2,743

Gain on valuation of firm commitment

         (56,301

Rental revenues

   (1,019  (1,771  (1,498

Gain on insurance proceeds

   (14,976  (22,400  (5,878

Others

   (181,765  (107,393  (246,294
  

 

 

  

 

 

  

 

 

 
   (549,048  (215,136  (451,224
  

 

 

  

 

 

  

 

 

 

Revenue recognition related to development and sale of real estate

   (329,923  143,742   468,233 

Cost of sales recognition related to development and sale of real estate

   360,336   (122,497  (383,592
  

 

 

  

 

 

  

 

 

 

Operating profit underK-IFRS

      2,410,043      2,844,325      4,621,834 
  

 

 

  

 

 

  

 

 

 

Net income (loss) under IFRS as issued by the IASB

      (116,215     1,032,065      2,909,311 

Adjustments related to development and sale of real estate:

    

Revenue

   (329,923  143,742   468,233 

Cost of sales

   360,336   (122,497  (383,592

Income tax

   (10,379  (5,141  (20,483
  

 

 

  

 

 

  

 

 

 

Net income (loss) underK-IFRS

      (96,181     1,048,169      2,973,469 
  

 

 

  

 

 

  

 

 

 

   For the Year Ended December 31, 
   2012  2013  2014 
   (In millions of Won) 

Net income (loss) under IFRS as issued by the IASB

  2,357,846   1,349,016   564,039  

Adjustments related to development and sale of real estate:

    

Revenue

   258,893    98,907    339,820  

Cost of sales

   (222,269  (90,775  (349,556

Income tax

   (8,863  (1,968  2,356  
  

 

 

  

 

 

  

 

 

 

Net income under K-IFRS

    2,385,607     1,355,180     556,659  
  

 

 

  

 

 

  

 

 

 

Operating Results — 20132016 Compared to 20142017

The following table presents our income statement information and changes therein for 20132016 and 2014.2017.

 

  

 

 Changes       Changes 
  For the Year Ended December 31,   2013 versus 2014     For the Year Ended December 31,   2016 versus 2017 
  2013 2014 Amount %   2016 2017   Amount % 
  (In billions of Won)   (In billions of Won) 

Revenue

  61,766   64,759   2,993    4.8      52,940      60,187        7,247   13.7

Cost of sales

       54,914        57,465        2,552    4.6     46,271   51,916    5,645   12.2 
  

 

  

 

     

 

  

 

    

Gross profit

   6,852    7,293    441    6.4     6,668   8,271    1,603   24.0 

Administrative expenses

   2,232    2,310    78    3.5     2,292   2,177    (115  (5.0

Selling expenses

   1,632    1,760    128    7.8     1,554   1,557    3   0.2 

Other operating income

   229    269    40    17.6     215   451    236   109.7 

Other operating expenses

   651    980    329    50.5     756   792    36   4.8 
  

 

  

 

     

 

  

 

    

Operating profit

   2,566    2,513    (53  (2.1   2,282   4,196    1,914   83.8 

Share of loss of equity-accounted investees

   180    300    120    66.8  

Share of gain (loss) ofequity-accounted investees

   (89  11    100   N.A. (1) 

Finance income

   2,381    2,397    16    0.7     2,232   2,373    141   6.3 

Finance costs

   2,829    3,222    393    13.9     3,014   2,484    (530  (17.6
  

 

  

 

     

 

  

 

    

Profit before income tax

   1,938    1,388    (550  (28.4   1,412   4,096    2,683   190.1 

Income tax expense

   589    824    235    39.9     380   1,186    806   212.4 
  

 

  

 

     

 

  

 

    

Profit

   1,349    564    (785  (58.2

Profit (loss)

   1,032   2,909    1,877   181.9 

Profit for the period attributable to owners of the controlling company

   1,371    633    (738  (53.8   1,355   2,756    1,401   103.4 

Loss for the period attributable to non-controlling interests

   (22  (69  (47  214.1     (323  153    476   N.A. (1) 

(1)N.A. means not applicable.

Revenue

The following table presents our revenue by segment and changes therein for 20132016 and 2014.2017.

 

  

 

 Changes     Changes 
  For the Year Ended December 31,   2013 versus 2014     For the Year Ended December 31, 2016 versus 2017 
  2013 2014 Amount %   2016 2017 Amount % 
  (In billions of Won)   (In billions of Won) 

Steel Segment:

          

External revenue

      31,795       31,842   47    0.1      26,844      30,230      3,386   12.6

Internal revenue

   16,229    17,755    1,526    9.4     16,062   17,381   1,319   8.2 
  

 

  

 

     

 

  

 

   

Total revenue from Steel Segment

   48,024    49,597    1,573    3.3     42,906   47,611   4,705   11.0 
  

 

  

 

     

 

  

 

   

Trading Segment:

          

External revenue

   18,308    21,166    2,858    15.6     16,774   20,802   4,028   24.0 

Internal revenue

   7,611    10,095    2,484    32.6     9,646   14,076   4,430   45.9 
  

 

  

 

     

 

  

 

   

Total revenue from Trading Segment

   25,919    31,261    5,342    20.6     26,420   34,878   8,458   32.0 
  

 

  

 

     

 

  

 

   

Construction Segment:

          

External revenue

   6,897    8,119    1,222    17.7     6,768   6,887   119   1.7 

Internal revenue

   3,885    2,185    (1,701  (43.8   714   399   (315  (44.1
  

 

  

 

     

 

  

 

   

Total revenue from Construction Segment

   10,782    10,304    (478  (4.4   7,482   7,286   (196  (2.6
  

 

  

 

     

 

  

 

   

Others Segment:

          

External revenue

   4,865    3,972    (894  (18.4   2,697   2,736   39   1.4 

Internal revenue

   3,019    3,095    75    2.5     2,380   2,549   169   7.1 
  

 

  

 

     

 

  

 

   

Total revenue from Others Segment

   7,885    7,066    (818  (10.4   5,077   5,285   208   4.1 
  

 

  

 

     

 

  

 

   

Total revenue prior to consolidation adjustments and basis difference

   92,610    98,228    5,618    6.1     81,885   95,060   13,175   16.1 
  

 

  

 

     

 

  

 

   

Consolidation adjustments

   (30,745  (33,129  (2,384  7.8     (28,802  (34,405  (5,603  19.5 

Basis difference(1)

   (99  (340  (241  243.4     (144  (468  (324  225.7 
  

 

  

 

     

 

  

 

   

Revenue

  61,766   64,759    2,993    4.8    52,940  60,187   7,247   13.7
  

 

  

 

     

 

  

 

   

 

 

(1)Basis difference is related to the difference in recognizing revenue and expenses of the Construction Segment in connection with development and sale of certain residential real estate between the report reviewed by the chief executive officer and the consolidated financial statements. See Notes 3 and 4240 of Notes to Consolidated Financial Statements.

Our revenue increased by 4.8%13.7%, or Won 2,9937,247 billion, from Won 61,76652,940 billion in 20132016 to Won 64,75960,187 billion in 20142017 due to increases in external revenues from the Trading Segment and the Construction Segment, which were offset in part by a decrease in external revenue from the Others Segment. External revenues from the Steel Segment remained relatively unchanged.each of our four segments. Specifically:

Steel Segment.External revenue from the Steel Segment, which does not include internal revenue frominter-company transactions that are eliminated during consolidation, increased slightly by 0.1%, or Won 47 billion, from Won 31,795 billion in 2013 to Won 31,842 billion in 2014 primarily due to an increase in our sales volume of the steel products produced by us and directly sold to external customers (including miscellaneous steel products not included in any of our major product categories), which was largely offset by a decrease in the average unit sales price per ton of the principal steel products produced by us and directly sold to external customers. The overall sales volume of the steel products produced by us and directly sold to external customers (including miscellaneous steel products) increased by 4.4% from 29.1 million tons in 2013 to 30.4 million tons in 2014, while the weighted average unit sales price per ton of the principal steel products produced by us and directly sold to external customers decreased by 6.2% from Won 998,012 per ton in 2013 to Won 936,405 per ton in 2014. Such factors were principally attributable to the following:

The sales volume of wire rods, plates and hot rolled produced by us and directly sold to external customers increased by 38.3%, 20.5% and 2.6%, respectively, from 2013 to 2014. On the other hand, our sales volume of silicon steel sheets, stainless steel products and cold rolled produced by us and directly sold to external customers decreased by 8.5%, 8.1% and

0.3%, respectively, from 2013 to 2014. For a discussion of changes in sales volume of each of our principal product lines, see “Item 4.B. Business Overview — Major Products.”

The unit sales prices in Won of wire rods, plates, silicon steel sheets and cold rolled products produced by us and directly sold to external customers decreased by 16.4%, 10.6%, 6.2% and 5.2%, respectively, from 2013 to 2014. On the other hand, the unit sales prices in Won of hot rolled products and stainless steel products produced by us and directly sold to external customers increased by 1.5% and 0.1%, respectively, from 2013 to 2014. For a discussion of changes in the unit sales prices of each of our principal product lines, see “— Overview — Sales Volume, Prices and Product Mix” above.

Total revenue from the Steel Segment, which includes internal revenue from inter-company transactions, increased by 3.3%, or Won 1,573 billion, from Won 48,024 billion in 2013 to Won 49,597 billion in 2014, as internal revenue from inter-company transactions increased from 2013 to 2014 due to an increase in reliance on sales subsidiaries for the sale of our steel products.

Trading Segment. External revenue from the Trading Segment, which does not include internal revenue from inter-company transactions that are eliminated during consolidation, increased by 15.6%12.6%, or Won 2,8583,386 billion, from Won 18,30826,844 billion in 20132016 to Won 21,16630,230 billion in 2014 primarily2017 due to an increase in third-country trades by Daewoo International and our other trading subsidiaries.

Total revenue from the Trading Segment, which includes internal revenue from inter-company transactions, increased by 20.6%, or Won 5,342 billion, from Won 25,919 billion in 2013 to Won 31,261 billion in 2014 primarily due to the reasons stated above, which was enhanced by an increase in reliance on sales subsidiaries by us on our steel trading activities.

Construction Segment. External revenue from the Construction Segment, which does not include internal revenue from inter-company transactions that are eliminated during consolidation, increased by 17.7%, or Won 1,222 billion, from Won 6,897 billion in 2013 to Won 8,119 billion in 2014 primarily due to an increase in POSCO E&C’s construction activities in architectural works.

Total revenue from the Construction Segment, which includes internal revenue from inter-company transactions, decreased by 4.4%, or Won 478 billion, from Won 10,782 billion in 2013 to Won 10,304 billion in 2014 primarily due to a decrease in internal revenue from inter-company transactions by 43.8%, or Won 1,701 billion, from Won 3,885 billion in 2013 to Won 2,185 billion in 2014 resulting from a decrease in the amount of construction activities for POSCO. The impact from such decrease was offset in part by an increase in external revenue as discussed above.

Others Segment. The Others Segment includes power generation, LNG production, network and system integration, logistics and magnesium coil and sheet production. External revenue from the Others Segment, which does not include internal revenue from inter-company transactions that are eliminated during consolidation, decreased by 18.4%, or Won 894 billion, from Won 4,865 billion in 2013 to Won 3,972 billion in 2014 primarily due to a decrease in revenue of POSCO Energy Corporation reflecting a decrease in demand for fuel cell energy as well as a decrease in revenue of POSCO ICT Co., Ltd. following the completion of some of its major service contracts in 2014.

Total revenue from the Others Segment, which includes internal revenue from inter-company transactions, decreased by 10.4%, or Won 818 billion, from Won 7,885 billion in 2013 to Won 7,066 billion in 2014, primarily due to the reasons stated above.

Cost of Sales

Our cost of sales increased by 4.6%, or Won 2,552 billion, from Won 54,914 billion in 2013 to Won 57,465 billion in 2014. The increase in cost of sales was primarily due to increases in our sales volume of steel products and trading activities as discussed above, which were partially offset by decreases in the average price in Won terms of key raw materials that were used to manufacture our steel products sold.

The following table presents a breakdown of our cost of sales by segment, prior to adjusting for inter-company transactions that are eliminated during consolidation, and changes therein for 2013 and 2014.

   

 

  Changes 
   For the Year Ended December 31,  2013 versus 2014 
   2013  2014  Amount  % 
   (In billions of Won) 

Steel Segment

  43,274   44,587   1,313    3.0

Trading Segment

   24,816    29,884    5,068    20.4  

Construction Segment

   9,848    9,554    (294  (3.0

Others Segment

   7,123    6,366    (757  (10.6

Consolidation adjustments

   (30,056  (32,576  (2,520  8.4  

Basis difference(1)

   (91  (350  (259  284.6  
  

 

 

  

 

 

   

Cost of sales

  54,914   57,465            2,552    4.6  
  

 

 

  

 

 

   

(1)Basis difference is related to the difference in recognizing revenue and expenses of the Construction Segment in connection with development and sale of certain residential real estate between the report reviewed by the chief executive officer and the consolidated financial statements. See Notes 3 and 42 of Notes to Consolidated Financial Statements.

Steel Segment. The cost of sales of our Steel Segment, prior to consolidation adjustments, increased by 3.0%, or Won 1,313 billion, from Won 43,274 billion in 2013 to Won 44,587 billion in 2014 primarily due to increase in our sales volume of the principal steel products produced by us and directly sold to external customers, the impact of which was partially offset by decreases in the average price in Won terms of key raw materials that were used to manufacture our finished goods sold.

Trading Segment. The cost of sales of our Trading Segment, prior to consolidation adjustments, increased by 20.4%, or Won 5,068 billion, from Won 24,816 billion in 2013 to Won 29,884 billion in 2014 primarily due to an increase in our trading volumes as well as an increase in the production costs related to gas produced at the Myanmar gas field and sold to customers. The Myanmar gas field began its commercial production in July 2013.

Construction Segment. The cost of sales of our Construction Segment, prior to consolidation adjustments, decreased by 3.0%, or Won 294 billion, from Won 9,848 billion in 2013 to Won 9,554 billion in 2014 primarily due to a decrease in the construction activities of POSCO E&C.

Others Segment. The cost of sales of our Others Segment, prior to consolidation adjustments, decreased by 10.6%, or Won 757 billion, from Won 7,123 billion in 2013 to Won 6,366 billion in 2014 primarily due to decreases in the average price in Won terms of key raw materials that were used by POSCO Energy Corporation in its power generation activities, as well as a decrease in costs from completion of POSCO ICT Co., Ltd.’s major service contracts in 2014.

Gross Profit

Our gross profit increased by 6.4%, or Won 441 billion, from Won 6,852 billion in 2013 to Won 7,293 billion in 2014 primarily due to increases in gross profit of our Trading Segment and Steel Segment, which were partially offset by a decrease in gross profit of our Construction Segment. Our gross margin increased from 11.1% in 2013 to 11.3% in 2014.

The following table presents our gross profit by segment, prior to adjusting for inter-company transactions that are eliminated during consolidation, and changes therein for 2013 and 2014.

   For the Year Ended December 31,  Changes 
    2013 versus 2014 
           2013                  2014              Amount      % 
   (In billions of Won) 

Steel Segment

  4,749   5,010   260    5.5

Trading Segment

   1,103    1,376    274    24.8  

Construction Segment

   934    750    (184  (19.7

Others Segment

   761    700    (61  (8.0

Consolidation adjustments

   (687  (553            134    (19.5

Basis difference(1)

   (8  10    18    N.A.(2) 
  

 

 

  

 

 

   

Gross profit

      6,852       7,293    441    6.4  
  

 

 

  

 

 

   

(1)Basis difference is related to the difference in recognizing revenue and expenses of the Construction Segment in connection with development and sale of certain residential real estate between the report reviewed by the chief executive officer and the consolidated financial statements. See Notes 3 and 42 of Notes to Consolidated Financial Statements.

(2)N.A. means not applicable.

Steel Segment. The gross profit of our Steel Segment, prior to consolidation adjustments, increased by 5.5%, or Won 260 billion, from Won 4,749 billion in 2013 to Won 5,010 billion in 2014 primarily due to an increase in the overall sales volume of our steel products, as discussed above, which was partially offset by a decrease in the average unit sales price per ton of our principal steel products as well as a decrease in the average price in Won terms of coal and other key raw materials that were used to manufacture our finished steel products sold. The gross margin of our Steel Segment, which is gross profit as a percentage of total revenue prior to consolidation adjustments, increased slightly from 9.9% in 2013 to 10.1% in 2014.

Trading Segment. The gross profit of our Trading Segment, prior to consolidation adjustments, increased by 24.8%, or Won 274 billion, from Won 1,103 billion in 2013 to Won 1,376 billion in 2014, reflecting an increase in overall trading volumes as well as an increase in the gross profit from our sale of gas produced at the Myanmar gas field. The gross margin of our Trading Segment, prior to consolidation adjustments, increased slightly from 4.3% in 2013 and 4.4% in 2014.

Construction Segment. The gross profit of our Construction Segment, prior to consolidation adjustments, decreased by 19.7%, or Won 184 billion, from Won 934 billion in 2013 to Won 750 billion in 2014, and the gross margin decreased from 8.7% in 2013 to 7.3% in 2014 primarily due to a decrease in POSCO E&C’s construction activities for POSCO as well as a decrease in its participation of construction projects with higher margins in 2014.

Others Segment. The gross profit of our Others Segment, prior to consolidation adjustments, decreased by 8.0%, or Won 61 billion, from Won 761 billion in 2013 to Won 700 billion in 2014 while its gross margin increased from 9.7% in 2013 to 9.9% in 2014, primarily due to the results of POSCO Energy Corporation described above.

Selling and Administrative Expenses

The following table presents a breakdown of our selling and administrative expenses and changes therein for 2013 and 2014.

           Changes 
   For the Year Ended December 31,   2013 versus 2014 
   2013   2014   Amount  % 
   (In billions of Won) 

Freight and custody expenses

  1,433    1,552    119    8.3

Sales commissions

   74     66     (8  (10.2

Sales promotion

   27     26     (1  (5.0

Sales insurance premium

   27     40     13    46.3  

Contract cost

   37     50     13    33.7  

Others

   34     27     (7  (20.5
  

 

 

   

 

 

    

Total selling expenses

  1,632    1,760     128    7.8  
  

 

 

   

 

 

    

Wages and salaries

  755    781    27    3.5

Expenses related to post-employment benefits

   67     67     (1  (1.1

Other employee benefits

   166     174     8    5.1  

Depreciation and amortization

   228     273     45    19.6  

Rental

   110     137         27    24.7  

Repairs

   6     14     8    143.9  

Advertising

   106     104     (1  (1.1

Research and development

   193     175     (18  (9.1

Service fees

   240     216     (24  (10.0

Bad debt allowance

   90     109     19    20.9  

Others

   271     258     (12  (4.6
  

 

 

   

 

 

    

Total administrative expenses

      2,232    2,310     78    3.5  
  

 

 

   

 

 

    

Total selling and administrative expenses

  3,864        4,070     206    5.3  
  

 

 

   

 

 

    

Our selling and administrative expenses increased by 5.3%, or Won 206 billion, from Won 3,864 billion in 2013 to Won 4,070 billion in 2014 primarily due to increases in freight and custody expenses and depreciation and amortization expenses, which were partially offset by a decrease in service fees and research and development expenses. Such factors were principally attributable to the following:

Our freight and custody expense increased by 8.3%, or Won 119 billion, from Won 1,433 billion in 2013 to Won 1,552 billion in 2014 primarily due to increases in freight rates as well as an increase in our export volume.

Our depreciation and amortization expenses increased by 19.6%, or Won 45 billion, from Won 228 billion in 2013 to Won 273 billion in 2014 primarily due to an increase in amortization of intangible assets related to upgrading of our new information technology infrastructure in 2014.

Our service fees decreased by 10.0%, or Won 24 billion, from Won 240 billion in 2013 to Won 216 billion in 2014 primarily due to a decrease in professional advisory services provided to us resulting from our reduction in investment activities.

Our research and development expenses decreased by 9.1%, or Won 18 billion, from Won 193 billion in 2013 to Won 175 billion in 2014 primarily reflecting a decrease in our development activities for new products.

Other Operating Income and Expenses

The following table presents a breakdown of our other operating income and expenses and changes therein for 2013 and 2014.

       Changes 
   For the Year Ended December 31,   2013 versus 2014 
           2013                   2014               Amount      % 
   (In billions of Won) 

Gains on disposals of assets held for sale

  102    48            (53  (52.5)% 

Gains on disposals of investment in associates

   8     41     34    438.1  

Gains on disposals of property, plant and equipment

   14     15     1    6.1  

Reversal of other provision expenses

   3     20     17    576.1  

Outsourcing income

   25     14     (11  (44.2

Gain on disposals of waste

   17     11     (5  (31.3

Gain from claim compensation

   15     29     15    100.8  

Penalty income from early termination of contracts

   16     35     18    110.0  

Others

   30     56     26    87.7  
  

 

 

   

 

 

    

Total other operating income

      229        269     40    17.6  
  

 

 

   

 

 

    

Our other operating income increased by 17.6%, or Won 40 billion, from Won 229 billion in 2013 to Won 269 billion in 2014 primarily due to increases in gains on disposals of investment in associates, penalty income from early termination of contracts and reversal of other provision expenses, which were offset in part by a decrease in gains on disposal of assets for sale. Our gains on disposals of investment in associates increased more than four-fold, or Won 34 billion, from Won 8 billion in 2013 to Won 41 billion in 2014 primarily due to gains related to POSCO Plantec that became our consolidated subsidiary in 2014. Our penalty income from early termination of contracts increased by 110.0%, or Won 18 billion, from Won 16 billion in 2013 to Won 35 billion in 2014 primarily due to an increase in delayed payments to subcontractors as a result of the prolonged downturn in the construction industry. Our reversal of other provision expenses increased more than five-fold, or Won 17 billion, from Won 3 billion in 2013 to Won 20 billion in 2014 primarily due to reversal of provisions of Daewoo International of Won 8 billion in connection with guarantees provided for the acquisition of Shandong Cement and reversal of provisions of POSCO Engineering Co., Ltd. of Won 9 billion relating to settled litigation regarding deferred compensation. On the other hand, our gains on disposals of assets held for sale decreased by 52.5%, or Won 53 billion, from Won 102 billion in 2013 to Won 48 billion in 2014. In 2013, we recognized a gain of Won 102 billion on disposal of assets held for sale primarily from our disposition of SK Telecom shares and SeAH Steel shares. In 2014, we recognized a gain of Won 48 billion on disposal of assets held for sale primarily from our disposition of International Business Center Corporation shares.

       Changes 
   For the Year Ended December 31,   2013 versus 2014 
           2013                   2014               Amount      % 
   (In billions of Won) 

Other bad debt expenses

  111    96            (15  (13.2)% 

Losses on disposals of assets held for sale

   26     0     (26  (99.9

Impairment losses on assets held for sale

   2     17     15    848.5  

Losses on disposals of property, plant and equipment

   121     50     (71  (58.7

Impairment losses on property, plant and equipment

   10     65     55    565.5  

Impairment losses on intangible assets

   125     55     (70  (55.9

Idle tangible assets expenses

   18     12     (5  (30.7

Impairment losses on other non-current assets

   9     38     29    323.7  

Other provision expenses

   66     127     61    92.1  

Donations

   61     70     9    14.1  

Loss on disposal of investment in associates

   19     3     (17  (86.8

Loss on disposal of wastes

   15     16     1    7.6  

Penalty and additional tax payments

   19     352     333    1,721.0  

Others

   48     78     31    64.0  
  

 

 

   

 

 

    

Total other operating expenses

      651        980     329    50.5  
  

 

 

   

 

 

    

Our other operating expenses increased by 50.5%, or Won 329 billion, from Won 651 billion in 2013 to Won 980 billion in 2014, primarily due to an increase in penalty and additional tax payments and other provisions expenses, which were partially offset by decreases in our losses on disposals of property, plant and equipment and impairment losses on intangible assets. Such factors were principally attributable to the following:

Our penalty and additional tax payments increased more than seventeen-fold, or Won 333 billion, from Won 19 billion in 2013 to Won 352 billion in 2014 primarily due to additional tax payments of Won 272 billion resulting from Korea National tax Service’s periodic audit completed in 2014, which mostly related to value added taxes.

Our other provision expenses increased by 92.1%, or Won 61 billion, from Won 66 billion in 2013 to Won 127 billion in 2014 primarily due to a provision of Won 89 billion in 2014 related to restoration costs of contaminated land near our magnesium plant in Gangneung, Korea.

Our losses on disposals of property, plant and equipment decreased by 58.7%, or Won 71 billion, from Won 121 billion in 2013 to Won 50 billion in 2014 primarily due to removal and dismantlement costs related to the restoration work of furnace no. 1 and no. 2 in Gwangyang in 2013 compared to no such loss in 2014.

Our impairment losses on intangible assets decreased by 55.9%, or Won 70 billion, from Won 125 billion in 2013 to Won 55 billion in 2014 primarily due to impairment loss of Won 97 billion related to the decrease in value of POSCO Thainox Public Company Limited in 2013 compared to no such impairment loss in 2014.

Operating Profit

Due to the factors described above, our operating profit decreased by 2.1%, or Won 53 billion, from Won 2,566 billion in 2013 to Won 2,513 billion in 2014. Our operating margin decreased from 4.2% in 2013 to 3.9% in 2014.

Share of Loss of Equity-Accounted Investees

Our share of loss of equity-accounted investees increased by 66.8%, or by Won 120 billion, from Won 180 billion in 2013 to Won 300 billion in 2014. In 2013, we recognized a net loss for our proportionate share of equity-accounted investees of Won 180 billion primarily due to our share of loss of POSCO Plantec (Won 49 billion), Roy Hill Holdings Pty Ltd. (Won 8 billion) and CSP-Compania Siderurgica do Pecem (Won 34 billion), which was partially offset by our share of profit of KOBRASCO (Won 22 billion), Korea LNG Ltd. (Won 22 billion) and CAML Resources Pty Ltd. (Won 18 billion). In 2014, we recognized a net loss for our proportionate share of equity-accounted investees of Won 300 billion primarily due to our share of loss of POSCO Plantec (Won 211 billion) and CSP-Compania Siderurgica do Pecem (Won 57 billion), which was partially offset by our share of profit of KOBRASCO (Won 30 billion) and South-East Asia Gas Pipeline Company Ltd. (Won 26 billion). For a discussion of our share of profits or losses of equity-accounted investees, see Note 11 of Notes to Consolidated Financial Statements.

Finance Income and Finance Costs

The following table presents a breakdown of our finance income and costs and changes therein for 2013 and 2014.

           Changes 
   For the Year Ended December 31,   2013 versus 2014 
           2013                   2014               Amount      % 
   (In billions of Won) 

Interest income

  260    228    (32  (12.3)% 

Dividend income

   59     48     (11  (19.2

Gain on foreign currency transactions

   998     1,022     25    2.5  

Gain on foreign currency translations

   511     453     (58  (11.3

Gain on derivatives transactions of

   370     328     (43  (11.5

Gain on valuations of derivatives

   72     73     1    1.4  

Gain on disposals of available-for-sale financial assets

   106     236     131    124.0  

Others

   4     7     3    72.6  
  

 

 

   

 

 

    

Total finance income

  2,381    2,397     16    0.7  
  

 

 

   

 

 

    

Interest expenses

               658    796    138    21.0

Loss on foreign currency transactions

   927     1,034     106    11.5  

Loss on foreign currency translations

   345             429             84    24.4  

Loss on derivatives transactions

   287     353     67    23.3  

Loss on valuations of derivatives

   291     101     (190  (65.2

Impairment loss on available-for-sale financial assets

   280     370     89    31.9  

Loss on disposals of available-for-sale financial assets

   4     55     51    1370.3  

Loss on financial guarantee

   6     10     4    71.4  

Others

   31     75     43    137.7  
  

 

 

   

 

 

    

Total finance costs

  2,829    3,222     393    13.9  
  

 

 

   

 

 

    

Our net gain on foreign currency translations decreased by 85.2%, or Won 141 billion, from Won 166 billion in 2013 to Won 25 billion in 2014, and we recognized a net gain on foreign currency transactions of Won 70 billion in 2013 compared to a net loss on foreign currency transactions of Won 11 billion in 2014, as the Won appreciated against the Dollar in 2013 while it depreciated against the Dollar in 2014 and the Won depreciated at a greater level against the Yen in 2013 compared to 2014. In terms of the market average exchange rates announced by Seoul Money Brokerage Services, Ltd., the Won appreciated from Won 1,071.1 to US$1.00 as of December 31, 2012 to Won 1,055.3 to US$1.00 as of December 31, 2013 but depreciated to Won 1,099.2 to US$1.00 as of December 31, 2014. The Won appreciated against the Yen from Won 1,247.5 per Yen 100 as of December 31, 2012 to Won 1,004.7 per Yen 100 as of December 31, 2013 and appreciated further to Won 920.1 per Yen 100 as of December 31, 2014. Against such fluctuations, we recognized a decrease of 87.2% in net loss on valuations of derivatives, or Won 191 billion, from Won 219 billion in 2013 to Won 28 billion in 2014, as well as a net gain on derivatives transactions of Won 84 billion in 2013 compared to a net loss on derivatives transactions of Won 28 billion in 2014.

Our interest expenses increased by 21.0%, or Won 138 billion, from Won 658 billion in 2013 to Won 796 billion in 2014 primarily due to an increase in the average balance of our interest-bearing payables and financial liabilities, which was partially offset by a general decrease in interest rates in Korea.

Our impairment loss on available-for-sale financial assets increased by 31.9%, or Won 89 billion, from Won 280 billion in 2013 to Won 370 billion in 2014 primarily due to a prolonged decline in the fair value of shares of Hyundai Heavy Industries Co., Ltd. and unmarketable securities of Dongbu Metal Co., Ltd.

Our gain on disposal of available-for-sale financial assets increased by 124.0%, or Won 131 billion, from Won 106 billion in 2013 to Won 236 billion in 2014, as we recognized a Won 199 billion gain in 2014 from our disposal of interest in SK Telecom Co., Ltd.

Income Tax Expense

Our income tax expense increased by 39.9%, or Won 235 billion, from Won 589 billion in 2013 to Won 824 billion in 2014. Our effective tax rate increased from 30.4% in 2013 to 59.4% in 2014 primarily due to an increase in tax related to investments in subsidiaries, associates and joint ventures from Won 251 billion in 2013 to Won 372 billion in 2014 (that resulted in an increase in effective tax rate of 13.8%), a decrease in tax credits from Won 169 billion in 2013 to Won 50 billion in 2014 due to a decrease in job creation tax credit (that resulted in an increase in effective tax rate of 5.2%), an increase in tax effects due to permanent differences from Won 8 billion in 2013 to Won 70 billion in 2014 (that resulted in an increase in effective tax rate of 4.6%), as well as adjustments on prior year tax of Won 56 billion resulting from the tax audit completed in 2014 (that resulted in an increase in effective tax rate of 4.1%). See Note 35 of Notes to Consolidated Financial Statements.

Profit

Due to the factors described above, our profit decreased by 58.2%, or Won 785 billion, from Won 1,349 billion in 2013 to Won 564 billion in 2014. Our net profit margin decreased from 2.2% in 2013 to 0.9% in 2014.

The following table presents our profit by segment, prior to adjusting for inter-company transactions that are eliminated during consolidation, and changes therein for 2013 and 2014.

         Changes 
   For the Year Ended December 31,  2013 versus 2014 
           2013                  2014              Amount      % 
   (In billions of Won) 

Steel Segment

      1,449           857   (592  (40.9)% 

Trading Segment

   10    181            172    1,804.6  

Construction Segment

   147    13    (134  (91.2

Others Segment

   197    9    (189  (95.7

Consolidation adjustments

   (448  (503  (55  12.3  

Basis difference(1)

   (6  7    13    N.A.(2) 
  

 

 

  

 

 

   

Profit for the period

  1,349   564    (785  (58.2
  

 

 

  

 

 

   

(1)Basis difference is related to the difference in recognizing revenue and expenses of the Construction Segment in connection with development and sale of certain residential real estate between the report reviewed by the chief executive officer and the consolidated financial statements. See Notes 3 and 42 of Notes to Consolidated Financial Statements.

(2)N.A. means not applicable.

Operating Results – 2012 Compared to 2013

The following table presents our income statement information and changes therein for 2012 and 2013.

         Changes 
   For the Year Ended December 31,  2012 versus 2013 
           2012                  2013              Amount      % 
   (In billions of Won) 

Revenue

      63,345       61,766       (1,580  (2.5)% 

Cost of sales

   55,921    54,914    (1,007  (1.8
  

 

 

  

 

 

   

Gross profit

   7,424    6,852    (573  (7.7

Administrative expenses

   2,129    2,232    102    4.8  

Selling expenses

   1,679    1,632    (47  (2.8

Other operating income

   448    229    (219  (48.9

Other operating expenses

   809    651    (159  (19.6
  

 

 

  

 

 

   

Operating profit

   3,255    2,566    (689  (21.2

Share of loss of equity-accounted investees

   23    180    157    692.0  

Finance income

   2,897    2,381    (516  (17.8

Finance costs

   2,798    2,829    32    1.1  
  

 

 

  

 

 

   

Profit before income tax

   3,332    1,938    (1,394  (41.8

Income tax expense

   974    589    (385  (39.5
  

 

 

  

 

 

   

Profit

   2,358    1,349    (1,009  (42.8

Profit for the period attributable to owners of the controlling company

   2,437    1,371    (1,066  (43.8

Loss for the period attributable to non-controlling interests

   (79  (22  58    (72.5

Revenue

The following table presents our revenue by segment and changes therein for 2012 and 2013.

         Changes 
   For the Year Ended December 31,  2012 versus 2013 
           2012                  2013              Amount      % 
   (In billions of Won) 

Steel Segment:

     

External revenue

      35,259       31,795   (3,464  (9.8)% 

Internal revenue

   17,610    16,229    (1,381  (7.8
  

 

 

  

 

 

   

Total revenue from Steel Segment

   52,869    48,024    (4,845  (9.2
  

 

 

  

 

 

   

Trading Segment:

     

External revenue

   18,946    18,308    (638  (3.4

Internal revenue

   7,468    7,611    144    1.9  
  

 

 

  

 

 

   

Total revenue from Trading Segment

   26,414    25,919    (494  (1.9
  

 

 

  

 

 

   

Construction Segment:

     

External revenue

   4,676    6,897    2,221    47.5  

Internal revenue

   5,050    3,885    (1,165  (23.1
  

 

 

  

 

 

   

Total revenue from Construction Segment

   9,726    10,782            1,056    10.9  
  

 

 

  

 

 

   

Others Segment:

     

External revenue

   4,724    4,865    141    3.0  

Internal revenue

   2,857    3,019    162    5.7  
  

 

 

  

 

 

   

Total revenue from Others Segment

   7,581    7,885    304    4.0  
  

 

 

  

 

 

   

Total revenue prior to consolidation adjustments and basis difference

   96,589    92,610    (3,979  (4.1
  

 

 

  

 

 

   

Consolidation adjustments

   (32,985  (30,745  2,240    (6.8

Basis difference(1)

   (259  (99  160    (61.8
  

 

 

  

 

 

   

Revenue

  63,345   61,766    (1,580  (2.5
  

 

 

  

 

 

   

(1)Basis difference is related to the difference in recognizing revenue and expenses of the Construction Segment in connection with development and sale of certain residential real estate between the report reviewed by the chief executive officer and the consolidated financial statements. See Notes 3 and 42 of Notes to Consolidated Financial Statements.

Our revenue decreased by 2.5%, or Won 1,580 billion, from Won 63,345 billion in 2012 to Won 61,766 billion in 2013 due to decreases in external revenues from the Steel Segment and the Trading Segment, which were offset in part by increases in external revenues from the Construction Segment and the Others Segment. Specifically:

Steel Segment. External revenue from the Steel Segment, which does not include internal revenue from inter-company transactions that are eliminated during consolidation, decreased by 9.8%, or Won 3,464 billion, from Won 35,259 billion in 2012 to Won 31,795 billion in 2013 primarily due to a decrease in the average unit sales price per ton of the principal steel products produced by us and directly sold to external customers, as well aswhich was offset in part by a decrease in our sales volume of the steel products produced by us and directly sold to external customers (including miscellaneous steel products not included in any of our major product categories). The weighted average unit sales price per ton of the principal steel products produced by us and directly sold to external customers decreasedincreased by 6.8%21.3% from Won 1,070,565745,476 per ton in 20122016 to Won 998,012903,897 per ton in 2013,2017, while the overall sales volume of the principal steel products produced by us and directly sold to external customers (including miscellaneous steel products) decreased by 2.9%8.6% from 32.9 million tons in 2016 to 30.0 million tons in 2012 to 29.1 million tons in 2013.2017. Such factors were principally attributable to the following:

 

The unit sales prices in Won for allof each of our principalmajor product linescategories increased from 2016 to 2017. Hot rolled products, wire rods, cold rolled products, stainless steel products, silicon steel sheets and plates produced by us and directly sold to external customers increased by 29.2%, 26.2%, 25.7%, 15.0%, 9.7% and 8.4%, respectively, from 2016 to 2017. For a

discussion of changes in the unit sales prices of each of our principal product lines, see “— Overview — Sales Volume, Prices and Product Mix” above.

The sales volume of each of our major product categories, other than plates, decreased from 2016 to 2017, primarily due to the recognition of the sales volume of POSCO P&S, our former sales subsidiary that primarily engaged in sales of steel products produced by us, under the Trading Segment commencing March 2017 following its merger into POSCO Daewoo and, to a lesser extent, a reduction in our production due to facility revamping and rationalization of certain production facilities of Pohang Works and Gwangyang Works. The sales volume of silicon steel sheets, wire rods, cold rolled products, hot rolled products and stainless steel products produced by us and directly sold to external customers decreased from 2012 to 2013, ranging from a decrease of 2.7% for stainless steel products to a decrease of 13.9% for cold rolled products. For a discussion of changes in the unit sales prices of each of our principal product lines, see “— Overview — Sales Volume, Pricesby 15.1%, 14.7%, 11.3%, 9.8% and Product Mix” above.

The sales volume of hot rolled products, plates and silicon steel sheets produced by us and directly sold to external customers decreased by 11.1%, 7.1% and 0.8%5.1%, respectively, from 20122016 to 2013.2017. On the other hand, ourthe sales volume of wire rods, stainless steel and cold rolled products produced by us and directly sold to external customersplates increased by 13.3%, 4.4% and 0.4%, respectively,3.1% from 20122016 to 2013.2017. For a discussion of changes in sales volume of each of our principal product lines, see “Item 4.B. Business Overview — Major Products.”

Total revenue from the Steel Segment, which includes internal revenue frominter-company transactions, decreasedincreased by 9.2%11.0%, or Won 4,8454,705 billion, from Won 52,86942,906 billion in 20122016 to Won 48,02447,611 billion in 2013,2017 as internal revenue frominter-company transactions decreasedincreased by 8.2%, or Won 1,319 billion, from 2012Won 16,062 billion in 2016 to 2013 dueWon 17,381 billion in 2017. Such increase primarily reflected, in addition to a decreasefactors discussed above, an increase in reliance onthe average unit sales subsidiaries forprice of the sale of our steel products.products sold to POSCO Daewoo.

Trading Segment.External revenue from the Trading Segment, which does not include internal revenue frominter-company transactions that are eliminated during consolidation, decreasedincreased by 3.4%24.0%, or Won 6384,028 billion, from Won 18,94616,774 billion in 20122016 to Won 18,30820,802 billion in 20132017 primarily due to a decreasethe recognition of the sales of POSCO P&S under the Trading Segment commencing from March 2017 following its merger into POSCO Daewoo, as well as an increase in external revenues ofthird-country trades by POSCO Daewoo International and our other trading subsidiaries from 20122016 to 2013,2017, reflecting market conditions related to the prolonged slowdownan increase in sales of the global economy that has been characterizedslabs produced by weaker demandCSP (Compania Siderurgica do Pecem) and falling prices for export and import products and reducedPT. Krakatau POSCO as well as an increase in trading volume.of petrochemical products.

Total revenue from the Trading Segment, which includes internal revenue frominter-company transactions, decreasedincreased by 1.9%32.0%, or Won 4948,458 billion, from Won 26,41426,420 billion in 20122016 to Won 25,91934,878 billion in 2013,2017 as internal revenue frominter-company transactions increased by 45.9%, or Won 4,430 billion, from Won 9,646 billion in 2016 to Won 14,076 billion in 2017 primarily due to the reasons stated above, which was partially offset by an increase in reliance on sales subsidiaries by us on our steel sales activities through trading activities.subsidiaries.

Construction Segment.External revenue from the Construction Segment, which does not include internal revenue frominter-company transactions that are eliminated during consolidation, increased by 47.5%1.7%, or Won 2,221119 billion, from Won 4,6766,768 billion in 20122016 to Won 6,8976,887 billion in 20132017 primarily due to increasesa general increase in POSCO E&C’s construction activities of architectural works.reflecting favorable market conditions in the domestic construction industry as well as an increase in demand for EPC projects in Korea and abroad.

Total revenue from the Construction Segment, which includes internal revenue frominter-company transactions, increaseddecreased by 10.9%2.6%, or Won 1,056196 billion, from Won 9,7267,482 billion in 20122016 to Won 10,7827,286 billion in 2013 primarily due2017 as internal revenue frominter-company transactions decreased by 44.1%, or Won 315 billion, from Won 714 billion in 2016 to an increaseWon 399 billion in revenue of POSCO E&C. POSCO E&C’s revenue increased primarily due to the reasons stated above, which was partially offset by a2017. Such decrease in internal revenue from inter-company transactions by 23.1%, or Won 1,165 billion, from Won 5,050 billion in 2012 to Won 3,885 billion in 2013 primarily due toreflected a decrease in the amount of construction activities for POSCO.member companies of the POSCO Group in 2017 compared to 2016.

Others Segment. The Others Segment primarily includes power generation, LNGcoal chemistry and carbon materials production network and system integration, logistics and magnesium coil and sheet production.information technology service. External revenue from the Others Segment, which does not include internal revenue frominter-company transactions that are eliminated

during consolidation, increased by 3.0%1.4%, or Won 14139 billion, from Won 4,7242,697 billion in 20122016 to Won 4,8652,736 billion in 20132017 primarily due to an increase in revenuethe unit price and sales volume of coal chemistry products of POSCO Energy Corporation as it increased its power generation capacity in the second half of 2012.Chemtech Co., Ltd.

Total revenue from the Others Segment, which includes internal revenue frominter-company transactions, increased by 4.0%4.1%, or Won 304208 billion, from Won 7,5815,077 billion in 20122016 to Won 7,8855,285 billion in 2013 primarily due to an increase in2017 as internal revenue of POSCO Energy Corporationfrominter-company transactions increased by 3.4%,7.1% or Won 92169 billion, from Won 2,8092,380 billion in 20122016 to Won 2,9012,549 billion in 2013.2017. Such increase primarily reflected an increase ininter-company sales related to replacement of control systems at Pohang Works by POSCO ICT Co., Ltd.

Cost of Sales

Our cost of sales decreasedincreased by 1.8%12.2%, or Won 1,0075,644 billion, from Won 55,92146,271 billion in 20122016 to Won 54,91451,916 billion in 2013.2017. The decreaseincrease in cost of sales was primarily due to decreases in our sales volume of steel products and trading activities as discussed above, as well as decreasesincreases in the average price in Won terms of key raw materials that were used to manufacture our finished steel productsgoods sold, which were partially offset by increasesa decrease in our construction activities and sales volume of non-steelsteel products.

The following table presents a breakdown of our cost of sales by segment, prior to adjusting forinter-company transactions that are eliminated during consolidation and basis difference, and changes therein for 20122016 and 2013.2017.

 

    Changes       Changes 
  For the Year Ended December 31, 2012 versus 2013   For the Year Ended December 31, 2016 versus 2017 
  2012 2013 Amount %   2016 2017 Amount % 
  (In billions of Won)   (In billions of Won) 

Steel Segment

  47,616   43,274   (4,342  (9.1)%       37,437      41,479      4,042   10.8

Trading Segment

   25,287    24,816    (471  (1.9   25,090   33,388   8,298   33.1 

Construction Segment

   8,937    9,848    911    10.2     7,564   6,598   (966  (12.8

Others Segment

   6,771    7,123    353    5.2     4,507   4,636   129   2.9 

Consolidation adjustments

   (32,468  (30,056            2,412    (7.4   (28,204  (33,802  (5,598  19.8 

Basis difference(1)

   (222  (91  131    (59.0   (123  (383  (261  211.4 
  

 

  

 

     

 

  

 

   

Cost of sales

      55,921       54,914    (1,007  (1.8      46,271      51,916      5,644   12.2
  

 

  

 

     

 

  

 

   

 

 

(1)Basis difference is related to the difference in recognizing revenue and expenses of the Construction Segment in connection with development and sale of certain residential real estate between the report reviewed by the chief executive officer and the consolidated financial statements. See Notes 3 and 4240 of Notes to Consolidated Financial Statements.

Steel Segment. The cost of sales of our Steel Segment, prior to consolidation adjustments, decreasedincreased by 9.1%10.8%, or Won 4,3424,042 billion, from Won 47,61637,437 billion in 20122016 to Won 43,27441,479 billion in 2013,2017 primarily due to decreasesincreases in the average price in Won terms of coal and other key raw materials (other than iron ore) that were used to manufacture our finished goods sold, as well asthe impact of which was partially offset by a decrease in our sales volume of the principal steel products produced by us and directly sold to external and internal customers. For a discussion of fluctuations in prices of our key raw materials, see “Item 4.B. Business Overview — Raw Materials.”

Trading Segment. The cost of sales of our Trading Segment, prior to consolidation adjustments, decreasedincreased by 1.9%33.1%, or Won 4718,298 billion, from Won 25,28725,090 billion in 20122016 to Won 24,81633,388 billion in 2013,2017 primarily due to a decreasethe recognition of the cost of sales of POSCO P&S under the Trading Segment commencing March 2017 following its merger into POSCO Daewoo as well as an increase in our trading volumes.cost of export and import products sold.

Construction Segment. The cost of sales of our Construction Segment, prior to consolidation adjustments, increaseddecreased by 10.2%12.8%, or Won 911966 billion, from Won 8,9377,564 billion in 20122016 to Won 9,8486,598 billion in 2013, primarily due2017, reflecting the recognition of additional costs related to an increasecertain EPC projects abroad in the construction activities of POSCO E&C.2016 compared to no such costs in 2017.

Others SegmentSegment.. The cost of sales of our Others Segment, prior to consolidation adjustments, increased by 5.2%2.9%, or Won 353129 billion, from Won 6,7714,507 billion in 20122016 to Won 7,1234,636 billion in 2013,2017 primarily due to costs related to an increase in POSCO Energy Corporation’s power generation activities in 2013 resulting from an increase in its power generation capacityincreases in the second halfaverage price in Won terms of 2012.key raw materials used by POSCO Chemtech Co., Ltd. to produce coal chemistry products.

Gross Profit

Our gross profit decreasedincreased by 7.7%24.0%, or Won 5731,603 billion, from Won 7,4256,668 billion in 20122016 to Won 6,8528,271 billion in 20132017 primarily due to a decreaseincreases in gross profit of each of our Steel Segment.four segments. Our gross margin decreasedincreased from 11.7%12.6% in 20122016 to 11.1%13.7% in 2013.2017.

The following table presents our gross profit by segment, prior to adjusting forinter-company transactions that are eliminated during consolidation and basis difference, and changes therein for 20122016 and 2013.2017.

 

    Changes     Changes 
  For the Year Ended December 31, 2012 versus 2013   For the Year Ended December 31, 2016 versus 2017 
          2012                 2013             Amount     %   2016 2017 Amount % 
  (In billions of Won)   (In billions of Won) 

Steel Segment

  5,253   4,749   (504  (9.6)%       5,469      6,132      663   12.1

Trading Segment

   1,127    1,103    (24  (2.1   1,330   1,490   160   12.0 

Construction Segment

   788    934              146    18.5     (82  688   770   N.A. (2) 

Others Segment

   810    761    (49  (6.1   570   649   79   13.9 

Consolidation adjustments

   (517  (687  (170  32.9     (598  (603  (5  0.9 

Basis difference (1)

   (36  (8  28    (77.8   (21  (85  (64  298.4 
  

 

  

 

     

 

  

 

   

Gross profit

      7,425       6,852    (573  (7.7  6,668  8,271      1,603   24.0
  

 

  

 

     

 

  

 

   

 

 

(1)Basis difference is related to the difference in recognizing revenue and expenses of the Construction Segment in connection with development and sale of certain residential real estate between the report reviewed by the chief executive officer and the consolidated financial statements. See Notes 3 and 4240 of Notes to Consolidated Financial Statements.

(2)N.A. means not applicable.

Steel Segment. The gross profit of our Steel Segment, prior to consolidation adjustments, decreasedincreased by 9.6%12.1%, or Won 504663 billion, from Won 5,2535,469 billion in 20122016 to Won 4,7496,132 billion in 20132017 primarily due to a decreasean increase in the average unit sales price per ton of ourthe principal steel products produced by us and sold to external and internal customers, which were partially offset by an increase in the average price in Won terms of coal and other key raw materials that were used to manufacture our finished steel products sold as well as a decrease in the overall sales volume of our principal steel products, as discussed above, which were partially offset by a decrease in the average price in Won terms of coal and other key raw materials (other than iron ore) that were used to manufacture our finished steel product sold.above. The gross margin of our Steel Segment, which is gross profit as a percentage of total revenue prior to consolidation adjustments, remained constant at 9.9%increased from 12.7% in 20122016 to 12.9% in 2017, as we focused our production and 2013.marketing efforts on selling higher margin, higher value added premium products in 2017.

Trading Segment. The gross profit of our Trading Segment, prior to consolidation adjustments, decreasedincreased by 2.1%12.0%, or Won 24160 billion, from Won 1,1271,330 billion in 20122016 to Won 1,1031,490 billion in 2013, reflecting market conditions related2017, primarily due to the prolonged slowdownrecognition of the global economycost of sales of POSCO P&S under the Trading Segment commencing March 2017 following its merger into POSCO Daewoo as discussed above.well as an increase in gross profit of the Myanmar gas fields, which were partially offset by a decrease in trading margins resulting from weaker demand and falling prices for export and import products. The gross margin of our Trading Segment, prior to consolidation adjustments, remained constant atdecreased from 5.0% in 2016 to 4.3% in 2012 and 2013.2017.

Construction Segment. The Our Construction Segment recorded gross loss of Won 82 billion in 2016 compared to gross profit of our Construction Segment,Won 688 billion in 2017, and the gross margin, prior to consolidation adjustments, increased by 18.5%, or Won 146 billion,improved from Won 788 billion(1.1)% in 20122016 to Won 934 billion9.4% in 2013, and the gross margin increased from 7.9% in 2012 to 8.7% in 20132017, primarily due to POSCO E&C’s participationour engagement in higher-margin construction activities in 2017 reflecting more favorable market conditions in the

domestic residential construction industry as well as an increase in demand for EPC projects in Korea and abroad. In comparison, we recognized losses incurred in connection with overseas construction projects in 2016, in particular a loss of Won 157 billion related to delay in construction of theCSP-Companhia Siderurgia do Pecem steel plant complex in Brazil, as well as a decrease in the amount of relatively high-margin construction projects with higher margins in 2013.for member companies of the POSCO Group.

Others Segment.The gross profit of our Others Segment, prior to consolidation adjustments, decreasedincreased by 6.1%13.9%, or Won 4979 billion, from Won 810570 billion in 20122016 to Won 761649 billion in 2013, and the gross margin decreased from 10.7% in 20122017 primarily due to 9.7% in 2013 as POSCO Energy Corporation’s gross margin was negatively impacted in 2013 from an increase in its power generation capacitygross profits of POSCO Chemtech Co., Ltd. and POSCO Energy Corporation. The gross margin of our Others Segment increased from 11.2% in the second half of 2012 and the ramp-up of the capacity utilization rate.2016 to 12.3% in 2017.

Selling and Administrative Expenses

The following table presents a breakdown of our selling and administrative expenses and changes therein for 20122016 and 2013.2017.

 

          Changes           Changes 
  For the Year Ended December 31,   2012 versus 2013   For the Year Ended December 31,   2016 versus 2017 
  2012   2013   Amount %   2016   2017   Amount % 
  (In billions of Won)   (In billions of Won) 

Freight and custody expenses

  1,473    1,433    (40  (2.7)%   1,342   1,337       (5  (0.4)% 

Sales commissions

   74     74     (0  (0.5   94    116    22   22.8 

Sales promotion

   18     27     10    54.8     11    12    1   16.3 

Sales insurance premium

   32     27     (5  (15.7   31    37    6   16.5 

Contract cost

   52     37     (15  (28.5   49    23    (26  (53.4

Others

   30     34     4    13.4     26    32    6   25.6 
  

 

   

 

      

 

   

 

    

Total selling expenses

  1,679    1,632     (47  (2.8      1,554       1,557    3   0.2 
  

 

   

 

      

 

   

 

    

Wages and salaries

  695    755    60    8.7  770   775           5   0.7

Expenses related to defined benefit plan

   61     67     6    10.2  

Expenses related topost-employment benefits

   201    79    (122  (60.9

Other employee benefits

   171     166     (5  (2.9   177    160    (17  (9.5

Depreciation

   219     228     10    4.5     103    97    (6  (6.0

Amortization

   140    146    6   4.8 

Taxes and public dues

   79    73    (6  (7.7

Rental

   93     110         17    18.1     82    70    (12  (14.7

Repairs

   12     6     (6  (51.5

Advertising

   56     106     50    89.4     86    120    34   39.0 

Research and development

   192     193     0    0.3     121    126    5   4.3 

Service fees

   264     240     (24  (9.2   201    193    (8  (3.8

Vehicle maintenance

   22     12     (10  (46.0

Training

   18     12     (6  (32.2

Warranty expense

   13     19     6    45.1  

Bad debt allowance

   79     90     11    13.7  

Bad debt expenses

   165    174    9   5.2 

Others

   234     227     (6  (2.7   167    164    (3  (1.7
  

 

   

 

      

 

   

 

    

Total administrative expenses

      2,129        2,232     102    4.8    2,292   2,177    (115  (5.0
  

 

   

 

      

 

   

 

    

Total selling and administrative expenses

  3,808    3,864     56    1.5        3,845   3,734    (111  (2.9
  

 

   

 

      

 

   

 

    

Our selling and administrative expenses increaseddecreased by 1.5%2.9%, or Won 56111 billion, from Won 3,8083,845 billion in 20122016 to Won 3,8643,734 billion in 20132017 primarily due to increasesdecreases in labor-related expenses related to post-employment benefits, contract cost, other employment benefits and advertising expense,rental expenses, which waswere partially offset by a decreaseincreases in freightadvertising expenses and custody expense and service fees.sales commissions. Such factors were principally attributable to the following:

 

Our labor-related expenses included in selling and administrative expenses, which consist of wages and salaries, expenses related to defined benefit plans and other employeepost-employment benefits increaseddecreased by 6.6%60.9%, or Won 61122 billion, from Won 927201 billion in 20122016 to Won 98879 billion in 20132017 primarily due to expenses related to the early retirement programs of POSCO E&C and POSCO Engineering Co., Ltd. in 2016 compared to no such programs in 2017.

Our contract cost decreased by 53.4%, or Won 26 billion, from Won 49 billion in 2016 to Won 23 billion in 2017 primarily due to a decrease in cost related to unsuccessful project bids.

Our other employment benefits decreased by 9.5%, or Won 17 billion, from Won 177 billion in 2016 to Won 160 billion in 2017 primarily due to a decrease in employee incentive bonuses in 2017.

Our rental expenses decreased by 14.7%, or Won 12 billion, from Won 82 billion in 2016 to Won 70 billion in 2017 primarily due to decreases in costs related to vehicle leases and leases related to information technology infrastructure.

Our advertising expenses increased by 39.0%, or Won 34 billion, from Won 86 billion in 2016 to Won 120 billion in 2017 primarily due to an increase in our general advertising activities related to our sponsorship of the number of employees and a rise in their wages.2018 PyeongChang Olympic Games.

 

Our advertising expensesales commissions increased by 89.4%22.8%, or Won 5022 billion, from Won 5694 billion in 20122016 to Won 106116 billion in 20132017 primarily duereflecting a general increase in commissions related to diversification of our advertising channels.increased sales revenue.

Our freight and custody expense decreased by 2.7%, or Won 40 billion, from Won 1,473 billion in 2012 to Won 1,433 billion in 2013 primarily due to decreases in freight rates as well as a decrease in our export volume.

Our service fees decreased by 9.2%, or Won 24 billion, from Won 264 billion in 2012 to Won 240 billion in 2013 primarily due to a decrease in professional advisory services provided to us resulting from our reduction in investment activities.

Other Operating Income and Expenses

The following table presents a breakdown of our other operating income and expenses and changes therein for 20122016 and 2013.2017.

 

       Changes 
   For the Year Ended December 31,   2012 versus 2013 
           2012                   2013               Amount      % 
   (In billions of Won) 

Gain on disposals of assets held for sale

  193    102            (92  (47.4)% 

Gain on disposals of investments in associates

   39     8     (32  (80.6

Gain on disposals of property, plant and equipment

   42     14     (28  (66.5

Reversal of other provisions

   16     3     (13  (81.8

Outsourcing income

   29     25     (4  (12.7

Gain on disposal of wastes

   39     17     (22  (57.1

Gain from claim compensation

   32     15     (17  (54.1

Penalty income from early termination of contracts

   15     16     1    9.5  

Others

   43     30     (13  (30.3
  

 

 

   

 

 

    

Total other operating income

      448        229     (219  (48.9
  

 

 

   

 

 

    
       Changes 
   For the Year Ended December 31,   2016 versus 2017 
           2016                   2017               Amount      % 
   (In billions of Won) 

Gain on disposal of assets held for sale

  23   1   (22  (94.9)% 

Gain on disposal of investments in subsidiaries,
associates and joint ventures

   23    82    59   251.0 

Gain on disposal of property, plant and equipment

   24    32    8   34.9 

Gain on disposal of intangible assets

   1    23    22   3,386.0 

Recovery of allowance for other doubtful accounts

   13    3    (10  (78.3

Gain on valuation of firm commitment

       56    56   N.A. (1) 

Gain on insurance proceeds

   22    6    (16  (73.8

Others

   109    248        138   127.0 
  

 

 

   

 

 

    

Total other operating income

    215     451    236   109.7 
  

 

 

   

 

 

    

(1)N.A. means not applicable.

Our other operating income decreasedincreased by 48.9%109.7%, or Won 219236 billion, from Won 448215 billion in 20122016 to Won 229451 billion in 20132017 primarily due to our recognition of a tax refund of Won 133 billion in 2017 as well as increases in gain on disposal of investments in subsidiaries, associates and joint ventures and gain on valuation of firm commitment, which were partially offset by a decrease in our gain on disposal of assets held for sale. Such factors were principally attributable to the following:

In 2017, we recognized a tax refund of Won 133 billion, which we categorized in “others,” related to a successful appeal of a tax audit, compared to no such refund in 2016.

Our gain on disposal of investments in subsidiaries, associates and joint ventures increased by 251.0%, or Won 59 billion, from Won 23 billion in 2016 to Won 82 billion in 2017 primarily due to an increase in disposition of our interests in some of our subsidiaries and associates as part of our reorganization efforts.

We recognized gain on valuation of firm commitment of Won 56 billion in 2017 compared to no such gain in 2016, reflecting our decision to adopt hedge accounting starting in 2017, pursuant to which gain on valuation of firm commitment contracts is recognized.

Our gain on disposal of assets held for sale decreased by 47.4%94.9%, or Won 9222 billion, from Won 19323 billion in 20122016 to Won 1021 billion in 2013. In 2012, we2017. We recognized a gain of Won 14623 billion from Daewoo International’s on

disposal of assets held for sale in 2016 primarily from the disposal of our 80.0% interest in POSCO LED Co., Ltd., compared to no gain of such magnitude from our disposal of assets held for sale in 2017.

The following table presents a breakdown of Daewoo Cement (Shandong) Co., Ltd. to China United Cement Group Co., Ltd. in June 2012. In addition, we recognized a gain of Won 46 billion from Daewoo International’s disposal of its interest in Kyobo Life Insurance Co., Ltd. (“Kyobo Life Insurance”), subsequent to our impairment of Won 258 billion of such asset as described below. In 2013, we recognized a gain of Won 102 billion on disposal of assets heldother operating expenses and changes therein for sale primarily from our disposition of SK Telecom shares2016 and SeAH Steel shares.2017.

 

           Changes 
   For the Year Ended December 31,   2012 versus 2013 
       2012           2013           Amount      % 
   (In billions of Won) 

Other bad debt expenses

  44    111    67    151.8

Loss on disposals of asset held for sale

   10     26     17    178.6  

Impairment loss on assets held for sale

   258     2     (257  (99.3

Loss on disposals of property, plant and equipment

   65     121     56    85.0  

Impairment loss on property, plant and equipment

   13     10     (3  (24.9

Impairment losses on intangible assets

   22     125     104    475.5  

Idle tangible assets expenses

   31     18     (14  (43.7

Impairment loss on other non-current assets

   36     9     (27  (75.3

Other provision expenses

        66     66    N.A. (1) 

Donations

   74     61     (13  (17.6

Loss on disposal of investment in associates

   15     19     4    28.3  

Loss on disposal of wastes

   45     15     (30  (66.5

Penalty and additional tax payments

   149     19     (130  (87.1

Others

   45     48     2    5.3  
  

 

 

   

 

 

    

Total other operating expenses

      809        651     (159  (19.6
  

 

 

   

 

 

    
       Changes 
   For the Year Ended December 31,   2016 versus 2017 
   2016   2017   Amount  % 
   (In billions of Won) 

Impairment losses on assets held for sale

  25       (25  (100.0)% 

Loss on disposal of investments in subsidiaries, associates and joint ventures

   22    20    2   (11.2

Loss on disposal of property, plant and equipment

   87    151    64   74.7 

Impairment losses on property, plant and equipment

   197    117    (80  (40.5

Impairment losses on goodwill and intangible assets

   128    168    40   31.4 

Other bad debt expenses

   50    101    51   100.9 

Loss on valuation of firm commitment

       43    43   N.A. (1) 

Idle tangible assets expenses

   6    10    4   63.0 

Increase to provisions

   53    34    (19  (36.0

Donations

   44    51    7   17.4 

Others

   144    97    (48  (33.2
  

 

 

   

 

 

    

Total other operating expenses

      756       792    36   4.8 
  

 

 

   

 

 

    

 

 

(1)N.A. means not applicableapplicable.

Our other operating expenses decreasedincreased by 19.6%4.8%, or Won 15936 billion, from Won 809756 billion in 20122016 to Won 651792 billion in 2013,2017, primarily due to significant decreasesincreases in our impairment loss on assets held for saledisposal of property, plant and penaltyequipment, other bad debt expenses, loss on valuation of firm commitment and additional tax payments,impairment losses on goodwill and intangible assets, which were partially offset by increasesa decrease in our impairment losses on intangible assets, other bad debt expenses, other provision expenses and

loss on disposals of property, plant and equipment.equipment and impairment losses on assets held for sale. Such factors were principally attributable to the following:

 

Our impairment loss on assets held for sale decreased significantly,disposal of property, plant and equipment increased by 74.7%, or Won 25764 billion, from Won 25887 billion in 20122016 to Won 2151 billion in 2013. We recognized an impairment loss on assets held for sale of Won 258 billion in 2012 related to a decrease in the market value of Daewoo International’s interest in Kyobo Life Insurance, compared to no such loss in 2013.

Our penalty and additional tax payments decreased significantly, or Won 130 billion, from Won 149 billion in 2012 to Won 19 billion in 20132017 primarily due to our payment of a fine imposed by the Korea Fair Trade Commission on us and POSCO Coated & Color Steel Co., Ltd. in 2012 for alleged antitrust violations.

Our impairment losses on intangible assets increased by more than five-fold, or Won 104 billion, from Won 22 billion in 2012 to Won 125 billion in 2013 due to impairment loss of Won 97 billion in POSCO Thainox Public Company Limited in 2013.blast furnace upgrading project at Pohang Works.

 

Our other bad debt expenses more than doubled,increased by 100.9%, or Won 6751 billion, from Won 4450 billion in 20122016 to Won 111101 billion in 2013 due to increase in2017. In 2016, our other bad debt expenses related primarily to financing of the Dongtan Metapolis project of POSCO E&C&C. In 2017, our bad debt expenses related primarily to somejoint venture projects of its construction projects.POSCO E&C.

 

We recorded other provision expensesrecognized loss on valuation of firm commitment of Won 6643 billion in 20132017 compared to no such expenseloss in 2012, as POSCO E&C recorded reserves for subrogation payments related2016, reflecting our decision to someadopt hedge accounting starting in 2017, pursuant to which loss on valuation of its construction projects.firm commitment contracts is recognized.

 

Our lossimpairment losses on disposalsgoodwill and intangible assets increased by 31.4%, or Won 40 billion, from Won 128 billion in 2016 to Won 168 billion in 2017. In 2016, our impairment losses on goodwill and intangible assets related primarily to impairment losses on goodwill of Won 83 billion relating to POSCO Engineering Co., Ltd. In addition, we recognized full impairment losses of Won 12 billion relating to SANTOS CMI S.A. In 2017, our impairment losses on goodwill and intangible assets related primarily to losses of POSCO Engineering, which merged into POSCO E&C.

Our impairment losses on property, plant and equipment increaseddecreased by 85.0%40.5%, or Won 5680 billion, from Won 65197 billion in 20122016 to Won 121117 billion in 2013 primarily due2017. In 2016, we recognized impairment losses on property, plant and equipment of Won 62 billion related to loss resulting from the merger of Sungjin Geotec with POSCO Plantec in July 2013

continuing operating loss of the fuel cell business of POSCO Energy. In addition, we recorded Won 58 billion of impairment losses in 2016 related to disposal plans of certain assets. In 2017, our impairment losses on property, plant and equipment related primarily to SkyCube operated by Suncheon Eco Trans Co., Ltd. as well as disposal plans regarding certain assets.

We recognized impairment losses on assets held for sale of certainWon 25 billion in 2016 related primarily to a decrease in value of a building in Songdo, compared to no impairment losses on assets of POSCO Energy Corporationheld for sale in 2013.2017.

Operating Profit

Due to the factors described above, our operating profit decreasedincreased by 21.2%83.8%, or Won 6891,914 billion, from Won 3,2552,282 billion in 20122016 to Won 2,5664,196 billion in 2013.2017. Our operating margin decreasedincreased from 5.1%4.3% in 20122016 to 4.2%7.0% in 2013.2017.

Share of LossProfit (Loss) ofEquity-Accounted Investees

OurWe recorded a net loss for our proportionate share of lossequity-accounted investees of equity-accounted investees increased nearly eight-fold, or by Won 157 billion, from Won 2389 billion in 20122016 compared to a net gain for our proportionate share ofequity-accounted investees of Won 18011 billion in 2013.2017. In 2012,2016, we recognized a net loss for our proportionate share ofequity-accounted investees of Won 2389 billion primarily due to our share of losslosses of AMCI (WA) Pty Ltd. (Won 39 billion) and Busan-Gimhae Light Rail TransitPOSCO Plantec Co., Ltd. (Won 27172 billion) and DMSA/AMSA (Won 60 billion), which waswere partially offset by our share of profitprofits of Kyobo Life InsuranceCSP-Compania Siderurgica do Pecem (Won 37117 billion) and KOBRASCOSouth-East Asia Gas Pipeline Company Ltd. (Won 2947 billion). In 2013,2017, we recognized a net lossgain for our proportionate share ofequity-accounted investees of Won 18011 billion primarily due to our share of lossgains of POSCO PlantecKOBRASCO (Won 4956 billion), Roy Hill Holdings Pty Ltd. (Won 846 billion), South-East Asia Gas Pipeline Company Ltd. (Won 43 billion) and CSP-Compania Siderurgica do PecemPOSCO Mitsubishi Carbon Technology Ltd. (Won 3428 billion), which waswere partially offset by our share of profitloss of KOBRASCOCSP-Compania Siderurgica do Pecem (Won 22 billion), Korea LNG Ltd. (Won 22 billion) and CAML Resources Pty Ltd. (Won 18148 billion). For a discussion of our share of profits or losses of equity-accounted investees, seeSee Note 11 of Notes to Consolidated Financial Statements.

Finance Income and Finance Costs

The following table presents a breakdown of our finance income and costs and changes therein for 20122016 and 2013.2017.

 

          Changes       Changes 
  For the Year Ended December 31,   2012 versus 2013   For the Year Ended December 31,   2016 versus 2017 
  2012   2013   Amount %           2016                   2017               Amount     % 
  (In billions of Won)   (In billions of Won) 

Interest income

  279    260    (18  (6.6)%   182   212   30   16.4

Dividend income

   124     59     (65  (52.5   41    93    52   126.7 

Gain on foreign currency transactions

   935     998     62    6.6     1,033    786    (247  (23.9

Gain on foreign currency translations

   937     511     (426  (45.4   378    564    186   49.3 

Gain on transactions of derivatives of

   408     370     (37  (9.2

Gain on valuations of derivatives

   94     72     (22  (23.5

Gain on disposals of available-for-sale investments

   112     106     (7  (5.8

Gain on derivatives transactions

   317    211    (106  (33.4

Gain on valuation of derivatives

   147    65    (82  (56.0

Gain on disposals ofavailable-for-sale financial assets

   131    426    295   225.4 

Others

   7     4     (3  (40.0   4    16    13   337.6 
  

 

   

 

      

 

   

 

    

Total finance income

  2,897    2,381             (516  (17.8      2,232       2,373    141   6.3 
  

 

   

 

      

 

   

 

    

Interest expenses

  871    658    (214  (24.5)%   659   653    (6  (0.9)% 

Loss on foreign currency transactions

   839     927     88    10.5     1,147    757    (391  (34.0

Loss on foreign currency translations

   243     345     102    41.9     405    423    17   4.3 

Loss on transactions of derivatives

   309     287     (22  (7.3

Loss on valuations of derivatives

   160     291     132    82.6  

Impairment loss on available-for-sale investments

   224     280     56    25.0  

Loss on disposals of available-for-sale investments

   36     4     (33  (89.7

Loss on Financial guarantee

   38     6     (33  (84.7

Loss on derivatives transactions

   338    236    (102  (30.2

Loss on valuation of derivatives

   163    226    64   39.2 

Impairment losses onavailable-for-sale financial assets

   248    123    (125  (50.4

Others

   76     31     (45  (58.9   53    66    12   22.7 
  

 

   

 

      

 

   

 

    

Total finance costs

      2,798        2,829     32    1.1    3,014   2,484    (530  (17.6
  

 

   

 

      

 

   

 

    

OurWe recognized a net loss on foreign currency translations of Won 28 billion in 2016 compared to a net gain on foreign currency translations decreased by 76.0%, orof Won 527 billion, from Won 693141 billion in 2012 to2017, and we recorded a net loss on foreign currency transactions of Won 166115 billion in 2013, and our2016 compared to a net gain on foreign currency transactions decreased by 27.1%, orof Won 26 billion, from Won 9629 billion in 2012 to Won 70 billion in 20132017, as the Won appreciateddepreciated against the Dollar and Yen in 2012 and 2013.2016 but appreciated in 2017. In terms of the market average exchange rates announced by Seoul Money Brokerage Services, Ltd., the Won appreciateddepreciated from Won 1,153.31,172.0 to US$1.00 as of December 31, 20112015 to Won 1,071.11,208.5 to US$1.00 as of December 31, 2012 and2016 but appreciated further to Won 1,055.31,071.4 to US$1.00 as of December 31, 2013. The Won appreciated against the Yen from Won 1,485.2 per Yen 100 as of December 31, 2011 to Won 1,247.5 per Yen 100 as of December 31, 2012 and appreciated further to Won 1,004.7 as of December 31, 2013.2017. Against such appreciation, we recognized a more than three-fold increase influctuations, our net loss on valuation of derivatives increased by 939.2%, or by Won 154146 billion, from Won 6516 billion in 20122016 to Won 219162 billion in 2013, as well as a decrease of 15.1% in2017, and our net gainloss on transactions of derivatives increased by 17.2%, or Won 154 billion, from Won 9922 billion in 20122016 to Won 8426 billion in 2013.2017.

Our impairment lossgain on disposal ofavailable-for-sale investments financial assets increased by 25.0%225.4%, or Won 56295 billion, from Won 224131 billion in 20122016 to Won 280426 billion in 20132017. In 2016, our gain on disposals ofavailable-for-sale financial assets related primarily dueto disposals of our interests in Hana Financial Group Inc. and Shinhan Financial Group Co., Ltd. In 2017, our gain on disposal ofavailable-for-sale financial assets related primarily to disposals of our interests in Hyundai Heavy Industries Co., Ltd. and KB Financial Group Inc.

Our impairment losses onavailable-for-sale financial assets decreased by 50.4%, or Won 125 billion, from Won 248 billion in 2016 to Won 123 billion in 2017. In 2016, our impairment loss related primarily to a significant and prolonged decline in the fair value of shares of Nippon Steel & Sumitomo Metal Corporation below cost. In 2017, our impairment loss related primarily to a significant and prolonged decline in the fair value of shares of Congonhas Minèrios S.A. below cost.

Our dividend income increased by 126.7%, or Won 52 billion, from Won 41 billion in 2016 to Won 93 billion in 2017 primarily due to increases in dividends from Nippon Steel & Sumitomo Metal Corporation and KB Financial Group and others for a prolonged period, which was considered as objective evidence of impairment.Inc.

Our interest expenses decreasedincome increased by 24.5%16.4%, or Won 21430 billion, from Won 871182 billion in 20122016 to Won 658212 billion in 20132017 primarily due to a decrease in the average balance of our payables and financial liabilities as well as a general decreaseincrease in interest rates in Korea.Korea in 2017.

Profit before Income Taxes

Due to the factors described above, our profit before income taxes increased by 190.1%, or Won 2,683 billion, from Won 1,412 billion in 2016 to Won 4,095 billion in 2017.

The following table presents our profit and loss by segment, prior to adjusting for goodwill and corporatefair-value adjustments, elimination of inter-segment profits, income tax expense and basis difference, and changes therein for 2016 and 2017.

      Changes 
   For the Year Ended December 31,  2016 versus 2017 
           2016                  2017              Amount      % 
   (In billions of Won) 

Steel Segment

          1,511          2,791  1,279   84.7

Trading Segment

   53   113   59   111.6 

Construction Segment

   (1,404  25   1,428   N.A. (1) 

Others Segment

   (26  233   259   N.A. (1) 

Goodwill and corporate fair value adjustments

   (123  (84  39   N.A. (1) 

Elimination ofinter-segment profits

   1,036   (103  (1,139  N.A. (1) 

Income tax expense

   385   1,206   822   213.6 

Basis difference(2)

   (21  (85  (63  298.4 
  

 

 

  

 

 

   

Profit before income taxes

  1,412  4,095   2,683   190.1 
  

 

 

  

 

 

   

(1)N.A. means not applicable.

(2)Basis difference is related to the difference in recognizing revenue and expenses of the Construction Segment in connection with development and sale of certain residential real estate between the report reviewed by the chief executive officer and the consolidated financial statements. See Notes 3 and 40 of Notes to Consolidated Financial Statements.

Income Tax Expense

Our income tax expense decreasedincreased by 39.5%212.4%, or Won 385806 billion, from Won 974380 billion in 20122016 to Won 5891,186 billion in 2013.2017. Our effective tax rate increased from 29.2%26.9% in 20122016 to 30.4%29.0% in 20132017 primarily due to the effect of tax rate change of Won 176 billion in 2017 (that resulted in an increase in effective tax rate of 4.3%). In 2017, the amountGovernment announced a revision of unrecognized deferred tax assets causedlaw which includes new highest corporate income tax rate of 25% for taxable income in excess of Won 300 billion from fiscal year 2018 compared to 22% prior to such change. Such impact was offset in part by net lossa decrease in tax related to investments in subsidiaries, associates and joint ventures from our subsidiaries.Won 77 billion in 2016 to Won 55 billion in 2017 (that resulted in a decrease in effective tax rate of 4.1%). See Note 35 of Notes to Consolidated Financial Statements.

Profit

Due to the factors described above, our profit decreasedincreased by 42.8%181.9%, or Won 1,0091,877 billion, from Won 2,3581,032 billion in 20122016 to Won 1,3492,909 billion in 2013. Our net profit margin decreased from 3.7% in 20122017.

Operating Results – 2015 Compared to 2.2% in 2013.2016

The following table presents our profit by segment, prior to adjusting for inter-company transactions that are eliminated during consolidation,income statement information and changes therein for 20122015 and 2013.2016.

 

      Changes 
   For the Year Ended December 31,  2012 versus 2013 
           2012                  2013              Amount      % 
   (In billions of Won) 

Steel Segment

      2,246       1,449   (797  (35.5)% 

Trading Segment

   325    10    (315  (96.9

Construction Segment

   345    147    (198  (57.4

Others Segment

   302    197    (105  (34.8

Consolidation adjustments

   (833  (448          385    (46.2

Basis difference (1)

   (27  (6  21    (77.8
  

 

 

  

 

 

   

Profit for the period

  2,358   1,349    (1,009  (42.8
  

 

 

  

 

 

   
      Changes 
   For the Year Ended December 31,  2015 versus 2016 
           2015                  2016              Amount      % 
   (In billions of Won) 

Revenue

      58,522      52,940      (5,582  (9.5)% 

Cost of sales

   52,018   46,271   (5,747  (11.0
  

 

 

  

 

 

   

Gross profit

   6,504   6,668   164   2.5 

Administrative expenses

   2,395   2,292   (104  (4.3

Selling expenses

   1,729   1,554   (175  (10.1

Other operating income

   549   215   (334  (60.8

Other operating expenses

   1,442   756   (687  (47.6
  

 

 

  

 

 

   

Operating profit

   1,486   2,282   796   53.6 

Share of loss ofequity-accounted investees

   506   89   (417  (82.5

Finance income

   2,557   2,232   (325  (12.7

Finance costs

   3,387   3,014   (373  (11.0
  

 

 

  

 

 

   

Profit before income tax

   150   1,412   1,261   838.9 

Income tax expense

   267   380   113   42.4 
  

 

 

  

 

 

   

Profit (loss)

   (116  1,032   1,148   N.A.(1) 

Profit for the period attributable to owners of the controlling company

   171   1,355   1,183   690.0 

Loss for the period attributable tonon-controlling interests

   (288  (323  (35  12.2 

(1)N.A. means not applicable.

Revenue

The following table presents our revenue by segment and changes therein for 2015 and 2016.

      Changes 
   For the Year Ended December 31,  2015 versus 2016 
           2015                  2016                  Amount          % 
   (In billions of Won) 

Steel Segment:

     

External revenue

  28,293  26,844  (1,449  (5.1)% 

Internal revenue

   16,544   16,062   (482  (2.9
  

 

 

  

 

 

   

Total revenue from Steel Segment

   44,837   42,906   (1,931  (4.3
  

 

 

  

 

 

   

Trading Segment:

     

External revenue

   18,315   16,774   (1,541  (8.4

Internal revenue

   8,692   9,646           954   11.0 
  

 

 

  

 

 

   

Total revenue from Trading Segment

   27,008   26,420   (587  (2.2
  

 

 

  

 

 

   

Construction Segment:

     

External revenue

   8,516   6,768   (1,747  (20.5

Internal revenue

   1,352   714   (638  (47.2
  

 

 

  

 

 

   

Total revenue from Construction Segment

   9,868   7,482   (2,386  (24.2
  

 

 

  

 

 

   

Others Segment:

     

External revenue

   3,068   2,697   (371  (12.1

Internal revenue

   2,691   2,380   (311  (11.6
  

 

 

  

 

 

   

Total revenue from Others Segment

   5,760   5,077   (683  (11.9
  

 

 

  

 

 

   

Total revenue prior to consolidation adjustments and basis difference

   87,472   81,885   (5,589  (6.4
  

 

 

  

 

 

   

Consolidation adjustments

   (29,279  (28,802  478   (1.6

Basis difference (1)

   330   (144  (474  N.A.(2) 
  

 

 

  

 

 

   

Revenue

  58,522  52,940   (5,582  (9.5
  

 

 

  

 

 

   

 

 

(1)Basis difference is related to the difference in recognizing revenue and expenses of the Construction Segment in connection with development and sale of certain residential real estate between the report reviewed by the chief operating decision makerexecutive officer and the consolidated financial statements. See Notes 3 and 4240 of Notes to Consolidated Financial Statements.

(2)N.A. means not applicable.

Our revenue decreased by 9.5%, or Won 5,582 billion, from Won 58,522 billion in 2015 to Won 52,940 billion in 2016 due to decreases in external revenues from each of our four segments. Specifically:

Steel Segment.External revenue from the Steel Segment, which does not include internal revenue frominter-company transactions that are eliminated during consolidation, decreased by 5.1%, or Won 1,449 billion, from Won 28,293 billion in 2015 to Won 26,844 billion primarily due to a decrease in the average unit sales price per ton of the principal steel products produced by us and directly sold to external customers, which was offset in part by an increase in our sales volume of the steel products produced by us and directly sold to external customers (including miscellaneous steel products not included in any of our major product categories). The weighted average unit sales price per ton of the principal steel products produced by us and directly sold to external customers decreased by 6.6% from Won 798,217 per ton in 2015 to Won 745,476 per ton in 2016, while the overall sales volume of the steel products produced by us and directly sold to external customers (including miscellaneous steel products) increased by 4.1% from 31.6 million tons in 2015 to 32.9 million tons in 2016. Such factors were principally attributable to the following:

The unit sales prices in Won of each of our major product categories decreased from 2015 to 2016. Silicon steel sheets, wire rods, stainless steel products, hot rolled products, plates and

cold rolled products produced by us and directly sold to external customers decreased by 17.0%, 11.9%, 9.2%, 7.6%, 5.0% and 4.6%, respectively, from 2015 to 2016. For a discussion of changes in the unit sales prices of each of our principal product lines, see “— Overview — Sales Volume, Prices and Product Mix” above.

The sales volume of each of our major product categories increased from 2015 to 2016. The sales volume of stainless steel products, cold rolled products, plates, wire rods, hot rolled products and silicon steel products produced by us and directly sold to external customers increased by 9.8%, 6.0%, 3.5%, 2.6%, 1.1% and 0.2%, respectively, from 2015 to 2016. For a discussion of changes in sales volume of each of our principal product lines, see “Item 4.B. Business Overview — Major Products.”

Total revenue from the Steel Segment, which includes internal revenue frominter-company transactions, decreased by 4.3%, or Won 1,931 billion, from Won 44,837 billion in 2015 to Won 42,906 billion in 2016 as internal revenue frominter-company transactions decreased by 2.9%, or Won 482 billion, from Won 16,544 billion in 2015 to Won 16,062 billion in 2016. Such decrease primarily reflected, in addition to factors discussed above, a decrease in the average unit sales price of the steel products sold to our sales subsidiaries.

Trading Segment.External revenue from the Trading Segment, which does not include internal revenue frominter-company transactions that are eliminated during consolidation, decreased by 8.4%, or Won 1,541 billion, from Won 18,315 billion in 2015 to Won 16,774 billion in 2016 primarily due to a decrease inthird-country trades by POSCO Daewoo and our other trading subsidiaries from 2015 to 2016, reflecting market conditions related to the deterioration of the global economy that has been characterized by weaker demand and falling prices for export and import products, reduced trading volume and intense competition among trading companies.

Total revenue from the Trading Segment, which includes internal revenue frominter-company transactions, decreased by 2.2%, or Won 587 billion, from Won 27,008 billion in 2015 to Won 26,420 billion in 2016 as internal revenue frominter-company transactions increased by 11.0%, or Won 954 billion, from Won 8,692 billion in 2015 to Won 9,646 billion in 2016 primarily due to an increase in our steel sales activities through trading subsidiaries.

Construction Segment.External revenue from the Construction Segment, which does not include internal revenue frominter-company transactions that are eliminated during consolidation, decreased by 20.5%, or Won 1,747 billion, from Won 8,516 billion in 2015 to Won 6,768 billion in 2016 primarily due to a general decrease in POSCO E&C’s construction activities reflecting weakening of market conditions in the domestic construction industry as well as a decrease in demand for EPC projects in Korea and abroad.

Total revenue from the Construction Segment, which includes internal revenue frominter-company transactions, decreased by 24.2%, or Won 2,386 billion, from Won 9,868 billion in 2015 to Won 7,482 billion in 2016 as internal revenue frominter-company transactions decreased by 47.2%, or Won 638 billion, from Won 1,352 billion in 2015 to Won 714 billion in 2016. Such decrease in internal revenue reflected a decrease in the amount of construction activities for member companies of the POSCO Group in 2016 compared to 2015.

Others Segment. The Others Segment primarily includes power generation, LNG production, network and system integration, logistics and magnesium coil and sheet production. External revenue from the Others Segment, which does not include internal revenue frominter-company transactions that are eliminated during consolidation, decreased by 12.1%, or Won 371 billion, from Won 3,068 billion in 2015 to Won 2,697 billion in 2016 primarily due to a decrease in revenue of POSCO Energy Corporation reflecting decreases in the unit price as well as volume of electric power sold.

Total revenue from the Others Segment, which includes internal revenue frominter-company transactions, decreased by 11.9%, or Won 683 billion, from Won 5,760 billion in 2015 to Won 5,077 billion in 2016 as internal revenue frominter-company transactions decreased by 11.6% or Won 311 billion, from Won 2,691 billion in 2015 to Won 2,380 billion in 2016. Such decrease primarily reflected a decrease ininter-company sales related to a general reduction in investments made by the POSCO Group in 2016.

Cost of Sales

Our cost of sales decreased by 11.0%, or Won 5,747 billion, from Won 52,018 billion in 2015 to Won 46,271 billion in 2016. The decrease in cost of sales was primarily due to decreases in the average price in Won terms of key raw materials that were used to manufacture our finished goods sold, as well as a decrease in construction activities as discussed above, which were partially offset by an increase in our sales volume of steel products.

The following table presents a breakdown of our cost of sales by segment, prior to adjusting forinter-company transactions that are eliminated during consolidation and basis difference, and changes therein for 2015 and 2016.

      Changes 
   For the Year Ended December 31,  2015 versus 2016 
       2015      2016              Amount      % 
   (In billions of Won) 

Steel Segment

  40,381  37,437  (2,944  (7.3)% 

Trading Segment

   25,563   25,090   (473  (1.8

Construction Segment

   9,248   7,564   (1,685  (18.2

Others Segment

   5,158   4,507   (651  (12.6

Consolidation adjustments

   (28,692  (28,204        488   (1.7

Basis difference(1)

   360   (123  (483  N.A. (2) 
  

 

 

  

 

 

   

Cost of sales

      52,018      46,271  (5,747  (11.0)% 
  

 

 

  

 

 

   

(1)Basis difference is related to the difference in recognizing revenue and expenses of the Construction Segment in connection with development and sale of certain residential real estate between the report reviewed by the chief executive officer and the consolidated financial statements. See Notes 3 and 40 of Notes to Consolidated Financial Statements.

(2)N.A. means not applicable.

Steel Segment. The cost of sales of our Steel Segment, prior to consolidation adjustments, decreased by 7.3%, or Won 2,944 billion, from Won 40,381 billion in 2015 to Won 37,437 billion in 2016 primarily due to decreases in the average price in Won terms of key raw materials that were used to manufacture our finished goods sold, the impact of which was partially offset by an increase in our sales volume of the principal steel products produced by us and sold to external and internal customers.

Trading Segment. The cost of sales of our Trading Segment, prior to consolidation adjustments, decreased by 1.8%, or Won 473 billion, from Won 25,563 billion in 2015 to Won 25,090 billion in 2016 primarily due to decreases in cost of export and import products sold as well as our trading volumes, the impact of which was partially offset by an increase in the production costs related to gas produced at the Myanmar gas fields and sold to customers.

Construction Segment. The cost of sales of our Construction Segment, prior to consolidation adjustments, decreased by 18.2%, or Won 1,685 billion, from Won 9,248 billion in 2015 to Won 7,564 billion in 2016 in line with the decrease in the level of construction activities described above.

Others Segment.The cost of sales of our Others Segment, prior to consolidation adjustments, decreased by 12.6%, or Won 651 billion, from Won 5,158 billion in 2015 to Won 4,507 billion in 2016

primarily due to decreases in the average price in Won terms of key raw materials used to produce electricity as well as the volume of electricity produced and sold by POSCO Energy Corporation.

Gross Profit

Our gross profit increased by 2.5%, or Won 164 billion, from Won 6,504 billion in 2015 to Won 6,668 billion in 2016 primarily due to an increase in gross profit of our Steel Segment, which was partially offset by decreases in gross profit of our Construction Segment, Trading Segment and Others Segment. Our gross margin increased from 11.1% in 2015 to 12.6% in 2016.

The following table presents our gross profit by segment, prior to adjusting forinter-company transactions that are eliminated during consolidation and basis difference, and changes therein for 2015 and 2016.

      Changes 
   For the Year Ended December 31,  2015 versus 2016 
           2015                  2016              Amount      % 
   (In billions of Won) 

Steel Segment

  4,456  5,469      1,013   22.7

Trading Segment

   1,445   1,330   (115  (7.9

Construction Segment

   619   (82  (701  N.A.(2) 

Others Segment

   601   570   (32  (5.3

Consolidation adjustments

   (587  (598  (11  1.9 

Basis difference(1)

   (30)   (21  9   (30.0
  

 

 

  

 

 

   

Gross profit

      6,504      6,668  164   2.5
  

 

 

  

 

 

   

(1)Basis difference is related to the difference in recognizing revenue and expenses of the Construction Segment in connection with development and sale of certain residential real estate between the report reviewed by the chief executive officer and the consolidated financial statements. See Notes 3 and 40 of Notes to Consolidated Financial Statements.

(2)N.A. means not applicable.

Steel Segment. The gross profit of our Steel Segment, prior to consolidation adjustments, increased by 22.7%, or Won 1,013 billion, from Won 4,456 billion in 2015 to Won 5,469 billion in 2016 primarily due to a decrease in the average price in Won terms of coal and other key raw materials that were used to manufacture our finished steel products sold as well as an increase in the overall sales volume of our principal steel products, which were partially offset by a decrease in the average unit sales price per ton of the principal steel products produced by us and sold to external and internal customers, as discussed above. The gross margin of our Steel Segment, which is gross profit as a percentage of total revenue prior to consolidation adjustments, increased from 9.9% in 2015 to 12.7% in 2016, as we focused our production and marketing efforts on selling higher margin, higher value added premium products in 2016.

Trading Segment. The gross profit of our Trading Segment, prior to consolidation adjustments, decreased by 7.9%, or Won 115 billion, from Won 1,445 billion in 2015 to Won 1,330 billion in 2016, reflecting a decrease in trading margins from weaker demand and falling prices for export and import products, which was partially offset by an increase in gross profit of the Myanmar gas fields. The gross margin of our Trading Segment, prior to consolidation adjustments, decreased from 5.3% in 2015 to 5.0% in 2016.

Construction Segment. Our Construction Segment recorded gross profit of Won 619 billion in 2015 compared to gross loss of Won 82 billion in 2016, and the gross margin decreased from 6.3% in 2015 to (1.1)% in 2016, primarily due to losses incurred in connection with overseas construction projects, in particular a loss of Won 157 billion in 2016 related to delay in construction of theCSP-Companhia Siderurgia do Pecem steel plant complex in Brazil, as well as a decrease in the amount of relatively high-margin construction projects for member companies of the POSCO Group.

Weakening of market conditions in the domestic construction industry in recent years, particularly relating to the public sector, resulted in an increase in competition.

Others Segment.The gross profit of our Others Segment, prior to consolidation adjustments, decreased by 5.3%, or Won 32 billion, from Won 601 billion in 2015 to Won 570 billion in 2016 primarily due to decreases in gross profit of POSCO Energy Corporation. Despite such decreases, gross margin increased from 10.4% in 2015 to 11.2% in 2016 due to the larger decrease in revenue as discussed above.

Selling and Administrative Expenses

The following table presents a breakdown of our selling and administrative expenses and changes therein for 2015 and 2016.

       Changes 
   For the Year Ended December 31,   2015 versus 2016 
   2015   2016   Amount  % 
   (In billions of Won) 

Freight and custody expenses

          1,532           1,342           (190  (12.4)% 

Sales commissions

   80    94    14   17.7 

Sales promotion

   22    11    (12  (52.5

Sales insurance premium

   31    31    1   2.3 

Contract cost

   38    49    11   28.8 

Others

   25    26    0   1.7 
  

 

 

   

 

 

    

Total selling expenses

  1,729   1,554    (175  (10.1
  

 

 

   

 

 

    

Wages and salaries

  811   770   (41  (5.1)% 

Expenses related topost-employment benefits

   87    201    114   130.2 

Other employee benefits

   194    177    (17  (8.9

Depreciation and amortization

   274    243    (31  (11.3

Taxes and public dues

   74    79    5   6.2 

Rental

   120    82    (38  (31.6

Advertising

   91    86    (5  (5.0

Research and development

   136    121    (15  (11.0

Service fees

   219    201    (18  (8.1

Bad debt expenses

   190    165    (24  (12.9

Others

   200    167    (33  (16.5
  

 

 

   

 

 

    

Total administrative expenses

  2,395   2,292    (104  (4.3
  

 

 

   

 

 

    

Total selling and administrative expenses

  4,124   3,845    (279  (6.8
  

 

 

   

 

 

    

Our selling and administrative expenses decreased by 6.8%, or Won 279 billion, from Won 4,124 billion in 2015 to Won 3,845 billion in 2016 primarily due to decreases in freight and custody expenses, wages and salaries and rental expenses, which were partially offset by an increase in expenses related topost-employment benefits. Such factors were principally attributable to the following:

Our freight and custody expenses decreased by 12.4%, or Won 190 billion, from Won 1,532 billion in 2015 to Won 1,342 billion in 2016 primarily due to a decrease in freight rates, which was offset in part by an increase in our export volume.

Our wages and salaries decreased by 5.1%, or Won 41 billion, from Won 811 billion in 2015 to Won 770 billion in 2016 primarily due to a decrease in the number of administrative personnel, including decrease related to the early retirement programs of POSCO E&C and POSCO Engineering in 2016.

Our rental expenses decreased by 31.6%, or Won 38 billion, from Won 120 billion in 2015 to Won 82 billion in 2016 primarily due to decreases in payments for data communications lease lines and lease cars.

Our expenses related topost-employment benefits increased by 130.2%, or Won 114 billion, from Won 87 billion in 2015 to Won 201 billion in 2016 primarily due to expenses related to the early retirement programs of POSCO E&C and POSCO Engineering Co., Ltd.

Other Operating Income and Expenses

The following table presents a breakdown of our other operating income and changes therein for 2015 and 2016.

       Changes 
   For the Year Ended December 31,   2015 versus 2016 
           2015                   2016               Amount      % 
   (In billions of Won) 

Gain on disposal of assets held for sale

  228   23           (205  (89.9)% 

Gain on disposal of investments in subsidiaries, associates and joint ventures

   89    23    (65  (73.7

Gain on disposal of property, plant and equipment

   23    24    1   4.8 

Recovery of allowance for other doubtful accounts

   10    13    2   21.1 

Gain on insurance proceeds

   15    22    7   49.6 

Others

   184    110    (74  (40.4
  

 

 

   

 

 

    

Total other operating income

      549       215    (334  (60.8
  

 

 

   

 

 

    

Our other operating income decreased by 60.8%, or Won 334 billion, from Won 549 billion in 2015 to Won 215 billion in 2016 primarily due to decreases in gain on disposal of assets held for sale and gain on disposal of investments in subsidiaries, associates and joint ventures. Our gain on disposal of assets held for sale decreased by 89.9%, or Won 205 billion, from Won 228 billion in 2015 to Won 23 billion in 2016. In 2015, we recognized a gain of Won 228 billion on disposal of assets held for sale primarily from the disposal of our 52.2% interest in SeAH Changwon Integrated Special Steel (formerly POSCO Specialty Steel Co., Ltd.) and our shares in POSFINE Co., Ltd. In 2016, we recognized a gain of Won 23 billion on disposal of assets held for sale primarily from the disposal of our 80.0% interest in POSCO LED Co., Ltd. Our gain on disposal of investments in subsidiaries, associates and joint ventures decreased by 73.7%, or Won 65 billion, from Won 89 billion in 2015 to Won 23 billion in 2016 primarily due to a decrease in disposition of our interests in some of our subsidiaries and associates as part of our reorganization efforts.

The following table presents a breakdown of our other operating expenses and changes therein for 2015 and 2016.

       Changes 
   For the Year Ended December 31,   2015 versus 2016 
       2015           2016           Amount      % 
   (In billions of Won) 

Impairment losses on assets held for sale

  134   25    (109  (81.4)% 

Loss on disposal of assets held for sale

   190    0    (190  (99.9

Loss on disposal of investments in subsidiaries, associates and joint ventures

   19    22    4   18.4 

Loss on disposal of property, plant and equipment

   102    87    (15  (14.9

Impairment losses on property, plant and equipment

   136    197    61   44.5 

Impairment losses on goodwill and intangible assets

   161    128    (34  (20.8

Other bad debt expenses

   158    50    (108  (68.2

Idle tangible assets expenses

   13    6    (6  (49.6

Impairment losses on othernon-current assets

   12    10    (2  (19.3

Increase to provisions

   18    53    35   188.4 

Donations

   63    44    (19  (30.4

Others(1)

   436    133    (302  (69.4
  

 

 

   

 

 

    

Total other operating expenses

      1,442       756    (687  (47.6
  

 

 

   

 

 

    

(1)Includes lawsuit settlement expenses of Won 299 billion in 2015.

Our other operating expenses decreased by 47.6%, or Won 687 billion, from Won 1,442 billion in 2015 to Won 756 billion in 2016, primarily due to our recognition of lawsuit settlement expenses related to the litigation with Nippon Steel & Sumitomo Metal Corporation in 2015 as well as decreases in our loss on disposal of assets held for sale, impairment losses on assets held for sale, other bad debt expenses and impairment losses on goodwill and intangible assets, which were partially offset by an increase in impairment losses on property, plant and equipment. Such factors were principally attributable to the following:

We recognized lawsuit settlement expenses of Won 299 billion in 2015 related to the litigation with Nippon Steel & Sumitomo Metal Corporation, compared to no such expenses in 2016.

Our loss on disposal of assets held for sale decreased by 99.9%, or Won 190 billion, from Won 190 billion in 2015 to Won 0.3 billion in 2016 primarily due to the loss related to disposal of our investment in Nacional Minerios S.A. in 2015.

Our impairment losses on assets held for sale decreased by 81.4%, or Won 109 billion, from Won 134 billion in 2015 to Won 25 billion in 2016. In 2015, our impairment losses related primarily to classification of our investment in Nacional Minerios S.A. as assets held for sale and impairment losses from the fair value of such investment less cost to sell being below the carrying amount. In 2016, our impairment losses related primarily to a decrease in value of a building in Songdo.

Our other bad debt expenses decreased by 68.2%, or Won 108 billion, from Won 158 billion in 2015 to Won 50 billion in 2016. In 2015, our other bad debt expenses primarily related to POSCO Plantec’s receivables in Iran and POSCO Daewoo’s receivables in Kazakhstan. In 2016, our other bad debt expenses related primarily to financing of the Dongtan Metapolis project of POSCO E&C.

Our impairment losses on goodwill and intangible assets decreased by 20.8%, or Won 34 billion, from Won 161 billion in 2015 to Won 128 billion in 2016. In 2015, we recognized impairment losses on goodwill relating to EPC Equities LLP of Won 46 billion, POSCO Plantec Co., Ltd. of Won 38 billion and POSCO Thainox Public Company Limited of Won 16 billion. In 2016, our impairment losses on goodwill and intangible assets related primarily to impairment losses on goodwill of Won 83 billion relating to POSCO Engineering Co., Ltd. In addition, we recognized full impairment losses of Won 12 billion relating to SANTOS CMI S.A.

Our impairment losses on property, plant and equipment increased by 44.5%, or Won 61 billion, from Won 136 billion in 2015 to Won 197 billion in 2016 primarily due to Won 62 billion of impairment losses in 2016 related to continuing operating loss of the fuel cell business of POSCO Energy. In addition, we recorded Won 58 billion of impairment losses in 2016 related to disposal plans of certain assets.

Operating Profit

Due to the factors described above, our operating profit increased by 53.6%, or Won 796 billion, from Won 1,486 billion in 2015 to Won 2,282 billion in 2016. Our operating margin increased from 2.5% in 2015 to 4.3% in 2016.

Share of Loss ofEquity-Accounted Investees

Our share of loss ofequity-accounted investees decreased by 82.5%, or by Won 417 billion, from Won 506 billion in 2015 to Won 89 billion in 2016. In 2015, we recognized a net loss for our proportionate share ofequity-accounted investees of Won 506 billion primarily due to our share of losses of Eureka Moly LLC (Won 147 billion),CSP-Compania Siderurgica do Pecem (Won 145 billion)

and DMSA/AMSA (Won 138 billion), which were partially offset by our share of profits ofSouth-East Asia Gas Pipeline Company Ltd. (Won 54 billion), KOBRASCO (Won 31 billion) andAES-VCM Mong Duong Power Company Limited (Won 30 billion). In 2016, we recognized a net loss for our proportionate share ofequity-accounted investees of Won 89 billion primarily due to our share of losses of POSCO Plantec Co., Ltd. (Won 172 billion) and DMSA/AMSA (Won 60 billion), which were partially offset by our share of profits ofCSP-Compania Siderurgica do Pecem (Won 117 billion) andSouth-East Asia Gas Pipeline Company Ltd. (Won 47 billion). See Note 11 of Notes to Consolidated Financial Statements.

Finance Income and Finance Costs

The following table presents a breakdown of our finance income and costs and changes therein for 2015 and 2016.

       Changes 
   For the Year Ended December 31,     2015 versus 2016   
   2015   2016   Amount  % 
   (In billions of Won) 

Interest income

  210   182   (28  (13.2)% 

Dividend income

   184    41    (143  (77.7

Gain on foreign currency transactions

   1,025    1,033    7   0.7 

Gain on foreign currency translations

   466    378    (88  (19.0

Gain on derivatives transactions

   366    317    (50  (13.6

Gain on valuation of derivatives

   155    147    (8  (5.3

Gain on disposals ofavailable-for-sale financial assets

   139    131    (8  (6.0

Others

   11    4    (7  (65.4
  

 

 

   

 

 

    

Total finance income

      2,557       2,232    (325  (12.7
  

 

 

   

 

 

    

Interest expenses

  789   659    (130  (16.5)% 

Loss on foreign currency transactions

   1,157    1,147    (10  (0.9

Loss on foreign currency translations

   717    405    (311  (43.4

Loss on derivatives transactions

   343    338    (5  (1.4

Loss on valuation of derivatives

   72    163    91   125.5 

Impairment loss onavailable-for-sale financial assets

   143    248    106   74.0 

Others

   166    53    (113  (67.8
  

 

 

   

 

 

    

Total finance costs

  3,387   3,014    (373  (11.0
  

 

 

   

 

 

    

Our net loss on foreign currency translations decreased by 89.0%, or Won 223 billion, from Won 251 billion in 2015 to Won 28 billion in 2016, and our net loss on foreign currency transactions decreased by 13.1%, or Won 17 billion, from Won 132 billion in 2015 to Won 115 billion in 2016, as the Won depreciated against the Dollar in both 2015 and 2016. Such net losses were also impacted by depreciation of the Won against the Brazilian real and the Australian dollar in 2015 compared to appreciation of the Won against the Brazilian real and the Australian dollar in 2016. In terms of the market average exchange rates announced by Seoul Money Brokerage Services, Ltd., the Won depreciated from Won 1,099.2 to US$1.00 as of December 31, 2014 to Won 1,172.0 to US$1.00 as of December 31, 2015 and further depreciated, but to a lesser extent, to Won 1,208.5 to US$1.00 as of December 31, 2016. Against such fluctuations, we recognized a net gain on valuation of derivatives of Won 83 billion in 2015 compared to a net loss on valuations of derivatives of Won 16 billion in 2016, as well as a net gain on transactions of derivatives of Won 23 billion in 2015 compared to a net loss on transactions of derivatives of Won 22 billion in 2016.

Our interest expenses decreased by 16.5%, or Won 130 billion, from Won 789 billion in 2015 to Won 659 billion in 2016 primarily due to a general decrease in interest rates in Korea as well as a decrease in the level ofshort-term borrowings.

Our impairment loss onavailable-for-sale financial assets increased by 74.0%, or Won 106 billion, from Won 143 billion in 2015 to Won 248 billion in 2016 primarily due to an increase in our impairment related primarily to a significant and prolonged decline in the fair value of shares of Nippon Steel & Sumitomo Metal Corporation below cost.

Our dividend income decreased by 77.7%, or Won 143 billion, from Won 184 billion in 2015 to Won 41 billion in 2016 primarily due to dividends of Won 146 billion in 2015 related to our interest in Nacional Minerios S.A. compared to no such dividends in 2016.

Profit before Income Taxes

Due to the factors described above, our profit before income taxes increased by 838.9%, or Won 1,261 billion, from Won 150 billion in 2015 to Won 1,412 billion in 2016.

The following table presents our profit and loss by segment, prior to adjusting for goodwill and corporatefair-value adjustments, elimination of inter-segment profits, income tax expense and basis difference, and changes therein for 2015 and 2016.

      Changes 
   For the Year Ended December 31,  2015 versus 2016 
   2015  2016  Amount  % 
   (In billions of Won) 

Steel Segment

      181  1,511  1,330   732.7

Trading Segment

   39   53   14   37.1 

Construction Segment

   (276  (1,404  (1,128  409.2 

Others Segment

   (66  (26  40   (60.5

Goodwill and corporate fair value adjustments

   (95  (123  (28  29.4 

Elimination ofinter-segment profits

   120   1,036   916   764.6 

Income tax expense

   277   385   108   38.9 

Basis difference(1)

   (30  (21  9   (30.1
  

 

 

  

 

 

   

Profit before income taxes

  150  1,412  1,261   838.9
  

 

 

  

 

 

   

(1)Basis difference is related to the difference in recognizing revenue and expenses of the Construction Segment in connection with development and sale of certain residential real estate between the report reviewed by the chief executive officer and the consolidated financial statements. See Notes 3 and 40 of Notes to Consolidated Financial Statements.

Income Tax Expense

Our income tax expense increased by 42.4%, or Won 113 billion, from Won 267 billion in 2015 to Won 380 billion in 2016. Our effective tax rate decreased from 177.3% in 2015 to 26.9% in 2016 primarily due to the following:

a decrease in tax related to investments in subsidiaries, associates and joint ventures from Won 440 billion in 2015 to Won 77 billion in 2016 (that resulted in a decrease in effective tax rate of 286.9%). In 2015, some of our consolidated subsidiaries incurred losses, which caused Won 212 billion of decrease in unrecognized deferred tax assets for subsidiaries and associates during such year;

a decrease in tax credits from Won 152 billion in 2015 to Won 30 billion in 2016 (that resulted in an increase in effective tax rate of 99.1%). In 2015, there was a large amount of tax credit primarily due to claim for rectification; and

a decrease in over provision from prior years from Won 47 billion in 2015 to Won 12 billion in 2016 (that resulted in an increase in effective tax rate of 30.5%). In 2015, there was an increase in over provision from prior years related to a favorable ruling in a tax audit appeal.

See Note 35 of Notes to Consolidated Financial Statements.

Profit (Loss)

Due to the factors described above, we recorded loss of Won 116 billion in 2015 compared to profit of Won 1,032  billion in 2016.

Item 5.B.Liquidity and Capital Resources

The following table sets forth the summary of our cash flows for the periods indicated.

 

  For the Year Ended December 31,   For the Year Ended December 31, 
          2012                 2013                 2014           2015 2016 2017 
  (In billions of Won)   (In billions of Won) 

Net cash provided by operating activities

      7,319       4,858       3,412        7,602      5,269      5,607 

Net cash used in investing activities

   (6,169  (8,752  (3,745   (4,535  (3,755  (3,818

Net cash provided by (used in) financing activities

   (908  3,532    135  

Net cash used in financing activities

   (2,242  (3,951  (1,566

Effect of exchange rate fluctuations on cash held

   (161  (111  12     23   13   (59

Cash and cash equivalents at beginning of period

   4,599    4,681    4,209     4,022   4,871   2,448 

Cash and cash equivalents at end of period

   4,681    4,209    4,022     4,871   2,448   2,613 

Net increase (decrease) in cash and cash equivalents

   82    (472  (186   849   (2,424  165 

Capital Requirements

Historically, uses of cash consisted principally of purchases of property, plant and equipment and other assets and repayments of outstanding debt and payments of dividends.

Net cash used in investing activities was Won 6,1694,535 billion in 2012,2015, Won 8,7523,755 billion in 20132016 and Won 3,7453,818 billion in 2014.2017. These amounts included acquisition of property, plant and equipment of Won 7,0552,560 billion in 2012,2015, Won 6,5702,324 billion in 20132016 and Won 3,5062,288 billion in 2014.2017. We plan to spend betweenapproximately Won 4 trillion to Won 54.2 trillion in capital expenditures in 2015,2018, which we may adjust on anon-going basis subject to market demand for our products, the production outlook of the global steel industry and global economic conditions in general. Wegeneral.We may delay or not implement some of our current capital expenditure plans based on our assessment of such market conditions. We had net disposalsacquisitions ofshort-term financial instruments of Won 2322,443 billion in 2012, net acquisitions of short-term financial instruments of2015, Won 5481,401 billion in 20132016 and net disposals of short-term financial instruments of Won 1,5391,697 billion in 2014.2017. We also had net disposals ofavailable-for-sale investments of Won 393220 billion in 2012,2015, net acquisitionsacquisition ofavailable-for-sale investments of Won 4048 billion in 20132016 and net disposals ofavailable-for-sale investments of Won 176941 billion in 2014.2017.

In our financing activities, we used cash of Won 1,8843,510 billion in 2012,2015, Won 2,8464,275 billion in 20132016 and Won 2,8023,136 billion in 20142017 for repayments of borrowings. We paid dividends on common stock in the amount of Won 752823 billion in 2012,2015, Won 649709 billion in 20132016 and Won 677863 billion in 2014.2017.

In recent years, we have also selectively considered various opportunities to acquire or invest in companies that may complement our businesses, as well as invest in overseas resources development projects. For example, we acquired a controlling interest in Daewoo International in September 2010 for Won 3.37 trillion, and we spent Won 390 billion in 2011 to acquire a controlling interest in Thainox Stainless Public Company Limited, a major stainless steel manufacturer in Thailand. We may require additional capital for such acquisitions or entering into other strategic relationships. Other than capital required for such activities, we anticipate that capital expenditures, repayments of outstanding debt and payments of cash dividends will represent the most significant uses of funds for the next several years.

Payments of contractual obligations and commitments will also require considerable resources. In our ordinary course of business, we routinely enter into commercial commitments for various aspects of our operations, as well as issue guarantees for indebtedness of our related companies’ indebtedness.parties and others. For our contingent liabilities on outstanding guarantees provided by us, see Note 38(b) of Notes

to Consolidated Financial Statements. The following table sets forth the amount oflong-term debt, capital lease and operating lease obligations as of December 31, 2014.2017.

 

  Payments Due by Period   Payments Due by Period 

Contractual Obligations

  Total   Less Than
1 Year
   1 to 3 Years   4 to 5 Years   After
5 Years
 
  Total   Less than
1 Year
   1 to 3 Years   4 to 5 Years   More than
5 Years
 
  (In billions of Won)   (In billions of Won) 

Long-term debt obligations(a)

  18,154    2,419    3,490    2,978    9,267        12,951   3,003   5,386   3,026   1,536 

Interest payments on long-term debt(b)

   2,504     520     903     507     574     1,378    491    563    226    98 

Capital lease obligations(c)

   25     6     9     9     1     98    18    40    39    1 

Operating lease obligations(d)

   14     6     8               204    33    41    41    89 

Purchase obligations(e)(c)

   21,744     6,842     7,366     2,624     4,912     21,075    9,758    6,425    3,324    1,568 

Accrued severance benefits(f)(d)

   1,583     89     208     278     1,008     2,519    109    280    334    1,796 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total

    44,024      9,882      11,984      6,396      15,762    38,225       13,412       12,735       6,990       5,088 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

 

 

(a)Includes the current portion and premium on bond redemption but excludes amortization of discount on debentures and issuance costs.

 

(b)As of December 31, 2014,2017, a portion of ourlong-term debt carried variable interest rates. We used the interest rate in effect as of December 31, 20142017 in calculating the interest payments onlong-term debt for the periods indicated.

 

(c)We entered into a capital lease contract with Ilshin Shipping Co., Ltd. for a vessel for transporting plates and other products.

(d)We acquired certain tools and equipment under operating lease agreements with Orix Rentec Korea Co., Ltd. and others.

(e)Our purchase obligations include supply contracts to purchase iron ore, coal, nickel, LNG and other raw materials. These contracts generally have terms of one to ten years and thelong-term contracts provide for periodic price adjustments according to the market prices. As of December 31, 2014, 1372017, 116 million tons of iron ore and 3218 million tons of coal remained to be purchased underlong-term contracts. In addition, we entered into an agreement with Tangguh LNG Consortium in Indonesia to purchase 550 thousand tons of LNG for 20 years commencing in August 2005. The purchase price under the agreement with Tangguh LNG Consortium is variable based on the monthly standard oil price (as represented by the Japan Customs cleared Crude Price), subject to a ceiling. We used the market price and exchange rate in effect as of December 31, 20142017 in calculating the iron ore, coal and LNG purchase obligations described above for the periods indicated.

 

(f)(d)Represents, as of December 31, 2014,2017, the expected amount of severance benefits that we will be required to pay under applicable Korean law to all of our employees when they reach their normal retirement age. The amounts were determined based on the employees’ current salary rates and the number of service years that will be accumulated upon their retirement. These amounts do not include amounts that may be paid to employees who cease to work at the company before their normal retirement age.

Capital Resources

We have traditionally met our working capital and other capital requirements principally from cash provided by operations, while raising the remainder of our requirements primarily through

long-term debt andshort-term borrowings. We expect that these sources will continue to be our principal sources of cash in the future. From time to time, we may also generate cash through issuance of hybrid bonds and sale of treasury shares and our holdings inavailable-for-sale securities.

Our net cash provided by operating activities decreased by 33.6%30.7%, or Won 2,4612,332 billion, from Won 7,3197,602 billion in 20122015 to Won 4,8585,269 billion in 2013.2016. Our gross cash flow from our sales activities decreased as discussed above. In addition, the overall inventory turnover was slower in 2016 compared to 2015 as ourmaterials-in-transit increased during the year. However, we continued to actively manage our finished goods inventory levelslevel in 20132016 in response to a decrease in demand resulting fromthe continuing uncertainties in the global economy. The inventory turnover was fastereconomy and overcapacity in 2013 compared to 2012 as we maintained a relatively lower inventory level in 2013 compared to 2012. Ourthe global steel industry. Offsetting such impact from usage of cash, our outstanding trade accounts and notes receivables alsopayable increased in 2013,2016, as we extendedlengthened payment terms forof some of our key customers,suppliers, which in turn positively impacted our net cash provided by operating activities.

Our net cash provided by operating activities increased by 6.4%, or Won 338 billion, from Won 5,269 billion in 2016 to Won 5,607 billion in 2017. Our gross cash flow from our sales activities increased as discussed above. In addition, our cost of sales decreased as a percentage of sales revenue from 87.4% in 2016 to 86.2% in 2017, further enhancing our net cash provided by operating

activities. However, our outstanding notes payable and our subsidiaries’ outstanding notes payable decreased in 2017, which in turn negatively impacted our net cash provided by operating activities.

OurWe had net cash provided by operating activities decreased by 29.8%, orrepayments of borrowings, after adjusting for proceeds from borrowings, of Won 1,446 billion, from Won 4,8581,731 billion in 2013 to2015, Won 3,4122,286 billion in 2014. Our gross cash flow from our sales activities increased as discussed above. However, our cash outflows increased due to the buildup2016 and Won 1,410 billion in 2017. We had net repayment of semi-finished and finished goods resulting from continuing uncertainties in the global economy affecting China and other major emerging market economies.

Net proceeds fromshort-term borrowings, after deducting for repaymentproceeds of borrowings, were Won 1,123 billion in 2012 and Won 2,253 billion in 2013. We had net repayment ofshort-term borrowings, of Won 280846 billion in 2014. We had2015 and Won 886 billion in 2016 and net repaymentsproceeds of short-term borrowings, after deducting for repayment of short-term borrowings, of Won 1,412558 billion in 2012. Net proceeds from short-term borrowings, after deducting for repayment of short-term borrowings, were Won 87 billion in 2013 and Won 1,038 billion in 2014. We also raised Won 1,495 billion from our issuances of hybrid bonds in 2013, which are accounted for as part of our equity. 2017.Long-term borrowings, excluding current portion,installments, were Won 14,41212,849 billion as of December 31, 2012,2015, Won 15,53312,510 billion as of December 31, 20132016 and Won 15,2339,789 billion as of December 31, 2014.2017. Totalshort-term borrowings and current portioninstallments oflong-term borrowings were Won 10,50912,371 billion as of December 31, 2012,2015, Won 10,71410,195 billion as of December 31, 20132016 and Won 12,19511,275 billion as of December 31, 2014.2017. Outstanding hybrid bonds were Won 997 billion as of December 31, 20132015, 2016 and 2014.2017. Our netborrowings-to-equity ratio, which is calculated by deducting cash and cash equivalents from total borrowings and dividing the net amount with our total equity, was 47.74%45.21% as of December 31, 2012, 48.14%2015, 44.26% as of December 31, 20132016 and 52.18%38.99% as of December 31, 2014.2017.

We periodically increase ourshort-term borrowings and adjust ourlong-term debt financing levels depending on changes in our capital requirements. WeFrom time to time, we also generatedgenerate cash of Won 14 billion in 2013 and Won 43 billion in 2014 from the sale of our treasury shares. We believe that we have sufficient working capital for our current requirements and that we have a variety of alternatives available to us to satisfy our liquidity requirements to the extent that they are not met by funds generated by operations, including the issuance of debt and equity securities and bank borrowings denominated in Won and various foreign currencies. However, our ability to rely on some of these alternatives could be affected by factors such as the liquidity of the Korean and the global financial markets, prevailing interest rates, our credit rating and the Government’s policies regarding Won currency and foreign currency borrowings.

Liquidity

We had working capital (current assets minus current liabilities) of Won 11,9939,148 billion as of December 31, 2012,2015, Won 11,68110,711 billion as of December 31, 20132016 and Won 10,83312,354 billion as of December 31, 2014.2017. Our holdingholdings of cash and cash equivalents were Won 4,681 billion as of December 31, 2012, Won 4,209 billion as of December 31, 2013 and Won 3,811 billion as of December 31, 2014 (which doesdo not include Won 211 billion of cash and cash equivalents categorized under “assets held for sale”). were Won 4,870 billion as of December 31, 2015, Won 2,448 billion as of December 31, 2016 and Won 2,613 billion as of December 31, 2017. See NoteNotes 5 and 10 of Notes to Consolidated Financial Statements. Our holding

of other receivables and othershort-term financial assets were Won 3,8465,590 billion as of December 31, 2012,2015, Won 4,8616,765 billion as of December 31, 20132016 and Won 3,4198,682 billion as of December 31, 2014.2017. As of December 31, 2014,2017, approximately 34%18% of our cash and cash equivalents, other receivables and othershort-term financial assets were held outside of Korea, which we expect to use in our operations abroad, including capital expenditure activities. In the event that such assets are needed for our operations in Korea, such amounts are typically not restricted under local laws from being used in Korea. In addition, we believe that there are no material tax implications in the event our foreign subsidiaries elect to grant cash dividends to us. POSCO had total available credit lines of Won 2,2091,574 billion as of December 31, 2014, none2017, Won 300 billion of which was used as of such date. We have not had, and do not believe that we will have, difficulty gaining access toshort-term financing sufficient to meet our current requirements.

Our liquidity is affected by exchange rate fluctuations. See “— Overview — Exchange Rate Fluctuations.”

Capital Expenditures and Capacity Expansion

Cash used for acquisitions of property, plant and equipment was Won 7,0552,560 billion in 2012,2015, Won 6,5702,324 billion in 20132016 and Won 3,5062,288 billion in 2014.2017. We plan to spend betweenapproximately Won 4 trillion to Won 54.2 trillion in capital expenditures in 2015,2018, which we may adjust on anon-going basis subject to market

demand for our products, the production outlook of the global steel industry and global economic conditions in general. We may delay or not implement some of our current capital expenditure plans based on our assessment of such market conditions.

Our current plan for capital investment in production facilities emphasizes capacity rationalization, increased production of highervalue-added products and improvements in the efficiency of older facilities in order to reduce operating costs. The following table sets out the major items of our capital expenditures as of December 31, 2014:2017:

 

Project

  Expected
Completion Date 
   Total Cost
of Project
   Estimated
Remaining Cost of
Completion
as of December 31,
2014
 
   (In billions of Won) 

Steel Segment:

      

Miscellaneous capital expenditures, including rationalization and upgrading of raw materials treatment and transportation facilities

   December 2016     2,767     1,014  

Construction of cold rolling mill by POSCO Maharashtra Steel Private Limited

   January 2015     
 

738
 
  
     

Rationalization of furnace no. 5 at Gwangyang Works

   June 2016     521     488  

Rationalization of furnace no. 2 at Pohang Works

   June 2015     439     330  

Construction of no. 7 CGL at Gwangyang Works

   June 2017     255     255  

Others Segment:

      

Construction of backup power plant no. 7, no. 8 and no. 9 in Incheon by POSCO Energy

   January 2015     1,063     190  

Construction of synthetic natural gas plant by POSCO Green Gas Technology

   November 2015     1,050     233  

Project

  Expected
Completion Date
   Total Cost of
Project
   Estimated
Remaining Cost of
Completion as of
December 31,
2017
 
       (In billions of Won) 

Reinforcement of hot rolling mill no. 4 at Gwangyang Works and rationalization of no. 2 FINEX plant at Pohang Works

   October 2019       1,470       1,054 

Construction of synthetic natural gas plant

   December 2018    1,194    34 

Rationalization and upgrading of raw materials processing facilities at Pohang Works and Gwangyang Works and expansion of facilities at Gwangyang Works

   February 2019    433    40 

Additional major capital expenditure projects that we plan to start in 2018 include the following:

Project

  Expected
Spending in
2018
   Expected
Spending in
2019
   Expected
Spending in
2020
   Total 
       (In billions of Won) 

Rationalization and upgrading of facilities at Gwangyang Works and Pohang Works related to periodic maintenance and expansion of production of premium steel products

      205       729       813       1,747 

Rationalization and upgrading of facilities at Gwangyang Works and Pohang Works related to promotion of environmental efficiencies and diversification of product offerings

   92    585    594    1,270 

Item 5.C.  Research and Development, Patents and Licenses, Etc.

We maintain a research and development program to carry out basic research and applied technology development activities. As of December 31, 2014,2017, POSCO Technical Research Laboratories employed 1,091934 personnel, including 517502 researchers. Our technology development department also works closely with the Pohang University of Science & Technology, Korea’s firstresearch-oriented college founded by us in 1986, and the Research Institute of Industrial Science and Technology, Korea’s first private comprehensive research institute founded by us in 1987. We also established POSCO Research Institute (POSRI) in 1994, which engages in research activities and consulting services.

We recorded research and development expenses of Won 385356 billion as cost of sales in 2012,2015, Won 370324 billion in 20132016 and Won 353361 billion in 2014,2017, as well as research and development expenses of Won 192136 billion as selling and administrative expenses in 2012,2015, Won 193121 billion in 20132016 and Won 175126 billion in 2014.2017.

Our research and development program has filed over 37,00042,448 industrial rights applications relating tosteel-making technology, approximately one-third15,722 of which were registered as of December 31, 2014,2017, and has successfully applied many of these to the improvement of our manufacturing process.

Item 5.D.  Trend Information

These matters are discussed under Item 5.A. and Item 5.B. above where relevant.

Item 5.E.  Off-balanceOff-balance Sheet Arrangements

As of December 31, 20132016 and 2014,2017, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which have been established for the purpose of facilitatingoff-balance sheet arrangements or other contractually narrow or limited purposes.

Item 5.F.  Tabular Disclosure of Contractual Obligations

These matters are discussed under Item 5.B. above where relevant.

Item 5.G.  Safe Harbor

See “Item 3. Key Information — Item 3.D. Risk Factors — This annual report contains “forward-looking“forward-looking statements” that are subject to various risks and uncertainties.

Item 6.Directors, Senior Management and Employees

Item 6.A.Directors and Senior Management

Board of Directors

Our board of directors has the ultimate responsibility for the management of our business affairs. Our board consists of five directors who are our executive officers (“Inside Directors”) and seven directors who are outside directors (“Outside Directors”). Our shareholders elect both the Inside Directors and Outside Directors at a general meeting of shareholders. Candidates for Inside Directors are recommended to shareholders by the board of directors after the board reviews such candidates’ qualifications, and candidates for Outside Directors are recommended to the shareholders by a separate board committee consisting of three Outside Directors and one Inside Director (“Director Candidate Recommendation and Management Committee”) after the committee reviews such candidates’ qualifications. AnyPursuant to the Korean Commercial Act and our articles of incorporation, any shareholder holding our outstanding shares with voting rights may suggest candidates for Outside Directors to the Director Candidate Recommendation and Management Committee.

Our board of directors maintains the following six fivesub-committees:

 

the Director Candidate Recommendation and Management Committee;

 

the Evaluation and Compensation Committee;

 

the Finance and OperationRelated Party Transactions Committee;

 

the Executive Management Committee; and

 

the Audit Committee; and

the Related Party Transactions Committee.

Our board committees are described in greater detail below under “— Item 6.C. Board Practices.”

Under the Commercial Code and our articles of incorporation, one Chairman should be elected among the Outside Directors and several Representative Directors may be elected among the Inside Directors by our board of directors’ resolution.

Inside Directors

Our current Inside Directors are:

 

Name

  Position  Responsibilities and
Division
   Years
as
Director
   Years
with
POSCO
   Age   Expiration
of Term of
Office

Kwon, Oh-Joon

  Chief Executive Officer

and Representative

Director

   —                         1     26     64    March
2017

Kim, Jin-Il

  President and

Representative Director

   
 
Head of Steel Production
Division
  
  
   3     38     62    March
2017

Yoon, Dong-Jun

  Senior Executive Vice
President and
Representative Director
   
 
Head of Corporate
Infrastructure Division
  
  
   1     28     56    March
2016

Lee, Young-Hoon

  Senior Executive Vice
President
   
 
Head of Finance and
Investment Division
  
  
   1     28     55    March
2017

Oh, In-Hwan

  Senior Executive Vice
President
   
 

Head of Steel Business
Division

  
  

  

 

0

  

  

 

32

  

  

 

56

  

  March
2017

Name

  

Position

  

Responsibilities and
Division

  Years
as
Director
   Age   Expiration
of Term of
Office

Kwon,Oh-Joon

  Chief Executive Officer and Representative Director  —                       4    67   March
2020

Oh,In-Hwan

  President and Representative Director  Chief Operating Officer I / Head of Steel Business and Operation   3    59   March
2019

Chang,In-Hwa

  President and Representative Director  Chief Operating Officer II / Head of Steel Production Division   1    62   March
2019

Yu, Seong

  Senior Executive Vice President  Head of Technology and Investment Division   1    61   March
2019

Chon,Jung-Son

  Senior Executive Vice President  Head of Corporate Strategy and Finance Center   0    55   March
2019

All Inside Directors are engaged in our business on afull-time basis.

Outside Directors

Our current Outside Directors are set out in the table below. Each of our Outside Directors meets the applicable independence standards set forth under the rules of the Financial Investment Services and Capital Markets of Korea (the “FSCMA”).

 

Name

  Position  Principal Occupation  Years
as
Director
   Age   Expiration
of Term of
Office
 

Shin, Chae-Chol

  Chairman  Former Chairman and CEO,

IBM Korea Inc.

   2     67     March 2018  

Lee, Myoung-Woo

  Director  President, Dongwon Industries   2     61     March 2016  

Kim, Il-Sup

  Director  President, Seoul School of Integrated
Sciences & Technologies
   1     68     March 2017  

Sunwoo, Young

  Director  Representative Lawyer, Rhi & Partners   1     59     March 2017  

Ahn, Dong-Hyun

  Director  Professor, Seoul National University   1     51     March 2017  

Bahk, Byong-Won

  Director  Chairman, Korea Employers Federation   0     62     March 2018  

Kim, Joo-Hyun

  Director  Advisory, Hyundai Research Institute   0     62     March 2018  

Name

  Position  

Principal Occupation

  Years
as
Director
   Age   Expiration
of Term of
Office
 

Kim,Joo-Hyun

  Chairman  President, the Financial News   3    65    March 2021 

Lee,Myoung-Woo

  Director  President, Dongwon Industries   5    63    March 2019 

Bahk,Byong-Won

  Director  Former Chairman, Korea Employers Federation   3    65    March 2021 

Kim,Shin-Bae

  Director  Former Vice Chairman, SK Group   1    63    March 2019 

Chung,Moon-Ki

  Director  Professor of Accounting, Sungkyunkwan University   1    59    March 2019 

Chang,Seung-Wha

  Director  Professor of Law, Seoul National University   1    54    March 2020 

Kim,Sung-Jin

  Director  Former Minister, Ministry of Oceans and Fisheries   0    68    March 2021 

The term of office of the Directors elected in March 20152018 is up to three (3) years.years. Each Director’s term expires at the close of the ordinary general meeting of shareholders convened in respect of the fiscal year that is the last one to end during such Director’s tenure.

Senior Management

In addition to the Inside Directors who are also our executive officers, we have the following executive officers:

 

Name

  

Position

  

Responsibility and Division

  Years
with
POSCO
   Age 

Song, Se-Bin

  Senior Executive Vice President  Department Manager of Legal Affairs Dept.   4     52  

Park, Sung-Ho

  Senior Executive Vice President  Head of Technical Research Laboratories   32     58  

An, Tong-Il

  Senior Executive Vice President  General Superintendent, Gwangyang Works   28     55  

Kim, Hag-Dong

  Senior Executive Vice President  General Superintendent, Pohang Works   28     55  

Cho, Chung-Myong

  Senior Executive Vice President  

Department Manager of Value Management

Dept.

   25     54  

Lee, Woo-Kyu

  Executive Vice President  

Department Manager of Corporate Audit

Dept.

   25     57  

Yim, Chang-Hee

  Executive Vice President  General Manager of Europe Office   29     58  

Ko, Suk-Bum

  Executive Vice President  

Department Manager of Labor and Outside

Services Dept.

   30     57  

Kim, Jhi-Yong

  Executive Vice President  Project Manager of Regional Head Office Establishment Team in Indonesia   22     53  

Yu, Seong

  Executive Vice President  Department Manager of New Business Development Dept.   29     58  

Chang, In-Hwa

  Executive Vice President  Department Manager of Steel Solution Marketing Dept.   4     59  

Jung, Dong-chang

  Executive Vice President  Department Manager of External Relation Dept.   0     56  

Nam, Sik

  Executive Vice President  Project Manager of Regional Head Office Establishment Team in Vietnam   31     58  

Min, Kyung-Zoon

  Executive Vice President  President, PT Krakatau POSCO Co., Ltd.   31     56  

Jeong, Tak

  Executive Vice President  Department Manager of Energy and Shipbuilding Materials Marketing Dept.   3     55  

Lee, Tae-Ju

  Executive Vice President  Department Manager of Safety and Production Strategy Dept.   32     56  

Kim, Hong-Soo

  Executive Vice President  Department Manager of Steel Planning Dept.   32     57  

Son, Chang Hwan

  Executive Vice President  Department Manager of Steel Business Strategy Dept.   30     54  

Choi, Jong-Jin

  Senior Vice President  Deputy General Superintendent (Administration, Pohang Works)   27     51  

Han, Sung-Hee

  Senior Vice President  Department Manager of Public Relations Dept.   18     54  

Kim, Hak-Yong

  Senior Vice President  Department Manager of Plant, Equipment and Materials Procurement Dept.   26     53  

Yi, Kyung-Jo

  Senior Vice President  Deputy General Superintendent (Hot and Cold Rolling, Gwangyang Works)   29     54  

Cho, Il-Hyun

  Senior Vice President  Deputy General Superintendent (Safety and Maintenance, Pohang Works)   28     53  

Choi, Seung-Deug

  Senior Vice President  Department Manager of New Business Planning Dept.   7     53  

Kim, Jun-Hyung

  Senior Vice President  Deputy General Superintendent (Hot and Cold Rolling, Pohang Works)   29     52  

Name

Position

Responsibility and Division

Age

Kim,Hag-Dong

Senior Executive Vice PresidentHead of Gwangyang Works58

Jeong, Tak

Senior Executive Vice PresidentHead of Steel Business Division59

Oh,Hyoung-Soo

Senior Executive Vice PresidentHead of Pohang Works57

Name

  

Position

  

Responsibility and Division

  Years
with
POSCO
   Age 

Park, Joo-Cheul

  Senior Vice President  Deputy General Superintendent (Safety and Maintenance, Gwangyang Works)   28     54  

Park, Young-Kwan

  Senior Vice President  Deputy General Superintendent (Iron and Steel Making, Pohang Works)   29     56  

Noh, Min-Yong

  Senior Vice President  Department Manager of Finance Dept.   25     51  

Lee, Won-Hwi

  Senior Vice President  Department Manager of Automotive Materials Marketing Dept.   25     51  

Lee, Duk-Lak

  Senior Vice President  Department Manager of Corporate Project Management Dept.   29     54  

Kim, Dong-Ho

  Senior Vice President  President, CSP   30     55  

Yun, Han-Kuen

  Senior Vice President  General Manager of Pohang Research Lab   32     56  

Lee, Young-Woo

  Senior Vice President  Department Manager of Wire Rod Marketing Dept.   26     54  

Choi, Joo

  Senior Vice President  Deputy General Superintendent (Iron and Steel Making, Gwangyang Works)   31     56  

Kang, Seog-Beom

  Senior Vice President  Department Manager of Global Marketing Coordination Dept.   29     54  

Kwon, Woo-Taeck

  Senior Vice President  Department Manager of Investment Planning & Engineering Dept.   29     55  

Yoo, Byeong-Og

  Senior Vice President  Department Manager of Stainless Steel Raw Materials Dept.   26     52  

Shin, Hak Kyun

  Senior Vice President  Department Manager of Carbon Steel Raw Materials Dept.   3     52  

Bang, Gil-Ho

  Senior Vice President  Department Manager of Hot Rolled and Construction Steel Materials Marketing Dept.   26     53  

Yang, Weon-Jun

  Senior Vice President  Department Manager of Human Resources Dept.   26     49  

Lee, Eun-Seok

  Senior Vice President  Deputy General Superintendent (Stainless Steel Production, Pohang Works)   29     54  

Kim, Soon-Ki

  Senior Vice President  Deputy General Superintendent (Administration, Gwangyang Works)   24     50  

Park, Mi-Hwa

  Senior Vice President  Department Manager of Information Planning Dept.   0     48  

Kim, Kwang-Soo

  Senior Vice President  Department Manager of Stainless Steel Marketing Dept.   30     55  

Min, Jung-Ki

  Senior Vice President  Head of Production Division, PT Krakatau POSCO Co., Ltd.   28     55  

Ha, Dae-Ryong

  Senior Vice President  Department Manager of Electrical and Electronic Materials Marketing Dept.   26     51  

Park, Hyeon

  Senior Vice President  Department Manager of Environment, Energy and Social Responsibility Dept.   14     48  

Choo, Se-Don

  Senior Vice President  General Manager of Gwangyang Research Lab.   21     53  

Lee, Sang-Hyeon

  Senior Vice President  Center Manager of Engineering Solution Center   11     54  

Lee, Hoo-Geun

  Executive Vice President  Finance and Investment Division   32     57  

Jeong, Chul-Gyu

  Executive Vice President  Steel Production Division   32     59  

Kim, Jeong-Sik

  Executive Vice President  Steel Production Division   32     58  

Yoon, Tae-Yang

  Executive Vice President  Steel Business Division   0     58  

Lee, Yun-Yong

  Senior Vice President  Finance and Investment Division   27     57  

Chon, Jung-Son

  Senior Vice President  Value Management Dept.   28     52  

Chin, Kwang-Geun

  Senior Vice President  Technical Research Laboratories   30     57  

Cho, Yong-Doo

  Senior Vice President  Value Management Dept.   5     54  

Name

Position

Responsibility and Division

Age

Kim,Jhi-Yong

Senior Executive Vice PresidentPresident, PT Krakatau POSCO Co., Ltd.56

Han,Sung-Hee

Senior Executive Vice PresidentHead of Management Support Division57

Hwangbo, Won

Executive Vice PresidentHead of Human Resources Management Office54

Lee,Jong-Sub

Executive Vice PresidentSteel Business Division61

Lee,Duk-Lak

Executive Vice PresidentHead of Technology Management Office57

Kwak,Jeong-Shik

Executive Vice PresidentHead of External Relations Office60

Cho,Il-Hyun

Executive Vice PresidentHead of Investment Planning & Engineering Office56

Kim,Gyo-Sung

Executive Vice PresidentSteel Business Division56

Choi, Joo

Executive Vice PresidentHead of Technical Research Laboratories59

Yoo,Byeong-Og

Executive Vice PresidentHead of Corporate Strategy Office55

Lee, Sung-Wook

Executive Vice PresidentHead of Legal Affairs Office53

Park,Yong-Kyu

Executive Vice PresidentSteel Production Division58

Noh,Min-Yong

Executive Vice PresidentHead of Corporate Audit Office54

Jung,Kyu-Jin

Executive Vice PresidentHead of Raw Materials Office II57

Kim,Dong-Ho

Executive Vice PresidentCSP-Compania Siderurgica do Pecem58

Yi,Sang-Ho

Executive Vice PresidentSteel Production Division57

Yang,Weon-Jun

Executive Vice PresidentHead of Human Resources and Innovation Office52

Bae,Jae-Tak

Executive Vice PresidentHead of Stainless Steel Marketing Office53

Lee,Eun-Seok

Executive Vice PresidentDeputy Head of Works (Stainless Steel Production, Pohang Works)57

Kim,Sun-Koo

Executive Vice PresidentTechnical Research Laboratories58

Lee,Si-Woo

Executive Vice PresidentHead of Steel Production Strategy Office57

Kim,Gwang-Soo

Executive Vice PresidentHead of Steel Business Strategy Office57

Lim,Seung-Kyu

Executive Vice PresidentHead of Overseas Business Management Office54

Choo,Se-Don

Executive Vice PresidentHead of Steel Solution Marketing Office56

Jung,Duk-Kyoon

Executive Vice PresidentHead of Information Planning Office55

Jung,Hae-Seong

Senior Vice PresidentHead of Raw Materials Office I54

Yun,Yang-Su

Senior Vice PresidentHead of Automotive Materials Marketing Office54

Won,Hyung-Il

Senior Vice PresidentLegal Affairs Office49

Kim,Soon-Ki

Senior Vice PresidentHead of Labor and Outside Services Office53

Min,Jung-Ki

Senior Vice PresidentHead of Production Division, PT Krakatau POSCO Co., Ltd.58

Park, Hyeon

Senior Vice PresidentHead of New Business Office51

Lee,Sang-Hyeon

Senior Vice PresidentHead of Gwangyang Research Lab57

Yoon,Duk-Il

Senior Vice PresidentHead of Finance Office54

Lee, Jeon-Hyeok

Senior Vice PresidentHead of Domestic Business Management Office54

Kim,Bok-Tae

Senior Vice PresidentHead of Global Marketing Coordination Office56

Chun,Sung-Lae

Senior Vice PresidentHead of Hot Rolled Steel Marketing Office54

Lee,Ki-Ho

Senior Vice PresidentSteel Production Division59

Kim,Min-Chul

Senior Vice PresidentDeputy Head of Works (Safety and Maintenance, Gwangyang Works)55

Kim,Jong-Sang

Senior Vice PresidentTechnical Research Laboratories57

Chun,Myung-Sik

Senior Vice PresidentSteel Production Division58

Kim,Jeoung-Su

Senior Vice PresidentDeputy Head of Works (Administration, Gwangyang Works)54

Name

  

Position

  

Responsibility and Division

  Years
with
POSCO
   Age 

Shin, Geon

  Senior Vice President  Technical Research Laboratories   33     57  

Jeong, Ki-Seop

  Senior Vice President  Value Management Dept.   0     53  

Moon, Hee-Kyung

  Senior Vice President  Steel Production Division   32     57  

Lee, Jong-Sub

  Senior Vice President  Steel Business Division   31     58  

Park, Yong-Kyu

  Senior Vice President  Steel Production Division   30     55  

Kwak Jeong-Shik

  Senior Vice President  Value Management Dept.   27     57  

Lee, Chang-Sun

  Senior Vice President  Technical Research Laboratories   27     57  

Kim, Gyo-Sung

  Senior Vice President  Steel Business Division   30     53  

Yi, Sang-Ho

  Senior Vice President  Steel Production Division   30     54  

Oh, Sung-Chel

  Senior Vice President  Value Management Dept.   28     55  

Hong, Moon-Hi

  Senior Vice President  Steel Production Division   28     49  

Yang, Seong-Sik

  Senior Vice President  Steel Business Division   29     53  

Han Chan-Hee

  Senior Vice President  Technical Research Laboratories   29     56  

Won, Hyung-Il

  Senior Vice President  Legal Affairs Dept.   3     46  

Kim, Sun-Koo

  Senior Vice President  Technical Research Laboratories   24     55  

Kim, Gwang-Soo

  Senior Vice President  Steel Business Division   28     53  

Lim, Seung-Kyu

  Senior Vice President  Finance and Investment Division   26     51  

Chon, Uong

  Senior Vice President  Finance and Investment Division   0     51  

Item 6.B.  Compensation

Name

Position

Responsibility and Division

Age

Choi,Hyeon-Soo

Senior Vice PresidentHead of Europe Office58

Lee,Pil-Jong

Senior Vice PresidentTechnical Research Laboratories53

Lee,Sang-Chun

Senior Vice PresidentHead of Public Relations Office52

Kim,Dong-Yeong

Senior Vice PresidentDeputy Head of Works (Safety and Maintenance, Pohang Works)56

Kim,Ki-Soo

Senior Vice PresidentHead of Engineering Solution Office53

Choi,In-Yong

Senior Vice PresidentTechnology and Investment Division57

Choi,Yong-Jun

Senior Vice PresidentDeputy Head of Works (Hot and Cold Rolling, Pohang Works)53

Ahn,Yoon-Gih

Senior Vice PresidentHead of Energy and Environment Business Office51

Song,Yong-Sam

Senior Vice PresidentHead of Electrical and Electronic Materials Marketing Office55

Lee,Yu-Kyung

Senior Vice PresidentHead of Plant, Equipment and Materials Procurement Office50

Lee,Hee-Geun

Senior Vice PresidentDeputy Head of Works (Iron and Steel Making, Pohang Works)55

Bae,Chul-Min

Senior Vice PresidentHead of Pohang Research Lab57

An,Geun-Sik

Senior Vice PresidentSteel Business Division57

Han, Hyung-Chul

Senior Vice PresidentDeputy Head of Works (Administration, Pohang Works)54

Kim,Jin-Ho

Senior Vice PresidentHead of Construction Steel Materials Marketing Office56

Nam,Jae-Bok

Senior Vice PresidentSteel Business Division56

Hong,Sam-Young

Senior Vice PresidentDeputy Head of Works (Hot and Cold Rolling, Gwangyang Works)57

Lee,Sang-Ho

Senior Vice PresidentSteel Production Division53

Kim, Sang-Gyun

Senior Vice PresidentHead of Wire Rod Marketing Office54

Suh,In-Shik

Senior Vice PresidentTechnical Research Laboratories55

Lee,Baik-Hee

Senior Vice PresidentDeputy Head of Works (Iron and Steel Making, Gwangyang Works)53

Lee,Jae-Young

Senior Vice PresidentTechnology and Investment Division55

Item 6.B.Compensation

Compensation of Directors and Officers

Salaries and bonuses for Inside Directors and salaries for Outside Directors are paid in accordance with standards decided by the board of directors within the limitation of directors remuneration approved by the annual general meeting of shareholders. In addition, executive officers’ compensation is paid in accordance with standards decided by the board of directors. TheIn 2017, the aggregate compensation paid and accrued to all Directors and executive officers was approximately Won 33.466 billion in 2014 and the aggregate amount set aside or accrued by us to provide pension and retirement benefits to such persons was Won 6.4 billion in 2014.15 billion.

The compensation of our directors and executive officers who received total annual compensation exceeding Won 500 million in 20142017 were as follows:

 

Name

 

Position

 Total Compensation
in 20142017
  

Long-term Incentive Compensation for
Payment Subsequent to 20142017

   (In millions of Won)

Kwon, Oh-Joon

Chief Executive Officer
and Representative Director
1,094

Kim, Jin-Il

President and
Representative Director
700

Chang, In-Hwan

Senior Executive Vice
President and
Representative Director
692

Yoon, Dong-Jun

Senior Executive Vice
President and
Representative Director
595

Lee, Young-Hoon

Senior Executive Vice
President
598

Chung, Joon-Yang(1)

Former Chief Executive
Officer and Representative
Director
3,996455 in 2015 and 112 in 2016

Name

PositionTotal Compensation
in 2014

Long-term Incentive Compensation for
Payment Subsequent to  2014

    (In millions of Won)

Park, Ki-Hong(1)Kwon,Oh-Joon

 Former PresidentChief Executive Officer and
Representative Director
 1,6792,473  147 in 2015 and 147 in 2016759

Kim, Joon-Sik(1)Oh,In-Hwan

 Former President and
Representative Director
 1,6711,461  144 in 2014 and 144 in 2015343

Kim, Yeung Gyu(1)Choi,Jeong-Woo

 Former President and Representative Director1,291179

Name

Position

Total Compensation
in 2017

Long-term Incentive Compensation for
Payment Subsequent to 2017

(In millions of Won)

Chang,In-Hwa

President and Representative Director868

Yu, Seong

Senior Executive
Vice President
 920862

Kim,Jin-Il

Former President and Representative Director1,453  W 62768 in 2015 and 68 in 2016

(1)Includes severance payment for members of board of directors who resigned on March 2014.

We have also granted stock options to some of our Directors and executive officers. See “— Item 6.E. Share Ownership” for a list of stock options granted to our Directors and executive officers. At the annual shareholders’ meeting held in February 2006 our shareholders elected to terminate the stock option program. Stock options granted prior to this meeting remain valid and outstanding pursuant to the articles of incorporation in effect at the time of the issuance of the stock option.

Item 6.C.Item 6.C.  Board Practices

Director Candidate Recommendation and Management Committee

The Director Candidate Recommendation and Management Committee is composed of three Outside Directors, Bahk,Byong-Won, Kim,Joo-Hyun, and Chang,Seung-Wha, and one Inside Director, Chon,Jung-Son. The Director Candidate Recommendation and Management Committee reviews the qualifications of potential candidates and proposes nominees to serve on our board of directors as an Outside Director. It also reviews operational matters of our board of directors. Any shareholder holding our outstanding shares with voting rights may suggest candidates for Outside Directors to the Director Candidate Recommendation and Management Committee.

Evaluation and Compensation Committee

The Evaluation and Compensation Committee is composed of four Outside Directors, Lee,Moung-Woo, Kim,Shin-Bae, Chung,Moon-Ki and Kim,Sung-Jin. The Evaluation and Compensation Committee’s primary responsibilities include establishing evaluation procedures and compensation plans for executive officers and taking necessary measures to execute such plans.

Finance and Related Party Transactions Committee

The Finance and Related Party Transactions Committee is composed of three Outside Directors, Lee,Myoung-Woo, Kim,Shin-Bae, Kim,Sung-Jin and one Inside Director, Oh,In-Hwan. This committee is an operational committee that oversees decisions with respect to finance and operational matters, including making assessments with respect to potential capital investments and evaluating prospectivecapital-raising activities. It also reviews related party and other internal transactions and ensures compliance with the Monopoly Regulation and Fair Trade Act.

Executive Management Committee

The Executive Management Committee is composed of five Inside Directors, Kwon,Oh-Joon, Oh,In-Hwan, Chang,In-Hwa Yu, Seong and Chon,Jung-Son. This committee oversees decisions with respect to our operational and management matters, including review of management’s proposals of new strategic initiatives, as well as deliberation over critical internal matters related to organization structure and development of personnel.

Audit Committee

Under Korean law and our articles of incorporation, we are required to have an Audit Committee. The Audit Committee may be composed of three or more directors; all members of the

Audit Committee must be Outside Directors. Audit Committee members must also meet the applicable independence criteria set forth under the rules and regulations of theSarbanes-Oxley Act of 2002. Members of the Audit Committee are elected by the shareholders at the ordinary general meeting of shareholders. We currently have an Audit Committee composed of three Outside Directors. Members of our Audit Committee are Bahk,Byong-Won, Chang,Seung-Wha and Chung,Moon-Ki.

The Director Candidate Recommendation Committee is composed of three Outside Directors, Ahn, Dong-Hyun (committee chair), Kim, Il-Sup, Kim, Joo-Hyun and one Inside Director, Kim, Jin-Il. The Director Candidate Recommendation Committee reviews the qualifications of potential candidates and proposes nominees to serve on our board of directors as an Outside Director. Any shareholder holding our outstanding shares with voting rights may suggest candidates for Outside Directors to the Director Candidate Recommendation Committee.

Evaluation and Compensation Committee

The Evaluation and Compensation Committee is composed of four Outside Directors, Sunwoo, Young (committee chair), Shin, Chae-Chol, Lee, Myoung-Woo and Bahk, Byong-Won. The Evaluation and Compensation Committee’s primary responsibilities include establishing evaluation procedures and compensation plans for executive officers and taking necessary measures to execute such plans.

Finance and Operation Committee

The Finance and Operation Committee is composed of three Outside Directors, Lee, Myoung-Woo (committee chair), Ahn, Dong-Hyun, Bahk, Byong-Won and two Inside Directors, Yoon, Dong-Jun and Lee, Young-Hoon. This committee is an operational committee that oversees decisions with respect to finance and operational matters, including making assessments with respect to potential capital investments and evaluating prospective capital-raising activities.

Executive Management Committee

The Executive Management Committee is composed of five Inside Directors, Kwon, Oh-Joon (committee chair), Kim, Jin-Il, Yoon, Dong-Jun, Lee, Young-Hoon and Oh, In-Hwan. This committee oversees decisions with respect to our operational and management matters, including review of management’s proposals of new strategic initiatives, as well as deliberation over critical internal matters related to organization structure and development of personnel.

Audit Committee

Under Korean law and our articles of incorporation, we are required to have an Audit Committee. The Audit Committee may be composed of three or more directors; all members of the

Audit Committee must be Outside Directors. Audit Committee members must also meet the applicable independence criteria set forth under the rules and regulations of the Sarbanes-Oxley Act of 2002. Members of the Audit Committee are elected by the shareholders at the ordinary general meeting of shareholders. We currently have an Audit Committee composed of three Outside Directors. Members of our Audit Committee are Kim, Il-Sup (committee chair), Kim, Joo-Hyun and Sunwoo, Young.

The duties of the Audit Committee include:

engaging independent auditors;

approving independent audit fees;

approving audit andnon-audit services;

reviewing annual financial statements;

reviewing audit results and reports, including management comments and recommendations;

reviewing our system of controls and policies, including those covering conflicts of interest and business ethics; and

examining improprieties or suspected improprieties.

In addition, in connection with general meetings of stockholders, the committee examines the agenda for, and financial statements and other reports to be submitted by, the board of directors at each general meeting of stockholders. Our internal and external auditors report directly to the Audit Committee. The committee holds regular meetings at least once each quarter, and more frequently as needed.

 

engaging independent auditors;

approving independent audit fees;

approving audit and non-audit services;

reviewing annual financial statements;

reviewing audit results and reports, including management comments and recommendations;

reviewing our system of controls and policies, including those covering conflicts of interest and business ethics; and

examining improprieties or suspected improprieties.

In addition, in connection with general meetings of stockholders, the committee examines the agenda for, and financial statements and other reports to be submitted by, the board of directors at each general meeting of stockholders. Our internal and external auditors report directly to the Audit Committee. The committee holds regular meetings at least once each quarter, and more frequently as needed.

Related Party Transactions Committee

The Related Party Transaction Committee is composed of three Outside Directors, Kim, Il-Sup (committee chair), Kim, Joo-Hyun and Sunwoo, Young. This committee reviews related party and other internal transactions and ensures compliance with the Monopoly Regulation and Fair Trade Act.

Item 6.D.Employees

As of December 31, 2014, we had 37,225 employees, including 19,538 persons employed by our subsidiaries, almost all of whom were employed within Korea. Of the total number of employees, approximately 80% are technicians and skilled laborers and 20% are administrative staff. We use subcontractors for maintenance, cleaning and transport activities. We had 34,713 employees, including 16,881 persons employed by our subsidiaries, as of December 31, 2013, and 35,094 employees, including 17,471 persons employed by our subsidiaries, as of December 31, 2012. To improve operational efficiency and increase labor productivity, we plan to reduce the number of our employees in future years through natural attrition. However, we expect the number of persons employed by our subsidiaries in growth industries to increase in the future.

We consider our relations with our work force to be excellent. We have never experienced a work stoppage or strike. Wages of our employees are among the highest of manufacturing companies in Korea. In addition to a base monthly wage, employees receive periodic bonuses and allowances. Base wages are determined annually following consultation between the management and employee representatives, who are currently elected outside the framework of the POSCO labor union. A labor union was formed by our employees in June 1988. Union membership peaked at 19,026 employees at the beginning of 1991, but has steadily declined since then. As of December 31, 2014, only 12 of our employees were members of the POSCO labor union.

In accordance with the National Pension Act of Korea, we contribute an amount equal to 4.5% of an employee’s standard monthly wages, and each employee contributes 4.5% of his or her standard monthly wages, into his or her personal pension account. Our employees, including executive officers as well as non-executive employees, are subject to a pension insurance system, under which we make monthly contributions to the pension accounts of the employees, and upon retirement, such employees are paid from their pension accounts. Prior to 2011, our executive and non-executive employees were subject to a lump-sum severance payment system, under which they were entitled to receive a lump-sum severance payment upon termination of their employment, based on their length of service and salary level at the time of termination. Starting in 2011, in accordance with the Korean Employee Retirement Income Security Act, we replaced such lump-sum severance payment system with our current pension insurance system in the form of either a defined benefit plan or a defined contribution plan, with a total unfunded portion of Won 125 billion as of December 31, 2014. Our employees have the option of choosing either the defined benefit plan or the defined contribution plan. Lump-sum severance amounts previously accrued prior to our adoption of the current pension insurance system continue to remain payable. We also provide a wide range of fringe benefits to our employees, including housing, housing loans, company-provided hospitals and schools, a company-sponsored pension program, an employee welfare fund, industrial disaster insurance, and cultural and athletic facilities.

As of December 31, 2014, our employees owned, through our employee stock ownership association, approximately 0.001% of our common stock in their association accounts and 1.84%

As of December 31, 2017, we had 32,287 employees, including 15,232 persons employed by our subsidiaries. Of the total number of employees, approximately 80% are technicians and skilled laborers and 20% are administrative staff. We use subcontractors for maintenance, cleaning and transport activities. We had 31,768 employees, including 15,184 persons employed by our subsidiaries, as of December 31, 2016, and 37,327 employees, including 17,282 persons employed by our subsidiaries, as of December 31, 2015.

We consider our relations with our work force to be good. We have never experienced a work stoppage or strike. Wages of our employees are among the highest of manufacturing companies in Korea. In addition to a base monthly wage, employees receive periodic bonuses and allowances. Base wages are determined annually following consultation between the management and employee representatives, who are currently elected outside the framework of the POSCO labor union. A labor union was formed by our employees in June 1988. As of December 31, 2017, 10 of our employees were members of the POSCO labor union.

In accordance with the National Pension Act of Korea, we contribute an amount equal to 4.5% of an employee’s standard monthly wages, and each employee contributes 4.5% of his or her standard monthly wages, into his or her personal pension account. Our employees, including executive officers as well asnon-executive employees, are subject to a pension insurance system, under which we make monthly contributions to the pension accounts of the employees, and upon retirement, such employees are paid from their pension accounts. Prior to 2011, our executive andnon-executive employees were subject to alump-sum severance payment system, under which they were entitled to receive alump-sum severance payment upon termination of their employment, based on their length of service and salary level at the time of termination. Starting in 2011, in accordance with the Korean Employee Retirement Income Security Act, we replaced suchlump-sum severance payment system with our

current pension insurance system in the form of either a defined benefit plan or a defined contribution plan. Our employees have the option of choosing either the defined benefit plan or the defined contribution plan. See Note 21 of Notes to Consolidated Financial Statements.Lump-sum severance amounts previously accrued prior to our adoption of the current pension insurance system continue to remain payable. We also provide a wide range of fringe benefits to our employees, including housing, housing loans,company-provided hospitals and schools, acompany-sponsored pension program, an employee welfare fund, industrial disaster insurance, and cultural and athletic facilities.

As of December 31, 2017, our employees owned, through our employee stock ownership association, approximately 1.72% of our common stock in their employee accounts.

Item 6.E.  Share Ownership

Common Stock

The persons who are currently our Directors or executive officers held, as a group, 18,593 common shares as of March 31, 2018, the most recent practicable date for which this information is available. The table below shows the ownership of our common shares by our Directors and executive officers.

Name

Item 6.E.  Share OwnershipNumber of
Common Shares

Common StockKwon,Oh-Joon

2,448

The persons who are currently our Directors or executive officers held, as a group, 20,586 common shares as of April 22, 2015, the most recent practicable date for which this information is available. The table below shows the ownership of our common shares by our Directors and executive officers.Noh,Min-Yong

768

Kim,Hag-Dong

Kwon, Oh-Joon

1,620697

Oh,In-Hwan

690

Yu, Seong

666

Park,Yong-Kyu

611

Kim,Sun-Koo

595

Lee,Ki-Ho

574

Chang,In-Hwa

531

KwakJeong-Shik

530

Kim,Soon-Ki

528

Choi, Joo

527

Jung,Hae-Seong

450

Jeong, Tak

403

Yoo,Byeong-Og

401

Kim,Jhi-Yong

385

Lee,Yu-Kyung

337

Kim,Gyo-Sung

321

Lee,Pil-Jong

315

Yi,Sang-Ho

312

Lee,Jong-Sub

303

Lee,Eun-Seok

301

Kim,Min-Chul

297

Won,Hyung-Il

288

Kim,Dong-Ho

287

Lee,Duk-Lak

275

Oh,Hyoung-Soo

273

Chon,Jung-Son

262

Cho,Il-Hyun

236

Kim,Gwang-Soo

235

Min,Jung-Ki

226

Park, Hyeon

225

Lee,Sang-Hyeon

220

Lim,Seung-Kyu

220

Choo,Se-Don

217

Bae,Chul-Min

210

Yang,Weon-Jun

204

An,Geun-Sik

190

Kim,Jong-Sang

176 

Park, Joo-Chul

680

Lee, Hoo-Geun

672

Park, Yong-Gyu

630

Yoon, Dong-Jun

581

Yim, Chang-Hee

509

Song, Sebin

500

Lee, Yun-Yong

494

Min, Kyung-Zoon

470

Kim, Jeong-Sik

464

Jeong, Chul-Gyu

450

Park, Sung-Ho

446

Kim, Hak-Yong

438

Kwon, Woo-Taeck

433

Nam, Sik

401

Lee, Tae-Ju

377

Kim, Hag-Dong

375

Kim, Hong-Soo

371

Kim, Sun-Koo

358

Ko, Suk-Bum

350

Shin, Chae-Chol

350

Kim, Kwang Soo

344

Yang, Seong-Sik

343

Lee, Chang-Sun

340

Lee, Woo Kyu

336

Kim, Dong-Ho

330

Name

Number of
Common Shares
 

Kim,Jeoung-Su

158

Lee,Si-Woo

156

Kim,Bok-Tae

149

Suh,In-Shik

140

Chun,Sung-Lae

138

Chun,Myung-Sik

128

Bae,Jae-Tak

126

Han,Sung-Hee

124

Yun,Yang-Su

112

Hwangbo, Won

107

Lee, Jeon-Hyeok

89

Kim,Ki-Soo

77

Kim, Sang-Gyun

76

Song,Yong-Sam

Yi, Sang-Ho

330

Lee, Eun-Seok

320

Han, Chan-Hee

320

Kim, Jin-Il

300

Kim, Soon-Ki

300

Yu, Seong

298

Yang, Weon-Jun

293

Cho, Il-Hyun

281

Kim, Jhi-Yong

273

Yoo, Byeong-Og

265

Choi, Joo

264

Kang, Seog-Beom

264

Lee, Jong-Seob

261

An, Tong-Il

260

Park, Young-Kwan

255

Lee, Young-Woo

252

Kwak, Jeong-Shik

219

Kim, Gyo-Sung

198

Chon, Jung-Son

194

Park, Hyeon

193

Lee, Young-Hoon

178

Yi, Kyung-Jo

160

Oh, In-Hwan

150

Son, Chang-Hwan

144

Shin, Geon

144

Moon, Hee-Kyung

143

Choi, Jong-Jin

141

Lim, Seung-Kyu

138

Chang, In-Hwa

130

Kim, Jun-Hyung

129

Chin, Kwang-Geun

122

Choo, Se-Don

116

Cho, Chung-Myong

100

Kim, Il-Sup

100

Hong, Moon-Hi

89

Jeong, Tak

80

Cho, Yong-Doo

80

Lee, Won-Hwi

78

Min, Jung Ki

77

Oh, Sung-Chel

59

Choi, Seung-Duk

50

Noh, Min-Yong

50

Yun, Han-Kuen

36

Kim, Gwang-Soo

27

Lee, Sang-Hyeon

25

Ha, Dae-Ryong

14

Lee, Duk-Lak

12

Bang, Gil-Ho

12

Jung, Dongchang

Han, Sung-Hee

Shin, Hak Kyun

Park, Mi Hwa

Yoon, Tae-Yang

Jeong, Ki Seop

Won, Hyung Il

Chon, Uong

Lee, Myoung-Woo

Sunwoo, Young

Ahn, Dong-Hyun

Bahk, Byong-Won

Kim, Joo-Hyun

Lee,Jae-Young


60

36


Choi,Yong-Jun

27

Choi,Hyeon-Soo

25

Choi,In-Yong

25

Lee,Sang-Chun

25

Han, Hyung-Chul

18

Jung,Kyu-Jin

18

Yoon,Duk-Il

16

Lee,Baik-Hee

14

Kim,Dong-Yeong

11

Lee,Sang-Ho

4

Total

18,593 
  

 

 

 

Total

20,586

Stock Options

With respect to the options granted, we may elect either to issue shares of common stock, distribute treasury stock or to pay in cash the difference between the exercise and the market price at the date of exercise. The options may be exercised by a person who has continued employment with POSCO for two or more years from the date on which the options are granted. Expiration date of options is seven years from the date on which the options are granted. All of the stock options below relate to our common stock.

At the annual shareholders’ meeting held in February 2006, our shareholders elected to terminate the stock option program. Stock options granted prior to this meeting remain valid and outstanding pursuant to the articles of incorporation in effect at the time of the issuance of the stock option. Currently, there are no outstanding exercisable stock options. The following table sets forth information regarding the stock options we have granted to our current Directors and executive officers as of April 30, 2015.

  Grant Date  Exercise Period  Exercise
Price
  Granted
Options
  Exercised
Options
  Exercisable
Options
 

Director

  From  To     

Kwon, Oh-Joon

  April 26, 2003    4/27/2005    4/26/2010    102,900    9,604    9,604    0  

Kim, Jin-II

  April 25, 2003    4/27/2005    4/26/2010    102,900    9,604    9,604    0  

Item 7.  Major Shareholders and Related Party Transactions

Item 7.A.  Major Shareholders

The following table sets forth certain information relating to the shareholders of our common stock issued as of December 31, 2014.

Shareholders

  Number of
Shares
Owned
   Percentage 

National Pension Service

   7,203,493     8.26

Nippon Steel & Sumitomo Metal Corporation (1)

   4,394,712     5.04  

Kingdom of Saudi Arabia

   2,109,593     2.42  

Hyundai Heavy Industries Co., Ltd. and subsidiaries

   1,319,560     1.51  

Pohang University of Science and Technology

   1,905,000     2.18  

KB Financial Group Inc. and subsidiaries

   1,847,438     2.12  

Directors and executive officers as a group

   22,755     0.03  

Public(2)

   61,190,477     70.18  

POSCO (held in the form of treasury stock)

   7,193,807     8.25  
  

 

 

   

 

 

 

Total issued shares of common stock

   87,186,835     100.00
  

 

 

   

 

 

 

Stock Options

With respect to the options granted, we may elect either to issue shares of common stock, distribute treasury stock or to pay in cash the difference between the exercise and the market price at the date of exercise. The options may be exercised by a person who has continued employment with POSCO for two or more years from the date on which the options are granted. Expiration date of options is seven years from the date on which the options are granted. All of the stock options below relate to our common stock.

At the annual shareholders’ meeting held in February 2006, our shareholders elected to terminate the stock option program. Stock options granted prior to this meeting remain valid and outstanding pursuant to the articles of incorporation in effect at the time of the issuance of the stock option. Currently, there are no outstanding exercisable stock options. The following table sets forth information regarding the stock options we have granted to our current Directors and executive officers.

     Exercise Period             

Director

 Grant Date  From  To  Exercise
Price
  Granted
Options
  Exercised
Options
  Exercisable
Options
 

Kwon,Oh-Joon

  April 26, 2003   4/27/2005   4/26/2010   102,900   9,604   9,604   0 

Kim,Jin-II

  April 25, 2003   4/27/2005   4/26/2010   102,900   9,604   9,604   0 

Item 7.  Major Shareholders and Related Party Transactions

Item 7.A.  Major Shareholders

The following table sets forth certain information relating to the shareholders of our common stock issued as of December 31, 2017.

Shareholders

  Number of Shares
Owned
   Percentage 

National Pension Service

   9,660,885    11.08

Nippon Steel & Sumitomo Metal Corporation(1)

   2,894,712    3.32 

BlackRock Institutional Trust Company, N.A.

   2,483,875    2.85 

Government of Singapore Investment Corp. Private Limited

   1,934,312    2.22 

KB Financial Group Inc. and subsidiaries

   1,919,361    2.20 

Directors and executive officers as a group

   18,593    0.02 

Public(2)

   61,087,866    70.07 

POSCO (held in the form of treasury stock)

   7,187,231    8.24 
  

 

 

   

 

 

 

Total issued shares of common stock

   87,186,835    100.00
  

 

 

   

 

 

 

 

 

(1)Held in the form of ADRs.

(2)Includes ADRs.

As of December 31, 2014, there were 12,905,615 shares of common stock outstanding in the form of ADRs, representing 14.80% of the total issued shares of common stock.ADRs.

(2)Includes ADRs.

As of December 31, 2017, there were 9,210,073 shares of common stock outstanding in the form of ADRs, representing 10.6% of the total issued shares of common stock.

Item 7.B.  Related Party Transactions

We have issued guarantees in favor of affiliated and related companies, and we have also engaged in various transactions with our subsidiaries and affiliated companies. See Notes 37 and 38 of Notes to Consolidated Financial Statements.

As of December 31, 2015, 2016 and 2017, we had no loans outstanding to our executive officers and Directors.

Item 7.C.  Interests of Experts and Counsel

Not applicable

Item 8.  Financial Information

Item 8.A.  Consolidated Statements and Other Financial Information

See “Item 18. Financial Statements” and pages F-1 through F-125.

We have issued guarantees of Won 9,140 billion as of December 31, 2012, Won 9,704 billion as of December 31, 2013 and Won 10,260 billion as of December 31, 2014, in favor of affiliated and related companies. We have also engaged in various transactions with our subsidiaries and affiliated companies. See Notes 37 and 38 of Notes to Consolidated Financial Statements.

As of December 31, 2012, 2013 and 2014, we had no loans outstanding to our executive officers and Directors.

Item 7.C.  Interests of Experts and Counsel

Not applicable

Item 8.  Financial Information

Item 8.A.  Consolidated Statements and Other Financial Information

See “Item 18. Financial Statements” and pages F-1 through F-113.

Legal Proceedings

In recent years,As a steel producer with global sales and operations, we have become subject to a number of anti-dumping dutiesare involved in trade remedy proceedings in markets worldwide, including in the United States, Canada, India, Indonesia, Australia, Thailand, Brazil, TaiwanStates. We proactively participate in and Malaysiaplan for such proceedings to minimize any adverse effects and safeguard dutiesassociated risks. While there has been an increase in Thailand. We are also subject to athe number of on-going anti-dumpingtrade cases in recent years, and safeguard investigationsan increased focus on trade issues by government officials, all such cases have been product andmarket-specific, and thus have been limited in Malaysia, the European Union, Indonesia, India and Thailand. In addition, the Mexican government initiated an anti-dumping investigation in October 2012 relatingscope relative to our exportsglobal sales and operations. We continue to carefully monitor developments with respect to trade remedy policy in all markets in which we participate and, where necessary, vigorously defend our rights through litigation before tribunals such as the U.S. Court of cold rolled steel products, and the investigation was suspended until 2018 on condition that we comply with supply undertakings.International Trade. Our products that are subject toanti-dumping, safeguard or countervailing duty

proceedings in the aggregate currently do not account for a material portion of our total sales, and such proceedings have not had a material adverse impact on our business and operations in recent years. However, there can be no assurance that increases in, or new impositions of,anti-dumping duties, safeguard duties, countervailing duties, quotas or tariffs on our exports of products abroad may not have a material adverse impact on our exports in the future. See “Item 4. Information on the Company — Item 4.B. Business Overview — Markets — Exports.”

During the course of its internal audit in July 2014, POSCO E&C, one of our subsidiaries, discovered certain officers’ use, for unauthorized and unidentified purposes, of approximately Won 10 billion belonging to POSCO E&C’s project management office and its subsidiary in Vietnam between 2009 to 2012, which related to certain construction projects in Vietnam. POSCO E&C, after such discovery through its internal audit, undertook an internal investigation over other projects for further assessment, strengthened its internal control procedures, such as segregating duties and enhancing monitoring procedures, to ensure similar cases do not arise and reprimanded the responsible employees, including dismissal of the responsible officers. In March 2015, the prosecutors’ office of Korea commenced an investigation into such use of funds after POSCO E&C’s internal audit result was publicized by the press. We are unable to predict the outcome of such investigation, which is currently on-going.

In 2012, the Korea Fair Trade Commission imposed a total fine of Won 118108.6 billion on us and POSCO Coated & Color Steel Co., Ltd. (“POSCO Coated & Color Steel”), our consolidated subsidiary, for alleged antitrust violations including price fixingin Korea relating to galvanized steel sheets and color sheets. Subsequent to paying such fines, we and POSCO Coated & Color Steel each filed for judicial review of galvanization surcharge rates.such fines in the Seoul High Court in February 2013. In July 2015, the Seoul High Court ruled in our favor for reimbursement of the fine of Won 89.3 billion imposed on us, which was subsequently appealed by the Korea Fair Trade Commission to the Supreme Court of Korea. The Supreme Court of Korea subsequently remanded the proceeding to the Seoul High Court in November 2016, which outcome is currently pending. We intend to continue to vigorously defend against such administrative action and filed for judicial review of such administrative action inaction. In January 2016, the Seoul High Court on February 28, 2013,ruled against POSCO Coated & Color Steel with respect to the fine of Won 19.3 billion imposed against it. POSCO Coated & Color Steel appealed with respect to Won 3.0 billion of such fine, which ruling is currently pending.it lost in November 2016.

In April 2012, Nippon Steel & Sumitomo Metal Corporation filed civil lawsuits in Japan relating to claims of alleged improper acquisition and infringement of intellectual property rights related to production of grain oriented electrical steel sheets. Nippon Steel & Sumitomo Metal Corporation is seeking an injunction to prohibit us from manufacturing and selling the allegedly infringing products as well as seeking compensation of Yen 99 billion. We are vigorously defending against such claims. Since we do not believe that we have any present obligations, we have not recorded any provision for this lawsuit.

In May 2002, Industrial Development Bank of India Limited filed lawsuitsbrought a suit against Daewoo International Corporation (currently, POSCO Daewoo), Daewoo Motors India Ltd., Daewoo Co., Ltd.Corporation and Daewoo EngineeringConstruction & ConstructionEngineering Co., Ltd. in the India Delhi Mumbai Court, seeking judgment relating toregarding its loans to Daewoo Motors

India Ltd. guaranteed by Daewoo Co., Ltd. (predecessor of Daewoo International)POSCO Daewoo). The total claim amount of such lawsuits is Won 77 billion, and POSCO Daewoo International recorded provision of Won 2320 billion relating to its portion of the guarantee.guarantee alleged by Industrial Development bank of India. Daewoo International Corporation challenged the jurisdiction of the court in 2003. The outcome of such lawsuits remains uncertain and Daewoo International’sPOSCO Daewoo’s provision is classified as anon-current liability as of December 31, 2014.2017.

Except as described above, we are not involved in any pending or threatened legal or arbitration proceedings that may have, or have had during the last 12 months, a material adverse effect on our results of operations or financial position.

Dividends

The amount of dividends paid on our common stock is subject to approval at the annual general meeting of shareholders, which is typically held in February or March of the following year. In addition to our annual dividends, our board of directors is authorized to declare and distribute interimquarterly dividends once a year under our articles of incorporation. If we decide to pay interimquarterly dividends, our articles of incorporation authorize us to pay them in cash shares or other form of property to the shareholders of record as of the end of March, June 30and September of the relevant fiscal year. We may pay cash dividends out of retained earnings that have not been appropriated to statutory reserves.

The table below sets out the annual dividends declared on the outstanding common stock to shareholders of record on December 31 of the years indicated and the interim dividends (including quarterly dividends starting in the second half of 2016), declared on the outstanding common stock to applicable shareholders of record on June 30 of the years indicated. A total of 87,186,835 shares of common stock were issued as of December 31, 2014.2017. Of these shares and as of such date, 79,993,02879,999,604 shares were outstanding and 7,193,8077,187,231 shares were held by us in treasury. The annual dividends set out for each of the years below were paid in the immediately following year.

 

Year

  Annual Dividend per
Common Stock to
Public
  Interim Dividend
per Common Stock
  Average Total
Dividend per
Common Stock
   Annual Dividend per
Common Stock to
Public
  Interim Dividend per
Common Stock
  Average Total
Dividend per
Common Stock
 
  (In Won)   (In Won) 

2010

  7,500  2,500   10,000  

2011

  7,500  2,500   10,000  

2012

  6,000  2,000   8,000  

2013

  6,000  2,000   8,000    6,000  2,000   8,000 

2014

  6,000  2,000   8,000    6,000  2,000   8,000 

2015

  6,000  2,000   8,000 

2016

  5,750  2,250   8,000 

2017

  3,500  4,500   8,000 

Owners of the ADSs are entitled to receive any dividends payable in respect of the underlying shares of common stock.

Historically, we have paid to holders of record of our common stock an annual dividend. However, we can give no assurance that we will continue to declare and pay any dividends in the future.

Item 8.B.Significant Changes

Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our Consolidated Financial Statements included in this annual report.

Item 9. The Offer and Listing

Item 9.A. Offer and Listing Details

Market Price Information

Notes

Not applicable

Common Stock

The principal trading market for our common stock is the KRX KOSPI Market. Our common stock, which is in registered form and has a par value of Won 5,000 per share, has been listed on the first section of the KRX KOSPI Market since June 1988 under the identifying code 005490. The table below shows the high and low trading prices and the average daily volume of trading activity on the KRX KOSPI Market for our common stock.

 

  Price   Average Daily
    Trading
Volume    
   Price   Average Daily
Trading Volume
 
  High   Low     High   Low   
  (In Won)   (Number of
Shares)
   (In Won)   (Number of
Shares)
 

2010

      

First Quarter

   625,000     516,000     255,173  

Second Quarter

   560,000     434,500     343,367  

Third Quarter

   524,000     460,500     257,784  

Fourth Quarter

   538,000     448,500     299,776  

2011

      

First Quarter

   517,000     450,500     345,785  

Second Quarter

   565,000     421,000     282,070  

Third Quarter

   480,000     358,500     277,876  

Fourth Quarter

   351,000     308,000     235,063  

2012

      

First Quarter

   424,000     376,000     198,239  

Second Quarter

   385,000     351,500     169,135  

Third Quarter

   391,000     353,500     159,508  

Fourth Quarter

   367,000     308,000     202,895  

2013

            

First Quarter

   371,000     321,500     169,232     371,000    321,500    169,232 

Second Quarter

   326,000     292,500     182,277     326,000    292,500    182,277 

Third Quarter

   340,000     292,500     225,474     340,000    292,500    225,474 

Fourth Quarter

   338,000     307,500     183,055     338,000    307,500    183,055 

2014

            

First Quarter

   322,000     272,500     222,494     322,000    272,500    222,494 

Second Quarter

   317,000     285,500     170,778     317,000    285,500    170,778 

Third Quarter

   361,000     291,500     201,548     361,000    291,500    201,548 

Fourth Quarter

   321,500     275,500     191,916     321,500    275,500    191,916 

2015

      

First Quarter

   290,500    242,500    211,737 

Second Quarter

   269,000    214,500    256,415 

Third Quarter

   229,000    168,500    285,052 

Fourth Quarter

   193,000    162,000    380,436 

2016

      

First Quarter

   222,000    156,000    394,379 

Second Quarter

   249,000    194,000    403,338 

Third Quarter

   238,500    200,500    288,876 

Fourth Quarter

   282,500    226,000    371,851 

2017

      

First Quarter

   296,500    244,000    321,295 

Second Quarter

   287,500    261,500    271,203 

Third Quarter

   345,000    291,000    233,349 

Fourth Quarter

   345,000    307,500    243,542 

October

   321,500     300,000     190,755     344,000    313,000    249,145 

November

   318,500     290,500     243,414     335,000    307,500    253,629 

December

   307,000     275,500     144,031     345,000    326,000    227,144 

2015

      

2018

      

First Quarter

   290,500     242,500     211,737     395,000    321,500    241,496 

January

   290,500     252,500     201,172     395,000    339,000    236,977 

February

   277,000     254,000     175,370     395,000    352,000    217,743 

March

   278,000     242,500     249,924     358,000    321,500    266,589 

Second Quarter (through April 17)

   256,000     236,000     248,874  

April (through April 17)

   256,000     236,000     248,874  

Second Quarter (through April 26)

   359,000    313,000    238,002 

April (through April 26)

   359,000    313,000    238,002 

ADSs

Our common stock is also listed on the New York Stock Exchange, the London Stock Exchange and the Tokyo Stock Exchange in the form of ADSs. The ADSs have been issued by Citibank, N.A. as ADR depositary and are listed on the New York Stock Exchange under the symbol “PKX.” One ADS representsone-fourth of one share of common stock. As of December 31, 2014, 51,622,4602017, 36,840,292 ADSs representing 12,905,6159,210,073 common shares were outstanding, representing 14.80%10.6% of total issued shares of common stock.

The table below shows the high and low trading prices and the average daily volume of trading activity on the New York Stock Exchange for our ADSs.

 

  Price   Average Daily
Trading Volume
   Price   Average Daily
Trading Volume
 
  High   Low     High   Low   
  (In US$)   (Number of
ADSs)
   (In US$)   (Number of
ADSs)
 

2010

      

First Quarter

   140.10     108.23     429,700  

Second Quarter

   124.83     88.78     559,765  

Third Quarter

   113.98     94.67     344,102  

Fourth Quarter

   120.47     95.34     376,905  

2011

      

First Quarter

   117.57     100.50     403,646  

Second Quarter

   116.83     95.86     348,986  

Third Quarter

   112.41     76.01     344,454  

Fourth Quarter

   89.16     72.51     366,073  

2012

      

First Quarter

   94.06     80.28     268,347  

Second Quarter

   85.09     74.82     262,176  

Third Quarter

   85.55     77.21     190,260  

Fourth Quarter

   82.97     71.85     187,932  

2013

            

First Quarter

   86.69     72.41     258,130     86.69    72.41    258,130 

Second Quarter

   74.82     63.23     252,261     74.82    63.23    252,261 

Third Quarter

   78.75     64.29     186,347     78.75    64.29    186,347 

Fourth Quarter

   80.40     72.19     177,415     80.40    72.19    177,415 

2014

            

First Quarter

   75.88     64.03     298,320     75.88    64.03    298,320 

Second Quarter

   76.56     69.60     223,292     76.56    69.60    223,292 

Third Quarter

   86.37     71.97     232,861     86.37    71.97    232,861 

Fourth Quarter

   75.11     63.61     361,829     75.11    63.61    361,829 

2015

      

First Quarter

   66.00    54.66    305,147 

Second Quarter

   61.95    48.17    279,028 

Third Quarter

   51.03    34.48    475,594 

Fourth Quarter

   42.62    33.73    455,010 

2016

      

First Quarter

   47.61    32.26    388,580 

Second Quarter

   54.85    41.06    412,522 

Third Quarter

   53.97    42.98    297,820 

Fourth Quarter

   59.54    49.95    326,351 

2017

      

First Quarter

   66.45    50.60    328,362 

Second Quarter

   63.44    56.58    279,798 

Third Quarter

   77.62    64.12    220,556 

Fourth Quarter

   79.20    69.47    164,596 

October

   75.11     69.81     349,342     75.41    69.47    177,025 

November

   70.86     66.92     349,029     75.69    70.14    157,742 

December

   69.07     63.51     385,939     79.20    75.59    158,122 

2015

      

2018

      

First Quarter

   66.00     54.66     305,147    ��92.78    74.27    247,054 

January

   66.00     58.23     294,290     92.78    82.35    289,208 

February

   63.41     58.36     345,571     90.69    79.77    245,073 

March

   63.43     54.66     280,105     82.72    74.27    206,693 

Second Quarter (through April 20)

   58.67     53.65     304,605  

April (through April 20)

   58.67     53.65     304,605  

Second Quarter (through April 26)

   83.12    73.05    191,012 

April (through April 26)

   83.12    73.05    191,012 

Item 9.B.Plan of Distribution

Not applicable

Item 9.C.Markets

The Korean Securities Market

On January 27, 2005, the Korea Exchange was established pursuant to the Korea Securities and Futures Exchange Act by consolidating the Korea Stock Exchange, the Korea Futures Exchange, the KOSDAQ Stock Market, Inc., or the KOSDAQ, and the KOSDAQ Committee of the Korea Securities Dealers Association, which had formerly managed the KOSDAQ. There are three different markets operated by the Korea Exchange: the KRX KOSPI Market, the KRX KOSDAQ Market, and the KRX Derivatives Market. The Korea Exchange has two trading floors located in Seoul, one for the KRX KOSPI Market and one for the KRX KOSDAQ Market, and one trading floor in Busan for the KRX Derivatives Market. The Korea Exchange is a limited liability company, the shares of which are held by (i) investment brokers and investment dealers that were formerly members of the Korea Futures

Exchange or the Korea Stock Exchange and (ii) the stockholders of the KOSDAQ. Currently, the Korea Exchange is the only stock exchange in Korea and is operated by membership, having as its members most of the Korean investment brokers and investment dealers and some Korean branches of foreign investment brokers and investment dealers.

According to data published by the Korea Exchange, as of December 31, 2014,2017, the aggregate market value of equity securities listed on the KRX KOSPI Market and the KRX KOSDAQ Market was approximately Won 1,3351,889 trillion, and the average daily trading volume of equity securities for 20142017 was approximately 6321,076 million shares with an average transaction value of Won 5,9539,014 billion. The Korea Exchange has the power in some circumstances to suspend trading in the shares of a given company or tode-list a security pursuant to the Regulation on Listing on the Korea Exchange. The Korea Exchange also restricts share price movements. All listed companies are required to file accounting reports annually,semi-annually and quarterly and to release immediately all information that may affect trading in a security.

The Government has in the past exerted, and continues to exert, substantial influence over many aspects of the private sector business community that can have the intention or effect of depressing or boosting the market. In the past, the Government has informally both encouraged and restricted the declaration and payment of dividends, induced mergers to reduce what it considers excess capacity in a particular industry and induced private companies to offer publicly their securities.

The Korea Exchange publishes the Korea Composite Stock Price Index, or KOSPI, every ten seconds, which is an index of all equity securities listed on the Korea Exchange. On January 1, 1983, the method of computing KOSPI was changed from the Dow Jones method to the aggregate value method. In the new method, the market capitalizations of all listed companies are aggregated, subject to certain adjustments, and this aggregate is expressed as a percentage of the aggregate market capitalization of all listed companies as of the base date, January 4, 1980.

Movements in KOSPI are set out in the following table together with the associated dividend yields and price earnings ratios.table.

 

                   Period Average 

Year

  Opening   High   Low   Closing   Dividend
Yield (1)(2)
(Percent)
   Price
Earnings
Ratio (2)(3)
 

1986

   161.40     279.67     153.85     272.61     4.3     7.6  

1987

   264.82     525.11     264.82     525.11     2.6     10.9  

1988

   532.04     922.56     527.89     907.20     2.4     11.2  

1989

   919.61     1,007.77     844.75     909.72     2.0     13.9  

1990

   908.59     928.82     566.27     696.11     2.2     12.8  

1991

   679.75     763.10     586.51     610.92     2.6     11.2  

1992

   624.23     691.48     459.07     678.44     2.2     10.9  

1993

   697.41     874.10     605.93     866.18     1.6     12.7  

1994

   879.32     1,138.75     855.37     1,027.37     1.2     16.2  

1995

   1,027.45     1,016.77     847.09     882.94     1.2     16.4  

1996

   882.29     986.84     651.22     651.22     1.3     17.8  

1997

   647.67     792.29     350.68     376.31     1.5     17.0  

1998

   374.41     579.86     280.00     562.46     1.9     10.8  

1999

   565.10     1,028.07     498.42     1,028.07     1.1     13.5  

2000

   1,028.33     1,059.04     500.60     504.62     1.6     18.6  

2001

   503.31     704.50     468.76     693.70     2.0     14.2  

2002

   698.00     937.61     584.04     627.55     1.4     17.8  

2003

   633.03     822.16     515.24     810.71     2.2     10.9  

2004

   821.26     936.06     719.59     895.92     2.1     15.8  

2005

   896.00     1,379.37     870.84     1,379.37     1.7     11.0  

2006

   1,383.32     1,464.70     1,203.86     1,434.46     1.7     11.4  

2007

   1,438.89     2,015.48     1,345.08     1,897.13     1.4     16.8  

2008

   1,891.45     1,888.88     938.75     1,124.47     2.6     8.9  

2009

   1,132.87     1,718.88     1,018.81     1,682.77     1.2     23.7  

2010

   1,681.71     2,052.97     1,552.79     2,051.00     1.1     19.0  

2011

   2,063.69     2,231.47     1,644.11     1,825.12     1.3     13.1  

2012

   1,831.69     2,057.28     1,758.99     1,997.05     1.3     12.9  

2013

   2,031.10     2,059.58     1,780.63     2,011.34     1.1     15.0  

2014

   2,013.11     2,093.08     1,881.73     1,915.19     1.1     15.3  

2015 (through April 17)

   1,914.24     2,144.76     1,876.27     2,143.50     1.0     17.9  

Year

  Opening   High   Low   Closing 

1986

   161.40    279.67    153.85    272.61 

1987

   264.82    525.11    264.82    525.11 

1988

   532.04    922.56    527.89    907.20 

1989

   919.61    1,007.77    844.75    909.72 

1990

   908.59    928.82    566.27    696.11 

1991

   679.75    763.10    586.51    610.92 

1992

   624.23    691.48    459.07    678.44 

1993

   697.41    874.10    605.93    866.18 

1994

   879.32    1,138.75    855.37    1,027.37 

1995

   1,027.45    1,016.77    847.09    882.94 

1996

   882.29    986.84    651.22    651.22 

1997

   647.67    792.29    350.68    376.31 

1998

   374.41    579.86    280.00    562.46 

1999

   565.10    1,028.07    498.42    1,028.07 

2000

   1,028.33    1,059.04    500.60    504.62 

2001

   503.31    704.50    468.76    693.70 

2002

   698.00    937.61    584.04    627.55 

2003

   633.03    822.16    515.24    810.71 

2004

   821.26    936.06    719.59    895.92 

2005

   896.00    1,379.37    870.84    1,379.37 

2006

   1,383.32    1,464.70    1,203.86    1,434.46 

2007

   1,438.89    2,015.48    1,345.08    1,897.13 

2008

   1,891.45    1,888.88    938.75    1,124.47 

2009

   1,132.87    1,718.88    1,018.81    1,682.77 

2010

   1,681.71    2,052.97    1,552.79    2,051.00 

2011

   2,063.69    2,231.47    1,644.11    1,825.12 

2012

   1,831.69    2,057.28    1,758.99    1,997.05 

2013

   2,031.10    2,059.58    1,780.63    2,011.34 

2014

   2,013.11    2,093.08    1,881.73    1,915.19 

2015

   1,926.44    2,173.41    1,829.81    1,961.31 

2016

   1,918.76    2,068.72    1,835.28    2,026.46 

2017

   2,026.16    2,557.97    2,026.16    2,467.49 

2018 (through April 26)

   2,479.65    2,598.19    2,363.77    2,475.64 

 

Source:The KRX KOSPI Market

(1)Dividend yields are based on daily figures. Before 1983, dividend yields were calculated at the end of each month. Dividend yields after January 3, 1984 include cash dividends only.

(2)Starting in April 2000, dividend yield and price earnings ratio are calculated based on KOSPI 200, an index of 200 equity securities listed on the KRX KOSPI Market. Starting in April 2000, KOSPI 200 excludes classified companies, companies which did not submit annual reports to the KRX KOSPI Market, and companies which received qualified opinion from external auditors.

(3)The price earnings ratio is based on figures for companies that record a profit in the preceding year.

Shares are quoted “ex-dividend”“ex-dividend” on the first trading day of the relevant company’s accounting period. Since the calendar year is the accounting period for the majority of listed companies, this may account for the drop in KOSPI between its closing level at the end of one calendar year and its opening level at the beginning of the following calendar year.

With certain exceptions, principally to take account of a share being quoted “ex-dividend”“ex-dividend” and “ex-rights,“ex-rights, permitted upward and downward movements in share prices of any category of shares on any day are limited under the rules of the Korea Exchange to 15%30% of the previous day’s closing price of the shares, rounded down as set out below:

 

Previous Day’s Closing Price (Won)

  Rounded
Down
to (Won)
 

Less than 1,000

1

1,000 to less than 5,000

   5 

5,000 to less than 10,000

   10 

10,000 to less than 50,000

   50 

50,000 to less than 100,000

   100 

100,000 to less than 500,000

   500 

500,000 or more

   1,000 

As a consequence, if a particular closing price is the same as the price set by the fluctuation limit, the closing price may not reflect the price at which persons would have been prepared, or would

be prepared to continue, if so permitted, to buy and sell shares. Orders are executed on an auction system with priority rules to deal with competing bids and offers.

Due to deregulation of restrictions on brokerage commission rates, the brokerage commission rate on equity securities transactions may be determined by the parties, subject to commission schedules being filed with the Korea Exchange by the financial investment companies with a brokerage license. In addition, a securities transaction tax of 0.15%0.5% of the sales price will generally be imposed on the transfer of shares or certain securities representing rights to subscribe for shares if traded on the KRX KOSPI Market. An agricultural and fishery special surtax of 0.15% of the sales prices will also be imposed on transfer of these shares and securities on the Korea Exchange. See “Item 10. Additional Information — Item 10.E. Taxation — Korean Taxation.”

The number of companies listed on the KRX KOSPI Market, the corresponding total market capitalization at the end of the periods indicated and the average daily trading volume for those periods are set forth in the following table:

 

   Market Capitalization on the Last
Day of Each Period
   Average Daily Trading Volume, Value 

Year

  Number of
Listed
Companies
   (Billions
of Won)
   (Millions of
US$)(1)
   Thousands
of Shares
   (Millions
of Won)
   (Thousands
of US$)(1)
 

1986

   355    11,994    US$13,924     31,755    32,870    US$38,159  

1987

   389     26,172     33,033     20,353     70,185     88,583  

1988

   502     64,544     94,348     10,367     198,364     289,963  

1989

   626     95,477     140,490     11,757     280,967     414,430  

1990

   669     79,020     110,301     10,866     183,692     256,411  

  Market Capitalization on the Last
Day of Each Period
   Average Daily Trading Volume, Value   Market Capitalization on the
Last Day of Each Period
   Average Daily Trading Volume, Value 

Year

  Number of
Listed
Companies
   (Billions
of Won)
   (Millions of
US$) (1)
   Thousands
of Shares
   (Millions
of Won)
   (Thousands
of US$)(1)
   Number of
Listed
Companies
   (Billions of
Won)
   Thousands of
Shares
   (Millions
of Won)
 

1986

   355   11,994    31,755   32,870 

1987

   389    26,172    20,353    70,185 

1988

   502    64,544    10,367    198,364 

1989

   626    95,477    11,757    280,967 

1990

   669    79,020    10,866    183,692 

1991

   686     73,118     96,107     14,022     214,263     281,629     686    73,118    14,022    214,263 

1992

   688     84,712     107,448     24,028     308,246     390,977     688    84,712    24,028    308,246 

1993

   693     112,665     139,420     35,130     574,048     710,367     693    112,665    35,130    574,048 

1994

   699     151,217     191,730     36,862     776,257     984,223     699    151,217    36,862    776,257 

1995

   721     141,151     182,201     26,130     487,762     629,613     721    141,151    26,130    487,762 

1996

   760     117,370     139,031     26,571     486,834     576,680     760    117,370    26,571    486,834 

1997

   776     70,989     50,162     41,525     555,759     392,707     776    70,989    41,525    555,759 

1998

   748     137,799     114,091     97,716     660,429     546,803     748    137,799    97,716    660,429 

1999

   725     349,504     305,137     278,551     3,481,620     3,039,655     725    349,504    278,551    3,481,620 

2000

   704     188,042     149,275     306,163     2,602,211     2,065,739     704    188,042    306,163    2,602,211 

2001

   689     255,850     192,934     473,241     1,997,420     1,506,237     689    255,850    473,241    1,997,420 

2002

   683     258,681     215,496     857,245     3,041,598     2,533,815     683    258,681    857,245    3,041,598 

2003

   684     355,363     296,679     542,010     2,216,636     1,850,589     684    355,363    542,010    2,216,636 

2004

   683     412,588     395,275     372,895     2,232,109     2,138,445     683    412,588    372,895    2,232,109 

2005

   702     655,075     646,158     467,629     3,157,662     3,114,679     702    655,075    467,629    3,157,662 

2006

   731     704,588     757,948     279,096     3,435,180     3,695,331     731    704,588    279,096    3,435,180 

2007

   745     951,900     1,016,770     363,741     5,539,653     5,917,168     745    951,900    363,741    5,539,653 

2008

   763     576,888     458,758     352,599     3,211,039     2,553,510     763    576,888    352,599    3,211,039 

2009

   770     887,935     762,503     485,657     5,595,552     4,976,859     770    887,935    485,657    5,595,552 

2010

   777     1,141,885     1,006,243     380,859     5,619,768     4,952,210     777    1,141,885    380,859    5,619,768 

2011

   791     1,041,999     904,670     353,760     6,836,146     5,935,185     791    1,041,999    353,760    6,836,146 

2012

   930     1,154,294     1,078,578     486,479     4,823,642     4,507,234     930    1,154,294    486,479    4,823,642 

2013

   777     1,185,974     1,123,720     328,425     3,993,422     3,783,800     777    1,185,974    328,425    3,993,422 

2014

   773     1,192,253     1,084,655     278,081     3,983,580     3,624,072     773    1,192,253    278,081    3,983,580 

2015 (through April 17)

   764     1,266,908     1,163,368     410,425     5,156,786     4,735,341  

2015

   770    1,242,832    455,256    5,351,734 

2016

   779    1,308,440    376,773    4,523,044 

2017

   774    1,605,821    340,457    5,325,760 

2018 (through April 26)

   777    1,653,074    410,528    7,149,356 

 

Source:The Korea Exchange

(1)Converted at the Concentration Base Rate of The Bank of Korea or the Market Average Exchange Rate, as the case may be, at the end of the periods indicated.

The Korean securities markets are principally regulated by the Financial Services Commission and under the regulations set forth in the FSCMA. In JulyAugust 2007, the National Assembly of Korea enacted the FSCMA. The FSCMA, which came into effect on February 4, 2009, comprehensively

regulates the Korean capital markets, the financial investment business (including collective investment businesses and trust businesses) and financial investment products (such as securities and derivatives). The FSCMA imposes restrictions on insider trading and price manipulation, requires specified information to be made available by listed companies to investors and establishes rules regarding margin trading, proxy solicitation, takeover bids, acquisition of treasury shares and reporting requirements for shareholders holding substantial interests. The FSCMA regulates the operation and monitoring of the securities and derivatives markets.

Protection of Customer’s Interest in Case of Insolvency of Investment Brokers or Investment Dealers

Under Korean law, the relationship between a customer and an investment broker or an investment dealer in connection with a securities sell or buy order is deemed to be a consignment and the securities acquired by a consignment agent (i.e., the investment broker or the investment dealer) through such sell or buy order are regarded as belonging to the customer in so far as the customer and the consignment agent’s creditors are concerned. Therefore, in the event of a bankruptcy or reorganization procedure involving an investment broker or an investment dealer, the customer of the investment broker or the investment dealer is entitled to the proceeds of the securities sold by the investment broker or the investment dealer.

When a customer places a sell order with an investment broker or an investment dealer that is not a member of the KRX KOSPI Market or the KRX KOSDAQ Market and this investment broker or investment dealer places a sell order with another investment broker or investment dealer that is a member of the KRX KOSPI Market or the KRX KOSDAQ Market, the customer is still entitled to the proceeds of the securities sold and received by the non- membernon-member company from the member company regardless of the bankruptcy or reorganization of thenon-member company.

Under the FSCMA, the Korea Exchange is obliged to indemnify any loss or damage incurred by a counterparty as a result of a breach by members of the KRX KOSPI Market or the KRX KOSDAQ Market. If an investment broker or an investment dealer that is a member of the KRX KOSPI Market or the KRX KOSDAQ Market breaches its obligation in connection with a buy order, the Korea Exchange is obliged to pay the purchase price on behalf of the breaching member. Therefore, the customer can acquire the securities that have been ordered to be purchased by the breaching member.

When a customer places a buy order with anon-member company and thenon-member company places a buy order with a member company, the customer has the legal right to the securities received by thenon-member company from the member company because the purchased securities are regarded as belonging to the customer in so far as the customer and thenon-member company’s creditors are concerned.

As the cash deposited with an investment broker or an investment dealer is regarded as belonging to the investment broker or investment dealer, which is liable to return the same at the request of its customer, the customer cannot take back deposited cash from the investment broker or the investment dealer if a bankruptcy or rehabilitation procedure is instituted against the investment broker or the investment dealer and, therefore, can suffer from loss or damage as a result. However, in case of the investment broker or the investment dealer’s bankruptcy, liquidation, cancellation of investment broker or investment dealer license or other insolvency events, the Depositor Protection Act provides that the Korea Deposit Insurance Corporation will, upon the request of the investors, pay each investor up to a total of Won 50 million, which shall represent both actual cash deposited and any interest accrued thereon. Pursuant to the FSCMA, as amended, investment brokers or investment dealers are required to deposit the cash received from its customers at the securities finance company established pursuant to the FSCMA.Set-off or attachment of cash deposits by investment brokers or investment dealers is prohibited. The premiums related to this insurance are paid by investment brokers or investment dealers.

Clearance and Settlement

The settlement of trades on the Korea Exchange is required to be handled by a settlement agency of the Korea Exchange. The Korea Securities Depository is the institution commissioned by the Korea Exchange to handle all such settlement of trades. The settlement of trades on the Korea Exchange takes place through a clearance and settlement procedure. The Korea Exchange has adopted the multilateral netting system and carries out the clearance of the trades by netting the sales and purchases of each Korea Securities Depository participant. The Korea Exchange is required to provide the daily net settlement results of the trades to the Korea Securities Depository one business day after the day of the sale and purchase contract. The Korea Securities Depository then handles settlement of the securities and the funds based on the information received from the Korea Exchange. The securities are settled throughbook-entry changes in the accounts of Korea Securities Depository participants and the funds are settled by transfer to an account at a bank designated by the Korea Securities Depository. Settlement of trades is generally required to take place on the third day following the day of the sale and purchase contract.

Item 9.D.Selling Shareholders

Not applicable

Item 9.E.Dilution

Not applicable

Item 9.F.Expenses of the Issuer

Not applicable

Item 10.  Additional Information

Item 10.A.  Share Capital

Currently, our authorized share capital is 200,000,000 shares, which consists of shares of common stock, par value Won 5,000 per share (“Common Shares”) and shares ofnon-voting stock, par value Won 5,000 per share (“(“Non-Voting Preferred Shares”). OurNon-Voting Preferred Shares have a preferential right to dividend payments. Common Shares andNon-Voting Preferred Shares together are referred to as “Shares.” Under our articles of incorporation, we are authorized to issueNon-Voting Preferred Shares up to the limit prescribed by applicable law, the aggregate of which currently isone-quarter of our total issued and outstanding capital stock. As of December 31, 2014,2017, 87,186,835 Common Shares were issued, of which 7,193,8077,187,231 shares were held by us in treasury. We have never issued anyNon-Voting Preferred Shares. All of the issued and outstanding Common Shares arefully-paid andnon-assessable and are in registered form. We issue share certificates in denominations of 1, 3, 4, 5, 10, 50, 100, 500, 1,000 and 10,000 shares.

Item 10.B.Memorandum and Articles of Association

This section provides information relating to our capital stock, including brief summaries of material provisions of our articles of incorporation, the FSCMA, the Commercial Code and related laws, all as currently in effect. The following summaries are subject to, and are qualified in their entirety by reference to, our articles of incorporation and the applicable provisions of the FSCMA and the Commercial Code. We have filed copies of our articles of incorporation and these laws (except for the newly enacted the FSCMA) as exhibits to registration statements under the Securities Act or the Securities Exchange Act previously filed by us.

Dividends

We distribute dividends to our shareholders in proportion to the number of shares owned by each shareholder. The Common Shares represented by the ADSs have the same dividend rights as other outstanding Common Shares.

Holders ofNon-Voting Preferred Shares are entitled to receive dividends in priority to the holders of Common Shares in an amount not less than 9% of the par value of theNon-Voting Preferred Shares as determined by the board of directors at the time of their issuance. If the amount available for dividends is less than the aggregate amount of such minimum dividend, we do not have to declare dividends on theNon-Voting Preferred Shares.

We may declare dividends annually at the annual general meeting of shareholders which is held within three months after the end of the fiscal year. We pay the annual dividend shortly after the annual general meeting to the shareholders of record as of the end of the preceding fiscal year. We may distribute the annual dividend in cash, Shares or other form of property. However, a dividend of Shares must be distributed at par value. Dividends in Shares may not exceedone-half of the annual dividend. In addition, we may declare, and distribute in cash, shares or other forms of property, interim dividends pursuant to a board resolution once a fiscal year to the eligible shareholders recorded as of the end of March, June 30and September of the relevant fiscal year. We have no obligation to pay any annual dividend unclaimed for five years from the payment date.

Under the Commercial Code, we may pay an annual dividend only to the extent the net asset amount in our balance sheets exceeds the sum of the following: (i) our stated capital, (ii) the total amount of our capital surplus reserve and legalearned surplus reserve accumulated up to the end of the relevant dividend period, (iii) the legal reserve to be set aside for annual dividend, and (iv) unrealized profits determined in the Presidential Decree to the Commercial Code. We may not pay an annual dividend unless we have set aside as earned surplus reserve an amount equal to at least 10% of the cash portion of the annual dividend or unless we have accumulated earned surplus reserve of not less thanone-half of our stated capital. We may not use legal reserve to pay cash dividends but may transfer amounts from legal reserve to capital stock or use legal reserve to reduce an accumulated deficit.

Distribution of Free Shares

In addition to paying dividends in Shares out of our retained or current earnings, we may also distribute to our shareholders an amount transferred from our capital surplus or legal reserve to our stated capital in the form of free shares. We must distribute such free shares to all our shareholders in proportion to their existing shareholdings.

Preemptive Rights and Issuance of Additional Shares

We may issue authorized but unissued shares at the times and, unless otherwise provided in the Commercial Code, on the terms our board of directors may determine. All our shareholders are generally entitled to subscribe for any newly issued Shares in proportion to their existing shareholdings. We must offer new Shares on uniform terms to all shareholders who have preemptive rights and are listed on our shareholders’ register as of the relevant record date. Under the Commercial Code, we may vary, without shareholders’ approval, the terms of these preemptive rights for different classes of shares. We must give public notice of the preemptive rights regarding new Shares and their transferability at least two weeks before the relevant record date. Our board of directors may determine how to distribute Shares for which preemptive rights have not been exercised or where fractions of Shares occur.

Under our articles of incorporation, we may issue new Shares pursuant to a board resolution to persons other than existing shareholders, who in these circumstances will not have preemptive rights, if the new Shares are:

 

offered publicly or to underwriters for underwriting pursuant to the FSCMA;

 

issued to members of our employee stock ownership association pursuant to the FSCMA;

 

represented by depositary receipts pursuant to the FSCMA;

 

issued in a general public offering pursuant to a board resolution in accordance with the FSCMA, the amount of which is no more than 10% of the outstanding Shares;

 

issued to our creditors pursuant to adebt-equity swap;

 

issued to domestic or foreign corporations pursuant to a joint venture agreement, strategic coalition or technology inducement agreement when deemed necessary for management purposes; or

 

issued to domestic or foreign financial institutions when necessary for raising funds in emergency cases.

In addition, we may issue convertible bonds or bonds with warrants, each up to an aggregate principal amount of Won 2 trillion, to persons other than existing shareholders.

Members of our employee stock ownership association, whether or not they are our shareholders, generally have a preemptive right to subscribe for up to 20% of the Shares publicly offered pursuant to the FSCMA. This right is exercisable only to the extent that the total number of

Shares so acquired and held by members of our employee stock ownership association does not exceed 20% of the total number of Shares then issued. As of December 31, 2014,2017, our employees owned, through our employee stock ownership association, approximately 0.001% of our common stock in their association accounts and 1.84%1.72% of our common stock in their employee accounts.

General Meeting of Shareholders

We hold the annual general meeting of shareholders within three months after the end of each fiscal year. The record date of the register of shareholders is December 31 of each year, and such shareholders listed on the register of shareholder as of the record date are entitled to exercise their right at the general meeting of shareholders. Subject to a board resolution or court approval, we may hold an extraordinary general meeting of shareholders:

 

as necessary;

 

at the request of holders of an aggregate of 3% or more of our outstanding Shares;

 

at the request of shareholders holding an aggregate of 1.5% or more of our outstanding Shares for at least six months; or

 

at the request of our audit committee.

Holders ofNon-Voting Preferred Shares may request a general meeting of shareholders only after theNon-Voting Preferred Shares become entitled to vote or “enfranchised,” as described under “— Voting Rights” below.

We must give shareholders written notice or electronic document setting out the date, place and agenda of the meeting at least two weeks before the date of the general meeting of shareholders. However, for holders of 1% or less of the total number of issued and outstanding voting Shares, we may give notice by placing at least two public notices in at least two daily newspapers or by notices to

be posted on the electronic disclosure database system maintained by the Financial Supervisory Service or the Korea Exchange at least two weeks in advance of the meeting. Currently, we useThe Seoul Shinmunpublished in Seoul,The Maeil Shinmunpublished in Taegu andThe Kwangju Ilbopublished in Kwangju for this purpose. Shareholders not on the shareholders’ register as of the record date are not entitled to receive notice of the general meeting of shareholders or attend or vote at the meeting. Holders ofNon-Voting Preferred Shares, unless enfranchised, are not entitled to receive notice of general meetings of shareholders, but may attend such meetings. Our general meetings of shareholders are held either in Pohang or Seoul.

Voting Rights

Holders of our Common Shares are entitled to one vote for each Common Share, except that voting rights of Common Shares held by us, or by a corporate shareholder that is more than 10% owned by us either directly or indirectly, may not be exercised. The Commercial Code permitted cumulative voting, under which voting method each shareholder would have multiple voting rights corresponding to the number of directors to be appointed in the voting and may exercise all voting rights cumulatively to elect one director.

Our shareholders may adopt resolutions at a general meeting by an affirmative majority vote of the voting Shares present or represented at the meeting, where the affirmative votes also represent at leastone-fourth of our total voting Shares then issued and outstanding. However, under the Commercial Code and our articles of incorporation, the following matters, among others, require approval by the holders of at leasttwo-thirds of the voting Shares present or represented at a meeting, where the affirmative votes also represent at leastone-third of our total voting Shares then issued and outstanding:

 

amending our articles of incorporation;

 

removing a director;

effecting any dissolution, merger or consolidation of us;

 

transferring the whole or any significant part of our business;

 

acquisition of all or a part of the business of any other company that may have a material impact on our business;

 

issuing any new Shares at a price lower than their par value; or

 

approving matters required to be approved at a general meeting of shareholders, which have material effects on our assets, as determined by the Board of Directors.

In general, holders ofNon-Voting Preferred Shares are not entitled to vote on any resolution or receive notice of any general meeting of shareholders. However, in the case of amendments to our articles of incorporation, or any merger or consolidation of us, or in some other cases that affect the rights or interests of theNon-Voting Preferred Shares, approval of the holders ofNon-Voting Preferred Shares is required. We may obtain the approval by a resolution of holders of at leasttwo-thirds of theNon-Voting Preferred Shares present or represented at a class meeting of the holders ofNon-Voting Preferred Shares, where the affirmative votes also represent at leastone-third of our total issued and outstandingNon-Voting Preferred Shares.

Shareholders may exercise their voting rights by proxy. When a shareholder is a corporate entity, such shareholder may give proxies to its officers or directors.

Holders of ADRs exercise their voting rights through the ADR depositary, an agent of which is the record holder of the underlying Common Shares. Subject to the provisions of the deposit agreement, ADR holders are entitled to instruct the ADR depositary how to vote the Common Shares underlying their ADSs.

Rights of Dissenting Shareholders

In some limited circumstances, including the transfer of the whole or any significant part of our business and our merger or consolidation with another company, dissenting shareholders have the right to require us to purchase their Shares. Only the shareholders who have executed a share purchase agreement evidencing their acquisition of the relevant Shares on or prior to the day immediately following the public disclosure of the board resolutions approving any of the aforementioned transactions have the rights to require us to purchase their Shares. To exercise this right, shareholders, including holders ofNon-Voting Preferred Shares, must submit to us a written notice of their intention to dissent before the general meeting of shareholders. Within 20 days after the relevant resolution is passed at a meeting, the dissenting shareholders must request us in writing to purchase their Shares. We are obligated to purchase the Shares of dissenting shareholders within one month after the expiration of the20-day period. The purchase price for the Shares is required to be determined through negotiation between the dissenting shareholders and us. If we cannot agree on a price through negotiation, the purchase price will be the average of (1) the weighted average of the daily Share prices on the Korea Exchange for thetwo-month period before the date of the adoption of the relevant board resolution, (2) the weighted average of the daily Share price on the Korea Exchange for the one month period before the date of the adoption of the relevant resolution and (3) the weighted average of the daily Share price on the Korea Exchange for the one week period before such date of the adoption of the relevant resolution. However, the court may determine this price if we or dissenting shareholders do not accept the purchase price. Holders of ADSs will not be able to exercise dissenter’s rights unless they have withdrawn the underlying common stock and become our direct shareholders.

Register of Shareholders and Record Dates

Our transfer agent, Kookmin Bank, maintains the register of our shareholders at its office in Seoul, Korea. It registers transfers of Shares on the register of shareholders on presentation of the Share certificates.

The record date for annual dividends is December 31. For the purpose of determining the shareholders entitled to annual dividends, the register of shareholders may be closed for the period from January 1 to January 15 of each year. Further, for the purpose of determining the shareholders entitled to some other rights pertaining to the Shares, we may, on at least two weeks’ public notice, set a record date and/or close the register of shareholders for not more than three months. The trading of Shares and the delivery of share certificates may continue while the register of shareholders is closed.

Annual Report

At least one week before the annual general meeting of shareholders, we must make our annual report and audited financial statements available for inspection at our principal office and at all of our branch offices. In addition, copies of annual reports, the audited financial statements and any resolutions adopted at the general meeting of shareholders will be available to our shareholders.

Under the FSCMA, we must file with the Financial Services Commission and the Korea Exchange (1) an annual business report within 90 days after the end of our fiscal year, (2) ahalf-year report within 45 days after the end of the first six months of our fiscal year, and (3) quarterly reports within 45 days after the end of the third month and the ninth month of our fiscal year. Copies of these reports are or will be available for public inspection at the Financial Services Commission and the Korea Exchange.

Transfer of Shares

Under the Commercial Code, the transfer of Shares is effected by delivery of share certificates. However, to assert shareholders’ rights against us, the transferee must have his name and address

registered on our register of shareholders. For this purpose, a shareholder is required to file his name, address and seal with our transfer agent. Anon-Korean shareholder may file a specimen signature in place of a seal, unless he is a citizen of a country with a sealing system similar to that of Korea. In addition, anon-resident shareholder must appoint an agent authorized to receive notices on his behalf in Korea and file a mailing address in Korea. The above requirements do not apply to the holders of ADSs.

Under current Korean regulations, the Korea Securities Depository, foreign exchange banks (including domestic branches of foreign banks), financial investment companies with a brokerage, dealing or collective investment license and internationally recognized custodians may act as agents and provide related services for foreign shareholders. Certain foreign exchange controls and securities regulations apply to the transfer of Shares bynon-residents ornon-Koreans. See “Item 10. Additional Information — Item 10.D. Exchange Controls.”

Our transfer agent is Kookmin Bank, located at 26, Gukjegeumyung-ro, Gukjegeumyung-ro8-gil,Yeongdeungpo-gu, Seoul, Korea.

Acquisition of Shares by Us

We may acquire our own Shares, subject to the approval by the general meeting of shareholders. In addition, we may acquire Shares through purchases on the Korea Exchange or through a tender offer or by acquiring the interests in a trust account holding our own Shares through agreements with trust companies and asset management companies. The aggregate purchase price for the Shares may not exceed the total amount available for distribution of dividends available at the end of the preceding fiscal year less the amount of dividends and mandatory reserves required to be set aside for that fiscal year, subject to certain procedural requirements.

In accordance with the Commercial Code, we may resell or transfer any Shares acquired by us to a third party, subject to the approval by the Board of Directors. In general, corporate entities in which we own more than 50% equity interest may not acquire our Shares. Under the FSCMA, we are subject to certain selling restrictions for the Shares acquired by us.

Liquidation Rights

In the event of our liquidation, after payment of all debts, liquidation expenses and taxes, our remaining assets will be distributed among shareholders in proportion to their shareholdings. Holders ofNon-Voting Preferred Shares have no preference in liquidation.

Item 10.C.Material Contracts

None.

Item 10.D.Exchange Controls

Shares and ADSs

The Foreign Exchange Transaction Act and the Presidential Decree and regulations under that Act and Decree (collectively, “Foreign Exchange Transaction Laws”) and the Foreign Investment Promotion Law regulate investment in Korean securities bynon-residents and issuance of securities outside Korea by Korean companies. Under the Foreign Exchange Transaction Laws,non-residents may invest in Korean securities subject to procedural requirements in accordance with these laws. The Financial Services Commission has also adopted, pursuant to its authority under the FSCMA, regulations that restrict investment by foreigners in Korean securities.

Subject to certain limitations, the Ministry of Strategy and Finance has the authority to take the following actions under the Foreign Exchange Transaction Laws:

 

if the Government deems it necessary on account of war, armed conflict, natural disaster or grave and sudden and significant changes in domestic or foreign economic circumstances or similar events or circumstances, the Ministry of Strategy and Finance may temporarily suspend performance under any or all foreign exchange transactions, in whole or in part, to which the Foreign Exchange Transaction Laws apply (including suspension of payment and receipt of foreign exchange) or impose an obligation to deposit,safe-keep or sell any means of payment to The Bank of Korea, a foreign exchange stabilization fund, certain other governmental agencies or financial companies; and

 

if the Government concludes that the international balance of payments and international financial markets are experiencing or are likely to experience significant disruption or that the movement of capital between Korea and other countries is likely to adversely affect the Won, exchange rates or other macroeconomic policies, the Ministry of Strategy and Finance may take action to require any person who intends to effect a capital transaction to obtain permission or to require any person who effects a capital transaction to deposit a portion of the means of payment acquired in such transactions with The Bank of Korea, a foreign exchange stabilization fund, certain other governmental agencies or financial companies.

Government Review of Issuance of ADSs

In order for us to issue shares represented by ADSs, we are required to file a prior report of the issuance with our designated foreign exchange bank or the Ministry of Strategy and Finance, depending on the issuance amount. No further Korean governmental approval is necessary for the initial offering and issuance of the ADSs.

Under current Korean laws and regulations, the depositary bank is required to obtain our prior consent for the number of shares to be deposited in any given proposed deposit which exceeds the difference between (1) the aggregate number of shares deposited by us for the issuance of ADSs (including deposits in connection with the initial and all subsequent offerings of ADSs and stock dividends or other distributions related to these ADSs) and (2) the number of shares on deposit with the depositary bank at the time of such proposed deposit. We can give no assurance that we would grant our consent, if our consent is required.

Reporting Requirements for Holders of Substantial Interests

Under the FSCMA, any person whose direct or beneficial ownership of shares with voting rights, whether in the form of shares or ADSs, certificates representing the rights to subscribe for Shares andequity-related debt securities including convertible bonds and bonds with warrants (collectively, “Equity Securities”) together with the Equity Securities beneficially owned by certain related persons or by any person acting in concert with the person accounts for 5% or more of the total outstanding Equity Securities is required to report the status and the purpose (whether or not to exert an influence on management control over the issuer) of the holdings to the Financial Services Commission and the Korea Exchange within five business days after reaching the 5% ownership interest. In addition, any change in the purpose of holding such ownership interest or a change in the ownership interest subsequent to the report which equals or exceeds 1% of the total outstanding Equity Securities is required to be reported to the Financial Services Commission and the Korea Exchange within five business days from the date of the change. However, the reporting deadline of such reporting requirement is extended to the tenth day of the month immediately following the month of such change in their shareholding for (1) certain professional investors, as specified under the FSCMA, or (2) persons who hold shares for purposes other than management control. Those who report the purpose of shareholding as management control of the issuer are prohibited from exercising their voting rights and acquiring additional shares for five days subsequent to their report under the FSCMA.

Violation of these reporting requirements may subject a person to criminal sanctions such as fines or imprisonment and may result in a loss of voting rights with respect to the ownership of Equity Securities exceeding 5%. Furthermore, the Financial Services Commission may issue an order to dispose ofnon-reported Equity Securities.

In addition to the reporting requirements described above, any person whose direct or beneficial ownership of a company’s shares accounts for 10% or more of the total issued and outstanding shares with voting rights (a “major stockholder”) must report the status of his or her shareholding to the Securities and Futures Commission and the Korea Exchange within five business days after he or she becomes a major stockholder. In addition, any change in the ownership interest subsequent to the report must be reported to the Securities and Futures Commission and the Korea Exchange by the fifth business day of any changes in his or her shareholding. Violation of these reporting requirements may subject a person to criminal sanctions such as fines or imprisonment.

Under the KRX regulations, if a company listed on the KRX KOSPI Market has submitted public disclosure of material matters to a foreign financial investment supervisory authority pursuant to the laws of the foreign jurisdiction, then it must submit a copy of the public disclosure and a Korean translation thereof to the Korea Exchange. In addition, if a company listed on the KRX KOSPI Market is approved for listing on a foreign stock exchange or determined to bede-listed from the foreign stock exchange or actually lists on, orde-lists from, a foreign stock exchange, then it must submit to the Korea Exchange a copy, together with a Korean translation thereof, of all documents submitted to, or received from, the relevant foreign government, supervisory authority or stock exchange.

Restrictions Applicable to ADSs

No Korean governmental approval is necessary for the sale and purchase of ADSs in the secondary market outside Korea or for the withdrawal of shares underlying ADSs and the delivery inside Korea of shares in connection with the withdrawal, provided that a foreigner who intends to acquire the shares must obtain an investment registration card from the Financial Supervisory Service as described below. The acquisition of the shares by a foreigner must be immediately reported by the foreigner or his standing proxy in Korea to the Governor of the Financial Supervisory Service (“Governor”).

Persons who have acquired shares as a result of the withdrawal of shares underlying the ADSs may exercise their preemptive rights for new shares, participate in free distributions and receive dividends on shares without any further governmental approval.

In addition, under the Financial Services Commission regulations, effective as of November 30, 2006, we are required to file a securities registration statement with the Financial Services Commission and such securities registration statement has to become effective pursuant to the FSCMA in order for us to issue shares represented by ADSs, except in certain limited circumstances.

Restrictions Applicable to Shares

Under the Foreign Exchange Transaction Laws and the Financial Services Commission regulations (together, the “Investment Rules”), foreigners may invest, with limited exceptions and subject to procedural requirements, in all shares of Korean companies, whether listed on the KRX KOSPI Market or the KRX KOSDAQ Market, unless prohibited by specific laws. Foreign investors may trade shares listed on the KRX KOSPI Market or the KRX KOSDAQ Market only through the KRX KOSPI Market or the KRX KOSDAQ Market, except in limited circumstances, including, among others:

 

odd-lot trading of shares;

 

acquisition of shares (“Converted Shares”) by exercise of warrant, conversion right under convertible bonds or withdrawal right under depositary receipts issued outside of Korea by a Korean company;

acquisition of shares as a result of inheritance, donation, bequest or exercise of shareholders’ rights, including preemptive rights or rights to participate in free distributions and receive dividends;

 

over-the-counter transactions between foreigners of a class of shares for which the ceiling on aggregate acquisition by foreigners, as explained below, has been reached or exceeded with certain exceptions;

 

shares acquired by direct investment as defined in the Foreign Investment Promotion Law;

 

disposal of shares pursuant to the exercise of appraisal rights of dissenting shareholders;

 

disposal of shares in connection with a tender offer;

 

acquisition of shares by a foreign depositary in connection with the issuance of depositary receipts;

 

acquisition and disposal of shares through overseas stock exchange market if such shares are simultaneously listed on the KRX KOSPI Market or the KRX KOSDAQ Market and such overseas stock exchange; and

 

arm’s length transactions between foreigners, if all of such foreigners belong to an investment group managed by the same person.

The Investment Rules require a foreign investor who wishes to invest in shares for the first time on the Korea Exchange (including Converted Shares) to register its identity with the Financial Supervisory Service prior to making any such investment; however, the registration requirement does not apply to foreign investors who acquire Converted Shares with the intention of selling such Converted Shares within three months from the date of acquisition of the Converted Shares or who acquire the shares in anover-the-counter transaction or dispose of shares where such acquisition or disposal is deemed to be a foreign direct investment pursuant to the Foreign Investment Promotion Law. Upon registration, the Financial Supervisory Service will issue to the foreign investor an investment registration card which must be presented each time the foreign investor opens a brokerage account with a financial investment company with a brokerage license or dealing license in Korea. Foreigners eligible to obtain an investment registration card include foreign nationals who are individuals residing abroad for more than six months, foreign governments, foreign municipal authorities, foreign public institutions, international financial institutions or similar international

organizations, corporations incorporated under foreign laws and any person in any additional category designated by the Enforcement Decree to the FSCMA. All Korean offices of a foreign corporation as a group are treated as a separate foreigner from the offices of the corporation outside Korea. However, a foreign corporation or depositary issuing depositary receipts may obtain one or more investment registration cards in its name in certain circumstances as described in the relevant regulations.

Upon a foreign investor’s purchase of shares through the Korea Exchange, no separate report by the investor is required because the investment registration card system is designed to control and oversee foreign investment through a computer system. However, a foreign investor’s acquisition or sale of shares outside the Korea Exchange (as discussed above) must be reported by the foreign investor or his standing proxy to the Governor at the time of each such acquisition or sale;provided, however,that a foreign investor must ensure that any acquisition or sale by it of shares outside the Korea Exchange in the case of trades in connection with a tender offer,odd-lot trading of shares or trades of a class of shares for which the aggregate foreign ownership limit has been reached or exceeded, is reported to the Governor by the Korea Securities Depository, financial investment companies with a dealing or brokerage license or securities finance companies engaged to facilitate such transaction. A foreign investor must appoint one or more standing proxies from among the Korea Securities Depository, foreign exchange banks (including domestic branches of foreign banks) financial investment companies with a dealing, brokerage or collective investment license and internationally

recognized custodians which will act as a standing proxy to exercise shareholders’ rights or perform any matters related to the foregoing activities if the foreign investor does not perform these activities himself. However, a foreign investor may be exempted from complying with these standing proxy rules with the approval of the Governor in cases deemed inevitable by reason of conflict between laws of Korea and those of the home country of the foreign investor.

Certificates evidencing shares of Korean companies must be kept in custody with an eligible custodian in Korea. Only foreign exchange banks (including domestic branches of foreign banks), financial investment companies with a dealing, brokerage or collective investment license, the Korea Securities Depository and internationally recognized custodians are eligible to act as a custodian of shares for anon-resident or foreign investor. A foreign investor must ensure that his custodian deposits its shares with the Korea Securities Depository. However, a foreign investor may be exempted from complying with this deposit requirement with the approval of the Governor in circumstances where compliance with that requirement is made impracticable, including cases where compliance would contravene the laws of the home country of such foreign investor.

Under the Investment Rules, with certain exceptions, foreign investors may acquire shares of a Korean company without being subject to any foreign investment ceiling. As one such exception, designated public corporations are subject to a 40% ceiling on the acquisition of shares by foreigners in the aggregate. Designated public corporations may set a ceiling on the acquisition of shares by a single person according to its articles of incorporation. We set this ceiling at 3% until the discontinuation of our designation as a public corporation on September 28, 2000. As a result, we currently do not have any ceiling on the acquisition of shares by a single person or by foreigners in the aggregate. Furthermore, an investment by a foreign investor of not less than 10% of the outstanding shares with voting rights of a Korean company is defined as a direct foreign investment under the Foreign Investment Promotion Law, which is, in general, subject to the report to, and acceptance by, the Ministry of Trade, Industry & Energy. The acquisition of shares of a Korean company by a foreign investor may also be subject to certain foreign shareholding restrictions in the event that the restrictions are prescribed in each specific law which regulates the business of the Korean company.

Under the Foreign Exchange Transaction Laws, a foreign investor who intends to acquire shares must designate a foreign exchange bank at which he must open a foreign currency account and a Won account exclusively for stock investments. No approval is required for remittance into Korea and deposit of foreign currency funds in the foreign currency account. Foreign currency funds may be transferred from the foreign currency account at the time required to place a deposit for, or settle the

purchase price of, a stock purchase transaction to a Won account opened in the name of a financial investment company with a dealing, brokerage or collective investment license. Funds in the foreign currency account may be remitted abroad without any governmental approval.

Dividends on Shares are paid in Won. No governmental approval is required for foreign investors to receive dividends on, or the Won proceeds of the sale of, any shares to be paid, received and retained in Korea. Dividends paid on, and the Won proceeds of the sale of, any shares held by anon-resident of Korea must be deposited either in a Won account with the investor’s financial investment company with a dealing, brokerage or collective investment license or his Won Account. Funds in the investor’s Won Account may be transferred to his foreign currency account or withdrawn for local living expenses up to certain limitations. Funds in the Won Account may also be used for future investment in shares or for payment of the subscription price of new shares obtained through the exercise of preemptive rights.

Financial investment companies with a dealing, brokerage or collective investment license are allowed to open foreign currency accounts with foreign exchange banks exclusively for accommodating foreign investors’ stock investments in Korea. Through these accounts, these financial investment companies and asset management companies may enter into foreign exchange transactions on a limited basis, such as conversion of foreign currency funds and Won funds, as counterparty to foreign investors, without the investors having to open their own accounts with foreign exchange banks.

Item 10.E. Taxation

The following summary is based upon tax laws of the United States and Korea as in effect on the date of this annual report on Form20-F, and is subject to any change in United States or Korean law that may come into effect after such date. Investors in the shares of common stock or ADSs are advised to consult their own tax advisers as to the United States, Korean or other tax consequences of the purchase, ownership and disposition of such securities, including the effect of any foreign, state or local tax laws.

Korean Taxation

The following is a summary of the principal Korean tax consequences to owners of the common shares or ADSs, as the case may be, who arenon-resident individuals ornon-Korean corporations without a permanent establishment in Korea to which the relevant income is attributable or with which the relevant income is effectively connected (“(“Non-resident Holders”). The statements regarding Korean tax laws set forth below are based on the laws in force and as interpreted by the Korean taxation authorities as of the date hereof. This summary is not exhaustive of all possible tax considerations which may apply to a particular investor and potential investors are advised to satisfy themselves as to the overall tax consequences of the acquisition, ownership and disposition of the common shares or ADSs, including specifically the tax consequences under Korean law, the laws of the jurisdiction of which they are resident, and any tax treaty between Korea and their country of residence, by consulting their own tax advisers.

Tax on Dividends

Dividends on the common shares or ADSs paid (whether in cash or in shares) to aNon-resident Holder will be subject to Korean withholding taxes at the rate of 22% (including local income tax) or such lower rate as is applicable under a treaty between Korea and suchNon-resident Holder’s country of tax residence. Free distributions of shares representing a capitalization of certain capital surplus reserves may be subject to Korean withholding taxes.

The tax is withheld by the payer of the dividend. SinceWhile it is the payer which is required to withhold the tax, Korean law does not entitlegenerally entitles the person who was subject to the withholding of Korean tax to recover from the Government any part of the Korean tax withheld, even if it subsequently producesupon providing evidence that it was entitled to have tax withheld at a lower rate, except inif certain limited circumstances.conditions are met.

Tax on Capital Gains

As a general rule, capital gains earned byNon-resident Holders upon transfer of the common shares or ADSs are subject to Korean withholding tax at the lower of (i) 11% (including local income tax) of the gross proceeds realized or (ii) 22% (including local income tax) of the net realized gains (subject to the production of satisfactory evidence of the acquisition costs and certain direct transaction costs), unless exempt from Korean income taxation under the effective Korean tax treaty with theNon-resident Holder’s country of tax residence.residence or Korean tax law.

However, aNon-resident Holder will not be subject to Korean income taxation on capital gains realized upon the sale of the common shares through the KRX KOSPI Market if theNon-resident Holder (i) has no permanent establishment in Korea and (ii) did not or has not owned (together with any shares owned by any entity with a specified special relationship with suchNon-resident Holder) 25% or more of the total issued and outstanding shares of us at any time during the calendar year in which the sale occurs and during the five calendar years prior to the calendar year in which the sale occurs.

It should be noted that capital gains earned by you (regardless of whether you have a permanent establishment in Korea) from a transfer of ADSs outside Korea will generally be exempt

from Korean income taxation, provided that the ADSs are deemed to have been issued overseas. If and when an owner of the underlying common shares transfers the ADSs following the conversion of the underlying shares for ADSs, such person will not be exempt from Korean income taxation.

Inheritance Tax and Gift Tax

Korean inheritance tax is imposed upon (1) all assets (wherever located) of the deceased if at the time of his death he was domiciled ina tax resident of Korea and (2) all property located in Korea which passes on death (irrespective of the domicile of the deceased). Gift tax is imposed in similar circumstances to the above. The taxes are imposed if the value of the relevant property is above a certain limit and vary accordingthe rate varies from 10% to 50% depending on the identityvalue of the parties involved.property.

Under Korean inheritance and gift tax laws, securities issued by a Korean corporation are deemed to be located in Korea irrespective of where they are physically located or by whom they are owned.owned and consequently, the Korea inheritance and gift taxes will be imposed on transfers of the securities by inheritance or gift.

Securities Transaction Tax

Securities transaction tax is imposed on the transfer of shares issued by a Korean corporation or the right to subscribe for such shares generally at the rate of 0.5% of the sales price. In the case of the transfer of shares listed on the KRX KOSPI Market (such as the common shares), the securities transaction tax is imposed generally at the rate of (i) 0.3% of the sales price of such shares (including agricultural and fishery special surtax thereon) if traded on the KRX KOSPI Market or (ii) subject to certain exceptions, 0.5% of the sales price of such shares if traded outside the KRX KOSPI Market.

Securities transaction tax or the agricultural and fishery special surtax is not applicable if (i) the shares or rights to subscribe for shares are listed on a designated foreign stock exchange and (ii) the sale of the shares takes place on such exchange.

Securities transaction tax, if applicable, must be paid by the transferor of the shares or rights, in principle. When the transfer is effected through a securities settlement company, such settlement

company is generally required to withhold and pay (to the tax authority) the tax, and when such transfer is made through a financial investment company with a brokerage license only, such company is required to withhold and pay the tax. Where the transfer is effected by aNon-resident Holder without a permanent establishment in Korea, other than through a securities settlement company or a financial investment company with a brokerage license, the transferee is required to withhold the securities transaction tax. Failure to do so will result in the imposition of penalties equal to the sum of (i) between 10% to 40% of the tax amount due, depending on the nature of the improper reporting, and (ii) 10.95% per annum on the tax amount due for the default period.

Tax Treaties

Currently, Korea has income tax treaties with a number of countries, including, inter alia, Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, Luxembourg, Ireland, the Netherlands, New Zealand, Norway, Singapore, Sweden, Switzerland, the United Kingdom and the United States of America, under which the rate of withholding tax on dividend and interest is reduced, generally to between 5% and 16.5% (including local income tax), and the tax on capital gains derived by anon-resident from the transfer of securities issued by a Korean company is often eliminated.

EachNon-resident Holder of common shares should inquire for itself whether it is entitled to the benefits of a tax treaty with Korea. It is the responsibility of the party claiming the benefits of a tax treaty in respect of interest, dividend, capital gains or “other income” to submit to us (or our agent), the

purchaser or the financial investment company with a brokerage license, as the case may be, prior to or at the time of payment, such evidence of tax residence of the party claiming the treaty benefit as the Korean tax authorities may require in support of its claim for treaty protection. In the absence of sufficient proof, we (or our agent), the purchaser or the financial investment company with a brokerage license, as the case may be, must withhold tax at the normal rates.

Furthermore, in order forFor anon-resident of Korea to obtain the benefits oftreaty-reduced tax exemptionrates on certain Korean source income (e.g., capital gains and interest) under an applicable tax treaty, Korean tax law requires suchnon-resident (or its agent)agents) to submit to the payer of such Korean source income an application for atreaty-reduced tax exemption along with a certificate of tax residencyrates prior to receipt of such Korean source income; provided, however, that an owner of ADSs who is anon-resident issued of Korea is not required to submit such application, if the Korean source income on the ADSs is paid through an account opened at the Korea Securities Depository by a competent authority of the non-resident’s country of tax residence, subject to certain exceptions.foreign depository. The payer of such Korean source income, in turn, is required to submit such application to the relevant district tax office by the ninth day of the month following the date of the first payment of such income.

For a non-resident of Korea to obtain the benefits of treaty-reduced tax rates on certainIf Korean source income (e.g., capital gainsis paid to anon-resident through an overseas investment vehicle, such investment vehicle must obtain an application for tax exemption or reduced tax rates from eachnon-resident, who is the beneficial owner of such investment vehicle and interest) under an applicable tax treaty, Korean tax law requires such non-resident (or its agents) to submit to the payer of such Korean source incomeincomes an overseas investment vehicle report, together with the applications for tax exemptions or reduced tax rates prepared by thenon-resident beneficial owner. An overseas investment vehicle means an organization established outside of Korea that manages funds collected through investment solicitation by way of acquiring, disposing, or otherwise investing in investment targets and then distributes the outcome of such management to investors. An application for tax exemption or reduced tax rates submitted by thenon-resident remains effective for three years from submission, and if any material changes occur with respect to information provided in the application, an application for treaty-reduced tax rates prior to receipt ofreflecting such Korean source income; provided, however, that an owner of ADSs who is a non-resident of Korea is not required to submit such application, if the Korean source income on the ADSs is paid through an account opened at the Korea Securities Depository by a foreign depository.change must be newly submitted.

At present, Korea has not entered into any tax treaty relating to inheritance or gift tax.

United States Taxation

This summary describes the material U.S. federal income tax consequences for a U.S. holder (as defined below) of owning our shares of common stock or ADSs. This summary applies to you only if you hold shares of common stock or ADSs as capital assets for tax purposes. This summary does not apply to you if you are a member of a class of holders subject to special rules, such as:

 

a dealer in securities or currencies;

 

a trader in securities that elects to use amark-to-market method of accounting for your securities holdings;

a bank;

 

a life insurance company;

 

atax-exempt organization;

 

a person that holds shares of common stock or ADSs that are a hedge or that are hedged against interest rate or currency risks;

 

a person that holds shares of common stock or ADSs as part of a straddle or conversion transaction for tax purposes;

 

a person whose functional currency for tax purposes is not the Dollar;

 

a person that owns or is deemed to own 10% or more of any class of our stock or 10% or more of the combined voting power or value of all of our classes of stock; or

an entity treated as a partnership for U.S. federal income tax purposes that holds shares of common stock or ADSs, or a partneran investor therein.

This summary is based on laws, treaties and regulatory interpretations in effect on the date hereof, all of which are subject to change, possibly on a retroactive basis.

Please consult your own tax advisers concerning the U.S. federal, state, local and other foreign tax consequences of purchasing, owning and disposing of shares of common stock or ADSs in your particular circumstances.

For purposes of this summary, you are a “U.S. holder” if you are a beneficial owner of a share of common stock or ADS that is:

 

a citizen or resident of the United States;

 

a U.S. domestic corporation; or

 

otherwise subject to U.S. federal income tax on a net income basis with respect to income from the shareshares of common stock or ADS.

Shares of Common Stock and ADSs

In general, if you are the beneficial owner of ADSs, you will be treated as the beneficial owner of the shares of common stock represented by those ADSs for U.S. federal income tax purposes, and no gain or loss will be recognized if you exchange an ADS for the shares of common stock represented by that ADS.

Dividends

The gross amount of cash dividends that you receive (prior to deduction of Korean taxes) generally will be subject to U.S. federal income taxation as foreign source dividend income. Dividends paid in Won will be included in your income in a Dollar amount calculated by reference to the exchange rate in effect on the date of your (or, in the case of ADSs, the depositary’s) receipt of the dividend, regardless of whether the payment is in fact converted into Dollars. If such a dividend is converted into Dollars on the date of receipt, you generally should not be required to recognize foreign currency gain or loss in respect of the dividend income. U.S. holders should consult their own tax advisers regarding the treatment of any foreign currency gain or loss on any Won received by U.S. holders that are converted into Dollars on a date subsequent to receipt.

Subject to certain exceptions forshort-term and hedged positions, the Dollar amount of dividends received by an individual U.S. holder with respect to the ADSs and common stock will be subject to taxation at a preferential rate applicable tolong-term capital gains if the dividends are “qualified dividends.” Dividends paid on the ADSs and common stock will be treated as qualified dividends if

(i) we are eligible for the benefits of a comprehensive income tax treaty with the United States that the Internal Revenue Service has approved for the purposes of the qualified dividend rules and (ii) we were not, in the year prior to the year in which the dividend is paid, and are not, in the year in which the dividend is paid, a passive foreign investment company (“PFIC”). The income tax treaty between Korea and the United States (“Treaty”) has been approved for the purposes of the qualified dividend rules, and we believe we are eligible for benefits under the Treaty. Based on our audited financial statements and relevant market and shareholder data, we believe that we were not treated as a PFIC for U.S. federal income tax purposes with respect to our 20132016 or 20142017 taxable year. In addition, based on our audited financial statements and our current expectations regarding the value and nature of our assets, the sources and nature of our income, and relevant market and shareholder data, we do not anticipate becoming a PFIC for our 20152018 taxable year. You should consult your own tax advisers regarding the availability of the reduced dividend tax rate in the light of your own particular circumstances.

Distributions of additional shares in respect of shares of common stock or ADSs that are made as part of apro-rata distribution to all of our shareholders generally will not be subject to U.S. federal income tax.

Sales and Other Dispositions

For U.S. federal income tax purposes, you will recognize taxable gain or loss on any sale, exchange or other taxable disposition of common stock or ADSs equal to the difference, if any, between the amount realized (Dollars) on the sale or exchange and your adjusted tax basis in the common stock or ADSs. Any gain realized by a U.S. holder on the sale or other disposition of common stock or ADSs generally will be treated as U.S. source income for U.S. foreign tax credit purposes. This gain or loss will be capital gain or loss, and will belong-term capital gain or loss ifto the extent that the shares of common stock or ADSs sold or disposed of were held for more than one year. Your ability to offset capital losses against ordinary income is limited.Long-term capital gain recognized by an individual U.S. holder generally is subject to taxation at a reduced rate.

Foreign Tax Credit Considerations

You should consult your own tax advisers to determine whether you are subject to any special rules that limit your ability to make effective use of foreign tax credits, including the possible adverse impact of failing to take advantage of benefits under the income tax treaty between the United States and Korea. If no such rules apply, you generally may claim a credit, up to any applicable reduced rates provided under the Treaty, against your U.S. federal income tax liability for Korean taxes withheld from dividends on shares of common stock or ADSs, so long as you have owned the shares of common stock or ADSs (and not entered into specified kinds of hedging transactions) for at least a16-day period that includes theex-dividend date. Instead of claiming a credit, you may, at your election, deduct such Korean taxes in computing your taxable income, provided that you do not elect to claim a foreign tax credit for any foreign income taxes paid or accrued for the relevant tax year and subject to generally applicable limitations under U.S. tax law. Foreign tax credits will not be allowed for withholding taxes imposed in respect of certainshort-term or hedged positions in securities and may not be allowed in respect of arrangements in which your expected economic profit is insubstantial. You may not be able to use the foreign tax credit associated with any Korean withholding tax imposed on a distribution of additional shares that is not subject to U.S. federal income tax unless you can use the credit against U.S. federal income tax due on otherforeign-source income.

Any Korean securities transaction tax or agriculture and fishery special tax that you pay will not be creditable for foreign tax credit purposes.

The calculation of foreign tax credits and, in the case of a U.S. holder that elects to deduct foreign taxes, the availability of deductions, involves the application of complex rules that depend on a U.S. holder’s particular circumstances. You should consult your own tax advisers regarding the creditability or deductibility of such taxes.

Specified Foreign Financial Assets

Certain U.S. holders that own “specified foreign financial assets” with an aggregate value in excess of US$50,000 are generally required to file an information statement along with their tax returns, currently on Form 8938, with respect to such assets. “Specified foreign financial assets” include any financial accounts held at anon-U.S. financial institution, as well as securities issued by anon-U.S. issuer (which would include the common stock or ADSs) that are not held in accounts maintained by financial institutions. Higher reporting thresholds apply to certain individuals living abroad and to certain married individuals. Regulations extend this reporting requirement to certain entities that are treated as formed or availed of to hold direct or indirect interests in specified foreign financial assets based on certain objective criteria. U.S. holders who fail to report the required

information could be subject to substantial penalties. In addition, the statute of limitations for assessment of tax would be suspended, in whole or part. Prospective investors should consult their own tax advisors concerning the application of these rules to their investment in the common stock or ADSs, including the application of the rules to their particular circumstances.

U.S. Information Reporting and Backup Withholding Rules

Payments in respect of shares of common stock or ADSs that are made within the United States or through certainU.S.-related financial intermediaries are subject to information reporting and may be subject to backup withholding unless the holder (1) is a corporation or other exempt recipient and demonstrates this when required or (2) provides a taxpayer identification number and certifies that no loss of exemption from backup withholding has occurred. Holders that are not U.S. persons generally are not subject to information reporting or backup withholding. However, such a holder may be required to provide a certification of itsnon-U.S. status in connection with payments received within the United States or through aU.S.-related financial intermediary.

Item 10.F.Dividends and Paying Agents

See “Item 8.A. Consolidated Statements and Other Financial Information — Dividends” above for information concerning our dividend policies and our payment of dividends. See “Item 10.B. Memorandum and Articles of Association — Dividends” for a discussion of the process by which dividends are paid on shares of our common stock. The paying agent for payment of our dividends on ADSs in the United States is the Citibank, N.A.

Item 10.G.Statements by Experts

Not applicable

Item 10.H.Documents on Display

We file reports, including annual reports on Form20-F, and other information with the SEC pursuant to the rules and regulations of the SEC that apply to foreign private issuers. You may read and copy any materials filed with the SEC at the Public Reference Rooms in Washington, D.C., New York, New York and Chicago, Illinois. You may obtain information on the operation of the Public Reference Room by calling the SEC at1-800-SEC-0330. Any filings we make electronically will be available to the public over the Internet at the SEC’s web site at http://www.sec.gov.

Item 10.I.Subsidiary Information

Not applicable

Item 11.Quantitative and Qualitative Disclosures about Market Risk

We are exposed to foreign exchange rate and interest rate risk primarily associated with underlying liabilities, and to changes in the commodity prices of principal raw materials. Following evaluation of these positions, we selectively enter into derivative financial instruments to manage the related risk exposures, primarily with respect to foreign exchange rate and interest rate risks, which are entered into with major financial institutions in order to minimize the risk of credit loss. Our market risk management policy determines the market risk tolerance level, measuring period, controlling responsibilities, management procedures, hedging period and hedging ratio very specifically. We also prohibit all speculative hedging transactions and evaluate and manage foreign exchange exposures to receivables and payables.

None of our loss exposures related to derivative contracts are unlimited, and we do not believe that our net derivative positions could result in a material loss to our profit before income tax or total equity due to significant fluctuations of major currencies against the Korean Won. Due to the nature of our derivative contracts primarily as hedging instruments that manage foreign exchange risks, net gain or net loss on derivatives transactions and valuation of derivatives are typically offset by net loss or net gain on foreign currency transaction and translation. We recorded net gain on valuation of derivatives transactions

of Won 8483 billion and net gain on derivatives transactions of Won 23 billion in 2015, net loss on derivatives transactions of Won 22 billion and net loss on valuation of derivatives of Won 21916 billion in 2013,2016, and we recordednet loss on valuation of derivatives of Won 162 billion and net loss on derivatives transactions of Won 26 billion and net loss on valuation of derivatives of Won 28 billion in 2014.2017.

Exchange Rate Risk

Korea is our most important market and, therefore, a substantial portion of our cash flow is denominated in Won. Most of our exports are denominated in Dollars. Japan is also an important market for us, and we derive significant cash flow denominated in Yen. We are exposed to foreign exchange risk related to foreign currency denominated liabilities and anticipated foreign exchange payments. Anticipated foreign exchange payments, which represent a substantial sum and are mostly denominated in Dollars, relate primarily to imported raw material costs and freight costs. Foreign currency denominated liabilities relate primarily to foreign currency denominated debt.

We strive to naturally offset our foreign exchange risk by matching foreign currency receivables with our foreign currency payables and our overseas subsidiaries have sought to further mitigate the adverse impact of exchange rate fluctuations by conducting business transactions in the local currency of the respective market in which the transactions occur. In particular, Daewoo International’sPOSCO Daewoo’s exposure to fluctuations in exchange rates, including the Won/Dollar exchange rate, is limited because trading transactions typically involve matched purchase and sale contracts, which result in limited settlement exposure, and because Daewoo International’sPOSCO Daewoo’s contracts with domestic suppliers of products for export and with domestic purchasers of imported products are generally denominated in Dollars. Although the impact of exchange rate fluctuations is partially mitigated by such strategies, we and our subsidiaries, particularly POSCO Daewoo International and POSCO E&C, also periodically enter into derivative contracts, primarily foreign currency swaps and forward exchange contracts, to further hedge some of our foreign exchange risks.

Our foreign currency exposure and changes in gain or loss resulting from a 10% foreign exchange rate change against the Korean Won are as follows:

 

  For the Years Ended December 31,   For the Years Ended December 31, 
  2012   2013   2014   2015   2016   2017 
  Increase Decrease   Increase Decrease   Increase Decrease   Increase Decrease   Increase Decrease   Increase Decrease 
  (In billions of Won)   (In billions of Won) 

US Dollars

      (519     519        (502     502        (356     356        (166     166       (163     163       (173     173 

Japanese Yen

   (178  178     (125  125     (96  96     (97  97    (78  78    (54  54 

Euro

   (1  1     (4  4     (30  30     (22  22    (9  9    (10  10 

Interest Rate Risk

We are also subject to market risk exposure arising from changing interest rates. In particular, we are exposed to interest rate risk on our existing floating rate borrowings and on additional debt financings that we may periodically undertake for various reasons, including capital expenditures and refinancing of our existing borrowings. A rise in interest rates will increase the cost of our existing variable rate borrowings. If interest rates on borrowings with floating rates had been 1% higher or lower with all other variables held constant, the impact on the gain or loss of the applicable period would be as follows:

 

   For the Years Ended December 31, 
           2012                   2013                   2014         
   (In billions of Won) 

Increase or decrease in annual profit and net equity

      96        106        102  
   For the Years Ended December 31, 
           2015                   2016                   2017         
   (In billions of Won) 

Increase or decrease in annual profit and net equity

      118       120       100 

A reduction of interest rates also increases the fair value of our debt portfolio, which is primarily of a fixed interest nature. From time to time, we use, to a limited extent, interest rate swaps to reduce interest rate volatility on some of our debt and manage our interest expense by achieving a balanced mixture of floating and fixed rate debt.

The following table summarizes the carrying amounts, fair values, principal cash flows by maturity date and weighted average interest rates of ourshort-term andlong-term liabilities as of December 31, 20142017 which are sensitive to exchange rates and/or interest rates. The information is presented in Won, which is our reporting currency.

 

 Maturities  Maturities 
   December 31, 2014 December 31, 2013              December 31,
2017
 December 31,
2016
 
 2015 2016 2017 2018 2019 Thereafter   Total   Fair
  Value  
   Total   Fair
  Value  
  2018 2019 2020 2021 2022 Thereafter Total Fair
Value
 Total Fair
Value
 
 (In billions of Won except rates)  (In billions of Won except rates) 

Local currency:

                               

Fixed rate

  2,291    821    967    610    764    2,798    8,251    8,349    9,439    9,523    3,350   1,281   554   288   244   266   5,983   5,882   6,064   5,943 

Average weighted rate (1)

  4.20  3.89  3.98  3.69  3.45  4.15  4.02   4.35 

Average weighted rate(1) .

  3.09  3.36  2.75  3.54  2.66  3.00  3.12   2.45 

Variable rate

  738    175    10    69    103    129    1,224    1,223    1,327    1,345    699   180   134   22   15   12   1,062   1,062   1,039   1,034 
          

Average weighted rate (1)

  2.88  3.71  3.80  3.43  2.72  2.91  3.03   3.47   3.08  2.58  2.94  3.33  2.99  2.51  2.98   2.84 
       

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Sub-total

  3,029    996    977    679    867    2,927    9,475    9,572    10,766    10,868    4,049   1,461   688   310   259   278   7,045   6,944   7,103   6,977 
       

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Foreign currency, principally Dollars and Yen:

                    

Fixed rate

  4,014    282    274    738    0    3,099    8,407    8,669    6,913    6,988    3,009   88   966   889   0   205   5,157   5,016   5,775   5,639 

Average weighted rate (1)

  1.62  1.39  3.84  3.00  0  4.43  2.84   3.72   2.23  4.13  3.87  4.86  8.40  3.16  3.05   3.15 

Variable rate

  4,623    753    215    435    263    3,257    9,546    9,515    8,568    8,634    4,824   309   767   29   7   2,925   8,861   8,871   9,827   9,837 
          

Average weighted rate (1)

  1.56  1.69  1.96  2.93  2.91  3.30  2.27   1.81   3.17  2.20  3.20  3.59  3.24  6.77  4.33   2.92 
       

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Sub-total

  8,637    1,035    489    1,173    263    6,356    17,953    18,184    15,481    15,623    7,833   397   1,733   918   7   3,130   14,018   13,887   15,602   15,476 
       

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total

  11,666    2,031    1,466    1,852    1,130    9,283    27,428    27,756    26,247    26,490    11,882   1,858   2,421   1,228   266   3,408   21,063   20,831   22,705   22,453 
       

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

 

 

(1)Weighted average rates of the portfolio at the period end.

Item 12.  Description of Securities Other than Equity Securities

Not applicable

Item 12.A.  Debt Securities

Not applicable

Item 12.B.  Warrants and Rights

Not applicable

Item 12.C.  Other Securities

Not applicable

Item 12.D.  American Depositary Shares

Fees and Charges

We switched our depositary from The Bank of New York Mellon to Citibank, N.A. in July 2013. Holders of our ADSs are required to pay the following service fees to the depositary:

 

Services

  

Fees

Issuance of ADSs upon deposit of shares

  Up to $5.00 per 100 ADSs issued

Delivery of deposited shares against surrender of ADSs

  Up to $5.00 per 100 ADSs surrendered

Distributions of cash dividends or other cash distributions

  NoneUp to $5.00 per 100 ADSs held

Distribution of ADSs pursuant to (i) stock dividends or other free stock distributions, or (ii) exercise of rights to purchase additional ADSs

  NoneUp to $5.00 per 100 ADSs held

Distribution of securities other than ADSs or rights to purchase additional ADSs

  NoneUp to $5.00 per 100 ADSs held

General depositary services

  NoneUp to $5.00 per 100 ADSs held

Holders of our ADSs are also responsible for paying certain fees and expenses incurred by the depositary and certain taxes and governmental charges such as:

 

fees for the transfer and registration of shares charged by the registrar and transfer agent for the shares in Korea (i.e., upon deposit and withdrawal of shares);

fees for the transfer and registration of shares charged by the registrar and transfer agent for the shares in Korea (i.e., upon deposit and withdrawal of shares);

 

expenses incurred for converting foreign currency into Dollars;

 

expenses for cable, telex and fax transmissions and for delivery of securities;

 

taxes and duties upon the transfer of securities (i.e., when shares are deposited or withdrawn from deposit);

taxes (including applicable interest and penalties) and other governmental charges;

 

fees and expenses incurred in connection with compliance with exchange control regulations and other regulatory requirements; and

 

fees and expenses incurred in connection with the delivery or servicing of shares on deposit.

Depositary fees payable upon the issuance and surrender of ADSs are typically paid to the depositary by the brokers (on behalf of their clients) receiving the newly issued ADSs from the depositary and by the brokers (on behalf of their clients) delivering the ADSs to the depositary for surrender. The brokers in turn charge these fees to their clients. Depositary fees payable in connection with distributions of cash or securities to ADS holders and the depositary services fee are charged by the depositary to the holders of record of ADSs as of the applicable ADS record date.

The depositary fees payable for cash distributions are generally deducted from the cash being distributed. In the case of distributions other than cash (i.e., stock dividend, rights), the depositary charges the applicable fee to the ADS record date holders concurrent with the distribution. In the case of ADSs registered in the name of the investor (whether certificated or uncertificated in direct registration), the depositary sends invoices to the applicable record date ADS holders. In the case of ADSs held in brokerage and custodian accounts (via the Korea Securities Depositary, or KSD), the depositary generally collects its fees through the systems provided by KSD (whose nominee is the registered holder of the ADSs held in KSD) from the brokers and custodians holding ADSs in their KSD accounts. The brokers and custodians who hold their clients’ ADSs in KSD accounts in turn charge their clients’ accounts the amount of the fees paid to the depositary.

In the event of refusal to pay the depositary fees, the depositary may, under the terms of the deposit agreement, refuse the requested service until payment is received or may set off the amount of the depositary fees from any distribution to be made to such holder of ADSs.

The fees and charges that holders of our ADSs may be required to pay may vary over time and may be changed by us and by the depositary. Holders of our ADSs will receive prior notice of such changes.

Fees and Payments from the Depositary to Us

In 2014,2017, we received the following payments$770,000 from the depositary netfor reimbursement of tax:various costs, including preparation of SEC filing and submission, listing fees, proxy process expenses (printing, postage and distribution), legal fees and contributions for our investor relations activities.

Reimbursement of expenses for preparation of SEC filing and submission:

  $ 89,057  

Reimbursement of listing fees:

  $128,950  

Reimbursement of legal fees:

  $160,423  

Reimbursement of proxy process expenses (printing, postage and distribution):

  $77,034  

Contributions toward our investor relations efforts:

  $209,931  

Miscellaneous:

  $139,605  
  

 

 

 

Total:

  $805,000  
  

 

 

 

In addition, as part of its service to us, the depositary waives its fees for the standard costs associated with the administration of the ADS facility, associated operating expenses, investor relations advice and access to aninternet-based tool used in our investor relations activities.

PART II

Item 13.  Defaults, Dividend Arrearages and Delinquencies

Not applicable

Item 14.  Material Modifications to the Rights of Security Holders and Use of Proceeds

Not applicable

Item 15.  Controls and Procedures

a. Disclosure Controls and Procedures

Our management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures, as such term is defined in Rules13a-15(e) and15d-15(e) under the Exchange Act, as of December 31, 2014.2017. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and that it is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

b. Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed by, and under the supervision of, our principal executive, principal operating and principal financial officers, and effected

by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Our internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management has completed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 20142017 based on criteria in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that our internal control over financial reporting was effective as of December 31, 2014.2017.

c. Report of the Independent Registered Public Accounting Firm

The report of our independent registered public accounting firm, KPMG Samjong Accounting Corp. (“KPMG Samjong”), an independent registered public accounting firm, which audited our consolidated financial statements as of, and for the year ended, December 31, 2014, has issued an audit report on the effectiveness of our internal control over financial reporting which reportas of December 31, 2017 is included in Item 18 of this Form20-F.

d. Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during the year covered by this annual report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Our adoption of Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission did not have, and is not reasonably likely to have, any material effect on our internal control over financial reporting.

Item 16.[Reserved]

Item 16A.16.A.Audit Committee Financial Expert

The board of directors has approved the members of our audit committee. Kim, Il-SupChung,Moon-Ki is an audit committee financial expert and is independent within the meaning of applicable SEC rules.

Item 16B.16.B.Code of Ethics

We have adopted a code of business conduct and ethics, as defined in Item 16B. of Form20-F under the Securities Exchange Act of 1934, as amended. Our code of business conduct and ethics, called Code of Conduct, applies to our chief executive officer and chief financial officer, as well as to our directors, other officers and employees. Our Code of Conduct is available on our web site atwww.posco.com. If we amend the provisions of our Code of Conduct that apply to our chief executive officer or chief financial officer and persons performing similar functions, or if we grant any waiver of such provisions, we will disclose such amendment or waiver on our web site at the same address.

Item 16C.16.C.Principal Accountant Fees and Services

Audit andNon-Audit Fees

The following table sets forth the fees billed to us by our independent auditor, KPMG, in 2012, 20132016 and 2014:2017:

 

  For the Year Ended December 31,   For the Year Ended
December 31,
 
      2012           2013           2014       2016   2017 
  (In millions of Won)   (In millions of Won) 

Audit fees

  6,501    5,356    5,481    5,159   6,164 

Audit-related fees

   170     90       

Tax fees

   1,730     1,110     1,082     1,267    805 

Other fees

   48     25     16  
  

 

   

 

   

 

   

 

   

 

 

Total fees

  8,449    6,581    6,579    6,426   6,969 
  

 

   

 

   

 

   

 

   

 

 

Audit fees in 20142016 and 2017 as set forth in the above table are the aggregate fees billed by KPMG in connection with the audit of our annual financial statements and the annual financial statements of other related companies and review of interim financial statements.

Audit-related fees in 2014 as set forth in the above table are the aggregate fees billed by KPMG for comfort letter services related to our securities offering. There are no audit-related fees incurred in 2014.

Tax fees in 20142016 and 2017 as set forth in the above table are fees billed by KPMG for our tax compliance and tax planning, as well as tax planning and preparation of othercompliance related companies.

Other fees in 2014 as set forth in the above table are fees billed by KPMG primarily in relation to certifications in connection with forward contracts.transfer pricing.

Audit CommitteePre-Approval Policies and Procedures

Our audit committee has not establishedpre-approval policies and procedures for the engagement of our independent auditors for services. Our audit committee expressly approves on acase-by-case basis any engagement of our independent auditors for audit andnon-audit services provided to our subsidiaries or us.

Item 16D.16.D.  Exemptions from the Listing Standards for Audit Committees

Not applicable

Item 16E.16.E.  Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table sets forth the repurchases of common shares by us or any affiliated purchasers during the fiscal year ended December 31, 2014:2017:

 

Period

  Total Number of
Shares
Purchased
   Average Price Paid
Paid Per Share (In

(In Won)
   Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Plans
   Maximum
Number of
Shares
that May
Yet Be
Purchased
Under the
Plans
 

January 1 to January 31

                

February 1 to February 29

                

March 1 to March 31

                

April 1 to April 30

                

May 1 to May 31

                

June 1 to June 30

                

July 1 to July 31

                

August 1 to August 31

                

September 1 to September 30

                

October 1 to October 31

                

November 1 to November 30

                

December 1 to December 31

                
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

                
  

 

 

   

 

 

   

 

 

   

 

 

 

Item 16F.16.F.Change in Registrant’sRegistrants Certifying Accountant

Not applicable

Item 16G.16.G.Corporate Governance

Pursuant to the rules of the New York Stock Exchange applicable to foreign private issuers like us that are listed on the New York Stock Exchange, we are required to disclose significant differences between the New York Stock Exchange’s corporate governance standards and those that we follow under Korean law and in accordance with our own internal procedures. The following is a summary of such significant differences.

 

NYSE Corporate Governance Standards

  

POSCO’s Corporate Governance Practice

Director Independence  
Listed companies must have a majority of independent directors  

Our articles of incorporation provide that our board of directors must comprise no less than a majority of Outside Directors. Our Outside Directors must meet the criteria for outside directorship set forth under the Korean Securities and Exchange Act.

 

The majority of our board of directors is independent (as defined in accordance with the New York Stock Exchange’s standards), and 7seven out of 12 directors are Outside Directors. UnderDirectors.Under our articles of incorporation, we may have up to five Inside Directors and seveneight Outside Directors.

Nomination/Corporate Governance Committee  
A nomination/corporate governance committee of independent directors is required. The committee must have a charter that addresses the purpose, responsibilities (including development of corporate governance guidelines) and annual performance evaluation of the committeecommittee.  We have not established a separate nomination corporate governance committee. However, we maintain a Director Candidate Recommendation and Management Committee composed of three Outside Directors and one Inside Director.

NYSE Corporate Governance Standards

POSCO’s Corporate Governance Practice

Compensation Committee

  

A compensation committee of independent directors is required. The committee must have a charter that addresses the purpose, responsibilities and annual performance evaluation of the committee. The charter must be made available on the company’s website. In addition, in accordance with the U.S. Securities and Exchange Commission rules adopted pursuant to Section 952 of theDodd-Frank Act, the New York Stock Exchange listing standards were amended to expand the factors relevant in determining whether a committee member has a relationship with the company that will materially affect that member’s duties to the compensation committee.

 

Additionally, the committee may obtain or retain the advice of a compensation adviser only after taking into consideration all factors relevant to determining that adviser’s independence from managementmanagement.

  We maintain an Evaluation and Compensation Committee composed of four Outside Directors.

Executive Session

  
Non-management directors must meet in regularly scheduled executive sessions without management. Independent directors should meet alone in an executive session at least once a yearyear.  Our Outside Directors hold meetings solely attended by Outside Directors in accordance with operation guidelines of our board of directors.

Audit Committee

  
Listed companies must have an audit committee that satisfies the independence and other requirements of Rule10A-3 under the Exchange Act. All members must be independent. The committee must have a charter addressing the committee’s purpose, an annual performance evaluation of the committee, and the duties and responsibilities of the committee. The charter must be made available on the company’s websitewebsite.  We maintain an Audit Committee comprised of three Outside Directors who meet the applicable independence criteria set forth under Rule10A-3 under the Exchange Act.

NYSE Corporate Governance Standards

POSCO’s Corporate Governance Practice

Audit Committee Additional Requirements

  
Listed companies must have an audit committee that is composed of at least three directors.  Our Audit Committee has three members, as described above.

Shareholder Approval of Equity Compensation Plan

  
Listed companies must allow their shareholders to exercise their voting rights with respect to any material revision to the company’s equity compensation planplan.  

We currently have an Employee Stock Ownership Program.

We previously provided a stock options program for officers and directors, as another equity compensation plan. However, during our annual shareholders’ meeting in February 2006, our shareholders resolved to terminate the stock option program and amended our articles of incorporation to delete the provision allowing grant of stock options to officers and directors. Consequently, since February 24, 2006, we have not granted stock options to officers and directors. Matters related to the Employee Stock Ownership Program are not subject to shareholders’ approval under Korean law.

Corporate Governance Guidelines

  
Listed companies must adopt and disclose corporate governance guidelinesguidelines.  We have adopted a Corporate Governance Charter setting forth our practices with respect to relevant corporate governance matters. Our Corporate Governance Charter is in compliance with Korean law but does not meet all requirements established by the New York Stock Exchange for U.S. companies listed on the exchange. A copy of our Corporate Governance Charter is available on our website atwww.posco.com.www.posco.com.

NYSE Corporate Governance Standards

POSCO’s Corporate Governance Practice

Code of Business Conduct and Ethics

  
Listed companies must adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officersofficers.  We have adopted a Code of Conduct for all directors, officers and employees. A copy of our Code of Conduct is available on our website atwww.posco.com.

Item 16H.16.H.Mine Safety Disclosure

Not applicable

PART III

Item 17.Financial Statements

Not applicable

Item 18.Financial Statements

 

   Page 

Report of Independent Registered Public Accounting Firm, KPMG Samjong Accounting Corp., on Consolidated Financial Statements

   F-1F-2 

Report of Independent Registered Public Accounting Firm, KPMG Samjong Accounting Corp., on Internal Control over Financial Reporting

   F-2F-3 

Consolidated Statements of Financial Position as of December 31, 20132016 and 20142017

   F-3F-5 

Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2012, 20132015, 2016 and 20142017

   F-5F-7 

Consolidated Statements of Changes in Equity for the Years Ended December 31, 2012, 20132015, 2016 and 20142017

   F-6F-8 

Consolidated Statements of Cash Flows for the Years Ended December 31, 2012, 20132015, 2016 and 20142017

   F-9F-11 

Notes to Consolidated Financial Statements

   F-11F-13 

Item 19.Exhibits

 

 1.1     Articles of Incorporation of POSCO (English translation) (incorporated by reference to Exhibit 1.1 to the Registrant’s filing on Form 20-F (File No. 001-13368), filed on May 12, 2014)*
 2.1     Form of Common Stock Certificate (including English translation) (incorporated by reference to Exhibit 4.3 to the Registrant’s Registration Statement No. 333-189473)33-81554)* (P)
 2.2    Form of Deposit Agreement (including Form of American Depositary Receipts) (incorporated by reference to the Registrant’s Registration Statement (File No. 33-84318)333-189473) on FormF-6)*
 8.1     List of consolidated subsidiaries
 12.1    Certification pursuant to Section 302 of theSarbanes-Oxley Act of 2002
 12.2    Certification pursuant to Section 302 of theSarbanes-Oxley Act of 2002
 13.1    Certification pursuant to Section 906 of theSarbanes-Oxley Act of 2002

 

 

*Filed previously

Table of Contents

 

   Page 

Report of Independent Registered Public Accounting Firm

   F-1F-2   

Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting

F-2  

Consolidated Financial Statements

Consolidated Statements of Financial Position

   F-3   

Consolidated Financial Statements

Consolidated Statements of Comprehensive IncomeFinancial Position

   F-5   

Consolidated Statements of Changes in EquityComprehensive Income (Loss)

   F-6F-7   

Consolidated Statements of Cash FlowsChanges in Equity

   F-9F-8   

Notes to the Consolidated Financial Statements of Cash Flows

   F-11 

Notes to the Consolidated Financial Statements

F-13


Report of Independent Registered Public Accounting Firm

TheTo the Shareholders and Board of Directors and Shareholders

POSCO:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statements of financial position of POSCO and subsidiaries (the Company) as of December 31, 20132016 and 20142017 and the related consolidated statements of comprehensive income (loss), changes in equity and cash flows for each of the years in the three-year period ended December 31, 2014. These consolidated financial statements are2017 and the responsibility of POSCO’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whetherrelated notes (collectively, the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 provide a reasonable basis for our opinion.

statements). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of POSCO and subsidiariesthe Company as of December 31, 20132016 and 20142017 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2014,2017, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the effectiveness of POSCO’sCompany’s internal control over financial reporting as of December 31, 2014,2017, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated April 27, 201526, 2018 expressed an unqualified opinion on the effectiveness of POSCO’sthe Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ KPMG Samjong Accounting Corp.

We have served as the Company’s auditor since 2008.

Seoul, Korea

April 27, 201526, 2018

Report of Independent Registered Public Accounting Firm

on Internal Control over Financial Reporting

TheTo the Shareholders and Board of Directors and Stockholders

POSCO:

Opinion on Internal Control over Financial Reporting

We have audited POSCO’sPOSCO and subsidiaries (the Company)’s internal control over financial reporting as of December 31, 2014,2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. POSCO’sIn our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Company as of December 31, 2016 and 2017, the related consolidated statements of comprehensive income (loss), changes in equity and cash flows for each of the years in the three-year period ended December 31, 2017 and the related notes (collectively, the consolidated financial statements), and our report dated April 26, 2018 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on POSCO’sthe Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are

being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, POSCO maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial position of POSCO and subsidiaries as of December 31, 2013 and 2014, and the related consolidated statements of comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2014, and our report dated April 27, 2015 expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG Samjong Accounting Corp.

Seoul, Korea

April 27, 201526, 2018

POSCO and Subsidiaries

Consolidated Statements of Financial Position

As of December 31, 20132016 and 20142017

 

 

 

  Notes   December 31,
2013 (note 2)
   December 31,
2014
   Notes   December 31,
2016
   December 31,
2017
 
  (in millions of Won)   (in millions of Won) 

Assets

            

Cash and cash equivalents

   4,5,23    4,208,562     3,811,202     4,5,23    2,447,619    2,612,530 

Trade accounts and notes receivable, net

   6,23,29,37     11,512,644     11,664,587     6,17,23,29,37    9,674,026    8,824,563 

Other receivables, net

   7,23     1,890,423     1,956,216     7,23,37    1,539,742    1,636,006 

Other short-term financial assets

   8,23,37     2,970,665     1,462,920     8,23    5,224,911    7,045,880 

Inventories

   9     10,150,838     11,173,343     9    9,515,895    10,793,781 

Current income tax assets

   35     32,417     36,147     35    46,473    38,489 

Assets held for sale

   10     2,494     2,127,087     10    311,958    71,768 

Other current assets

   16     1,270,668     976,425     16    894,484    821,242 
    

 

   

 

     

 

   

 

 

Total current assets

     32,038,711     33,207,927       29,655,108    31,844,259 
    

 

   

 

     

 

   

 

 

Long-term trade accounts and notes receivable, net

   6,23     97,000     79,336     6,23    51,124    731,570 

Other receivables, net

   7,23     797,455     1,144,160     7,23,37    762,912    879,176 

Other long-term financial assets

   8,23     4,465,730     2,455,900     8,23    2,657,692    1,911,684 

Investments in associates and joint ventures

   11     3,808,693     4,060,507     11    3,882,389    3,557,932 

Investment property, net

   13     425,229     1,055,592     13    1,117,720    1,064,914 

Property, plant and equipment, net

   14     35,760,119     35,241,195     14    33,770,339    31,883,535 

Intangible assets, net

   15,41     5,929,840     6,884,989     15    6,088,729    5,952,269 

Defined benefit assets, net

   21    83,702    8,224 

Deferred tax assets

   35     1,153,133     1,206,408     35    1,500,219    1,463,055 

Other long-term assets

   16     365,198     507,549  

Other non-current assets

   16    567,680    489,011 
    

 

   

 

     

 

   

 

 

Total non-current assets

     52,802,397     52,635,636       50,482,506    47,941,370 
    

 

   

 

     

 

   

 

 

Total assets

    84,841,108     85,843,563       80,137,614    79,785,629 
    

 

   

 

     

 

   

 

 

See accompanying notes to the consolidated financial statements.

POSCO and Subsidiaries

Consolidated Statements of Financial Position, Continued

As of December 31, 20132016 and 20142017

 

 

 

  Notes   December 31,
2013 (note 2)
 December 31,
2014
   Notes   December 31,
2016
 December 31,
2017
 
  (in millions of Won)   (in millions of Won) 

Liabilities

          

Trade accounts and notes payable

   23,37    4,231,322    3,950,786     23,37   4,073,286  3,465,146 

Short-term borrowings and current installments of long-term borrowings

   4,17,23     10,713,646    12,195,484     4,17,23    10,194,807  11,274,516 

Other payables

   18,23     2,128,854    2,194,713     18,23    1,851,659  1,753,461 

Other short-term financial liabilities

   19,23,37     135,904    111,637     19,23,37    149,748  129,812 

Current income tax liabilities

   35     358,930    453,613     35    446,071  515,538 

Liabilities of disposal group held for sale

   10         590,982  

Provisions

   20     107,329    150,030     20    114,865  110,946 

Other current liabilities

   22,29     2,681,559    2,727,793     22,29    2,113,873  2,240,919 
    

 

  

 

     

 

  

 

 

Total current liabilities

     20,357,544    22,375,038       18,944,309  19,490,338 
    

 

  

 

     

 

  

 

 

Long-term trade accounts and notes payable

   23,37     559    88,469     23,37    44,512  12,532 

Long-term borrowings, excluding current installments

   4,17,23     15,532,959    15,232,773     4,17,23    12,510,191  9,789,141 

Other payables

   18,23     206,634    169,986     18,23    208,559  147,750 

Other long-term financial liabilities

   19,23     260,021    91,095     19,23    81,309  114,105 

Defined benefit liabilities, net

   21     273,160    290,325     21    123,604  137,193 

Deferred tax liabilities

   35     1,711,762    1,832,260     35    1,642,939  1,904,242 

Long-term provisions

   20     146,272    223,239     20    337,739  477,172 

Other long-term liabilities

   22     571,515    282,982  

Othernon-current liabilities

   22    479,183  386,431 
    

 

  

 

     

 

  

 

 

Total non-current liabilities

     18,702,882    18,211,129       15,428,036  12,968,566 
    

 

  

 

     

 

  

 

 

Total liabilities

     39,060,426    40,586,167       34,372,345  32,458,904 
    

 

  

 

     

 

  

 

 

Equity

          

Share capital

   24     482,403    482,403     24    482,403  482,403 

Capital surplus

   24     1,078,266    1,083,718     24    1,407,247  1,422,021 

Hybrid bonds

   25     996,919    996,919     25    996,919  996,919 

Reserves

   26     (23,076  (408,773   26    (143,985 (682,556

Treasury shares

   27     (1,579,124  (1,534,457   27    (1,533,468 (1,533,054

Retained earnings

     41,053,632    40,937,148       41,125,712  42,974,658 
    

 

  

 

     

 

  

 

 

Equity attributable to owners of the controlling company

     42,009,020    41,556,958       42,334,828  43,660,391 

Non-controlling interests

   25     3,771,662    3,700,438     25    3,430,441  3,666,334 
    

 

  

 

     

 

  

 

 

Total equity

     45,780,682    45,257,396       45,765,269  47,326,725 
    

 

  

 

     

 

  

 

 

Total liabilities and equity

    84,841,108    85,843,563          80,137,614  79,785,629 
    

 

  

 

     

 

  

 

 

See accompanying notes to the consolidated financial statements.

POSCO and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

For the years ended December 31, 2012, 20132015, 2016 and 20142017

 

 

 

   Notes   2012 (note 2)  2013 (note 2)  2014 
   (in millions of Won, except per share information) 

Revenue

   28,29,37    63,345,258    61,765,743    64,758,625  

Cost of sales

   29,31,34,37     (55,920,623  (54,913,816  (57,465,485
    

 

 

  

 

 

  

 

 

 

Gross profit

     7,424,635    6,851,927    7,293,140  

Selling and administrative expenses

   30,34      

Administrative expenses

   31     (2,129,463  (2,231,805  (2,309,756

Selling expenses

     (1,678,688  (1,632,120  (1,760,118

Other operating income and expenses

   32,37      

Other operating income

     448,120    229,073    269,406  

Other operating expenses

   34     (809,465  (650,806  (979,674
    

 

 

  

 

 

  

 

 

 

Operating profit

     3,255,139    2,566,269    2,512,998  

Share of loss of equity-accounted investees, net

   11     (22,702  (179,809  (299,893

Finance income and costs

   23,33      

Finance income

     2,897,063    2,380,838    2,396,762  

Finance costs

     (2,797,638  (2,829,253  (3,221,987
    

 

 

  

 

 

  

 

 

 

Profit before income taxes

     3,331,862    1,938,045    1,387,880  

Income tax expense

   35     (974,016  (589,029  (823,841
    

 

 

  

 

 

  

 

 

 

Profit

     2,357,846    1,349,016    564,039  

Other comprehensive income (loss)

      

Items that will never be reclassified subsequently to profit or loss :

      

Remeasurements of defined benefit pension plans

   21     (62,527  6,224    (75,101

Items that are or may be reclassified subsequently to profit or loss :

      

Capital adjustment arising from investments in equity-method investees

     (130,836  (183,836  (45,754

Net changes in the unrealized fair value of available-for-sale investments

   23     (81,471  412,346    (333,891

Foreign currency translation differences

     (363,088  (220,464  (836
    

 

 

  

 

 

  

 

 

 

Other comprehensive income (loss), net of tax

     (637,922  14,270    (455,582
    

 

 

  

 

 

  

 

 

 

Total comprehensive income

    1,719,924    1,363,286    108,457  
    

 

 

  

 

 

  

 

 

 

Profit (loss) attributable to :

      

Owners of the controlling company

    2,437,227    1,370,878    632,706  

Non-controlling interests

     (79,381  (21,862  (68,667
    

 

 

  

 

 

  

 

 

 

Profit

    2,357,846    1,349,016    564,039  
    

 

 

  

 

 

  

 

 

 

Total comprehensive income (loss) attributable to :

      

Owners of the controlling company

    1,886,652    1,438,744    181,525  

Non-controlling interests

     (166,728  (75,458  (73,068
    

 

 

  

 

 

  

 

 

 

Total comprehensive income

    1,719,924    1,363,286    108,457  
    

 

 

  

 

 

  

 

 

 

Basic and diluted earnings per share (in Won)

   36     31,552    17,338    7,514  

   Notes   2015  2016  2017 
   (in millions of Won, except per share information) 

Revenue

   28,29,37    58,522,268   52,939,771   60,186,867 

Cost of sales

   29,31,34,37    (52,018,434  (46,271,465  (51,915,597
    

 

 

  

 

 

  

 

 

 

Gross profit

     6,503,834   6,668,306   8,271,270 

Selling and administrative expenses

   30,34     

Administrative expenses

   31    (2,395,248  (2,291,540  (2,176,800

Selling expenses

     (1,728,956  (1,553,686  (1,557,277

Other operating income and expenses

   32,37     

Other operating income

     549,048   215,136   451,224 

Other operating expenses

   34    (1,442,298  (755,720  (792,296
    

 

 

  

 

 

  

 

 

 

Operating profit

     1,486,380   2,282,496   4,196,121 

Share of profit (loss) of equity-accounted investees, net

   11    (506,054  (88,677  10,540 

Finance income and costs

   23,33     

Finance income

     2,557,073   2,231,980   2,372,667 

Finance costs

     (3,387,054  (3,014,190  (2,484,277
    

 

 

  

 

 

  

 

 

 

Profit before income taxes

     150,345   1,411,609   4,095,051 

Income tax expense

   35    (266,560  (379,544  (1,185,740
    

 

 

  

 

 

  

 

 

 

Profit (loss)

     (116,215  1,032,065   2,909,311 

Other comprehensive income (loss)

      

Items that will not be reclassified subsequently to profit or loss:

      

Remeasurements of defined benefit plans

   21    41,954   20,540   (47,543

Items that are or may be reclassified subsequently to profit or loss:

      

Capital adjustment arising from investments in equity-method investees

     (82,509  134,590   (217,388

Net changes in unrealized fair value ofavailable-for-sale investments

   23    (187,854  310,608   (31,389

Foreign currency translation differences

     66,280   (11,491  (264,695

Gain or losses on valuation of derivatives

   23          (143
    

 

 

  

 

 

  

 

 

 

Other comprehensive income (loss), net of tax

     (162,129  454,247   (561,158
    

 

 

  

 

 

  

 

 

 

Total comprehensive income (loss)

    (278,344  1,486,312   2,348,153 
    

 

 

  

 

 

  

 

 

 

Profit (loss) attributable to:

      

Owners of the controlling company

    171,494   1,354,807   2,756,230 

Non-controlling interests

     (287,709  (322,742  153,081 
    

 

 

  

 

 

  

 

 

 

Profit (loss)

    (116,215  1,032,065   2,909,311 
    

 

 

  

 

 

  

 

 

 

Total comprehensive income (loss) attributable to:

      

Owners of the controlling company

    23,864   1,814,030   2,184,402 

Non-controlling interests

     (302,208  (327,718  163,751 
    

 

 

  

 

 

  

 

 

 

Total comprehensive income (loss)

    (278,344  1,486,312   2,348,153 
    

 

 

  

 

 

  

 

 

 

Basic and diluted earnings per share (in Won)

   36    1,731   16,521   34,040 

See accompanying notes to the consolidated financial statements.

POSCO and Subsidiaries

Consolidated Statements of Changes in Equity

For the years ended December 31, 2012, 20132015, 2016 and 20142017

 

 

 

 Attributable to owners of the controlling company Non-controlling
interests
  Total  Attributable to owners of the controlling company Non-controlling
interests
  Total 
 Share
capital
 Capital
surplus
 Hybrid
bonds
 Reserves Treasury
shares
 Retained
earnings
 Sub total  Share
capital
 Capital
surplus
 Hybrid
bonds
 Reserves Treasury
shares
 Retained
earnings
 Subtotal 
 (in millions of Won)  (in millions of Won) 

Balance as of January 1, 2012 (note 2)

 482,403    1,150,452        405,426    (2,391,406  38,702,830    38,349,705    2,372,792    40,722,497  

Comprehensive income:

         

Profit

                      2,437,227    2,437,227    (79,381  2,357,846  

Other comprehensive income

         

Net changes in accumulated comprehensive income of investments in associates, net of tax

              (112,974          (112,974  (17,862  (130,836

Balance as of January 1, 2015

 482,403  1,083,718  996,919  (408,773 (1,534,457 40,937,148  41,556,958  3,700,438  45,257,396 

Comprehensive income (loss):

         

Profit (loss)

                171,494  171,494  (287,709 (116,215

Other comprehensive income (loss)

         

Remeasurements of defined benefit plans, net of tax

                38,771  38,771  3,183  41,954 

Capital adjustment arising from investments
in equity-accounted investees, net of tax

          (81,418       (81,418 (1,091 (82,509

Net changes in the unrealized fair value of available-for-sale investments, net of tax

              (86,661          (86,661  5,190    (81,471          (183,077       (183,077 (4,777 (187,854

Foreign currency translation differences, net of tax

              (292,015          (292,015  (71,073  (363,088          78,094        78,094  (11,814 66,280 

Remeasurements of defined benefit pension plans, net of tax

                      (58,925  (58,925  (3,602  (62,527
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total comprehensive income

              (491,650      2,378,302    1,886,652    (166,728  1,719,924  

Total comprehensive income (loss)

          (186,401    210,265  23,864  (302,208 (278,344
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Transactions with owners of the controlling company, recognized directly in equity:

                  

Year-end dividends

                      (579,333  (579,333  (19,751  (599,084                (479,958 (479,958 (32,410 (512,368

Interim dividends

                      (154,489  (154,489      (154,489                (159,987 (159,987 (67,700 (227,687

Changes in subsidiaries

                              35,870    35,870                        (311,548 (311,548

Changes in ownership interests in subsidiaries

      (41,924                  (41,924  715,148    673,224      310,485              310,485  844,769  1,155,254 

Issue of hybrid bonds

                                    

Interest of hybrid bonds

                                                    (43,574 (43,574 (24,187 (67,761

Disposal of treasury shares

                                        (35       559     524     524 

Others

      (3,714      (1,926      (32,328  (37,968  34,260    (3,708    (1,089    418     (2,398 (3,069 804  (2,265
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total transactions with owners of the controlling company

      (45,638      (1,926      (766,150  (813,714  765,527    (48,187    309,361     418  559  (685,917 (375,579 409,728  34,149 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Balance as of December 31, 2012

 482,403    1,104,814        (88,150  (2,391,406  40,314,982    39,422,643    2,971,591    42,394,234  

Balance as of December 31, 2015

  W    482,403  1,393,079  996,919  (594,756 (1,533,898 40,461,496  41,205,243  3,807,958  45,013,201 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

See accompanying notes to the consolidated financial statements.

POSCO and Subsidiaries

Consolidated Statements of Changes in Equity, Continued

For the years ended December 31, 2012, 20132015, 2016 and 20142017

 

 

 

  Attributable to owners of the controlling company  Non-controlling
interests
  Total 
   Share
capital
  Capital
surplus
  Hybrid
bonds
  Reserves  Treasury
shares
  Retained
earnings
  Sub total   
  (in millions of Won) 

Balance as of January 1, 2013

 482,403    1,104,814        (88,150  (2,391,406  40,314,982    39,422,643    2,971,591    42,394,234  

Comprehensive income:

         

Profit

                      1,370,878    1,370,878    (21,862  1,349,016  

Other comprehensive income

         

Net changes in accumulated comprehensive income of investments in associates, net of tax

              (166,787          (166,787  (17,049  (183,836

Net changes in the unrealized fair value of available-for-sale investments, net of tax

              412,453            412,453    (107  412,346  

Foreign currency translation differences, net of tax

              (180,839          (180,839  (39,625  (220,464

Remeasurements of defined benefit pension plans, net of tax

                      3,039    3,039    3,185    6,224  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total comprehensive income

              64,827        1,373,917    1,438,744    (75,458  1,363,286  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Transactions with owners of the controlling company, Recognized directly in equity:

         

Year-end dividends

                      (463,467  (463,467  (30,544  (494,011

Interim dividends

                      (154,490  (154,490      (154,490

Changes in subsidiaries

                              40,506    40,506  

Changes in ownership interests in subsidiaries

      (31,417                  (31,417  373,963    342,546  

Issue of hybrid bonds

          996,919                996,919    498,468    1,495,387  

Interest of hybrid bonds

                      (24,161  (24,161  (6,228  (30,389

Disposal of treasury shares

      5,348            812,282        817,630        817,630  

Others

      (479      247        6,851    6,619    (636  5,983  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total transactions with owners of the controlling company

      (26,548  996,919    247    812,282    (635,267  1,147,633    875,529    2,023,162  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance as of December 31, 2013

 482,403    1,078,266    996,919    (23,076  (1,579,124  41,053,632    42,009,020    3,771,662    45,780,682  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  Attributable to owners of the controlling company  Non-controlling
interests
  Total 
  Share
capital
  Capital
surplus
  Hybrid
bonds
  Reserves  Treasury
shares
  Retained
earnings
  Subtotal   
  (in millions of Won) 

Balance as of January 1, 2016

 482,403   1,393,079   996,919   (594,756  (1,533,898  40,461,496   41,205,243   3,807,958   45,013,201 

Comprehensive income (loss):

         

Profit (loss)

                 1,354,807   1,354,807   (322,742  1,032,065 

Other comprehensive income (loss)

         

Remeasurements of defined benefit plans, net of tax

                 9,787   9,787   10,753   20,540 

Capital adjustment arising from investments in equity-accounted investees, net of tax

           124,626         124,626   9,964   134,590 

Net changes in the unrealized fair value ofavailable-for-sale investments, net of tax

           314,428         314,428   (3,820  310,608 

Foreign currency translation differences, net of tax

           10,382         10,382   (21,873  (11,491
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total comprehensive income (loss)

           449,436      1,364,594   1,814,030   (327,718  1,486,312 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Transactions with owners of the controlling company, recognized directly in equity:

         

Year-end dividends

                 (479,974  (479,974  (50,333  (530,307

Interim dividends

                 (179,992  (179,992     (179,992

Changes in subsidiaries

                       49,250   49,250 

Changes in ownership interests in subsidiaries

     8,650               8,650   (16,544  (7,894

Interest of hybrid bonds

                 (43,832  (43,832  (24,253  (68,085

Disposal of treasury shares

     32         430      462      462 

Others

     5,486      1,335      3,420   10,241   (7,919  2,322 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total transactions with owners of the controlling company

     14,168      1,335   430   (700,378  (684,445  (49,799  (734,244
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance as of December 31, 2016

 482,403   1,407,247   996,919   (143,985  (1,533,468  41,125,712   42,334,828   3,430,441   45,765,269 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

See accompanying notes to the consolidated financial statements.

POSCO and Subsidiaries

Consolidated Statements of Changes in Equity, Continued

For the years ended December 31, 2012, 20132015, 2016 and 20142017

 

 

 

 Attributable to owners of the controlling company Non-controlling
interests
  Total  Attributable to owners of the controlling company Non-controlling
interests
  Total 
 Share
capital
 Capital
surplus
 Hybrid
bond
 Reserves Treasury
shares
 Retained
earnings
 Sub total  Share
capital
 Capital
surplus
 Hybrid
bonds
 Reserves Treasury
shares
 Retained
earnings
 Subtotal 
 (in millions of Won)  (in millions of Won) 

Balance as of January 1, 2014

 482,403    1,078,266    996,919    (23,076  (1,579,124  41,053,632    42,009,020    3,771,662    45,780,682  

Balance as of January 1, 2017

 482,403  1,407,247  996,919  (143,985 (1,533,468 41,125,712  42,334,828  3,430,441  45,765,269 

Comprehensive income:

                  

Profit

                      632,706    632,706    (68,667  564,039                  2,756,230  2,756,230  153,081  2,909,311 

Other comprehensive income

         

Net changes in accumulated comprehensive income of investments in associates, net of tax

              (50,920          (50,920  5,166    (45,754

Other comprehensive income (loss)

         

Remeasurements of defined benefit plans, net of tax

                (38,043 (38,043 (9,500 (47,543

Capital adjustment arising from investments in equity-accounted investees, net of tax

          (214,794       (214,794 (2,594 (217,388

Net changes in the unrealized fair value of available-for-sale investments, net of tax

              (335,626          (335,626  1,735    (333,891          (45,953       (45,953 14,564  (31,389

Foreign currency translation differences, net of tax

              517            517    (1,353  (836          (272,902       (272,902 8,207  (264,695

Remeasurements of defined benefit pension plans,
net of tax

                      (65,152  (65,152  (9,949  (75,101

Gain or losses on valuation of derivatives, net of tax

          (136       (136 (7 (143
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total comprehensive income

              (386,029      567,554    181,525    (73,068  108,457            (533,785    2,718,187  2,184,402  163,751  2,348,153 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Transactions with owners of the controlling company, Recognized directly in equity:

         

Transactions with owners of the controlling company, recognized directly in equity:

         

Year-end dividends

                      (478,702  (478,702  (32,887  (511,589                (459,987 (459,987 (42,909 (502,896

Interim dividends

                      (159,568  (159,568  (76,854  (236,422                (359,993 (359,993    (359,993

Changes in subsidiaries

                              91,551    91,551                        (7,151 (7,151

Changes in ownership interests in subsidiaries

      (9,401                  (9,401  44,265    34,864      16,287              16,287  147,420  163,707 

Interest of hybrid bonds

                      (43,600  (43,600  (26,175  (69,775                (43,600 (43,600 (24,187 (67,787

Disposal of treasury shares

      14,576            44,667        59,243        59,243      126        414     540     540 

Others

      277        332        (2,168  (1,559  1,944    385      (1,639    (4,786    (5,661 (12,086 (1,031 (13,117
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total transactions with owners of the controlling company

      5,452        332    44,667    (684,038  (633,587  1,844    (631,743    14,774     (4,786 414  (869,241 (858,839 72,142  (786,697
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Balance as of December 31, 2014

 482,403    1,083,718    996,919    (408,773  (1,534,457  40,937,148    41,556,958    3,700,438    45,257,396  

Balance as of December 31, 2017

 482,403  1,422,021  996,919  (682,556 (1,533,054 42,974,658  43,660,391  3,666,334  47,326,725 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

See accompanying notes to the consolidated financial statements.

POSCO and Subsidiaries

Consolidated Statements of Cash Flows

For the years ended December 31, 2012, 20132015, 2016 and 20142017

 

 

 

   Notes  2012  2013  2014 
      (in millions of Won) 

Cash flows from operating activities

      

Profit

    2,357,846    1,349,016    564,039  

Adjustments for:

      

Depreciation

     2,405,769    2,505,536    2,894,609  

Amortization

     157,991    180,014    343,940  

Finance income

     (1,553,200  (1,012,281  (1,046,718

Finance costs

     1,605,414    1,585,778    1,801,015  

Income tax expense

     974,016    589,029    823,841  

Gain on disposal of property, plant and equipment

     (42,290  (14,177  (15,039

Loss on disposal of property, plant and equipment

     65,486    121,133    50,006  

Impairment loss on property, plant and equipment

     12,977    9,742    64,833  

Share of loss of equity-accounted investees

     22,702    179,809    299,893  

Costs for defined benefit plans

     226,132    247,748    237,886  

Provision expense

     25,127    111,364    245,470  

Bad debt expenses

     123,373    201,185    205,306  

Loss on valuation of inventories

     76,484    49,172    41,713  

Impairment loss on goodwill and intangible assets

     21,776    125,316    55,220  

Gain on disposals of assets held for sale

     (193,333  (101,611  (48,232

Impairment loss on assets held for sale

     258,451    1,814    17,205  

Others, net

     (26,636  31,079    56,890  
    

 

 

  

 

 

  

 

 

 
     4,160,239    4,810,650    6,027,838  
    

 

 

  

 

 

  

 

 

 

Changes in operating assets and liabilities

  39   1,969,982    (108,300  (1,853,782

Interest received

     238,231    227,989    238,817  

Interest paid

     (874,711  (797,316  (882,183

Dividends received

     178,317    193,008    114,694  

Income taxes paid

     (710,448  (816,912  (797,324
    

 

 

  

 

 

  

 

 

 

Net cash provided by operating activities

    7,319,456    4,858,135    3,412,099  
    

 

 

  

 

 

  

 

 

 

Cash flows from investing activities

  40    

Acquisitions of short-term financial instruments

    (3,616,118  (4,449,312  (3,096,602

Proceeds from disposal of short-term financial instruments

     3,847,682    3,901,527    4,635,120  

Acquisition of long-term financial instruments

     (178,163  (123,703  (24,683

Increase in loans

     (434,156  (575,343  (361,671

Collection of loans

     318,745    417,971    76,717  

Acquisitions of available-for-sale investments

     (307,712  (309,469  (75,582

Proceeds from disposal of available-for-sale investments

     700,686    269,363    252,056  

Acquisitions of investments of equity-accounted investees

     (492,681  (1,076,763  (702,989

Proceeds from disposal of investments of equity-accounted investees

     18,428    89,533    21,359  

Acquisitions of property, plant and equipment

     (7,054,543  (6,569,613  (3,505,549

Proceeds from disposal of property, plant and equipment

     272,948    82,153    62,829  

Acquisitions of investment property

     (29,689  (20,945  (406,603

Proceeds from diposal of investment property

     42,616    8,464    43,167  

Acquisitions of intangible assets

     (448,214  (543,666  (343,804

Proceeds from disposal of intangible assets

     10,945    5,429    9,043  

Proceeds from disposal of assets held for sale

     1,268,545    126,809    8,301  

Cash received from (paid in) acquistion of business, net of cash acquired

     (98,880  5,729    (388,578

Cash received from disposal of business, net of cash transferred

     13,041    5,962    48,949  

Other, net

     (2,483  4,204    3,338  
    

 

 

  

 

 

  

 

 

 

Net cash used in investing activities

     (6,169,003  (8,751,670  (3,745,182
    

 

 

  

 

 

  

 

 

 
   Notes   2015  2016  2017 
       (in millions of Won) 

Cash flows from operating activities

      

Profit (loss)

    (116,215  1,032,065   2,909,311 

Adjustments for:

      

Depreciation

     2,836,663   2,835,843   2,887,646 

Amortization

     381,583   378,004   409,774 

Finance income

     (1,165,340  (882,905  (1,376,324

Finance costs

     1,852,862   1,501,953   1,440,282 

Income tax expense

     266,560   379,544   1,185,740 

Gain on disposal of property, plant and equipment

     (22,730  (23,826  (32,145

Loss on disposal of property, plant and equipment

     101,732   86,622   151,343 

Impairment losses on property, plant and equipment

     136,269   196,882   117,231 

Gain on disposal of investments in subsidiaries, associates and joint ventures

     (88,718  (23,305  (81,794

Loss on disposal of investments in subsidiaries, associates and joint ventures

     18,996   22,499   19,985 

Share of loss (profit) of equity-accounted investees

     506,054   88,677   (10,540

Expenses related to post-employment benefits

     245,402   333,139   199,926 

Increase to provisions

     86,903   189,914   215,383 

Bad debt expenses

     337,235   202,717   271,871 

Loss on valuation of inventories

     152,952   152,249   78,560 

Impairment losses on goodwill and intangible assets

     161,412   127,875   167,995 

Gain on disposal of assets held for sale

     (227,956  (23,112  (1,180

Loss on disposal of assets held for sale

     190,357   254   608 

Impairment losses on assets held for sale

     133,547   24,890    

Others, net

     48,079   7,879   (33,092
    

 

 

  

 

 

  

 

 

 
     5,951,862   5,575,793   5,611,269 
    

 

 

  

 

 

  

 

 

 

Changes in operating assets and liabilities

   39    2,784,452   (404,570  (1,841,633

Interest received

     198,193   206,839   244,980 

Interest paid

     (831,566  (691,264  (735,735

Dividends received

     237,715   152,559   225,514 

Income taxes paid

     (622,612  (602,004  (806,396
    

 

 

  

 

 

  

 

 

 

Net cash provided by operating activities

    7,601,829   5,269,418   5,607,310 
    

 

 

  

 

 

  

 

 

 

See accompanying notes to the consolidated financial statements.

POSCO and Subsidiaries

Consolidated Statements of Cash Flows, Continued

For the years ended December 31, 2012, 20132015, 2016 and 20142017

 

 

 

  Notes   2012 2013 2014   Notes   2015 2016 2017 
      (in millions of Won) 

Cash flows from investing activities

      

Acquisitions of short-term financial instruments

    (13,037,990 (18,578,809 (20,843,530

Proceeds from disposal of short-term financial instruments

     10,595,379  17,177,409  19,146,634 

Acquisitions of long-term financial instruments

     (34,733 (8,249 (22,532

Increase in loans

     (295,689 (603,332 (1,055,895

Collection of loans

     308,906  557,064  667,045 

Acquisitions ofavailable-for-sale investments

     (87,824 (328,151 (66,278

Proceeds from disposal ofavailable-for-sale investments

     308,161  280,066  1,006,856 

Acquisitions of investments in associates and joint ventures

     (77,155 (173,769 (60,277

Proceeds from disposal of investments in associates and joint ventures

     11,813  7,914  74,881 

Acquisitions of property, plant and equipment

     (2,560,244 (2,324,112 (2,287,580

Proceeds from disposal of property, plant and equipment

     59,031  44,330  39,183 

Acquisitions of investment property

     (61,478 (45,735 (69,169

Proceeds from disposal of investment property

     1,120  11,624  5,771 

Acquisitions of intangible assets

     (289,148 (138,181 (343,423

Proceeds from disposal of intangible assets

     12,832  8,672  28,502 

Proceeds from disposal of assets held for sale

     127,133  305,813  203,958 

Increase in cash from (payment for) acquisition of business, net of cash acquired

       4,503  (174,165

Cash received (decrease in cash) from disposal of business, net of cash transferred

     469,576  21,223  (53,008

Others, net

     15,634  27,093  (14,847
    

 

  

 

  

 

 

Net cash used in investing activities

     (4,534,676 (3,754,627 (3,817,874
      (in millions of Won)     

 

  

 

  

 

 

Cash flows from financing activities

   40            

Proceeds from borrowings

     3,007,017    5,098,702    2,522,495       1,779,097  1,988,665  1,725,983 

Repayment of borrowings

     (1,884,140  (2,845,957  (2,802,150     (3,509,970 (4,274,895 (3,136,016

Proceeds from (repayment of) short-term borrowings, net

     (1,412,138  86,475    1,037,912       (846,230 (885,861 558,083 

Payment of cash dividends

     (751,908  (648,580  (677,000     (822,570 (708,970 (863,450

Proceeds from issuance of hybrid bonds

         1,495,387      

Payment of interest of hybrid bonds

         (26,088  (69,713     (67,725 (68,097 (67,783

Capital contribution from non-controlling interests and proceeds from disposal of subsidiary while maintaining control

     375,850    385,122    54,066       1,260,053  24,704  266,219 

Capital deduction from non-controlling interests and additional acquisition of interests in subsidiaries

     (167,663  (22,078         (10,810 (11,301 (26,288

Proceeds from disposal of treasury shares

         14,019    43,188  

Other, net

     (74,645  (4,666  26,314  

Others, net

     (23,446 (15,212 (22,276
    

 

  

 

  

 

     

 

  

 

  

 

 

Net cash provided by (used in) financing activities

     (907,627  3,532,336    135,112  

Net cash used in financing activities

   39    (2,241,601 (3,950,967 (1,565,528
    

 

  

 

  

 

     

 

  

 

  

 

 

Effect of exchange rate fluctuation on cash held

     (160,982  (110,765  11,545       23,496  12,611  (58,997
    

 

  

 

  

 

     

 

  

 

  

 

 

Net increase (decrease) in cash and cash equivalents

     81,844    (471,964  (186,426     849,048  (2,423,565 164,911 

Cash and cash equivalents at beginning of the period

     4,598,682    4,680,526    4,208,562     5    4,022,136  4,871,184  2,447,619 
    

 

  

 

  

 

     

 

  

 

  

 

 

Cash and cash equivalents at end of the period

   10    4,680,526    4,208,562    4,022,136     5   4,871,184  2,447,619  2,612,530 
    

 

  

 

  

 

     

 

  

 

  

 

 

See accompanying notes to the consolidated financial statements.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

1.General Information

General information about POSCO, its 4740 domestic subsidiaries including POSCO EngineeringENGINEERING & Construction Co.CONSTRUCTION CO., Ltd.LTD., 181139 foreign subsidiaries including POSCO America Corporation (collectively “the Company”) and its 97111 associates and joint ventures are as follows:

(a) The controlling company

POSCO, the controlling company, was incorporated on April 1, 1968, under the Commercial Code of the Republic of Korea to manufacture and sell steel rolled products and plates in the domestic and foreign markets.

The shares of POSCO have been listed on the Korea Exchange sinceon June 10, 1988. POSCO owns and operates two steel plants (Pohang and Gwangyang) and one office in Korea and it also operates internationally through sevensix of its overseas liaison offices.

As of December 31, 2013 and 2014,2017, POSCO’s shareholders are as follows:

 

   2013   2014 

Shareholder’s name

  Number of shares   Ownership (%)   Number of shares   Ownership (%) 

National Pension Service

   6,577,907     7.54     7,203,493     8.26  

Nippon Steel & Sumitomo Metal Corporation (*1)

   4,394,712     5.04     4,394,712     5.04  

Saudi Arabia, Kingdom of Saudi Arabia

   948,477     1.09     2,109,593     2.42  

Hyundai Heavy Industries Co.,Ltd. and
subsidiaries(*2)

   2,197,707     2.52     1,319,560     1.51  

Pohang University of Science and Technology

   1,905,000     2.18     1,905,000     2.18  

KB Financial Group Inc. and subsidiaries (*2)

   1,846,994     2.12     1,847,438     2.12  

Others

   69,316,038     79.51     68,407,039     78.47  
  

 

 

   

 

 

   

 

 

   

 

 

 
   87,186,835     100.00     87,186,835     100.00  
  

 

 

   

 

 

   

 

 

   

 

 

 

Shareholder’s name

  Number of shares   Ownership (%) 

National Pension Service

   9,660,885    11.08 

Nippon Steel & Sumitomo Metal Corporation(*1)

   2,894,712    3.32 

BlackRock Institutional Trust Company, N.A.(*1)

   2,483,875    2.85 

Government of Singapore Investment Corp Private Limited

   1,934,312    2.22 

KB Financial Group Inc. and subsidiaries(*2)

   1,919,361    2.20 

Others

   68,293,690    78.33 
  

 

 

   

 

 

 
   87,186,835    100.00 
  

 

 

   

 

 

 

 

 

(*1)Nippon Steel & Sumitomo Metal Corporation ownsIncludes American Depository Receipts (ADRs) of POSCO, each of which represents 0.25 share of POSCO’s common share which has par value of5,000 per share.

 

(*2)Includes shares held by subsidiaries pursuant to Articles of Incorporation.

As of December 31, 2014,2017, the shares of POSCO are listed on the Korea Exchange, while its depository sharesADRs are listed on the New York Tokyo and London Stock Exchanges.Exchange.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

(b) Consolidated subsidiaries

Details of consolidated subsidiaries as of December 31, 20132016 and 20142017 are as follows:

 

    Ownership (%)   
   December 31, 2013  December 31, 2014  
  

Principal operations

 POSCO  Subsidiaries  Total  POSCO  Subsidiaries  Total  Region

[Domestic]

        

POSCO ENGINEERING & CONSTRUCTION., LTD.

 Engineering and construction  89.53        89.53    89.53        89.53   Pohang

POSCO Processing & Service

 Steel sales and service  95.31        95.31    96.01        96.01   Seoul

POSCO COATED & COLOR STEEL Co., Ltd.

 Coated steel manufacturing  56.87        56.87    56.87        56.87   Pohang

POSCO ICT

 Computer hardware and software distribution  65.38        65.38    65.38        65.38   Seongnam

POSCO Research Institute

 Economic research and consulting  100.00        100.00    100.00        100.00   Seoul

POSMATE

 Business facility maintenance  54.46    11.77    66.23    57.25    11.05    68.30   Suncheon

POSCO A&C

 Architecture and consulting  100.00        100.00    100.00        100.00   Seoul

POSCO Specialty Steel Co., Ltd.

 Steel manufacturing and sales  72.09        72.09    72.09        72.09   Changwon

POSCO Venture Capital Co., Ltd.

 Investment in venture companies  95.00        95.00    95.00        95.00   Pohang

eNtoB Corporation

 Electronic commerce  32.19    30.19    62.38        62.38    62.38   Seoul

POSCO CHEMTECH

 Manufacturing and sellings of refractories  60.00        60.00    60.00        60.00   Pohang

POSCO-Terminal Co., Ltd.

 Transporting and warehousing  51.00        51.00    51.00        51.00   Gwangyang

POSCO M-TECH (*1)

 Packing materials manufacturing  48.85        48.85    48.85        48.85   Pohang

POSCO ENERGY CO., LTD.

 Generation of electricity  89.02        89.02    89.02        89.02   Seoul

POSCO TMC Co., Ltd.

 Component manufacturing  34.20    40.36    74.56        74.56    74.56   Cheonan

POSCO NIPPON STEEL RHF JOINT VENTURE.CO.,Ltd.

 Steel manufacturing and sales  70.00        70.00    70.00        70.00   Pohang

MegaAsset Co.,Ltd.

 Real estate rental and sales      100.00    100.00        100.00    100.00   Cheonan

POSCO Engineering CO.,Ltd

 Construction and engineering service      95.56    95.56        95.56    95.56   Seongnam

POSCO AST

 Steel manufacturing and sales  100.00        100.00        100.00    100.00   Ansan

POSHIMETAL Co., Ltd.

 Steel manufacturing and sales  65.00        65.00    65.00        65.00   Gwangyang

Poscoene

 Handling & disposal of waste matter      100.00    100.00        100.00    100.00   Seoul

POSFINE Co., Ltd.

 Non metallic minerals manufacturing  69.23        69.23    69.23        69.23   Gwangyang

POSCO Humans

 Construction  90.30        90.30    90.30        90.30   Pohang

Mapo Hibroad Parking co., Ltd.

 Construction      71.00    71.00        71.00    71.00   Seoul

Steel Processing and Fabricating Center Co.,LTD

 Steel manufacturing      70.52    70.52        84.89    84.89   Gwangyang

Plant Engineering service Technology Co., Ltd.

 Engineering service      100.00    100.00        100.00    100.00   Pohang

POSCO PLANTEC Co., Ltd.

 Steel work maintenance and machinery installation              60.84    13.10    73.94   Pohang

Busan E&E Co,. Ltd.

 Handling & disposal of waste matter  70.00        70.00    70.00        70.00   Busan
  

Principal operations

 Ownership (%)    
   December 31, 2016  December 31, 2017  
   POSCO  Subsidiaries  Total  POSCO  Subsidiaries  Total  Region 

[Domestic]

        

POSCO ENGINEERING & CONSTRUCTION CO., LTD.

 Engineering and construction  52.80      52.80   52.80      52.80   Pohang 

POSCO Processing & Service

 Steel sales and trading  93.95   0.45   94.40   93.95   0.45   94.40   Seoul 

POSCO COATED & COLOR STEEL Co., Ltd.

 Coated steel manufacturing  56.87      56.87   56.87      56.87   Pohang 

POSCO ICT

 Computer hardware and software distribution  65.38      65.38   65.38      65.38   Pohang 

POSCO Research Institute

 Economic research and consulting  100.00      100.00   100.00      100.00   Seoul 

POSMATE

 Business facility maintenance  57.25   11.05   68.30   83.83   16.17   100.00   Seoul 

POSCO A&C

 Architecture and consulting  100.00      100.00   100.00      100.00   Seoul 

POSCO Venture Capital Co., Ltd.

 Investment in venture companies  95.00      95.00   95.00      95.00   Pohang 

eNtoB Corporation

 Electronic commerce  7.50   53.63   61.13   7.50   53.63   61.13   Seoul 

POSCO CHEMTECH

 Refractories manufacturing and sales  60.00      60.00   60.00      60.00   Pohang 

POSCO-Terminal Co., Ltd.

 Transporting and warehousing  51.00      51.00   51.00      51.00   Gwangyang 

POSCOM-TECH

 Packing materials manufacturing and sales  48.85      48.85   48.85      48.85   Pohang 

POSCO ENERGY CO., LTD.

 Generation of electricity  89.02      89.02   89.02      89.02   Seoul 

POSCO NIPPON STEEL RHF JOINT VENTURE.CO.,Ltd.

 Steel byproduct manufacturing and sales  70.00      70.00   70.00      70.00   Pohang 

MegaAsset Co.,Ltd.

 Real estate rental and sales     100.00   100.00      100.00   100.00   Incheon 

Future Creation Fund Postech Early Stage account

 Investment in venture companies     40.00   40.00      40.00   40.00   Seoul 

POSCO WOMAN’S FUND

 Investment in venture companies     40.00   40.00      40.00   40.00   Seoul 

POSPOWER Co., Ltd.

 Generation of electricity     100.00   100.00      100.00   100.00   Samcheok 

Songdo Posco Family housing

 House manufacturing and management     100.00   100.00      100.00   100.00   Incheon 

Posco Group University

 Education service and real estate business  100.00      100.00   100.00      100.00   Incheon 

HOTEL LAONZENA

 Hotel business     100.00   100.00      100.00   100.00   Daegu 

Growth Ladder POSCOK-Growth Global Fund

 Investment in venture companies     50.00   50.00      50.00   50.00   Pohang 

2015 POSCO New technology II Fund

 Investment in venture companies     25.00   25.00      25.00   25.00   Pohang 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

    Ownership (%)   
   December 31, 2013  December 31, 2014  
  

Principal operations

 POSCO  Subsidiaries  Total  POSCO  Subsidiaries  Total  Region

POSCO Family Strategy Fund

 Financial investment  60.79    39.21    100.00    60.79    39.21    100.00   Pohang

POREKA Co., Ltd.

 Advertising agency  100.00        100.00    100.00        100.00   Seoul

Daewoo International Corporation

 Trading and Energy & Resource development  60.31        60.31    60.31        60.31   Seoul

POSCO LED Co., Ltd.

 LED lightening  16.70    63.30    80.00    16.70    63.30    80.00   Seongnam

Pohang Scrap Recycling Distribution Center Co., Ltd.

 Steel processing and sales      51.00    51.00        51.00    51.00   Pohang

PSC Energy Global Co., Ltd.

 Investment in energy industry      100.00    100.00        100.00    100.00   Pohang

Suncheon Eco Trans Co., Ltd

 Train manufacturing & management  100.00        100.00    100.00        100.00   Suncheon

New Altec Co., Ltd

 Aluminum products manufacturing and sales      60.10    60.10        60.10    60.10   Incheon

PONUTech Co.,Ltd.

 Nuclear power plant design and repair service      100.00    100.00        100.00    100.00   Ulsan

Tamra Offshore Wind Power Co., Ltd

 Cogeneration plant operation      64.00    64.00        64.00    64.00   Jeju

POS-HiAL

 Aluminum products manufacturing and sales      51.00    51.00        51.00    51.00   Youngam

IT Engineering(*2)

 Automotive engineering service      17.00    17.00        17.00    17.00   Seoul

Future Creation Fund Postech Early Stage account (*2)

 Investment in venture companies                  40.00    40.00   Seoul

Keystone Private Equity

 Investment in New Regeneration Energy                  55.12    55.12   Seoul

POSCO Green Gas Technology

 Gas manufacturing and Plumber              100.00        100.00   Gwangyang

POSCO WOMAN’S FUND (*2)

 Investment in venture companies                  40.00    40.00   Seoul

Chun Sa wind

 Other development                  100.00    100.00   Seoul

POSPOWER CO., Ltd.

 Other development                  100.00    100.00   Samchuck

Songdo Posco family Housing

 House manufacturing and management                  100.00    100.00   Incheon

[Foreign]

        

POSCO America Corporation

 Steel trading  99.45    0.55    100.00    99.45    0.55    100.00   USA

POSCO AUSTRALIA PTY LTD

 Iron ore sales & mine development  100.00        100.00    100.00        100.00   Australia

POSCO Canada Ltd.

 Coal sales      100.00    100.00        100.00    100.00   Canada

POSCAN Elkveiw Coal Ltd.

 Coal sales      100.00    100.00        100.00    100.00   Canada

POSCO Asia Co., Ltd.

 Steel and raw material trading  100.00        100.00    100.00        100.00   Hongkong

POSCO-CTPC Co., Ltd.

 Steel manufacturing  56.60    43.40    100.00    56.60    43.40    100.00   China

POSCO-JKPC Co., Ltd.

 Steel manufacturing      95.00    95.00        89.18    89.18   Japan

INTERNATIONAL BUSINESS CENTER CORPORATION

 Leasing service      60.00    60.00               Vietnam

POSCO E&C Vietnam Co., Ltd.

 Steel manufacturing      100.00    100.00        100.00    100.00   Vietnam

Zhangjiagang Pohang Stainless Steel Co., Ltd.

 Stainless steel manufacturing  58.60    23.88    82.48    58.60    23.88    82.48   China

POSCO (Guangdong) Steel Co., Ltd.

 Plating steel sheet manufacturing  87.04    10.04    97.08    87.04    10.04    97.08   China

POSCO (Thailand) Company Limited

 Steel manufacturing  85.62    14.38    100.00    85.62    14.38    100.00   Thailand
  

Principal operations

 Ownership (%)   
   December 31, 2016  December 31, 2017  
   POSCO  Subsidiaries  Total  POSCO  Subsidiaries  Total  Region

POCA STEM Co., Ltd

 Stem cell medicine development     100.00   100.00      100.00   100.00  Seoul

Posco e&c Songdo International Building

 Non-residential building rental     100.00   100.00      100.00   100.00  Seoul

POSCO ES MATERIALS CO., Ltd.

 Secondary and storage battery manufacturing  75.32      75.32   75.32      75.32  Gumi

Poscoene

 Refuse derived fuel and power generation     100.00   100.00      100.00   100.00  Seoul

POSCO Humans

 Construction  90.30      90.30   90.30      90.30  Pohang

Mapo Hibroad Parking co., Ltd.

 Construction     70.99   70.99      71.00   71.00  Seoul

BLUE O&M Co.,Ltd.

 Engineering service     100.00   100.00      100.00   100.00  Pohang

Busan E&E Co,. Ltd.

 Refuse derived fuel and power generation  70.00      70.00   70.00      70.00  Busan

POSCO Family Strategy Fund

 Investment in venture companies  69.91   30.09   100.00   69.91   30.09   100.00  Pohang

POSCO DAEWOO Corporation

 Trading, energy & resource development
and others
  60.31      60.31   62.90   0.04   62.94  Seoul

Pohang Scrap Recycling Distribution Center Co., Ltd.

 Steel processing and sales     51.00   51.00      51.00   51.00  Pohang

PSC Energy Global Co., Ltd.

 Investment in energy industry     100.00   100.00      100.00   100.00  Pohang

Suncheon Eco Trans Co., Ltd

 Train manufacturing and management  100.00      100.00   100.00      100.00  Suncheon

POSCO Research & Technology

 Intellectual Property Services and consulting           100.00      100.00  Seoul

Kyobo Securities Bond Plus 6M Professional Private Equity TrustW-2

 Private equity trust           97.47      97.47  Seoul

Kyobo Securities Bond Plus 6M Professional Private Equity TrustW-5

 Private equity trust              99.67   99.67  Seoul

Mirae Asset Smart Q Sigma 2.0 Professional Private Equity Trust

 Private equity trust           99.01      99.01  Seoul

IT Engineering CO. Ltd

 Automotive engineering service     17.00   17.00           Seoul

POSCO Engineering CO.,Ltd

 Construction and engineering service     95.56   95.56           Incheon

[Foreign]

        

POSCO America Corporation

 Steel trading  99.45   0.55   100.00   99.45   0.55   100.00  USA

POSCO AUSTRALIA PTY LTD

 Raw material sales & mine development  100.00      100.00   100.00      100.00  Australia

POSCO Canada Ltd.

 Coal sales     100.00   100.00      100.00   100.00  Canada

POSCO Asia Co., Ltd.

 Steel and raw material trading  100.00      100.00   100.00      100.00  China

POSCO-CTPC Co., Ltd.

 Steel manufacturing and sales  56.60   43.40   100.00   56.60   43.40   100.00  China

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

   Ownership (%)   

Principal operations

 Ownership (%)  
 December 31, 2013 December 31, 2014  December 31, 2016 December 31, 2017 
 

Principal operations

 POSCO Subsidiaries Total POSCO Subsidiaries Total Region POSCO Subsidiaries Total POSCO Subsidiaries Total Region

POSCO E&C Vietnam Co., Ltd.

 Steel structure manufacturing and sales    100.00  100.00     100.00  100.00  Vietnam

Zhangjiagang Pohang Stainless Steel Co., Ltd.

 Stainless steel manufacturing and sales 58.60  23.88  82.48  58.60  23.88  82.48  China

POSCO(Guangdong) Coated Steel Co., Ltd.

 Plating steel sheet manufacturing and sales 87.04  10.04  97.08  87.04  10.04  97.08  China

POSCO (Thailand) Company Limited

 Steel manufacturing and sales 85.62  14.38  100.00  88.58  11.42  100.00  Thailand

Myanmar POSCO Steel Co., Ltd

 Zinc relief manufacturing  70.00        70.00    70.00        70.00   Myanmar Zinc relief manufacturing and sales 70.00     70.00  70.00     70.00  Myanmar

POSCO-JOPC Co., Ltd.

 Steel manufacturing      56.84    56.84               Japan

POSCO Investment Co., Ltd.

 Financial Service  100.00        100.00    100.00        100.00   Hongkong

POSCO-MKPC SDN BHD

 Steel manufacturing  44.69    25.31    70.00    44.69    25.31    70.00   Malaysia Steel manufacturing and sales 44.69  25.31  70.00  44.69  25.31  70.00  Malaysia

Qingdao Pohang Stainless Steel Co., Ltd.

 Stainless steel manufacturing  70.00    30.00    100.00    70.00    30.00    100.00   China Stainless steel manufacturing and sales 70.00  30.00  100.00  70.00  30.00  100.00  China

POSCO (Suzhou) Automotive Processing Center Co., Ltd.

 Steel manufacturing  90.00    10.00    100.00    90.00    10.00    100.00   China

POSCO BIOVENTURES I, L.P.

 Bio tech Industry      100.00    100.00        100.00    100.00   USA

PT. POSNESIA Stainless Steel Industry

 Steel manufacturing  70.00        70.00    70.00        70.00   Indonesia

POSEC Hawaii, Inc.

 Real estate Industry      100.00    100.00        100.00    100.00   USA

POSCO(Suzhou) Automotive
Processing Center Co., Ltd.

 Steel manufacturing and sales 90.00  10.00  100.00  90.00  10.00  100.00  China

POSCO-China Qingdao Processing Center Co., Ltd.

 Steel manufacturing      100.00    100.00        100.00    100.00   China Steel manufacturing and sales    100.00  100.00     100.00  100.00  China

POS-ORE PTY LTD

 Iron ore sales & mine development      100.00    100.00        100.00    100.00   Australia Iron ore sales and sales    100.00  100.00     100.00  100.00  Australia

POSCO-China Holding Corp.

 Holding company  100.00        100.00    100.00        100.00   China Holding company 100.00     100.00  100.00     100.00  China

POSCO JAPAN Co., Ltd.

 Steel trading  100.00        100.00    100.00        100.00   Japan Steel trading 100.00     100.00  100.00     100.00  Japan

POS-CD PTY LTD

 Coal sales      100.00    100.00        100.00    100.00   Australia Coal sales    100.00  100.00     100.00  100.00  Australia

POS-GC PTY LTD

 Coal sales      100.00    100.00        100.00    100.00   Australia Coal sales    100.00  100.00     100.00  100.00  Australia

POSCO-India Private Limited

 Steel manufacturing  100.00        100.00    100.00        100.00   India Steel manufacturing and sales 99.99     99.99  99.99     99.99  India

POSCO-India Pune Processing Center. Pvt. Ltd.

 Steel manufacturing  65.00        65.00    65.00        65.00   India Steel manufacturing and sales 65.00     65.00  65.00     65.00  India

POSCO-JEPC Co., Ltd.

 Steel manufacturing      88.02    88.02        88.02    88.02   Japan

POSCO Japan PC CO., LTD

 Steel manufacturing and sales    86.12  86.12     86.12  86.12  Japan

POSCO-CFPC Co., Ltd.

 Steel manufacturing  39.60    60.40    100.00    39.60    60.40    100.00   China Steel manufacturing and sales 39.60  60.40  100.00  39.60  60.40  100.00  China

POSCO E&C CHINA Co., Ltd.

 Construction and civil engineering      100.00    100.00        100.00    100.00   China Civil engineering and construction    100.00  100.00     100.00  100.00  China

POSCO MPPC S.A. de C.V.

 Steel manufacturing      95.00    95.00        95.00    95.00   Mexico Steel manufacturing and sales    95.00  95.00  21.02  75.29  96.31  Mexico

Zhangjigang Pohang Port Co., Ltd.

 Loading and unloading service      100.00    100.00        100.00    100.00   China Loading and unloading service    100.00  100.00     100.00  100.00  China

Qingdao Pos-metal Co., Ltd.

 Steel manufacturing      100.00    100.00        100.00    100.00   China

POSCO-VIETNAM Co., Ltd.

 Steel manufacturing  85.00        85.00    85.00        85.00   Vietnam Steel manufacturing and sales 100.00     100.00  100.00     100.00  Vietnam

POSCO MEXICO S.A. DE C.V.

 Automotive steel sheet manufacturing  84.84    15.16    100.00    84.84    15.16    100.00   Mexico Automotive steel sheet
manufacturing and sales
 84.84  15.16  100.00  84.84  15.16  100.00  Mexico

POSCO India Delhi Steel Processing Centre Private Limited

 Steel manufacturing  66.40    10.00    76.40    66.40    10.00    76.40   India

POSCAN Elkview

 Coal sales    100.00  100.00     100.00  100.00  Canada

POSCO-Poland Wroclaw Processing Center Sp. z o. o.

 Steel manufacturing  60.00        60.00    60.00        60.00   Poland Steel manufacturing and sales 60.00     60.00  60.00     60.00  Poland

POS-NP PTY LTD

 Coal sales      100.00    100.00        100.00    100.00   Australia Coal sales    100.00  100.00     100.00  100.00  Australia

POSCO-Vietnam Processing Center Co., Ltd.

 Steel manufacturing  91.63        91.63    87.10    5.00    92.10   Vietnam

POSCO(Chongqing) Automotive Processing Center Co., Ltd.

 Steel manufacturing  90.00    10.00    100.00    90.00    10.00    100.00   China

SUZHOU POSCO-CORE TECHNOLOGY CO., LTD.

 Component manufacturing      100.00    100.00        100.00    100.00   China

POSCO-Malaysia SDN. BHD.

 Steel manufacturing  80.07    13.34    93.41    81.79    13.63    95.42   Malaysia

POS-Minerals Corporation

 Mine development & sales      100.00    100.00        100.00    100.00   USA

POSCO RUS LLC

 Trading and business development 90.00  10.00  100.00  90.00  10.00  100.00  Russia

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

    Ownership (%)   
   December 31, 2013  December 31, 2014  
  

Principal operations

 POSCO  Subsidiaries  Total  POSCO  Subsidiaries  Total  Region

POSCO(Wuhu) Automotive Processing Center Co., Ltd.

 Steel manufacturing  68.57    31.43    100.00    68.57    31.43    100.00   China

POSCO Engineering and Construction India Private Limited

 Construction and engineering      100.00    100.00        100.00    100.00   India

POSCO E&C SMART S DE RL DE CV

 Construction and engineering      100.00    100.00        100.00    100.00   Mexico

POSCO Philippine Manila Processing Center, Inc.

 Steel manufacturing      100.00    100.00        100.00    100.00   Philippines

POSCO Gulf SFC LLC

 Steel manufacturing      81.93    81.93        81.93    81.93   UAE

Dalian POSCO ICT-DONGFANG Engineering Co., Ltd.

 Electric control equipment manufacturing      100.00    100.00        100.00    100.00   China

SANPU TRADING Co., Ltd.

 Raw material trading      70.00    70.00        70.00    70.00   China

Zhangjiagang BLZ Pohang International Trading

 Steel transit trading      100.00    100.00        100.00    100.00   China

POSCO MEXICO HUMAN TECH S.A. de C.V.

 Service  80.00    20.00    100.00    80.00    20.00    100.00   Mexico

POSCO MESDC S.A. DE C.V.

 Steel product sales      56.80    56.80        56.80    56.80   Mexico

POSCO ICT-China

 IT service and DVR business      100.00    100.00        100.00    100.00   China

DWEMEX, S.A.DE.C.V.

 Construction      99.00    99.00        99.00    99.00   Mexico

POSCO MPC Servicios S.A. de C.V.

 Steel manufacturing      61.00    61.00        61.00    61.00   Mexico

POSCO-Uruguay S.A

 Lumber manufacturing & sales  98.00        98.00    98.10        98.10   Uruguay

Pos-Sea Pte Ltd

 Steel transit trading      67.54    67.54        67.54    67.54   Singapore

POSCO Europe Steel Distribution Center

 Steel product sales  50.00    20.00    70.00    50.00    20.00    70.00   Slovenia

VECTUS LIMITED

 PRT test track construction      99.57    99.57        99.69    99.69   England

Zeus(Cayman)

 Service  100.00        100.00    100.00        100.00   Cayman
        Islands

POSCO VST CO., LTD.

 Stainless steel manufacturing  95.65        95.65    95.65        95.65   Vietnam

POSCO Maharashtra Steel Private Limited

 Steel manufacturing  100.00        100.00    100.00        100.00   India

POSCO India Chennai Steel Processing Centre Pvt. Ltd.

 Steel manufacturing  100.00        100.00    100.00        100.00   India

POSCO TNPC Otomotiv Celik San. Ve Tic. A.S

 Steel manufacturing  100.00        100.00    100.00        100.00   Turkey

POSCO Vietnam Ha Noi Processing Center Co., Ltd.

 Steel manufacturing  70.00        70.00    70.00        70.00   Vietnam

POSCO(Liaoning) Automotive Processing Center Co., Ltd.

 Steel manufacturing  90.00    10.00    100.00    90.00    10.00    100.00   China

POSCO-Indonesia Jakarta Processing Center

 Steel manufacturing  65.00    20.00    85.00    65.00    20.00    85.00   Indonesia

POSCO E&C VENEZUELA C.A.

 Construction and engineering      100.00    100.00        100.00    100.00   Venezuela

Motta Resources Indonesia

 Mine development  65.00        65.00    65.00        65.00   Indonesia

POSCO TMC INDIA PRIVATE LIMITED

 Steel manufacturing      100.00    100.00        100.00    100.00   India

POSCO America Alabama Processing Center Co., Ltd.

 Steel manufacturing      100.00    100.00        100.00    100.00   USA
  

Principal operations

 Ownership (%)   
   December 31, 2016  December 31, 2017  
   POSCO  Subsidiaries  Total  POSCO  Subsidiaries  Total  Region

POSCO DAEWOO WAIGAIQIAO
SHANGHAI CO., LTD

 Intermediary trade & bonded
warehouse operation
     100.00   100.00      100.00   100.00  China

PT. Bio Inti Agrindo

 Forest resources development     85.00   85.00      85.00   85.00  Indonesia

POSCO ENGINEERING
AND CONSTRUCTION AUSTRALIA PTY LTD

 Iron ore development and sales     100.00   100.00      100.00   100.00  Australia

POSCO-TISCO (JILIN)
PROCESSING CENTER Co., Ltd.

 Steel manufacturing and sales  50.00   10.00   60.00   50.00   10.00   60.00  China

POSCO Thainox Public Company Limited

 STS cold-rolled steel manufacturing and sales  84.93      84.93   84.88      84.88  Thailand

Hunchun Posco Hyundai Logistics

 Logistics     80.00   80.00      80.00   80.00  China

POSCO DAEWOO VIETNAM CO., LTD

 Trading business     100.00   100.00      100.00   100.00  Vietnam

POSCO(Chongqing) Automotive
Processing Center Co., Ltd.

 Steel manufacturing and sales  90.00   10.00   100.00   90.00   10.00   100.00  China

SUZHOU POSCO-CORE
TECHNOLOGY CO., LTD.

 Component manufacturing and sales     100.00   100.00      100.00   100.00  China

PT.Krakatau Posco Chemtech Calcination

 Quicklime manufacturing and sales     80.00   80.00      80.00   80.00  Indonesia

POSCO AFRICA (PROPRIETARY) LIMITED

 Mine development  100.00      100.00   100.00      100.00  South
Africa

POSCO ICT BRASIL

 IT service and engineering     100.00   100.00      100.00   100.00  Brazil

LA-SRDC

 Scrap manufacturing     100.00   100.00      100.00   100.00  USA

DONG FANG JIN HONG

 Real estate development, rental
and management
     100.00   100.00      100.00   100.00  China

POSCO AMERICA
COMERCIALIZADORA S DE RL DE CV

 Human resource service     100.00   100.00      100.00   100.00  Mexico

POSCO(Guangdong)
Automotive Steel Co., Ltd.

 Steel manufacturing and sales  83.64   10.00   93.64   83.64   10.00   93.64  China

POSCO-Malaysia SDN. BHD.

 Steel manufacturing and sales  81.79   13.63   95.42   81.79   13.63   95.42  Malaysia

PT KRAKATAU BLUE WATER

 Wastewater treatment facilities
operation and maintenance
     67.00   67.00      67.00   67.00  Indonesia

POSCO DAEWOO MYANMAR
CORPORATION LIMITED

 Trading business     100.00   100.00      100.00   100.00  Myanmar

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

    Ownership (%)   
   December 31, 2013  December 31, 2014  
  

Principal operations

 POSCO  Subsidiaries  Total  POSCO  Subsidiaries  Total  Region

PT PEN INDONESIA

 Construction      95.00    95.00        67.00    67.00   Indonesia

POSCO(Yantai) Automotive Processing Center Co., Ltd.

 Steel manufacturing  90.00    10.00    100.00    90.00    10.00    100.00   China

POSCO India Steel Distribution Center Private Ltd.

 Steel logistics      100.00    100.00        100.00    100.00   India

POSCO China Dalian Plate Processing Center Co., Ltd.

 Steel manufacturing  80.00    10.00    90.00    80.00    10.00    90.00   China

POSCO-South Asia Company Limited

 Steel product sales  100.00        100.00    100.00        100.00   Thailand

POSCO SS-VINA

 Steel manufacturing      100.00    100.00        100.00    100.00   Vietnam

POSCO-NCR Coal Ltd.

 Coal sales      100.00    100.00        100.00    100.00   Canada

POSCO WA PTY LTD

 Iron ore sales & mine development  100.00        100.00    100.00        100.00   Australia

POSCO Engineering and Construction — UZ

 Construction      100.00    100.00        100.00    100.00   Uzbekistan

POSCO AUSTRALIA GP PTY LIMITED

 Resource development      100.00    100.00        100.00    100.00   Australia

Daewoo International (America) Corp.

 Trading business      100.00    100.00        100.00    100.00   USA

Daewoo International (Deutschland) GmbH.

 Trading business      100.00    100.00        100.00    100.00   Germany

Daewoo International Japan Corp.

 Trading business      100.00    100.00        100.00    100.00   Japan

DAEWOO INTERNATIONAL SINGAPORE PTE. LTD.

 Trading business      100.00    100.00        100.00    100.00   Singapore

Daewoo Italia S.r.l.

 Trading business      100.00    100.00        100.00    100.00   Italy

Daewoo (China) Co., Ltd.

 Trading business      100.00    100.00        100.00    100.00   China

DAEWOO TEXTILE FERGANA LLC

 Textile manufacturing      100.00    100.00        100.00    100.00   Uzbekistan

DAEWOO TEXTILE BUKHARA LLC

 Textile manufacturing      100.00    100.00        100.00    100.00   Uzbekistan

DAEWOO INTERNATIONAL AUSTRALIA HOLDINGS PTY LTD

 Resource development      100.00    100.00        100.00    100.00   Australia

Daewoo Paper Manufacturing Co., Ltd.

 Paper manufacturing      66.70    66.70        66.70    66.70   China

Tianjin Daewoo Paper Manufacturing Co., Ltd.

 Paper manufacturing      68.30    68.30        68.30    68.30   China

POSCO MAURITIUS LIMITED

 Coal development and sales      100.00    100.00        100.00    100.00   Mauritius

PT. KRAKATAU POSCO

 Steel manufacturing  70.00        70.00    70.00        70.00   Indonesia

Myanmar Daewoo Limited

 Trading business      100.00    100.00        100.00    100.00   Myanmar

DAEWOO INTERNATIONAL MEXICO S.A. DE C.V.

 Trading business      100.00    100.00        100.00    100.00   Mexico

Daewoo International Guangzhou Corp.

 Trading business      100.00    100.00        100.00    100.00   China

Daewoo (M) SDN. BHD.

 Trading business      100.00    100.00        100.00    100.00   Malaysia

Daewoo EL SALVADOR S.A. DE C.V.

 Trading business      88.00    88.00        88.00    88.00   El Salvador

POSCO (Zhangjiagang) STS Processing Center Co., Ltd

 Steel manufacturing      100.00    100.00        100.00    100.00   China

Daewoo International (M) SDN BHD

 Trading business      100.00    100.00        100.00    100.00   Malaysia

Daewoo International SHANGHAI CO., LTD.

 Trading business      100.00    100.00        100.00    100.00   China
  

Principal operations

 Ownership (%)   
   December 31, 2016  December 31, 2017  
   POSCO  Subsidiaries  Total  POSCO  Subsidiaries  Total  Region

POSCO-Italy Processing Center

 Stainless steel sheet
manufacturing and sales
  80.00   10.00   90.00   80.00   10.00   90.00  Italy

POSCO DAEWOO E&P CANADA CORPORATION

 Crude oil and natural gas mining     100.00   100.00      100.00   100.00  Canada

Myanmar POSCO C&C Company, Limited.

 Steel manufacturing and sales     70.00   70.00      70.00   70.00  Myanmar

POSCO ICT VIETNAM

 IT service and electric control engineering     100.00   100.00      100.00   100.00  Vietnam

Daewoo Global Development. Pte., Ltd

 Real estate development     51.00   51.00      81.51   81.51  Myanmar

Myanmar POSCO Engineering &
Construction Company, Limited.

 Construction and engineering service     100.00   100.00      100.00   100.00  Myanmar

POS-Minerals Corporation

 Mine development management and sales     100.00   100.00      100.00   100.00  USA

POSCO(Wuhu) Automotive
Processing Center Co., Ltd.

 Steel manufacturing and sales  68.57   31.43   100.00   68.57   31.43   100.00  China

POSCO Engineering and Construction
India Private Limited

 Civil engineering and construction     100.00   100.00      100.00   100.00  India

POSCO COATED STEEL (THAILAND) CO., LTD.

 Automotive steel sheet manufacturing and sales  100.00      100.00   100.00      100.00  Thailand

Daewoo Amara Company Limited

 Real estate development     98.54   98.54      85.00   85.00  Myanmar

Daewoo Power and Infra (PTY) Limited

 Electricity     100.00   100.00      100.00   100.00  South
Africa

POSMATE-CHINA CO., LTD

 Business facility maintenance     100.00   100.00      100.00   100.00  China

Daewoo Precious Resources Co., Ltd.

 Resources development     70.00   70.00      70.00   70.00  Myanmar

POSCO-Mexico VillagranWire-rod Processing Center

 Steel manufacturing and sales  56.75   10.00   66.75   56.75   10.00   66.75  Mexico

POSCO-CDSFC

 Steel structure manufacturing  50.20   49.80   100.00   50.20   49.80   100.00  China

POSCO ChengDu Processing Center

 Steel manufacturing and sales  33.00   10.00   43.00   33.00   10.00   43.00  China

POSCO SUZHOU Processing Center Co., Ltd.

 Steel manufacturing and sales  30.00   70.00   100.00   30.00   70.00   100.00  China

POSCO E&C SMART S DE RL DE CV

 Civil engineering and construction     100.00   100.00      100.00   100.00  Mexico

POSCO Philippine Manila Processing Center, Inc.

 Steel manufacturing and sales     100.00   100.00      100.00   100.00  Philippines

POSCO E&C HOLDINGS CO., Ltd.

 Holding company     100.00   100.00      100.00   100.00  Thailand

POSCO E&C (THAILAND) CO., Ltd.

 Construction and engineering     100.00   100.00      100.00   100.00  Thailand

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

    Ownership (%)   
   December 31, 2013  December 31, 2014  
  

Principal operations

 POSCO  Subsidiaries  Total  POSCO  Subsidiaries  Total  Region

DAEWOO POWER AND INFRA (PTY) LTD.

 Electricity      100.00    100.00        100.00    100.00   Republic of
South Africa

PGSF, L.P.

 Investment in Bio tech Industry      100.00    100.00        100.00    100.00   USA

Xenesys Inc.

 Power generation equipment manufacturing  29.58    21.35    50.93    29.58    21.35    50.93   Japan

Daewoo International INDIA Private Ltd.

 Trading business      100.00    100.00        100.00    100.00   India

TECHREN Solar, LLC

 Electrical Industry      99.92    99.92        99.92    99.92   USA

PT. POSCO E&C INDONESIA

 Construction      100.00    100.00        100.00    100.00   Indonesia

HUME COAL PTY LTD

 Raw material manufacturing      100.00    100.00        100.00    100.00   Australia

POSCO FOUNDATION

 Non-profit charitable organization      100.00    100.00        100.00    100.00   India

EPC EQUITIES LLP

 Construction      70.00    70.00        80.00    80.00   England

SANTOS CMI CONSTRUCTION TRADING LLP

 Construction      99.90    99.90        99.90    99.90   England

SANTOS CMI INC. USA

 Construction      100.00    100.00        100.00    100.00   USA

SANTOS CMI ENGENHARIA E CONSTRUCOES LTDA

 Construction      99.98    99.98        99.98    99.98   Brazil

SANTOS CMI PERU S.A.

 Construction      99.99    99.99        99.99    99.99   Peru

SANTOS CMI CONSTRUCCIONES S.A.

 Construction      100.00    100.00        100.00    100.00   Uruguay

GENTECH INTERNATIONAL INC.

 Construction      90.00    90.00        90.00    90.00   Panama

EPC INVESTMENTS C.V.

 Construction      99.99    99.99        99.99    99.99   Netherlands

SANTOSCMI S.A.

 Construction      70.00    70.00        80.00    80.00   Ecuador

SANTOSCMI CONSTRUCCIONES DE CHILE S.A.

 Construction      99.00    99.00        99.00    99.00   Chile

S&K -SANTOSCMI S.A. DE C.V.

 Construction      99.00    99.00               Mexico

COMPANIADEAUTOMATI
ZACION& CONTROL, GENESYS S.A.

 Construction      90.00    90.00        90.00    90.00   Ecuador

VAUTIDAMERICAS S.A.

 Construction      51.00    51.00        51.00    51.00   Ecuador

POSCO ENGINEERING & CONSTRUCTION DO BRAZIL LTDA.

 Construction      100.00    100.00        100.00    100.00   Brazil

POSCO Electrical Steel India Private Limited

 Electrical Steel manufacturing  100.00        100.00    100.00        100.00   India

Daewoo International Cameroon S.A.

 Resource Development      100.00    100.00               Cameroon

POSCO ASSAN TST STEEL INDUSTRY

 Steel manufacturing  60.00    10.00    70.00    60.00    10.00    70.00   Turkey

HONG KONG POSCO E&C (CHINA) INVESTMENT Co., Ltd.

 Investment      100.00    100.00        100.00    100.00   Hongkong

POSCO Klappan Coal Ltd.

 Coal sales      100.00    100.00        100.00    100.00   Canada

DAESAN (CAMBODIA) Co., Ltd.

 Investment      100.00    100.00        100.00    100.00   Cambodia

Brazil Sao Paulo Steel Processing Center

 Steel manufacturing      76.00    76.00        76.00    76.00   Brazil

POSCO(Dalian) IT Center Development Co., Ltd.

 Investment      100.00    100.00        100.00    100.00   China

PT. POSCO RESOURCES INDONESIA

 Mine development  100.00        100.00    100.00        100.00   Indonesia
  

Principal operations

 Ownership (%)   
   December 31, 2016  December 31, 2017  
   POSCO  Subsidiaries  Total  POSCO  Subsidiaries  Total  Region

Daewoo Power PNG
Ltd.

 Electricity production     100.00   100.00      100.00   100.00  Papua New
Guinea

PT.Krakatau Posco Social Enterprise

 Social enterprise     100.00   100.00      100.00   100.00  Indonesia

Ventanas Philippines Construction Inc

 Construction     100.00   100.00      100.00   100.00  Philippines

POSCO E&C Mongolia

 Construction and engineering service     100.00   100.00      100.00   100.00  Mongolia

POSCO Gulf SFC LLC

 Steel manufacturing and sales     81.93   81.93      97.76   97.76  United
Arab
Emirates

SANPU TRADING Co., Ltd.

 Raw material trading     70.00   70.00      70.00   70.00  China

Zhangjiagang BLZ Pohang International Trading

 Steel Intermediate trade     100.00   100.00      100.00   100.00  China

POSCO MESDC S.A. DE C.V.

 Logistics & Steel sales     56.80   56.80      56.80   56.80  Mexico

POSCOICT-China

 IT service and DVR business     100.00   100.00      100.00   100.00  China

Pos-Sea Pte Ltd

 Steel Intermediate trade     67.54   67.54      100.00   100.00  Singapore

POSCO Europe Steel Distribution Center

 Logistics & Steel sales  50.00   20.00   70.00   50.00   20.00   70.00  Slovenia

POSCO ENGINEERING (THAILAND) CO., LTD.

 Construction and engineering service     100.00   100.00      100.00   100.00  Thailand

POSCO VST CO., LTD.

 Stainless steel sheet manufacturing and sales  95.65      95.65   95.65      95.65  Vietnam

POSCO Maharashtra Steel Private Limited

 Steel manufacturing and sales  100.00      100.00   100.00      100.00  India

POSCO India Chennai Steel Processing Center Pvt. Ltd.

 Steel manufacturing and sales  100.00      100.00   93.34   1.98   95.32  India

POSCO TNPC Otomotiv Celik San. Ve Tic. A.S

 Steel manufacturing and sales  100.00      100.00   100.00      100.00  Turkey

POSCO VIETNAM HOLDINGS CO., LTD (formerly, POSCO VNPC Co., Ltd.)

 Steel manufacturing and sales  70.00      70.00   83.54   5.29   88.83  Vietnam

POSCO(Liaoning) Automotive Processing Center Co., Ltd.

 Steel manufacturing and sales  90.00   10.00   100.00   90.00   10.00   100.00  China

POSCO-Indonesia Jakarta Processing Center

 Steel manufacturing and sales  65.00   20.00   85.00   65.00   20.00   85.00  Indonesia

POSCO E&C VENEZUELA C.A.

 Civil engineering and construction     100.00   100.00      100.00   100.00  Venezuela

PT.MRI

 Mine development  65.00      65.00   65.00      65.00  Indonesia

POSCO TMC INDIA PRIVATE LIMITED

 Steel manufacturing and sales     100.00   100.00      100.00   100.00  India

POSCO-AAPC

 Steel manufacturing and sales     97.80   97.80      97.80   97.80  USA

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

    Ownership (%)   
   December 31, 2013  December 31, 2014  
  

Principal operations

 POSCO  Subsidiaries  Total  POSCO  Subsidiaries  Total  Region

PT.POSCO ICT INDONESIA

 IT service and Electric Control Engineering      66.99    66.99        66.99    66.99   Indonesia

PT. POSCO MTECH INDONESIA

 Steel manufacturing      60.00    60.00        71.43    71.43   Indonesia

PT. KRAKATAU POSCO ENERGY

 Manufacturing & management      90.00    90.00        90.00    90.00   Indonesia

POSCO RUS LLC

 Trading business  90.00    10.00    100.00    90.00    10.00    100.00   Russia

POSCO Thainox Public Company Limited

 Steel manufacturing  84.93        84.93    84.93        84.93   Thailand

DAEWOO INTERNATIONAL SHANGHAI WAIGAOQIAO CO., LTD.

 Merchandising trade      100.00    100.00        100.00    100.00   China

PT. Bio Inti Agrindo

 Forest resources development      85.00    85.00        85.00    85.00   Indonesia

POSCO ENGINEERING AND CONSTRUCTION AUSTRALIA PTY LTD

 Iron ore sales      100.00    100.00        100.00    100.00   Australia

POSCO-TISCO (JILIN) PROCESSING CENTER Co., Ltd.

 Steel manufacturing  50.00    10.00    60.00    50.00    10.00    60.00   China

Hunchun Posco Hyundai International Logistics Complex Development Co., Ltd

 Logistics      72.93    72.93        80.00    80.00   China

USA-SRDC

 Scrap sales      100.00    100.00        100.00    100.00   USA

Daewoo International Vietnam Co., Ltd.

 Trading business      100.00    100.00        100.00    100.00   Vietnam

PT.Krakatau Posco Chemtech Calcination

 Manufacturing and selling of quicklime      80.00    80.00        80.00    80.00   Indonesia

POSCO AFRICA (PROPRIETARY) LIMITED

 Trading business  100.00        100.00    100.00        100.00   Republic of
South Africa

EPC INGENIERIA & SERVICIOS DE COSTA RICA SA

 Construction and engineering service      100.00    100.00        100.00    100.00   Costa Rica

POSCO ICT BRASIL

 IT service and engineering      100.00    100.00        100.00    100.00   Brazil

LA-SRDC

 Scrap manufacturing      68.41    68.41        68.41    68.41   USA

DONG FANG JIN HONG

 Real estate development, rental and management      99.00    99.00        99.00    99.00   China

PRODUCTOS OFERTAS SISTEMAS Y COMERCIALIZADORA ORIENTAL S DE RL DE CV

 Steel sales      100.00    100.00        100.00    100.00   Mexico

POSCO(Guangdong) Automotive Steel Co., Ltd.

 Steel manufacturing and sales  83.64    10.00    93.64    83.64    10.00    93.64   China

POSCO MAPC SA DE CV

 Steel manufacturing and sales  80.00    20.00    100.00    80.00    20.00    100.00   Mexico

POSCO AMERICA COMERCIALIZADORA S DE RL DE CV

 Human-resource service      100.00    100.00        100.00    100.00   Mexico

POSCO ENGINEERING (THAILAND) CO., LTD.(*2)

 Chemical plant      48.90    48.90        48.90    48.90   Thailand

POSCO YongXin Rare Earth Metal Co., Ltd.

 Magnet material manufacturing and sales      51.67    51.67        51.67    51.67   China

POSCO-Mory-Maruyasu PIPE

 Common steel welded pipe manufacturing and selling      50.00    50.00        50.00    50.00   Japan
  

Principal operations

 Ownership (%)   
   December 31, 2016  December 31, 2017  
   POSCO  Subsidiaries  Total  POSCO  Subsidiaries  Total  Region

PT PEN INDONESIA

 Construction     100.00   100.00      100.00   100.00  Indonesia

POSCO(Yantai) Automotive Processing Center Co., Ltd.

 Steel manufacturing and sales  90.00   10.00   100.00   90.00   10.00   100.00  China

POSCO India Steel Distribution Center Private Ltd.

 Steel logistics     100.00   100.00      100.00   100.00  India

POSCO China Dalian Plate Processing Center Co., Ltd.

 Plate manufacturing and sales  80.00   10.00   90.00   80.00   10.00   90.00  China

POSCO-South Asia Company Limited

 Steel sales  100.00      100.00   100.00      100.00  Thailand

POSCOSS-VINA Co., Ltd

 Steel manufacturing and sales  100.00      100.00   100.00      100.00  Vietnam

PT.POSCO ICT INDONESIA

 IT service and electric control engineering     66.99   66.99      66.99   66.99  Indonesia

POSCO NCR Coal Ltd.

 Coal sales     100.00   100.00      100.00   100.00  Canada

POSCO WA PTY LTD

 Iron ore sales & mine development  100.00      100.00   100.00      100.00  Australia

POSCO Engineering and Construction - UZ

 Civil engineering and construction     100.00   100.00      100.00   100.00  Uzbekistan

POSCO AUSTRALIA GP PTY LIMITED

 Resource development     100.00   100.00      100.00   100.00  Australia

POSCO DAEWOO POWER (PNGPOM) LTD.

 Electricity production     100.00   100.00      100.00   100.00  Papua
New
Guinea

PT. KRAKATAU POSCO ENERGY

 Electricity production construction and operation     90.00   90.00      90.00   90.00  Indonesia

POSCO DAEWOO AMERICA CORP.

 Trading business     100.00   100.00      100.00   100.00  USA

POSCO DAEWOO DEUTSCHLAND GMBH

 Trading business     100.00   100.00      100.00   100.00  Germany

POSCO DAEWOO JAPAN Corp

 Trading business     100.00   100.00      100.00   100.00  Japan

POSCO DAEWOO SINGAPORE PTE LTD.

 Trading business     100.00   100.00      100.00   100.00  Singapore

POSCO DAEWOO ITALIA S.R.L.

 Trading business     100.00   100.00      100.00   100.00  Italy

POSCO DAEWOO CHINA CO., LTD

 Trading business     100.00   100.00      100.00   100.00  China

Daewoo Textile LLC

 Textile manufacturing     100.00   100.00      100.00   100.00  Uzbekistan

POSCO DAEWOO AUSTRALIA HOLDINGS PTY. LTD.

 Resource development     100.00   100.00      100.00   100.00  Australia

POSCO MAURITIUS LIMITED

 Coal development and sales     100.00   100.00      100.00   100.00  Mauritius

PT. KRAKATAU POSCO

 Steel manufacturing and sales  70.00      70.00   70.00      70.00  Indonesia

POSCO DAEWOO MEXICO S.A. de C.V.

 Trading business     100.00   100.00      100.00   100.00  Mexico

Daewoo International Guangzhou Corp.

 Trading business     100.00   100.00      100.00   100.00  China

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

  

Principal operations

 Ownership (%)   
   December 31, 2016  December 31, 2017  
   POSCO  Subsidiaries  Total  POSCO  Subsidiaries  Total  Region

POSCO DAEWOO MALAYSIA SDN BHD

 Trading business     100.00   100.00      100.00   100.00  Malaysia

PT.POSCO INDONESIA INTI

 Mine development  99.99      99.99   99.99      99.99  Indonesia

POSCO DAEWOO SHANGHAI CO., LTD.

 Trading business     100.00   100.00      100.00   100.00  China

PGSF, L.P.

 Investment in bio tech Industry     100.00   100.00      100.00   100.00  USA

POSCO DAEWOO INDIA PVT., LTD.

 Trading business     100.00   100.00      100.00   100.00  India

POSCO(Dalian) IT Center Development Co., Ltd.

 Real estate development and investment     100.00   100.00      100.00   100.00  China

PT. POSCO E&C INDONESIA

 Civil engineering and construction     100.00   100.00      100.00   100.00  Indonesia

HUME COAL PTY LTD

 Raw material manufacturing     100.00   100.00      100.00   100.00  Australia

Brazil Sao Paulo Steel Processing Center

 Steel manufacturing and sales     76.00   76.00      76.00   76.00  Brazil

DAESAN (CAMBODIA) Co., Ltd.

 Real estate development and investment     100.00   100.00      100.00   100.00  Cambodia

POSCO ENGINEERING
& CONSTRUCTION DO BRAZIL LTDA.

 Construction     100.00   100.00      100.00   100.00  Brazil

POSCO ASSAN TST STEEL INDUSTRY

 Steel manufacturing and sales  60.00   10.00   70.00   60.00   10.00   70.00  Turkey

HONG KONG POSCO E&C (CHINA)
INVESTMENT Co., Ltd.

 Real estate development and investment     100.00   100.00      100.00   100.00  Hong Kong

Zhangjiagang Pohang Refractories Co., Ltd. (*1)

 Refractory materials sales & furnace maintenance              51.00   51.00  China

Golden Lace DAEWOO Company Limited

 Rice processing              60.00   60.00  Myanmar

POSCO RU Limited Liability Company

 Trade and business development           100.00      100.00  Russia

POSCO DAEWOO UKRAINE LLC

 Grain sales              100.00   100.00  Ukraine

KIS Devonian Canada Corporation

 Petroleum gas extraction              100.00   100.00  Canada

POSEC Hawaii, Inc.

 Real estate Industry     100.00   100.00           USA

POSCO India Delhi Steel
Processing Center Private Limited

 Steel manufacturing and sales  66.40   10.00   76.40           India

USA-SRDC

 Scrap sales     100.00   100.00           USA

POSCO-Vietnam Processing Center Co., Ltd.

 Steel manufacturing and sales  87.07   4.98   92.05           Vietnam

POSCO MAPC SA DE CV

 Automotive steel sheet
manufacturing and sales
  80.00   20.00   100.00           Mexico

Yingkou Puxiang Trade Co.,Ltd.

 Refractory quality test &
import and export
     100.00   100.00           China

SANTOS CMI Guatemala S.A.

 Construction and engineering service     100.00   100.00           Guatemala

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

 

    Ownership (%)   
   December 31, 2013  December 31, 2014  
  

Principal operations

 POSCO  Subsidiaries  Total  POSCO  Subsidiaries  Total  Region

PT KRAKATAU BLUE WATER

 Wastewater treamtment facilities operation and maintemance      67.00    67.00        67.00    67.00   Indonesia

KRAKATAU POS-CHEM DONG-SUH CHEMICAL (*2)

 Chemical by-product manufacturing and sales      45.00    45.00        45.00    45.00   Indonesia

Myanmar Daewoo International Corporation

 Trading business      100.00    100.00        100.00    100.00   Myanmar

POSCO-Italy Processing Center

 Stainless steel sheet manufacturing and sales  80.00    10.00    90.00    80.00    10.00    90.00   Italy

DAEWOO E&P CANADA CORPORATION

 Crude oil and natural gas mining      100.00    100.00        100.00    100.00   Canada

Yingkou Puxiang Trade Co.,Ltd.

 Refractory quality test and import and export trade      100.00    100.00        100.00    100.00   China

Myanmar POSCO C&C Company, Limited.

 Steel manufacturing and sales      70.00    70.00        70.00    70.00   Myanmar

POSCO ICT VIETNAM

 IT service and electric control engineering      100.00    100.00        100.00    100.00   Vietnam

Daewoo Global Development. Pte., Ltd

 Real estate development      51.00    51.00        51.00    51.00   Myanmar

Myanmar POSCO Engineering& Construction Company, Limited.

 Construction and engineering service      100.00    100.00        100.00    100.00   Myanmar

POSCO COATED STEEL (THAILAND) CO., LTD.

 Automotive steel sheet manufacturing and sales  100.00        100.00    100.00        100.00   Thailand

POSCO China Suzhou Processing Center Co.,Ltd (formerly, POSCO-SAMSUNG Suzhou Processing Center Co.,Ltd.)

 Steel manufacturing              30.00    70.00    100.00   China

Hanjung Power
Pty., Ltd

 Electricity prodction                  100.00    100.00   Papua
New Guinea

Daewoo Amara Company Limited

 Real estate development                  98.54    98.54   Myanmar

POSMATE-CHINA CO., LTD

 Business facility maintenance                  100.00    100.00   China

Daewoo Precious Resources Co., Ltd.

 Resources development                  60.00    60.00   Myanmar

POSCO-Mexico Villagran Wire-rod Processing Center

 Steel manufacturing              56.75    10.00    66.75   Mexico

SANTOS CMI Guatemala S.A.

 Construction                  99.00    99.00   Guatemala

POSCO-China Dalian Steel Fabricating Center

 Steel manufacturing              42.16    25.39    67.55   China

POSCO E&C HOLDINGS CO.,Ltd.

 Holding company                  100.00    100.00   Thailand

POSCO E&C (THAILAND) CO.,Ltd.

 Construction                  100.00    100.00   Thailand

SUNGJIN CANADA LTD.

 Machinery installation                  70.00    70.00   Canada

POSCO PLANTEC Thiland CO. LTD(*2)

 Steel work maintenance and machinery installation                  48.78    48.78   Thailand

DAEWOO POWER PNG Ltd.

 Electricity prodction                  100.00    100.00   Papua
New Guinea

  

Principal operations

 Ownership (%)   
   December 31, 2016  December 31, 2017  
   POSCO  Subsidiaries  Total  POSCO  Subsidiaries  Total  Region

POSCO India Ahmedabad Steel Processing Center Pvt.Ltd.

 Steel manufacturing and sales  100.00      100.00           India

COINSA INGENIERIA Y
PETROQUIMICA S.R.L

 Construction     50.00   50.00           Bolivia

POSCO VIETNAM HOLDINGS CO., LTD

 Holding company  79.28   20.72   100.00           Vietnam

Kwanika Copper Corporation
(formerly, Daewoo Minerals
Canada Corporation)(*2)

 Resources development     100.00   100.00           Canada

Chongqing POSCO CISL Automotive
Steel Co., Ltd.

 Automotive steel sheet
manufacturing and sales
  51.00      51.00           China

POSCO YongXin Rare Earth Metal Co., Ltd.

 Magnet material manufacturing and sales     51.60   51.60           China

PT. POSCO MTECH INDONESIA

 Steelmaking materials manufacturing and sales     99.98   99.98           Indonesia

POSCO (Zhangjiagang) STS Processing Center Co., Ltd

 Steel manufacturing and sales     100.00   100.00           China

EPC EQUITIES LLP

 Engineering, procurement and construction     80.00   80.00           England

SANTOS CMI CONSTRUCTION TRADING LLP

 Engineering, procurement and construction     99.90   99.90           England

SANTOS CMI INC. USA

 Engineering, procurement and construction     100.00   100.00           USA

SANTOS CMI ENGENHARIA E
CONSTRUCOES LTDA

 Engineering, procurement and construction     99.98   99.98           Brazil

SANTOS CMI PERU S.A.

 Engineering, procurement and construction     99.99   99.99           Peru

SANTOS CMI CONSTRUCCIONES S.A.

 Engineering, procurement and construction     100.00   100.00           Uruguay

GENTECH INTERNATIONAL INC.

 Engineering, procurement and construction     90.00   90.00           Panama

SANTOS CMI S.A.

 Engineering, procurement and construction     80.00   80.00           Ecuador

SANTOS CMI CONSTRUCCIONES
DE CHILE S.A.

 Engineering, procurement and construction     99.00   99.00           Chile

COMPANIA DE AUTOMATIZACION
&CONTROL, GENESYS S.A.

 Engineering, procurement and construction     90.00   90.00           Ecuador

POSCO Electrical Steel India Private Limited

 Electrical steel manufacturing and sales  100.00      100.00           India

 

 

(*1)Included as aReclassified to subsidiary asfrom associate during the Company has the power over more than half of the voting rights by virtue of an agreement with Postech, which has a 4.72% ownership interest.year ended December 31, 2017.

 

(*2)These subsidiaries are included inReclassified to joint venture from subsidiary during the consolidated financial statements as the controlling company has control over them in consideration of the board of directors’ composition and others.year ended December 31, 2017.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

The amounts recognizedequity of controlling company increased by8,650 million (POSCO Processing & Service and others) and16,288 million (POSCO DAEWOO Corporation, POSMATE and others) in equity2016 and 2017, respectively, as a result of changes in the Company’s ownership interests in subsidiaries that did not result in a loss of control (2012: POSCO Specialty Steel Co., Ltd., POSCO ENERGY Co., Ltd., POSCO-Thainox Public Company Limited, etc., 2013: POSCO Specialty Steel Co., Ltd., POSCO ICT Co., Ltd., POSCO TMC Co., Ltd. etc., 2014: POSCO P&S Co., Ltd., SPFC Co., Ltd. etc.) were41,924 million,31,417 million and9,401 million for the years ended December 31, 2012, 2013 and 2014, respectively.control.

Cash dividends paid to POSCO by subsidiaries for the years ended December 31, 2012, 2013in 2015, 2016 and 20142017 amounted to22,581437,194 million,71,97075,830 million and58,48870,087 million, respectively.

As of December 31, 2014,2017, there are no restrictions on the ability of subsidiaries to transfer funds to the Controlling Company,controlling company, such as in the form of cash dividends, repayment of loans or payment of advances.

(c) Details ofnon-controlling interest as of and for the years ended December 31, 20132015, 2016 and 20142017 are as follows:

1) December 31, 20132015

 

 Daewoo
International
Corporation
 PT.
KRAKATAU
POSCO
 POSCO
Specialty
Steel Co., Ltd.
 POSCO
ENGINEERING &
CONSTRUCTION
CO., LTD.
 POSCO
ENERGY
Co., Ltd.
 Others Total  POSCO
DAEWOO
Corporation
 PT.
KRAKATAU
POSCO
 POSCO
CHEMTECH
 POSCO
ENGINEERING &
CONSTRUCTION
CO., LTD.
 POSCO
ENERGY
CO., LTD.
 Others Total 
 (in millions of Won)  (in millions of Won) 

Current assets

 4,313,678    427,029    633,583    5,443,747    697,234    9,773,753    21,289,024   3,930,857  441,999  360,812  5,115,325  590,460  9,648,917  20,088,370 

Non-current assets

  6,110,630    3,019,191    879,536    1,075,367    3,115,599    8,538,325    22,738,648   4,777,482  3,363,935  248,549  1,756,367  3,333,351  7,776,264  21,255,948 

Current liabilities

  (4,258,245  (611,434  (269,749  (3,632,188  (674,370  (8,990,091  (18,436,077 (3,568,714 (1,004,002 (106,167 (3,125,697 (663,945 (9,692,004 (18,160,529

Non-current liabilities

  (1,835,835  (1,862,078  (264,596  (788,734  (1,760,156  (3,038,981  (9,550,380 (1,941,909 (2,315,554 (5,405 (768,529 (2,420,547 (2,567,980 (10,019,924

Equity

  4,330,228    972,708    978,774    2,098,192    1,378,307    6,283,006    16,041,215   3,197,716  486,378  497,789  2,977,466  839,319  5,165,197  13,163,865 

Non-controlling interests

  1,718,562    291,812    273,143    219,777    151,274    1,451,734    4,106,302   1,269,096  145,913  199,116  1,405,391  535,878  1,182,137  4,737,531 

Sales

  16,838,559        1,316,781    7,937,845    2,901,117    25,405,268    54,399,570   16,890,723  1,227,266  1,175,272  6,866,802  1,909,919  25,784,254  53,854,236 

Profit for the period

  42,312    (41,844  31,749    138,724    146,419    (143,940  173,420  

Profit (loss) for the period

 79,092  (398,438 35,516  108,895  15,831  (835,389 (994,493

Profit (loss) attributable to non-controlling interests

  16,793    (12,553  8,860    14,530    16,070    (15,634  28,066   31,390  (119,531 14,206  51,399  1,738  (247,106 (267,904

Cash flows from operating activities

  (67,785  (50,209  18,721    40,815    32,174    23,342    (2,942 433,493  (13,595 19,921  434,257  6,075  (72,371 807,780 

Cash flows from investing activities

  (123,609  (405,186  (54,152  (15,888  (94,741  (337,253  (1,030,829 (74,644 (8,994 25,318  21,075  (20,980 (110,712 (168,937

Cash flows from financing activities (before dividends tonon-controlling interest)

  156,326    467,617    80,213    (29,059  62,273    375,947    1,113,317   (340,532 18,886  66  69,615  11,572  289,715  49,322 

Dividend to non-controlling interest

  (13,558      (2,217  (2,885      (9,125  (27,785 (22,597    (4,135 (703 (24,125 (145,582 (197,142

Effect of exchange rate fluctuation on cash held

  (114  (560      (360      (9,036  (10,070 430  83     819     3,502  4,834 

Net increase in cash and cash equivalents

  (48,740  11,662    42,565    (7,377  (294  43,875    41,691  

Net increase (decrease) in cash and cash equivalents

 (3,850 (3,620 41,170  525,063  (27,458 (35,448 495,857 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

2) December 31, 20142016

 

 Daewoo
International
Corporation
 PT.
KRAKATAU
POSCO
 POSCO
CHEMTECH
 POSCO
ENGINEERING &
CONSTRUCTION
CO., LTD.
 POSCO
ENERGY
Co., Ltd.
 Others Total  POSCO
DAEWOO
Corporation
 PT.
KRAKATAU
POSCO
 POSCO
CHEMTECH
 POSCO
ENGINEERING &
CONSTRUCTION
CO., LTD.
 POSCO
ENERGY
CO., LTD.
 Others Total 
 (in millions of Won)  (in millions of Won) 

Current assets

 5,177,495    645,598    360,673    5,082,514    501,219    12,781,184    24,548,683   4,038,313  460,376  397,370  5,163,436  713,039  9,696,140  20,468,674 

Non-current assets

  6,028,358    3,303,632    251,206    1,333,612    3,393,917    10,135,827    24,446,552   4,510,085  3,304,292  243,401  1,710,398  3,038,665  7,749,277  20,556,118 

Current liabilities

  (5,046,468  (988,132  (131,389  (3,494,647  (546,791  (11,493,074  (21,700,501 (3,662,811 (1,120,077 (109,016 (3,284,090 (937,668 (9,669,053 (18,782,715

Non-current liabilities

  (1,807,698  (2,118,519  (7,150  (882,025  (2,513,129  (3,681,307  (11,009,828 (1,681,182 (2,337,612 (2,337 (855,791 (2,172,226 (2,856,498 (9,905,646

Equity

  4,351,687    842,579    473,340    2,039,454    835,216    7,742,630    16,284,906   3,204,405  306,979  529,418  2,733,953  641,810  4,919,866  12,336,431 

Non-controlling interests

  1,727,078    252,773    189,336    213,624    91,668    1,677,400    4,151,879   1,271,750  92,094  211,767  1,290,450  514,200  945,962  4,326,223 

Sales

  19,938,711    1,129,977    1,331,527    7,174,890    2,533,673    28,738,206    60,846,984   15,417,550  1,244,711  1,076,455  5,352,395  1,657,890  23,251,563  48,000,564 

Profit for the period

  83,167    (232,503  68,196    50,023    21,100    (159,066  (169,083

Profit (loss) for the period

 113,832  (187,151 41,829  (760,187 (130,809 (461,034 (1,383,520

Profit (loss) attributable to non-controlling interests

  33,007    (69,751  27,278    5,240    2,316    (62,302  (64,212 45,177  (56,145 16,732  (358,815 (14,357 (312,297 (679,705

Cash flows from operating activities

  (149,695  (27,383  20,676    24,592    36,346    (121,697  (217,161 337,338  45,672  30,295  (211,182 18,107  53,050  273,280 

Cash flows from investing activities

  (167,573  (74,454  (28,349  (33,755  (117,154  (230,954  (652,239 (35,054 (8,804 (42,021 (102,939 (1,047 (253,206 (443,071

Cash flows from financing activities (before dividends to non-controlling interest)

  336,114    75,680        (15,162  83,014    406,904    886,550   (295,226 (36,286 (1,250 (20,953 (2,875 204,797  (151,793

Dividend to non-controlling interest

  (13,558      (3,544  (1,923  (2,648  (5,748  (27,421 (22,597    (4,726 (14,800 (24,378 (7,349 (73,850

Effect of exchange rate fluctuation on cash held

  (46  134    43    (8      3,636    3,759   10  67  1  760     1,687  2,525 

Net increase in cash and cash equivalents

  5,242    (26,023  (11,174  (26,256  (442  52,141    (6,512

Net increase (decrease) in cash and cash equivalents

 (15,529 649  (17,701 (349,114 (10,193 (1,021 (392,909

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

3) December 31, 2017

  POSCO
DAEWOO
Corporation
  PT.
KRAKATAU
POSCO
  POSCO
CHEMTECH
  POSCO
ENGINEERING &
CONSTRUCTION
CO., LTD.
  POSCO
ENERGY
CO., LTD.
  Others  Total 
  (in millions of Won) 

Current assets

 4,483,544   557,041   441,325   4,878,251   1,054,538   8,579,813   19,994,512 

Non-current assets

  4,590,394   2,771,504   316,724   2,444,616   2,859,824   6,676,559   19,659,621 

Current liabilities

  (4,221,443  (1,237,255  (145,649  (3,896,680  (785,462  (8,313,902  (18,600,391

Non-current liabilities

  (1,549,013  (1,933,247  (970  (833,403  (2,200,065  (2,048,454  (8,565,152

Equity

  3,303,482   158,043   611,430   2,592,784   928,835   4,894,016   12,488,590 

Non-controlling interests

  1,224,303   47,413   244,572   1,223,816   762,390   974,941   4,477,435 

Sales

  20,891,526   1,635,837   1,163,918   5,794,532   1,578,026   23,547,072   54,610,911 

Profit (loss) for the period

  115,321   (117,729  101,019   169,011   70,795   258,053   596,470 

Profit (loss) attributable tonon-controlling interests

  42,739   (35,318  40,408   79,775   7,770   39,605   174,979 

Cash flows from operating activities

  128,875   (27,817  20,042   (84,840  30,295   140,418   206,973 

Cash flows from investing activities

  (86,365  (5,502  (18,699  (171,924  (2,792  (63,621  (348,903

Cash flows from financing activities (before dividends tonon-controlling interest)

  (19,295  31,782   8   150,801   220,317   (38,090  345,523 

Dividend tonon-controlling interest

  (22,597     (7,088     (24,183  (12,777  (66,645

Effect of exchange rate fluctuation on cash held

  (459  (147  (6  (3,541     (15,532  (19,685

Net increase (decrease) in cash and cash equivalents

  159   (1,684  (5,743  (109,504  223,637   10,398   117,263 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

 

(d) Details of associates and joint ventures

1) Associates

Details of associates as of December 31, 20132016 and 20142017 are as follows:

 

    Ownership (%)   

Investee

 

Category of business

   2013      2014    Region

[Domestic]

    

EQP POSCO Global NO1 Natual Resources PEF

 Investment in new technologies  27.23    28.48   Seoul

SNNC

 Raw material manufacturing and sales  49.00    49.00   Gwangyang

QSONE Co.,Ltd.

 Real estate rental and facility management  50.00    50.00   Seoul

Incheon-Gimpo Expressway Co., Ltd.

 Construction  29.94    25.76   Anyang

BLUE OCEAN Private Equity Fund

 Private equity financial  27.52    27.52   Seoul

UITrans LRT Co., Ltd.

 Transporting  38.19    38.19   Seoul

CHUNGJU ENTERPRISE CITY DEVELOPMENT Co.,Ltd

 Real estate development  25.10    25.10   Chungju

KoFC POSCO HANWHA KB Shared Growth NO. 2. Private Equity Fund(*1)

 Investment in new technologies  12.50    12.50   Seoul

KONES, Corp.

 Technical service  41.67    41.67   Gyeongju

Gunggi Green Energy(*1)

 Electricity generation  19.00    19.00   Hwaseong

Gale International Korea, LLC

 Real estate rental  29.90    29.90   Seoul

Pohang Techno Valley PFV Corporation(*2)

 Real estate development  54.99    54.99   Pohang

Pohang Special Welding Co.,Ltd.

 Welding material and tools manafacturing and sales  50.00    50.00   Pohang

KC Chemicals(*1)

 Machinery manufacturing  19.00    19.00   Hwaseong

Green Jang Ryang Co.Ltd

 Sewerage treatment  25.00    25.00   Pohang

DAEHO GLOBAL MANAGEMENT CO., LTD.

 Investment advisory service  35.82    35.82   Pohang

Daewoo Public Car Sales (Gwangju) CO.,Ltd

 Leasing services  50.00    50.00   Gwangju

Clean Gimpo Co., Ltd.

 Construction  29.58    29.58   Gimpo

Pajoo & Viro Co., Ltd.

 Construction  40.00    40.00   Paju

Posco-IDV Growth Ladder IP Fund(*1,3)

 Investment in new technologies      17.86   Seoul

SuNAM Co., Ltd(*1)

 Power supply manufacturing  19.17    19.17   Seoul

Pureun Tongyeong Enviro Co., Ltd.

 Sewerage treatment  20.40    20.40   Tongyeong

Postech Early Stage Fund(*1)

 Investment in venture companies  10.00    10.00   Pohang

Posgreen Co., Ltd.(*1)

 Plastic manufacturing  19.00    19.00   Gwangyang

POSTECH Social Enterprise Fund(*1)

 Investment in new technologies  9.17    9.17   Seoul

Applied Science Corp.

 Machinery manufacturing  27.11    26.47   Paju

Suwon Green Environment Co.,Ltd

 Construction  27.50    27.50   Hwaseong

Universal Studios Resort Asset Management Corporation

 Real estate services  26.17    26.17   Seoul

Noel Green Energy Co., Ltd.(*3)

 Electricity generation      20.00   Seoul

Synergy Private Equity Fund(*1,3)

 Investment in new technologies      17.86   Seoul

Pure Gimpo Co., Ltd.

 Construction  28.79    28.79   Seoul

Pohang Techno Valley AMC

 Construction  29.50    29.50   Pohang

New Songdo International City Development, LLC

 Real estate rental  29.90    29.90   Seoul

MTAPOLIS Co.,Ltd.

 Multiplex •development  40.05    40.05   Hwaseong

Busan-Gimhae Light Rail Transit Co., Ltd.

 Transporting  25.00    25.00   Gimhae

Clean Iksan Co., Ltd.

 Construction  23.50    23.50   Pohang

Mokpo Deayang Industrial Corporation

 Real estate development  27.40    27.40   Mokpo

Chun-cheon Energy Co., Ltd

 Electricity generation  29.90    29.90   Chuncheon

Innovalley Co., Ltd.

 Real estate developement  28.77    28.77   Yongin

Garolim Tidal Power Plant Co.,Ltd

 Tidal power plant construction and management  32.13    32.13   Seosan

Posco e&c Songdo International Building

 Non-resident building lease  49.00    49.00   Seoul
    Ownership (%)    

Investee

 

Category of business

   2016      2017    Region 

[Domestic]

    

EQP POSCO Global NO1 Natural Resources PEF

 Investment in new technologies  29.37   31.14   Seoul 

POSCO PLANTEC Co., Ltd. (*2)

 Construction of industrial plant  73.94   73.94   Ulsan 

SNNC

 Raw material manufacturing and sales  49.00   49.00   Gwangyang 

QSONE Co.,Ltd.

 Real estate rental and facility management  50.00   50.00   Seoul 

Chun-cheon Energy Co., Ltd

 Electricity generation  29.90   45.67   Chuncheon 

Incheon-Gimpo Expressway Co., Ltd. (*1)

 Construction  20.04   18.26   Anyang 

BLUE OCEAN Private Equity Fund

 Private equity financial  27.52   27.52   Seoul 

UITrans LRT Co., Ltd.

 Transporting  38.19   38.19   Seoul 

Keystone NO. 1. Private Equity Fund

 Private equity financial  40.45   40.45   Seoul 

CHUNGJU ENTERPRISE CITY
DEVELOPMENT Co.,Ltd

 Real estate development  29.53   29.53   Chungju 

Daesung Steel (*1)

 Steel sales  17.54   17.54   Busan 

KoFC POSCO HANWHA KB Shared Growth
NO. 2. Private Equity Fund (*1)

 Investment in new technologies  12.50   12.50   Seoul 

KONES, Corp.

 Technical service  41.67   41.67   Gyeongju 

Gale International Korea, LLC

 Real estate rental  29.90   29.90   Seoul 

Pohang Techno Valley PFV Corporation (*3)

 Real estate development, supply and rental  30.28   57.39   Pohang 

Gunggi Green Energy (*1)

 Electricity generation  19.00   19.00   Hwaseong 

Pohang Special Welding Co.,Ltd.

 Welding material and tools manufacturing and sales  50.00   50.00   Pohang 

KC Chemicals CORP (*1)

 Machinery manufacturing  19.00   19.00   Hwaseong 

Posco-IDV Growth Ladder IP Fund (*1)

 Investment in new technologies  17.86   17.86   Seoul 

DAEHO GLOBAL MANAGEMENT CO., LTD.

 Investment advisory service  35.82   35.82   Pohang 

Clean Gimpo Co., Ltd.

 Construction  29.58   29.58   Gimpo 

Postech Early Stage Fund (*1)

 Investment in new technologies  10.00   10.00   Pohang 

POSCO Energy Valley Fund

 Investment in new technologies  20.00   20.00   Pohang 

Pureun Tongyeong Enviro Co., Ltd.

 Sewerage treatment  20.40   20.40   Tongyeong 

Posgreen Co., Ltd. (*1)

 Lime and plaster manufacturing  19.00   19.00   Gwangyang 

Pohang E&E Co,. Ltd.

 Investment in waste energy  30.00   30.00   Pohang 

POSTECH Social Enterprise Fund (*1)

 Investment in new technologies  9.17   9.17   Seoul 

Applied Science Corp.

 Machinery manufacturing  24.88   23.87   Paju 

Noeul Green Energy (*1)

 Electricity generation  10.00   10.00   Seoul 

Pohang Techno Valley AMC

 Construction  29.50   29.50   Pohang 

New Songdo International City Development, LLC

 Real estate rental  29.90   29.90   Seoul 

Mokpo Deayang Industrial Corporation

 Real estate development and rental  27.40   27.40   Mokpo 

Clean Iksan Co., Ltd.

 Construction  23.50   23.50   Iksan 

Innovalley Co., Ltd.

 Real estate development  28.77   28.77   Yongin 

Pure Gimpo Co., Ltd.

 Construction  28.79   28.79   Seoul 

Garolim Tidal Power Plant Co.,Ltd

 Tidal power plant construction and management  32.13   32.13   Seosan 

2016 PoscoPlutus New Technology Investment Fund

 Investment in new technologies  25.17   25.17   Seoul 

Hyundai Invest Guggenheim CLO Private Special Asset Investment Trust II

 Investment in new technologies  38.47   38.47   Seoul 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

 Ownership (%)  Ownership (%)   

Investee

 

Category of business

   2013     2014   Region 

Category of business

   2016     2017   Region 

POSCO PLANTEC Co., Ltd. (*4)

 Industrial structure manufacturing  43.97       Ulsan

Future Creation Fund Postech Early Stage account (*4)

 Investment in new technologies  40.00       Seoul

Taegisan Wind Power Corporation(*5)

 Wind power plant construction and management  50.00       Hoengseong

Dakos Co., Ltd.(*6)

 Railway equipment manufacturing  31.00       Seongnam

Gyeonggi CES Co.,Ltd(*5)

 Facility construction  21.83       Yangju

Hyundai Investment Network Private Equity Fund I (*6)

 Mine investment  50.00       Seoul

PoscoPlutus Bio Fund (*1)

 Investment in new technologies 11.97  11.97  Seoul 

PoscoPlutus Project Fund (*1)

 Investment in new technologies 11.91  11.91  Seoul 

Posco Agrifood Export Investment Fund

 Investment in new technologies 30.00  30.00  Seoul 

PoscoPlutus Project II Investment Fund (*1)

 Investment in new technologies 0.61  0.61  Seoul 

Posco Culture Contents Fund

 Investment in new technologies 31.67  31.67  Seoul 

PCC Centroid 1st Fund (*4)

 Investment in new technologies    24.10  Seoul 

PCC Amberstone Private Equity Fund I (*1,4)

 Investment in new technologies    9.71  Seoul 

POSCO Advanced Technical Staff Fund (*1,4)

 Investment in new technologies    15.87  Seoul 

POSCO 4th Industrial Revolution Fund (*4)

 Investment in new technologies    20.00  Seoul 

METAPOLIS Co.,Ltd. (*6)

 Multiplex development 40.05     Hwaseong 

Universal Studios Resort Asset Management Corporation (*5)

 Real estate services 26.17     Seoul 

Busan-Gimhae Light Rail Transit Co., Ltd. (*5)

 Transporting 25.00     Gimhae 

[Foreign]

        

South-East Asia Gas Pipeline Company Ltd.

 Pipeline construction and management 25.04  25.04  Myanmar 

AES-VCM Mong Duong Power Company Limited

 Electricity generation 30.00  30.00  Vietnam 

7623704 Canada Inc.(*1)

 Investments management 10.40  10.40  Canada 

Eureka Moly LLC

 Steel processing and sales  20.00    20.00   USA Raw material manufacturing and sales 20.00  20.00  USA 

South-East Asia Gas Pipeline Company Ltd.

 Pipeline construction  25.04    25.04   Myanmar

7623704 Canada Inc.(*1)

 Investments management  10.40    10.40   Canada

AMCI (WA) PTY LTD

 Iron ore sales & mine development 49.00  49.00  Australia 

Nickel Mining Company SAS

 Raw material manufacturing and sales  49.00    49.00   New
Caledonia
 Raw material manufacturing and sales 49.00  49.00   
New
Caledonia
 
 

AES-VCM Mong Duong Power Company Limited

 Electricity generation  30.00    30.00   Vietnam

AMCI (WA) PTY LTD.

 Iron ore sales & mine development  49.00    49.00   Australia

NCR LLC

 Coal sales 29.41  29.41  Canada 

KOREA LNG LTD.

 Gas production and sales  20.00    20.00   England Gas production and sales 20.00  20.00  England 

CAML RESOURCES PTY LTD.

 Raw material manufacturing and sales  33.34    33.34   Australia

NCR LLC

 Coal sales  29.41    29.41   Canada

PT. Batutua Tembaga Raya

 Raw material manufacturing and sales 24.10  22.00  Indonesia 

Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd

 Tinplate manufacturing and sales  34.00    34.00   China Tinplate manufacturing and sales 34.00  34.00  China 

PT. Batutua Tembaga Raya(*3)

 Raw material manufacturing and sales      24.10   Indonesia

PT. Wampu Electric Power

 Construction and civil engineering 20.00  20.00  Indonesia 

POSCO SeAH Steel Wire(Nantong) Co., Ltd.

 Steel processing and sales 25.00  25.00  China 

VSC POSCO Steel Corporation

 Steel manufacturing and sales  50.00    50.00   Vietnam Steel processing and sales 50.00  50.00  Vietnam 

PT. Wampu Electric Power

 Construction and engneering service  20.00    20.00   Indonesia

POSCO SeAH Steel Wire (Nantong) Co., Ltd.

 Steel processing and sales  25.00    25.00   China

POSCHROME (PROPRIETARY) LIMITED

 Raw material manufacturing and sales  50.00    50.00   South Africa

LLP POSUK Titanium

 Titanium manufacturing and sales  36.83    36.83   Kazahstan

IMFA ALLOYS FINLEASE LTD

 Raw material manufacturing and sales  24.00    24.00   India Raw material manufacturing and sales 24.00  24.00  India 

AN KHANH NEW CITY DEVELOPMENT J.V CO., LTD.

 Highway construction and new town development  50.00    50.00   Vietnam

XG Sciences(*3)

 New materials manufacturing and development      26.27   USA

General Medicines Company Ltd.

 Medicine manufacturing and sales  33.00    33.00   Sudan Medicine manufacturing and sales 33.00  33.00  Sudan 

PT.INDONESIA POS CHEMTECH CHOSUN Ref

 Refractory manufacturing and sales  30.19    30.19   Indonesia Refractory manufacturing and sales 30.19  30.19  Indonesia 

PT. Tanggamus Electric Power

 Construction and engneering service  20.00    20.59   Indonesia

POSK(Pinghu) Steel Processing Center Co., Ltd.

 Steel processing and sales 20.00  20.00  China 

SHANGHAI LANSHENG DAEWOO CORP.

 Trading 49.00  49.00  China 

POS-SEAHSTEELWIRE(TIANJIN)CO.,Ltd

 Steel manufacturing and sales  25.00    25.00   China Steel processing and sales 25.00  25.00  China 

SHANGHAI LANSHENG DAEWOO CORP.

 Trading  49.00    49.00   China

POSK(Pinghu) Steel Processing Center Co., Ltd.

 Steel processing and sales  20.00    20.00   China

SHANGHAI WAIGAOQIAO FREE TRADE ZONE LANSHENG DAEWOO IN’L TRADING CO., LTD.

 Trading  49.00    49.00   China Trading 49.00  49.00  China 

PT. Tanggamus Electric Power(*1)

 Construction and civil engineering 17.50  17.50  Indonesia 

NS-Thainox Auto Co., Ltd.

 Steel manufacturing and sales  49.00    49.00   Vietnam Steel manufacturing and sales 49.00  49.00  Vietnam 

BGC-POS PTY LTD.

 Construction  49.00    49.00   Australia

Hamparan Mulya

 Resource development 45.00  45.00  Indonesia 

Sebang Steel

 Scrap sales  49.00    49.00   Japan Scrap sales 49.00  49.00  Japan 

Hamparan Mulia

 Resource development  45.00    45.00   Indonesia

Baganuur Energy Corporation

 Refined oil manufacturing  50.00    50.00   Mongolia

GLOBAL KOMSCO Daewoo LLC

 Cotton celluloid manufacturing and sales 35.00  35.00  Uzbekistan 

POSCO-Poggenamp Electrical Steel Pvt. Ltd.

 Steel manufacturing  26.00    26.00   India Steel manufacturing and sales 26.00  26.00  India 

Fifth Combined Heat and Power Plant LLC

 Thermal power generation  30.00    30.00   Mongolia

GLOBAL KOMSCO Daewoo LLC

 Mintage  35.00    35.00   Uzbekistan

KIRIN VIETNAM CO., LTD(*1)

 Panel manufacturing 19.00  19.00  Vietnam 

POSCHROME (PROPRIETARY) LIMITED

 Raw material manufacturing and sales 50.00  50.00   
South
Africa
 
 

CAML RESOURCES PTY LTD

 Raw material manufacturing and sales 33.34  33.34  Australia 

KG Power(M) SDN. BHD

 Energy & resource development  20.00    20.00   Malaysia Energy & resource development 20.00  20.00  Malaysia 

LI3 ENERGY INC

 Energy & resource development 26.06  26.06  Peru 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

    Ownership (%)   

Investee

 

Category of business

   2013      2014    Region

Arctos Anthracite Joint Venture

 Coal sales  20.00    20.00   Canada

LI3 ENERGY INC

 Energy & resource development  26.06    26.06   Peru

POSCO China Suzhou Processing Center Co.,Ltd. (formerly, POSCO-SAMSUNG Suzhou Processing Center Co.,Ltd.)(*4)

 Steel processing and sales  30.00       China

Hanjung Power Pty., Ltd(*4)

 Electric power manufacturing and sales  49.00       Papua
New Guinea

POSVINA Co., Ltd.(*5)

 Plating steel sheet manufacturing and sales  50.00       Vietnam

Yingkou Posrec Refractories Co., Ltd.(*6)

 Refractory manufacturing  25.00       China

Daewoo (THAILAND) CO., LTD.(*6)

 Trading  49.00       Thailand

N.I.CO., LTD.(*6)

 Trading  50.00       North Korea

Boulder Solar Power, LLC(*5)

 Electric power manufacturing  21.74       USA
    Ownership (%)   

Investee

 

Category of business

   2016      2017    Region

LLP POSUK Titanium

 Titanium manufacturing and sales  36.83   36.83  Kazakhstan

POS-SeAH Steel Wire (Thailand) Co., Ltd.

 Steel manufacturing and sales  25.00   25.00  Thailand

Jupiter Mines Limited(*1)

 Energy & resource development  17.08   17.06  Australia

KRAKATAUPOS-CHEMDONG-SUH
CHEMICAL(*1)

 Chemicalby-product manufacturing and sales  19.00   19.00  Indonesia

SAMHWAN VINA CO., LTD(*1,4)

 Steel manufacturing and sales     19.00  Vietnam

JB CLARK HILLS(*4)

 Construction     25.00  Philippines

Saudi-Korean Company for Maintenance Properties Management LLC(*1,4)

 Building management     19.00  Saudi
Arabia

AN KHANH NEW CITY DEVELOPMENT
J.V CO., LTD.(*5)

 Highway construction and new town development  50.00     Vietnam

Fifth Combined Heat and Power Plant LLC(*5)

 Thermal power generation  30.00     Mongolia

Chongqing CISL High Strength Cold Rolling
Steel Co., Ltd.(*6)

 Steel manufacturing and sales  10.00     China

 

 

(*1)TheConsidering the composition of board of directors, the Company is able to exercise significant influence over the investees even though the Company’s percentage of ownership is below 20%.

 

(*2)On September 30, 2015, in order to improve its financial standing and normalize operation, the associates reached a workout agreement with its Creditor Financial Institutions Committee. As a result, the Company lost its control and classified its shares as investment in associate.

(*3)Considering the composition of board of directors, the Company isdoes not able to exercisehave control over the investeeand classified its shares as investment in an associate, even though the Company’s percentage of ownership is aboveover 50%.

 

(*3)4)These associates were newly established or acquired in 2014.

(*4)Reclassified to subsidiary from associate due to an increase in ownership percentage and acquisition of control during the year ended December 31, 2014.2017.

 

(*5)Excluded from associates due to the disposal of shares during the year ended December 31, 2014.2017.

 

(*6)Excluded from associates due to the liquidationloss of significant influence during the year ended December 31, 2014.2017.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

2) Joint ventures

Details of joint ventures as of December 31, 20132016 and 20142017 are as follows:

 

 Ownership (%)  Ownership (%)   

Investee

 

Category of business

   2013     2014   Region 

Category of business

   2016     2017   Region 

[Domestic]

        

POSCO ES MATERIALS

 Secondary battery manufacturing  50.00    50.00   Gumi

POSCO MITSUBISHI CARBON TECHNOLOGY

 Steel processing and sales  60.00    60.00   Gwangyang Steel processing and sales 60.00  60.00  Gwangyang 

POSCO-SGI Falcon Pharmaceutic Bio Secondary Fund 1(*1)

 Investment in new technologies    24.55  Seoul 

POSCO-KB Shipbuilding Restructuring Fund(*1)

 Investment in new technologies    18.75  Seoul 

POSCO-NSC Venture Fund(*1)

 Investment in new technologies    16.67  Seoul 

PCC L&K New Technology 1st Fund(*1)

 Investment in new technologies    10.00  Seoul 

PoscoPlutus Project 3rd Investment Fund(*1)

 Investment in new technologies    5.96  Seoul 

[Foreign]

        

Roy Hill Holdings Pty Ltd

 Energy & resource development  12.50    12.50   Austrailia Energy & resource development 12.50  12.50  Australia 

POSCO-NPS Niobium LLC

 Mine development  50.00    50.00   USA Mine development 50.00  50.00  USA 

CSP — Compania Siderurgica do Pecem

 Steel manufacturing and sales  20.00    20.00   Brazil Steel manufacturing and sales 20.00  20.00  Brazil 

BX STEEL POSCO Cold Rolled Sheet Co., Ltd.

 Steel processing and sales 25.00  25.00  China 

KOBRASCO

 Steel materials manufacturing and sales 50.00  50.00  Brazil 

DMSA/AMSA

 Energy & resource development  4.00    4.00   Madagascar Energy & resource development 4.00  4.00  Madagascar 

KOBRASCO

 Facility lease  50.00    50.00   Brazil

BX STEEL POSCO Cold Rolled Sheet Co., Ltd.

 Steel processing and sales  25.00    25.00   China

PT. POSMI Steel Indonesia

 Steel processing and sale  36.69    36.69   Indonesia Steel processing and sales 36.69  36.69  Indonesia 

POSCO-CDPC(POSCO ChengDu Processing
Center) Co., Ltd(*1)

 Steel processing and sale      43.00   China

Henan Tsingpu Ferro Alloy Co., Ltd.

 Raw material manufacturing and sales  49.00    49.00   China

TANGGANG-POSCO LED(*1)

 Led manufacturing and sales      50.00   China

VNS-DAEWOO Co., Ltd.(*1)

 Steel processing and sale      40.00   Veitnam

VNS-DAEWOO Co., Ltd.

 Steel scrap processing and sale 40.00  40.00  Vietnam 

YULCHON MEXICO S.A. DE C.V.

 Tube for automobile manufacturing 19.00  19.00  Mexico 

POSCO-SAMSUNG-Slovakia Processing Center

 Steel processing and sales  30.00    30.00   Slovakia Steel processing and sales 30.00  30.00  Slovakia 

Zhangjiagang Pohang Refractories Co., Ltd.

 Refractory manufacturing  50.00    50.00   China

United Spiral Pipe, LLC

 Material manufacturing and sales 35.00  35.00  USA 

Korea Siberia Wood CJSC

 Forest resource development  50.00    50.00   Russia Forest resource development 50.00  50.00  Russia 

United Spiral Pipe, LLC

 Material manufacturing and sales  35.00    35.00   USA

SUNGJIN DRIVER INC (*1)

 Moduel and Plant manufacturing      50.00   Canada

Hyunson Engineering & Construction HYENCO

 Construction 4.90  4.90  Algeria 

USS-POSCO Industries

 Cold rolled coil manufacturing and sales  50.00    50.00   USA Cold-rolled steel manufacturing and sales 50.00  50.00  USA 

POSCO E&C Saudi Arabia

 Civil engineering and construction 40.00  40.00   
Saudi
Arabia
 
 

Pos-Austem Suzhou Automotive Co., Ltd(*1)

 Automotive parts manufacturing    19.90  China 

POS-AUSTEM YANTAI AUTOMOTIVE
CO., LTD (*1)

 Automotive parts manufacturing    11.06  China 

POS-AUSTEM WUHAN AUTOMOTIVE
CO., LTD (*1)

 Automotive parts manufacturing    13.00  China 

POS-InfraAuto (Suzhou) Co., Ltd(*1)

 Automotive parts manufacturing    16.20  China 

Kwanika Copper Corporation (formerly, Daewoo Minerals Canada Corporation) (*2)

 Energy & resource development    35.00  Canada 

Henan Tsingpu Ferro Alloy Co., Ltd.(*3)

 Raw material manufacturing and sales 49.00     China 

Zhangjiagang Pohang Refractories Co., Ltd.(*4)

 Refractory manufacturing 50.00     China 

 

 

(*1)These joint ventures were newly established or acquired in 2014.2017.

(*2)Reclassified to joint venture from subsidiary during the year ended December 31, 2017.

(*3)Excluded from joint ventures due to the disposal of shares during the year ended December 31, 2017.

(*4)Reclassified to subsidiary from joint venture during the year ended December 31, 2017.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

(e) Newly included subsidiaries

1) Consolidated subsidiaries acquired or newly established during the year ended December 31, 20142017 are as follows:

 

Company

  

Date of acquisition

addition  
  Ownership (%)   

Reason

Hanjung Power Pty., LtdPOSCO RU Limited Liability Company

  January 2014100.00Reclassification from associate

Daewoo Amara Company Limited

January 201485.00New establishment

POSMATE-CHINA CO., LTD

January 20142017   100.00   New establishment

Daewoo Precious Resources Co., Ltd.

March 201460.00New establishment

POSCO-Mexico Villagran Wire-rod Processing Center

March 201466.75New establishment

POSCO Green Gas TechnologyGolden Lace DAEWOO Company Limited

  April 2014100.00New establishment

SANTOS CMI Guatemala S.A.

April 2014100.00Acquisition

Santos CMI Construction Inc S.A

April 2014100.00Acquisition

POSCO-China Dalian Steel Fabricating Center

May 201451.00New establishment

Keystone Private Equity

June 201455.12Reclassification from associate

POSCO WOMAN’S FUND(*1)

July 201440.00New establishment

Chun Sa wind

July 2014100.00Acquisition

POSCO China Suzhou Processing Center Co.,Ltd. (formerly, POSCO-SAMSUNG Suzhou Processing Center Co.,Ltd.)

July 2014100.00Reclassification from associate

POSPOWER Co., Ltd.

August 2014100.00Acquisition

Future Creation Fund Postech Early Stage account (*1)

September 201440.00Reclassification from associate

POSCO E&C HOLDINGS CO.,Ltd.

October 20142017   100.00   New establishment

POSCO E&C (THAILAND) CO.,Ltd.Research & Technology

  October 2014100.00New establishment

Songdo Posco family Housing

November 2014June 2017   100.00   New establishment

POSCO PLANTEC Co., Ltd.DAEWOO UKRAINE LLC

  December 201473.94Reclassification from associate

SUNGJIN CANADA LTD.

December 201470.00Reclassification by
POSCO PLANTEC Co., Ltd.

POSCO PLANTEC Thailand CO. LTD

December 201482.40Reclassification by
POSCO PLANTEC Co., Ltd.

DAEWOO POWER PNG Ltd.

December 2014July 2017   100.00   New establishment

(*1)

Zhangjiagang Pohang Refractories Co., Ltd.

These subsidiaries are included in the consolidated financial statements as the controlling company hasJuly 201751.00Reclassification from associate

Kyobo Securities Bond Plus 6M Professional Private Equity TrustW-2

October 201797.47Acquisition of control over them in consideration

Mirae Asset Smart Q Sigma 2.0 Professional Private Equity Trust

October 201799.01Acquisition of the boardcontrol

Kyobo Securities Bond Plus 6M Professional Private Equity TrustW-5

November 201799.67Acquisition of directors’ composition and others.control

KIS Devonian Canada Corporation

December 2017100.00Acquisition of control

2) Cash outflows (inflows) caused by the acquisitions for the years ended December 31, 2012, 2013 and 2014.

    2012  2013  2014 
   (in millions of Won) 

Consideration transferred

  287,085    4,359    747,569  

Less: Cash and cash equivalent acquired

   (188,205  (10,088  (358,991
  

 

 

  

 

 

  

 

 

 

Total

  98,880    (5,729  388,578  
  

 

 

  

 

 

  

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

(f) Excluded subsidiaries

Subsidiaries that were excluded from consolidation during the year ended December 31, 20142017 are as follows:

 

Company

  

Date of disposalexclusion    

  

Reason

POSCO-JOPCPOSCO MAPC SA DE CV

January 2017Merged into POSCO MPPC S.A. de C.V.

POSCO (Zhangjiagang) STS Processing Center Co., Ltd

January 2017Merged into Zhangjiagang Pohang Stainless Steel Co., Ltd.

POSCO Engineering CO., Ltd

February 2017Merged into POSCO ENGINEERING & CONSTRUCTION CO., LTD.

POSCO YongXin Rare Earth Metal Co., Ltd.

  January 2014March 2017  Statutory merger by POSCO-JWPC Co., Ltd. (formerly, POSCO-JKPC Co., Ltd.)Disposal

S&K -SANTOSCMISANTOS CMI S.A. DE C.V.

  March 20142017Disposal

EPC EQUITIES LLP

March 2017Disposal

SANTOS CMI Guatemala S.A.

March 2017Disposal

COINSA INGENIERIA Y PETROQUIMICA S.R.L

March 2017Disposal

SANTOS CMI CONSTRUCTION TRADING LLP

March 2017Disposal

SANTOS CMI INC. USA

March 2017Disposal

SANTOS CMI ENGENHARIA E CONSTRUCOES LTDA

March 2017Disposal

SANTOS CMI PERU S.A.

March 2017Disposal

SANTOS CMI CONSTRUCCIONES S.A.

March 2017Disposal

GENTECH INTERNATIONAL INC.

March 2017Disposal

SANTOS CMI CONSTRUCCIONES DE CHILE S.A.

March 2017Disposal

COMPANIADEAUTOMATIZACION & CONTROL, GENESYS S.A.

March 2017Disposal

POSCO Electrical Steel India Private Limited

March 2017Merged into POSCO Maharashtra Steel Private Limited

POSEC Hawaii, Inc.

May 2017  Exclusion upon liquidation

Santos CMI Construction Inc S.APT. POSCO MTECH INDONESIA

May 2017Disposal

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

Company

    Date of exclusion    

Reason

POSCO VIETNAM HOLDINGS CO., LTD

July 2017Merged into POSCO VIETNAM HOLDINGS CO., LTD (formerly, POSCO-VNPC CO., LTD.)

POSCO-Vietnam Processing Center Co., Ltd.

July 2017Merged into POSCO VIETNAM HOLDINGS CO., LTD (formerly, POSCO-VNPC CO., LTD.)

Yingkou Puxiang Trade Co.,Ltd.

July 2017Merged into Zhangjiagang Pohang Refractories Co., Ltd

Chongqing POSCO CISL Automotive Steel Co., Ltd.

  September 20142017  Statutory merger by SANTOS CMI Guatemala S.ALoss of control

Daewoo International Cameroon S.A.IT Engineering Co., Ltd.

  November 20142017  Disposal

INTERNATIONAL BUSINESS CENTER CORPORATIONPOSCO India Delhi Steel Processing Center Private Limited

November 2017Merged into POSCO India Chennai Steel Processing Center Pvt.Ltd.

POSCO India Ahmedabad Steel Processing Center Pvt.Ltd.

November 2017Merged into POSCO India Chennai Steel Processing Center Pvt.Ltd.

Kwanika Copper Corporation (formerly, Daewoo Minerals Canada Corporation)

November 2017Change in status due to a decline in stake

USA-SRDC

  December 20142017  DisposalExclusion upon liquidation

 

2.Statement of Compliance and Basis of Presentation

Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”), as issued by the International Accounting Standards Board.

The consolidated financial statements were authorized for issue by the authorized directors on February 26, 2015.28, 2018.

Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis, except for the following material items in the statement of financial position, as described in the accounting policy below.

 

 (a)Derivatives instruments are measured at fair value

 

 (b)Financial instruments at fair value through profit or loss (FVTPL) are measured at fair value

 

 (c)Available-for-sale financial assets are measured at fair value

 

 (d)Defined benefit liabilities are measured at the present value of the defined benefit obligation less the fair value of the plan assets

Functional and presentation currency

The financial statements of POSCO and subsidiaries are prepared in functional currency of the respective operation. These consolidated financial statements are presented in Korean won,Won, which is POSCO’s functional currency andwhich is the currency of the primary economic environment in which POSCO operates.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

Use of estimates and judgments

The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period prospectively.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

 

 (a)Judgments

Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements is included in the following notes:

 

Note 1 — Subsidiaries, associates and joint venture

ventures

 

Note 810Other financial assets

Assets held for sale

 

Note 11 — Investments in associates and joint ventures

Note 12 — Joint operations

 

Note 1325Investment property, net

Note 14 — Property, plant and equipment, net

Note 15 — Goodwill and other intangibles

Hybrid bonds

 

 (b)Assumptions and estimation uncertainties

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financialfiscal year is included in the following notes:

 

Note 11 — Investments in associates and joint ventures

Note 15 — Goodwill and other intangible assets, net

Note 20 — Provisions

 

Note 21 — Employee benefits

 

Note 29 — Construction contracts

 

Note 35 — Income taxes

 

Note 38 — Commitments and contingencies

 

 (c)Measurement of fair value

The Company’s accounting policies and disclosures require the measurement of fair values, for both financial andnon-financial assets and liabilities. The Company has an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values, and reports directly to the financial officer.

The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS including the level in the fair value hierarchy in which such valuation techniques should be classified.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

Significant valuation issues are reported to the Company’s Audit Committee.

When measuring the fair value of an asset or a liability, the Company uses market observable data as far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows.

 

Level 1 — unadjusted quoted prices in active markets for identical assets or liabilities.

 

Level 2 — inputs other than quoted prices included in Level 1 that are observable for the assets or liability, either directly or indirectly.

 

Level 3 — inputs for the assets or liability that are not based on observable market data.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

If the inputs used to measure the fair value of an asset or a liability might be categorized in different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Company recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

Information about the assumptions made in measuring fair values is included in the following note:

 

Note 23 — Financial instruments

Changes in accounting policiesAccounting Policies

The Company has adoptedExcept for the followingapplication of the amendments to standards and new interpretation with a date of initial application offor the first time for the annual period beginning on January 1, 2014.2017, as described below, the accounting policies have been consistently applied by the Company for the periods presented.

 

 1)(a)Amendments to IAS No. 32, “Financial Instruments: Presentation”7 “Statement of Cash Flows”

For the year beginning on January 1, 2017, the Company applied the amendments to IAS No. 7 “Statement of Cash Flows”. IAS No. 7 requires that changes in liabilities related to the cash flows that were classified as a financing activity in the statement of cash flows or will be classified as a financing activity in the future should be disclosed as follows:

2)IAS No. 36, “Impairment of Assets”

 

3)IFRIC No. 21, “Levies”
Changes from financing cash flows

Changes arising from obtaining or losing control of subsidiaries or other businesses

The detailseffect of changes in accounting policiesforeign exchange rates

Changes in fair values

Other changes

IAS No. 7 does not require the disclosure of comparative information of prior period. The related disclosures are as follows:included in note 39.

 

 1)(b)Offsetting financial assets and financial liabilitiesAmendments to IAS No. 12 “Income Taxes”

TheFor the year beginning on January 1, 2017, the Company has adoptedapplied the amendments to IAS No. 32, “Offsetting Financial Assets and Financial Liabilities” since January 1, 2014. The amendments clarify the meaning of ‘currently has a legally enforceable right of set-off’12 “Income Taxes”. According to the amendments, the right to set off should not be contingent on a future event, and legally enforceableIn accordance with IAS No. 12, in the normal coursecase of business, in the event of default, and in the event of insolvency or bankruptcy of the entity and all of the counterparties. The amendments also state that some gross settlement systems would be considered equivalent to net settlement if they eliminate or result in insignificant credit and liquidity risk and process receivables and payables in a single settlement process or cycle.

2)Disclosure of impairment loss

The Company has adopted amendments to IAS No. 36 “Impairment of Assets” since January 1, 2014. The amendments require the disclosure of information about the recoverable amount of impaired assets, if that amount is based ondebt instruments measured at fair value, less costs of disposal. They also require the disclosure of additional information about that fair value measurement. In addition, if the recoverable amount of impaired assets based on fair value less costs of disposal was measured using a present value technique, the amendments also require the disclosure of the discount rates that have been used in the current and previous measurements.deferred tax accounting treatment is clarified. The difference

3)Levies

The Company has adopted IFRIC No. 21, “Levies” since January 1, 2014. IFRIC No. 21 is an Interpretation of IAS No. 37 “Provisions, Contingent Liabilities and Contingent Assets”, on the accounting for levies imposed by governments. IAS No. 37 sets out criteria for the recognition of a liability, one of which is the requirement for the entity to have a present

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

obligationbetween the carrying amount and taxable base amount of the debt liabilities is considered as a resulttemporary differences, regardless of a past event (or “obligating event”). IFRIC No. 21 clarifiesthe expected recovery method. When reviewing the recoverability of deferred tax assets, the estimated of probable future taxable income may include the recovery of some of the Company’s assets for more than their carrying amount if there is sufficient evidence that it is probable that the obligating event that gives rise to a liability to pay a levy isCompany will recover the activity described inasset for more than its carrying amount. In addition, the relevant legislation that triggersestimated of probable future taxable income are determined as the paymentamount before considering the deductible effect from reversal of the levy.deductible temporary differences.

The interpretation does not provide guidance onCompany believes that the accounting foreffect of the costs arising from recognizing the liability to pay a levy. Other IFRSs should be applied to determine whether the recognition of a liability to pay a levy gives rise to an asset or an expense.

Impact of changes in accounting policies

Upon adoption of amendments to IAS No. 32 and IFRIC No. 21, there is no impact on the Company’s prior year’s consolidated financial statements. Upon adoption of amendments to IAS No. 36,statements is not significant. Therefore, the Company has madenot retrospectively applied the required disclosuresamendments in accordance with the annual financial statements as applicable (see note 15).transitional requirements.

Correction of prior year financial statements for immaterial errors

The accompanying consolidated financial statements of the Company as of December 31, 2013 and for the years ended December 31, 2012 and 2013 have been adjusted to correct the following immaterial errors.

Previously, revenue and expenses from the development and sale of certain residential real estate were recognized by reference to the stage of completion of the contract activity at the end of the reporting period. In 2014, the Company re-evaluated its accounting for sale of residential real estate under IFRS as issued by IASB, and has concluded that revenue and expenses from development and sale of such residential real estate should be recognized when an individual unit of residential real estate is delivered to the buyer.

The effect of this correction on the prior financial statements is as follows:

   As of January 1, 2012 
   As reported   Correction  As adjusted 
   (in millions of Won) 

Current assets

  33,556,911     (9,793  33,547,118  

Non-current assets

   44,851,927     2,370    44,854,297  

Current liabilities

   19,605,358         19,605,358  

Non-current liabilities

   18,073,560         18,073,560  

Retained earnings

   38,709,475     (6,645  38,702,830  

Non-controlling interests

   2,373,570     (778  2,372,792  

   As of and for the year ended December 31, 2012 
   As reported   Correction  As adjusted 
   (in millions of Won, except per share information) 

Current assets

  31,566,116     250,389    31,816,505  

Non-current assets

   47,699,735     11,233    47,710,968  

Current liabilities

   19,775,001     48,590    19,823,591  

Non-current liabilities

   17,061,432     248,216    17,309,648  

Revenue

   63,604,151     (258,893  63,345,258  

Cost of sales

   56,142,892     (222,269  55,920,623  

Profit before income tax

   3,368,486     (36,624  3,331,862  

Profit

   2,385,607     (27,761  2,357,846  

Basic and diluted earnings per share (in Won)

   31,874     (322  31,552  

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

   As of and for the year ended December 31, 2013 
   As reported   Correction  As adjusted 
   (in millions of Won, except per share information) 

Current assets

  31,666,211     372,500    32,038,711  

Non-current assets

   52,789,196     13,201    52,802,397  

Current liabilities

   20,241,159     116,385    20,357,544  

Non-current liabilities

   18,392,218     310,664    18,702,882  

Revenue

   61,864,650     (98,907  61,765,743  

Cost of sales

   55,004,591     (90,775  54,913,816  

Profit before income tax

   1,946,177     (8,132  1,938,045  

Profit

   1,355,180     (6,164  1,349,016  

Basic and diluted earnings per share (in Won)

   17,409     (71  17,338  

 

3.Summary of Significant Accounting Policies

The significant accounting policies applied by the Company in preparation of its consolidated financial statements are included below. The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, except for those as disclosed in note 2.

Basis of consolidation

 

 (a)Business combinations

The Company accounts for business combinations using the acquisition method when control is transferred to the Company.

The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on bargain purchase is recognized in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities. The consideration transferred does not include amounts related to the settlement ofpre-existing relationships. Such amounts are generally recognized in profit or loss.

Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognized in profit or loss.

If share-based payment awards (replacement awards) are required to be exchanged for awards held by the acquiree’s employees (acquiree’s awards), then all or a portion of the amount of the acquirer’s replacement awards is included in measuring the consideration transferred in the business combination. This determination is based on the market-based measure of the replacement awards compared with the market-based measure of the acquiree’s awards and the extent to which the replacement awards relate topre-combination service.

 

 (b)Non-controlling interests

Non-controlling interests are measured at their proportionate share of the acquiree’s identifiable net assets at the acquisition date.

Changes in the Company’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

 (c)Subsidiaries

Subsidiaries are entities controlled by the Company. The Company controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.

 

 (d)Loss of control

When the Company loses control over a subsidiary, it derecognisesderecognizes the assets and liabilities of the subsidiary, and any relatednon-controlling interests and other components of equity. Any resulting gain or loss is recognized in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.

 

 (e)Interests in equity-accounted investees

The Company’s interests in equity-control investees comprise interests in associates and joint ventures. Associates are those entities in which the Company has significant influence, but not control or joint control, over the financial and operating policies. A joint venture is an arrangement in which the Company has joint control, whereby the Company has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities.

Interests in associates and joint ventures are accounted for using the equity method. They are recognized initially at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Company’s share of the profit or loss and other comprehensive income of equity-accounted investees, until the date on which significant influence or joint control ceases.

 

 (f)Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated. Unrealized gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Company’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.

Foreign currency transactions and translation

 

 1)(a)Foreign currency transactions

Foreign currency transactions are initially recorded using the spot exchange rate between the functional currency and the foreign currency at the date of the transaction. At the end of each reporting period, foreign currency monetary items are translated using the closing rate.Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the original transaction.Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rate at the date fair value was initially determined.

Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements are recognized in profit or

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

loss in the period in which they arise. When gains or losses onnon-monetary items are recognized in other comprehensive income, exchange components of those gains or losses are recognized in other comprehensive income. Conversely, when gains or losses onnon-monetary items are recognized in profit or loss, exchange components of those gains or losses are recognized in profit or loss.

 

 2)(b)Foreign operations

If the presentation currency of the Company is different from a foreign operation’s functional currency, the financial statements of the foreign operation are translated into the presentation currency using the following methods:

The assets and liabilities of foreign operations, whose functional currency is not the currency of a hyperinflationary economy, are translated to presentation currency at exchange rates at the reporting date. The income and expenses of foreign operations are translated to functional currency at exchange rates at the dates of the transactions. Foreign currency differences are recognized in other comprehensive income.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation are treated as assets and liabilities of the foreign operation. Thus, they are expressed in the functional currency of the foreign operation and translated at the closing rate.

When a foreign operation is disposed of, the relevant amount in the translation is transferred to profit or loss as part of the profit or loss on disposal. On the partial disposal of a subsidiary that includes a foreign operation, the relevant proportion of such cumulative amount is reattributed tonon-controlling interest. In any other partial disposal of a foreign operation, the relevant proportion is reclassified to profit or loss.

Foreign exchange gains or losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely to occur in the foreseeable future and which in substance is considered to form part of the net investment in the foreign operation, are recognized in other comprehensive income in the translation reserve.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, demand deposits, and short-term investments in highly liquid securities that are readily convertible to known amounts of cash with maturities of three months or less from the acquisition date and which are subject to an insignificant risk of changes in value. Equity investments are excluded from cash and cash equivalents.

Non-derivative financial assets

The Company recognizes and measuresnon-derivative financial assets by the following four categories: financial assets at fair value through profit or loss,held-to-maturity financial assets, loans and receivables andavailable-for-sale financial assets. The Company recognizes financial assets in the consolidated statement of financial position when the Company becomes a party to the contractual provisions of the instrument.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

Upon initial recognition,non-derivative financial assets are measured at their fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the asset’s acquisition or issuance.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

(a) Financial assets at fair value through profit or loss

Financial assets are classified at fair value through profit or loss if they are held for trading or designated as such upon initial recognition. Upon initial recognition, transaction costs are recognized in profit or loss when incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss.

(b)Held-to-maturity financial assets

Anon-derivative financial asset with a fixed or determinable payment and fixed maturity, for which the Company has the positive intention and ability to hold to maturity, is classified asheld-to-maturity. Subsequent to initial recognition,held-to-maturity financial assets are measured at amortized cost using the effective interest rate method.

(c) Loans and receivables

Loans and receivables arenon-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method unless the effect of discounting is immaterial.

(d)Available-for-sale financial assets

Available-for-sale financial assets are thosenon-derivative financial assets that are designated asavailable-for-sale or are not classified as financial assets at fair value through profit or loss,held-to-maturity financial assets or loans and receivables. Subsequent to initial recognition, they are measured at fair value, with changes in fair value, net of any tax effect, recorded in other comprehensive income in equity. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments are measured at cost. When a financial asset is derecognized or impairment losses are recognized, the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss. Dividends on anavailable-for-sale equity instrument are recognized in profit or loss when the Company’s right to receive payment is established.

(e) Derecognition ofnon-derivative financial assets

The Company derecognizesnon-derivative financial assets when the contractual rights to the cash flows from the financial asset expire, or the Company transfers the rights to receive the contractual cash flows from the financial asset as well as substantially all the risks and rewards of ownership of the financial asset. Any interest in a transferred financial asset that is created or retained by the Company is recognized as a separate asset or liability.

If the Company retains substantially all the risks and rewards of ownership of the transferred financial assets, the Company continues to recognize the transferred financial assets and recognizes financial liabilities for the consideration received.

(f) Offsetting a financial asset and a financial liability

Financial assets and financial liabilities are offset and the net amount is presented in the consolidated statement of financial position only when the Company currently has a legally enforceable

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

right to offset the recognized amounts, and there is the intention to settle on a net basis or to realize the asset and settle the liability simultaneously.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

Inventories

Inventory costs, exceptmaterials-in-transit in which costs are determined by using specific identification method, are determined by using the moving-weighted average method. The cost of inventories comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. The allocation of fixed production overheads to the costs of finished goods or work in progress are based on the normal capacity of the production facilities.

When inventories are sold, the carrying amount of those inventories is recognized as cost of goods sold in the period in which the related revenue is recognized. Inventories are measured at the lower of cost or net realizable value. The amount of any write-down of inventories to net realizable value and all losses of inventories are recognized as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories arising from an increase in net realizable value is recognized as a reduction in the amount of inventories recognized as a cost of goods sold in the period in which the reversal occurs.

The carrying amount of those inventories is recognized as cost of goods sold in the period in which the related revenue is recognized.

Non-current assets held for sale

Non-current assets or disposal groups comprising assets and liabilities that are expected to be recovered primarily through sale rather than through continuing use are classified as held for sale. In order to be classified as held for sale, the assets or disposal groups must be available for immediate sale in their present condition and their sale must be highly probable. The assets or disposal groups that are classified asnon-current assets held for sale are measured at the lower of their carrying amount and fair value less cost to sell.

The Company recognizes an impairment loss for any initial or subsequent write-down of an asset or disposal group to fair value less costs to sell, and a gain for any subsequent increase in fair value less costs to sell, up to the cumulative impairment loss previously recognized in accordance with IAS No. 36 “Impairment of Assets”.

Anon-current asset that is classified as held for sale or part of a disposal group classified as held for sale is not depreciated (or amortized).

Investment property

Property held to earn rentals or for capital appreciation or both is classified as investment property. Investment property is measured initially at its cost. Transaction costs are included in the initial measurement. Subsequently, investment property is carried at depreciated cost less any accumulated impairment losses.

Subsequent costs are recognized in the carrying amount of investment property at cost or, if appropriate, as separate items if it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of theday-to-day servicing are recognized in profit or loss as incurred.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

Depreciation methods, useful lives and residual values are reviewed at the end of each reporting date and adjusted, if appropriate. The change is accounted for as a change in an accounting estimate.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

Property, plant and equipment

Property, plant and equipment are initially measured at cost and after initial recognition, are carried at cost less accumulated depreciation and any accumulated impairment losses. The cost of property, plant and equipment includes expenditures arising directly from the construction or acquisition of the asset, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and, when the Company has an obligation to remove the asset or restore the site, an estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

The cost of replacing a part of an item is recognized in the carrying amount of the item of property, plant and equipment, if the following recognition criteria are met:

(a) it is probable that future economic benefits associated with the item will flow to the Company;Company, and

(b) the cost can be measured reliably.

The carrying amount of the replaced part is derecognized at the time the replacement part is recognized. The costs of theday-to-day servicing of the item are recognized in profit or loss as incurred.

Items of property, plant and equipment are depreciated from the date they are available for use or, in respect of self-constructed assets, from the date that the asset is completed and ready for use. Other than land, the costs of an asset less its estimated residual value are depreciated. Depreciation of property, plant and equipment is recognized in profit or loss on a straight-line basis, which most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset, over the estimated useful lives of each component of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term. Land is not depreciated.

Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately.

The gain or loss arising from the derecognition of an item of property, plant and equipment is included in profit or loss when the item is derecognized.

The estimated useful lives for the current and comparative periods are as follows:

 

Buildings

  5-603-50 years

Structures

  4-50 years

Machinery and equipment

  2-254-25 years

Vehicles

  3-103-20 years

Tools

  4-103-10 years

Furniture and fixtures

  3-103-20 years

Lease assets

  3-183-30 years

Bearer plants

20 years

The estimated residual value, useful lives and the depreciation method are reviewed at least at the end of each reporting period and, if expectations differ from previous estimates, the changes are accounted for as changes in accounting estimates.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

Borrowing costs

The Company capitalizes borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. Other borrowing costs are recognized

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

in expense as incurred. A qualifying asset is an asset that requires a substantial period of time to get ready for its intended use or sale. Financial assets and inventories that are manufactured or otherwise produced over a short period of time are not qualifying assets. Assets that are ready for their intended use or sale when acquired are not qualifying assets.

To the extent that the Company borrows funds specifically for the purpose of obtaining a qualifying asset, the Company determines the amount of borrowing costs eligible for capitalization as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. The Company immediately recognizes other borrowing costs as an expense. To the extent that the Company borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the Company shall determine the amount of borrowing costs eligible for capitalization by applying a capitalization rate to the expenditures on that asset. The capitalization rate shall be the weighted average of the borrowing costs applicable to the borrowings of the Company that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs that the Company capitalizes during a period shall not exceed the amount of borrowing costs incurred during that period.

Intangible assets

Intangible assets are measured initially at cost and, subsequently, are carried at cost less accumulated amortization and accumulated impairment losses.

Amortization of intangible assets except for goodwill is calculated on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The residual value of intangible assets is zero. However, as there are no foreseeable limits to the periods over which club memberships are expected to be available for use, this intangible asset is determined as having an indefinite useful life and not amortized.

 

Intellectual property rights

  5-104-25 years

Development costs

  3-103-5 years

Port facilities usage rights

  4-75 years

Other intangible assets

  2-252-15 years

Amortization periods and the amortization methods for intangible assets with finite useful lives are reviewed at the end of each reporting period. The useful lives of intangible assets that are not being amortized are reviewed at the end of each reporting period to determine whether events and circumstances continue to support indefinite useful life assessments for those assets. Changes are accounted for as changes in accounting estimates.

Expenditures on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, are recognized in profit or loss as incurred. Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset. Other development expenditures are recognized in profit or loss as incurred.

Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which they relate. All other expenditures, including expenditures on internally generated goodwill and brands, are recognized in profit or loss as incurred.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

Exploration for and evaluation of mineral resources

POSCO is engaged in exploration projects for mineral resources through subsidiaries, associates and joint ventures in the mines or other contractual arrangements. Expenditures related to the development of mineral resources are recognized as exploration or development intangible assets. The nature of these intangible assets are as follows:

 

 (a)Exploration and evaluation assets

Exploration and evaluation assets consist of expenditures for topographical studies, geophysical studies and trenching. These assets are reclassified as development assets when it is proved that the exploration has identified commercially viable mineral deposit.

 

 (b)Development assets

When proved reserves are determined and development is sanctioned, development expenditures incurred are capitalized. These expenditures include evaluation of oil fields, construction of oil/gas wells, drilling for viability and others. On completion of development and inception of extraction for commercial production of developed proved reserves, the development assets are reclassified as either property, plant and equipment or as intellectual property rights (mining rights) under intangible assets based on the nature of the capitalized expenditure.

The respective property, plant and equipment and intellectual property (mining rights) are each depreciated and amortized based on proved reserves on a unit of production basis.

Government grants

Government grants are not recognized unless there is reasonable assurance that the Company will comply with the grant’s conditions and that the grant will be received.

 

 (a)Grants related to assets

Government grants whose primary condition is that the Company purchase, construct or otherwise acquire long-term assets are deducted from the carrying amount of the assets and recognized in profit or loss on a systematic and rational basis over the life of the depreciable assets.

 

 (b)Grants related to income

Government grants which are intended to compensate the Company for expenses incurred are deducted from the related expenses.

Leases

The Company classifies and accounts for leases as either a finance or operating lease, depending on the terms. Leases where the Company assumes substantially all of the risks and rewards of ownership are classified as finance leases. All other leases are classified as operating leases.

 

 (a)Finance leases

At the commencement of the lease term, the Company recognizes as finance assets and finance liabilities the lower amount of the fair value of the leased property and the present

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

value of the minimum lease payments, each determined at the inception of the lease. Any initial direct costs are added to the amount recognized as an asset.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent rents are charged as expenses in the periods in which they are incurred.

The depreciable amount of a leased asset is allocated to each accounting period during the period of expected use on a systematic basis consistent with the depreciation policy the Company adopts for similar depreciable assets that are owned. If there is no reasonable certainty that the Company will obtain ownership by the end of the lease term, the asset is fully depreciated over the shorter of the lease term and its useful life.

 

 (b)Operating leases

Lease obligations under operating leases are recognized as an expense on a straight-line basis over the lease term. Contingent rents are charged as expenses in the periods in which they are incurred.

 

 (c)Determining whether an arrangement contains a lease

Determining whether an arrangement is, or contains, a lease is based on the substance of the arrangement and requires an assessment of whether fulfillment of the arrangement is dependent on the use of a specific asset or assets (the asset) and the arrangement conveys a right to use the asset.

At inception or reassessment of the arrangement, management of the Company separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If management of the Company concludes for a financial lease that it is impracticable to separate the payments reliably, the Company recognizes an asset and a liability at an amount equal to the fair value of the underlying asset that was identified as the subject of the lease. Subsequently, the liability shall be reduced as payments are made and an imputed finance charge on the liability recognized using the purchaser’s incremental borrowing rate of interest.

Impairment for financial assets

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. However, losses expected as a result of future events, regardless of likelihood, are not recognized.

Objective evidence that a financial asset or group of financial assets are impaired includes:

 

 (a)significant financial difficulty of the issuer or obligor;

 

 (b)a breach of contract, such as a default or delinquency in interest or principal payments;

 

 (c)the lender, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider;

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

 

 (d)it becoming probable that the borrower will enter bankruptcy or other financial reorganization;

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

 

 (e)the disappearance of an active market for that financial asset because of financial difficulties; or

 

 (f)observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group.

In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

If there is objective evidence that financial assets are impaired, impairment losses are measured and recognized.

 

 (a)Financial assets measured at amortized cost

An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of its estimated future cash flows discounted at the asset’s original effective interest rate. If it is not practicable to obtain the instrument’s estimated future cash flows, impairment losses would be measured by using prices from any observable current market transactions. The Company can recognize impairment losses directly or establish a provision to cover impairment losses. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss shall be reversed either directly or by adjusting an allowance account.

 

 (b)Financial assets carried at cost

If there is objective evidence that an impairment loss has occurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the impairment loss is measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses are not reversed.

 

 (c)Available-for-sale financial assets

When a decline in the fair value of anavailable-for-sale financial asset has been recognized in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had been recognized in other comprehensive income shall be reclassified from equity to profit or loss as a reclassification adjustment even though the financial asset has not been derecognized. Impairment losses recognized in profit or loss for an investment in an equity instrument classified asavailable-for-sale are not reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument classified asavailable-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss shall be reversed, with the amount of the reversal recognized in profit or loss.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

Impairment fornon-financial assets

The carrying amounts of the Company’snon-financial assets, other than assets arising from construction contracts, employee benefits, inventories, deferred tax assets andnon-current assets held

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

for sale, are reviewed at the end of the reporting period to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, irrespective of whether there is any indication of impairment, are tested for impairment annually by comparing their recoverable amount to their carrying amount.

Management estimates the recoverable amount of an individual asset. If it is impossible to measure the individual recoverable amount of an asset, then management estimates the recoverable amount of cash-generating unit (“CGU”). A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount of an asset or CGU is the greater of its value-in-use and its fair value less costs to sell. The Company determined that individual operating entities are CGUs.

The recoverable amount of an asset or CGU is the greater of itsvalue-in-use and its fair value less costs to sell. Thevalue-in-use is estimated by applying apre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU for which estimated future cash flows have not been adjusted, to the estimated future cash flows expected to be generated by the asset or CGU.

An impairment loss is recognized if the carrying amount of an asset or a CGU exceeds its recoverable amount. Impairment losses are recognized in profit or loss.

Goodwill acquired in a business combination is allocated to each CGU that is expected to benefit from the synergies arising from the goodwill acquired. Any impairment identified at the CGU level will first reduce the carrying valueamount of goodwill and then be used to reduce the carrying amount of the other assets in the CGU on a pro rata basis. Except for impairment losses in respect of goodwill which are never reversed, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

Derivative financial instruments and hedges

Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are recognized in profit or loss.

 

 (a)Hedge accounting

The Company holds forward exchange contracts, currency swaps and commodity future contracts to manage foreign exchange risk and commodity fair value risk. The Company designated derivatives as hedging instruments to hedge the risk of changes in the fair value of assets, liabilities or firm commitments (a fair value hedge) and foreign currency risk of highly probable forecasted transactions or firm commitments (a cash flow hedge).

On initial designation of the hedge, the Company formally documents the relationship between the hedging instruments and hedged items, including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship.

Fair value hedge

Changes in the fair value of a derivative hedging instrument designated as a fair value hedge are recognized in profit or loss. The gain or loss from remeasuring the hedging instrument at fair value for a derivative hedging instrument and the gain or loss on the

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

hedged item attributable to the hedged risk are recognized in profit or loss in the same line item of the consolidated statement of comprehensive income.

The Company discontinues fair value hedge accounting if the hedging instrument expires or is sold, terminated or exercised, or if the hedge no longer meets the criteria for hedge accounting. Any adjustment arising from gain or loss on the hedged item attributable to the hedged risk is amortized to profit or loss from the date the hedge accounting is discontinued.

Cash flow hedge

When a derivative is designated to hedge the variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income, net of tax, and presented in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss.

If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. The cumulative gain or loss on the hedging instrument that has been recognized in other comprehensive income is reclassified to profit or loss in the periods during which the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, then the balance in other comprehensive income is recognized immediately in profit or loss.

(b)Embedded derivatives

Embedded derivatives are separated from the host contract and accounted for separately only if the following criteria have been met: (a) the economic characteristics and risks of the host contract and the embedded derivatives are not clearly and closely related to a separate instrument with the same terms as the embedded derivative that would meet the definition of a derivative, and (b) the hybrid (combined) instrument is not measured at fair value through profit or loss. Changes in the fair value of separable embedded derivatives from the host contract are recognized immediately in profit or loss. However, convertible rights of convertible bonds are not separated from the host contract and the compound financial instruments of bonds and convertible rights are designated and measured at fair value through profit and loss.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

 

 (b)(c)Other derivatives

Changes in the fair value of a derivative that is not designated as a hedging instrument are recognized immediately in profit or loss.

Non-derivative financial liabilities

The Company classifiesnon-derivative financial liabilities into financial liabilities at fair value through profit or loss or other financial liabilities in accordance with the substance of the contractual arrangement and the definitions of financial liabilities. The Company recognizes financial liabilities in the consolidated statement of financial position when the Company becomes a party to the contractual provisions of the financial liability.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

 

 (a)Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading or designated as such upon initial recognition. Subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss. Upon initial recognition, transaction costs that are directly attributable to the acquisition are recognized in profit or loss as incurred.

 

 (b)Other financial liabilities

Non-derivative financial liabilities other than financial liabilities at fair value through profit or loss are classified as other financial liabilities.

Financial guarantee liabilities are initially measured at their fair values and, if not designated as financial liabilities at fair value through profit or loss, they are subsequently measured at the higher of:

1)the amount of the best estimate of the expenditure required to settle the present obligation at the end of the reporting period; and

2)the amount initially recognized less, cumulative amortization recognized on a straight-line basis over the guarantee period

At the date of initial recognition, other financial liabilities are measured at fair value minus transaction costs that are directly attributable to the acquisition. Subsequent to initial recognition, other financial liabilities are measured at amortized cost using the effective interest method.

The Company derecognizes a financial liability from the consolidated statement of financial position when it is extinguished (i.e. when the obligation specified in the contract is discharged, cancelled or expires).

Construction work in progress

Construction work in progress represents theThe gross unbilled amount expected to be collecteddue from customers for contract work performed to date. It is measured at costpresented for all contracts in which costs incurred plus profit recognized to date lessprofits (less recognized losses) exceed progress billings. If progress billings andexceed costs incurred plus recognized losses.profits (less recognized losses), then the gross amount due to customers for contract work is presented. Cost includes all expenditures related directly to specific projects and an allocation of fixed and variable overheads incurred in the Company’s contract activities based on normal operating capacity.

Construction work in progress is presented as partThe Company recognizes advances received regarding the amount received from the ordering organization before the commencement of the construction. Also, the Company recognized trade accounts and notes receivable in the consolidated statement of financial position for all contracts in which costs incurred plus recognized

POSCO and Subsidiaries

Noteswith respect to the Consolidated Financial Statements, Continuedamount billed to the ordering organization.

As of December 31, 2012, 2013 and 2014

profits exceed progress billings. If progress billings exceed costs incurred plus recognized profits, then the difference is presented as amounts due to customers for contract work in the consolidated statement of financial position.

Employee benefits

 

 (a)Short-term employee benefits

Short-term employee benefits are employee benefits that are due to be settled within twelve months after the end of the period in which the employees render the related service. When an employee has rendered service to the Company during an accounting period, the Company recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service as profit or loss. If the Company has a legal or constructive obligation which can be reliably measured, the Company recognizes the amount of expected payment for profit-sharing and bonuses payable as liabilities.

 

 (b)Other long-term employee benefits

Other long-term employee benefits include employee benefits that are settled beyond 12 months after the end of the period in which the employees render the related service, and are calculated at the present value of the amount of future benefit that employees have earned in return for their service in the current and prior periods, less the fair value of any related assets. The present value is determined by discounting the expected future cash flows using the interest rate of corporate bonds that have maturity dates approximating the terms of the Company’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. Any actuarial gains and losses are recognized in profit or loss in the period in which they arise.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

 

 (c)Retirement benefits: Defined contribution plans

For defined contribution plans, when an employee has rendered service to the Company during a period, the Company recognizes the contribution payable to a defined contribution plan in exchange for that service as an accrued expense, after deducting any contributions already paid. If the contributions already paid exceed the contribution due for service before the end of the reporting period, the Company recognizes that excess as an asset (prepaid expense) to the extent that the prepayment will lead to a reduction in future payments or a cash refund.

 

 (d)Retirement benefits: Defined benefit plans

A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Company’s net obligation in respect of defined benefit plans is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. The fair value of plan assets is deducted. The calculation is performed annually by an independent actuary using the projected unit credit method.

The discount rate is the yield at the reporting date on corporate bonds that have maturity dates approximating the terms of the Company’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. The Company recognizes all actuarial gains and losses arising from actuarial assumption changes and experiential adjustments in other comprehensive income when incurred.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

When the fair value of plan assets exceeds the present value of the defined benefit obligation, the Company recognizes an asset, to the extent of the present value of the total of cumulative any economic benefits available in the form of refunds from the plan or reduction in the future contributions to the plan.

Remeasurements of net defined benefit liabilities, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in other comprehensive income. The Company determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to thethen-net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments, net interest expense and other expenses related to defined benefit plans are recognized in profit or loss.

When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss in curtailment is recognized immediately in profit or loss. The Company recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs.

Provisions

Provisions are recognized when the Company has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

The risks and uncertainties that inevitably surround many events and circumstances are taken into account in reaching the best estimate of a provision. Where the effect of the time value of money is material, provisions are determined at the present value of the expected future cash flows.

Where some or all of the expenditures required to settle a provision are expected to be reimbursed by another party, the reimbursement shall be recognized when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement shall be treated as a separate asset.

Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimates. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.

A provision for warranties is recognized when the underlying products are sold. The provision is based on historical warranty data and a weighting of all possible outcomes against their associated probabilities.warranty.

Regarding provision for construction warranties, warranty period starts from the completion of construction in accordance with construction contracts. If the Company has an obligation for warranties, provision for warranties which are estimated based on historical warranty data are recorded as cost of construction and provision for warranties during the construction period.

A provision for restoration regarding contamination of land is recognized in accordance with the Company’s announced Environment Policy and legal requirement as needed.

A provision is used only for expenditures for which the provision was originally recognized.

Emission Rights

The Company accounts for greenhouse gases emission right and the relevant liability as follows pursuant tothe Act on Allocation and Trading of Greenhouse Gas Emission which became effective in Korea in 2015.

(a)Greenhouse Gases Emission Right

Greenhouse Gases Emission Right consists of emission allowances which are allocated from the government free of charge and those purchased from the market. The cost includes any directly attributable costs incurred during the normal course of business.

Emission rights held for the purpose of performing the obligation are classified as intangible asset and initially measured at cost and subsequently carried at cost less accumulated impairment losses. Emission rights held for short-swing profits are classified as current asset and are measured at fair value with any changes in fair value recognized as profit or loss in the respective reporting period.

The Company derecognizes an emission right asset when the emission allowance is unusable, disposed or submitted to government when the future economic benefits are no longer expected to be probable.

(b)Emission liability

Emission liability is a present obligation of submitting emission rights to the government with regard to emission of greenhouse gas. Emission liability is recognized when there is a high possibility of outflows of resources in performing the obligation and the costs required to perform the obligation are reliably estimable. Emission liability is an amount of estimated

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

obligations for emission rights to be submitted to the government for the performing period. The emission liability is measured based on the expected quantity of emission for the performing period in excess of emission allowance in possession and the unit price for such emission rights in the market at the end of the reporting period.

Equity instruments

 

 (a)Share capital

Common stock is classified as equity and the incremental costs arising directly attributable to the issuance of common stock less their tax effects are deducted from equity.

If the Company reacquires its own equity instruments, the amount of those instruments (“treasury shares”) are presented as a contra equity account. No gain or loss is recognized in profit or loss on the purchase, sale, issuance or cancellation of its own equity instruments. When treasury shares are sold or reissued subsequently, the amount received is recognized as an increase to equity, and the resulting surplus or deficit on the transaction is recorded in capital surplus.

 

 (b)Hybrid Bonds

Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of financial liability and an equity instrument. When the Company has an unconditional right to avoid delivering cash or another financial asset to settle a contractual obligation, the instruments are classified as equity instruments.

Revenue

Revenue from the sale of goods, services provided and the use of assets is measured at the fair value of the consideration received or receivable, net of returns and allowances, trade discounts and volume rebates, which are not significant for all periods presented.

 

 (a)Sale of goods

Revenue from the sale of goods in the ordinary course of activities is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue is recognized when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. The appropriate timing for transfer of risks and rewards varies depending on the individual terms and conditions of the sales contract. For international sales, this timing depends on the type of international commercial terms of the contract.

 

 (b)Construction contracts

Construction contracts of the Company primarily consist of contracts for the construction of plants and infrastructure facilities, and revenue recognition for different types of contracts is as follows:

When the outcome of a construction contract can be estimated reliably, contract revenue is recognized in profit or loss in proportion to the stage of completion of the contract. The

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

stage of completion of a contract is determined based on the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs. Contract revenue includes the initial amount agreed in the contract plus any variation in contract work, claims and incentive payments, to the extent that it is probable that they will result in revenue and can be measured reliably.

When the outcome of a construction contract cannot be estimated reliably, the revenue is recognized only to the extent of contract costs incurred that it is probable will be recoverable. An expected loss on the construction contract is recognized as an expense immediately.

The Company has construction contracts in which control and the significant risks and rewards of ownership of the residential real estate are transferred to the buyer upon the delivery. Revenue and expenses from development and sale of these residential real estate are recognized when an individual unit of residential real estate is delivered to the buyer.

(c)Services rendered

Revenue from services rendered is recognized in profit or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to surveys of work performed.

 

 (c)Construction contracts

Construction contracts of the Company primarily consist of contracts for the construction of plants and commercial or residential buildings (excluding certain pre-sale contracts), and revenue recognition for different types of contracts is as follows:

When the outcome of a construction contract can be estimated reliably, contract revenue is recognized in profit or loss in proportion to the stage of completion of the contract. Contract

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

revenue includes the initial amount agreed in the contract plus any variation in contract work, claims and incentive payments, to the extent that it is probable that they will result in revenue and can be measured reliably. The stage of completion of a contract is determined based on the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs.

When the outcome of a construction contract cannot be estimated reliably, the revenue is recognized only to the extent of contract costs incurred that it is probable will be recoverable. An expected loss on the construction contract is recognized as an expense immediately.

(d)Rental income

Rental income from investment property, net of lease incentives granted, is recognized in profit or loss on a straight-line basis over the term of the lease.

Finance income and finance costs

Finance income comprises interest income on funds invested (includingavailable-for-sale financial assets), dividend income, gains on the disposal ofavailable-for-sale financial assets, and changes in the fair value of financial assets at fair value through profit or loss, and gains on valuations of hedging instruments that are recognized in profit or loss. Interest income is recognized as it accrues in profit or loss, using the effective interest rate method. Dividend income is recognized in profit or loss on the date that the Company’s right to receive payment is established.

Finance costs comprise interest expense on borrowings and changes in the fair value of financial assets at fair value through profit or loss and loss on valuations of hedging instruments that are recognized in profit or loss. Borrowing costs are recognized in profit or loss using the effective interest rate method.

Income taxes

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.

The Company recognizes interest and penalties related to corporate income tax as if it is related to the income taxes, the Company applies IAS No. 12 “Income Taxes”, if it is not related to the income taxes, the Company applies IAS No. 37 “Provisions Contingent Liabilities and Contingent Assets”.

 

 (a)Current income tax

Current income tax is the expected income tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted or substantively enacted at the end of the

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

reporting period and any adjustment to tax payable in respect of previous years. The taxable profit is different from the accounting profit for the period since the taxable profit is calculated excluding the temporary differences, which will be taxable or deductible in determining taxable profit of future periods, andnon-taxable ornon-deductible items from the accounting profit.

 

 (b)Deferred income tax

The measurement of deferred income tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

The Company recognizes a deferred income tax liability for all taxable temporary differences associated with investments in subsidiaries, associates, and joint ventures, except to the extent that the Company is able to control the timing of the reversal of the

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The Company recognizes a deferred income tax asset for deductible temporary differences arising from investments in subsidiaries, associates and joint ventures, to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized. However, deferred income tax is not recognized for the following temporary differences: taxable temporary differences arising on the initial recognition of goodwill, or the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting profit or loss nor taxable income.

The carrying amount of a deferred income tax asset is reviewed at the end of each reporting period and is reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred income tax liabilities and deferred income tax assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period to recover or settle the carrying amount of its assets and liabilities.

Deferred income tax assets and liabilities are offset only if there is a legally enforceable right to offset the related current income tax liabilities and assets, and they relate to income taxes levied by the same tax authority and they intend to settle current income tax liabilities and assets on a net basis.

Earnings per share

Management calculates basic earnings per share (“EPS”) data for the Company’sPOSCO’s ordinary shares, which is presented at the end of the statement of comprehensive income. Basic EPS is calculated by dividing profit attributable to ordinary shareholders of the CompanyPOSCO by the weighted average number of ordinary shares outstanding during the period, adjusted for own shares held.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

Operating segments

An operating segment is a component of the Company that :that: a) engages in business activities from which it may earn revenues and incur expenditures, including revenues and expenses that relate to transactions with any of the Company’s other components, b) whose operating results are regularly reviewed by the Company’s chief operating decision maker (“CODM”) to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available. Management has determined that the CODM of the Company is the CEO.

With regard to construction segment, segment profit and loss is determined in the same way that consolidated profit after tax for the period is generally determined under IFRS except that revenues and expenses from the development and sale of certain residential real estate are determined by reference to the stage of completion of the contact activity at the end of the reporting period, while in the consolidated financial statements, they are recognized when an individual unit of residential real estate is delivered to the buyer. No adjustments are made for corporate allocations to segment profit and loss. In addition, segment assets and liabilities are generally measured based on total assets and liabilities in

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

accordance with IFRS without any adjustment for corporate allocations, except that assets and liabilities in connection with the construction and sale of residential real estate are determined by reference to the stage of completion of the contract activity at the end of each period.

For the other segments, segment profit and loss is determined the same way that consolidated net after tax profit for the period is generally determined under IFRS without any adjustment for corporate allocations. The accounting policies used by each segment are consistent with the accounting policies used in the preparation of the consolidated financial statements. Segment assets and liabilities are generally measured based on total assets and liabilities in accordance with IFRS without any adjustment for corporate allocations. Also, segment assets and liabilities are based on the separate financial statements of the entities instead of on consolidated basis.

In addition, there are varying levels of transactions amongst the reportable segments. These transactions include sales of property, plant and assets, and rendering of construction service and so on. Inter-segment transactions are accounted for on an arm’s length basis.

Segment results that are reported to the CEO include items directly attributable to a segment and do not includeitems allocated items.on a reasonable basis. Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets other than goodwill.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

New standards and interpretations not yet adopted

The Company will apply IFRS No. 9 “Financial Instruments” and IFRS No. 15 “Revenue from Contracts with Customers” for the year beginning on January 1, 2018. The Company has completed an analysis of the financial impacts resulting from adoption of new standards and the estimated effect on equity in the consolidated financial statements at the date of initial application based on available information which are summarized as follows.

   December 31,
2017
  IFRS No. 9  IFRS No. 15  Date of initial
application
(January 1, 2018)
 
   (in millions of Won) 

Reserves

  (682,556  (401,344     (1,083,900

Retained earnings

   42,974,658   368,612   (71,066  43,272,204 

Non-controlling interests

   3,666,334   (19,545  (59,060  3,587,729 
  

 

 

  

 

 

  

 

 

  

 

 

 
      45,958,436   (52,277  (130,126  45,776,033 
  

 

 

  

 

 

  

 

 

  

 

 

 

The above estimated amounts could differ from the actual impact when the Company adopts the new standards in 2018 for the following reasons.

Changes in internal controls related to application of new standards

Changes in the Company’s selection in accounting policy during the year ending December 31, 2018 when initial disclosure of the consolidated financial statements at the date of initial application is made

The following new standards, including IFRS No. 9 and IFRS No. 15, interpretations and amendments to existing standards have been published andbut are not mandatory for the Company for annual periods beginning afteron January 1, 2014,2017, and the Company has not early adopted them.

 

 (a)Amendments to IASIFRS No. 19 “Employee Benefits”9 “Financial Instruments”

AmendmentsIFRS No. 9 “Financial Instruments” regulates requirements for measurement and recognition of certain contracts in relation to trading financial assets and liabilities ornon-financial items. It replaces existing guidance in IAS No. 19 introduced a practical expedient to accounting for defined benefit plan, when employees or third parties pay contributions if certain criteria are met. According to the amendments,39 “Financial Instruments: Recognition and Measurement”.

The standard will generally be applied retrospectively with some exemptions allowing an entity is permittednot to restate the comparative information for prior periods in relation to classification and measurement (including impairment) changes. Such exemptions will be applied by the Company. The Company will recognize those contributionsthe accumulated effect resulting from initial application of IFRS No. 9 as a reductionreserves, retained earnings andnon-controlling interests of the service cost inCompany at the period in which the related service is rendered, insteaddate of forecast future contributions from employees or third parties and attribute them to periods or service as negative benefits. This amendment is effective for the Company for annual periods beginning on or after January 1, 2015, with early adoption permitted.initial application.

Management believes theThe standard’s expected impact of the amendments on the Company’s consolidated financial statements are as follows.

1)Classification and measurement of financial assets

When applying IFRS No. 9, the classification of financial assets will be driven by the Company’s business model for managing the financial assets and contractual terms of cash flow.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

The following table shows the classification of financial assets measured subsequently at amortized cost, at fair value through other comprehensive income and at fair value through profit or loss. If a hybrid contract contains a host that is a financial asset, the classification of the hybrid contract shall be determined for the entire contract without separating the embedded derivative.

Business model

Contractual cash flows are

solely payments of

principal and interests

All other cases

To collect contractual cash flows

Amortized cost(*1)Fair value through profit or loss(*2)

Both to collect contractual cash flows and sell financial assets

Fair value through other comprehensive income(*1)

For trading, and others

Fair value through profit or loss

(*1)The Company may irrevocably designate as at fair value through profit or loss to eliminate or significantly reduce an accounting mismatch.

(*2)The Company may irrevocably designate equity investments that are not held for trading as at fair value through other comprehensive income.

As of December 31, 2017, the Company had financial asset at fair value through profit or loss of67,021 million,available-for-sale financial assets of1,978,115 million, financial assetsheld-to-maturity of5,211 million, and loans and receivables of21,268,107 million.

As a result of analysis of the impact on the consolidated financial statements, the Company expects that debt instruments whose contractual cash flows do not solely represent payments of principal and interest and those held for trading will be measured at fair value through profit or loss; loans and receivables whose contractual cash flows solely represent receipt of principal and interest but are not owned for the purpose of collection of contractual cash flows will be measured at fair value through other comprehensive income or fair value through profit or loss. Accordingly, the financial assets at fair value through profit or loss may increase upon adoption of IFRS No. 9 which may increase the volatility in profit or loss. The Company expects the application of IFRS No. 9 on these financial assets will not have a material impact on the consolidated financial statements.

In accordance with IFRS No. 9, the Company may make an irrevocable election to present in other comprehensive income subsequent changes in the fair value of an investment in an equity instrument which is not significant.held for trading at initial recognition. As of December 31, 2017, the Company had equity instruments classified as financial assetsavailable-for-sale for the purpose of long-term strategic plan and the fair value of the accompanying asset is1,730,753 million. In accordance with IFRS No. 9, the Company expects to make an irrevocable election to classify the equity instrument as assets measured at fair value through other comprehensive income, for which all subsequent changes in fair value are recognized in other comprehensive income and not subsequently recycled to profit or loss. As of January 1, 2018, the date of initial application, the Company expects to recognize a decrease in reserves of401,344 million and an increase in retained earnings of401,344 million due to designation of equity instruments to fair value through other comprehensive income.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

2)Impairment: Financial Assets and Contract Assets

IFRS No. 9 replaces the incurred loss model in the existing standard with a forward-looking expected credit loss model for debt instruments, lease receivables, contractual assets, loan commitments, and financial guarantee contracts.

Under IFRS No. 9, impairment losses are likely to be recognized earlier than using the incurred loss model under the existing guidance in IAS No. 39 as loss allowances will be measured either12-month or lifetime expected credit loss based on the extent of increase in credit risk.

If credit risk has increased significantly since the initial recognition, a loss allowance for lifetime expected credit loss is required to be measured at the end of every reporting period. If credit risk has not increased significantly since the initial recognition, a loss allowance is measured based on12-month expected credit loss.

If the financial instrument has low credit risk at the end of the reporting period, the Company may assume that the credit risk has not increased significantly since initial recognition. However, a loss allowance for lifetime expected credit losses is required for contract assets or trade receivables that do not contain a significant financing component. Additionally, the Company has elected to recognize lifetime expected credit losses for contract assets or trade receivables that contain a significant financing component.

The Company expects impairment losses of financial assets under IFRS No. 9 to be recognized earlier. As of January 1, 2018, the date of initial application, the Company expects to recognize an increase in loss allowance of66,637 million and a decrease in retained earnings andnon-controlling interests of32,732 million and19,545 million, respectively.

3)Classification and Measurement of Financial Liabilities

IFRS No. 9 mostly adheres to the existing requirements under IAS No. 39 regarding the classification of financial liabilities.

Under IAS No. 39, all financial liabilities designated at fair value through profit or loss recognized their fair value movements in profit or loss. However, IFRS No. 9 requires the amount of the change in the liability’s fair value attributable to changes in the credit risk to be recognized in other comprehensive income. Amounts presented in other comprehensive income are not subsequently transferred to profit or loss.

The Company did not designate financial liabilities as financial liability at fair value through profit or loss as of December 31, 2017 and expects the adoption of IFRS No. 9 will not have significant impact on the classification of financial liabilities.

4)Hedge Accounting

Regarding the initial application of IFRS No. 9, the Company may choose as its accounting policy choice to continue to apply all of the hedge accounting requirements of IAS No. 39 instead of the requirements of IFRS No. 9. The Company determined to consistently apply hedge accounting requirements of IAS No. 39.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

 

 (b)IFRS No. 15 “Revenue from Contracts with Customers”

IFRS No.15 establishesNo. 15 “Revenue from Contracts with Customers” provides a comprehensive frameworkunified five-step model for determining whether, how muchthe timing, measurement and when revenue is recognized.recognition of revenue. It replaces existing revenue recognition guidance, including IAS No. 18 “Revenue”, IAS No. 11 “Construction Contracts” and, SIC No. 31 “Revenue- Barter Transactions Involving Advertising Services”, IFRIC No. 13 “Customer Loyalty Programmes”Programs”, IFRIC No. 15 “Agreements for the Construction of Real Estate”, and IFRIC No. 18 “Transfers of Assets from Customers”.

The Company intends to apply the modified retrospective approach by recognizing the cumulative impact of initially applying the revenue standard as of January 1, 2018, the date of initial application and the Company also decided to apply the practical expedients as allowed by IFRS No. 15 by applying the new standard only to those contracts that are not considered as completed contracts at the date of initial application. Accordingly, upon adoption of IFRS No. 15, the Company will not restate the financial statements for comparative periods.

Existing IFRS standards and interpretations including IAS No. 18 provide revenue recognition guidance by transaction types such as sales of goods, rendering of services, interest income, royalty income, dividend income and construction revenue; however, under the new standard, IFRS No. 15, the five-step approach (Step 1: Identify the contract(s) with a customer, Step 2: Identify the performance obligations in the contract, Step 3: Determine the transaction price, Step 4: Allocate the transaction price to the performance obligations in the contract, Step 5: Recognize revenue when the entity satisfied a performance obligation) is applied for all types of contracts or agreements.

The standard’s expected impact on the consolidated financial statements are as follows.

1)Identification of performance obligations

The Company holds certain contracts for sales of manufactured product and merchandise which include transportation service. When applying IFRS No. 15, sales of manufactured products or merchandise and delivery of products (i.e. shipping service) are identified as separate performance obligations in the contracts with customers. For transactions for which the shipping terms are on shipment basis and the customer pays shipping costs, the two performance obligations are separately accounted for because delivery of products is performed after the control over the products is transferred to the customer. The transaction price allocated to the performance obligation of delivery service will be recognized when the obligation of delivery of the product is completed.

The Company identified shipping service included in the sales contract as a separate performance obligation that will be satisfied over the promised service period. As of January 1, 2018, the date of initial application, change in relevant accounting policy is expected to result in decrease in retained earnings andnon-controlling interests of949 million and156 million, respectively.

Certain construction contracts of the Company include design, purchase and construction services through separate service contracts. According to IFRS No. 15, if service or goods provided by the Company are highly dependent or correlated, the

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

Company should identify them as a single performance obligation regardless of the number of contracts made.

The Company considered each service contract as a combined single obligation and therefore, upon adoption of IFRS No. 15 as of January 1, 2018, the date of initial application, the Company expects to recognize increases in retained earnings andnon-controlling interests of452 million and628 million, respectively.

2)Variable consideration

Under IFRS No. 15, the Company estimates the amount of variable consideration by using the expected value which the Company expects to better predict the amount of consideration. The Company recognizes revenue with transaction price including variable consideration only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the refund period has lapsed.

In certain sales arrangements, unit price is subject to adjustment due to quality of products. A certain percentage of sales discount is also provided in case customers make payment before the settlement due date. In addition, certain service contracts are subject to compensation payment if the Company fails to achieve a promised level of obligation.

As of January 1, 2018, the date of initial application of IFRS No. 15, the adoption is expected to result in decrease in retained earnings of2,773 million and increase in non-controlling interests of88 million.

3)Performance obligation satisfied over time

In accordance with IFRS No. 15, revenue is recognized over time by measuring progress only if the Company’s performance does not create an asset with an alternative use to the Company and the Company has an enforceable right to payment for performance completed to date.

The Company analyzed certain service contracts, where the Company provides manufacturing services for customized machinery. Currently the related revenue is recognized over the period when such services are provided. Under IFRS No. 15, as the Company does not have an enforceable right to payment for performance completed to date, the related revenue is recognized at the time when the machinery is delivered. As of January 1, 2018, the date of initial application, changes in accounting policy due to enforceable right to payment are expected to result in decreases in retained earnings andnon-controlling interests of1,188 million and1,115 million, respectively.

According to IFRS No. 15, the effects of any inputs that do not depict the transfer of control of goods or services to the customer such as the costs of wasted materials, labor or other resources to fulfill the contract that were not reflected in the price of the contract should be excluded from calculating percentage of completion. As of January 1, 2018, the date of initial application, change in percentage of completion due to excessive use of materials is expected to result in decreases in retained earnings andnon-controlling interests of2,855 million and1,512 million, respectively.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

4)Incremental costs of obtaining a contract

In accordance with IFRS No. 15, the Company recognizes as an asset the incremental costs of obtaining a contract with a customer if the Company expects to recover those costs, and costs that are recognized as assets are amortized over the period that the related goods or services are transferred to the customer.

Certain costs incurred in construction segment such as costs to obtain a contract that would have been incurred regardless of whether the contract was obtained should be recognized as an expense immediately, unless those costs are explicitly chargeable to the customer regardless of whether the contract is obtained. Such costs have been previously capitalized if it is probable the related contracts will be entered into. As of January 1, 2018, the date of initial application, change in accounting policy regarding incremental costs of obtaining a contract is expected to result in decreases in retained earnings andnon-controlling interests of63,753 million and56,993 million, respectively.

(c)IFRS No. 16 “Leases”

IFRS No. 16 “Leases” will replace IAS No. 17 “Leases” and IFRIC No. 4 “Determining whether an Arrangement contains a Lease”. It is effective for annual reporting periods beginning on or after January 1, 2017,2019, with early adoption permitted.permitted for a Company which has adopted IFRS No. 15.

As a lessee, the Company shall apply this standard using one of the following two methods; (a) retrospectively to each prior reporting period presented in accordance with IAS No. 8 “Accounting Policies, Changes in Accounting Estimates and Errors” but using the practical expedients for completed contracts- i.e. completed contracts as of the beginning of the earliest prior period presented are not restated; or (b) retrospectively with the cumulative effect of initially applying this standard recognized at the date of initial application.

IFRS No. 16 suggests a single accounting model that requires a lessee to recognize lease related asset and liability in the consolidated financial statements. A lessee is required to recognize aright-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. The lessee may elect not to apply the requirements to short-term lease of which has a term of 12 months or less at the commencement date and low value assets. Accounting treatment for lessor is similar to the existing standard which classifies lease into finance and operating lease.

Application of IFRS No. 16 will change current operating lease expense which has been recognized in straight-line method into depreciation expense ofright-of-use asset and interest expense of lease liability, and therefore, nature of expense recognized in relation to lease will change. However, it is expected that there will be no significant impact on finance lease.

The Company is inhas not yet initiated the processpreparation for the application of assessingIFRS No. 16 and has not performed an assessment of the potential impact on its consolidated financial statements resulting from the application of IFRS No 15.No. 16. The Company will complete the analysis of financial impacts arising from applying this standard in 2018.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

4.Financial risk management

The Company has exposure to the following risks from its use of financial instruments:

 

credit risk

 

liquidity risk

 

market risk

 

capital risk

This note presents information about the Company’s exposure to each of the above risks, the Company’s objectives, policies and processes for measuring and managing risk, and the Company’s management of capital. Further quantitative disclosures are included throughout these consolidated financial statements.

 

 (a)Financial risk management

 

 1)Risk management policyframework

The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities.

The Company, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

 

 2)Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers and investment securities. In addition, credit risk arises from finance guarantees.

The Company implements a credit risk management policy under which the Company only transacts business with counterparties that have a certain level of credit rate evaluated based on financial condition, historical experience, and other factors. The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The default risk of a nation or an industry in which a customer operates its business does not have a significant influence on credit risk. The Company has established a credit policy under which each new customer is analyzed individually for creditworthiness.

The Company establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for companies of similar assets in respect of losses that have been incurred but not yet identified. The collective

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

loss allowance is determined based on historical data of payment statistics for similar financial assets. Debt securities are analyzed individually, and an expected loss shall be directly deducted from debt securities.

Credit risk also arises from transactions with financial institutions, and such transactions include transactions of cash and cash equivalents, various deposits, and financial instruments such as derivative contracts. The Company manages its exposure to this credit risk by only entering into transactions with banks that have high international credit ratings. The Company’s treasury department authorizes, manages, and overseas new transactions with financial institutions with whom the Company has no previous relationship.

Furthermore, the Company limits its exposure to credit risk of financial guarantee contracts by strictly evaluating their necessity based on internal decision making processes, such as the approval of the Boardboard of Directors.directors.

 

 3)Liquidity risk management

Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

The Company’s cash flow from business, borrowing or financing is sufficient to meet the cash requirements for the Company’s strategic investments. Management believes that the Company is capable of raising funds by borrowing or financing if the Company is not able to generate cash flow requirements from its operations. The Company has committed borrowing facilities with various banks.

 

 4)Market risk management

Market risk means that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. The goal of market risk management is optimization of profit and controlling the exposure to market risk within acceptable limits.

 

 Currency risk

Each segment is influenced by a risk factor of changes in foreign currency exchange rates for the different directions due to the difference in structure of each industry regarding the cash inflows and cash outflows in foreign currency. The steel segment generally has a lack of foreign currency cash outflows, while the engineering and construction segments generally have excessive foreign currency inflows due to the nature of their respective business. Therefore, the result of the business is affected by the changes of foreign exchange rates.

The trading segment is structured such that the cash inflows and outflows of foreign currencies are to be offset; however, the trading segment is exposed to a risk of changes in foreign currency exchange rates when there are differences in currencies on receiving and paying the foreign currency amount and time differences.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

The Company’s policy in respect of foreign currency risks is a natural hedge whereby foreign currency income is offset with foreign currency expenditures. The remaining net exposures after the natural hedge have been hedged using derivative contracts such as forward exchange contracts. In addition, the Company’s derivative transactions are limited to hedging actual foreign currency transactions and speculative hedging is not permitted. Based on this policy, the Company entities havehas performed currency risk management specific to various characteristics of different segments. The entities in the steel industry, which has a lacksegment reduces the foreign currency exposure by repayment of foreign currency cash flows, has foreign currency borrowings from banks and hedges foreign currency risks of the foreign currency borrowings by using foreign currency swaps.subjected to investment in overseas when its maturities come. The entities in the engineering and construction segments, which have excessive foreign currency cash flows,segment have hedged foreign currency risks by using forward

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

exchange contracts. Entities in the trading industrysegment have hedged foreign currency risks by using forward exchange contracts when the foreign currencies received and paid are different.

 

 Interest rate risk

The Company mostly borrowsmanages the exposure to interest rate risk by adjusting of borrowing structure ratio between borrowings at fixed interest rates.rates and variable interest rate. The Company’s managementCompany monitors interest rate risks regularly.regularly in order to avoid exposure to interest rate risk on borrowings at variable interest rate.

 

 ƒOther market price risk

Equity price risk arises from listed equity securities amongavailable-for-sale equity securities. Management of the Company measures regularly the fair value of listed equity securities and the risk of variance in future cash flow caused by market price fluctuations. Significant investments are managed separately and all buy and sell decisions are approved by management of the Company.

 

 (b)Management of capital risk

The fundamental goal of capital management is the maximization of shareholders’ value by means of the stable dividend policy and the retirement of treasury shares. The capital structure of the Company consists of equity and net debt,borrowings (after deducting cash and cash equivalentsequivalents) and current financial instruments from borrowings. The Company applied the same financialcapital risk management strategy that was applied in the previous period.

Netborrowing-to-equity ratio as of December 31, 20132016 and 20142017 is as follows:

 

    2013  2014 
   (in millions of Won) 

Total borrowings

      26,246,605    27,428,257  

Less: Cash and cash equivalents

   4,208,562    3,811,202  
  

 

 

  

 

 

 

Net borrowings

   22,038,043    23,617,055  

Total equity

   45,780,682    45,257,396  

Net borrowings-to-equity ratio

   48.14  52.18

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

   2016  2017 
   (in millions of Won) 

Total borrowings

      22,704,998   21,063,657 

Less: Cash and cash equivalents

   2,447,619   2,612,530 
  

 

 

  

 

 

 

Net borrowings

   20,257,379   18,451,127 

Total equity

   45,765,269   47,326,725 

Netborrowings-to-equity ratio

   44.26  38.99

 

5.Cash and Cash Equivalents

Cash and cash equivalents as of December 31, 20132016 and 20142017 are as follows:

 

  2013   2014(*2)   2016   2017 (*1) 
  (in millions of Won)   (in millions of Won) 

Cash

  12,575     2,100    11,960    1,896 

Demand deposits and checking accounts

   1,199,768     1,209,367     1,312,426    1,259,813 

Time deposits

   2,325,449     1,185,146     254,888    360,985 

Other cash equivalents(*1)

   670,770     1,414,589  

Other cash equivalents

   868,345    989,836 
  

 

   

 

   

 

   

 

 
      4,208,562     3,811,202        2,447,619    2,612,530 
  

 

   

 

   

 

   

 

 

 

 

(*1)Mainly includes money market trustAs of December 31, 2017, cash equivalents amounting to36,302 million of POSCO ENGINEERING & CONSTRUCTION CO., LTD., a subsidiary of the Company, are restricted for use related to the joint account of joint operations and others.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

 

(*2)6.Cash and cash equivalents as of December 31, 2014 in the statement of cash flows are different from the amounts in the statement of financial position as disclosed above by210,934 million, as the information disclosed above does not include cash and cash equivalents held by POSCO Specialty Steel Co., Ltd., and others which were classified as asset groups held for sale as of December 31, 2014.

6.Trade Accounts and Notes Receivable

(a) Trade accounts and notes receivable as of December 31, 20132016 and 20142017 are as follows:

 

  2013 2014   2016 2017 
  (in millions of Won)   (in millions of Won) 

Current

      

Trade accounts and notes receivable

      10,338,891    10,814,881        9,320,915  8,579,620 

Finance lease receivables

   36,029    24,344     10,300  10,469 

Unbilled due from customers for contract work

   1,555,907    1,406,678     860,287  728,007 

Less: Allowance for doubtful accounts

   (418,183  (581,316   (517,476 (493,533
  

 

  

 

   

 

  

 

 
   11,512,644    11,664,587    9,674,026  8,824,563 
  

 

  

 

   

 

  

 

 

Non-current

      

Trade accounts and notes receivable

   50,639    60,583    80,447  871,432 

Finance lease receivables

   67,251    42,907     11,326  734 

Less: Allowance for doubtful accounts

   (20,890  (24,154   (40,649 (140,596
  

 

  

 

   

 

  

 

 
  97,000    79,336    51,124  731,570 
  

 

  

 

   

 

  

 

 

Trade accounts and notes receivable sold to financial institutions, for which the derecognition conditions were not met, amounted to73,956344,410 million and106,985309,964 million as of December 31, 20132016 and 2014, respectively,2017, respectively. The fair value of trade accounts and notes receivable approximates the carrying amounts and trade accounts and notes receivable are included in short-term borrowings from financial institutions (Note 17).

(b) Finance lease receivables are as follows:

 

Customer

  

Contents

  2013   2014 
   (in millions of Won) 

Korea Electric Power Corporation

  Combined thermal power plant 1~4  102,887     66,858  

KC CHEMICAL Co., Ltd.

  Machinery and equipment   393     393  
    

 

 

   

 

 

 
        103,280     67,251  
    

 

 

   

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

Customer

  

Contents

  2016   2017 
   (in millions of Won) 

Korea Electric Power Corporation

  Combined thermal power plant 3~4  20,648    10,469 

KC Chemicals CORP

  Machinery and equipment   244     

Hystech.Co. Ltd.

  Machinery and equipment   734    734 
    

 

 

   

 

 

 
        21,626    11,203 
    

 

 

   

 

 

 

(c) The gross amount and present value of minimum lease payments as of December 31, 20132016 and 20142017 are as follows:

 

  2013 2014   2016 2017 
  (in millions of Won)   (in millions of Won) 

Less than 1 year

  48,112    32,302    13,114  11,771 

1 year – 5 years

   84,270    51,999     12,547  828 

Unrealized interest income

   (29,102  (17,050   (4,035 (1,396
  

 

  

 

   

 

  

 

 

Present value of minimum lease payment

      103,280    67,251    21,626  11,203 
  

 

  

 

   

 

  

 

 

7. Other Receivables

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

7.Other Receivables

Other receivables as of December 31, 20132016 and 20142017 are as follows:

 

    2013  2014 
   (in millions of Won) 

Current

   

Short-term loans

  298,289    254,108  

Other accounts receivable

   1,322,352    1,523,659  

Accrued income

   74,968    76,393  

Deposits

   69,502    58,384  

Others

   275,892    227,192  

Less : Allowance for doubtful accounts

   (150,580  (183,520
  

 

 

  

 

 

 
  1,890,423    1,956,216  
  

 

 

  

 

 

 

Non-current

   

Long-term loans

  604,478    960,652  

Long-term other accounts receivable

   152,383    158,018  

Accrued income

   1,110    1,533  

Deposits

   111,482    189,120  

Less : Allowance for doubtful accounts

   (71,998  (165,163
  

 

 

  

 

 

 
      797,455    1,144,160  
  

 

 

  

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

   2016  2017 
   (in millions of Won) 

Current

   

Loans

  421,818   617,696 

Other accounts receivable

   1,131,492   960,543 

Accrued income

   139,618   179,971 

Deposits

   93,891   107,137 

Others

   13,606   18,925 

Less: Allowance for doubtful accounts

   (260,683  (248,266
  

 

 

  

 

 

 
  1,539,742   1,636,006 
  

 

 

  

 

 

 

Non-current

   

Loans

  733,974   874,158 

Other accounts receivable

   81,938   92,939 

Accrued income

   1,746   1,663 

Deposits

   104,217   122,485 

Less: Allowance for doubtful accounts

   (158,963  (212,069
  

 

 

  

 

 

 
  762,912   879,176 
  

 

 

  

 

 

 

 

8.Other Financial Assets

Other financial assets as of December 31, 20132016 and 20142017 are as follows:

 

  2013   2014   2016   2017 
  (in millions of Won)   (in millions of Won) 

Current

        

Derivatives assets held for trading

  44,082     77,182    49,281    63,912 

Available-for-sale securities

   10,772     25,512  

Current portion of held-to-maturity securities (bonds)

   2,232     15,297  

Financial assets held for trading

       1,970 

Available-for-sale securities (bonds)

   2,952    136,141 

Current portion ofheld-to-maturity securities

   422    421 

Short-term financial instruments(*1,2)

   2,913,579     1,344,929     5,172,256    6,843,436 
  

 

   

 

   

 

   

 

 
      2,970,665     1,462,920    5,224,911    7,045,880 
  

 

   

 

   

 

   

 

 

Non-current

        

Derivatives assets held for trading

  34,140     19,084    98,301    4,378 

Available-for-sale securities (equity instruments)(*3,4)

   4,068,766     2,294,244     2,392,534    1,730,753 

Available-for-sale securities (bonds)

   32,456     33,350     46,330    54,439 

Available-for-sale securities (others)

   54,390     67,135     73,108    56,782 

Held-to-maturity securities (bonds)

   1,602     1,796  

Held-to-maturity securities

   2,048    4,790 

Long-term financial instruments(*2)

   274,376     40,291     45,371    60,542 
  

 

   

 

   

 

   

 

 
  4,465,730     2,455,900    2,657,692    1,911,684 
  

 

   

 

   

 

   

 

 

 

 

(*1)As of December 31, 20132016 and 2014,2017,9496,813 million and5,46510,080 million, respectively, are restricted for the use in a government project.

 

(*2)As of December 31, 20132016 and 2014,2017, financial instruments amounting to261,03482,008 million and177,01478,477 million, respectively, are restricted for use in financial arrangements, pledge and others.

 

(*3)During the year ended December 31, 2014,2017, there waswere objective evidenceevidences of impairment for shareslisted equity securities such as HYUNDAI Heavy IndustriesFINE BESTEEL CO., LTD and others and fornon-listed equity securities such as Congonhas Minerios S.A. and others due to the significant or prolonged decline in the fair value below cost of the shares for a prolonged period.shares. As a result, an impairment losslosses of369,723123,214 million was recognized in profit or loss duringfor the year ended December 31, 2014.2017.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

 

(*4)As of December 31, 20132016 and 2014,2017,691,801123,220 million and173,632136,099 million ofavailable-for-sale securities, respectively, have been provided as collateral for borrowings, construction projects and borrowings.others.

 

9.Inventories

(a) Inventories as of December 31, 20132016 and 20142017 are as follows:

 

    2013  2014 
   (in millions of Won) 

Finished goods

  1,406,297    1,647,331  

Merchandise

   711,802    902,347  

Semi-finished goods

   1,711,294    1,654,556  

Raw materials

   2,228,110    2,334,992  

Fuel and materials

   801,992    759,193  

Construction inventories

   1,535,847    1,831,383  

Materials-in-transit

   1,848,389    2,109,207  

Others

   96,389    96,274  
  

 

 

  

 

 

 
   10,340,120    11,335,283  
  

 

 

  

 

 

 

Less: Allowance for inventories valuation

   (189,282  (161,940
  

 

 

  

 

 

 
  10,150,838    11,173,343  
  

 

 

  

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

   2016  2017 
   (in millions of Won) 

Finished goods

  1,200,344   1,526,628 

Merchandise

   851,325   930,558 

Semi-finished goods

   1,552,988   1,721,130 

Raw materials

   1,939,539   2,329,268 

Fuel and materials

   817,397   808,016 

Construction inventories

   1,455,115   1,692,092 

Materials-in-transit

   1,807,816   1,818,576 

Others

   94,535   103,144 
  

 

 

  

 

 

 
   9,719,059   10,929,412 
  

 

 

  

 

 

 

Less: Allowance for inventories valuation

   (203,164  (135,631
  

 

 

  

 

 

 
  9,515,895   10,793,781 
  

 

 

  

 

 

 

(b) The changes of allowance for inventories valuation for the years ended December 31, 2012, 20132015, 2016 and 20142017 were as follows:

 

  2012 2013 2014   2015 2016 2017 
  (in millions of Won)   (in millions of Won) 

Beginning

  215,594    214,795    189,282    161,940  231,378  203,164 

Loss on valuation of inventories

   76,484    49,172    41,713     152,952  152,249  78,560 

Write-off

   (71,459  (73,220  (69,996

Reversal and others

   (5,824  (1,465  941  

Realization on disposal of inventories

   (77,102 (161,458 (138,967

Others

   (6,412 (19,005 (7,126
  

 

  

 

  

 

   

 

  

 

  

 

 

Ending

      214,795    189,282    161,940    231,378  203,164  135,631 
  

 

  

 

  

 

   

 

  

 

  

 

 

 

10.Assets Held for Sale

Details of assets held for sale and related liabilities as of December 31, 20132016 and 20142017 are as follows:

 

    2013   2014 
   Controlling
company(*7)
   Subsidiaries(*8)   Total   Controlling
company(*1,*6)
   Subsidiaries(*2,*3,*4,*5,*6)   Total 
   (in millions of Won) 

Assets

            

Cash and cash equivalents

                      210,934     210,934  

Trade accounts and notes receivableand other receivables

                       90,811     90,811  

Other financial assets

                  580,062     21,028     601,090  

Inventories

                       289,716     289,716  

Investments in associates

   1,304          1,304                 

Investment property

                       22,067     22,067  

Property, plant and equipment

        1,190     1,190     2,672     895,391     898,063  

Other assets

                       14,406     14,406  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  1,304     1,190     2,494     582,734     1,544,353     2,127,087  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities

            

Trade accounts and notes payableand other payables

                      225,403     225,403  

Borrowings

                       330,059     330,059  

Other liabilities

                       35,520     35,520  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                      590,982     590,982  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   2016   2017 
   Controlling
company
   Subsidiaries (*1)   Total   Controlling
company
   Subsidiaries (*2)   Total 
   (in millions of Won) 

Assets

            

Property, plant and equipment

   764    305,864    306,628    392    71,340    71,732 

Others

       5,330    5,330        36    36 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  764    311,194    311,958    392    71,376    71,768 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

(*1)In November 2014, Nacional Minerios S.A. (which was an available-for-sale investment ofDuring the Company) entered into a merger agreement with another entity through share exchange. The merger transaction was approved by the Company’s Board of Directors onyear ended December 12, 2014. Pursuant to the merger agreement, the Company will dispose of its equity interests in Nacional Minerios S.A. in exchange for equity interests in the new entity. Therefore, the Company reclassified the available-for-sale investment to assets held for sale. Before the reclassification, the Company recognized an impairment loss of88,572 million in the investment due to a prolonged decline in the fair value of the shares below its cost.

(*2)The Company agreed to sell 52.2% of its shares of POSCO Specialty Steel Co., Ltd. to SeAH Besteel Corp. by and entered into a disposal agreement. The agreement was approved by the Board of Directors on December 12, 2014, and the Company classified the related assets and liabilities as held for sale. Related assets and liabilities on POSCO Specialty Steel Co., Ltd. are current assets of580,299 million, non-current assets of795,295 million, current liabilities of315,399 million and non-current liabilities of210,696 million.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

(*3)The Company agreed to sell its shares of POSFINE Co.,Ltd., an associate of the Company, to Hahn & Company PRIVATE EQUITY FUND No.1. The transaction was approved by the Board of Directors on November 7, 2014 and the Company classified the shares as assets held for sale.

(*4)Daewoo2016, Posco e&c Songdo International Corporation,Building, a subsidiary of the Company, entered into a sales contract to dispose its Daewoo Department Store locatedregarding disposal of the office building of POSCO ENGINEERING & CONSTRUCTION CO., LTD. in Masan in accordance withSongdo and classified the Board of Directors’ resolution on August 18, 2014. Accordingly, the Company classified itaccompanying property, plant and equipment as assets held for sale. During the year ended December 2017, disposal of the accompanying assets held for sale and recognized an impairment loss of16,769 million.was completed.

 

(*5)2)During the year ended December 2017, POSCO M-TECH, a subsidiary of the Company, determined to dispose of its rare metal department and some of its assets in the Molybdenum factory in Yeongwol, and classified them as assets held-for-sale.

(*6)The controlling company and POSCO-VIETNAM Co.ENGINEERING & CONSTRUCTION CO., Ltd.LTD., a subsidiary of the Company, determined to dispose of some tangible assets including land and disused facilitiesthe office building, Seomyeon Fiesta, in Busan and classified themthe related property, plant and equipment amounting to71,340 million as assets held for sale.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

 

(*7)11.The Company determined to dispose of its shares in POSVINA Co., Ltd., an associate of the Company, and classified it as assets held for sale as of December 31, 2013. The Company completed the disposal of this investment during the year ended December 31, 2014 and recognized a loss of14 million on disposal of assets held for sale.

(*8)POSCO AST, a subsidiary of the Company, determined to dispose of its land and building for employee welfare and classified them as assets held for sale as of December 31, 2012. POSCO AST recognized a loss of436 million on impairment on assets held for sale during the year ended December 31, 2014.

11.Investments in Associates and Joint ventures

(a) Investments in associates and joint ventures as of December 31, 20132016 and 20142017 are as follows:

 

    2013   2014 
   (in millions of Won) 

Investments in associates

  1,830,047     1,626,801  

Investments in joint ventures

   1,978,646     2,433,706  
  

 

 

   

 

 

 
      3,808,693     4,060,507  
  

 

 

   

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

   2016   2017 
   (in millions of Won) 

Investments in associates

  1,595,441    1,520,441 

Investments in joint ventures

   2,286,948    2,037,491 
  

 

 

   

 

 

 
      3,882,389    3,557,932 
  

 

 

   

 

 

 

(b) Details of investments in associates as of December 31, 20132016 and 20142017 are as follows:

 

  2013   2014   Number of
shares
   Ownership
(%)
   Acquisition
cost
   Book value 

Company

  Book value   Number of
shares
   Ownership
(%)
   Acquisition
cost
   Book value   2016   2017 
  (in millions of Won)   (in millions of Won) 

[Domestic]

                    

EQP POSCO Global NO1 Natual Resources PEF

  177,563     178,565     28.48    178,566    176,899  

EQP POSCO Global NO1 Natural Resources PEF

   178,713,975,892    31.14   178,787   175,690    175,553 

SNNC

   123,969     18,130,000     49.00     90,650     131,671     18,130,000    49.00    90,650    107,859    110,424 

POSCO PLANTEC Co., Ltd. (*1)

   234,203                      

QSONE Co.,Ltd.

   84,096     200,000     50.00     84,395     83,849     200,000    50.00    84,395    84,799    85,049 

Incheon-Gimpo Expressway Co., Ltd. (*2)

   37,759     9,032,539     25.76     45,163     43,045  

Chun-cheon Energy Co., Ltd.(*1)

   16,098,143    45.67    80,491    45,077    74,378 

Incheon-Gimpo Expressway Co., Ltd.(*1)

   9,032,539    18.26    45,163    37,372    31,660 

BLUE OCEAN Private Equity Fund

   29,391     333     27.52     33,300     31,439     333    27.52    33,300    35,752    19,620 

UITrans LRT Co., Ltd. (*2)

   19,185     4,395,669     38.19     21,978     30,098  

CHUNGJU ENTERPRISE CITY DEVELOPMENT Co.,Ltd (*2)

   23,733     2,008,000     25.10     10,040     19,801  

CHUNGJU ENTERPRISE CITY DEVELOPMENT Co.,Ltd

   2,008,000    29.53    10,040    12,551    17,252 

UITrans LRT Co., Ltd.(*1)

   7,714,380    38.19    38,572    17,851    15,841 

Daesung Steel

   108,038    17.54    14,000    12,302    15,500 

Keystone NO. 1. Private Equity Fund

   13,800,000    40.45    13,800    13,314    12,379 

KoFC POSCO HANWHA KB Shared Growth NO. 2. Private Equity Fund

   6,685     11,862,500     12.50     11,863     12,268     6,485    12.50    6,485    11,890    6,828 

KONES, Corp.

   5,784     3,250,000     41.67     6,893     5,430     3,250,000    41.67    6,893    5,641    2,827 

Gunggi Green Energy (*2)

   4,996     2,880,000     19.00     14,400     4,642  

Others (31 companies) (*2)

   52,761           28,869  

Others (35 companies)(*1)

         55,061    67,325 
  

 

         

 

         

 

   

 

 
   800,125           568,011           615,159    634,636 
  

 

         

 

         

 

   

 

 

[Foreign]

                    

South-East Asia Gas Pipeline Company Ltd.

   135,219,000    25.04    150,779    215,996    197,069 

AES-VCM Mong Duong Power Company
Limited(*2)

       30.00    164,303    167,141    142,348 

7623704 Canada Inc.

   114,452,000    10.40    124,341    137,512    121,702 

Eureka Moly LLC

   217,513          20.00     240,123     228,004         20.00    240,123    89,601    79,398 

South-East Asia Gas Pipeline Company Ltd.

   140,202     135,219,000     25.04     150,779     172,805  

7623704 Canada Inc.

   119,516     114,452,000     10.40     124,341     117,100  

AMCI (WA) PTY LTD

   49    49.00    209,664    70,501    63,378 

Nickel Mining Company SAS

   135,178     3,234,698     49.00     157,585     107,408     3,234,698    49.00    157,585    45,138    45,905 

AES-VCM Mong Duong Power Company Limited

   81,436          30.00     74,161     93,021  

AMCI (WA) PTY LTD

   98,467     49     49.00     209,664     88,050  

NCR LLC

       29.41    37,634    36,738    33,738 

KOREA LNG LTD.

   64,453     2,400     20.00     135,205     72,089     2,400    20.00    135,205    63,058    33,422 

CAML RESOURCES PTY LTD

   43,820     3,239     33.34     40,388     38,240  

NCR LLC

   30,496          29.41     32,348     32,598  

PT. Batutua Tembaga Raya

   128,285    22.00    21,824    22,723    21,823 

Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd

   20,600     10,200,000     34.00     9,517     21,032     10,200,000    34.00    9,517    18,008    15,617 

PT. Batutua Tembaga Raya

        128,285     24.10     14,785     14,653  

VSC POSCO Steel Corporation

   9,464     1,000,000     50.00     9,014     7,621  

PT. Wampu Electric Power (*2)

   7,237     7,800,000     20.00     9,028     7,611  

PT. Wampu Electric Power(*1)

   8,708,400    20.00    10,054    8,706    13,391 

POSCO SeAH Steel Wire(Nantong) Co., Ltd.

   6,083     50     25.00     4,723     6,969     50    25.00    4,723    6,840    6,517 

Others (23 companies)

   55,457           51,589  

Others (26 companies)(*1)

         98,320    111,497 
  

 

         

 

         

 

   

 

 
   1,029,922           1,058,790           980,282    885,805 
  

 

         

 

         

 

   

 

 
  1,830,047          1,626,801          1,595,441    1,520,441 
  

 

         

 

         

 

   

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

 

 

(*1)During the year endedAs of December 31, 2014, the investment2016 and 2017, investments in associates was reclassified from associateamounting to subsidiary due124,963 million and158,370 million, respectively, are provided as collateral in relation to increase in percentage of ownership through capital increase.the associates’ borrowings.

 

(*2)As of December 31, 2014, investment in associates amounting to110,721 million is2016 and 2017, shares of PSC Energy Global Co., Ltd., a subsidiary of the Company, are provided as collateral relatedin relation to the associates’ borrowings.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

(c) Details of investments in joint ventures as of December 31, 20132016 and 20142017 are as follows:

 

  2013   2014   Number
of shares
   Ownership
(%)
   Acquisition
cost
   Book value 

Company

  Book value   Number of
shares
   Ownership
(%)
   Acquisition
cost
   Book value   2016   2017 
  (in millions of Won)   (in millions of Won) 

[Domestic]

                    

POSCO MITSUBISHI CARBON TECHNOLOGY

  115,708     11,568,000     60.00     115,680    112,837     11,568,000    60.00   115,680   83,113    110,760 

POSCO ES MATERIALS

   40,386     1,000,000     50.00     43,000     38,021  

Others (5 companies)

             6,094 
  

 

         

 

         

 

   

 

 
   156,094           150,858           83,113    116,854 
  

 

         

 

         

 

   

 

 

[Foreign]

                    

Roy Hill Holdings Pty Ltd(*1)

   825,901     13,117,972     12.50     1,528,672     1,268,678     13,117,972    12.50    1,528,672    1,186,859    1,125,133 

POSCO-NPS Niobium LLC

   343,590     325,050,000     50.00     364,609     357,874     325,050,000    50.00    364,609    393,570    348,836 

CSP - Compania Siderurgica do Pecem

   263,419     827,771,230     20.00     469,891     260,906  

DMSA/AMSA(*2)

   180,355          4.00     193,182     165,094  

CSP — Compania Siderurgica do Pecem

   1,108,696,532    20.00    558,821    330,463    146,427 

KOBRASCO

   95,233     2,010,719,185     50.00     32,950     99,787     2,010,719,185    50.00    32,950    88,308    108,485 

BX STEEL POSCO Cold Rolled Sheet Co., Ltd.

   96,309          25.00     61,961     98,893         25.00    61,961    97,369    88,305 

Others (11 companies)

   17,745           31,616  

DMSA/AMSA(*1)

       4.00    304,623    74,935    56,735 

Others (14 companies)

         32,331    46,716 
  

 

         

 

         

 

   

 

 
   1,822,552           2,282,848           2,203,835    1,920,637 
  

 

         

 

         

 

   

 

 
      1,978,646              2,433,706          2,286,948    2,037,491 
  

 

         

 

         

 

   

 

 

 

 

(*1)As of December 31, 2014, investment2016 and 2017, the investments in joint ventures amounting to1,268,678 million isare provided as collateral in relation to loan from project financing of Roy Hill Holdings Pty Ltd.

(*2)As of December 31, 2014, investment in joint ventures amounting to165,094 million is provided as collateral for the joint venture’s guarantees.ventures’ borrowings.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

(d) The movements of investments in associates and joint ventures for the years ended December 31, 20132016 and 20142017 were as follows:

1) For the year ended December 31, 20132016

 

Company

 December 31,
2012
Book value
 Acquisition Dividends Share of
profits (losses)
 Other increase
(decrease)(*1)
 December 31,
2013

Book value
  December 31,
2015
Book value
 Acquisition Dividends Share of profits
(losses)
 Other
increase
(decrease) (*1)
 December 31,
2016
Book value
 
 (in millions of Won)     (in millions of Won)  

[Domestic]

            

EQP POSCO Global NO1 Natual Resources PEF

     178,566        (1,017  14    177,563  

EQP POSCO Global NO1 Natural Resources PEF

 175,676  222     (399 191  175,690 

SNNC

  147,539        (27,685  2,183    1,932    123,969   111,326        (3,417 (50 107,859 

POSCO PLANTEC Co., Ltd.

  181,361    101,210        (49,065  697    234,203  

QSONE Co.,Ltd.

      84,395        (299      84,096   83,919        880     84,799 

Chun-cheon Energy Co., Ltd

 30,420  19,832     (5,175    45,077 

Incheon-Gimpo Expressway Co., Ltd.

  13,680    24,521        (441  (1  37,759   39,447        (2,758 683  37,372 

BLUE OCEAN Private Equity Fund

  33,839            (2,015  (2,433  29,391   35,437        643  (328 35,752 

CHUNGJU ENTERPRISE CITY
DEVELOPMENT Co.,Ltd

 12,265        286     12,551 

UITrans LRT Co., Ltd.

  16,444    1,967        668    106    19,185   40,903  6,817     (29,825 (44 17,851 

CHUNGJU ENTERPRISE CITY DEVELOPMENT Co.,Ltd

  29,414            (5,535  (146  23,733  

Daesung Steel

 14,000        (2,272 574  12,302 

Keystone NO. 1. Private Equity Fund

 13,015        281  18  13,314 

KoFC POSCO HANWHA KB Shared Growth NO. 2. Private Equity Fund

      7,013        (327  (1  6,685   14,829  1,875     1,186  (6,000 11,890 

KONES, Corp.

  6,476            (740  48    5,784   5,775        (256 122  5,641 

Gunggi Green Energy

  7,353    5,475        (8,213  381    4,996  

POSCO MITSUBISHI CARBON TECHNOLOGY

  28,060    86,760        888        115,708   104,970        (21,929 72  83,113 

POSCO ES MATERIALS

  42,388            (1,963  (39  40,386  

Others (34 companies)

  104,445    11,325        (6,585  (56,424  52,761  

POSCO PLANTEC Co., Ltd.

 171,218        (171,927 709    

SeAH Changwon Integrated Special Steel

 165,754        4,797  (170,551   

POSCO ES MATERIALS CO.,LTD

 38,447        (2,061 (36,386   

Others (33 companies)

 33,933  20,061  (200 (2,802 4,069  55,061 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
  610,999    501,232    (27,685  (72,461  (55,866  956,219   1,091,334  48,807  (200 (234,748 (206,921 698,272 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

[Foreign]

            

South-East Asia Gas Pipeline Company Ltd.

 222,269     (59,717 46,855  6,589  215,996 

AES-VCM Mong Duong Power Company Limited

 153,271        27,031  (13,161 167,141 

7623704 Canada Inc.

 134,034     (921 175  4,224  137,512 

Eureka Moly LLC

  213,136                4,377    217,513   87,878        (18 1,741  89,601 

South-East Asia Gas Pipeline Company Ltd.

  144,831            (2,585  (2,044  140,202  

7623704 Canada Inc.

      124,341        (1  (4,824  119,516  

AMCI (WA) PTY LTD

 72,289        (3,358 1,570  70,501 

Nickel Mining Company SAS

  146,699            (16,617  5,096    135,178   76,445        (31,047 (260 45,138 

AES-VCM Mong Duong Power Company Limited

  48,636            (12,841  45,641    81,436  

AMCI (WA) PTY LTD

  123,018            (6,283  (18,268  98,467  

NCR LLC

 35,447        (41 1,332  36,738 

KOREA LNG LTD.

  99,976        (21,999  21,898    (35,422  64,453   53,548     (6,342 6,392  9,460  63,058 

CAML RESOURCES PTY LTD

  62,227        (12,428  17,984    (23,963  43,820  

NCR LLC

  39,303            (9,609  802    30,496  

PT. Batutua Tembaga Raya

 15,382  7,040        301  22,723 

Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd

  19,045            1,304    251    20,600   19,311        (412 (891 18,008 

VSC POSCO Steel Corporation

  9,347        (433  760    (210  9,464  

PT. Wampu Electric Power

  7,414                (177  7,237   8,855        (397 248  8,706 

POSCO SeAH Steel Wire(Nantong) Co., Ltd.

  5,274        (62  717    154    6,083   7,061        242  (463 6,840 

Roy Hill Holdings Pty Ltd

  527,129    446,201        (37,781  (109,648  825,901   1,153,434        12,643  20,782  1,186,859 

POSCO-NPS Niobium LLC

  348,646        (16,188  16,079    (4,947  343,590   381,461     (10,893 11,499  11,503  393,570 

CSP - Compania Siderurgica do Pecem

  214,761    128,185        (34,410  (45,117  263,419   80,805  88,930     116,694  44,034  330,463 

DMSA/AMSA

  124,326    58,374        31    (2,376  180,355  

KOBRASCO

  113,847        (26,482  21,948    (14,080  95,233   78,364     (29,297 20,761  18,480  88,308 

BX STEEL POSCO Cold Rolled Sheet Co., Ltd.

  92,888            2,400    1,021    96,309   100,908        258  (3,797 97,369 

Others (35 companies)

  87,759    7,439    (11,953  (70,342  60,299    73,202  

DMSA/AMSA

 105,964  24,624     (60,415 4,762  74,935 

Others (37 companies)

 67,273  28,993  (4,252 (791 39,428  130,651 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
  2,428,262    764,540    (89,545  (107,348  (143,435  2,852,474   2,853,999  149,587  (111,422 146,071  145,882  3,184,117 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
     3,039,261    1,265,772    (117,230  (179,809  (199,301  3,808,693       3,945,333  198,394  (111,622 (88,677 (61,039 3,882,389 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

 

(*1)Other increase or decrease represents the changes in investments in associates and joint ventures due to disposals, and change in capital adjustments arisingeffect from translations of financial statements of foreign investees and others.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

2) For the year ended December 31, 20142017

 

Company

 December 31,
2013 Book
value
 Acquisition Dividends Share of
profits (losses)
 Other increase
(decrease) (*1)
 December 31,
2014 Book
value
  December 31,
2016

Book value
 Acquisition Dividends Share of
profits
(losses)
 Other
increase

(decrease) (*1)
 December 31,
2017

Book value
 
 (in millions of Won)  (in millions of Won) 

[Domestic]

       

EQP POSCO Global NO1 Natual Resources PEF

 177,563            (664      176,899  

EQP POSCO Global NO1 Natural Resources PEF

 175,690        418  (555 175,553 

SNNC

  123,969        (5,149  13,873    (1,022  131,671   107,859        2,370  195  110,424 

POSCO PLANTEC Co., Ltd. (*2)

  234,203    25,356        (210,616  (48,943    

QSONE Co., Ltd.

  84,096            (247      83,849  

QSONE Co.,Ltd.

 84,799     (368 618     85,049 

Chun-cheon Energy Co., Ltd

 45,077  27,791     1,510     74,378 

Incheon-Gimpo Expressway Co., Ltd.

  37,759    8,331        (340  (2,705  43,045   37,372        (6,463 751  31,660 

BLUE OCEAN Private Equity Fund

  29,391            2,193    (145  31,439   35,752        (8,154 (7,978 19,620 

CHUNGJU ENTERPRISE CITY

      

DEVELOPMENT Co.,Ltd

 12,551        4,701     17,252 

UITrans LRT Co., Ltd.

  19,185    2,330        8,583        30,098   17,851        (2,010    15,841 

CHUNGJU ENTERPRISE CITY DEVELOPMENT Co., Ltd

  23,733            (3,714  (218  19,801  

KoFC POSCO HANWHA KB Shared Growth NO. 2. Private Equity Fund

  6,685    6,113        (530      12,268  

Daesung Steel

 12,302        3,198     15,500 

Keystone NO. 1. Private Equity Fund

 13,314        (886 (49 12,379 

KoFC POSCO HANWHA KB Shared Growth

      

NO. 2. Private Equity Fund

 11,890        (197 (4,865 6,828 

KONES, Corp.

  5,784            (378  24    5,430   5,641        (2,774 (40 2,827 

Gunggi Green Energy

  4,996            (354      4,642  

POSCO MITSUBISHI CARBON TECHNOLOGY

  115,708            (2,835  (36  112,837   83,113        27,582  65  110,760 

POSCO ES MATERIALS

  40,386            (2,229  (136  38,021  

Others (31 companies)

  52,761    12,875        (24,284  (12,483  28,869  

Others (40 companies)

 55,061  28,348  (137 (7,995 (1,858 73,419 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
  956,219    55,005    (5,149  (221,542  (65,664  718,869   698,272  56,139  (505 11,918  (14,334 751,490 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

[Foreign]

       

South-East Asia Gas Pipeline Company Ltd.

 215,996     (37,016 42,896  (24,807 197,069 

AES-VCM Mong Duong Power Company Limited

 167,141     (30,798 19,644  (13,639 142,348 

7623704 Canada Inc.

 137,512     (7,563 7,468  (15,715 121,702 

Eureka Moly LLC

  217,513            (37  10,528    228,004   89,601        (35 (10,168 79,398 

South-East Asia Gas Pipeline Company Ltd.

  140,202            25,638    6,965    172,805  

7623704 Canada Inc.

  119,516        (5,505  (1,678  4,767    117,100  

AMCI (WA) PTY LTD.

 70,501        (4,299 (2,824 63,378 

Nickel Mining Company SAS

  135,178            (17,391  (10,379  107,408   45,138        424  343  45,905 

AES-VCM Mong Duong Power Company Limited

  81,436            (3,845  15,430    93,021  

AMCI (WA) PTY LTD

  98,467            (6,477  (3,940  88,050  

NCR LLC

 36,738  276     (60 (3,216 33,738 

KOREA LNG LTD.

  64,453        (18,668  18,613    7,691    72,089   63,058     (6,466 (70,180 47,010  33,422 

CAML RESOURCES PTY LTD

  43,820            (2,191  (3,389  38,240  

NCR LLC

  30,496            (3,984  6,086    32,598  

PT. Batutua Tembaga Raya

 22,723        260  (1,160 21,823 

Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd

  20,600        (352  378    406    21,032   18,008        (1,268 (1,123 15,617 

PT. Batutua Tembaga Raya

      14,785            (132  14,653  

VSC POSCO Steel Corporation

  9,464        (1,850  7        7,621  

PT. Wampu Electric Power

  7,237            134    240    7,611   8,706        5,927  (1,242 13,391 

POSCO SeAH Steel Wire(Nantong) Co., Ltd.

  6,083            679    207    6,969   6,840        303  (626 6,517 

Roy Hill Holdings Pty Ltd

  825,901    530,492        (14,783  (72,932  1,268,678  

Roy Hill Holdings Pty Ltd.

 1,186,859        46,020  (107,746 1,125,133 

POSCO-NPS Niobium LLC

  343,590        (16,414  16,370    14,328    357,874   393,570     (17,277 17,173  (44,630 348,836 

CSP - Compania Siderurgica do Pecem

  263,419    75,966        (57,127  (21,352  260,906  

DMSA/AMSA

  180,355            (21,793  6,532    165,094  

CSP-Compania Siderurgica do Pecem

 330,463        (147,847 (36,189 146,427 

KOBRASCO

  95,233        (18,429  30,356    (7,373  99,787   88,308     (22,135 56,445  (14,133 108,485 

BX STEEL POSCO Cold Rolled Sheet Co., Ltd.

  96,309            943    1,641    98,893   97,369     (5,542 1,555  (5,077 88,305 

Others (34 companies)

  73,202    50,605    (858  (42,163  2,419    83,205  

DMSA/AMSA

 74,935  13,712     (22,339 (9,573 56,735 

Others (40 companies)

 130,651  22,209  (4,408 46,535  (36,774 158,213 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
  2,852,474    671,848    (62,076  (78,351  (42,257  3,341,638   3,184,117  36,197  (131,205 (1,378 (281,289 2,806,442 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
     3,808,693    726,853    (67,225  (299,893  (107,921  4,060,507       3,882,389  92,336  (131,710 10,540  (295,623 3,557,932 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

 

(*1)Other increase or decrease represents the changes in investments in associates and joint ventures due to disposals, and change in capital adjustments arisingeffect from translations of financial statements of foreign investees and others.

(*2)As of December 31, 2014, there is objective evidence of impairment due to the prolonged decline in the fair value of the investment below its cost. As a result, the Company recognized an impairment loss of88,600 million as the carrying value was higher than its recoverable amount as of December 31, 2014.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

(e) Summarized financial information of associates and joint ventures as of and for the years ended December 31, 20132016 and 2014 is2017 are as follows:

1) December 31, 20132016

 

Company

  Assets   Liabilities   Equity (deficit)   Sales   Net income (loss)   Assets   Liabilities   Equity
(deficit)
 Sales   Net
income
(loss)
 
  (in millions of Won)   (in millions of Won) 

[Domestic]

                   

EQP POSCO Global NO1 Natural Resources PEF

  652,849     1,034     651,815          (3,684  597,767    864    596,903       (1,349

SNNC

   504,351     235,830     268,521     405,419     8,458     725,987    482,429    243,558  527,101    2,022 

POSCO PLANTEC Co., Ltd.

   900,409     765,481     134,928     597,561     (98,435

QSONE Co., Ltd.

   247,592     79,399     168,193     882     (597

QSONE Co.,Ltd.

   247,385    77,786    169,599  15,961    1,760 

Chun-cheon Energy Co., Ltd

   547,805    378,613    169,192       (3,748

Incheon-Gimpo Expressway Co., Ltd.

   157,082     32,691     124,391          (1,473   929,539    718,107    211,432       (1,910

BLUE OCEAN Private Equity Fund

   341,118     234,321     106,797     425,678     (7,321   357,723    220,895    136,828  456,311    2,335 

CHUNGJU ENTERPRISE CITY DEVELOPMENT Co.,Ltd

   136,857    124,666    12,191  19,028    967 

UITrans LRT Co., Ltd.

   102,828     56,438     46,390          (925   400,761    307,625    93,136       (822

CHUNGJU ENTERPRISE CITY DEVELOPMENT Co.,Ltd

   284,290     222,246     62,044     10,224     (15,924

Daesung Steel

   150,944    112,194    38,750  60,772    (12,955

Keystone NO. 1. Private Equity Fund

   119,378    79,946    39,432  197    694 

KoFC POSCO HANWHA KB Shared Growth NO. 2. Private Equity Fund

   55,195     1,712     53,483     1,064     (1,116   96,213    1,094    95,119  14,157    9,561 

KONES, Corp.

   3,748     2,296     1,452     7,442     (1,612   2,627    1,519    1,108  3,952    (615

Gunggi Green Energy

   333,027     263,608     69,419     21,577     (5,526

POSCO MITSUBISHI CARBON TECHNOLOGY

   243,644     51,747     191,897          89     448,618    311,070    137,548  53,908    (36,572

POSCO ES MATERIALS

   59,807     10,590     49,217     5,759     (3,926

POSCO PLANTEC Co., Ltd.

   501,659    678,004    (176,345 361,351    (43,195

[Foreign]

                   

South-East Asia Gas Pipeline Company Ltd.

   1,755,847     1,195,935     559,912     19,878     (10,323   2,171,689    1,305,942    865,747  491,011    187,114 

7623704 Canada Inc.

   1,161,363     15     1,161,348          (10   1,334,391    1    1,334,390       19,485 

Nickel Mining Company SAS

   416,878     91,851     325,027     120,324     (39,686   491,458    347,194    144,264  145,571    (61,473

KOREA LNG LTD.

   381,437     98     381,339     111,602     109,495     303,389    19,704    283,685  33,035    31,962 

CAML RESOURCES PTY LTD

   185,465     52,782     132,683     238,296     53,950  

PT. Batutua Tembaga Raya

   351,119    332,037    19,082        

Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd

   133,554     67,202     66,352     205,453     3,859     83,291    24,676    58,615  117,387    (1,216

VSC POSCO Steel Corporation

   33,116     17,860     15,256     110,059     1,766  

PT. Wampu Electric Power

   122,733     89,862     32,871     27,042     (3,496   206,052    165,618    40,434  3,405    (1,984

POSCO SeAH Steel Wire(Nantong) Co., Ltd.

   63,304     38,951     24,353     79,578     3,134     67,905    40,451    27,454  81,260    938 

Roy Hill Holdings Pty Ltd

   2,703,533     244,437     2,459,096          (302,248   10,962,261    8,059,714    2,902,547  845,243    129,968 

POSCO-NPS Niobium LLC

   686,978          686,978          32,158     786,937        786,937       24,719 

CSP - Compania Siderurgica do Pecem

   1,520,989     78,847     1,442,142          (16,915   5,682,161    4,237,247    1,444,914  226,669    243,151 

DMSA/AMSA

   8,636,317     5,190,558     3,445,759          (473

KOBRASCO

   203,467     13,001     190,466     70,428     42,852     178,853    2,236    176,617  72,274    41,522 

BX STEEL POSCO Cold Rolled Sheet Co., Ltd.

   776,557     418,958     357,599     1,479,765     5,359     789,336    427,475    361,861  948,488    1,033 

DMSA/AMSA

   6,570,172    4,842,560    1,727,612  579,388    (519,969

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

2) December 31, 20142017

 

Company

  Assets   Liabilities   Equity (deficit) Sales   Net income (loss)   Assets   Liabilities   Equity   Sales   Net
income
(loss)
 
  (in millions of Won)   (in millions of Won) 

[Domestic]

                   

EQP POSCO Global NO1 Natual Resources PEF

      621,960     1,044     620,916         (576

EQP POSCO Global NO1 Natural Resources PEF

  562,698    866    561,832        1,261 

SNNC

   826,597     528,246     298,351    345,836     41,117     705,975    459,519    246,456    576,023    2,417 

QSONE Co., Ltd.

   247,590     79,891     167,699    13,674     (603

QSONE Co.,Ltd.

   248,779    78,680    170,099    15,297    1,236 

Chun-cheon Energy Co., Ltd

   700,079    539,137    160,942    164,294    (8,250

Incheon-Gimpo Expressway Co., Ltd.

   337,639     172,464     165,175         (1,148   1,132,233    922,338    209,895        (23,221

BLUE OCEAN Private Equity Fund

   361,810     247,573     114,237    574,476     8,489     311,129    188,512    122,617    445,238    (3,345

CHUNGJU ENTERPRISE CITY DEVELOPMENT Co.,Ltd

   76,184    48,072    28,112    77,093    15,921 

UITrans LRT Co., Ltd.

   169,574     117,996     51,578         (887   464,074    384,202    79,872    3,689    (13,263

CHUNGJU ENTERPRISE CITY DEVELOPMENT Co., Ltd

   256,207     208,960     47,247    5,240     (14,789

Daesung Steel

   169,774    112,795    56,979    70,434    18,230 

Keystone NO. 1. Private Equity Fund

   170,155    133,033    37,122    5,391    (2,070

KoFC POSCO HANWHA KB Shared Growth NO. 2. Private Equity Fund

   100,063     1,917     98,146    1,932     (4,238   55,936    1,315    54,621    10,212    (1,578

KONES, Corp.

   3,756     3,155     601    7,269     (907   2,766    1,616    1,150    5,379    139 

Gunggi Green Energy

   328,976     264,278     64,698    124,181     (4,720

POSCO MITSUBISHI CARBON TECHNOLOGY

   405,387     218,275     187,112         (4,725   478,847    295,052    183,795    154,312    46,138 

POSCO ES MATERIALS

   64,088     19,602     44,486    13,403     (4,459

[Foreign]

                   

South-East Asia Gas Pipeline Company Ltd.

   1,997,068     1,306,957     690,111    353,439     102,385     1,911,942    1,121,783    790,159    445,682    171,303 

7623704 Canada Inc.

   1,138,126     4     1,138,122         (612   1,182,376    9    1,182,367        82,344 

Nickel Mining Company SAS

   410,230     140,860     269,370    133,975     (24,800   465,700    324,687    141,013    179,683    (4,450

KOREA LNG LTD.

   393,581     45     393,536    94,936     93,067     179,269    86    179,183    34,640    32,446 

CAML RESOURCES PTY LTD

   159,281     38,591     120,690    172,093     (6,570

PT. Batutua Tembaga Raya

   336,085    272,542    63,543    195,520    49,091 

Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd

   148,077     80,538     67,539    186,733     1,112     70,437    18,722    51,715    85,850    (3,736

PT. Batutua Tembaga Raya

   100,142     151,591     (51,449  1,309     (2,110

VSC POSCO Steel Corporation

   38,388     26,942     11,446    103,877     73  

PT. Wampu Electric Power

   172,950     138,012     34,938    43,184     670     212,095    148,177    63,918    779    29,634 

POSCO SeAH Steel Wire(Nantong) Co., Ltd.

   66,097     38,572     27,525    80,059     2,636     70,701    43,588    27,113    84,973    1,210 

Roy Hill Holdings Pty Ltd

   6,809,416     3,431,438     3,377,978         (118,264   10,148,416    6,600,900    3,547,516    2,988,372    797,008 

POSCO-NPS Niobium LLC

   715,546          715,546         32,741     697,470        697,470        32,481 

CSP - Compania Siderurgica do Pecem

   3,060,008     1,467,004     1,593,004         (90,649   4,805,353    4,223,392    581,961    1,290,767    (740,591

DMSA/AMSA

   8,938,860     5,918,665     3,020,195    695,505     (544,837

KOBRASCO

   234,595     35,021     199,574    99,677     60,712     252,813    35,843    216,970    179,453    112,890 

BX STEEL POSCO Cold Rolled Sheet Co., Ltd.

   816,813     448,854     367,959    1,290,490     3,771     717,472    391,871    325,601    1,245,178    5,978 

DMSA/AMSA

   5,586,171    4,167,906    1,418,265    630,229    (475,958

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

12.Joint Operations

Details of significant joint operations that the Company is participating in as a party to a joint arrangement as of December 31, 20142017 are as follows:

 

Joint operations

  Operation  Ownership
(%)
  Location

MyanmarA-1/A-3 mine

  MineMineral development and gas production  51.00  Myanmar

Offshore midstream

  Mine developmentGas transportation facility  51.00  Myanmar

Greenhills mine

  Mine development  20.00  Canada

ActosArctos Anthracite coal project

  Mine development  20.0050.00  Canada

Mt. Thorley J/V

  Mine development  20.00  Australia

POSMAC J/V

  Mine development  20.00  Australia

CD J/V

Mine development5.00Australia

Intergra Coal J/V

Mine development2.35Australia

RUM J/V

  Mine development  10.00  Australia

Camberwell Coal J/VHanam-Gamil package public housing project

  Mine developmentConstruction  7.70  8.39Korea

Sejong2-1 P3 Block public housing project

  Construction  Australia37.00  Korea

Yongin-Giheung Station area city development project

Construction61.00Korea

Korean wave world complex land multi-purpose building development project

Construction33.30Korea

Sejong4-1 P3 Block public housing project

Construction60.00Korea

 

13.Investment Property, Net

(a) Investment property as of December 31, 20132016 and 20142017 are as follows:

 

  2013   2014   2016   2017 
  Acquisition
cost
   Accumulated
depreciation
and
impairment
loss
 Book value   Acquisition
cost
   Accumulated
depreciation
and
impairment
loss
 Book value   Acquisition
cost
   Accumulated
depreciation
and
impairment
loss
 Book
value
   Acquisition
cost
   Accumulated
depreciation
and
impairment
loss
 Book
value
 
  (in millions of Won)   (in millions of Won) 

Land

  200,468     (38,966  161,502     447,350     (31,838  415,512    423,910    (31,187 392,723    360,402      360,402 

Buildings

   399,998     (160,805  239,193     681,924     (90,277  591,647     807,657    (136,118 671,539    727,022    (92,982 634,040 

Structures

   6,836     (3,237  3,599     4,058     (1,998  2,060     3,148    (1,001 2,147    7,717    (1,436 6,281 

Construction-in-progress

   20,935         20,935     46,373         46,373     51,311      51,311    64,191      64,191 
  

 

   

 

  

 

   

 

   

 

  

 

   

 

   

 

  

 

   

 

   

 

  

 

 
      628,237     (203,008  425,229     1,179,705     (124,113  1,055,592        1,286,026    (168,306 1,117,720    1,159,332    (94,418 1,064,914 
  

 

   

 

  

 

   

 

   

 

  

 

   

 

   

 

  

 

   

 

   

 

  

 

 

As of December 31, 2014,2017, the fair value of investment property is1,288,0801,663,682 million, among which the Company evaluatedbelieved the fair value of its investment property of 6six subsidiaries, including DONG FANG JIN HONG, asPOSCO (Dalian) IT Center Development Co., Ltd. approximate its book value since it is believed that the book value of812,591 million approximates fair value.126,026 million. Also, the Company used the prior year’s fair value for some of the investment property since it is believed to be approximatelythat the same.fair value has not changed significantly.

(b) Changes in the carrying valueamount of investment property for the years ended December 31, 20132016 and 20142017 were as follows:

1) For the year ended December 31, 20132016

 

 Beginning Acquisitions Business
combination
 Disposals Depreciation Others (*1) Ending   Beginning   Acquisitions   Disposals Depreciation (*1) Others (*2) Ending 
 (in millions of Won)   (in millions of Won) 

Land

 211,382        12,625    (4,410      (58,095  161,502    346,879    24,116    (8,056    29,784  392,723 

Buildings

  304,503    10    8,432    (3,129  (12,008  (58,615  239,193     696,526    7,548    (3,339 (24,043 (5,153 671,539 

Structures

  5,306                (314  (1,393  3,599     1,819    1      (288 615  2,147 

Construction-in-progress

      20,935                    20,935     39,068    13,910         (1,667 51,311 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

   

 

   

 

  

 

  

 

  

 

 
     521,191    20,945    21,057    (7,539  (12,322  (118,103  425,229        1,084,292    45,575    (11,395 (24,331 23,579  1,117,720 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

   

 

   

 

  

 

  

 

  

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

(*1)Impairment loss on investment property amounting to318 million is included.

(*2)Includes reclassification resulting from changing purpose of use, adjustment of foreign currency translation difference and others.

2) For the year ended December 31, 2017

   Beginning   Acquisitions   Disposals  Depreciation  Others (*1)  Ending 
   (in millions of Won) 

Land

  392,723    20,941    (37,725     (15,537  360,402 

Buildings

   671,539    38,831    (9,506  (23,450  (43,374  634,040 

Structures

   2,147           (591  4,725   6,281 

Construction-in-progress

   51,311    17,648          (4,768  64,191 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 
      1,117,720    77,420    (47,231  (24,041  (58,954  1,064,914 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

 

 

(*1)Includes reclassification resulting from changing purpose of use, adjustment of foreign currency translation difference and others.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

2) For the year ended December 31, 2014

  Beginning  Acquisitions  Business
combination
  Disposals  Depreciation  (*1)  Others (*2)  Ending 
  (in millions of Won) 

Land

 161,502    97,883    13    (20,500      176,614    415,512  

Buildings

  239,193    195,722    208    (19,212  (12,858  188,594    591,647  

Structures

  3,599                (413  (1,126  2,060  

Construction-in-progress

  20,935    112,998                (87,560  46,373  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
     425,229    406,603    221    (39,712  (13,271  276,522    1,055,592  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

(*1)14.Impairment losses of investment property amounting to23 million are included.

(*2)Includes reclassification resulting from changing purpose of use, adjustment of foreign currency translation difference and others.

14.Property, Plant and Equipment, Net

(a) Property, plant and equipment as of December 31, 20132016 and 20142017 are as follows:

 

 2013 2014  2016 2017 
 Acquisition
cost
 Accumulated
depreciation
and
impairment
loss
 Government
grants
 Book
value
 Acquisition
cost
 Accumulated
depreciation
and
impairment
loss
 Government
grants
 Book
value
  Acquisition
cost
 Accumulated
depreciation
and
impairment
loss
 Government
grants
 Book
value
 Acquisition
cost
 Accumulated
depreciation
and
impairment
loss
 Government
grants
 Book
value
 
 (in millions of Won)  (in millions of Won) 

Land

 2,719,989    (11,979      2,708,010    2,801,288            2,801,288   2,607,660  (6,452    2,601,208  2,534,102  (6,452    2,527,650 

Buildings

  8,112,980    (3,223,992  (153  4,888,835    8,824,462    (3,460,858  (4,280  5,359,324   9,180,028  (4,183,974 (423 4,995,631  9,311,426  (4,433,996 (412 4,877,018 

Structures

  4,649,271    (1,864,574  (110  2,784,587    5,106,863    (2,076,499  (201  3,030,163   5,385,365  (2,476,818 (67 2,908,480  5,452,713  (2,686,802 (59 2,765,852 

Machinery and equipment

  40,685,986    (21,242,212  (938  19,442,836    43,972,182    (22,771,455  (842  21,199,885   46,698,254  (26,379,544 (320 20,318,390  46,669,612  (27,301,410 (245 19,367,957 

Vehicles

  284,113    (233,080      51,033    304,346    (247,611  (40  56,695   306,770  (259,986 (85 46,699  296,815  (263,884 (70 32,861 

Tools

  346,018    (283,120  (45  62,853    360,625    (296,517  (39  64,069   385,960  (312,266 (2,314 71,380  380,144  (315,446 (1,058 63,640 

Furniture and fixtures

  568,313    (394,958  (203  173,152    577,126    (433,330  (14  143,782   609,736  (477,064 (266 132,406  643,779  (498,192 (148 145,439 

Finance lease assets

  151,219    (50,695      100,524    162,154    (82,073      80,081   248,590  (89,577    159,013  243,160  (97,903    145,257 

Bearer plants

             70,031  (4,516    65,515 

Construction-in-progress

  5,553,322        (5,033  5,548,289    2,511,009        (5,101  2,505,908   2,542,233     (5,101 2,537,132  1,897,885     (5,539 1,892,346 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
     63,071,211    (27,304,610  (6,482  35,760,119    64,620,055    (29,368,343  (10,517  35,241,195       67,964,596  (34,185,681 (8,576 33,770,339  67,499,667  (35,608,601 (7,531 31,883,535 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

(b) Changes in the carrying valueamount of property, plant and equipment for the years ended December 31, 20132016 and 20142017 were as follows:

1) For the year ended December 31, 20132016

 

 Beginning Acquisitions Business
combination
 Disposals Depreciation (*1) Others (*2) Ending  Beginning Acquisitions Business
combination
 Disposals Depreciation (*1) Others (*2) Ending 
 (in millions of Won)  (in millions of Won) 

Land

 2,646,422    23,404    23,108    (24,548      39,624    2,708,010   2,572,807  8,901  15,687  (16,176 (6,452 26,441  2,601,208 

Buildings

  4,168,802    72,168    7,352    (48,278  (308,084  996,875    4,888,835   5,165,725  37,493  277,242  (12,857 (396,899 (75,073 4,995,631 

Structures

  2,320,181    29,338    18,568    (7,633  (189,740  613,873    2,784,587   2,949,413  19,043     (1,994 (216,631 158,649  2,908,480 

Machinery and equipment

  16,532,204    740,682    9,634    (88,565  (1,867,408  4,116,289    19,442,836   21,093,743  193,856  47,021  (36,095 (2,277,740 1,297,605  20,318,390 

Vehicles

  60,154    10,326    700    (2,356  (19,402  1,611    51,033   52,005  8,967  88  (1,990 (18,484 6,113  46,699 

Tools

  69,851    20,638    304    (1,811  (33,494  7,365    62,853   73,478  17,546  635  (848 (27,396 7,965  71,380 

Furniture and fixtures

  183,380    31,578    1,087    (4,837  (72,062  34,006    173,152   148,099  30,650  32  (4,248 (51,361 9,234  132,406 

Finance lease assets

  57,224    670        (712  (12,766  56,108    100,524   92,796  79,556     (38 (13,409 108  159,013 

Construction-in-progress

  6,238,161    5,931,141        (10,369      (6,610,644  5,548,289   2,374,789  1,935,339  2,181  (4,255    (1,770,922 2,537,132 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
   32,276,379    6,859,945    60,753    (189,109  (2,502,956  (744,893  35,760,119       34,522,855  2,331,351  342,886  (78,501 (3,008,372 (339,880 33,770,339 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

 

 

(*1)ImpairmentIncludes impairment losses ofon property, plant and equipment amounting to9,742196,882 million. During the year ended December 31, 2016, due to the existence of indicators for impairment, such as continuing operating loss on fuel cell business of the POSCO ENERGY CO., LTD., which is included in other reportable segment, the Company performed impairment test and recognized impairment loss of61,565 million. Recoverable amount was determined based onvalue-in-use, which was calculated by applying a 14.0% discount rate. The impairment recorded in 2016 also included58,388 million are included.related to POSCO for individual assets based on disposal plans.

 

(*2)Includes reclassification forRepresents assets transferred fromconstruction-in-progress to intangible assets and other property, plant and equipment, reclassifications resulting from changing purpose of use, adjustments of foreign currency translation differences and others.

2) For the year ended December 31, 20142017

 

 Beginning Acquisitions Business
combination
 Disposals Depreciation (*1) Others (*2) Ending  Beginning Acquisitions Disposals Depreciation (*1) Others (*2) Ending 
 (in millions of Won)  (in millions of Won) 

Land

 2,708,010    92,645    146,755    (10,410  (1,839  (133,873  2,801,288   2,601,208  3,477  (18,226    (58,809 2,527,650 

Buildings

  4,888,835    97,701    72,483    (18,968  (372,445  691,718    5,359,324   4,995,631  53,961  (5,782 (361,531 194,739  4,877,018 

Structures

  2,784,587    42,341    15,525    (3,517  (223,487  414,714    3,030,163   2,908,480  18,943  (2,558 (246,229 87,216  2,765,852 

Machinery and equipment

  19,442,836    372,448    26,998    (45,777  (2,194,014  3,597,394    21,199,885   20,318,390  194,653  (93,210 (2,217,435 1,165,559  19,367,957 

Vehicles

  51,033    17,665    614    (2,136  (20,166  9,685    56,695   46,699  9,982  (1,623 (22,340 143  32,861 

Tools

  62,853    29,351    4,210    (578  (33,480  1,713    64,069   71,380  16,424  (976 (28,539 5,351  63,640 

Furniture and fixtures

  173,152    41,113    1,599    (2,291  (70,938  1,147    143,782   132,406  61,597  (1,296 (48,416 1,148  145,439 

Finance lease assets

  100,524    2,710        (31  (29,825  6,703    80,081   159,013  4,760  (453 (14,810 (3,253 145,257 

Bearer plants

          (4,830 70,345  65,515 

Construction-in-progress

  5,548,289    2,804,568    19,156    (14,088      (5,852,017  2,505,908   2,537,132  1,894,067  (817 (36,706 (2,501,330 1,892,346 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
 35,760,119    3,500,542    287,340    (97,796  (2,946,194  (1,262,816  35,241,195       33,770,339  2,257,864  (124,941 (2,980,836 (1,038,891 31,883,535 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

 

 

(*1)ImpairmentIncludes impairment losses ofon property, plant and equipment amounting to64,833117,231 million. During the year ended December 31, 2017, due to the existence of indicators for impairment, such as continuing operating loss on Suncheon Bay Personal Rapid Transit business of the Suncheon Eco Trans Co., Ltd, a subsidiary of the Company, the Company performed impairment test and recognized impairment loss of48,070 million. The impairment recorded in 2017 also included17,651 million are included.related to POSCO for individual assets due to a decline in economic result and others.

 

(*2)Includes reclassification forRepresents assets transferred fromconstruction-in-progress to intangible assets and other property, plant and equipment, reclassifications resulting from changing purpose of use, adjustmentadjustments of foreign currency translation differences and others.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

(c) Borrowing costs capitalized and the capitalized interest rate for the years ended December 31, 20132016 and 20142017 were as follows:

 

    2013  2014 
   (in millions of Won) 

Weighted average expenditure

    6,442,564    1,772,492  

Borrowing costs capitalized

   290,117    76,566  

Capitalization rate

   4.50  4.32

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

   2016   2017 
   (in millions of Won) 

Weighted average expenditure

  1,070,280    1,180,563 

Borrowing costs capitalized

   40,321    37,261 

Capitalization rate (%)

   3.32 ~ 3.82    1.74 ~ 3.45 

(d) Property, plant and equipment and investment property pledged as collateral as of December 31, 20132016 and 20142017 are as follows:

 

     Book value 
  

Collateral right holder

  2013   2014   

Collateral right holder

  2016   2017 (*2) 
     (in millions of Won)      (in millions of Won) 

Land (*1)

  Korean Development Bank and others  767,004     1,040,850    Korean Development Bank and others  925,670    822,057 

Buildings and structures(*1)

  Korean Development Bank and others   1,112,855     1,324,597    Korean Development Bank and others   1,734,543    1,678,403 

Machinery and equipment

  Korean Development Bank and others   3,343,747     3,594,331    Korean Development Bank and others   4,037,813    3,527,420 

Tools

  Korean Development Bank   7,300     104  

Construction-in-progress

  The Export-Import Bank of Korea   382,339         Korean Development Bank and others       15,389 
    

 

   

 

     

 

   

 

 
      5,613,245     5,959,882      6,698,026    6,043,269 
    

 

   

 

     

 

   

 

 

 

 

(*1)Investment property isand otherassets(land-use right) are included.

 

15.(*2)As of December 31, 2017, the pledged amount isGoodwill and Other Intangible Assets, Net4,984,841 million.

15. Goodwill and Other Intangible Assets, Net

(a) Goodwill and other intangible assets as of December 31, 20132016 and 20142017 are as follows:

 

 2013 2014  2016 2017 
 Acquisition
cost
 Accumulated
amortization
and
impairment
 Government
grants
 Book
value
 Acquisition
cost
 Accumulated
amortization
and
impairment
 Government
grants
 Book
value
  Acquisition
cost
 Accumulated
amortization
and
impairment
loss
 Government
grants
 Book
value
 Acquisition
cost
 Accumulated
amortization
and
impairment
loss
 Government
grants
 Book
value
 
 (in millions of Won)  (in millions of Won) 

Goodwill

 1,741,562    (125,624      1,615,938    1,932,065    (136,921      1,795,144   1,669,556  (294,425    1,375,131  1,604,288  (254,450    1,349,838 

Intellectual property rights

  1,551,898    (76,026  (1,013  1,474,859    2,910,143    (146,544  (920  2,762,679   2,923,030  (401,156 (703 2,521,171  3,140,159  (690,966    2,449,193 

Premium in rental

  148,295    (17,028      131,267    150,438    (19,496      130,942   139,843  (20,804    119,039  139,873  (21,563    118,310 

Development expense

  158,228    (95,780  (1,346  61,102    330,365    (161,263  (356  168,746   376,327  (259,184 (131 117,012  397,129  (316,892 (19 80,218 

Port facilities usage rights

  504,331    (337,220      167,111    506,125    (349,681      156,444   633,025  (376,408    256,617  705,692  (396,319    309,373 

Exploration and evaluation assets

  389,601    (29,853      359,748    123,025    (30,566      92,459   196,124  (33,856    162,268  296,320  (90,376    205,944 

Mining development assets

  968,191            968,191                  

Customer relationships

  856,308    (163,428      692,880    859,023    (217,398      641,625   859,643  (345,398    514,245  857,624  (390,679    466,945 

Power generation permit

                  539,405            539,405   539,405        539,405  539,405        539,405 

Other intangible assets

  843,705    (384,960  (1  458,744    1,159,574    (562,014  (15  597,545   1,007,871  (524,000 (30 483,841  1,006,219  (573,152 (24 433,043 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
   7,162,119    (1,229,919  (2,360  5,929,840    8,510,163    (1,623,883  (1,291  6,884,989       8,344,824  (2,255,231 (864 6,088,729  8,686,709  (2,734,397 (43 5,952,269 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

(2)(b) The changes in carrying valueamount of goodwill and other intangible assets for the years ended December 31, 20132016 and 20142017 were as follows:

1) For the year ended December 31, 20132016

 

 Beginning Acquisitions Business
combination
 Disposals Amortization Impairment
loss
 Others (*3) Ending  Beginning Acquisitions Disposals Amortization Impairment
loss
 Others (*2) Ending 
 (in millions of Won)  (in millions of Won) 

Goodwill (*1)

 1,713,691        2,668            (103,436  3,015    1,615,938  

Goodwill

 1,461,954           (95,984 9,161  1,375,131 

Intellectual property rights

  275,146    54,182        (291  (35,532  (10,313  1,191,667    1,474,859   2,667,086  56,849  (753 (204,112 (16,786 18,887  2,521,171 

Premium in rental (*2)

  137,733    4,089    1,605    (4,382  (211  (4,457  (3,110  131,267  

Premium in rental(*1)

 127,949  1,964  (7,526 (243 (1,559 (1,546 119,039 

Development expense

  60,931    13,717    2,032        (23,166  (5,675  13,263    61,102   135,796  4,027  (60 (61,732 (298 39,279  117,012 

Port facilities usage rights

  83,122                (10,318      94,307    167,111   264,801        (15,217    7,033  256,617 

Exploration and evaluation assets

  479,728    4,669                    (124,649  359,748   151,144  45,524        (3,290 (31,110 162,268 

Mining development assets

  1,643,306    289,016                    (964,131  968,191  

Customer relationships

  750,732                (51,944      (5,908  692,880   559,809        (47,790    2,226  514,245 

Power generation permit

 539,405                 539,405 

Other intangible assets

  517,971    211,627    684    (1,102  (58,843  (1,435  (210,158  458,744   497,810  52,350  (1,454 (48,910 (7,353 (8,602 483,841 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
     5,662,360    577,300    6,989    (5,775  (180,014  (125,316  (5,704  5,929,840       6,405,754  160,714  (9,793 (378,004 (125,270 35,328  6,088,729 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

 

 

(*1)Business combination amounts include goodwill amounting to2,668 million related to the acquisition of POSCO YongXin Rare Earth Metal Co., Ltd.

(*2)Premium in rental includes memberships with indefinite useful lives.

 

(*3)2)IncludesRepresents assets transferred fromconstruction-in-progress to intangible assets and assets transferred from property, plant and equipment, adjustments of foreign currency translation adjustmentdifference and reclassification.others.

2) For the year ended December 31, 20142017

 

 Beginning Acquisitions Business
combination
(note 41)
 Disposals Amortization Impairment
loss
 Others (*3) Ending  Beginning Acquisitions Business
combination
 Disposals Amortization Impairment
loss
 Others (*2) Ending 
 (in millions of Won)  (in millions of Won) 

Goodwill (*1)

 1,615,938        187,285            (11,297  3,218    1,795,144  

Goodwill

 1,375,131              (21,750 (3,543 1,349,838 

Intellectual property rights

  1,474,859    199,850    32    (218  (143,548  (27,720  1,259,424    2,762,679   2,521,171  167,580  47,625  (450 (217,932 (74,524 5,723  2,449,193 

Premium in rental (*2)

  131,267    8,775    1,661    (4,484  (265  (2,609  (3,403  130,942  

Premium in rental(*1)

 119,039  6,006     (3,666 (611 (1,661 (797 118,310 

Development expense

  61,102    18,032    2,659    (3,484  (56,453  (9,366  156,256    168,746   117,012  3,479     (1,179 (66,847 (694 28,447  80,218 

Port facilities usage rights

  167,111    433            (12,462      1,362    156,444   256,617           (19,912    72,668  309,373 

Exploration and evaluation assets

  359,748    32,191                (718  (298,762  92,459   162,268  91,548           (56,519 8,647  205,944 

Mining development assets

  968,191    1,484                    (969,675    

Customer relationships

  692,880                (53,969      2,714    641,625   514,245           (46,508    (792 466,945 

Power generation permit (*4)

          539,405                    539,405  

Other intangible assets (*5)

  458,744    262,076    88,808    (665  (77,243  (717  (133,458  597,545  

Power generation permit

 539,405                    539,405 

Other intangible assets

 483,841  84,502     (1,641 (57,964 (11,829 (63,866 433,043 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
 5,929,840    522,841    819,850    (8,851  (343,940  (52,427  17,676    6,884,989       6,088,729  353,115  47,625  (6,936 (409,774 (166,977 46,487  5,952,269 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

 

 

(*1)Business combination amounts include goodwill amounting to180,418 million related to the acquisition of POSCO PLANTEC Co., Ltd.

(*2)Premium in rental includes memberships with indefinite useful lives.

 

(*3)2)Includes translation adjustment and reclassification.

(*4)POSCO ENERGY CO., LTD. recognized other intangibleRepresents assets amountingtransferred fromconstruction-in-progress to539,405 million in relation to operation permit for electricity business when acquiring POSPOWER CO., Ltd.

(*5)For the year ended December 31, 2014, POSCO ENGINEERING & CONSTRUCT ION., LTD. recognized other intangible assets and other provisions amounting to169,000 million in relation to project financing agreements on the Urban Development Project in Gaepo-dong, Seoul.assets transferred from property, plant and equipment, adjustments of foreign currency translation difference and others.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

(c) For the purpose of impairment testing, goodwill is allocated to individually operating entities which are determined to be CGUs. The goodwill amounts as of December 31, 20132016 and 20142017 are as follows:

 

Reporting segments

  Total number of CGUs            
2013   2014   

CGUs

  2013   2014 

Reportable segments

  Total number of CGUs            
2016   2017   

CGUs

  2016   2017 
  (in millions of Won)                         (in millions of Won) 

Steel

   10     10    POSCO Thainox Public Company Limited  18,624     16,206     9    7   POSCO VST CO., LTD.  36,955    36,955 
      POSCO VST CO., LTD.   36,955     36,955  
      Others   14,084     13,623        Others(*1)   13,151    12,494 

Trading

   3     3    Daewoo International Corporation (*1)   1,163,922     1,163,922     2    2   POSCO DAEWOO Corporation(*1)   1,163,922    1,165,030 
      Others   9,711     9,918        PT. Bio Inti Agrindo   8,070    7,099 

E&C

   4     5    POSCO Engineering Co., Ltd. (*2)   194,637     194,637     4    2   POSCO ENGINEERING
& CONSTRUCTION CO., LTD.(*2)
       90,426 
      EPC EQUITIES LLP   44,412     44,719        POSCO Engineering CO.,Ltd(*2)   111,309     
      POSCO PLANTEC Co., Ltd. (*3)        180,418        DONG FANG JIN HONG   166    157 
      Others   11,119     14,802  

Others

   10     9    PONUTech Co., Ltd   77,298     77,298     6    5   POSCO ENERGY CO., LTD.   26,471    26,471 
      POSCO ENERGY Co., LTD.   26,471     26,471  
      Others   18,705     16,175        Others   15,087    11,206 
  

 

   

 

     

 

   

 

   

 

   

 

     

 

   

 

 

Total

   27     27          1,615,938     1,795,144     21    16         1,375,131    1,349,838 
  

 

   

 

     

 

   

 

   

 

   

 

     

 

   

 

 

 

 

(*1)For the year ended December 31, 2017, POSCO DAEWOO Corporation has taken over steel marketing and other business unit of POSCO Processing & Service. As a result, goodwill of POSCO Processing & Service amounting to1,108 million was transferred to POSCO DAEWOO Corporation.

Recoverable amounts of Daewoo InternationalPOSCO DAEWOO Corporation are determined based on its value-in-use.value in use. As of December 31, 2014, value-in-use2017, value in use is estimated by applying 7.17%8.1% discount rate and 2.5%1.9% terminal growth rate withwithin 5 years, the period for the estimated future cash flows, based on management’s business plan. The key assumption for the estimated future cash flow projections for the next 5 years is the revenue growth rate. The average annualterminal growth rate of 7.86% is used based on thedoes not exceed long-term average growth rate of revenue in the past 5 years ( 2010 through 2014) and the Company’s business plan for next 5 years.its industry. No impairment loss ofon goodwill was recognized duringfor the year ended December 31, 20142017 as the recoverable amount exceeded the carrying valueamount of the CGU.

 

    The estimated recoverable amount of the CGU exceeded the carrying valueamount by212,085117,324 million. Value-in-useValue in use of the CGU was affected by the assumption such as discount rate and terminal growth used in discount cash flow model. When the discount rate increases by 1%, value-in-use will be decreased by 9.17% and when the terminal growth rate decreases by 1%,value-in-use will be decreased by 5.36%.

Management believes that any reasonably possible change in the key assumption on which the recoverable amount is based would cause a change in impairment loss of goodwill.

(*2)Recoverable amounts of POSCO Engineering Company are determined based on its value-in-use. As of December 31, 2014, value-in-use is estimated by applying 9.17% discount rate and 1% terminal growth rate with 5 years. The estimated future cash flows for the next 5 years are based on management’s approved business plan. The most significant assumption on the cash flow projections for the next 5 years is the cash flows from construction projects based on the business plan. No impairment loss of goodwill was recognized during the year ended December 31, 2014 as the recoverable amount exceeded the carrying value of the CGU.

The estimated recoverable amounts of CGU exceeded the carrying value by13,837 million. Value-in-use of the CGU was affected by the assumptionassumptions such as discount rate and terminal growth used in discount cash flow model. When the discount rate increases by 0.25%, value-in-usevalue in use will be decreased by 3.38%3.45% and when the terminal growth rate decreases by 0.25%, value-in-usevalue in use will be decreased by 2.55%1.78%. The change has no effect on the impairment loss of the goodwill.

Management believes that any reasonably possible negative change in the key assumptions on which the recoverable amount is based would result in impairment loss of goodwill.

(*2)For the year ended December 31, 2017, POSCO Engineering CO., Ltd was merged into POSCO ENGINEERING & CONSTRUCTION CO., LTD, resulting in transfer of its goodwill to POSCO ENGINEERING & CONSTRUCTION CO., LTD.

Recoverable amounts of POSCO ENGINEERING & CONSTRUCTION CO., LTD are determined based on its value in use. As of December 31, 2017, value in use is estimated by applying 8.2% discount rate and 1.0% terminal growth rate within 5 years, the period for the estimated future cash flows, based on management’s business plan. The terminal growth rate does not causeexceed long-term average growth rate of its industry. Impairment loss on goodwill of20,883 million was recognized for the aggregateyear ended December 31, 2017 as the recoverable amount is lower than the carrying amount to exceed the aggregate recoverable amount of the CGU.

 

(*3)Recoverable amount of POSCO PLANTEC Co., Ltd. was determined based on fair value less cost to sell. No impairment loss of goodwill was recognized during the year ended December 31, 2014 as the recoverable amount exceeded the carrying valueValue in use of the CGU.CGU was affected by the assumptions such as discount rate and terminal growth used in discount cash flow model. When the discount rate increases by 0.25%, value in use will be decreased by 3.02% and when the terminal growth rate decreases by 0.25%, value in use will be decreased by 2.06%.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

16.Other Assets

Other current assets and other long-termnon-current assets as of December 31, 20132016 and 20142017 are as follows:

 

  2013   2014   2016   2017 
  (in millions of Won)   (in millions of Won) 

Current

      

Advance payments

  1,138,976     845,114  

Advance payment

  787,452    661,779 

Prepaid expenses

   130,272     129,914     105,102    143,032 

Firm commitment asset

       15,115 

Others

   1,420     1,397     1,930    1,316 
  

 

   

 

   

 

   

 

 
   1,270,668     976,425     894,484    821,242 
  

 

   

 

   

 

   

 

 

Non-current

        

Long-term advance payments

   3,090     3,454  

Long-term advance payment

   27,189    24,201 

Long-term prepaid expenses

   204,449     243,933     380,678    333,153 

Others (*1)

   157,659     260,162     159,813    131,657 
  

 

   

 

   

 

   

 

 
      365,198     507,549    567,680    489,011 
  

 

   

 

   

 

   

 

 

 

 

(*1)As of December 31, 2014,2016 and 2017, the Company recognized tax assets amounting to132,060100,693 million in connection with the additional income tax payment for prior years as a result of tax audits that were finalized in 2014and88,633 million, respectively, based on the Company’s best estimate of the tax amounts to be paidrefunded when the result of the Company’s appeal isin connection with the additional income tax payment in prior years’ tax audits that were finalized and claim for rectification are finalized.

 

17.Borrowings

(a) Short-term borrowings and current portion of long-term borrowings as of December 31, 20132016 and 20142017 are as follows:

 

 

Bank

 

Issuance date

 

Maturity date

 Interest
rate (%)
 2013 2014  

Bank

 

Issuance date

 

Maturity date

 Interest
rate (%)
 2016 2017 
 (in millions of Won)  (in millions of Won) 

Short-term borrowings

            

Bank overdrafts

 

Bank of America and others

 January, 2014~ December, 2014 

January, 2015~ December, 2015

  0.1~6.0   100,211    105,673   

JP Morgan and
others

 January, 2017~ December, 2017 

January, 2018~ December, 2018

 1.2~9.0  254,036  217,879 

Short-term borrowings

 

HSBC and others

 January, 2014~ December, 2014 

January, 2015~ December, 2015

  0.4~12.3    7,256,486    9,138,804   

HSBC and others

 January, 2017~ December, 2017 

January, 2018~ December, 2018

 0.3~10.5  7,725,691  7,956,939 
     

 

  

 

      

 

  

 

 
      7,356,697    9,244,477       7,979,727  8,174,818 
     

 

  

 

      

 

  

 

 

Current portion of long-term liabilities

            

Current portion oflong-term borrowings

 

 

Export-Import Bank of Korea and others

 June, 2003~
December, 2014
 

January, 2015~ December, 2015

  0.5~9.0    856,188    1,159,090   

Export-Import Bank of Korea and others

 September, 2001~ November, 2017 

February, 2018~ December, 2018

 0.4~8.5  1,390,733  1,407,123 

Less: Present value discount

      (59  —    

Current portion of foreign loan

 

NATIXIS

 March, 1986 

September, 2015

  2.0    927    418  

Current portion of debentures

 

Korean Development Bank and others

 

August, 2009~

March, 2014

 

February, 2015~ December, 2015

  1.3~6.0    2,502,246    1,793,252   

Korean Development
Bank and others

 

August, 2009~

November, 2016

 

February, 2018~ December, 2018

 1.4~6.1  825,176  1,693,974 

Less: Current portion of discount on debentures issued

      (2,353  (1,753     (829 (1,399
     

 

  

 

      

 

  

 

 
      3,356,949    2,951,007       2,215,080  3,099,698 
     

 

  

 

      

 

  

 

 
     10,713,646    12,195,484       10,194,807  11,274,516 
     

 

  

 

      

 

  

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

(b) Long-term borrowings, excluding current portion as of December 31, 20132016 and 20142017 are as follows:

 

 

Bank

 

Issuance date

 

Maturity date

 Interest
rate (%)
 2013 2014  

Bank

 

Issuance date

 

Maturity date

 Interest
rate (%)
 2016 2017 
 (in millions of Won)  (in millions of Won) 

Long-term borrowings

 

Export-Import Bank of Korea and others

 January, 1983~ December, 2014 January, 2016~ December, 2099  0.5~10.0   7,017,532    7,359,773   

Export-Import bank of Korea and others

 September, 2001~
December, 2017
 March, 2019~
March, 2037
 0.5~8.4  6,420,612  4,839,199 

Less: Present value discount

      (43,897  (109,949     (55,799 (36,459

Foreign loan (*1)

 

NATIXIS

 March, 1986 March, 2017  2.0    1,140    627  

Bonds

 

Korean Development Bank and others

 

August, 2006~ December, 2014

 

February, 2016~ October, 2023

  0.9~6.3    8,590,965    8,009,547   

Korea Development Bank and others

 

August, 2009~
November, 2017

 

February, 2019~
July, 2025

 1.8~6.3  6,163,896  4,999,575 

Less: Discount on debentures issued

      (45,372  (27,225     (18,518 (13,174

Add: Premium on debentures redemption

      12,591    —    
     

 

  

 

      

 

  

 

 
     15,532,959    15,232,773       12,510,191  9,789,141 
     

 

  

 

      

 

  

 

 

(c) Assets pledged as collateral in regards to the borrowings as of December 31, 2017 are as follows:

   

Bank

  Book value   Pledged
amount
 
   (in millions of Won) 

Property, plant and equipment and Investment
property(*1)

  

Korea Development Bank and others

  5,777,330    4,969,201 

Trade accounts and notes receivable

  

Korea Development Bank and others

   147,581    147,581 

Inventories

  

Export-Import Bank of Korea and others

   162,198    116,378 

Financial instruments

  Woori Bank and others   56,491    55,048 
    

 

 

   

 

 

 
      6,143,600   5,288,208 
    

 

 

   

 

 

 

 

(*1)Korea Development Bank has provided guarantees related to the foreign loan.Includes otherassets(land-use right).

(c) Property, plant and equipment, trade accounts and notes receivable, financial assets, available-for-sale financial assets and inventories amounting to5,950,260 million,27,621 million (three hundred eleven sheets of notes receivable),15,156 million,6,726 million and344,146 million, respectively, are provided as collateral related to short-term borrowings, long-term borrowings and debentures.

 

18.Other Payables

Other payables as of December 31, 20132016 and 20142017 are as follows:

 

  2013   2014   2016   2017 
  (in millions of Won)   (in millions of Won) 

Current

        

Accounts payable

  914,288     1,082,676    854,623    800,374 

Accrued expenses

   873,613     740,250     665,295    653,923 

Dividend payable

   11,709     12,077     7,770    7,213 

Finance lease liabilities

   14,218     21,888     24,523    17,763 

Withholdings

   315,026     337,822     299,448    274,188 
  

 

   

 

   

 

   

 

 
   2,128,854     2,194,713    1,851,659    1,753,461 
  

 

   

 

   

 

   

 

 

Non-current

        

Accounts payable

   116,160     81,344    6,823    4,632 

Accrued expenses

   25,358     25,886     41,082    14,234 

Finance lease liabilities

   39,257     24,815     89,886    75,255 

Long-term withholdings

   25,859     37,941     70,768    53,629 
  

 

   

 

   

 

   

 

 
          206,634     169,986    208,559    147,750 
  

 

   

 

   

 

   

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

19.Other Financial Liabilities

Other financial liabilities as of December 31, 20132016 and 20142017 are as follows:

 

  2013   2014   2016   2017 
  (in millions of Won)   (in millions of Won) 

Current

        

Derivatives liabilities

  128,370     84,146    85,786    69,872 

Financial guarantee liabilities

   7,534     27,491     63,962    59,940 
  

 

   

 

   

 

   

 

 
   135,904     111,637        149,748    129,812 
  

 

   

 

   

 

   

 

 

Non-current

        

Derivatives liabilities

   229,096     64,926    37,110    85,638 

Financial guarantee liabilities

   30,925     26,169     44,199    28,467 
  

 

   

 

   

 

   

 

 
          260,021     91,095    81,309    114,105 
  

 

   

 

   

 

   

 

 

20. Provisions

(a) Provisions as of December 31, 20132016 and 20142017 are as follows:

 

  2013   2014   2016   2017 
  Current   Non-current   Current   Non-current   Current   Non-current   Current   Non-current 
  (in millions of Won)   (in millions of Won) 

Provision for bonus payments

  52,377          49,505         42,986        49,171     

Provision for construction warranties

   35,027     20,669     16,352     63,996     10,551    86,158    11,804    106,232 

Provision for legal contingencies and claims(*1)

        30,330          50,424     4,348    80,498    495    36,269 

Provisons for the restoration(*2)

        4,385     39,336     35,462  

Others(*3)

   19,925     90,888     44,837     73,357  

Provision for the restoration(*2)

   10,169    52,425    12,273    121,917 

Others(*3,4)

   46,811    118,658    37,203    212,754 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 
      107,329     146,272     150,030     223,239        114,865    337,739    110,946    477,172 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

 

(*1)The Company recognized probable outflow of resources amounting to17,54930,425 million and44,30927,963 million as provisions for legal contingencies and asserted claims in relation to lawsuits against the Company as of December 31, 20132016 and 2014,2017, respectively.

 

(*2)Due to contamination of landlands near the Company’s magnesium smelting plant located in Gangneung province and others, the Company recognized a provisionpresent values of estimated costs for recovery,89,43329,471 million relatedas provisions for restoration as of December 31, 2017. In order to restoration costs. When estimating relateddetermine the estimated costs, the Company has assumed that it would use all of technologies and materials available for now to restorerecover the land. In addition, the Company has applied a discount rate of 3.04%2.73% to measure the present value of these costs.

 

(*3)As of December 31, 20132016 and 2014,2017, POSCO ENERGY CO., LTD., a subsidiary of the Company, recognized87,827 million and157,461 million of provisions for warranties, respectively, for the service contract on fuel cell based on its estimate of probable outflow of resources.

(*4)As of December 31, 2016 and 2017, the amount includes a provision of74,888 million and23,600 million respectively, for expected outflowsoutflow of resources in connection with the subrogation and financial jointperformance guarantee for the construction projectsHwaseong-Dongtan complexes development project of POSCO ENGINEERING & CONSTRUCTION Co.CO., LTD.

(b) The following are the key assumptions concerning the future and other key sources of estimation uncertainties at the end of the reporting period.

 

   

Key assumptions for the estimation

Provision for bonus payments

  Estimations based on financial performance

Provision for construction warranties

  Estimations based on historical warranty data

Provision for legal contingencies and claims

  Estimations based on the degree of probability of an unfavorable outcome and the ability to make a sufficient reliable estimate of the amount of loss

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

(c) Changes in provisions for the years ended December 31, 20132016 and 20142017 were as follows:

1) For the year ended December 31, 20132016

 

  Beginning   Increase   Utilization Reversal Others (*1) Ending   Beginning   Increase   Utilization Reversal Others (*1) Ending 
  (in millions of Won)   (in millions of Won) 

Provision for bonus payments

  42,904     48,362     (36,126  (2,058  (705  52,377    42,602    44,106    (42,211 (272 (1,239 42,986 

Provision for construction warranties

   50,716     27,008     (15,356  (3,887  (2,785  55,696     81,446    33,925    (19,469 (2,695 3,502  96,709 

Provision for legal contingencies and claims

   30,920     5,090     (4,353  (1,327      30,330     52,610    45,525    (14,012 (188 911  84,846 

Provisons for the restoration

   4,371     130             (116  4,385  

Provisions for the restoration

   45,111    42,529    (13,367 (12,475 796  62,594 

Others

   49,018     85,947     (23,576  (1,597  1,021    110,813     102,243    131,911    (68,143 (3,086 2,544  165,469 
  

 

   

 

   

 

  

 

  

 

  

 

   

 

   

 

   

 

  

 

  

 

  

 

 
      177,929     166,537     (79,411  (8,869  (2,585  253,601        324,012    297,996    (157,202 (18,716 6,514  452,604 
  

 

   

 

   

 

  

 

  

 

  

 

   

 

   

 

   

 

  

 

  

 

  

 

 

 

(*1)Includes adjustments of foreign currency translation differences and others.

2) For the year ended December 31, 20142017

 

  Beginning   Increase   Utilization Reversal Others (*1)   Ending   Beginning   Increase   Utilization Reversal Others (*1) Ending 
  (in millions of Won)   (in millions of Won) 

Provision for bonus payments

  52,377     45,071     (46,761  (1,646  464     49,505    42,986    74,728    (64,319 (3,035 (1,189 49,171 

Provision for construction warranties

   55,696     34,410     (15,719  (4,677  10,638     80,348     96,709    40,916    (18,006 (2,502 919  118,036 

Provision for legal contingencies and claims

   30,330     15,289         (7,716  12,521     50,424     84,846    27,459    (70,156 (1,749 (3,636 36,764 

Provisons for the restoration

   4,385     89,565     (19,328      176     74,798  

Provisions for the restoration

   62,594    63,438    (8,530    16,688  134,190 

Others

   110,813     282,406     (258,571  (19,523  3,069     118,194     165,469    161,054    (64,850 (20,199 8,483  249,957 
  

 

   

 

   

 

  

 

  

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

 
      253,601     466,741     (340,379  (33,562  26,868     373,269        452,604    367,595    (225,861 (27,485 21,265  588,118 
  

 

   

 

   

 

  

 

  

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

 

 

(*1)Includes adjustments of foreign currency translation differences and others.

 

21.Employee Benefits

(a) Defined contribution plans

The expenses related to post-employment benefit plans under defined contribution plans for the years ended December 31, 2012, 20132015, 2016 and 20142017 were as follows:

 

   2012   2013   2014 
   (in millions of Won) 

Expense related to post-employment benefit under defined contribution plans

      16,520     19,126     23,414  
   2015   2016   2017 
   (in millions of Won) 

Expense related to post-employment benefit plans under defined contribution plans

      25,224    30,344    35,538 

(b) Defined benefit plans

1) The amounts recognized in relation to net defined benefit liabilities in the statements of financial position as of December 31, 20132016 and 20142017 are as follows:

 

  2013 2014   2016 2017 
  (in millions of Won)   (in millions of Won) 

Present value of funded obligations

      1,515,426    1,713,074        1,715,583  1,826,907 

Fair value of plan assets

   (1,247,483  (1,427,918

Fair value of plan assets(*1)

   (1,693,118 (1,714,166

Present value of non-funded obligations

   5,217    5,169     17,437  16,228 
  

 

  

 

   

 

  

 

 

Net defined benefit liabilities

  273,160    290,325    39,902  128,969 
  

 

  

 

   

 

  

 

 

(*1)As of December 31, 2016 and 2017, the Company recognized net defined benefit assets amounting to83,702 million and8,224 million, respectively, since there are consolidated entities whose fair value of plan assets exceeded the present value of defined benefit obligations.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

2) Changes in present value of defined benefit obligations for the years ended December 31, 20132016 and 20142017 were as follows:

 

    2013  2014 
   (in millions of Won) 

Defined benefit obligation at the beginning of period

  1,410,399    1,520,643  

Current service costs

   238,386    230,445  

Interest costs

   47,039    54,737  

Remeasurements :

   (12,615  85,166  

— Loss(Gain) from change in demograhpic assumptions

   (5,624  18,911  

— Loss from change in financial assumptions

   7,667    54,131  

— Others

   (14,658  12,124  

Business combinations

   11,379    48,695  

Benefits paid

   (129,038  (160,792

Others

   (44,907  (60,651
  

 

 

  

 

 

 

Defined benefit obligation at the end of period

      1,520,643    1,718,243  
  

 

 

  

 

 

 
   2016  2017 
   (in millions of Won) 

Defined benefit obligations at the beginning of period

  1,714,115   1,733,020 

Current service costs

   285,706   209,612 

Interest costs

   39,286   35,830 

Remeasurements:

   (32,927  51,994 

— Gain from change in financial assumptions

   (72,910  (50,218

— Loss (gain) from change in demographic assumptions

   (4,140  15,952 

— Others

   44,123   86,260 

Benefits paid

   (278,278  (185,220

Others

   5,118   (2,101
  

 

 

  

 

 

 

Defined benefit obligations at the end of period

      1,733,020   1,843,135 
  

 

 

  

 

 

 

3) Changes in fair value of plan assets for the years ended December 31, 20132016 and 20142017 were as follows:

 

  2013 2014   2016 2017 
  (in millions of Won)   (in millions of Won) 

Fair value of plan assets at the beginning of period

  1,064,711    1,247,483    1,532,090  1,693,118 

Interest on plan assets

   37,677    47,296     37,385  45,516 

Remeasurement of plan assets

   (1,482  (11,236   (6,963 (17,190

Contributions to plan assets (*1)

   254,771    273,867  

Business combinations

   9,372    30,863  

Contributions to plan assets

   328,671  164,828 

Benefits paid

   (82,624  (109,352   (189,817 (168,643

Others

   (34,942  (51,003   (8,248 (3,463
  

 

  

 

   

 

  

 

 

Fair value of plan assets at the end of period

      1,247,483    1,427,918        1,693,118  1,714,166 
  

 

  

 

   

 

  

 

 

The Company expects to make an estimated contribution of164,865 million to the defined benefit plan assets in 2018.

(*1)The Company expects to make an estimated contribution of272,767 million to the defined benefit plan assets in 2015.

4) The fair value of plan assets as of December 31, 20132016 and 20142017 are as follows:

 

  2013   2014   2016   2017 
  (in millions of Won)   (in millions of Won) 

Equity instruments

  35,364     43,010    56,187    41,218 

Debt instruments

   98,686     236,665     411,726    367,027 

Deposits

   958,509     997,414     1,167,475    1,254,571 

Others

   154,924     150,829     57,730    51,350 
  

 

   

 

   

 

   

 

 
      1,247,483     1,427,918        1,693,118    1,714,166 
  

 

   

 

   

 

   

 

 

5) The amounts recognized in consolidated statements of comprehensive income for the years ended December 31, 2012, 20132015, 2016 and 20142017 were as follows:

 

  2012   2013   2014   2015   2016   2017 
  (in millions of Won)   (in millions of Won) 

Current service costs

      212,450     238,386     230,445    239,508    285,706    209,612 

Net interest costs (*1)

   13,682     9,362     7,441     5,894    1,901    (9,686
  

 

   

 

   

 

   

 

   

 

   

 

 
  226,132 ��   247,748     237,886        245,402    287,607    199,926 
  

 

   

 

   

 

   

 

   

 

   

 

 

 

 

(*1)The actual return on plan assets amounted to39,82632,630 million,36,19530,422 million and36,06028,326 million for the years ended December 31, 2012, 20132015, 2016 and 2014,2017, respectively.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

The above expenses by function were as follows:

 

  2012   2013   2014   2015   2016   2017 
  (in millions of Won)   (in millions of Won) 

Cost of sales

      164,763     180,090     172,668    170,334    161,810    131,724 

Selling and administrative expenses

   60,457     66,327     64,960     74,210    124,994    67,424 

Others

   912     1,331     258     858    803    778 
  

 

   

 

   

 

   

 

   

 

   

 

 
  226,132     247,748     237,886        245,402    287,607    199,926 
  

 

   

 

   

 

   

 

   

 

   

 

 

6) Accumulated actuarial gains (losses), net of tax recognized in other comprehensive income for the years ended December 31, 2012, 20132015, 2016 and 20142017 were as follows:

 

  2012 2013 2014   2015 2016 2017 
  (in millions of Won)   (in millions of Won) 

Beginning

      (182,702  (245,229  (239,005  (314,106 (272,152 (251,612

Current actuarial gains (losses)

   (62,527  6,224    (75,101   41,954  20,540  (47,543
  

 

  

 

  

 

   

 

  

 

  

 

 

Ending

  (245,229  (239,005  (314,106      (272,152 (251,612 (299,155
  

 

  

 

  

 

   

 

  

 

  

 

 

7) The principal actuarial assumptions as of December 31, 20132016 and 20142017 are as follows:

 

  2013   2014   2016   2017 
  (%)   (%) 

Discount rate

   3.47~4.91     2.58~8.58     2.15~8.59    2.70~7.75 

Expected future increase in salaries(*1)

   1.07~5.75     1.00~10.22     1.00~10.00    1.04~10.00 

 

 

(*1)The expected future increase in salaries is based on the average salary increase rate for the past three years.

All assumptions are reviewed at the end of the reporting period. Additionally, the total estimated defined benefit obligation includes actuarial assumptions associated with the long-term characteristics of the defined benefit plan.

8) Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation by the amounts shown below:

 

  1% Increase 1% Decrease   1% Increase 1% Decrease 
  Amount Percentage (%) Amount Percentage (%)   Amount Percentage (%) Amount Percentage (%) 
  (in millions of Won)   (in millions of Won) 

Discount rate

      (126,866  (7.4  143,406    8.3        (123,568 (6.7 138,196  7.5 

Expected future increases in salaries

   143,117    8.3    (107,206  (6.2

Expected future increase in salaries

   136,385  7.4  (124,400 (6.7

9) As of December 31, 20142017 the maturity of the expected benefit payments are as follows:

 

   Within
1 year
   1 year-
5 years
   5 years-
10 years
   10 years-
20 years
   After
20 years
   Total 
   (in millions of Won) 

Benefits paid

      49,514     292,921     747,429     959,413     283,963     2,333,240  
   Within
1 year
   1 year -
5 years
   5 years -
10 years
   10 years -
20 years
   After
20 years
   Total 
   (in millions of Won) 

Benefits paid

      109,212    613,786    792,792    655,599    347,280    2,518,669 

The maturity analysis of the defined benefit obligation was nominal amounts of defined benefit obligations using expected remaining working livesperiod of service of employees.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

22.Other Liabilities

Other liabilities as of December 31, 20132016 and 20142017 are as follows:

 

  2013   2014   2016   2017 
  (in millions of Won)   (in millions of Won) 

Current

      

Due to customers for contract work

  806,818     992,249    1,031,663    782,968 

Advances received

   1,384,793     1,310,894     864,536    1,183,108 

Unearned revenue

   29,217     21,627     8,702    7,121 

Withholdings

   192,497     167,002     186,665    221,940 

Deferred revenue

   202       

Others(*1)

   268,032         236,021  

Firm commitment liability

       12,192 

Others

   22,307    33,590 
  

 

   

 

   

 

   

 

 
      2,681,559     2,727,793        2,113,873    2,240,919 
  

 

   

 

   

 

   

 

 

Non-current

        

Advances received

  512,096     235,825     418,832    353,631 

Unearned revenue

   1,465     1,170     20,013    18,440 

Others(*1)

   57,954     45,987  

Others

   40,338    14,360 
  

 

   

 

   

 

   

 

 
  571,515     282,982    479,183    386,431 
  

 

   

 

   

 

   

 

 

 

(*1)23.Includes other current liabilities amounting to261,855 million,214,731 million and other long-term liabilities amounting to8,935 million and8,819 million as of December 31, 2013 and 2014, respectively, due to proportionate consolidation of joint operations which are owned by POSCO’s subsidiaries including MT. Thorley.

23.Financial Instruments

(a) Classification of financial instruments

1) Financial assets as of December 31, 20132016 and 20142017 are as follows:

 

  2013   2014   2016   2017 
  (in millions of Won)   (in millions of Won) 

Financial assets at fair value through profit or loss

        

Financial assets held for trading

      1,970 

Derivatives assets held for trading

  78,222     96,266     147,582    65,051 

Derivatives assets designated as hedging instruments

       3,239 

Available-for-sale financial assets

   4,166,384     2,420,241     2,514,924    1,978,115 

Held-to-maturity financial assets

   3,834     17,093     2,470    5,211 

Loans and receivables

   21,226,369     19,380,295     19,277,709    21,268,107 
  

 

   

 

   

 

   

 

 
      25,474,809     21,913,895        21,942,685    23,321,693 
  

 

   

 

   

 

   

 

 

The Company applies fair value hedge which uses commodity futures as hedging instrument in order to hedge the risk of changes in fair value of product prices regarding fixed price sales or purchase commitments. Also, the Company applies cash flow hedge which uses currency swap as hedging instrument in order to hedge the risk of changes in cash flow from borrowings due to foreign currency fluctuations.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

2) Financial liabilities as of December 31, 20132016 and 20142017 are as follows:

 

    2013   2014 
   (in millions of Won) 

Financial liabilities at fair value through profit or loss

    

Derivatives liabilities held for trading

  357,466     149,072  

Financial liabilities evaluated as amortized cost

    

Trade accounts and notes payable

   4,231,881     4,039,255  

Borrowings

   26,246,605     27,428,257  

Financial guarantee liabilities

   38,459     53,660  

Others

   2,253,989     2,101,354  
  

 

 

   

 

 

 
   32,770,934     33,622,526  
  

 

 

   

 

 

 
      33,128,400     33,771,598  
  

 

 

   

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

   2016   2017 
   (in millions of Won) 

Financial liabilities at fair value through profit or loss

 

  

Derivatives liabilities held for trading

  122,896    142,280 

Derivatives liabilities designated as hedging instruments

       13,230 

Financial liabilities measured at amortized cost

    

Trade accounts and notes payable

   4,117,798    3,477,678 

Borrowings

   22,704,998    21,063,657 

Financial guarantee liabilities

   108,161    88,407 

Others

   2,007,114    1,865,683 
  

 

 

   

 

 

 
      29,060,967    26,650,935 
  

 

 

   

 

 

 

3) Finance income and costs by category of financial instrument for the years ended December 31, 2012, 20132015, 2016 and 20142017 were as follows:

 December 31, 20122015

 

 Finance income and costs    Finance income and costs Other
comprehensive
loss
 
 Interest
income
(cost)
 Gain and
loss on
valuation
 Gain and
loss on
foreign

currency
 Gain and
loss on
disposal
 Impairment
loss
 Others Total Other
comprehensive
income (loss)
  Interest
income
(expense)
 Gain and
loss on
valuation
 Gain and
loss on
foreign
currency
 Gain and
loss on
disposal
 Impairment
loss
 Others Total 
 (in millions of Won)  (in millions of Won) 

Financial assets at fair value through profit or loss

 130    77,907        407,505            485,542      

Derivatives assets

   129,949     357,715        487,664    

Available-for-sale financial assets

  1,046            75,809    (224,171  124,475    (22,841  (81,471 1,956        138,782  (142,781 183,712  181,669  (187,854

Held-to-maturity financial assets

  1,664            (224      79    1,519       456              (688 (232   

Loans and receivables

      275,967        (414,421  (33,786      (406  (172,646     207,781     283,030  (15,406    (217 475,188    

Financial liabilities at fair value through profit or loss

      (143,754      (308,350          (452,104    

Financial liabilities at amortized cost

  (871,457          1,204,286            (72,874  259,955      

Derivatives liabilities

    (46,748    (334,340       (381,088   

Financial liabilities measured at amortized cost

 (788,772    (665,583       (138,827 (1,593,182   
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
 (592,650  (65,847  789,865    140,954    (224,171  51,274    99,425    (81,471     (578,579 83,201  (382,553 146,751  (142,781 43,980  (829,981 (187,854
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

December 31, 20132016

 

 Finance income and costs    Finance income and costs   
 Interest
income
(cost)
 Gain and
loss on
valuation
 Gain and
loss on
foreign

currency
 Gain and
loss on
disposal
 Impairment
loss
 Others Total Other
comprehensive

income (loss)
  Interest
income
(expense)
 Gain and
loss on
valuation
 Gain and
loss on
foreign
currency
 Gain and
loss on
disposal
 Impairment
loss
 Others Total Other
comprehensive
income
 
 (in millions of Won)  (in millions of Won) 

Financial assets at fair value through profit or loss

  549    67,951        348,126            416,626      

Derivatives assets

   57,411     310,625        368,036    

Available-for-sale financial assets

  4,010            101,842    (280,237  59,181    (115,204  412,346   431        127,524  (248,404 41,000  (79,449 310,608 

Held-to-maturity financial assets

  480                    84    564       266              38  304    

Loans and receivables

      255,359        (49,541  (20,009      (145  185,664       181,778     140,751  (17,854    (172 304,503    

Financial liabilities at fair value through profit or loss

      (287,864      (264,739          (552,603    

Financial liabilities at amortized cost

  (657,681          285,922            (11,703  (383,462    

Derivatives liabilities

    (72,976    (332,415       (405,391   

Financial liabilities measured at amortized cost

 (658,726    (283,059 (61    (28,367 (970,213   
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
  (397,283  (219,913  236,381        165,220    (280,237  47,417    (448,415  412,346       (476,251 (15,565)  (142,308 87,819  (248,404 12,499  (782,210 310,608 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

ƒ December 31, 20142017

 

 Finance income and costs    Finance income and costs   
 Interest
income
(cost)
 Gain and
loss

on
valuation
 Gain and
loss on
foreign
currency
 Gain and
loss

on disposal
 Impairment
loss
 Others Total Other
comprehensive

income (loss)
  Interest
income
(expense)
 Gain and
loss on
valuation
 Gain and
loss on
foreign
currency
 Gain and
loss on
disposal
 Impairment
loss
 Others Total Other
comprehensive
loss
 
 (in millions of Won)  (in millions of Won) 

Financial assets at fair value through profit or loss

     72,466        256,941            329,407      

Financial assets held for trading

   16              16    

Derivatives assets

    (99,942    206,362        106,420  (143

Available-for-sale financial assets

  309            181,774    (369,723  47,825    (139,815  (333,891 60        418,789  (123,214 92,961  388,596  (31,389

Held-to-maturity financial assets

  260                    (244  16       236              7  243    

Loans and receivables

      227,685        301,623    (20,912      (255  508,141       212,155     (607,837 (32,456    (304 (428,442   

Financial liabilities at fair value through profit or loss

      (98,003      (282,638          (380,641    

Financial liabilities at amortized cost

  (795,585      (288,513  (38,594      (19,641  (1,142,333    

Derivatives liabilities

    (61,809    (231,908       (293,717   

Financial liabilities measured at amortized cost

 (653,115    777,935        (9,546 115,274    
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
  (567,331  (25,537  13,110    96,571    (369,723  27,685    (825,225  (333,891     (440,664 (161,735 170,098  360,787  (123,214 83,118  (111,610 (31,532
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

(b) Credit risk

1) Credit risk exposure

The carrying amount of financial assets represents the Company’s maximum exposure to credit risk. The maximum exposure to credit risk as of December 31, 20132016 and 20142017 are as follows:

 

  2013   2014   2016   2017 
  (in millions of Won)   (in millions of Won) 

Cash and cash equivalents

  4,208,562     3,811,202    2,447,619    2,612,530 

Financial assets at fair value through profit or loss

   78,222     96,266  

Financial assets held for trading

       1,970 

Derivative assets

   147,582    68,290 

Available-for-sale financial assets

   97,618     125,486     51,649    192,866 

Held-to-maturity financial assets

   3,834     17,093     2,470    5,211 

Loans and other receivables

   5,408,163     3,825,170     7,104,940    9,099,444 

Trade accounts and notes receivable, net

   11,512,644     11,664,587     9,674,026    8,824,563 

Long-term trade accounts and notes receivable, net

   97,000     79,336     51,124    731,570 
  

 

   

 

   

 

   

 

 
      21,406,043     19,619,140        19,479,410    21,536,444 
  

 

   

 

   

 

   

 

 

The Company provided financial guarantees for the repayment of loans of associates, joint ventures and third parties. As of December 31, 20132016 and 2014,2017, the maximum exposure to credit risk related to the financial guarantees amounted to4,520,0522,995,544 million and4,780,7003,135,084 million, respectively.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

2) Impairment losses on financial assets

 Allowance for doubtful accounts as of December 31, 20132016 and 20142017 are as follows:

 

  2013   2014   2016   2017 
  (in millions of Won)   (in millions of Won) 

Trade accounts and notes receivable

  439,073     605,470    558,125    634,129 

Other accounts receivable

   81,470     94,579     203,346    187,706 

Loans

   127,990     234,107     210,346    258,957 

Other assets

   13,118     19,997     5,954    13,672 
  

 

   

 

   

 

   

 

 
      661,651     954,153        977,771    1,094,464 
  

 

   

 

   

 

   

 

 

Impairment losses on financial assets for the years ended December 31, 20132016 and 20142017 were as follows:

 

    2013  2014 
   (in millions of Won) 

Bad debt expenses on trade receivables

  90,119    108,933  

Impairment of available-for-sale financial assets

   280,237    369,723  

Other bad debt expenses(*1)

   111,065    96,373  

Impairment of held-to-maturity financial assets

       319  

Less: Recovery of impairment of held-to-maturity financial assets

   (84  (75
  

 

 

  

 

 

 
      481,337    575,273  
  

 

 

  

 

 

 
   2016  2017 
   (in millions of Won) 

Bad debt expenses on trade accounts and notes receivable

  165,150   173,694 

Other bad debt expenses (*1)

   50,225   100,920 

Impairment loss onavailable-for-sale financial assets

   248,404   123,214 

Less: Recovery of allowance for other bad debt accounts

   (12,658  (2,743

Less: Recovery of impairment loss onheld-to-maturity financial assets

   (38  (20
  

 

 

  

 

 

 
      451,083   395,065 
  

 

 

  

 

 

 

 

(*1)Other bad debt expenses are mainly related to other receivables and loans.

ƒ The aging and impairment losses of trade accounts and notes receivable as of December 31, 20132016 and 20142017 are as follows:

 

  2013   2014  ��2016   2017 
  Trade accounts and
notes receivable
   Impairment   Trade accounts and
notes receivable
   Impairment   Trade accounts and
notes receivable
   Impairment   Trade accounts and
notes receivable
   Impairment 
  (in millions of Won)   (in millions of Won) 

Not due

  8,485,935     48,147     8,599,898     53,093    7,963,491    62,511    7,736,092    65,314 

Over due less than 1 month

   1,849,829     12,675     1,867,838     7,171     790,042    27,482    445,390    12,546 

1 month – 3 months

   239,498     3,124     273,981     3,323     205,394    8,955    170,682    742 

3 months – 12 months

   503,171     10,681     201,213     16,893     189,605    26,814    384,313    21,030 

Over 12 months

   970,284     364,446     1,406,463     524,990     1,134,743    432,363    1,453,785    534,497 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 
      12,048,717     439,073     12,349,393     605,470        10,283,275    558,125    10,190,262    634,129 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

The aging and impairment losses of loans and other receivables as of December 31, 20132016 and 20142017 are as follows:

 

  2013   2014   2016   2017 
  Loans and other
receivables
   Impairment   Loans and other
receivables
   Impairment   Other
receivables
   Impairment   Other
receivables
   Impairment 
  (in millions of Won)   (in millions of Won) 

Not due

   5,186,745     11,176     3,523,546     97,043    1,641,924    23,958    1,888,726    9,672 

Over due less than 1 month

   28,501     19,138     28,806     136     197,772    75,207    235,559    35,539 

1 month – 3 months

   13,293     30     97,165     19,571     27,525    1,189    69,372    54,335 

3 months – 12 months

   92,022     820     77,119     7,264     82,337    20,300    96,942    64,467 

Over 12 months

   310,180     191,414     447,217     224,669  

over 12 months

   357,401    298,992    365,202    296,322 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 
   5,630,741     222,578     4,173,853     348,683        2,306,959    419,646    2,655,801    460,335 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

Changes in the allowance for doubtful accounts for the years ended December 31, 20132015, 2016 and 20142017 were as follows:

 

  2012 2013 2014   2015 2016 2017 
  (in millions of Won)   (in millions of Won) 

Beginning

  406,721    474,877    661,651    954,153  999,678  977,771 

Bad debt expenses

   79,258    90,119    108,933     189,616  165,150  173,694 

Other bad debt expenses

   44,115    111,065    96,373     147,619  37,567  98,177 

Others

   (55,217  (14,410  87,196  

Others (*1)

   (291,710 (224,624 (155,178
  

 

  

 

  

 

   

 

  

 

  

 

 

Ending

      474,877    661,651    954,153        999,678  977,771  1,094,464 
  

 

  

 

  

 

   

 

  

 

  

 

 

(*1)Others for the year ended December 31, 2015 included a decrease of199,003 million due to exclusion of POSCO PLANTEC Co., Ltd. from consolidation. Others for years ended December 31, 2016 and 2017, included decreases mainly due towrite-off amounting to216,657 million and119,964 million, respectively.

(c) Liquidity risk

1) Contractual maturities fornon-derivative financial liabilities, including estimated interest, are as follows:

 

  Book value   Contractual
cash flow
   Within
1 year
   1 year -
5 years
   After
5 years
   Book value   Contractual
cash flow
   Within
1 year
   1 year -
5 years
   After
5 years
 
  (in millions of Won)   (in millions of Won) 

Trade accounts and notes payable

  4,039,255     4,039,255     3,950,786     88,469         3,477,678    3,478,992    3,466,001    12,991     

Borrowings

   21,063,657    22,928,112    12,093,516    9,200,416    1,634,180 

Financial guarantee liabilities (*1)

   53,660     4,780,700     4,780,700               88,407    3,135,084    3,135,084         

Other financial liabilities

   2,101,354     2,101,354     1,931,368     169,986          1,865,683    1,874,667    1,721,004    153,663     

Borrowings

   27,428,257     30,185,854     13,231,111     11,066,493     5,888,250  
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 
      33,622,526     41,107,163     23,893,965     11,324,948     5,888,250        26,495,425    31,416,855    20,415,605    9,367,070    1,634,180 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

 

 

(*1)For issued financial guarantee contracts, the maximum amount of the guarantee is allocated to the earliest period in which the guarantee could be called.

2) The maturity analysis of derivative financial liabilities is as follows:

 

  Within 1 year   1 year- 
5 years
   After
5 years
   Total   Within 1 year   1 year -
5 years
   Total 
  (in millions of Won)   (in millions of Won) 

Currency forward

  29,080     13,115          42,195    9,744    300    10,044 

Currency futures

   54,102               54,102     9,632    74,834    84,466 

Currency swaps

        48,581     3,230     51,811     25,553    10,504    36,057 

Interest swaps

   349               349     153        153 

Other forwards

   615               615     24,790        24,790 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

 
      84,146     61,696     3,230     149,072        69,872    85,638    155,510 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

(d) Currency risk

1) The Company has exposure to the risk that the fair value or future cash flows of a financial instrument will fluctuate because of the changes in foreign exchange rates. The exposure to currency risk as of December 31, 20132016 and 20142017 are as follows:

 

    2013   2014 
   Assets   Liabilities   Assets   Liabilities 
   (in millions of Won) 

USD

      3,929,623     8,953,287     4,771,164     8,328,804  

EUR

   365,021     408,542     387,102     683,685  

JPY

   482,691     1,727,946     185,891     1,145,643  

Others

   372,715     212,287     140,699     45,414  

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

   2016   2017 
   Assets   Liabilities   Assets   Liabilities 
   (in millions of Won) 

USD

      5,007,649    6,636,065    4,215,151    5,940,380 

EUR

   463,110    550,235    552,630    454,072 

JPY

   45,975    821,403    165,356    709,318 

Others

   219,444    286,112    220,723    117,632 

2) As of December 31, 20132016 and 2014,2017, provided that functional currency against foreign currencies other than functional currency hypothetically strengthens or weakens by 10%, the changes in gain or loss during the years ended December 31, 20132016 and 20142017 were as follows:

 

  2013   2014   2016   2017 
  10% increase 10% decrease   10% increase 10% decrease   10% increase 10% decrease   10% increase 10% decrease 
  (in millions of Won)   (in millions of Won) 

USD

   (502,366  502,366     (355,764  355,764        (162,842 162,842    (172,523 172,523 

EUR

   (4,352  4,352     (29,658  29,658     (8,713 8,713    9,856  (9,856

JPY

   (124,526  124,526     (95,975  95,975     (77,543 77,543    (54,396 54,396 

(e) Interest rate risk

1) The carrying amount of interest-bearing financial instruments as of December 31, 20132016 and 20142017 are as follows:

 

  2013 2014   2016 2017 
  (in millions of Won)   (in millions of Won) 

Fixed rate

      

Financial assets

  8,195,153    6,250,418    8,650,483  10,943,300 

Financial liabilities

   (15,633,891  (17,258,183   (10,794,724 (11,179,635
  

 

  

 

   

 

  

 

 
   (7,438,738  (11,007,765   (2,144,241 (236,335
  

 

  

 

   

 

  

 

 

Variable rate

      

Financial liabilities

   (10,612,712)    (10,170,074      (12,024,683)  (9,977,040
  

 

  

 

 

2) Sensitivity analysis on the fair value of financial instruments with fixed interest rate

The Company does not account for any fixed rate financial assets and liabilities at fair value through profit or loss, and the Company does not designate derivatives (interest rate swaps) as hedging instruments under a fair value hedge accounting model. Therefore a change in interest rates at the reporting date would not affect profit or loss.

3) Sensitivity analysis on the fair valuecash flows of financial instruments with variable interest rate

As of December 31, 20132016 and 2014,2017, provided that other factors remain the same and the interest rate of borrowings with floating rates increases or decreases by 1%, the changes in interest expense for the years ended December 31, 20132016 and 20142017 were as follows:

 

    2013   2014 
   1% increase  1% decrease   1% increase  1% decrease 
   (in millions of Won) 

Variable rate financial instruments

  (106,127  106,127     (101,701  101,701  
   2016   2017 
   1% increase   1% decrease   1% increase  1% decrease 
   (in millions of Won) 

Variable rate financial instruments

      (120,247)    120,247    (99,770  99,770 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

(f) Fair value

1) Fair value and book value

The carrying amount and the fair value of financial instruments as of December 31, 20132016 and 20142017 are as follows:

 

  2013   2014   2016   2017 
  Book value   Fair value   Book value   Fair value   Book value   Fair value   Book value   Fair value 
  (in millions of Won)   (in millions of Won) 

Assets measured at fair value

        

Financial assets measured at fair value

        

Available-for-sale financial assets(*1)

  3,560,515     3,560,515     1,963,289     1,963,289    2,139,687    2,139,687    1,506,893    1,506,893 

Derivatives assets held for trading(*2)

   78,222     78,222     96,266     96,266  

Financial assets held for trading

           1,970    1,970 

Derivatives assets

   147,582    147,582    68,290    68,290 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 
   3,638,737     3,638,737     2,059,555     2,059,555     2,287,269    2,287,269    1,577,153    1,577,153 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Assets measured amortized cost(*3)

        

Financial assets measured at amortized cost (*2)

        

Cash and cash equivalents

   4,208,562     4,208,562     3,811,202     3,811,202     2,447,619    2,447,619    2,612,530    2,612,530 

Trade accounts and notes receivable, net

   11,609,644     11,609,644     11,743,923     11,743,923     9,725,150    9,725,150    9,556,133    9,556,133 

Loans and other receivables, net

   5,408,163     5,408,163     3,825,170     3,825,170     7,104,940    7,104,940    9,099,444    9,099,444 

Held-to-maturity financial assets

   3,834     3,834     17,093     17,093     2,470    2,470    5,211    5,211 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 
   21,230,203     21,230,203     19,397,388     19,397,388     19,280,179    19,280,179    21,273,318    21,273,318 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Liabilities measured at fair value

        

Derivatives liabilities held for trading(*2)

   357,466     357,466     149,072     149,072  

Financial liabilities measured at fair value

        

Derivatives liabilities

   122,896    122,896    155,510    155,510 

Liabilities measured amortized cost(*3)

        

Financial liabilities measured at amortized cost (*2)

        

Trade accounts and notes payable

   4,231,881     4,231,881     4,039,255     4,039,255     4,117,798    4,117,798    3,477,678    3,477,678 

Borrowings

   26,246,605     26,550,721     27,428,257     27,756,615     22,704,998    22,956,571    21,063,657    21,217,415 

Financial guarantee liabilities

   38,459     38,459     53,660     53,660     108,161    108,161    88,407    88,407 

Others

   2,253,989     2,253,989     2,101,354     2,101,354     2,007,114    2,007,114    1,865,683    1,865,683 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 
      32,770,934     33,075,050     33,622,526     33,950,884        28,938,071    29,189,644    26,495,425    26,649,183 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

 

(*1)The fair value of available-for-sale financial assets publicly traded is measured at the closing bid price quoted at the end of the reporting period. Meanwhile, the fair value of unquoted available-for-sale financial assets is calculated using the valuation results from an external pricing service in which weighted average cost of capital of evaluated companies is used as a discount rate. Available-for-sale financial assets which are not measured at fair value are excluded.not included.

 

(*2)The fair value of derivatives is measured using valuation models such as Black-Scholes model and others in which the market yields on government bonds are used as a discount rate.

(*3)The fair value of financial assets and liabilities measured at amortized cost is determined atmeasured using discounted cash flow method, and the present value of estimated future cash flows discounted at the current market interest rate. The fair value is mainly calculated for the disclosures in the notes.note. On the other hand, the Company has not performed fair value measurement for the financial assets and liabilities measured at amortized cost except borrowings which are classified as fair value hierarchy level 2 since their carrying amounts approximate fair value.

2) Interest rates used for determiningThe fair values of financial assets and financial liabilities by fair value

Interest rates used to discount estimated cash flows hierarchy as of December 31, 20132016 and 20142017 are as follows:

 

   2013   2014 

Interest rate of borrowings (%)

   0.76~5.18     0.22~4.92  
December 31, 2016

   Level 1   Level 2   Level 3   Total 
   (in millions of Won) 

Financial assets

        

Available-for-sale financial assets

      1,800,943        338,744    2,139,687 

Derivatives assets

       137,236    10,346    147,582 
  

 

 

   

 

 

   

 

 

   

 

 

 
   1,800,943    137,236    349,090    2,287,269 
  

 

 

   

 

 

   

 

 

   

 

 

 

Financial liabilities

        

Derivatives liabilities

      122,896        122,896 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

3) The fair value hierarchy

 

 The fair values of financial instruments byDecember 31, 2017

   Level 1   Level 2   Level 3   Total 
   (in millions of Won) 

Financial assets

        

Available-for-sale financial assets

      1,137,662    17,812    351,419    1,506,893 

Financial assets held for trading

       1,970        1,970 

Derivatives assets

       68,290        68,290 
  

 

 

   

 

 

   

 

 

   

 

 

 
   1,137,662    88,072    351,419    1,577,153 
  

 

 

   

 

 

   

 

 

   

 

 

 

Financial liabilities

        

Derivatives liabilities

      155,510        155,510 

3) Financial assets and financial liabilities classified as fair value hierarchy level 2

Fair values of derivatives are measured using the derivatives instrument valuation model such as discounted cash flow method and others. Inputs of the financial instrument valuation model include forward rate, interest rate and others. It may change depending on the type of derivatives and the nature of the underlying assets.

4) Financial assets and financial liabilities classified as fair value hierarchy level 3

Value measurement method and significant but not observable inputs for the financial assets classified as fair value hierarchy level 3 as of December 31, 2013 and 20142017 are as follows:

a. December 31, 2013

   Level 1   Level 2   Level 3   Total 
   (in millions of Won) 

Financial assets

        

Available-for-sale financial assets

      2,816,484          744,031     3,560,515  

Derivatives assets held for trading

        78,222          78,222  
  

 

 

   

 

 

   

 

 

   

 

 

 
   2,816,484     78,222     744,031     3,638,737  
  

 

 

   

 

 

   

 

 

   

 

 

 

Financial liabilities

        

Derivatives liabilities held for trading

       357,466          357,466  
  

 

 

   

 

 

   

 

 

   

 

 

 

b. December 31, 2014

    Level 1   Level 2   Level 3   Total 
   (in millions of Won) 

Financial assets

        

Available-for-sale financial assets

      1,808,384          154,905     1,963,289  

Derivatives assets held for trading

        96,266          96,266  
  

 

 

   

 

 

   

 

 

   

 

 

 
   1,808,384     96,266     154,905     2,059,555  
  

 

 

   

 

 

   

 

 

   

 

 

 

Financial liabilities

        

Derivatives liabilities held for trading

       149,072          149,072  
  

 

 

   

 

 

   

 

 

   

 

 

 
Fair value

Valuation technique

InputsRange of inputs

Effect on fair value
assessment with
unobservable input

(in millions of Won)

Available-for-sale financial assets

  235,803Discounted cash flowsGrowth rate0% ~ 2.0%As growth rate increases, fair value increases
Discount rate0.5% ~ 11.9%As discount rate increases, fair value decreases
14,775Market comparable companiesPrice multiple1.085 ~ 5.245As price multiple increases, fair value increases
100,841Asset value approach

 

 Sensitivity analysis of financial assets and financial liabilities classified as Level 3 of fair value hierarchy

If other inputs remain constant as of December 31, 2017 and one of the significant but not observable input is changed, the effect on fair value measurement is as follows:

   

Input variable

  Favorable
changes
   Unfavorable
changes
 
   (in millions of Won) 

Available-for-sale financial assets

  Fluctuation 0.5% of growth rate  5,713    4,641 
  Fluctuation 0.5% of discount rate     27,238    22,724 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

Changes in fair value of financial instrumentsassets and financial liabilities classified as Level 3 for the years ended December 31, 20132016 and 20142017 were as follows:

 

   2013  2014 
   (in millions of Won) 

Beginning

  758,673    744,031  

Valuation

   (15,423  (60,445

Acquisition and others (*1)

   19,766    65,232  

Disposal and others (*2)

   (18,985  (593,913
  

 

 

  

 

 

 

Ending

      744,031    154,905  
  

 

 

  

 

 

 

   2016  2017 
   (in millions of Won) 

Beginning

  466,407   349,090 

Acquisition and others

   47,493   129,766 

Gain (loss) on valuations of derivatives

   (59,829  (10,346

Other comprehensive income (loss)

   (38,731  35,126 

Impairment

   (19,111  (107,934

Disposal and others

   (47,139  (44,283
  

 

 

  

 

 

 

Ending

      349,090   351,419 
  

 

 

  

 

 

 

 

(*1)24.Included transferred amount due to change in fair value hierarchy.

(*2)Included580,062 million transferred to assets held for sale for the year ended December 31, 2014.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

(g) Offsetting financial assets and financial liabilities

As of December 31, 2013 and 2014, financial assets and financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements are as follows:

1) December 31, 2013

   Gross amounts
of recognized
financial
instruments
   Gross
amounts of
recognized
financial
instruments
set off in the
statement of
financial
position
   Net
amounts of
financial
instruments
presented in
the statement
of financial
position
   Related amounts not set off
in the statement of financial
position
  Net
amount
 
        Financial
instruments
  Cash collateral
received or
pledged
  
   (in millions of Won) 

Financial assets

  

Trade accounts and notes receivable

   73,956          73,956     (73,956        

Derivatives

   64,408          64,408     (64,408        
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Total

   138,364          138,364     (138,364        
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Financial liabilities

          

Short-term borrowings

   73,956          73,956     (73,956        

Derivatives

   108,405          108,405     (64,408  (3,410  40,587  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Total

      182,361          182,361     (138,364  (3,410  40,587  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

2) December 31, 2014

   Gross amounts
of recognized
financial
instruments
   Gross
amounts of
recognized
financial
instruments
set off in the
statement of
financial
position
   Net
amounts of
financial
instruments
presented in
the statement
of financial
position
   Related amounts not set off
in the statement of financial
position
  Net
amount
 
        Financial
instruments
  Cash collateral
received or
pledged
  
   (in millions of Won) 

Financial assets

        

Trade accounts and notes receivable

  106,985          106,985     (106,985        

Derivatives (*1)

   79,286          79,286     (79,286        
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Total

   186,271          186,271     (186,271        
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Financial liabilities

        

Short-term borrowings

   106,985          106,985     (106,985        

Derivatives (*1)

   128,980          128,980     (79,286  (6,912  42,782  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Total

      235,965          235,965     (186,271  (6,912  42,782  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

(*1)Some of the derivative contracts are made under International Swaps and Derivatives Association (ISDA) master netting agreements. In general, under such agreements the amounts owed by each counter party on a single day in respect of all transactions outstanding in the same currency are aggregated into a single net amount that is payable by one party to the other. In certain circumstances (i.e. when a default occurs), all standing transactions under the agreement are terminated, the termination value is assessed and only a single amount is payable in settlement of all transactions.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

24.Share Capital and Capital Surplus

(a) Share capital as of December 31, 20132016 and 20142017 are as follows:

 

  2013   2014   2016   2017 
  (Share, in Won)   (Share, in Won) 

Authorized shares

   200,000,000     200,000,000     200,000,000    200,000,000 

Par value

  5,000     5,000    5,000    5,000 

Issued shares (*1)

   87,186,835     87,186,835     87,186,835    87,186,835 

Shared capital (*2)

      482,403,125,000     482,403,125,000  

Shared capital(*2)

      482,403,125,000    482,403,125,000 

 

(*1)As of December 31, 2014,2017, total shares of ADRs of 51,622,46036,840,292 outstanding in overseas stock market are equivalent to 12,905,6159,210,073 of common stock.

 

(*2)As of December 31, 2014,2017, the difference between the ending balance of common stock and the par value of issued common stock is46,469 million due to retirement of 9,293,790 treasury stocks.

(b) The changes in issued common stock for the years ended December 31, 20132016 and 20142017 were as follows:

 

  2013   2014   2016   2017 
  Issued
shares
   Treasury
shares
 Number of
outstanding
shares
   Issued
shares
   Treasury
shares
 Number of
outstanding
shares
   Issued
shares
   Treasury
shares
 Number of
outstanding
shares
   Issued
shares
   Treasury
shares
 Number of
outstanding
shares
 
  (share)   (share) 

Beginning

   87,186,835     (9,942,391  77,244,444     87,186,835     (7,403,211  79,783,624     87,186,835    (7,191,187 79,995,648    87,186,835    (7,189,170 79,997,665 

Disposal of treasury shares

        2,539,180    2,539,180          209,404    209,404         2,017  2,017        1,939  1,939 

Ending

   87,186,835     (7,403,211  79,783,624     87,186,835     (7,193,807  79,993,028     87,186,835    (7,189,170 79,997,665    87,186,835    (7,187,231 79,999,604 

(c) Capital surplus as of December 31, 20132016 and 20142017 are as follows:

 

  2013 2014   2016   2017 
  (in millions of Won)   (in millions of Won) 

Share premium

          463,825    463,825    463,825    463,825 

Gain on disposal of treasury shares

   769,215    783,791     783,788    783,914 

Other capital deficit

   (154,774  (163,898   159,634    174,282 
  

 

  

 

   

 

   

 

 
      1,078,266    1,083,718        1,407,247    1,422,021 
  

 

  

 

   

 

   

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

(d) During the year ended December 31, 2017, POSCO ENERGY CO., LTD., a subsidiary of the Company, issued redeemable convertible preferred shares which are classified asnon-controlling interests in the consolidated financial statements. The details of redeemable convertible preferred shares as of December 31, 2017 are as follows:

 

25.

Redeemable Convertible Preferred Shares

(Share, in Won)

Issue date

February 25, 2017

Number of shares issued

8,643,193 shares

Price per share

28,346

Voting rights

No voting rights for 3 years from issue date

Dividend rights

Comparative,Non-participating

· Minimum dividend rate for 1~3 years: 3.98%

· Minimum dividend rate after 4 years: Comparative rate + Issuance spread + 2%

Details about Redemption

Issuer can demand redemption of all or part of redeemable convertible preferred shares every year after the issue date, for a period of 10 years from the issue date.

Details about Conversion

Stockholders of redeemable convertible preferred shares can convert them to common shares from 3 years after the issue date to the end of the redemption period (10 years). Conversion price is equal to issue price, which could be adjusted according to anti-dilution clause.

Redeemable convertible preferred stocks are classified asnon-controlling interests in the consolidated financial statements since the issuer has a redemption right and can control the circumstances in which the entity can settle with a variable quantity of equity instruments.

25.Hybrid Bonds

(a) Hybrid bonds classified as equity as of December 31, 20132016 and 20142017 are as follows:

 

   Date of
issue
   Date of maturity   Interest rate (%)   2013  2014 
   (in millions of Won) 

Hybrid bond 1-1 (*1)

   2013-06-13     2043-06-13     4.30    800,000    800,000  

Hybrid bond 1-2 (*1)

   2013-06-13     2043-06-13     4.60     200,000    200,000  

Issuance cost

         (3,081  (3,081
        

 

 

  

 

 

 
            996,919    996,919  
        

 

 

  

 

 

 
   Date of
issue
   Date of maturity   Interest rate (%)   2016  2017 
   (in millions of Won) 

Hybrid bond1-1(*1)

   2013-06-13    2043-06-13    4.30   800,000   800,000 

Hybrid bond1-2(*1)

   2013-06-13    2043-06-13    4.60    200,000   200,000 

Issuance cost

         (3,081  (3,081
        

 

 

  

 

 

 
            996,919   996,919 
        

 

 

  

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

(*1)Details of hybrid bonds as of December 31, 20142017 are as follows:

 

  

Hybrid bond 1-1

  

Hybrid bond 1-2

  

Hybrid bond1-1

  

Hybrid bond1-2

  (in millions of Won)  (in millions of Won)

Issue price

  800,000  200,000  800,000  200,000

Maturity date

  

30 years (The Company has a right to extend the maturity date)

 

Issue date ~ 2018-06-12 : 4.3%

 

reset every 5 years as follows;

  

30 years (The Company has a right to extend the maturity date)

 

Issue date ~ 2023-06-12 : 4.6%

 

reset every 10 years as follows;

  30 years (POSCO has a right to extend the maturity date)

Interest rate

  

· After 5 years : return on government bond (5 years) + 1.3%

. After 10 years : additionally +0.25% according to Step-up clauses

· After 25 years : additionally +0.75%

  

· After 10 years : return on government bond (10 years) + 1.4%

· After 10 years : additionally +0.25% according to Step-up clauses

· After 30 years : additionally +0.75%

  Issue date ~2018-06-12: 4.3%
Reset every 5 years as follows;
· After 5 years: return on government bond (5 years) + 1.3%
· After 10 years: additionally +0.25% according toStep-up clauses
· After 25 years: additionally +0.75%
  Issue date ~2023-06-12: 4.6%
Reset every 10 years as follows;
· After 10 years: return on government bond (10 years) + 1.4%
· After 10 years: additionally +0.25% according toStep-up clauses
· After 30 years: additionally +0.75%

Interest payments

  Quarterly  Quarterly

condition

  

(Optional deferral of interest payment is available to the Company)

 

The Company can call the hybrid bond at year 5 and interest payment date afterwards

  

(Optional deferral of interest payment is available to the Company)

 

The Company can call the hybrid bond at year 10 and interest payment date afterwards

Interest payments condition

  Quarterly (Optional deferral of interest payment is available to POSCO)

Others

  

(Optional deferral of interest payment is available to the Company)

 

The Company can call the hybrid bond at year 5 and interest payment date afterwards

  

(Optional deferral of interest payment is available to the Company)

 

The Company can call the hybrid bond at year 10 and interest payment date afterwards

  POSCO can call the hybrid bond at year 5 and interest payment date afterwards  POSCO can call the hybrid bond at year 10 and interest payment date afterwards

The Company holds the right to extend the maturity dates of the hybrid bonds and to defer interest payments for the hybrid bonds. If interest payments for the hybrid bonds are deferred, the Company cannot declare or pay dividends attributable to common stock. Since the Company has an unconditional right to avoid delivering cash or another financial asset to settle a contractual obligation, the hybrid bonds have been classified as equity instruments. The hybrid bond holders’ preference in the event of liquidation is higher than the common stock holders, but lower than other creditors. The interest accumulated but not paid on the hybrid bonds as of December 31, 20142017 amounts to2,3012,389 million.

(b) POSCO ENERGY Co.CO., Ltd.LTD., a subsidiary of the Company, issued hybrid bonds, which are classified asnon-controlling interests in the consolidated financial statements. Hybrid bonds as of December 31, 20132016 and 20142017 are as follows:

 

   Date of issue   Date of maturity   Interest rate (%)   2013  2014 
   (in millions of Won) 

Hybrid bond 1-1 (*1)

   2013-08-29     2043-08-29     4.66        165,000    165,000  

Hybrid bond 1-2 (*1)

   2013-08-29     2043-08-29     4.72     165,000    165,000  

Hybrid bond 1-3 (*1)

   2013-08-29     2043-08-29     4.72     30,000    30,000  

Hybrid bond 1-4 (*1)

   2013-08-29     2043-08-29     5.21     140,000    140,000  

Issuance cost

         (1,532  (1,532
        

 

 

  

 

 

 
        498,468    498,468  
        

 

 

  

 

 

 
   Date of issue   Date of maturity   Interest rate (%)   2016  2017 
   (in millions of Won) 

Hybrid bond1-1(*1)

   2013-08-29    2043-08-29    4.66   165,000   165,000 

Hybrid bond1-2(*1)

   2013-08-29    2043-08-29    4.72    165,000   165,000 

Hybrid bond1-3(*1)

   2013-08-29    2043-08-29    4.72    30,000   30,000 

Hybrid bond1-4(*1)

   2013-08-29    2043-08-29    5.21    140,000   140,000 

Issuance cost

         (1,532  (1,532
        

 

 

  

 

 

 
            498,468   498,468 
        

 

 

  

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

 

 

(*1)Details of issuance of hybrid bonds of POSCO ENERGY Co.CO., Ltd .asLTD. as of December 31, 20142017 are as follows:

 

  

Hybrid bond 1-1

  

Hybrid bond 1-2 and 1-3

  

Hybrid bond 1-4

 

Hybrid bond1-1

 

Hybrid bond1-2 and1-3

 

Hybrid bond1-4

  (in millions of Won) (in millions of Won)

Issue price

  165,000  195,000  140,000 165,000 195,000 140,000

Maturity date

  

30 years (The Company has a right to extend the maturity date)

 

Issue date ~ 2018-08-29 : 4.66% reset every 5 years as follows;

· After 5 years : return on

  

30 years (The Company has a right to extend the maturity date)

 

Issue date ~ 2018-08-29 : 4.72% reset every 5 years as follows;

· After 5 years : return on

  

30 years (The Company has a right to extend the maturity date)

 

Issue date ~ 2018-08-29 : 5.21% reset every 5 years as follows;

· After 5 years : return on

 30 years (The Company has a right to extend the maturity date)

Interest rate

  

government bond (5 years) + 1.39%

· After 10 years : additionally +0.25% according to Step-up clauses

· After 30 years : additionally +0.75%

 

Quarterly

  

government bond (5 years) + 1.45%

· After 10 years : additionally +0.25% according to Step-up clauses

· After 30 years : additionally +0.75%

 

Quarterly

  

government bond (5 years) + 1.55%

· After 10 years : additionally +0.25% according to Step-up clauses

· After 30 years : additionally +0.75%

 

Quarterly

 Issue date ~ 2018-08-29: 4.66% Reset every 5 years as follows; Issue date ~ 2018-08-29: 4.72% Reset every 5 years as follows; Issue date ~ 2023-08-29: 5.21% Reset every 10 years as follows;
 

· After 5 years: return on government bond (5 years) + 1.39%· After 10 years: additionally +0.25% according toStep-up clauses · After 25 years: additionally +0.75%

 

· After 5 years: return on government bond (5 years) + 1.45%· After 10 years: additionally +0.25% according toStep-up clauses · After 25 years: additionally +0.75%

 

· After 10 years: return on government bond (10 years) + 1.55%· After 10 years: additionally +0.25% according toStep-up clauses · After 30 years: additionally +0.75%

Interest payments condition

  (Optional deferral of interest payment is available to the Company)  (Optional deferral of interest payment is available to the Company)  (Optional deferral of interest payment is available to the Company) Quarterly (Optional deferral of interest payment is available to the Company but for hybrid bond1-3, the Company pays every quarter(3/30, 6/30, 9/30, 12/30))

Others

  The Company can call the hybrid bond at year 5 and interest payment date afterwards  The Company can call the hybrid bond at year 5 and interest payment date afterwards  The Company can call the hybrid bond at year 5 and interest payment date afterwards The issuer can call the hybrid bond at year 5 and interest payment date afterwards The issuer can call the hybrid bond at year 10 and interest payment date afterwards

POSCO ENERGY CO., LTD., a subsidiary, holds the right to extend the maturity dates of the hybrid bonds and to defer interest payments for the hybrid bonds. If interest payments for the hybrid bonds are deferred, POSCO ENERGY CO., LTD. cannot declare or pay dividends attributable to common stock. Since the subsidiary has an unconditional right to avoid delivering cash or another financial asset to settle a contractual obligation, the hybrid bonds have been classified as equity (non-controlling interests) in the Company’s consolidated financial statements. The hybrid bond holders’ preference in the event of liquidation is higher than the common stock holders, but lower than other creditors. The interest accumulated but not paid on the hybrid bonds as of December 31, 20142017 amounts to2,0632,004 million.

 

26.Reserves

(a) Reserves as of December 31, 20132016 and 20142017 are as follows:

 

    2013  2014 
   (in millions of Won) 

Accumulated comprehensive loss of investments in associates and joint ventures

  (295,946  (344,942

Changes in the unrealized fair value of available-for-sale investments

   480,409    144,783  

Currency translation differences

   (189,085  (187,740

Others

   (18,454  (20,874
  

 

 

  

 

 

 
  (23,076  (408,773
  

 

 

  

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

   2016  2017 
   (in millions of Won) 

Accumulated comprehensive loss of investments in associates and joint ventures

  (301,734  (516,528

Changes in the unrealized fair value ofavailable-for-sale investments

   276,143   230,190 

Currency translation differences

   (99,264  (372,166

Gain or losses on valuation of derivatives

      (136

Others

   (19,130  (23,916
  

 

 

  

 

 

 
  (143,985  (682,556
  

 

 

  

 

 

 

(b) Changes in the unrealized fair value ofavailable-for-sale investments for the years ended December 31, 20132016 and 20142017 were as follows:

 

  2013 2014   2016 2017 
  (in millions of Won)   (in millions of Won) 

Beginning balance

  67,956    480,409    (38,294 276,143 

Changes in the unrealized fair value of available-for-sale investments

   312,196    (411,671   218,542  183,761 

Reclassification to profit of loss upon disposal

   (73,848  (176,124

Impairment of avaible-for-sale investments

   170,892    267,920  

Reclassification to profit or loss upon disposal

   (88,781 (299,862

Impairment ofavailable-for-sale investments

   187,108  96,083 

Others

   3,213    (15,751   (2,432 (25,935
  

 

  

 

   

 

  

 

 

Ending balance

  480,409    144,783    276,143  230,190 
  

 

  

 

   

 

  

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

 

27.Treasury Shares

Based on the Board of Directors’ resolution, the Company holds treasury shares for business purposes including price stabilization. The changes in treasury shares for the years ended December 31, 20132016 and 20142017 were as follows:

 

  2013 2014   2016 2017 
  Number of shares Amount Number of shares Amount   Number of shares Amount Number of shares Amount 
  (shares, in millions of Won)   (shares, in millions of Won) 

Beginning

   9,942,391   2,391,406    7,403,211   1,579,124     7,191,187  1,533,898  7,189,170  1,533,468 

Disposal of treasury shares

   (2,539,180  (812,282  (209,404  (44,667   (2,017 (430 (1,939 (414
  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

 

Ending

   7,403,211   1,579,124    7,193,807   1,534,457     7,189,170  1,533,468  7,187,231  1,533,054 
  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

 

 

28.Revenue

Details of revenue for the years ended December 31, 2012, 20132015, 2016 and 20142017 were as follows:

 

    2012   2013   2014 
   (in millions of Won) 

Sales of goods

  55,123,774     50,921,090     53,636,957  

Service sales

   3,488,562     3,614,227     2,962,404  

Construction sales

   4,401,918     6,787,100     7,797,953  

Rental income

   32,056     24,735     18,876  

Others

   298,948     418,591     342,435  
  

 

 

   

 

 

   

 

 

 
      63,345,258     61,765,743     64,758,625  
  

 

 

   

 

 

   

 

 

 
   2015   2016   2017 
   (in millions of Won) 

Sale of goods

  47,018,466    43,683,169    51,357,709 

Services

   2,489,447    2,276,534    2,064,583 

Construction revenue

   8,546,454    6,497,723    6,299,483 

Rental income

   11,757    8,930    6,370 

Others

   456,144    473,415    458,722 
  

 

 

   

 

 

   

 

 

 
      58,522,268    52,939,771    60,186,867 
  

 

 

   

 

 

   

 

 

 

 

29.Construction Contracts

(a) ConstructionDetails ofin-progress construction contracts in progress as of December 31, 20132016 and 2014 were2017 are as follows:

 

    2013  2014 
   (in millions of Won) 

Aggregate amount of costs incurred

  9,738,267    10,972,880  

Add: Recognized profits

   844,097    617,771  

Less: Recognized losses

   (467,023  (449,227

Cumulative construction revenue

   10,115,341    11,141,424  

Less: Progress billing

   (9,325,078  (10,665,962

Foreign currency gains and losses

   (1,379  (5,721

Others

   (39,795  (55,312
  

 

 

  

 

 

 
  749,089    414,429  
  

 

 

  

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

   2016  2017 
   (in millions of Won) 

Aggregate amount of costs incurred

  22,012,241   21,404,321 

Add: Recognized profits

   1,429,555   1,524,208 

Less: Recognized losses

   (1,139,165  (718,593

Cumulative construction revenue

   22,302,631   22,209,936 

Less: Progress billing

   (22,483,968  (22,265,891

Others

   9,961   994 
  

 

 

  

 

 

 
  (171,376  (54,961
  

 

 

  

 

 

 

(b) Unbilled amountDetails of due from customers for contract work and due to customers for contract work related to construction as of December 31, 20132016 and 20142017 are as follows:

 

  2013 2014   2016 2017 
  (in millions of Won)   (in millions of Won) 

Unbilled due from customers for contract work

  1,555,907    1,406,678    860,287  728,007 

Due to customers for contract work

   (806,818  (992,249   (1,031,663 (782,968
  

 

  

 

   

 

  

 

 
  749,089    414,429    (171,376 (54,961
  

 

  

 

   

 

  

 

 

(c) When the outcome of a construction contract can be estimated reliably, contract revenue is recognized in profit or loss in proportion

POSCO and Subsidiaries

Notes to the stageConsolidated Financial Statements, Continued

As of completionDecember 31, 2015, 2016 and 2017

(c) Due to the factors causing the variation of costs for the contract. The Company estimates the stage of completion of the contract based on the proportion that contract costs incurred for work performed to date bear toyears ended December 31, 2016 and 2017, the estimated total contract costs.

Thecosts have changed. Details of changes in estimated total contract costs and the impact on profit before income taxes for the years ended December 31, 2016, 2017 and future periods are as follows:

   2016  2017 
   (in millions of Won) 

Changes in estimated total contract costs

  532,801   164,812 

Changes in profit before income taxes of construction contract:

   

- Current period

   (790,391  (69,656

- Future periods

   69,464   (6,041

The effect on the current and future profit is estimated based on the nature and characteristicscircumstances that have occurred from the commencement date of an individualthe contract historical coststo the end of similar projects, and current circumstances. Only thoseperiod. The estimation is evaluated for the total contract costs that reflectand expected total contract revenue as of the end of the period. Also, it may change during future periods.

(d) Uncertainty of estimates

1)Total contract revenues

Total contract revenues are measured based on contractual amount initially agreed. However, the contract revenues can increase due to additional contract work, performedclaims and incentive payments in the course of construction, or decrease due to penalty when the completion of contract is delayed due to the Company’s fault. Therefore, this measurement of contract revenues is affected by the uncertainty of the occurrence of future events.

2)Total contract costs

Construction revenues are included in costsrecognized based on the percentage of completion, which is measured on the basis of the gross amount incurred to date.

Total contract costs are estimated based on estimates of future material costs, labor costs, outsourcing cost and others. There is uncertainty in future estimates due to various internal and external factors such as fluctuation of market, the risk of business partner and the experience of project performance and others. The followingsignificant assumptions including uncertainty of the estimate of total contract costs are the key assumptions for the estimated contract cost.as follows:

 

   

Key assumptions for the estimationMethod of significant assumption

Material cost

  EstimationsAssumption based on recent purchasing contracts, market price and quoted market price

Labor cost

  EstimationsAssumption based on standard monthly and daily labor cost

Outsourcing cost

  EstimationsAssumption based on the historical costspast experience rate of similar projects,project and market price and quoted price

Management continually reviews all estimates involvedthe assumptions used in such construction contractsestimated contract costs at each reporting period end and adjusts them, asif necessary.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

30.Selling and Administrative Expenses

(a) Administrative expenses

Administrative expenses for the years ended December 31, 2012, 20132015, 2016 and 20142017 were as follows:

 

  2012   2013   2014   2015   2016   2017 
  (in millions of Won)   (in millions of Won) 

Wages and salaries

  694,682     754,819     781,433    810,851    769,589    774,900 

Expenses related to post-employment benefits

   61,261     67,482     66,744     87,293    200,956    78,654 

Other employee benefits

   170,734     165,751     174,131     193,967    176,794    159,920 

Travel

   52,817     53,003     50,257     48,426    40,828    39,790 

Depreciation and amortization

   218,747     228,496     273,220  

Depreciation

   105,470    103,442    97,261 

Amortization

   168,525    139,569    146,314 

Communication

   15,088     14,601     9,579     12,502    11,186    11,740 

Electricity expenses

   11,305     13,389     11,746     9,573    7,527    7,050 

Taxes and public dues

   59,664     55,177     55,647     74,315    78,895    72,826 

Rental

   93,268     110,191     137,366     119,836    82,005    69,976 

Repairs

   11,769     5,708     13,924     11,677    11,316    9,859 

Entertainment

   18,239     17,295     17,633     15,740    13,157    11,582 

Advertising

   55,777     105,663     104,485     90,698    86,141    119,724 

Research & development

   192,321     192,805     175,195     135,508    120,608    125,795 

Service fees

   264,439     240,034     215,974     218,751    201,129    193,387 

Supplies

   10,166     15,031     10,856  

Vehicles maintenance

   22,442     12,109     12,685     10,756    10,090    8,211 

Industry association fee

   11,487     11,924     11,856     12,603    13,468    10,140 

Training

   17,772     12,056     9,979  

Conference

   17,745     17,004     17,620     16,053    13,108    14,494 

Contribution to provisions

   13,148     19,075     16,056  

Bad debt allowance

   79,258     90,119     108,933  

Increase to provisions

   14,900    6,532    10,990 

Bad debt expenses

   189,616    165,150    173,694 

Others

   37,334     30,073     34,437     48,188    40,050    40,493 
  

 

   

 

   

 

   

 

   

 

   

 

 
  2,129,463     2,231,805     2,309,756        2,395,248    2,291,540    2,176,800 
  

 

   

 

   

 

   

 

   

 

   

 

 

(b) Selling expenses

Selling expenses for the years ended December 31, 2012, 20132015, 2016 and 20142017 were as follows:

 

  2012   2013   2014   2015   2016   2017 
  (in millions of Won)   (in millions of Won) 

Freight and custody expenses

  1,472,817     1,432,935     1,551,705    1,531,906    1,342,009    1,336,969 

Operating expenses for distribution center

   9,327     9,838     10,782     11,021    10,315    10,503 

Sales commissions

   74,308     73,922     66,359     80,165    94,377    115,925 

Sales advertising

   4,575     3,228     4,615     3,220    5,117    3,800 

Sales promotion

   17,525     27,129     25,777     22,443    10,670    12,414 

Sample

   7,489     4,751     3,477     2,576    2,335    1,989 

Sales insurance premium

   32,065     27,031     39,538     30,682    31,379    36,546 

Contract cost

   52,176     37,323     49,891     38,425    49,480    23,061 

Others

   8,406     15,963     7,974     8,518    8,004    16,070 
  

 

   

 

   

 

   

 

   

 

   

 

 
      1,678,688     1,632,120     1,760,118        1,728,956    1,553,686    1,557,277 
  

 

   

 

   

 

   

 

   

 

   

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

31.Research and Development Expenditures Recognized as Expenses

Research and development expenditures recognized as expenses for the years ended December 31, 2012, 20132015, 2016 and 20142017 were as follows:

 

  2012   2013   2014   2015   2016   2017 
  (in millions of Won)   (in millions of Won) 

Selling and administrative expenses

  192,321     192,805     175,195  

Administrative expenses

  135,508    120,608    125,795 

Cost of sales

   385,128     369,842     353,149     356,173    324,190    361,093 
  

 

   

 

   

 

   

 

   

 

   

 

 
      577,449     562,647     528,344        491,681    444,798    486,888 
  

 

   

 

   

 

   

 

   

 

   

 

 

 

32.Other Operating Income and Expenses

Details of other operating income and expenses for the years ended December 31, 2012, 20132015, 2016 and 20142017 were as follows:

 

   2012  2013  2014 
   (in millions of Won) 

Other operating income

    

Gains on disposals of assets held for sale

  193,333    101,611    48,232  

Gains on disposals of investments in associates

   39,441    7,668    41,258  

Gains on disposals of property, plant and equipment

   42,290    14,177    15,039  

Reversal of impairment loss on intangible assets

   530    122    2,793  

Reversal of other provision expenses

   16,037    2,924    19,769  

Retal revenues

   1,898    1,588    1,743  

Outsourcing income

   29,136    25,428    14,200  

Gain on disposals of wastes

   38,597    16,541    11,357  

Gain from claim compensation

   31,613    14,525    29,171  

Penalty income from early termination of contracts

   15,054    16,477    34,606  

Grant income

   3,198    2,287    1,441  

Others

   36,993    25,725    49,797  
  

 

 

  

 

 

  

 

 

 
      448,120    229,073    269,406  
  

 

 

  

 

 

  

 

 

 

Other operating expenses

    

Other bad debt expenses

  (44,115  (111,065  (96,373

Losses on disposals of assets held for sale

   (9,510  (26,498  (14

Impairment losses on assets held for sale

   (258,451  (1,814  (17,205

Losses on disposals of property, plant and equipment

   (65,486  (121,133  (50,006

Impairment losses on property, plant and equipment

   (12,977  (9,742  (64,833

Impairment losses on intangible assets

   (21,776  (125,316  (55,220

Idle tangible assets expenses

   (31,297  (17,624  (12,214

Impariment losses on other non-current assets

   (36,453  (9,000  (38,137

Other provision expenses

       (65,896  (126,601

Donations

   (73,963  (60,940  (69,544

Loss on disposals of investment in associates

   (15,119  (19,404  (2,556

Loss on disposals of wastes

   (45,480  (15,231  (16,386

Penalty and additional tax payments (*1)

   (149,437  (19,340  (352,173

Others

   (45,401  (47,803  (78,412
  

 

 

  

 

 

  

 

 

 
  (809,465  (650,806  (979,674
  

 

 

  

 

 

  

 

 

 
   2015  2016  2017 
   (in millions of Won) 

Other operating income

    

Gain on disposal of assets held for sale

  227,956   23,112   1,180 

Gain on disposal of investments in subsidiaries, associates and joint ventures

   88,718   23,305   81,794 

Gain on disposal of property, plant and equipment

   22,730   23,826   32,145 

Gain on disposal of intangible assets

   1,432   671   23,391 

Recovery of allowance for other doubtful accounts

   10,452   12,658   2,743 

Gain on valuation of firm commitment

         56,301 

Rental revenues

   1,019   1,771   1,498 

Gain on insurance proceeds

   14,976   22,400   5,878 

Others(*1)

   181,765   107,393   246,294 
  

 

 

  

 

 

  

 

 

 
  549,048   215,136   451,224 
  

 

 

  

 

 

  

 

 

 

Other operating expenses

    

Impairment losses on assets held for sale

  (133,547  (24,890   

Loss on disposal of assets held for sale

   (190,357  (254  (608

Loss on disposal of investments in subsidiaries, associates and joint ventures

   (18,996  (22,499  (19,985

Loss on disposal of property, plant and equipment

   (101,732  (86,622  (151,343

Impairment losses on property, plant and equipment

   (136,269  (196,882  (117,231

Impairment losses on goodwill and intangible assets

   (161,412  (127,875  (167,995

Other bad debt expenses

   (158,071  (50,225  (100,920

Loss on valuation of firm commitment

         (43,164

Idle tangible asset expenses

   (12,773  (6,437  (10,490

Incease to provisions

   (18,396  (53,058  (33,964

Donations

   (62,957  (43,810  (51,424

Others(*2)

   (447,788  (143,168  (95,172
  

 

 

  

 

 

  

 

 

 
      (1,442,298  (755,720  (792,296
  

 

 

  

 

 

  

 

 

 

 

 

(*1)As a result of Korea National Tax Service’s periodic audit of tax payments and refunds of the Company, theThe Company recognized additional tax paymentsthe refund of VAT and others amounting to271,646160,501 million primarily related to VAT, duringas other operating income for the year ended December 31, 2014.2017, based on the result of the tax amounts to be refunded when the result of the Company’s appeal in connection with the additional income tax payment in prior years tax audits for rectification were finalized.

(*2)The Company paid299,037 million in connection with its settlement with Nippon Steel & Sumitomo Metal Corporation for a civil lawsuit regarding improperly acquired trade secrets and patents for the year ended December 31, 2015.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

33.Finance Income and Costs

Details of finance income and costs for the years ended December 31, 2012, 20132015, 2016 and 20142017 were as follows:

 

  2012 2013 2014   2015 2016 2017 
  (in millions of Won)   (in millions of Won) 

Finance income

        

Interest income

  278,807    260,398    228,254    210,193  182,475  212,451 

Dividend income

   124,475    59,181    47,825     183,712  41,000  92,962 

Gain on foreign currency transactions

   935,457    997,591    1,022,253     1,025,240  1,032,552  785,616 

Gain on foreign currency translations

   936,740    511,143    453,471     466,090  377,723  564,016 

Gain on derivatives transactions

   407,791    370,343    327,738     366,482  316,524  210,727 

Gain on valuations of derivatives

   94,492    72,297    73,279     155,334  147,111  64,735 

Gain on disposals of available-for-sale financial assets

   112,095    105,563    236,484     139,136  130,830  425,684 

Others

   7,206    4,322    7,458     10,886  3,765  16,476 
  

 

  

 

  

 

   

 

  

 

  

 

 
  2,897,063    2,380,838    2,396,762    2,557,073  2,231,980  2,372,667 
  

 

  

 

  

 

   

 

  

 

  

 

 

Finance costs

        

Interest expenses

  (871,457  (657,681  (795,585  (788,772 (658,726 (653,115

Loss on foreign currency transactions

   (839,241  (927,453  (1,033,723   (1,157,161 (1,147,192 (756,654

Loss on foreign currency translations

   (243,091  (344,900  (428,891   (716,722 (405,391 (422,880

Loss on derivatives transactions

   (309,067  (286,574  (353,435   (343,118 (338,314 (236,273

Loss on valuation of derivatives

   (159,604  (291,465  (101,330   (72,133 (162,676 (226,487

Impairment loss on available-for-sale financial assets

   (224,171  (280,237  (369,723   (142,781 (248,404 (123,214

Loss on disposals of available-for-sale financial assets

   (36,286  (3,721  (54,710

Loss on financial guarantee

   (38,442  (5,880  (10,077

Others

   (76,279  (31,342  (74,513   (166,367 (53,487 (65,654
  

 

  

 

  

 

   

 

  

 

  

 

 
       (2,797,638  (2,829,253  (3,221,987      (3,387,054 (3,014,190 (2,484,277
  

 

  

 

  

 

   

 

  

 

  

 

 

 

34.Expenses by Nature

Expenses that are recorded by nature as cost of sales, selling general and administrative expenses and other operating expenses in the statements of comprehensive income for the years ended December 31, 2012, 20132015, 2016 and 20142017 were as follows (excluding finance costs and income tax expense):

 

  2012   2013   2014   2015   2016   2017 
  (in millions of Won)   (in millions of Won) 

Changes in inventories

  13,939,002     12,072,361     9,090,004  

Cost of merchandises sold

   25,997,220     25,909,164     30,899,849  

Raw material used, changes in inventories and others

  33,939,108    30,177,732    35,584,184 

Employee benefits expenses(*2)

   2,889,829     3,174,316     3,197,902     3,472,295    3,444,276    3,357,861 

Outsourced processing cost

   8,896,642     9,462,946     9,294,977     8,681,271    7,678,055    7,074,948 

Electricity expenses

   837,507  ��  1,109,765     1,370,390     1,251,546    1,018,429    933,045 

Depreciation expenses(*1)

   2,405,769     2,505,536     2,894,609  

Amortization expenses

   157,991     180,014     343,940  

Depreciation(*1)

   2,836,663    2,835,843    2,887,646 

Amortization

   381,583    378,004    409,774 

Freight and custody expenses

   1,472,817     1,432,935     1,551,705     1,531,906    1,342,009    1,336,969 

Sales commisions

   74,308     73,922     66,359  

Loss on disposals of property, plant and equipment

   65,486     121,133     50,006  

Sales commissions

   80,165    94,377    115,925 

Loss on disposal of property, plant and equipment

   101,732    86,622    151,343 

Impairment loss on property, plant and equipment

   136,269    196,882    117,231 

Impairment loss on goodwill and intangible assets

   161,412    127,875    167,995 

Increase to provisions

   86,903    189,914    215,383 

Donations

   73,963     60,940     69,544     62,957    43,810    51,424 

Other expenses

   3,727,705     3,325,515     3,685,748     4,861,126    3,258,583    4,038,242 
  

 

   

 

   

 

   

 

   

 

   

 

 
      60,538,239     59,428,547     62,515,033        57,584,936    50,872,411    56,441,970 
  

 

   

 

   

 

   

 

   

 

   

 

 

 

 

(*1)Includes depreciation expense of investment property.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

(*2)The details of employee benefits expenses for the years ended December 31, 2012, 20132015, 2016 and 20142017 were as follows:

 

  2012   2013   2014   2015   2016   2017 
  (in millions of Won)   (in millions of Won) 

Wages and salaries

      2,647,177     2,907,442     2,936,602    3,186,237    3,016,488    3,105,364 

Expenses related to post-employment benefits

   242,652     266,874     261,300     286,058    427,788    252,497 
  

 

   

 

   

 

   

 

   

 

   

 

 
  2,889,829     3,174,316     3,197,902        3,472,295    3,444,276    3,357,861 
  

 

   

 

   

 

   

 

   

 

   

 

 

 

35.Income Taxes

(a) Income tax expense for the years ended December 31, 2012, 20132015, 2016 and 20142017 was as follows:

 

  2012   2013 2014   2015 2016 2017 
  (in millions of Won)   (in millions of Won) 

Current income taxes

      795,601     615,771    790,055    553,041  699,269  864,143 

Deferred income tax due to temporary differences

   145,461     106,066    (79,719   (253,860 (209,706 300,037 

Items recorded directly in equity

   32,954     (132,808  113,505     (32,621 (110,019 21,560 
  

 

   

 

  

 

   

 

  

 

  

 

 

Income tax expense

  974,016     589,029    823,841        266,560  379,544  1,185,740 
  

 

   

 

  

 

   

 

  

 

  

 

 

(b) The income taxes credited (charged) directly to equity for the years ended December 31, 2015, 2016 and 2017 were as follows:

   2015  2016  2017 
   (in millions of Won) 

Net changes in the unrealized fair value ofavailable-for-sale investments

  60,077   (100,550  1,271 

Loss (gain) on sale of treasury shares

   12   (10  (40

Other capital surplus

   (86,765      

Others

   (5,945  (9,459  20,329 
  

 

 

  

 

 

  

 

 

 
      (32,621  (110,019  21,560 
  

 

 

  

 

 

  

 

 

 

(c) The following table reconciles the calculated income tax expense based on POSCO’s statutory ratesrate (24.2%) to the actual amount of taxes recorded by the Company for the years ended December 31, 2012, 20132015, 2016 and 2014.2017.

 

  2012 2013 2014   2015 2016 2017 
  (in millions of Won)   (in millions of Won) 

Profit before income tax expense

      3,331,862    1,938,045    1,387,880        150,345  1,411,609  4,095,051 

Income tax expense computed at statutory rate

   806,311    469,007    335,405     35,921  341,148  990,540 

Adjustments:

        

Tax credits

   (188,713  (169,166  (49,615   (152,139 (30,124 (40,757

Adjustments on prior year tax from tax audit

           56,257  

Under(over) provision from prior years

   1,776    (1,178 ��(463

Tax effects due to amendments to local income tax law

           39,890  

Over provisions from prior years

   (47,053 (11,829 (20,912

Investment in subsidiaries, associates and joint ventures

   281,437    251,014    371,876     439,575  76,751  55,113 

Tax effects due to permanent differences

   48,220    7,703    69,998     (26,045 (9,962 4,798 

Effect of tax rate change(*1)

        175,647 

Others

   24,985    31,649    493     16,301  13,560  21,311 
  

 

  

 

  

 

   

 

  

 

  

 

 
   167,705    120,022    488,436     230,639  38,396  195,200 
  

 

  

 

  

 

   

 

  

 

  

 

 

Income tax expense

  974,016    589,029    823,841    266,560  379,544  1,185,740 
  

 

  

 

  

 

   

 

  

 

  

 

 

Effective tax rate (%)

   29.23  30.39  59.36   177.30 26.89 28.96

(c) The income taxes credited (charged) directly to equity during the years ended December 31, 2013 and 2014 were as follows:

 

    2013  2014 
   (in millions of Won) 

Net changes in the unrealized fair value of available-for-sale securities

  (139,679  105,639  

Gain on sale of treasury stock

   (1,707  (4,654

Others

           8,578    12,520  
  

 

 

  

 

 

 
  (132,808  113,505  
  

 

 

  

 

 

 
(*1)During the year ended December 31, 2017, the statutory rate changed from 24.2% to 27.5% for taxable income in excess of300,000 million was enacted as a result of a revision to Korean tax law, which will be effective from 2018.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

(d) The movements in deferred tax assets (liabilities) for the years ended December 31, 20132016 and 20142017 were as follows:

 

 2013 2014  2016 2017 
 Beginning Inc. (Dec.) Ending Beginning Inc. (Dec.) Ending  Beginning Inc. (Dec.) Ending Beginning Inc. (Dec.) Ending 
 (in millions of Won)  (in millions of Won) 

Deferred income tax due to temporary differences

            

Reserve for special repairs

 (29,013  551    (28,462  (28,462  16,049    (12,413

Allowance for doubtful accounts

  112,428    37,175    149,603    149,603    46,132    195,735   202,592  10,527  213,119  213,119  60,875  273,994 

Reserve for technology developments

  (375,930  (4,735  (380,665  (380,665  121,632    (259,033 (177,676 85,716  (91,960 (91,960 53,973  (37,987

PPE — Depreciation

  (46,574  13,232    (33,342  (33,342  26,667    (6,675

PP&E — Depreciation

 (15,240 3,601  (11,639 (11,639 26,280  14,641 

Share of profit or loss of equity-accounted investees

  (96,374  7,069    (89,305  (89,305  (7,388  (96,693 (45,174 115,433  70,259  70,259  125,783  196,042 

Reserve for inventory valuation

  (4,082  2,560    (1,522  (1,522  3,513    1,991  

PPE — Revaluation

  (799,932  (211,661  (1,011,593  (1,011,593  (211,006  (1,222,599

Allowance for inventories valuation

 13,373  2,278  15,651  15,651  (4,871 10,780 

PP&E — Revaluation

 (1,393,501 (130,648 (1,524,149 (1,524,149 (304,015 (1,828,164

Prepaid expenses

  31,240    (2,855  28,385    28,385    (10,924  17,461   19,180  485  19,665  19,665  335  20,000 

PPE — Impairment loss

  28,755    (3,237  25,518    25,518    (3,556  21,962  

Loss on foreign currency translation

  (63,345  (125,857  (189,202  (189,202  120,090    (69,112

PP&E — Impairment loss

 8,055  (2,760 5,295  5,295  245  5,540 

Gain or loss on foreign currency translation

 (29,355 23,398  (5,957 (5,957 (42,515 (48,472

Defined benefit obligations

  70,624    29,732    100,356    100,356    20,328    120,684   354,175  7,663  361,838  361,838  68,279  430,117 

Plan assets

  (46,421  (12,245  (58,666  (58,666  5,631    (53,035 (287,839 (28,686 (316,525 (316,525 (36,129 (352,654

Provision for construction losses

  2,227    2,046    4,273    4,273    680    4,953   612  385  997  997  (556 441 

Provision for construction warranty

  14,841    1,833    16,674    16,674    3,697    20,371   21,604  2,718  24,322  24,322  4,395  28,717 

Accrued income

  (3,197  282    (2,915  (2,915  (776  (3,691 (8,982 (459 (9,441 (9,441 (3,474 (12,915

Impairment loss on AFS

  66,722    66,367    133,089    133,089    38,912    172,001   266,474  (21,306 245,168  245,168  (42,373 202,795 

Difference in acquisition costs of treasury stocks

  20,378    43,835    64,213    64,213    (2,074  62,139  

Difference in acquisition costs of treasury shares

 62,116  (17 62,099  62,099  8,448  70,547 

Others

  233,704    59,813    295,486    295,486    (148,968  144,161   296,207  107,541  403,748  403,748  (27,740 376,008 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
  (883,949  (96,095  (978,075  (978,075  18,639    (961,793 (713,379 175,869  (537,510 (537,510 (113,060 (650,570
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Deferred income taxes recognized directly to equity

            

Loss (gain) on valuation of available-for-sale investments

  24,006    (139,679  (115,673  (115,673  105,639    (10,034 50,043  (100,550 (50,507 (50,507 1,271  (49,236

Others

  46,138    8,578    54,716    54,716    12,520    67,236   61,291  (9,459 51,832  51,832  20,329  72,161 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
  70,144    (131,101  (60,957  (60,957  118,159    57,202   111,334  (110,009 1,325  1,325  21,600  22,925 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Deferred tax from tax credit

            

Tax credit carryforward and others

  339,108    98,534    437,642    437,642    (137,276  300,366  

Investments in subsidiaries and associates

      

Investments in subsidiaries and associates

  19,095    23,666    42,761    42,761    (64,388  (21,627

Tax credit carry-forward and others

 277,261  30,074  307,335  307,335  (189,303 118,032 

Investments in subsidiaries, associates and joint ventures

      

Investments in subsidiaries, associates and joint ventures

 (18,089 104,219  86,130  86,130  (17,704 68,426 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
 (455,602  (104,996  (558,629  (558,629  (64,866  (625,852 (342,873 200,153  (142,720 (142,720 (298,467 (441,187
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

(e) Deferred tax assets and liabilities as of December 31, 20132016 and 20142017 are as follows:

 

  2013 2014  2016 2017 
  Assets   Liabilities Net Assets   Liabilities Net  Assets Liabilities Net Assets Liabilities Net 
  (in millions of Won)  (in millions of Won) 

Deferred income tax due to temporary differences

               

Reserve for special repairs

       (28,462  (28,462       (12,413  (12,413

Allowance for doubtful accounts

   149,695     (92  149,603    197,159     (1,424  195,735   213,119     213,119  273,994     273,994 

Reserve for technology developments

        (380,665  (380,665       (259,033  (259,033    (91,960 (91,960    (37,987 (37,987

PPE — Depreciation

   23,265     (56,607  (33,342  39,412     (46,087  (6,675

PP&E — Depreciation

 50,843  (62,482 (11,639 59,912  (45,271 14,641 

Share of profit or loss of equity-accounted investees

        (89,305  (89,305       (96,693  (96,693 178,538  (108,279 70,259  236,637  (40,595 196,042 

Reserve for inventory valuation

   4,392     (5,914  (1,522  7,294     (5,303  1,991  

PPE — Revaluation

        (1,011,593  (1,011,593       (1,222,599  (1,222,599

Allowance for inventories valuation

 15,651     15,651  10,780     10,780 

PP&E — Revaluation

    (1,524,149 (1,524,149    (1,828,164 (1,828,164

Prepaid expenses

   28,385         28,385    17,461         17,461   19,665     19,665  20,000     20,000 

PPE — Impairment loss

   25,518         25,518    23,489     (1,527  21,962  

Loss on foreign currency translation

   243,772     (432,974  (189,202  83,521     (152,633  (69,112

PP&E — Impairment loss

 5,397  (102 5,295  5,639  (99 5,540 

Gain or loss on foreign currency translation

 99,836  (105,793 (5,957 113,760  (162,232 (48,472

Defined benefit obligations

   110,891     (10,535  100,356    125,758     (5,074  120,684   361,838     361,838  430,117     430,117 

Plan assets

   22     (58,688  (58,666       (53,035  (53,035    (316,525 (316,525    (352,654 (352,654

Provision for construction losses

   4,273         4,273    4,953         4,953   997     997  441     441 

Provision for construction warranty

   16,674         16,674    20,371         20,371   24,322     24,322  28,717     28,717 

Accrued income

   5     (2,920  (2,915       (3,691  (3,691    (9,441 (9,441    (12,915 (12,915

Impairment loss on AFS

   133,089         133,089    172,001         172,001   245,168     245,168  202,795     202,795 

Difference in acquisition costs of treasury stocks

   64,213         64,213    62,139         62,139  

Difference in acquisition costs of treasury shares

 62,099     62,099  70,547     70,547 

Others

   322,191     (26,705  295,486    283,655     (139,494  144,161   452,425  (48,677 403,748  473,025  (97,017 376,008 
  

 

   

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
   1,126,385     (2,104,460  (978,075  1,037,213     (1,999,006  (961,793 1,729,898  (2,267,408 (537,510 1,926,364  (2,576,934 (650,570
  

 

   

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Deferred income taxes recognized directly to equity

               

Loss (gain) on valuation of available-for-sale investments

   128,938     (244,611  (115,673  238,489     (248,523  (10,034 50,245  (100,752 (50,507 110,865  (160,101 (49,236

Others

   70,441     (15,725  54,716    91,636     (24,400  67,236   65,532  (13,700 51,832  92,981  (20,820 72,161 
  

 

   

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
   199,379     (260,336  (60,957  330,125     (272,923  57,202   115,777  (114,452 1,325  203,846  (180,921 22,925 
  

 

   

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Deferred tax from tax credit

               

Tax credit carryforward and others

   481,256     (43,614  437,642    339,959     (39,593  300,366  

Investments in subsidiaries and associates

         

Investments in subsidiaries and associates

   530,823     (488,062  42,761    601,265     (622,892  (21,627

Tax credit carry-forward and others

 307,335     307,335  118,032     118,032 

Investments in subsidiaries, associates and joint ventures

      

Investments in subsidiaries, associates and joint ventures

 561,506  (475,376 86,130  563,406  (494,980 68,426 
  

 

   

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
  2,337,843     (2,896,472  (558,629  2,308,562     (2,934,414  (625,852     2,714,516  (2,857,236 (142,720 2,811,648  (3,252,835 (441,187
  

 

   

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

(f) As of December 31, 2014,2016 and 2017, The Company did not recognize income tax effects associated with deductible temporary differences of4,612,900 million and5,300,667 million, respectively, mainly relating to loss of subsidiaries and associates because realization is not considered probable. As of December 31, 2016 and 2017, the Company did not recognize income tax effects associated with taxable temporary differences of3,104,2053,933,428 million and4,362,127 million (deferred tax liabilities of751,218951,890 million and1,137,632 million), respectively, mainly relating to increase in retained earnings of subsidiaries since it is probable that the temporary difference will not reverse in the foreseeable future.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

36.Earnings per Share

(a) Basic and diluted earnings per share for the years ended December 31, 2012, 20132015, 2016 and 20142017 were as follows:

 

 2012 2013 2014   2015 2016 2017 
 (Won, except per share information)   (in Won, except per share information) 

Profit attribute to controlling interest

     2,437,227,818,749    1,370,877,921,262    632,706,233,938    171,493,811,117  1,354,806,734,940  2,756,230,487,872 

Interests of hybrid bonds

      (18,313,914,551  (33,048,799,997   (33,029,632,499 (33,225,163,081 (33,048,799,997

Weighted-average number of common shares outstanding(*1)

  77,244,444    78,009,654    79,801,539     79,993,834  79,996,389  79,998,600 
 

 

  

 

  

 

   

 

  

 

  

 

 

Basic and diluted earnings per share

 31,552    17,338    7,514    1,731  16,521  34,040 
 

 

  

 

  

 

   

 

  

 

  

 

 

 

 

(*1)The weighted-average number of common shares used to calculate basic and diluted earnings per share are as follows:

 

  2012 2013 2014 
  (shares) 

(shares)

  2015 2016 2017 

Total number of common shares issued

   87,186,835    87,186,835    87,186,835     87,186,835  87,186,835  87,186,835 

Weighted-average number of treasury shares

   (9,942,391  (9,177,181  (7,385,296   (7,193,001 (7,190,446 (7,188,235
  

 

  

 

  

 

   

 

  

 

  

 

 

Weighted-average number of common shares outstanding

   77,244,444    78,009,654    79,801,539     79,993,834  79,996,389  79,998,600 
  

 

  

 

  

 

   

 

  

 

  

 

 

AsSince there were no potential shares of common stock which had dilutive effects as of December 31, 2012, 20132015, 2016 and 2014, the Company has no potential dilutive common shares. Accordingly,2017, diluted earnings per share is identicalequal to basic earnings per share.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

37.Related Party Transactions

(a) Significant transactions withbetween the controlling company and related parties for the years ended December 31, 2012, 20132015, 2016 and 20142017 were as follows:

1) For the year ended December 31, 20122015

 

  Sales and others  Purchase and others 
  Sales  Others  Total  Purchase of
material
  Purchase of
fixed assets
  Outsourced
processing cost
  Others  Total 
  (in millions of Won) 

Subsidiaries

 

POSCO ENGINEERING & CONSTRUCTION., LTD.

 27,401    709    28,110    46    1,408,787    7    42,246    1,451,086  

POSCO Processing & Service

  897,017    34    897,051    1,392,988            2,903    1,395,891  

POSCO COATED & COLOR STEEL Co., Ltd.

  489,507    38    489,545            5,574    922    6,496  

POSCO PLANTEC Co., Ltd.

  3,253    63    3,316    3,331    233,788    23,372    17,455    277,946  

POSCO ICT

  1,330    217    1,547    1,151    285,093    31,050    151,621    468,915  

eNtoB Corporation

      11    11    211,449    3,490    225    20,978    236,142  

POSCO CHEMTECH

  492,720    19,197    511,917    507,215    10,153    279,507    1,275    798,150  

POSCO M-TECH

  27,770    136    27,906    130,363    9,018    176,263    2,904    318,548  

POSCO ENERGY CO., LTD.

  87,387    820    88,207        482        1,772    2,254  

POSCO TMC Co., Ltd.

  230,215    20    230,235    25        995    12    1,032  

POSCO AST

  278,446    17    278,463    8,114        50,320    213    58,647  

POSHIMETAL Co., Ltd.

  23,882    130    24,012    149,809    180        5    149,994  

Daewoo International Corporation

  4,271,317    133    4,271,450    10,562        389    4,780    15,731  

POSCO NST Co., Ltd.

  212,534    2    212,536    1,229        2,147    242    3,618  

POSCO America Corporation

  726,450        726,450                733    733  

POSCO Canada Ltd.

              205,129                205,129  

POSCO Asia Co., Ltd.

  1,928,881    627    1,929,508    105,392    592        1,329    107,313  

POSCO (Thailand) Company Limited

  119,031    247    119,278                182    182  

Qingdao Pohang Stainless Steel Co., Ltd.

  62,347    2    62,349                      

POSCO (Suzhou) Automotive Processing Center Co., Ltd.

  128,974        128,974                      

POSCO JAPAN Co., Ltd.

  1,439,580        1,439,580    20,472    2,857        5,381    28,710  

POSCO-India Pune Processing Center. Pvt. Ltd.

  164,450    33    164,483                15    15  

POSCO MEXICO S.A. DE C.V.

  337,921    724    338,645                492    492  

POSCO Maharashtra Steel Private

  154,055    1,587    155,642                      

DAEWOO INTERNATIONAL SINGAPORE PTE. LTD.

              73,471                73,471  

Others

  569,076    2,787    571,863    81,411    56,570    17,673    132,115    287,769  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  12,673,544    27,534    12,701,078    2,902,157    2,011,010    587,522    387,575    5,888,264  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Associates and joint ventures

        

POSMATE

  951    21,093    22,044    1,058    21    14,947    30,032    46,058  

SNNC

  2,162    349    2,511    379,050                379,050  

POSCO PLANTEC Co., Ltd. (formerly, Sungjin Geotec Co., Ltd.)

  27,697        27,697                      

Dongbang Special Steel Co., Ltd.

  89,094        89,094                      

POSCHROME (PROPRIETARY) LIMITED

      58    58    68,079                68,079  

PT. POSMI Steel Indonesia

  9,696        9,696                      

POSK(Pinghu) Steel Processing Center Co., Ltd.

  3,889        3,889                      

POSCO-SAMSUNG-Slovakia Processing Center

  16,309        16,309                      

POSCO China Suzhou Processing Center Co., Ltd. (formerly, POSCO-SAMSUNG Suzhou Steel Processing Center Co., Ltd.)

  26,280        26,280                      

Others

  7,774    117    7,891    5,303        6,579    2,530    14,412  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  183,852    21,617    205,469    453,490    21    21,526    32,562    507,599  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
 12,857,396    49,151    12,906,547    3,355,647    2,011,031    609,048    420,137    6,395,863  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

2) For the year ended December 31, 2013

  Sales and others  Purchase and others 
  Sales  Others  Total  Purchase of
material
  Purchase of
fixed assets
  Outsourced
processing
cost
  Others  Total 
  (in millions of Won) 

Subsidiaries

        

POSCO ENGINEERING & CONSTRUCTION., LTD.

 16,439    3,421    19,860    3,042    2,235,798    5,855    9,242    2,253,937  

POSCO Processing & Service

  987,424    8    987,432    1,215,510            805    1,216,315  

POSCO COATED & COLOR STEEL Co., Ltd.

  472,353    25    472,378            10,648    98    10,746  

POSCO PLANTEC Co., Ltd.(*1)

  2,324    19    2,343    1,499    67,081    13,733    2,492    84,805  

POSCO ICT

  1,210    195    1,405    679    279,660    31,231    157,126    468,696  

POSMATE

  1,419    85    1,504    805    1,041    15,732    32,894    50,472  

eNtoB Corporation

      10    10    234,352    13,241    149    20,079    267,821  

POSCO CHEMTECH

  512,139    25,868    538,007    491,562    21,832    287,584    1,223    802,201  

POSCO M-TECH

  11,122    94    11,216    158,709    2,336    220,986    141    382,172  

POSCO ENERGY CO., LTD.

  104,209    915    105,124        5,178        7    5,185  

POSCO TMC Co., Ltd.

  188,915    15    188,930            1,051    1,298    2,349  

POSCO AST

  500,193    10    500,203    6,985        56,520    2,029    65,534  

POSHIMETAL Co., Ltd.

  18,922    137    19,059    166,042            5    166,047  

Daewoo International Corporation

  3,522,678    65    3,522,743    16,297            2,843    19,140  

POSCO America Corporation

  596,681    1    596,682                339    339  

POSCO Canada Ltd.

              144,329                144,329  

POSCO Asia Co., Ltd.

  2,068,965    221    2,069,186    64,434    182        1,673    66,289  

POSCO (Thailand) Company Limited

  56,210    56    56,266                85    85  

Qingdao Pohang Stainless Steel Co., Ltd.

  58,502        58,502                14    14  

POSCO (Suzhou) Automotive Processing Center Co., Ltd.

  129,345    1    129,346                      

POSCO JAPAN Co., Ltd.

  1,270,325        1,270,325    19,978    2        2,972    22,952  

POSCO-India Pune Processing Center. Pvt. Ltd.

  119,503    7    119,510                      

POSCO MEXICO S.A. DE C.V.

  256,014    693    256,707                621    621  

POSCO Maharashtra Steel Private

  176,425    3,157    179,582                236    236  

DAEWOO INTERNATIONAL SINGAPORE PTE. LTD.

              108,179                108,179  

Others

  558,923    7,569    566,492    92,527    38,843    18,782    77,101    227,253  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  11,630,240    42,572    11,672,812    2,724,929    2,665,194    662,271    313,323    6,365,717  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Associates and joint ventures

        

SNNC

  1,532    458    1,990    402,639                402,639  

POSCO PLANTEC Co., Ltd. (formerly, Sungjin Geotec Co., Ltd.)(*1)

  15,028    48    15,076    1,735    65,802    9,781    6,883    84,201  

POSCHROME (PROPRIETARY) LIMITED

              66,762                66,762  

PT. POSMI Steel Indonesia

  6,538        6,538                      

POSK (Pinghu) Steel Processing Center Co., Ltd.

  3,786        3,786                      

POSCO-SAMSUNG-Slovakia Processing Center Co., Ltd.

  19,906        19,906                      

POSCO China Suzhou Processing Center Co., Ltd. (formerly, POSCO-SAMSUNG Suzhou Steel Processing Center Co., Ltd.)

  6,429        6,429                      

Others

  546    165    711    3,937            176    4,113  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  53,765    671    54,436    475,073    65,802    9,781    7,059    557,715  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
 11,684,005    43,243    11,727,248    3,200,002    2,730,996    672,052    320,382    6,923,432  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

(*1)Sungjin Geotec Co., Ltd. merged with POSCO Plant Engineering Co., Ltd. and changed its name to POSCO PLANTEC Co., Ltd. in 2013.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

3) For the year ended December 31, 2014

  Sales and others (*1)  Purchase and others (*2) 
  Sales  Others  Total  Purchase of
material
  Purchase of
fixed assets
  Outsourced
processing
cost
  Others  Total 
  (in millions of Won) 

Subsidiaries (*3)

        

POSCO ENGINEERING & CONSTRUCTION., LTD.

 22,659    16,789    39,448    544,202    247,286    3,689    30,852    826,029  

POSCO Processing & Service

  1,075,567    8,649    1,084,216    785,943            1,681    787,624  

POSCO COATED & COLOR STEEL Co., Ltd.

  444,513    12    444,525            12,313    195    12,508  

POSCO ICT (*5)

  929    2,593    3,522    356    209,893    26,231    161,173    397,653  

POSMATE

  520    2,178    2,698    411    28    16,475    34,188    51,102  

eNtoB Corporation

      3    3    297,119    10,433    137    21,073    328,762  

POSCO CHEMTECH

  532,973    26,537    559,510    513,759    5,449    301,149    923    821,280  

POSCO M-TECH

  180    24    204    117,940    2,385    200,622    6,887    327,834  

POSCO ENERGY CO., LTD.

  177,517    1,230    178,747        2,263        20    2,283  

POSCO TMC Co., Ltd.

  240,318    9    240,327            1,056    1,611    2,667  

POSCO AST

  503,452    5    503,457    10,396        57,355    2,671    70,422  

POSHIMETAL Co., Ltd.

  11,261    3,660    14,921    166,442                166,442  

Daewoo International Corporation

  3,558,652    20,652    3,579,304    90,361            3,857    94,218  

POSCO Specialty Steel Co., Ltd.

  5,313    201,927    207,240    40,124        1,939    266    42,329  

POSCO America Corporation

  747,933    2    747,935                1,794    1,794  

POSCO Canada Ltd.

              141,767                141,767  

POSCO Asia Co., Ltd.

  2,167,148    89    2,167,237    169,945        10,006    1,969    181,920  

POSCO (Thailand) Company Limited

  55,221    46    55,267                8    8  

Qingdao Pohang Stainless Steel Co., Ltd.

  79,783        79,783                19    19  

POSCO (Suzhou) Automotive Processing Center Co., Ltd.

  136,836        136,836                5    5  

POSCO JAPAN Co., Ltd.

  1,329,947    4    1,329,951    15,165    2,269    3    2,279    19,716  

POSCO-India Pune Processing Center. Pvt. Ltd.

  107,587    74    107,661                      

POSCO MEXICO S.A. DE C.V.

  287,468    929    288,397                      

POSCO Maharashtra Steel Private

  444,407    6,053    450,460                      

DAEWOO INTERNATIONAL SINGAPORE PTE. LTD.

              57,742            11,513    69,255  

Others

  680,066    1,827    681,893    158,484    63,932    15,585    51,674    289,675  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  12,610,250    293,292    12,903,542    3,110,156    543,938    646,560    334,658    4,635,312  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Associates and joint ventures (*3)

        

POSCO Plant Engineering Co., Ltd. (*4)

  15,310    64    15,374    3,195    119,369    15,777    22,751    161,092  

SNNC

  3,077    5,716    8,793    339,991            5    339,996  

POSCHROME (PROPRIETARY) LIMITED

              59,241                59,241  

PT. POSMI Steel Indonesia

  6,061    30    6,091                      

POSK (Pinghu) Steel Processing Center Co., Ltd.

  2,855        2,855                      

POSCO-SAMSUNG-Slovakia Processing Center

  24,059        24,059                      

POSCO China Suzhou Processing Center Co., Ltd. (formerly, POSCO-SAMSUNG Suzhou Processing Center Co., Ltd.)

  1,132        1,132                      

Others

  737    41,873    42,610    3,668                3,668  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  53,231    47,683    100,914    406,095    119,369    15,777    22,756    563,997  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
 12,663,481    340,975    13,004,456    3,516,251    663,307    662,337    357,414    5,199,309  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
   Sales and others(*1)   Purchase and others(*2) 
   Sales   Others   Purchase of
material
   Purchase of
fixed assets
   Outsourced
processing cost
   Others 
   (in millions of Won) 

Subsidiaries

  

POSCO ENGINEERING & CONSTRUCTION CO., LTD.

  4,441    145    19    427,760    2,250    37,488 

POSCO Processing & Service

   1,074,826    24    437,626            2,281 

POSCO COATED & COLOR STEEL Co., Ltd.

   380,626                9,359    104 

POSCO ICT (*3)

   1,259    7        210,877    29,612    182,745 

eNtoB Corporation

           261,989    6,501    130    22,017 

POSCO CHEMTECH

   436,594    30,343    519,956    9,515    297,183    1,773 

POSCO ENERGY CO., LTD.

   188,458    1,359                6 

POSCO TMC Co., Ltd.

   263,242                1,497    1,560 

POSCO AST

   362,658    15    4,115        39,175    1,611 

POSHIMETAL Co., Ltd.

   10,777    151    145,165            46 

POSCO DAEWOO Corporation

   3,505,187    34,334    46,675            480 

SeAH Changwon Integrated Special Steel (*4)

   2,811    176,904    8,239        515    75 

POSCO PLANTEC Co., Ltd. (*4)

   4,280    33    2,544    125,192    15,135    13,649 

POSCO Thainox Public Company Limited

   268,576    10    5,147            34 

POSCO America Corporation

   624,549    6                725 

POSCO Canada Ltd.

           111,243             

POSCO Asia Co., Ltd.

   1,822,932    960    269,086        513    2,273 

Qingdao Pohang Stainless Steel Co., Ltd.

   118,845                    220 

POSCO JAPAN Co., Ltd.

   1,051,910    9,383    25,957    2,278    201    2,754 

POSCO MEXICO S.A. DE C.V.

   270,184    80                11 

PT. KRAKATAU POSCO

           118,888             

POSCO Maharashtra Steel Private Limited

   421,244    752                31 

Others (*5)

   867,334    14,474    223,393    113,769    212,539    129,506 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   11,680,733    268,980    2,180,042    895,892    608,109    399,389 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Associates and joint ventures

            

SeAH Changwon Integrated Special Steel (*4)

   6,042        3,802        419     

POSCO PLANTEC Co., Ltd. (*4)

   147    14    1,017    82,338    3,513    4,676 

SNNC

   4,673    594    422,420             

POSCO-SAMSUNG-Slovakia Processing center

   26,379                     

Others (*6,7)

   28,841    40,600    51,855             
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   66,082    41,208    479,094    82,338    3,932    4,676 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      11,746,815    310,188    2,659,136    978,230    612,041    404,065 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

(*1)Sales and others mainly consist of sales of steel products to subsidiaries, associates and joint ventures. These are priced on an arm’s length basis.

 

(*2)Purchases and others mainly consist of subsidiaries’ purchases of construction services and purchases of raw materials to manufacture steel products. These are priced on

(*3)Others (purchase) mainly consist of service fees related to maintenance and repair of ERP System.

(*4)During the year ended December 31, 2015, it was reclassified from a subsidiary to an arm’s length basis.associate.

(*5)During the year ended December 31, 2015, the Company borrowed USD 17.42 million from POSCO-Uruguay S.A., a subsidiary of the Company, and the entire amount was repaid as of December 31, 2015.

(*6)During the year ended December 31, 2015, the Company lent USD 60 million toCSP-Compania Siderurgica do Pecem, an associate of the Company, and the entire amount of loan was collected as of December 31, 2015.

(*7)The Company has collected loans of USD 3.85 million from LLP POSUK Titanium, an associate of the Company for the year ended December 31, 2015

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

2) For the year ended December 31, 2016

   Sales and others(*1)   Purchase and others(*2) 
   Sales   Others   Purchase of
material
   Purchase of
fixed assets
   Outsourced
processing
cost
   Others 
   (in millions of Won) 

Subsidiaries

            

POSCO ENGINEERING & CONSTRUCTION CO., LTD.

  29,511    16,661    8    183,768        24,511 

POSCO Processing & Service

   1,212,220    5,778    549,803    2,896    22,704    2,445 

POSCO COATED & COLOR STEEL Co., Ltd.

   326,078    2,560            12,232    126 

POSCO ICT(*3)

   1,224    727        219,301    32,456    171,107 

eNtoB Corporation

       5    278,016    9,836    212    19,436 

POSCO CHEMTECH

   319,164    33,784    502,448    14,847    290,427    5,139 

POSCO ENERGY CO., LTD.

   187,311    1,382                7 

POSCO TMC Co., Ltd.(*4)

   219,489        2        863    1,177 

POSCO AST(*4)

   152,098    1            19,695    922 

POSCO DAEWOO Corporation

   3,227,716    34,341    92,203        343     

POSCO Thainox Public Company Limited

   237,471    2,915    9,593        19    548 

POSCO America Corporation

   469,543        284            1,103 

POSCO Canada Ltd.

   275        148,528             

POSCO Asia Co., Ltd.

   1,758,080    1,373    403,174    247    939    3,602 

Qingdao Pohang Stainless Steel Co., Ltd.

   135,405                    525 

POSCO JAPAN Co., Ltd.

   1,112,489    128    23,217    3,744    345    3,841 

POSCO-VIETNAM Co., Ltd.

   226,063    445                 

POSCO MEXICO S.A. DE C.V.

   274,210    462                 

POSCO Maharashtra Steel Private Limited

   355,829    2,613                93 

POSCO(Suzhou) Automotive Processing Center Co., Ltd.

   149,911                     

Others

   766,263    22,717    207,601    62,202    212,344    145,562 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   11,160,350    125,892    2,214,877    496,841    592,579    380,144 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Associates and joint ventures

            

SeAH Changwon Integrated Special Steel

   28        1,095        627     

POSCO PLANTEC Co., Ltd.

   2,245    48    3,533    244,898    16,812    8,146 

SNNC

   6,004    1,042    487,395            2 

POSCO-SAMSUNG-Slovakia Processing center

   44,686                     

KOBRASCO

       29,297                 

Others

   26,625    13,122    175,246             
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   79,588    43,509    667,269    244,898    17,439    8,148 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      11,239,938    169,401    2,882,146    741,739    610,018    388,292 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(*1)Sales and others mainly consist of sales of steel products to subsidiaries, associates and joint ventures.

(*2)Purchases and others mainly consist of subsidiaries’ purchases of construction services and purchases of raw materials to manufacture steel products.

(*3)Others (purchase) mainly consist of service fees related to maintenance and repair of ERP System.

(*4)During the year ended December 31, 2016, it was merged into POSCO Processing & Service.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

3) For the year ended December 31, 2017

   Sales and others (*1)   Purchase and others (*2) 
   Sales   Others   Purchase of
material
   Purchase of
fixed assets
   Outsourced
processing
cost
   Others 
   (in millions of Won) 

Subsidiaries (*3)

            

POSCO ENGINEERING & CONSTRUCTION CO., LTD.

  3,328    71        151,639    32    18,352 

POSCO Processing & Service

   298,781    1    113,628    4,595    8,309    404 

POSCO COATED & COLOR STEEL Co., Ltd.

   417,369    3,533            8,483    106 

POSCO ICT (*4)

   1,697    5,097        315,748    29,773    183,226 

eNtoB Corporation

   1    30    330,921    8,215    139    26,023 

POSCO CHEMTECH

   359,862    33,076    479,896    23,043    296,296    6,860 

POSCO ENERGY CO., LTD.

   179,966    1,456                2 

POSCO DAEWOO Corporation

   5,214,127    35,182    550,258    221    44,108    1,948 

POSCO Thainox Public Company Limited

   218,005    9,780    10,168             

POSCO America Corporation

   345,225        90            1,776 

POSCO Canada Ltd.

   439    690    278,915             

POSCO Asia Co., Ltd.

   1,949,354    1,454    365,025    337    1,625    4,982 

Qingdao Pohang Stainless Steel Co., Ltd.

   161,803                    176 

POSCO JAPAN Co., Ltd.

   1,436,159    20    26,256    621        44,829 

POSCO-VIETNAM Co., Ltd.

   212,883                    7 

POSCO MEXICO S.A. DE C.V.

   276,387                    1,749 

POSCO Maharashtra Steel Private Limited

   467,206                    65 

POSCO(Suzhou) Automotive Processing Center Co., Ltd.

   192,467                     

Others

   932,048    10,073    262,828    25,270    240,687    118,665 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   12,667,107    100,463    2,417,985    529,689    629,452    409,170 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Associates and joint ventures (*3)

            

POSCO PLANTEC Co., Ltd.

   2,947    112    5,487    300,041    20,718    19,763 

SNNC

   6,734    712    554,151            4 

POSCO-SAMSUNG-Slovakia Processing Center

   52,779                     

Roy Hill Holdings Pty Ltd

           697,096             

CSP — Compania Siderurgica do Pecem

   7,384        159,501             

Others

   14,943    52,583    79,103            3 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   84,787    53,407    1,495,338    300,041    20,718    19,770 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      12,751,894    153,870    3,913,323    829,730    650,170    428,940 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(*1)Sales and others mainly consist of sales of steel products to subsidiaries, associates and joint ventures.

(*2)Purchases and others mainly consist of subsidiaries’ purchases of construction services and purchases of raw materials to manufacture steel products.

 

(*3)As of December 31, 2014,2017, the Company provided guarantees to related parties (Note 38).

 

(*4)It is reclassified from associate to subsidiary due to the additional acquisitions of its shares by the Company.

(*5)Others (purchase) mainly consist of service fees related to maintenance and repair of ERP System.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

(b) The related account balances of significant transactions withbetween the controlling company and related companies as of December 31, 20132016 and 20142017 are as follows:

1) December 31, 20132016

 

 Receivables Payables  Receivables Payables 
 Trade accounts and
notes receivable
 Others Total Trade accounts and
notes payable
 Accounts
payable
 Others Total  Trade accounts and
notes receivable
   Others Total Trade accounts and
notes payable
   Accounts
payable
   Others   Total 
 (in millions of Won)  (in millions of Won) 

Subsidiaries

                  

POSCO ENGINEERING & CONSTRUCTION., LTD.

 40    110,955    110,995        105,603        105,603  

POSCO ENGINEERING & CONSTRUCTION CO., LTD.

 3    3,359  3,362       9,825    515    10,340 

POSCO Processing & Service

  103,400    73    103,473    17,914    683        18,597   207,744    178  207,922  1,085    5,367    5,184    11,636 

POSCO COATED & COLOR STEEL Co., Ltd.

  69,260    65    69,325        59    1,434    1,493   48,716    324  49,040       5    1,600    1,605 

POSCO ICT

  75    123    198        51,247        51,247        128  128  1,062    89,382    6,074    96,518 

POSMATE

  489    1,533    2,022    141    3,274    1,058    4,473  

eNtoB Corporation

              8,057    10,311        18,368             9,948    29,310    15    39,273 

POSCO CHEMTECH

  46,943    4,313    51,256    35,829    6,983    8,663    51,475   27,253    3,868  31,121  54,702    11,870    19,282    85,854 

POSCO M-TECH

  18    28    46    12,020    21,326    10,799    44,145  

POSCO ENERGY CO., LTD.

  14,733    2,894    17,627        421        421   18,701    2,012  20,713           1,425    1,425 

POSCO TMC Co., Ltd.

  20,510    26    20,536        16    50    66  

POSCO AST

  85,501    53    85,554        3,004    5,238    8,242  

POSHIMETAL Co., Ltd.

  1,721    12    1,733        12,624        12,624  

Daewoo International Corporation

  148,383    878    149,261    9,319            9,319  

POSCO DAEWOO Corporation

 182,700    11,184  193,884  460    183    49    692 

POSCO Thainox Public Company Limited

 62,034    8  62,042       224        224 

POSCO America Corporation

  57,554        57,554                   10,008      10,008                

POSCO Canada Ltd.

              12,323            12,323  

POSCO Asia Co., Ltd.

  134,602    142    134,744    2,063            2,063   375,823    458  376,281  25,101            25,101 

POSCO (Thailand) Company Limited

  6,052    7    6,059                  

Qingdao Pohang Stainless Steel Co., Ltd.

  3,329        3,329                   25,386      25,386       5        5 

POSCO JAPAN Co., Ltd.

  73,992        73,992    862    108    1    971  

POSCO-India Pune Processing Center. Pvt. Ltd.

  8,117        8,117                  

POSCO MEXICO S.A. DE C.V.

  100,016    76    100,092                   114,166    1,024  115,190                

POSCO Maharashtra Steel Private Limited

  55,392    3,218    58,610                   208,737    9,923  218,660                

Others

  54,357    8,887    63,244    6,523    15,421    1,647    23,591   333,031    64,526  397,557  17,374    46,455    26,974    90,803 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

   

 

   

 

   

 

 
  984,484    133,283    1,117,767    105,051    231,080    28,890    365,021   1,614,302    96,992  1,711,294  109,732    192,626    61,118    363,476 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

   

 

   

 

   

 

 

Associates and jointventures

       

Associates and joint ventures

           

POSCO PLANTEC Co., Ltd.

 30    9  39  2,125    39,647        41,772 

SNNC

  140    40    180    16,669            16,669   223    26  249  40,201            40,201 

POSCO PLANTEC Co., Ltd. (formerly, Sungjin Geotec Co., Ltd.)

  879    46    925    353            353  

POSCHROME (PROPRIETARY) LIMITED

      67    67                  

LLP POSUK Titanium

      4,066    4,066                  

Others

      17    17    319    2        321   800    1  801  991    17,685        18,676 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

   

 

   

 

   

 

 
  1,019    4,236    5,255    17,341    2        17,343   1,053    36  1,089  43,317    57,332        100,649 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

   

 

   

 

   

 

 
   985,503    137,519    1,123,022    122,392    231,082    28,890    382,364       1,615,355    97,028  1,712,383  153,049    249,958    61,118    464,125 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

   

 

   

 

   

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

2) December 31, 20142017

 

  Receivables  Payables 
  Trade accounts and
notes receivable
  Others  Total  Trade accounts and
notes payable
  Accounts
payable
  Others  Total 
  (in millions of Won) 

Subsidiaries

       

POSCO ENGINEERING & CONSTRUCTION., LTD.

 42    71,967    72,009        41,878        41,878  

POSCO Processing & Service

  94,790    92    94,882    15,202    867        16,069  

POSCO COATED & COLOR STEEL Co., Ltd.

  69,314    67    69,381        5    1,936    1,941  

POSCO ICT

  13    103    116    920    70,823    5,425    77,168  

POSMATE

      1,673    1,673    600    2,007    4,828    7,435  

eNtoB Corporation

              12,564    28,432    43    41,039  

POSCO CHEMTECH

  49,456    4,283    53,739    57,610    9,890    17,864    85,364  

POSCO M-TECH

      37    37    7,311    12,231    22,703    42,245  

POSCO ENERGY CO., LTD.

  17,326    2,809    20,135            1,962    1,962  

POSCO TMC Co., Ltd.

  27,429    30    27,459        117    115    232  

POSCO AST

  44,281    54    44,335        2,458    3,364    5,822  

POSHIMETAL Co., Ltd.

  1,269    14    1,283        12,846        12,846  

Daewoo International Corporation

  164,029    3,178    167,207    8    210    1    219  

POSCO Specialty Steel Co., Ltd.

  822    201,823    202,645    4,800    140    184    5,124  

POSCO America Corporation

  57,164        57,164        1,511        1,511  

POSCO Canada Ltd.

                  4,534        4,534  

POSCO Asia Co., Ltd.

  197,104    221    197,325    10,995            10,995  

POSCO (Thailand) Company Limited

  7,407    266    7,673                  

Qingdao Pohang Stainless Steel Co., Ltd.

  14,748    41    14,789                  

POSCO JAPAN Co., Ltd.

  42,692    89    42,781    344    1,552        1,896  

POSCO-India Pune Processing Center. Pvt. Ltd.

  6,401    5    6,406                  

POSCO MEXICO S.A. DE C.V.

  96,800        96,800                  

POSCO Maharashtra Steel Private Limited

  364,899    7,714    372,613                  

Others

  126,474    56,788    183,262    7,239    54,727    1,545    63,511  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  1,382,460    351,254    1,733,714    117,593    244,228    59,970    421,791  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Associates and jointventures

       

SNNC

  219    125    344    7,017            7,017  

POSCHROME (PROPRIETARY) LIMITED

              1,162            1,162  

LLP POSUK Titanium

      4,235    4,235                  

Others

  258    18    276    234            234  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  477    4,378    4,855    8,413            8,413  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
     1,382,937    355,632    1,738,569    126,006    244,228    59,970    430,204  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  Receivables  Payables 
  Trade accounts and
notes receivable
  Others  Total  Trade accounts and
notes payable
  Accounts
payable
  Others  Total 
  (in millions of Won) 

Subsidiaries

       

POSCO ENGINEERING & CONSTRUCTION CO., LTD.

 2   2,908   2,910      21,965   674   22,639 

POSCO COATED & COLOR STEEL Co., Ltd.

  58,184   324   58,508      5   504   509 

POSCO ICT

  55   217   272   1,458   72,586   27,009   101,053 

eNtoB Corporation

           12,252   31,899   20   44,171 

POSCO CHEMTECH

  61,810   3,589   65,399   51,774   20,313   17,568   89,655 

POSCO ENERGY CO., LTD.

  33,239   1,673   34,912         1,425   1,425 

POSCO DAEWOO Corporation

  483,915   12,739   496,654   10,213   2,145   5,794   18,152 

POSCO Thainox Public Company Limited

  57,826      57,826   1,204         1,204 

POSCO America Corporation

  5,365      5,365             

POSCO Asia Co., Ltd.

  404,857   541   405,398   9,811   24      9,835 

Qingdao Pohang Stainless Steel Co., Ltd.

  31,693      31,693             

POSCO MEXICO S.A. DE C.V.

  55,695   530   56,225             

POSCO Maharashtra Steel Private Limited

  392,630   5,733   398,363             

Others

  384,385   49,403   433,788   15,038   59,575   31,118   105,731 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  1,969,656   77,657   2,047,313   101,750   208,512   84,112   394,374 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Associates and joint ventures

       

POSCO PLANTEC Co., Ltd.

  1,946   9   1,955   3,842   15,723      19,565 

SNNC

  648   61   709   49,506   3      49,509 

Others

  8,350   904   9,254   824         824 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  10,944   974   11,918   54,172   15,726      69,898 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
     1,980,600   78,631   2,059,231   155,922   224,238   84,112   464,272 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

(c) Significant transactions between the Company, excluding the controlling company, and related companies for the years ended December 31, 2015, 2016 and 2017 were as follows:

1) December 31, 2015

   Sales and others   Purchase and others 
   Sales   Others   Purchase of
material
   Others 
   (in millions of Won) 

Associates and joint ventures

        

SeAH Changwon integrated Special Steel

  32,802        49,862    1,977 

POSCO PLANTEC Co., Ltd.

   10,543        5,953    6,386 

New Songdo International City Development, LLC

   420,094            667 

SNNC

   32,160    44    6,518    53,260 

Posco e&c Songdo International Building

   6,278            25,197 

VSC POSCO Steel Corporation

   37,416        2,395    3 

USS-POSCO Industries

   353,626        1,109     

CSP — Compania Siderurgica do Pecem

   845,979             

Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd

   68,300    111    70,236     

BX STEEL POSCO Cold Rolled Sheet Co., Ltd.

   3        23,320     

POS-SEAHSTEELWIRE(TIANJIN)CO.,Ltd

   9,668             

POSCO SeAH Steel Wire(Nantong) Co., Ltd.

   30,310        4     

Zhangjiagang Pohang Refractories Co., Ltd.

   970    1,248    17,484    2,023 

Sebang Steel

           29,007     

SHANGHAI WAIGAOQIAO FREE TRADE ZONE LANSHENG DAEWOO IN’L TRADING CO., LTD.

   214,521        3,960    3,190 

DMSA/AMSA

   800    9,322    241,074     

South-East Asia Gas Pipeline Company Ltd.

       47,556         

Others

   415,217    17,793    18,518    2,683 
  

 

 

   

 

 

   

 

 

   

 

 

 
      2,478,687    76,074    469,440    95,386 
  

 

 

   

 

 

   

 

 

   

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

2) December 31, 2016

   Sales and others   Purchase and others 
   Sales   Others   Purchase of
material
   Others 
   (in millions of Won) 

Associates and joint ventures

        

SeAH Changwon integrated Special Steel

  16,294        22,029     

POSCO PLANTEC Co., Ltd.

   21,659    5    3,335    5,912 

New Songdo International City Development, LLC

   226,042            14 

SNNC

   29,330        21,479    9,494 

Posco e&c Songdo International Building

   4,245            16,219 

Chun-cheon Energy Co., Ltd

   288,307             

Noeul Green Energy

   107,268             

Incheon-Gimpo Expressway Co., Ltd.

   102,183             

VSC POSCO Steel Corporation

   43,650    47    479     

USS-POSCO Industries

   287,072        1,195     

CSP — Compania Siderurgica do Pecem

   157,814             

Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd

   61,844        57,179     

LLP POSUK Titanium

           14,575     

BX STEEL POSCO Cold Rolled Sheet Co., Ltd.

           24,365     

POS-SEAHSTEELWIRE(TIANJIN)CO.,Ltd

   15,759             

PT. Batutua Tembaga Raya

           13,079     

POSCO SeAH Steel Wire(Nantong) Co., Ltd.

   31,711        65     

Zhangjiagang Pohang Refractories Co., Ltd.

   250    14    364    2,472 

Sebang Steel

           26,276     

SHANGHAI WAIGAOQIAO FREE TRADE ZONE LANSHENG DAEWOO IN’L TRADING CO., LTD.

   157,886        3,535     

DMSA/AMSA

           72,582     

South-East Asia Gas Pipeline Company Ltd.

       87,973         

Others

   195,139    11,184    16,664    1,801 
  

 

 

   

 

 

   

 

 

   

 

 

 
      1,746,453    99,223    277,201    35,912 
  

 

 

   

 

 

   

 

 

   

 

 

 

3) December 31, 2017

   Sales and others   Purchase and others 
   Sales   Others   Purchase of
material
   Others 
   (in millions of Won) 

Associates and joint ventures

        

POSCO PLANTEC Co., Ltd.

  19,513        98    8,113 

New Songdo International City Development, LLC

   223,567    13,207        49 

SNNC

   26,288        3,578    17,985 

Chun-cheon Energy Co., Ltd

   42,147             

Noeul Green Energy

   11,863            2,178 

VSC POSCO Steel Corporation

   19,404        188     

USS-POSCO Industries

   26,899    107    2,222     

CSP — Compania Siderurgica do Pecem

   241,299        101,018    21,154 

Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd

   38,484        47,241     

LLP POSUK Titanium

           3,972     

BX STEEL POSCO Cold Rolled Sheet Co., Ltd.

   4        20,145     

POS-SEAHSTEELWIRE(TIANJIN)CO.,Ltd

   20,004             

PT. Batutua Tembaga Raya

           21,024     

POSCO SeAH Steel Wire(Nantong) Co., Ltd.

   34,088        192     

Zhangjiagang Pohang Refractories Co., Ltd.

           87    1,632 

Sebang Steel

   441        23,778     

SHANGHAI WAIGAOQIAO FREE TRADE ZONE LANSHENG DAEWOO IN’L TRADING CO., LTD.

   43,764             

DMSA/AMSA

       99    47,092     

South-East Asia Gas Pipeline Company Ltd.

       62,423         

Others

   272,107    43,126    19,520    19,483 
  

 

 

   

 

 

   

 

 

   

 

 

 
      1,019,872    118,962    290,155    70,594 
  

 

 

   

 

 

   

 

 

   

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

(d) The related account balances of significant transactions between the Company, excluding the controlling company, and related companies as of December 31, 2016 and December 31, 2017 are as follows:

1) December 31, 2016

  Receivables (*1)  Payables 
  Trade accounts and
notes receivable
  Loan  Others  Total  Trade accounts and
notes payable
  Others  Total 
  (in millions of Won) 

Associates and joint ventures

       

POSCO PLANTEC Co., Ltd.

 4,709      6   4,715   2,718   8,521   11,239 

New Songdo International City Development, LLC

  255,822      5,725   261,547          

Chun-cheon Energy Co., Ltd

  12,142         12,142      3,171   3,171 

VSC POSCO Steel Corporation

  5,265         5,265          

USS-POSCO Industries

  583         583   75      75 

Nickel Mining Company SAS

  133   60,425   116   60,674          

AN KHANH NEW CITY DEVELOPMENT J.V CO., LTD.

  62,814   60,425   1,643   124,882      875   875 

CSP — Compania Siderurgica do Pecem

  224,760      149,700   374,460      109,272   109,272 

Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd

  3,279   6,647   6   9,932   1,365      1,365 

PT. Batutua Tembaga Raya

     38,120      38,120   2,293      2,293 

POSCO SeAH Steel Wire(Nantong) Co., Ltd.

  9,292   8,460   43   17,795   40      40 

SHANGHAI WAIGAOQIAO FREE TRADE ZONE LANSHENG DAEWOO IN’L TRADING CO.,LTD.

  100,367         100,367          

DMSA/AMSA

     90,638      90,638          

South-East Asia Gas Pipeline Company Ltd.

     276,605   48   276,653          

Others

  184,402   142,812   6,593   333,807   4,615   750   5,365 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
     863,568   684,132   163,880   1,711,580   11,106   122,589   133,695 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

(*1)As of December 31, 2016, the Company recognizes bad debt allowance for receivables amounting to48,891 million.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

2) December 31, 2017

  Receivables (*1)  Payables 
  Trade accounts and
notes receivable
  Loan  Others  Total  Trade accounts and
notes payable
  Others  Total 
  (in millions of Won) 

Associates and joint ventures

       

POSCO PLANTEC Co., Ltd.

 2,287      5   2,292   3,442   5,595   9,037 

New Songdo International City Development, LLC

  484,038   282,775   1,696   768,509      7,146   7,146 

Chun-cheon Energy Co., Ltd

        21   21      9,617   9,617 

VSC POSCO Steel Corporation

  16         16   17      17 

USS-POSCO Industries

        4   4          

Nickel Mining Company SAS

     59,668   118   59,786          

CSP — Compania Siderurgica do Pecem

  380,180      13,443   393,623      29,700   29,700 

Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd

  2,108   5,357   6   7,471   2,449      2,449 

PT. Batutua Tembaga Raya

  24   29,048      29,072          

POSCO SeAH Steel Wire(Nantong) Co., Ltd.

  8,067   5,357   32   13,456   107      107 

SHANGHAI WAIGAOQIAO FREE TRADE ZONE LANSHENG DAEWOO IN’L TRADING CO.,LTD.

  715         715      526   526 

DMSA/AMSA

     69,713   4,443   74,156          

South-East Asia Gas Pipeline Company Ltd.

     229,880      229,880          

Others

  134,397   134,506   6,885   275,788   1,856   2,005   3,861 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
     1,011,832   816,304   26,653   1,854,789   7,871   54,589   62,460 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

(*1)As of December 31, 2017, the Company recognizes bad debt allowance for receivables amounting to4,217 million.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

(e) Significant financial transactions between the Company, excluding the controlling company, and related companies for the years ended December 31, 2016 and 2017 were as follows:

1) December 31, 2016

   Beginning   Lend   Collect  Others (*3)  Ending 
   (in millions of Won) 

Associates and joint ventures

        

METAPOLIS Co.,Ltd.

  26,000        (12,730     13,270 

Posco e&c Songdo International Building (*1)

       298,865       (298,865   

DMSA/AMSA (*2)

   99,854    11,774       (20,990  90,638 

South-East Asia Gas Pipeline Company Ltd.

   283,954    27,087    (43,080  8,644   276,605 

PT. Batutua Tembaga Raya

   36,830           1,290   38,120 

PT. Tanggamus Electric Power

   2,359    1,174       73   3,606 

PT. Wampu Electric Power

   4,454    1,169       138   5,761 

PT. POSMI Steel Indonesia

   4,688           146   4,834 

Nickel Mining Company SAS

   17,580    40,594       2,251   60,425 

POSK(Pinghu) Steel Processing Center Co., Ltd.

   5,743    5,683    (11,366  (60   

AN KHANH NEW CITY DEVELOPMENT J.V CO., LTD.

   58,600           1,825   60,425 

Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd

   10,782        (4,471  336   6,647 

KRAKATAUPOS-CHEMDONG-SUH CHEMICAL

       6,959       292   7,251 

Hamparan Mulya

   3,516           110   3,626 

POS-SEAHSTEELWIRE(TIANJIN)CO.,Ltd

   5,274           164   5,438 

POSCO SeAH Steel Wire(Nantong) Co., Ltd.

   11,720        (3,480  220   8,460 

POS-SeAH Steel Wire (Thailand) Co., Ltd.

       6,959       292   7,251 

AMCI (WA) PTY LTD

   85,168    4,665       1,942   91,775 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 
      656,522    404,929    (75,127  (302,192  684,132 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

(*1)During the year ended December 31, 2016, it was classified as a subsidiary from an associate.

(*2)During the year ended December 31, 2016, loans amounting to24,624 million have been converted to shares of DMSA/AMSA, and its amount is included in others.

(*3)Includes adjustments of foreign currency translation differences and others.

2) December 31, 2017

   Beginning   Lend   Collect  Others (*4)  Ending 
   (in millions of Won) 

Associates and joint ventures

        

METAPOLIS Co.,Ltd. (*1)

  13,270           (13,270   

New Songdo International City Development, LLC

       484,644    (201,869     282,775 

GALE International Korea, LLC

       2,000          2,000 

DMSA/AMSA (*2)

   90,638    2,956       (23,881  69,713 

South-East Asia Gas Pipeline Company Ltd.

   276,605    28,967    (46,252  (29,440  229,880 

PT. Batutua Tembaga Raya

   38,120           (9,072  29,048 

PT. Tanggamus Electric Power

   3,606           (409  3,197 

PT. Wampu Electric Power

   5,761           (654  5,107 

PT. POSMI Steel Indonesia

   4,834           (548  4,286 

Nickel Mining Company SAS

   60,425           (757  59,668 

AN KHANH NEW CITY DEVELOPMENT J.V CO., LTD. (*1)

   60,425           (60,425   

Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd

   6,647        (577  (713  5,357 

KRAKATAUPOS-CHEMDONG-SUH CHEMICAL

   7,251           (823  6,428 

Hamparan Mulya

   3,626        (3,626      

POS-SEAHSTEELWIRE(TIANJIN)CO.,Ltd

   5,438        (5,438      

POSCO SeAH Steel Wire(Nantong) Co., Ltd.

   8,460        (2,262  (841  5,357 

POS-SeAH Steel Wire (Thailand) Co., Ltd.

   7,251        (1,142  319   6,428 

AMCI (WA) PTY LTD

   91,775    4,327       (4,041  92,061 

POS-AUSTEM YANTAI AUTOMOTIVE CO.,LTD (*3)

              5,357   5,357 

POS-AUSTEM WUHAN AUTOMOTIVE CO.,LTD (*3)

              8,571   8,571 

SAMHWAN VINA CO., LTD (*3)

              1,071   1,071 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 
      684,132    522,894    (261,166  (129,556  816,304 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

(*1)During the year ended December 31, 2017, it was excluded from associates.

(*2)During the year ended December 31, 2017, loans amounting to13,712 million have been converted to shares of DMSA/AMSA, and its amount is included in others.

(*3)During the year ended December 31, 2017, it was newly classified to associates and joint ventures.

(*4)Includes adjustments of foreign currency translation differences and others.

(f) For the years ended December 31, 2012, 20132015, 2016 and 2014,2017, details of compensation to key management officers were as follows:

 

  2012   2013   2014   2015   2016   2017 
  (in millions of Won)   (in millions of Won) 

Short-term benefits

  109,614     121,054     116,961    111,278    90,916    112,688 

Long-term benefits

   19,513    17,905    8,632 

Retirement benefits

   25,049     20,713     21,604     21,850    17,870    20,422 

Long-term benefits

   22,462     23,480     17,242  
  

 

   

 

   

 

   

 

   

 

   

 

 
      157,125     165,247     155,807    152,641    126,691    141,742 
  

 

   

 

   

 

  ��

 

   

 

   

 

 

Key management officers include directors (includingnon-standing directors), executive officials and fellow officials who have significant influenceinfluences and responsibilities in the Company’s business and operations. In addition to the compensation described above, the Company provided stock appreciation rights to its executive officers and recorded stock compensation expenses amounted to436 million for the year ended December 31, 2012 (2013 and 2014 : nil).

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

 

38.Commitments and Contingencies

(a) Contingent liabilities

Contingent liabilities may develop in a way not initially expected. Therefore, management continuously assesses contingent liabilities to determine whether an outflow of resources embodying economic benefits has become probable. If it becomes probable that an outflow of future economic benefits will be required for an item previously dealt with as a contingent liability, a provision is recognized in the consolidated financial statements of the period in which the change in probability occurs (except in the extremely rare circumstances where no reliable estimate can be made).

Management makes estimates and assumptions that affect disclosures of commitments and contingencies. All estimates and assumptions are based on the evaluation of current circumstances and appraisals with the supports of internal specialists or external consultants.

Management regularly analyzes current information about these matters and provides for probable contingent losses including the estimate of legal expense to resolve the matters. Internal and external lawyers are used for these assessments. In making the decision regarding the need for a provision, management considers whether the Company has an obligation as a result of a past event, whether it is probable that an outflow or cash or other resources embodying economic benefits will be required to settle the obligation and the ability to make a reliable estimate of the amount of the obligation.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

(b) Details of guarantees

Contingent liabilities on outstanding guarantees provided by the Company as of December 31, 2014,2017 are as follows:

 

 

Guarantee limit

 Guarantee amount 

Guarantors

  

Guarantee beneficiary

  

Financial institution

  

Foreign currency

   Won equivalent  

Guarantee

beneficiary

 

Financial
institution

 

Foreign currency

 Won
equivalent
 Foreign
currency
 Won
equivalent
 
  (in millions of Won)  (in millions of Won) 

[The Company]

                 

POSCO

  POSCO(Guangdong) Automotive Steel Co., Ltd.  SMBC and others  USD   65,000,000     71,448   POSCO Asia Co., Ltd. BOC USD  50,000,000   53,570   50,000,000   53,570 
  POSCO Investment Co., Ltd.  BOA and others  USD   330,000,000     362,736   POSCO ASSAN TST STEEL INDUSTRY SMBC and others USD  146,527,500   156,990   131,874,750   141,291 
    BOC  CNY   350,000,000     62,031   POSCO COATED STEEL (THAILAND) CO., LTD. The Great&CO Co.,Ltd (SPC) THB  5,501,000,000   180,268   5,501,000,000   180,268 
  POSCO Maharashtra Steel Private Limited  Export-Import Bank of Korea and others  USD   566,069,000     622,223   POSCO Maharashtra Steel Private Limited Export-Import Bank of Korea and others USD  649,853,000   696,252   323,918,500   347,045 
  POSCO VST CO., LTD.  ANZ and others  USD   65,000,000     71,448   POSCO MEXICO S.A. DE C.V. BOA and others USD  160,000,000   171,424   160,000,000   171,424 
  POSCO MEXICO S.A. DE C.V.  HSBC and others  USD   284,725,000     312,970   POSCOSS-VINA CO., LTD. Export-Import Bank of Korea and others USD  354,351,050   379,652   314,599,225   337,062 
  POSCO-VIETNAM Co., Ltd.  Export-Import Bank of Korea and others  USD   242,000,000     266,006   POSCO VST CO., LTD. ANZ and others USD  65,000,000   69,641   8,125,000   8,706 
  Zhangjiagang Pohang Stainless Steel Co., Ltd.  MIZUHO and others  USD   130,000,000     142,896   POSCO-VIETNAM Co., Ltd. Export-Import Bank of Korea USD  196,000,000   209,994   196,000,000   209,994 
  POSCO ASSAN TST STEEL INDUSTRY  SMBC and others  USD   193,392,500     212,577   PT. KRAKATAU POSCO Export-Import Bank of Korea and others USD  1,350,300,000   1,446,711   1,187,394,785   1,272,174 
  POSCO Electrical Steel India Private Limited  ING and others  USD   83,784,000     92,095   Zhangjiagang Pohang Stainless Steel Co., Ltd. BTMU and others CNY  760,500,000   124,456   684,450,000   112,011 

POSCO DAEWOO Corporation

 Daewoo Global Development. Pte., Ltd Export-Import Bank of Korea USD  21,633,300   23,178   21,633,300   23,178 
  PT. KRAKATAU POSCO  Export-Import Bank of Korea and others  USD   1,350,300,000     1,484,249    MIRAE ASSET DAEWOO CO.,LTD. KRW  29,137   29,137   10,703   10,703 
 Daewoo Power PNG Ltd. Export-Import Bank of Korea USD  54,400,000   58,284   54,400,000   58,284 
Daewoo Textile LLC Export-Import Bank of Korea USD  4,000,000   4,286   4,000,000   4,286 
POSCO ASSAN TST STEEL INDUSTRY ING and others USD  14,652,750   15,699   14,652,750   15,699 
 POSCO DAEWOO INDIA PVT., LTD. Shinhan Bank and others USD  162,400,000   173,995   51,237,684   54,896 
  SC Bank and others INR  7,350,000,000   122,892   2,037,278,075   34,063 
 PT. Bio Inti Agrindo Export-Import Bank of Korea and others USD  120,875,000   129,505   120,875,000   129,505 
Songdo Posco family Housing SAMSUNG SECURITIES CO.,LTD and others KRW  70,000   70,000   49,500   49,500 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

Guarantors

  

Guarantee beneficiary

  

Financial institution

  

Foreign currency

   Won equivalent 
   (in millions of Won) 

Daewoo International Corporation

  Daewoo Paper Manufacturing Co., Ltd.  HSBC  USD   12,500,000     13,740  
  DAEWOO TEXTILE BUKHARA LLC  Export-Import Bank of Korea  USD   16,000,000     17,587  
  DAEWOO INTERNATIONAL MEXICO S.A. DE C.V.  NOVA SCOTIA  USD   30,000,000     32,976  
  POSCO ASSAN TST STEEL INDUSTRY  ING and others  USD   18,839,300     20,708  
  Brazil Sao Paulo Steel Processing Center  HSBC and others  USD   52,000,000     57,158  
  Daewoo International INDIA Private Ltd.  Shinhan Bank  USD   48,772,000     53,610  
  PT. Bio Inti Agrindo  Export-Import Bank of Korea  USD   56,000,000     61,555  

POSCO ENGINEERING & CONSTRUCTION CO.,LTD.

  HONG KONG POSCO E&C (CHINA) INVESTMENT Co.,Ltd.  Woori Bank and others  USD   135,000,000     148,392  
  POSCO E&C Vietnam Co., Ltd.  Export-Import Bank of Korea  USD   16,500,000     18,137  
  SANTOSCMI S.A.  CITI Equador and others  USD   46,000,000     50,563  
  POSCO Engineering and Construction India Private Limited  Shinhan Bank  INR   383,201,941     6,645  

POSCO Processing&Service

  POSCO Canada Ltd.  Hana Bank  USD   12,484,500     13,723  
  POSCO Gulf SFC LLC  KEB Bank and others  USD   27,000,000     29,678  

POSCO COATED & COLOR STEEL Co., Ltd.

  Myanmar POSCO C&C Company, Limited.  POSCO Investment  USD   7,986,947     8,779  

POSCO ICT

  PT.POSCO ICT INDONESIA  POSCO Investment  USD   2,700,000     2,968  
    POSCO Investment  USD   4,000,000     4,397  
  VECTUS LIMITED  KEB Bank  GBP   3,500,000     5,987  

POSCO ENERGY CO., LTD.

  PT. KRAKATAU POSCO ENERGY  Export-Import Bank of Korea and others  USD   193,900,000     213,135  

POSCO Engineering CO.,Ltd

  PT PEN INDONESIA  KEB Bank and others  USD   12,818,876     14,091  
    KEB Bank and others  IDR   145,244,014,735     12,825  
  POSCO ENGINEERING  CITI Bank  USD   15,300,000     16,818  
  (THAILAND) CO., LTD.  Woori Bank and others  THB   6,347,013,800     212,244  

POSCO-Japan Co., Ltd.

  POSCO-JEPC Co., Ltd.  MIZUHO and others  JPY   1,021,811,730     9,402  
  POSCO-JKPC Co., Ltd.  Higo Bank and others  JPY   974,000,000     8,962  
  Xenesys Inc.  Aozora Bank  JPY   250,000,000     2,300  

DAEWOO TEXTILE FERGANA LLC

  DAEWOO TEXTILE BUKHARA LLC  Bukhara TEX  USD   2,691,513     2,959  

DAEWOO TEXTILE BUKHARA LLC

  DAEWOO TEXTILE FERGANA LLC  NBU  USD   6,127,060     6,735  

POSCO E&C CHINA Co.,Ltd.

  HONG KONG POSCO E&C (CHINA) INVESTMENT Co., Ltd.  Woori Bank  USD   33,000,000     36,274  

POSCO-China Holding Corp.

  POSCO YongXin Rare Earth Metal Co., Ltd.  KEB Bank and others  CNY   71,820,000     12,729  
  DONG FANG JIN HONG  Bank of Communications and others  CNY   1,300,000,000     230,399  
      

Guarantee limit

  Guarantee amount 

Guarantors

 

Guarantee

beneficiary

 

Financial
institution

 

Foreign currency

  Won
equivalent
  Foreign
currency
  Won
equivalent
 
  (in millions of Won) 

POSCO ENGINEERING & CONSTRUCTION CO., LTD.

 POSCO E&C Vietnam Co., Ltd. Export-Import Bank of Korea USD  30,000,000   32,142   30,000,000   32,142 
 HONG KONG POSCO E&C (CHINA) INVESTMENT Co., Ltd. Woori Bank and others USD  138,000,000   147,853   138,000,000   147,853 
 POSCO ENGINEERING & CONSTRUCTION DO BRAZIL LTDA. HSBC USD  100,000,000   107,140   100,000,000   107,140 
 POSCO ENGINEERING (THAILAND) CO., LTD. POSCO Asia Co., Ltd USD  39,451,000   42,268   39,451,000   42,268 
 POSCO Engineering and Construction India Private Limited Woori Bank USD  2,100,000   2,250   2,100,000   2,250 
 PT PEN INDONESIA POSCO Asia Co., Ltd. USD  5,000,000   5,357   5,000,000   5,357 
 PT. POSCO E&C INDONESIA BNP Indonesia IDR  79,000,000,000   6,241   79,000,000,000   6,241 
 Songdo Posco family Housing SAMSUNG SECURITIES CO.,LTD and others KRW  70,000   70,000   49,500   49,500 
 Daewoo Global Development. Pte., Ltd POSCO Asia Co., Ltd. and others USD  68,719,200   73,626   59,088,100   63,307 

POSCO ICT

 PT.POSCO ICT INDONESIA POSCO Asia Co., Ltd. USD  1,500,000   1,607   1,500,000   1,607 

POSCO CHEMTECH

 PT.Krakatau Posco Chemtech Calcination Hana Bank USD  33,600,000   35,999   20,705,882   22,184 

POSCO COATED & COLOR STEEL Co., Ltd.

 Myanmar POSCO C&C Company, Limited. POSCO Asia Co., Ltd. and others USD  13,986,947   14,985   13,986,947   14,985 

POSCO ENERGY CO., LTD.

 PT. KRAKATAU POSCO ENERGY Export-Import Bank of Korea and others USD  193,900,000   207,744   137,396,174   147,206 

POSCO Asia Co., Ltd.

 POSCO ASSAN TST STEEL INDUSTRY SMBC USD  25,000,000   26,785   25,000,000   26,785 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

Guarantors

  

Guarantee beneficiary

  

Financial institution

  

Foreign currency

   Won equivalent 
   (in millions of Won) 

POSCO CHEMTECH

  PT.Krakatau Posco Chemtech Calcination  KEB Bank  USD   42,000,000     46,166  
  KRAKATAU POS-CHEM DONG-SUH CHEMICAL  Hana Bank  USD   13,075,000     14,372  

POSCO PLANTEC Co., Ltd.

  POSCO PLANTEC Thailand CO. LTD  Woori Bank  THB   45,000,000     1,505  

POSCO Specialty Steel Co., Ltd.

  POSCO SS-VINA  Export-Import Bank of Korea  USD   354,409,800     389,567  

SANTOSCMI S.A.

  COMPANIADEAUTO- MATIZACION & CONTROL, GENESYS S.A.  Banco de Guayaquil and others  USD   1,550,000     1,704  

[Associates and joint ventures]

          

POSCO

  LLP POSUK Titanium  KB Bank  USD   15,000,000     16,488  
  CSP — Compania Siderurgica do Pecem  KDB Bank  USD   56,666,667     62,288  

Daewoo International Corporation

  DMSA/AMSA  Export-Import Bank of Korea and others  USD   165,133,333     181,515  
  GLOBAL KOMSCO Daewoo LLC  Export-Import Bank of Korea and others  USD   11,112,500     12,214  

POSCO ENGINEERING & CONSTRUCTION CO.,LTD.

  Posco e&c Songdo International Building  Others  KRW   356,600     356,600  
  New Songdo City Development, LLC  Others  KRW   340,000     340,000  
  CHUNGJU ENTERPRISE CITY DEVELOPMENT Co.,Ltd  Others  KRW   28,226     28,226  

POSCO Processing&Service

  Sebang Steel  Shinhan Bank  JPY   245,000,000     2,254  

POSCO ICT

  UITrans LRT Co., Ltd.  KB Bank  KRW   76,000     76,000  
  Incheon-Gimpo Expressway Co., Ltd.  KDB Bank  KRW   100,000     100,000  
  CHUNGJU ENTERPRISE CITY DEVELOPMENT Co.,Ltd  NH Bank  KRW   2,528     2,528  

POSCO Engineering CO., Ltd

  PT. Wampu Electric Power  Woori Bank  USD   7,996,848     8,790  

Daewoo (China) Co., Ltd.

  SHANGHAI LANSHENG DAEWOO CORP.  Bank of Communications and others  CNY   100,000,000     17,723  

POSCO CHEMTECH

  PT.INDONESIA POS CHEMTECH CHOSUN Ref  KEB Bank  USD   6,000,000     6,595  

[Others]

          

Daewoo International Corporation

  Ambatovy Project Investments Limited  Export-Import Bank of korea  USD   65,454,545     71,948  
  Sherritt International Corporation  Export-Import Bank of korea  USD   21,818,182     23,983  
      

Guarantee limit

  Guarantee amount 

Guarantors

 

Guarantee

beneficiary

 

Financial
institution

 

Foreign currency

  Won
equivalent
  Foreign
currency
  Won
equivalent
 
  (in millions of Won) 

[Associates and joint ventures]

       

POSCO

 CSP — Compania Siderurgica do Pecem Export-Import Bank of Korea and others USD  420,000,000   449,990   420,000,000   449,990 
  BNDES BRL  464,060,000   150,100   464,060,000   150,100 
 LLP POSUK Titanium SMBC USD  15,000,000   16,071   15,000,000   16,071 
 Nickel Mining Company SAS SMBC EUR  46,000,000   58,846   37,000,000   47,332 

POSCO DAEWOO Corporation

 GLOBAL KOMSCO Daewoo LLC Industrial & Commercial Bank of China USD  8,225,000   8,812   8,225,000   8,812 

POSCO ENGINEERING & CONSTRUCTION CO., LTD.

 New Songdo International City Development, LLC Others KRW  340,000   340,000   317,900   317,900 
 UITrans LRT Co., Ltd. Kookmin Bank and others KRW  20,740   20,740   20,740   20,740 
 Chun-cheon Energy Co., Ltd Kookmin Bank and others KRW  11,600   11,600   10,993   10,993 

POSCO ICT

 Incheon-Gimpo Expressway co., Ltd. Korea Development Bank KRW  100,000   100,000   100,000   100,000 
 UITrans LRT Co., Ltd. Kookmin Bank KRW  76,000   76,000   76,000   76,000 

POSCO CHEMTECH

 KRAKATAUPOS-CHEMDONG-SUH CHEMICAL Hana Bank USD  1,140,000   1,221   1,140,000   1,221 

POSCO(Suzhou) Automotive Processing Center Co.,Ltd.

 POS-InfraAuto (Suzhou) Co., Ltd Korea Development Bank USD  780,000   836   780,000   836 

[Others]

       

POSCO DAEWOO Corporation

 Ambatovy Project Investments Limited and others Export-Import Bank of Korea USD  87,272,727   93,504   28,325,258   30,348 

POSCO ENGINEERING & CONSTRUCTION CO., LTD.

 Ecocity CO.,LTD and others Others KRW  960,011   960,011   446,098   446,098 
 AN KHANH NEW CITY DEVELOPMENT J.V CO., LTD. POSCO Asia Co., Ltd. and others USD  150,000,000   160,710   150,000,000   160,710 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

Guarantors

  

Guarantee beneficiary

  

Financial institution

  

Foreign currency

   Won equivalent 
   (in millions of Won) 

POSCO ENGINEERING & CONSTRUCTION CO.,LTD.

  The union of City environment improvement for Kukje building and others  Others  KRW   745,350     745,350  
  Gale International Korea, LLC  Others  USD   50,000,000     54,960  
  INTERNATIONAL BUSINESS CENTER CORPORATION  Export-Import Bank of korea  USD   20,000,000     21,984  

POSCO ICT

  BTL business and others  Kyobo Life Insurance Co.,Ltd and others  KRW   2,055,936     2,055,936  
  SMS Energy and others  Hana Bank and others  KRW   158,860     158,860  

POSCO Engineering CO., Ltd

  GD  Shinhan Bank  KRW   3,500     3,500  
  Kwanma Solar Co., Ltd. and others  Hana Bank  KRW   53,930     53,930  
  Beomeo Saint Western Hotel  Meritz Insurance and others  KRW   6,600     6,600  
  Hyundai ENG Co., Ltd.  Engineering Financial Cooperative  KRW   28,173     28,173  

POSCO M-TECH

  JMTECH CO.,LTD and others  Seoul Guarantee Insurance Co., Ltd.  KRW   15,239     15,239  

POSCO PLANTEC Co., Ltd.

  JGC  Export-Import Bank of korea  KRW   855     855  
  AKER and others    USD   4,301,517     4,728  
  Alstom Power Inc. and others  KDB Bank  USD   24,258,546     26,668  
  Court and others    KRW   16,417     16,417  
  GS Engineering & Construction Corp and others  Seoul Guarantee Insurance Co., Ltd.  USD   9,985,137     10,977  
  SK Engineering & Construction co., ltd    CAD   889,882     843  
  GYEONGSANGBUK-DO    KRW   535     535  
  DEVELOPMENT CORPORATION        
  GS Engineering & Construction Corp  KEB Bank  USD   10,064,925     11,065  
  AKER    EUR   133,550     178  
  Taipei Port Terminal Company Ltd    TWD   342,500,000     11,882  
  Gyopo Wind Power Co., Ltd.  KB Bank  KRW   7,476     7,476  
  Goam Sun energy Korea Co., Ltd. and others  Shinhan Bank  KRW   26,509     26,509  
  HANWHA E&C    USD   240,000     264  
  JAESAN ENERGY    KRW   3,890     3,890  
  POSCO PLANTEC Taiwan Branch  Hana Bank  TWD   90,000,000     3,122  
  HANJIN HEAVY INDUSTRIES & CONSTRUCTION CO.,LTD  Gwangju Bank  KRW   99     99  
      

Guarantee limit

  Guarantee amount 

Guarantors

 

Guarantee

beneficiary

 

Financial
institution

 

Foreign currency

  Won
equivalent
  Foreign
currency
  Won
equivalent
 
  (in millions of Won) 

POSCO ICT

 SMS Energy and others Hana Bank and others KRW  104,880   104,880   73,676   73,676 
 Hyochun CO., LTD Daegu Bank and others KRW  39,575   39,575   39,575   39,575 
 BLT Enterprise and others Kyobo Life Insurance Co.,Ltd and others KRW  1,163,585   1,163,585   1,163,585   1,163,585 

POSCO AUSTRALIA PTY LTD

 Department of Trade and Investment(NSW Government) Woori Bank and others AUD  25,260,721   21,097   25,260,721   21,097 
   

 

 

 

 

  

 

 

  

 

 

  

 

 

 
   USD  4,683,667,474   5,018,081   3,834,409,355   4,108,186 
   KRW  2,985,528   2,985,528   2,358,270   2,358,270 
   CNY  760,500,000   124,456   684,450,000   112,011 
   INR  7,350,000,000   122,892   2,037,278,075   34,063 
   IDR  79,000,000,000   6,241   79,000,000,000   6,241 
   THB  5,501,000,000   180,268   5,501,000,000   180,268 
   EUR  46,000,000   58,846   37,000,000   47,332 
   AUD  25,260,721   21,097   25,260,721   21,097 
   BRL  464,060,000   150,100   464,060,000   150,100 
   

 

 

 

 

  

 

 

  

 

 

  

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

Guarantors

  

Guarantee beneficiary

  

Financial institution

  

Foreign currency

   Won equivalent 
   (in millions of Won) 
  CAMERON JAPAN and others    USD   9,679,904     10,639  
  Astara  Busan Bank  EUR   9,260     12  
  NIHON    JPY   5,483,800     50  
  SKY Calabria Co., Ltd.  NH Investment & Securities Co., Ltd.  KRW   149,922     149,922  
  Incheon International Airport Corporation  Engineering Financial Cooperative  KRW   31,413     31,413  

POSCO AUSTRALIA PTY LTD

  Department of Trade and Investment (NSW Government)  Woori Bank  AUD   8,023,765     7,214  

POSCO SS-VINA

  EVN SPC  Shinhan Bank  VND   35,525,413,000     1,826  

POS-NP PTY LTD

  Regional Infrastructure and Service  Woori Bank  AUD   539,496     485  

HUME COAL PTY LTD

  Department of Trade and Investment (NSW Government)  Woori Bank  AUD   804,000     723  

Plant Engineering service Technology Co., Ltd.

  Future Environmental Energy CO., Ltd  Seoul Guarantee Insurance Co., Ltd.  KRW   1,213     1,213  

POS-HiAL

  Kumho Rent-a-car Co., Ltd.  Seoul Guarantee Insurance Co., Ltd.  KRW   11     11  
      

 

  

 

 

   

 

 

 
      USD   4,948,637,600     5,439,546  
      KRW   4,209,282     4,209,282  
      CNY   1,821,820,000     322,882  
      THB   6,392,013,800     213,749  
      JPY   2,496,295,530     22,968  
      TWD   432,500,000     15,004  
      IDR   145,244,014,735     12,825  
      AUD   9,367,261     8,422  
      INR   383,201,941     6,645  
      GBP   3,500,000     5,987  
      VND   35,525,413,000     1,826  
      CAD   889,882     843  
      EUR   142,810     190  
      

 

  

 

 

   

 

 

 

(c) POSCO ENGINEERING & CONSTRUCTION Co.CO., Ltd.LTD. has provided the completion guarantees for Samsung C&T Corporation amounting to1,150,814395,792 million while Samsung C&T Corporation has provided the construction guarantees or payment guarantees on customers’ borrowings on behalf of POSCO ENGINEERING & CONSTRUCTION Co.CO., Ltd.LTD. amounting to556,385269,455 million as of December 31, 2014.2017.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

(d) Other commitments

Details of other commitments of the Company as of December 31, 2014,2017 are as follows:

 

POSCO

  

POSCO entered into long-term contracts to purchase iron ore, coal, nickel and others. The contracts of iron ore and coal generally have terms of more than three years and the contracts of nickel have terms of more than one year. These contracts provide for periodic price adjustments based on the market price. As of December 31, 2014, 1372017, 116 million tons of iron ore and 3218 million tons of coal remained to be purchased under such long-term contracts.

 

POSCO entered into an agreement with Tangguh Liquefied Natural Gas (LNG) Consortium in Indonesia to purchase 550 thousand tons of LNG annually for 20 years commencing in August 2005. The purchase price is subject to change, based on changes of the monthly standard oil price (JCC) and with a price ceiling.

 

As of December 31, 2014, POSCO2017, the Company entered into commitments with Korea National Oil CorporationKOREA ENERGY AGENCY for long-term foreign currency borrowings, which enableenables the Company to borrow up to the amount of USD 6.86 million, USD 6.58 million and USD 4.126.49 million. The borrowings are related to the Company’s exploration of gas hydrates in Aral Sea, Uzbekistan, the exploration of gas hydrates in Namangan-Chust and the exploration of gas hydrates in Western Fergana-Chenavard, respectively.Fergana-Chinabad. The repayment of the borrowings depends on the success of the projects. POSCOThe Company is not liable for the repayment of full or part of the amount borrowed if the respective projects fail. POSCOThe Company has agreed to pay a certain portion of its profits under certain conditions, as defined by the borrowing agreements. As of December 31, 2017, the ending balance of the borrowing amounts to USD 1.02 million.

 

  POSCO has provided a supplemental funding agreement, as the largest shareholder, as requested from the creditors, including Norddeutsche Landesbank, for seamless funding to POSCO ENERGY Co., Ltd. under construction of new power plant.

The Company provides a supplementary fund of up to9.8 billion to the Company’s subsidiary, Busan E&E Co., Ltd., at the request of creditors such as the Korea Development Bank.

The Company provides supplementary funding for the purpose of promoting the Suncheon Bay PRT business of Suncheon Eco Trans Co., Ltd, a subsidiary of the Company, at the request of creditors.

POSCO ENGINEERING

& CONSTRUCTION

CO., LTD.

  

 

As of December 31, 2014,2017, POSCO ENGINEERING & CONSTRUCTION CO., LTD. has comprehensive loan agreementsforeign currency guarantee of up to283.5 billion USD 2,311 million and uses USD 2681,306 million with Woori Bank and98 billion and USD 843 million with KEB Bank. Also, POSCO ENGINEERING & CONSTRUCTION CO., LTD. has bank overdraft agreements of up to20 billion with Woori Bank which is included in the limit of billion comprehensive loan agreements and 3 billion with Korea Exchange Bank. Comprehensive loan agreements include bank overdraft up to20 billion and30 billion of loans on checking account during the day with Woori Bank. others.

 

POSCO ICT

  

As of December 31, 2014,2017, in relation to contract enforcement, POSCO ICT was provided with62,164143,582 million and35,73522,432 million guaranties from Korea Software Financial Cooperative and Seoul Guarantee Insurance, respectively.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

 

POSCO Specialty Steel

Co., Ltd.

As of December 31, 2014, POSCO Specialty Steel Co., Ltd. has agreements for a loan and import letter of credit with Korea Exchange Bank and others.

(e) Litigation in progress

As of December 31, 2014,2017, litigations in progress that POSCO and certain subsidiaries are defendants in legal actions arising from the normal course of business.

1) Civil lawsuits with Nippon Steel & Sumitomo Metal Corporation

During the year ended December 31, 2012, Nippon Steel & Sumitomo Metal Corporation filed a civil lawsuit in the Tokyo District Court of Japan against POSCO and POSCO Japan Co., Ltd., a subsidiary of POSCO, to prohibit production and sales of grain oriented electrical steel sheets using improperly acquired trade secrets and seeking compensation from the Company of907.3 billion. Through trials up to December 31, 2014, the Company submitted its responses that the Japan court

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014business are as follows:

 

did not have jurisdiction on this lawsuit as it should be judged by Korean law and the Company developed grain oriented electrical steel sheets using the Company’s own technologies. As of December 31, 2014, the Japan court has not made any judgments on this matter. Since the Company does not believe that it has any present obligation, the Company has not recorded any provision for this lawsuit as of December 31, 2014.

2) Other lawsuits and claims

Company

 Legal
actions
  Claim amount  Korean won
equivalent
  Description
  (In millions of Won, in thousands of foreign currencies)

POSCO

  38   KRW  87,167    87,167   Lawsuit on claim for damages (*1)

Daewoo International Corporation

  9   USD  47,788    52,529   Lawsuit on claim for payment (*1)
  5   KRW  2,312    2,312   Lawsuit on claim for payment
  1   INR  4,458,849    77,316   Lawsuit on claim for payment
on guarantees (*1)
  1   EUR  3,270    4,370   Lawsuit on claim for payment

POSCO ENGINEERING & CONSTRUCTION CO., LTD.

  72   KRW  118,567    118,567   Lawsuit on claim for payment
on rent fees by PSIB

POSCO Processing&Service

  3   KRW  770    770   Lawsuit on claim for payment

POSCO Engineering CO.,Ltd

  12   KRW  4,662    4,662   Lawsuit on claim for payment
on construction by
Samyanginnochem

POSCO COATED & COLOR STEEL Co., Ltd.

  2   KRW  350    350   Lawsuit on claim for payment

POSCO ICT

  19   KRW  15,287    15,287   Lawsuit on claim for payment
on construction

POSCO America Corporation

  2   USD         Lawsuit on claim for anti-trust

POSCO M-TECH

  4   KRW  1,039    1,039   Lawsuit on claim for payment

POSCO PLANTEC Co., Ltd.

  6   KRW  2,671    2,671   Lawsuit on claim for payment
  1   USD  4,304    4,730   Lawsuit on claim for payment
on agent fees
  1   EUR  5,492    7,340   Lawsuit on claim for payment

POSCO E&C CHINA Co., Ltd.

  1   CNY  37,000    6,558   Lawsuit on claim for failure to
obtain PF

Daewoo International (America) Corp.

  2   USD  10,442    11,478   Lawsuit on claim clam for
indemnification damages

POSPOWER Co., Ltd.

  1   KRW  9,667    9,667   Lawsuit on claim for payment

POSCO RUS LLC

  2   RUB  11,206    223   Lawsuit on claim for payment

SPFC Co, LTD.

  1   KRW  150    150   Lawsuit on claim for payment

IT Engineering

  1   KRW  21    21   Lawsuit on claim for payment

Company

 Legal
actions
  

Claim amount

  Korean Won
equivalent
  

Description

  (In millions of Won, in thousands of foreign currencies)

POSCO

  15  KRW  23,037   23,037  Lawsuit on claim for employee right and others(*1)
  1  USD  1,583   1,696  Arbitration on trading and others

POSCO DAEWOO Corporation

  2  EUR  2,747   3,514  Lawsuit on claim for damages and others
  3  INR  4,518,694   75,553  Lawsuit on claim for payment on guarantees and others(*1)
  10  KRW  9,903   9,903  Lawsuit on claim for payment and others
  3  USD  22,228   23,815  Lawsuit on claim for damages and others(*1)
  1  PKR  124,775   1,208  Lawsuit on claim for damages
  1  CAD  79,000   67,363  Lawsuit on claim for damages

POSCO ENGINEERING & CONSTRUCTION CO., LTD.

  104  KRW  461,134   461,134  Arbitration on construction costs allocation and others

POSCO ICT

  13  KRW  9,894   9,894  Lawsuit on claim for payment and others

POSCO A&C

  3  KRW  3,985   3,985  Lawsuit on claim for payment on construction

POSCO ENERGY CO., LTD.

  4  KRW  7,017   7,017  Lawsuit on claim for damages and revocation of electricity supply contract and others

POSCO E&C CHINA CO., LTD.

  11  CNY  13,679   2,239  Lawsuit on claim for payment of reserve for construction warranty and others
  1  KRW  3,305   3,305  Lawsuit on claim for payment on construction

Posco e&c Songdo International Building

  3  KRW  892   892  Lawsuit on affirmation of thenon-existence of general meeting of stockholders and others

POSPOWER CO., Ltd.

  1  KRW  1,000   1,000  Lawsuit on claim for damages

POSCO ENGINEERING(THAILAND) CO., LTD.

  7  THB  724,400   23,739  Lawsuit on claim for payment on construction

POSCO TNPC Otomotiv Celik San. Ve Tic. A.S

  6  TRY  31   9  Lawsuit on claim for unfair dismissal and others

PT. KRAKATAU POSCO

  1  IDR  324,858,033   25,664  Lawsuit on claim for payment on construction

POSCO(Dalian)IT Center Development Co., Ltd.

  2  CNY  423   69  Lawsuit over contract dispute dealing apartment

Brazil Sao Paulo Steel Processing Center

  3  BRL  12,167   3,935  Lawsuit on claim for payment on construction and others

POSCO ENGINEERING &CONSTRUCTION DO BRAZIL LTDA.

  184  BRL  121,058   39,156  Lawsuit on claim for damages and others(*1)

HONG KONG POSCO E&C (CHINA) INVESTMENT Co., Ltd.

  1  KRW  3,305   3,305  Lawsuit on claim for payment on construction

POSCO India Chennai Steel Processing Center Pvt.Ltd.

  6  USD  8,409   9,009  Lawsuit on custom duty and others

 

(*1)The Company made a reliable estimate in 4163 lawsuits by considering the possibility and amount of outflow of resources and recognized44,30927,963 million as provision for legal contingencies and claims.

For all the other lawsuits and claims, management does not believe the Company has any present obligations and therefore, the Company has not recognized any provisions as of December 31, 20142017 for the matters.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

39.Additional Information of Cash Flows from Operating ActivitiesFlow Statements

Adjustments for(a) Changes in operating cash flowsassets and liabilities for the years ended December 31, 2012, 20132015, 2016 and 20142017 were as follows:

 

  2012 2013 2014   2015 2016 2017 
  (in millions of Won)   (in millions of Won) 

Trade accounts and notes receivable

  49,917    (643,715  (97,703  1,586,113  273,419  63,075 

Other financial assets

   (392,090  (98,420  (27,601

Other receivables

   259,741  191,591  113,740 

Inventories

   1,228,162    491,512    (1,130,138   2,456,068  (889,998 (1,435,170

Other current assets

   (198,157  181,755    242,170     42,131  (287,377 110,688 

Other long-term assets

   (141,037  (23,412  (53,225

Othernon-current assets

   72,826  33,584  12,455 

Trade accounts and notes payable

   225,086    47,323    (385,914   (894,129 769,337  (607,999

Other financial liabilities

   357,502    194,419    271,117  

Other payables

   39,811  (179,174 (26,922

Other current liabilities

   631,749    81,317    (20,930   (457,947 2,490  338,273 

Provisions

   17,108    (42,052  (63,884   (119,172 (124,884 (145,763

Payments severance benefits

   (116,846  (129,038  (160,792

Payments of severance benefits

   (157,983 (278,278 (185,220

Plan assets

   (191,696  (172,147  (164,515   (115,274 (138,854 3,815 

Other long-term liabilities

   500,284    4,158    (262,367

Othernon-current liabilities

   72,267  223,574  (82,605
  

 

  

 

  

 

   

 

  

 

  

 

 
      1,969,982    (108,300  (1,853,782  2,784,452  (404,570 (1,841,633
  

 

  

 

  

 

   

 

  

 

  

 

 

40.Non-Cash Transactions

Significant non-cash transactions for the years ended December 31, 2013 and 2014 were as follows:

   2013   2014 
   (in millions of Won) 

Construction-in-progress transferred to other accounts

      6,610,644     5,852,017  

Reclassification as asset held for sale

        2,213,673  

Reclassification as liabilities of disposal group held for sale

        621,303  

Acquisition of short-term financial instruments through issuance of treasury stock

   804,496       

41.Business combination

(a) On December 24, 2014, POSCO participated(b) Changes in a capital increase in POSCO PLANTEC Co., Ltd., an associate of the Company, to improve theliabilities arising from financial structure and assist in investment funding of the associate to expand and strengthen its competencies in the plant engineering business. The Company has obtained control as its ownership of POSCO PLANTEC Co., Ltd. increased from 41.95% to 73.94% upon the capital increase.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

(b) Goodwill recognized in this business combination is as follows:

Amount
(in millions of Won)

I. Consideration transferred

Fair value of existing equity interest(*1)

    106,423

Cash

290,000

Total

396,423

II. Non-controlling interests(*2)

76,183

Total

472,606

III. Acquired identified assets and liabilities

Assets

Cash and cash equivalents

4,623

Trade accounts and notes receivable

260,910

Other receivables and other financial assets

171,723

Inventories

20,570

Property, plant and equipment and intangible assets

360,576

Other assets

23,783

Total

842,185

Liabilities

Trade accounts and notes payable

77,063

Borrowings

342,279

Other payables and other financial liabilities

44,495

Other liabilities

86,160

Total

549,997

Total acquired net assets

292,188

IV. Goodwill recognized

180,418

(*1)Upon the acquisition of the business, a57,480 million disposal gain on the Company’s existing investment in the acquiree prior to acquisition date (acquisition cost:48,943 million) was recognized as finance income. The fair value of this existing investment was determined using quoted market price of shares on the acquisition date.

(*2)The non-controlling interests at the acquisition date were measured using their proportionate shares in the recognized amounts of POSCO PLANTEC Co., Ltd’s identifiable net assets and preferred shares issued by POSCO PLANTEC Co., Ltd.

(c) If the Company had acquired POSCO PLANTEC Co., Ltd. as of January 1, 2014, pro-forma consolidated revenues and pro-forma consolidated net profitactivities for the year ended December 31, 2014 would have been65,053,917 million and560,443 million, respectively. There have been no revenues and net profit incurred by POSCO PLANTEC Co., Ltd. from the acquisition date to December 31, 2014.2017 were as follows:

   Liabilities  Derivatives held
to hedge
borrowings
 
   Short-term
borrowings
  long-term
borrowings
  Dividend
payable
  Finance
lease
liabilities
  
   (in millions of Won) 

Beginning

  7,979,727   14,725,271   7,770   114,409   (52,373

Changes from financing cash flows

   558,083   (1,410,033  (931,232  (10,536   

Changes arising from obtaining or losing
control of subsidiaries or other business

   (12,469  3,299          

The effect of changes in foreign exchange rates

   (350,523  (435,170     (10,855   

Changes in fair values

               171,693 

Other changes:

      

Decrease in retained earnings

         863,579       

Decrease innon-controlling interests

         67,096       

Amortization of discount on debentures issued

      5,472          
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Ending

  8,174,818   12,888,839   7,213   93,018   119,320 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

42.40.Operating Segments and Geographic Information

(a) The Company’s operating businesses are organized based on the nature of markets and customers. The Company has four reportable operating segments — segments—steel, construction, trading and others. The steel segment includes production of steel products and revenue of such products. The construction segment includes planning, designing and construction of industrial plants, civil engineering projects and commercial and residential buildings, both in Korea and overseas. The trading segment consists of exporting and importing a wide range of steel products and raw materials

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

that are both obtained from and supplied to POSCO, as well as between other suppliers and purchasers in Korea and overseas. Other segments include power generation, liquefied natural gas production, network and system integration and logistics. The policies of classification and measurement on operating segments were the same for all periods presented.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

(b) Information about reportable segments as of and for the years ended December 31, 2012, 20132015, 2016 and 20142017 was as follows:

1) As of and for the year ended December 31, 20122015

 

 Steel Trading Construction Others Total   Steel Trading Construction Others Total 
 (in millions of Won)   (in millions of Won) 

External revenues

     35,258,970    18,945,642    4,675,596    4,723,943    63,604,151        28,292,824  18,315,487  8,515,780  3,068,254  58,192,345 

Internal revenues

  17,609,789    7,467,872    5,050,287    2,857,139    32,985,087     16,543,951  8,692,020  1,352,067  2,691,361  29,279,399 

Including inter segment revenue

  10,148,377    3,748,375    4,559,761    2,754,134    21,210,647     9,146,808  4,480,744  1,090,193  2,571,219  17,288,964 

Total revenues

  52,868,759    26,413,514    9,725,883    7,581,082    96,589,238     44,836,775  27,007,507  9,867,847  5,759,615  87,471,744 

Interest income

  176,229    50,907    43,815    21,811    292,762     139,821  55,630  27,134  16,173  238,758 

Interest expenses

  (553,508  (174,607  (48,975  (116,499  (893,589   (560,767 (76,672 (91,742 (141,095 (870,276

Depreciation and amortization

  (2,334,357  (35,788  (35,323  (218,515  (2,623,983   (2,782,680 (166,814 (50,605 (282,817 (3,282,916

Impairment loss of property, plant and equipment and others

  (46,951  (30,073  (7,734  (16,257  (101,015

Impairment loss of available-for-sale financial assets

  (201,850  (254  (1,713  (20,354  (224,171

Impairment loss on property, plant and equipment and others

   (243,828 (17,281 (28,345 (22,979 (312,433

Impairment loss onavailable-for-sale financial assets

   (151,503 (1,410 (47,616 (40,261 (240,790

Share of profit or loss of investment in associates and JVs

  (39,806  (5,579  (27  (2,764  (48,176   (562,133 (212,535 (25,223 (22,618 (822,509

Income tax expense

  (658,307  (184,318  (135,469  (77,139  (1,055,233   (390,000 (4,772 (30,615 (18,718 (444,105

Segment profit

  2,245,977    325,197    345,295    301,670    3,218,139  

Segment profit (loss)

   181,495  38,843  (275,651 (65,570 (120,883

Segment assets

  69,920,261    10,904,747    10,775,895    7,723,374    99,324,277     70,102,972  12,160,406  9,997,683  10,962,594  103,223,655 

Investment in associates

  15,802,052    1,043,018    1,130,216    435,980    18,411,266     17,457,391  1,097,971  1,076,024  1,186,307  20,817,693 

Acquisition of non-current assets

  7,629,767    395,081    167,818    781,087    8,973,753     2,102,674  303,753  276,863  345,971  3,029,261 

Segment liabilities

  23,105,008    7,865,399    7,008,996    4,836,641    42,816,044     21,078,613  8,953,410  5,716,550  6,472,925  42,221,498 

2) As of and for the year ended December 31, 20132016

 

 Steel Trading Construction Others Total   Steel Trading Construction Others Total 
 (in millions of Won)   (in millions of Won) 

External revenues

     31,794,574    18,307,888    6,896,838    4,865,350    61,864,650        26,844,154  16,774,078  6,768,348  2,696,933  53,083,513 

Internal revenues

  16,229,002    7,611,372    3,885,190    3,019,246    30,744,810     16,062,016  9,646,026  713,703  2,379,945  28,801,690 

Including inter segment revenue

  9,223,276    3,817,644    3,539,891    2,881,039    19,461,850     8,992,783  5,296,847  557,526  2,285,128  17,132,284 

Total revenues

  48,023,576    25,919,260    10,782,028    7,884,596    92,609,460     42,906,170  26,420,104  7,482,051  5,076,878  81,885,203 

Interest income

  162,149    46,064    47,070    19,892    275,175     126,210  40,424  65,256  13,564  245,454 

Interest expenses

  (412,142  (77,375  (48,030  (106,824  (644,371   (459,345 (70,841 (102,292 (126,523 (759,001

Depreciation and amortization

  (2,383,010  (43,775  (36,614  (235,365  (2,698,764   (2,788,535 (165,863 (57,719 (264,299 (3,276,416

Impairment loss of property, plant and equipment and others

  (34,153  (975  (4,058  (11,875  (51,061

Impairment loss of available-for-sale financial assets

  (203,468  (435  (97,919  (10,172  (311,994

Impairment loss on property, plant and equipment and others

   (99,165 (45,995 (9,426 (88,696 (243,282

Impairment loss onavailable-for-sale financial assets

   (225,225 (28,988 (35,331 (24,902 (314,446

Share of profit or loss of investment in associates and JVs

  (250,084  (131,534  (71,068  (26,326  (479,012   (211,084 (53,586 (283,833 (6,369 (554,872

Income tax expense

  (466,756  (27,549  (87,660  (73,371  (655,336   (495,874 (18,629 107,520  (56,026 (463,009

Segment profit

  1,449,446    9,516    147,177    197,449    1,803,588  

Segment profit (loss)

   1,511,383  53,244  (1,403,712 (25,889 135,026 

Segment assets

  73,860,997    11,640,931    9,888,590    8,843,652    104,234,170     69,914,939  13,580,179  9,501,046  8,529,600  101,525,764 

Investment in associates

  16,863,991    1,019,252    1,090,089    598,775    19,572,107     16,109,360  1,100,973  795,445  1,200,295  19,206,073 

Acquisition of non-current assets

  5,955,799    242,413    150,469    1,191,243    7,539,924     2,334,842  249,597  25,533  191,715  2,801,687 

Segment liabilities

  23,774,850    8,649,557    6,068,059    5,059,440    43,551,906     20,292,764  10,134,170  6,780,380  4,709,689  41,917,003 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

3) As of and for the year ended December 31, 20142017

 

  Steel Trading Construction Others Total   Steel Trading Construction Others Total 
  (in millions of Won)   (in millions of Won) 

External revenues

      31,841,748    21,165,806    8,119,207    3,971,684    65,098,445        30,230,368  20,802,207  6,886,606  2,735,919  60,655,100 

Internal revenues

   17,755,182    10,095,123    2,184,519    3,094,647    33,129,471     17,381,010  14,075,996  398,924  2,548,674  34,404,604 

Including inter segment revenue

   10,159,110    5,180,926    1,679,443    2,920,354    19,939,833     12,004,614  8,043,643  329,215  2,446,029  22,823,501 

Total revenues

   49,596,930    31,260,929    10,303,726    7,066,331    98,227,916     47,611,378  34,878,203  7,285,530  5,284,593  95,059,704 

Interest income

   148,288    47,905    27,297    18,694    242,184     128,827  32,799  100,922  17,940  280,488 

Interest expenses

   (524,735  (92,855  (61,954  (127,843  (807,387   (422,357 (121,967 (112,983 (100,656 (757,963

Depreciation and amortization

   (2,779,723  (121,163  (52,268  (331,444  (3,284,598   (2,856,133 (206,490 (42,123 (255,620 (3,360,366

Impairment loss of property, plant and equipment and others

   (137,708  (35,131  756    (50,085  (222,168

Impairment loss of available-for-sale financial assets

   (352,830  (1,097  (24,588  (14,444  (392,959

Impairment loss on property, plant and equipment and others

   (149,840 (140,839 (37,476 (8,564 (336,719

Impairment loss onavailable-for-sale financial assets

   (95,261    (18,637 (13,421 (127,319

Share of profit or loss of investment in associates and JVs

   (217,491  (29,263  (53,226  (23,559  (323,539   8,352     (8,555 (1,518 (1,721

Income tax expense

   (691,030  (114,587  (45,147  (21,415  (872,179   (977,853 (109,710 (109,961 (77,172 (1,274,696

Segment profit

   857,148    181,243    13,085    8,536    1,060,012  

Segment profit (loss)

   2,790,855  112,661  24,545  232,700  3,160,761 

Segment assets

   74,138,707    13,597,301    10,396,691    10,742,877    108,875,576     70,017,816  14,139,098  8,609,753  8,776,090  101,542,757 

Investment in associates

   18,227,743    1,076,373    1,091,402    1,154,187    21,549,705     16,116,654  1,134,798  668,392  1,193,895  19,113,739 

Acquisition of non-current assets

   2,348,979    399,273    701,019    906,685    4,355,956     2,033,184  286,185  99,190  251,665  2,670,224 

Segment liabilities

   23,750,464    10,384,329    6,345,852    6,139,971    46,620,616     19,057,249  10,386,294  5,744,693  4,620,902  39,809,138 

(c) Reconciliations of total segment revenues, profit or loss, assets and liabilities, and other significant items to their respective consolidated financial statement line items are as follows:

1) Revenues

 

  2012 2013 2014   2015 2016 2017 
  (in millions of Won)   (in millions of Won) 

Total revenue for reportable segments

  96,589,238    92,609,460    98,227,916        87,471,744  81,885,203  95,059,704 

Elimination of inter-segment revenue

   (32,985,087  (30,744,810  (33,129,471   (29,279,399 (28,801,690 (34,404,604

Basis difference (*2)

   (258,893  (98,907  (339,820   329,923  (143,742 (468,233
  

 

  

 

  

 

   

 

  

 

  

 

 
      63,345,258    61,765,743    64,758,625    58,522,268  52,939,771  60,186,867 
  

 

  

 

  

 

   

 

  

 

  

 

 

2) Profit

 

  2012 2013 2014   2015 2016 2017 
  (in millions of Won)   (in millions of Won) 

Total profit for reportable segments

  3,218,139    1,803,588    1,060,012  

Goodwill and Corporate FV adjustments

   (58,486  (91,718  (122,015

Total profit (loss) for reportable segments

  (120,883 135,026  3,160,761 

Goodwill and corporate FV adjustments

   (95,150 (123,110 (84,370

Elimination of inter-segment profits

   (774,046  (356,690  (381,338   119,852  1,036,253  (102,922

Income tax expense

   982,879    590,997    821,485     276,939  384,685  1,206,223 

Basis difference (*2)

   (36,624  (8,132  9,736     (30,413 (21,245 (84,641
  

 

  

 

  

 

   

 

  

 

  

 

 

Profit before income tax expense

      3,331,862    1,938,045    1,387,880        150,345  1,411,609  4,095,051 
  

 

  

 

  

 

   

 

  

 

  

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

3) Assets

 

   2013  2014 
   (in millions of Won) 

Total assets for reportable segments (*1)

  104,234,170    108,875,576  

Equity-accounted investees

   (15,758,936  (17,487,024

Goodwill and Corporate FV adjustments

   3,560,873    4,282,455  

Elimination of inter-segment assets

   (7,580,700  (10,418,834

Basis difference (*2)

   385,701    591,390  
  

 

 

  

 

 

 
      84,841,108    85,843,563  
  

 

 

  

 

 

 

   2016  2017 
   (in millions of Won) 

Total assets for reportable segments (*1)

  101,525,764   101,542,757 

Equity-accounted investees

   (15,322,271  (15,555,972

Goodwill and corporate FV adjustments

   3,750,915   3,368,333 

Elimination of inter-segment assets

   (10,191,413  (10,330,159

Basis difference (*2)

   374,619   760,670 
  

 

 

  

 

 

 
      80,137,614   79,785,629 
  

 

 

  

 

 

 

 

(*1)As segment assets and liabilities are determined based on separate financial statements, for subsidiaries which are in a different segment from that of its immediate parent company, their carrying amount in separate financial statements is eliminated upon consolidation. In addition, adjustments are made to adjust the amount of investment in associates and joint ventures from the amount reflected in segment assets to that determined using equity method in consolidated financial statements.

4) Liabilities

 

  2013 2014   2016 2017 
  (in millions of Won)   (in millions of Won) 

Total liabilites for reportable segments

  43,551,906    46,620,616  

Total liabilities for reportable segments

  41,917,003  39,809,138 

Corporate FV adjustments

   337,442    507,073     442,178  483,693 

Elimination of inter-segment liabilites

   (5,255,971  (7,166,880

Elimination of inter-segment liabilities

   (8,434,580 (8,731,880

Basis difference (*2)

   427,049    625,358     447,744  897,953 
  

 

  

 

   

 

  

 

 
      39,060,426    40,586,167        34,372,345  32,458,904 
  

 

  

 

   

 

  

 

 

5) Other significant items

a) December 31, 20122015

 

  Total Segment Corporate FV
adjustments
 Elimination of
inter-segment
transactions
 Basis
difference (*2)
   Consolidated   Total
segment
 Corporate FV
adjustments
 Elimination of
inter-segment
transactions
 Basis
difference (*2)
   Consolidated 
  (in millions of Won)   (in millions of Won) 

Interest income

          292,762        (13,955       278,807    238,758     (28,565      210,193 

Interest expenses

   (893,589  1,372    20,760         (871,457   (870,276 1,282  80,222       (788,772

Depreciation and amortization

   (2,623,983  (77,496  137,719         (2,563,760   (3,282,916 (117,595 182,265       (3,218,246

Share of profit or loss of investment in associates

   (48,176      25,474         (22,702   (822,509    316,455       (506,054

Income tax expense

   (1,055,233  15,150    57,204    8,863     (974,016   (444,105 24,294  142,872  10,379    (266,560

Impairment loss of property, plant and equipment and others

   (101,015  (258,451  24,070         (335,396

Impairment loss of available-for-sale financial assets

   (224,171               (224,171

Impairment loss on property, plant and equipment and others

   (312,433    (142,234      (454,667

Impairment loss onavailable-for-sale financial assets

   (240,790    98,009       (142,781
  

 

  

 

  

 

  

 

   

 

   

 

  

 

  

 

  

 

   

 

 
  (4,653,405  (319,425  251,272    8,863     (4,712,695  (5,734,271 (92,019 649,024  10,379    (5,166,887
  

 

  

 

  

 

  

 

   

 

   

 

  

 

  

 

  

 

   

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 20132015, 2016 and 20142017

 

 

 

b) December 31, 20132016

 

  Total Segment Corporate FV
adjustments
 Elimination of
inter-segment
transactions
 Basis
difference  (*2)
   Consolidated   Total
segment
 Corporate FV
adjustments
 Elimination of
inter-segment
transactions
 Basis
difference (*2)
   Consolidated 
  (in millions of Won)   (in millions of Won) 

Interest income

          275,175        (14,777       260,398    245,454     (62,979      182,475 

Interest expenses

   (644,371  (34,814  21,504         (657,681   (759,001 (807 101,082       (658,726

Depreciation and amortization

   (2,698,764  (84,223  97,437         (2,685,550   (3,276,416 (104,949 167,518       (3,213,847

Share of profit or loss ofinvestment in associates

   (479,012      299,203         (179,809

Share of profit or loss of investment in associates

   (554,872 (38,732 504,927       (88,677

Income tax expense

   (655,336  25,074    39,265    1,968     (589,029   (463,009 21,945  56,379  5,141    (379,544

Impairment loss ofproperty, plant and equipment and others

   (51,061      (97,424       (148,485

Impairment loss of available-for-sale financial assets

   (311,994      31,757         (280,237

Impairment loss on property, plant and equipment and others

   (243,282    (125,657      (368,939

Impairment loss onavailable-for-sale financial assets

   (314,446    66,042       (248,404
  

 

  

 

  

 

  

 

   

 

   

 

  

 

  

 

  

 

   

 

 
  (4,565,363  (93,963  376,965    1,968     (4,280,393  (5,365,572 (122,543 707,312  5,141    (4,775,662
  

 

  

 

  

 

  

 

   

 

   

 

  

 

  

 

  

 

   

 

 

c) December 31, 20142017

 

  Total Segment Corporate FV
adjustments
 Elimination of
inter-segment
transactions
 Basis
difference  (*2)
 Consolidated   Total
segment
 Corporate FV
adjustments
 Elimination of
inter-segment
transactions
 Basis
difference (*2)
   Consolidated 
  (in millions of Won)   (in millions of Won) 

Interest income

            242,184        (13,930      228,254    280,488     (68,037      212,451 

Interest expenses

   (807,387  (45,668  57,470        (795,585   (757,963 1,304  103,544       (653,115

Depreciation and amortization

   (3,284,598  (111,263  157,312        (3,238,549   (3,360,366 (106,195 169,141       (3,297,420

Share of profit or loss of investment in associates

   (323,539      23,646        (299,893   (1,721    12,261       10,540 

Income tax expense

   (872,179  33,473    17,221    (2,356  (823,841   (1,274,696 21,270  47,203  20,483    (1,185,740

Impairment loss of property, plant and equipment and others

   (222,168      47,838        (174,330

Impairment loss of available-for-sale financial assets

   (392,959      23,236        (369,723

Impairment loss on property, plant and equipment and others

   (336,719 (867 34,619       (302,967

Impairment loss onavailable-for-sale financial assets

   (127,319    4,105       (123,214
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

   

 

 
       (5,660,646  (123,458  312,793    (2,356  (5,473,667  (5,578,296 (84,488 302,836  20,483    (5,339,465
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

   

 

 

 

 

(*2)Basis difference is related to the difference in recognizing revenue and expenses in connection with development and sale of certain residential real estate between the report reviewed by the CEO and the consolidated financial statements (see note 3).statements.

(d) Revenue by geographic area for years ended December 31, 2012, 20132015, 2016 and 20142017 was as follows:

 

  2012   2013   2014   2015   2016 2017 
  (in millions of Won)   (in millions of Won) 

Domestic

  47,433,132     45,854,919     45,465,347    39,268,907    34,883,941  38,882,220 

Japan

   2,380,651     1,920,253     2,047,686     1,934,808    1,892,022  2,200,405 

China

   6,022,875     6,493,119     6,319,101     5,756,867    5,908,046  6,731,214 

Asia-other

   3,157,469     3,011,980     5,055,373     5,888,045    5,649,843  7,750,553 

North America

   1,792,706     1,720,895     2,199,418     1,921,039    1,899,291  1,725,120 

Others

   2,558,425     2,764,577     3,671,700     3,422,679    2,850,370  3,365,588 
  

 

   

 

   

 

   

 

   

 

  

 

 
      63,345,258     61,765,743     64,758,625     58,192,345    53,083,513  60,655,100 

Basis difference

   329,923    (143,742 (468,233
  

 

   

 

   

 

   

 

   

 

  

 

 
  58,522,268    52,939,771  60,186,867 
  

 

   

 

  

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

In presenting geographic information on the basis of geography, segment revenue is based on the geographical location of customers.

(e)POSCO and SubsidiariesNon-current

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012, 2013 and 2014

(e) Non-current assets by geographic area as of December 31, 20132016 and 20142017 are as follows:

 

  2013   2014   2016   2017 
  (in millions of Won)   (in millions of Won) 

Domestic

  33,116,006     33,837,971    31,772,641    30,790,462 

Japan

   203,241     177,322     187,266    162,328 

China

   1,632,490     1,745,125     1,451,405    1,284,561 

Asia-other

   4,703,943     4,867,569     6,163,388    5,266,799 

North America

   167,468     186,753     168,800    277,249 

Others

   2,292,040     2,367,036     1,233,288    1,119,319 
  

 

   

 

   

 

   

 

 
  42,115,188     43,181,776    40,976,788    38,900,718 
  

 

   

 

   

 

   

 

 

Non-current assets by geographic area include investment property, property, plant and equipment, goodwill and other intangible assets.

(f) There are no customers whose revenue is 10% or more of consolidated revenue.

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

POSCO

(Registrant)

/s/ Kwon, Oh-Joon

Name:

Kwon, Oh-Joon

Title:

Chief Executive Officer and Representative Director

Date:

April 29, 2015


Exhibit Index

 

  1.1      Articles of incorporation of POSCO (English translation) (incorporated by reference to Exhibit 1.1 to the Registrant’s filing on Form 20-F (File No. 001-13368), filed on May 12, 2014)*
  2.1      Form of Common Stock Certificate (including English translation) (incorporated by reference to Exhibit 4.3 to the Registrant’s Registration StatementNo. 33-81554)* (P)
  2.2      Form of Deposit Agreement (including Form of American Depositary Receipts) (incorporated by reference to the Registrant’s Registration Statement (FileNo. 333-189473) on FormF-6)*
  8.1      List of consolidated subsidiaries
12.1      Certification pursuant to Section 302 of theSarbanes-Oxley Act of 2002
12.2      Certification pursuant to Section 302 of theSarbanes-Oxley Act of 2002
13.1      Certification pursuant to Section 906 of theSarbanes-Oxley Act of 2002

 

 

*Filed previously


SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

POSCO

(Registrant)

/s/ Kwon,Oh-Joon

Name:

Kwon,Oh-Joon

Title:

Chief Executive Officer and Representative Director

Date:

April 27, 2018