As filed with the Securities and Exchange Commission on April 27, 201829, 2020

 

 

 

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

 

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

For the fiscal year ended December 31, 20172019

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, Republic of Korea 06194

(Address of principal executive offices)

Lim,Sung-SuSohn, Kyle

POSCO Center, 440Teheran-ro,Gangnam-gu

Seoul, Republic of Korea 06194

Telephone:+82-2-3457-1098; +82-2-3457-1386; E-mail: s2blue@posco.com; sohnkangil@posco.com; Facsimile:+82-2-3457-1997 +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

  Trading symbolName of Each Exchange on Which Registered

American Depositary Shares, each representing

one-fourth of one share of common stock

  PKXNew York Stock Exchange, Inc.

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

PKX  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, 2017,2019, there were 79,999,60480,115,641 shares of common stock, par value Won 5,000 per share, outstanding

(not including 7,187,2317,071,194 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          NoNo   

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

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.    Yes        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 an emerging growth company. See definition of “large accelerated filer,” “accelerated filer” and “emerging growth company” inRule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer        Accelerated filer            Non-acceleratedNon-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 whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.    Yes  No

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          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 17          Item 18 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

 

*

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.  Auditor   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   4 

ITEM 4.

 INFORMATION ON THE COMPANY   2123 
 Item 4.A.  History and Development of the Company   2123 
 Item 4.B.  Business Overview   2123 
 Item 4.C.  Organizational Structure   3537 
 Item 4.D.  Property, Plants and Equipment   3537 
Item 4.E.

ITEM 4A.

 Unresolved Staff CommentsUNRESOLVED STAFF COMMENTS   3740 

ITEM 5.

 OPERATING AND FINANCIAL REVIEW AND PROSPECTS   3740 
 Item 5.A.  Operating Results   3740 
 Item 5.B.  Liquidity and Capital Resources   7173 
 Item 5.C.  Research and Development, Patents and Licenses, Etc.Etc.   7476 
 Item 5.D.  Trend Information   7477 
 Item 5.E.  Off-balance Sheet Arrangements   7577 
 Item 5.F.  Tabular Disclosure of Contractual Obligations   7577 
 Item 5.G.  Safe Harbor   7577 

ITEM 6.

 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES   7577 
 Item 6.A.  Directors and Senior Management   7577 
 Item 6.B.  Compensation   7880 
 Item 6.C.  Board Practices   7981 
 Item 6.D.  Employees   8082 
 Item 6.E.  Share Ownership   8183 

ITEM 7.

 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS   8384 
 Item 7.A.  Major Shareholders   8384 
 Item 7.B.  Related Party Transactions   8385 
 Item 7.C.  Interests of Experts and Counsel   8385 

ITEM 8.

 FINANCIAL INFORMATION   8385 
 Item 8.A.  Consolidated Statements and Other Financial Information   8385 
 Item 8.B.  Significant Changes   8587 

i


ITEM 9.

 THE OFFER AND LISTING   8587 
 Item 9.A.  Offer and Listing Details   8587 

i


 Item 9.B.  Plan of Distribution   87 
 Item 9.C.  Markets   87 
 Item 9.D.  Selling Shareholders   9288 
 Item 9.E.  Dilution   9288 
 Item 9.F.  Expenses of the Issuer   9288 

ITEM 10.

 ADDITIONAL INFORMATION   9288 
 Item 10.A.  Share Capital   9288 
 Item 10.B.  Memorandum and Articles of Association   9288 
 Item 10.C.  Material Contracts   9793 
 Item 10.D.  Exchange Controls   9793 
 Item 10.E.  Taxation   10298 
 Item 10.F.  Dividends and Paying Agents   107104 
 Item 10.G.  Statements by Experts   107104 
 Item 10.H.  Documents on Display   107104 
 Item 10.I.  Subsidiary Information   107104 

ITEM 11.

 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   107104 

ITEM 12.

 DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES   109106 
 Item 12.A.  Debt Securities   109106 
 Item 12.B.  Warrants and Rights   110106 
 Item 12.C.  Other Securities   110106 
 Item 12.D.  American Depositary Shares   110107 
PART II   111108 

ITEM 13.

 DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES   111108 

ITEM 14.

 MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS   111108 

ITEM 15.

 CONTROLS AND PROCEDURES   111108 

ITEM 16.

 [RESERVED]   112109 
 Item 16.A.  Audit Committee Financial Expert   112109 
 Item 16.B.  Code of Ethics   112109 
 Item 16.C.  Principal Accountant Fees and Services   113110 
 Item 16.D.  Exemptions from the Listing Standards for Audit Committees   113110 
 Item 16.E.  Purchases of Equity Securities by the Issuer and Affiliated Purchasers   113111 
 Item 16.F.  Change in Registrant’s Certifying Accountant   114111 
 Item 16.G.  Corporate Governance   114111 
 Item 16.H.  Mine Safety Disclosure   115113 
PART III   115113 

ITEM 17.

 FINANCIAL STATEMENTS   115113 

ITEM 18.

 FINANCIAL STATEMENTS   115113 

ITEM 19.

 EXHIBITS   116113 

 

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.

“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 11.  .Identity of Directors, Senior Managers and Advisers

Item 11.A.  .A.Directors and Senior Management

Not applicable

Item 11.B.  .B.Advisers

Not applicable

Item 1.C.1.C.  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, 20162018 and 20172019 and for each of the years in thethree-year period ended December 31, 20172019 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 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 FSCMA. English translations of such financial statements are furnished to the SEC under Form6-K.K-IFRS differs in certain respects from IFRS as issued by the IASB 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. Asbuyer.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 — 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, 
      2013         2014         2015         2016         2017           2015         2016         2017           2018           2019(1)      
  (In billions of Won, except per share data)   (In billions of Won, except per share data) 

Revenue

      61,766      64,759      58,522      52,940      60,187       58,522      52,940      60,187       65,155       64,786 

Cost of sales

   54,914   57,465   52,018   46,271   51,916    52,018   46,271   51,916    57,129    58,462 
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

   

 

   

 

 

Gross profit

   6,852   7,293   6,504   6,668   8,271    6,504   6,668   8,271    8,026    6,324 

Administrative expenses

   2,232   2,310   2,395   2,292   2,177 

Impairment loss (reversal of impairment loss) on trade accounts and notes receivable

   190   165   174    75    (28

Other administrative expenses

   2,206   2,126   2,003    1,986    2,041 

Selling expenses

   1,632   1,760   1,729   1,554   1,557    1,729   1,554   1,557    369    368 

Impairment loss on other receivables

   158   38   98    63    80 

Other operating income

   229   269   549   215   451    549   215   448    524    451 

Other operating expenses

   651   980   1,442   756   792    1,285   718   691    2,014    1,090 
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

   

 

   

 

 

Operating profit

   2,566   2,513   1,486   2,282   4,196    1,486   2,282   4,196    4,042    3,223 

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

   (180  (300  (506  (89  11    (506  (89  11    113    274 

Finance income

   2,381   2,397   2,557   2,232   2,373    2,557   2,232   2,373    1,706    1,872 

Finance costs

   2,829   3,222   3,387   3,014   2,484    3,387   3,014   2,484    2,244    2,242 
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

   

 

   

 

 

Profit before income tax

   1,938   1,388   150   1,412   4,095    150   1,412   4,095    3,616    3,127 

Income tax expense

   589   824   267   380   1,186    267   380   1,186    1,684    1,088 
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

   

 

   

 

 

Profit (loss)

   1,349   564   (116  1,032   2,909    (116  1,032   2,909    1,932    2,038 

Total comprehensive income (loss)

   1,363   108   (278  1,486   2,348    (278  1,486   2,348    1,504    2,185 

Profit (loss) for the period attributable to:

              

Owners of the controlling company

   1,371   633   171   1,355   2,756    171   1,355   2,756    1,712    1,864 

Non-controlling interests

   (22  (69  (288  (323  153    (288  (323  153    220    174 

Total comprehensive income (loss) attributable to:

              

Owners of the controlling company

   1,439   182   24   1,814   2,184    24   1,814   2,184    1,293    2,027 

Non-controlling interests

   (75  (73  (302  (328  164    (302  (328  164    211    158 

Basic and diluted earnings per share(1)

   17,338   7,514   1,731   16,521   34,040 

Basic and diluted earnings per share(2)

   1,731   16,521   34,040    21,177    23,189 

Dividends per share of common stock

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

Selected consolidated statements of financial position data

 

  As of December 31,   As of December 31, 
      2013           2014           2015           2016           2017           2015           2016           2017           2018           2019(1)      
  (In billions of Won)   (In billions of Won) 

Working capital(2)(3)

      11,681       10,833       9,148       10,711       12,354       9,148       10,711       12,354       14,721       18,593 

Total current assets

   32,039    33,208    29,502    29,655    31,844    29,502    29,655    31,844    34,152    35,144 

Property, plant and equipment, net

   35,760    35,241    34,523    33,770    31,884    34,523    33,770    31,884    30,018    29,926 

Totalnon-current assets

   52,802    52,636    51,246    50,483    47,941    51,246    50,483    47,941    44,625    44,226 

Total assets

   84,841    85,844    80,748    80,138    79,786    80,748    80,138    79,786    78,777    79,371 

Short-term borrowings and current installments oflong-term borrowings

   10,714    12,195    12,371    10,195    11,275    12,371    10,195    11,275    10,290    8,548 

Long-term borrowings, excluding current installments

   15,533    15,233    12,849    12,510    9,789    12,849    12,510    9,789    9,920    11,893 

Total liabilities

   39,060    40,586    35,735    34,372    32,459    35,735    34,372    32,459    32,104    31,608 

Share capital

   482    482    482    482    482    482    482    482    482    482 

Total equity

   45,781    45,257    45,013    45,765    47,327    45,013    45,765    47,327    46,673    47,763 

Selected consolidated statements of cash flows data

 

  For the Year Ended December 31,   For the Year Ended December 31, 
  2013 2014 2015 2016 2017   2015 2016 2017 2018 2019(1) 
  (In billions of Won)   (In billions of Won) 

Net cash provided by operating activities

      4,858      3,412      7,602      5,269      5,607       7,602      5,269      5,607      5,870      6,005 

Net cash used in investing activities

   (8,752  (3,745  (4,535  (3,755  (3,818   (4,535  (3,755  (3,818  (2,648  (3,683

Net cash provided by (used in) financing activities

   3,532   135   (2,242  (3,951  (1,566

Net cash used in financing activities

   (2,242  (3,951  (1,566  (3,195  (1,512

Net increase (decrease) in cash and cash equivalents

   (472  (186  849   (2,424  165    849   (2,424  165   31   871 

Cash and cash equivalents at beginning of the year

   4,681   4,209   4,022   4,871   2,448    4,022   4,871   2,448   2,613   2,644 

Cash and cash equivalents at end of the year

   4,209   4,022   4,871   2,448   2,613    4,871   2,448   2,613   2,644   3,515 

 

 

(1)

We have adopted IFRS No. 16 “Leases” from January 1, 2019 using the modified retrospective approach, under which the cumulative effect of initial application is recognized in our retained earnings at January 1, 2019. Accordingly, the comparative information presented for 2015, 2016, 2017 and 2018 has not been restated and is presented under IAS No. 17 and related interpretations. See Note 2 of Notes to Consolidated Financial Statements.

(2)

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 78,009,654 shares as of December 31, 2013, 79,801,539 shares as of December 31, 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, 2017.2017, 80,000,606 shares as of December 31, 2018 and 80,113,759 shares as of December 31, 2019.

 

(2)(3)

“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 

2013

   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 

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

   1,125.0    1,131.6    1,145.7    1,124.7 

November

   1,082.4    1,105.0    1,121.2    1,082.4 

December

   1,071.4    1,085.8    1,093.4    1,071.4 

2018 (through April 26)

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

January

   1,071.5    1,066.7    1,071.5    1,061.3 

February

   1,071.0    1,079.6    1,094.3    1,068.0 

March

   1,066.5    1,071.9    1,081.9    1,064.3 

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.C3.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. While globalGlobal economic conditions have generally stabilized and improveddeteriorated in recent years, with global financial and capital markets experiencing substantial volatility. In particular, the overall prospects forongoing global pandemic of a new strain of coronavirus(“COVID-19”) has materially and adversely affected the global economy remain uncertain. Financialand financial markets have experienced significant volatility in recent years as a resultmonths. See “— Earthquakes, tsunamis, floods, severe health epidemics (including the ongoing globalCOVID-19 pandemic and any possible recurrence of other types of widespread infectious diseases) and other natural calamities could materially adversely affect our business, results of operations or financial condition.” Such developments have also been caused by, and continue to be exacerbated by, among other things, the 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 parts of the Middle East, including Syria, Iraq and Yemen, as well as a deterioration in economic and trade relations between the United Kingdom’s decision in June 2016 to exit from the European Union (“Brexit”).States and its major trading partners, particularly China.

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 our sales volume of steel products as well as the prices at which they can be sold. The slowdown of global economic growth and the resulting decline in demand for steel products has adversely affected the overall sales volume of our principal steel products produced by us and directly sold to external customers in 2019 compared to 2018, and the continued deterioration in demand in the first quarter of 2020 has had a negative impact on our results of operations for the quarter compared to the first quarter of 2019. In suchthe case of a case,prolonged decrease in demand, 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 produced 42.0 million tons of crude steel and stainless steel in 2015, 42.2 million tons in 2016 and 42.2 million tons in 2017. The average unit sales prices for oursemi-finished and finished steel products were Won 798 thousand per ton in 2015, Won 745 thousand per ton in 2016 and Won 904 thousand per ton in 2017.

We expect 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.

Earthquakes, tsunamis, floods, severe health epidemics (including the ongoing globalCOVID-19 pandemic and any possible recurrence of other types of widespread infectious diseases) and other natural calamities could materially adversely affect our business, results of operations or financial condition.

If earthquakes, tsunamis, floods, severe health epidemics or any other natural calamities were to occur in the future in any area where any of our assets, suppliers or customers are located, our business, results of operations or financial condition could be adversely affected. A number of suppliers of our raw materials and customers of our products are located in countries that have historically suffered natural calamities from time to time, such as Australia, China and Japan, as well as Korea. Any occurrence of such natural calamities in countries where our suppliers are located may lead to shortages or delays in the supply of raw materials. In addition, natural calamities in areas where our customers are located, including China, Southeast Asia, Japan, Europe, North America and Korea, may cause disruptions in their businesses, which in turn could adversely impact their demand for our products.

In particular,COVID-19, an infectious disease caused by severe acute respiratory syndrome coronavirus 2 that was first reported to have been transmitted to humans in late 2019 and has since spread globally over the course of 2020 to date, has materially and adversely affected the global economy and financial markets in recent months as well as disrupted our business operations. The World Health Organization declared theCOVID-19 as a pandemic in March 2020.

Risks associated with prolonged outbreak ofCOVID-19 or other types of widespread infectious disease include:

an increase in unemployment among, and/or decrease in disposable income of, consumers who purchase the products manufactured by our customers and a decline in overall consumer confidence and spending levels, which in turn may decrease demand for our products;

disruption in the normal operations of the businesses of our customers, which in turn may decrease demand for our products;

disruption in supply of raw materials from our vendors;

disruption in delivery of our products to our customers;

disruption in the normal operations of our business resulting from contraction ofCOVID-19 by our employees or quarantine measures imposed by governments, which may necessitate our employees to be quarantined and/or our manufacturing facilities, construction projects, energy and mineral development projects or offices to be temporarily shut down;

disruption resulting from the necessity for social distancing, including implementation of temporary adjustment of work arrangements requiring employees to work remotely, which may lead to a reduction in labor productivity (for example, from early March 2020 to early April 2020, we implemented staggered remote working arrangements for our employees at our headquarters, which we do not believe had a material impact on our operations);

depreciation of the Won against major foreign currencies, which in turn may increase the cost of imported raw materials;

unstable global and Korean financial markets, which may adversely affect our ability to meet our funding needs on a timely and cost-effective basis; and

impairments in the fair value of our investments in companies that may be adversely affected by the pandemic.

It is not possible to predict the duration or full magnitude of harm fromCOVID-19. In the event thatCOVID-19 or other types of widespread infectious diseases cannot be effectively and timely contained, our business, financial condition and results of operations may be materially 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 39.0%37.3% of our total revenue from steel products produced and sold by us in 2017.2019. 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 DaewooInternational Corporation (“POSCO Daewoo”)International” and formerly known as POSCO Daewoo Corporation) 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.Korea, and our performance and successful fulfillment of our operational strategies are largely dependent on the overall Korean economy. 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.

In recent years, adverse conditions and volatility in the worldwide 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 major foreign currencies has also fluctuated significantly and, as a result of adversechanging global and Korean economic conditions, there has been volatility in the stock prices of Korean companies in recent years. Future declines in the

Korea Composite Stock Price Index (the “KOSPI”) and large amounts of sales of Korean securities by foreign investors and subsequent repatriation of the proceeds of such sales may adversely affect the value of the Won, the foreign currency reserves held by financial institutions in Korea and the ability of Korean 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:

 

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

 

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)ongoing trade disputes with Japan);

 

adverse conditions or developments 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, including as a result of deteriorating economic and trade relations between the United States and China as well as increased uncertainties resulting from the United Kingdom’s exit from the European Union on January 31, 2020;

the occurrence of severe health epidemics and pandemics in Korea or other parts of the wake of Brexit;world, such as the ongoing globalCOVID-19 pandemic;

 

adverse changes or volatility in foreign currency reserve levels, commodity prices (including oil prices), exchange rates (including fluctuation of the U.S. dollar, Euro Chinese Renminbi or Japanese Yen exchange rates and the overall impact of Brexit on the valueor revaluation of the Won)Chinese Renminbi), interest rates, inflation rates or stock markets;

 

increased sovereign default risk in select countries and the 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-sizedsmall-andmedium-sized enterprise borrowers in Korea;

 

social and labor unrest;

 

decreases in the market prices of Korean real estate;

 

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

 

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

financial problems or lack of progress in the restructuring of Korean 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 or corporate governance issues atconcerning certain Korean 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 or other parts of the world (such as the Middle East Respiratory Syndrome outbreak in Korea in 2015);

natural orman-made disasters that have a significant adverse economic or other impact on Korea or its major trading 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 (including a potential escalation of hostilities between the U.S. and NorthIran) and Northern 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 continued growth 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 investment and the relocation of manufacturing bases from Korea to China);

 

political or social tensions involving Russia and any resulting adverse effects on the global supply of oil or the 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 61.0%62.7% of our total revenue from steel products produced and sold by us in 2017.2019. Our export sales volume to customers in Asia, including China, Japan, Indonesia, Thailand and Malaysia, accounted for 63.1%62.6% of our total export sales revenue from steel products produced and exported by us in 2017,2019, and we expect our sales to these countries to remain important in the future. In particular, our export volumesales to China has increased in recent years and accounted for 28.5%29.3% of our total export sales revenue from steel products produced and exported by us in 2017.2019. 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)ongoing trade disputes with Japan), 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 an increase in global production capacity, may also reduce export prices in Dollar terms of our principal 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 2017, 61.0%2019, 62.7% 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 foreign-currency denominated 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, POSCO Daewoo’sInternational’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

POSCO Daewoo’sInternational’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 DaewooInternational 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.

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 52.955 million dry metric tons of iron ore and 27.429 million wet metric tons of coal in 2017.2019. Iron ore is imported primarily from Australia, Brazil and Canada. Coal is imported primarily from Australia, Canada and 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)(Premium Low Vol Coking Coal, FOB Australia Index announced by Platts) was US$102188 in 2015,2017, US$114207 in 20162018 and US$217176 in 2017.2019. The average market price of iron ore per dry metric ton (Iron Ore 62% Fe, CFR China indexIndex announced by Platts) was US$5171 in 2015,2017, US$5469 in 20162018 and US$6493 in 2017.2019.

Ourlong-term supply contracts generally have terms of three to ten years and provide for periodic price adjustments to thethen-market prices. Weprices.We typically adjust the prices on a quarterly basis and maintain approximately one month of inventory of raw materials. Such price adjustments 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. In the case of coal, globally influential buyers and sellers of coal determine benchmark prices of coal, based on which other buyers and sellers negotiate their prices after taking into consideration the quality ofFor both coal and other factors. In the case of iron ore, the supplier and we typically agree on the purchase price with the suppliers primarily based on the spot market price periodically announced by Platts (Iron(Premium Low Vol Coking Coal, FOB Australia Index and Iron Ore 62% Fe, CFR China Index). As of December 31, 2017, 1162019, 102 million tons of iron ore and 1811 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 could have an adverse effect on our business, financial condition and results of operations.

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.

Steel. The markets for our steel products are highly competitive and we face intense global competition. 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, such as the consolidation of Baosteel Group and Wuhan Iron and Steel in 2016, that has resulted in fewer but larger steel manufacturers that are able to compete more effectively in the global steel industry. In addition, the global steel industry has experienced consolidation in the past, including through the merger of Mittal and Arcelor in 2006.past. Competition from such global steel manufacturers with expanded production capacity such as ArcelorMittal S.A. as well as larger competitors from emerging markets, especially from China and India, has resulted in significant price competition and may result in declining margins and reductions in 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.

In the past, increased production capacity, combined with decreased demand resulting from a slowdown of the global economy, has from time to time resulted in productionover-capacity in the global steel industry.industry which in turn has resulted in downward pressure on global steel prices. Productionover-capacity in the global steel industry may intensify if global economic growth slows or demand from developing countries, particularly from China, continues to lag behind the 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 a 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 DaewooInternational competes principally with six other Korean general trading companies each of which isthat are affiliated with a major domestic business group,groups, 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 DaewooInternational operates are also highly competitive. POSCO Daewoo’sInternational’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 DaewooInternational 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 POSCO Daewoo’sInternational’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 DaewooInternational 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. In 2018 and 2019, we recognized impairment of goodwill of Won 158 billion and Won 55 billion, respectively, related to a decrease invalue-in-use of POSCO International.

Construction.POSCO E&C, our consolidated subsidiary, 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, many 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 fewseveral 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 and other major Korean construction companies with overseas operations, as well as international construction companies from other countries, including other major Korean construction companies with overseas operations.countries. 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, we 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, LNG and agricultural trading and production of anode and cathode materials for rechargeable batteries as well as other comprehensive materials such as lithium, magnesium sheet, nickel and cobalt.lithium. From time to time, we may selectively acquire or invest in companies to pursue such diversification strategy.

The success of the overallour diversification strategy will depend, in part, on our ability to realize the anticipated growth opportunities and anticipated synergies. Some of our diversification efforts have not been successful. For example, in 2018, we incurred impairment loss of Won 810 billion related to our synthetic natural gas production facility in Gwangyang due to our discontinuation of the business which we had launched in 2011, which was adversely impacted by a decline in the market price of liquefied natural gas (“LNG”). In 2019, we incurred impairment loss of Won 74 billion related to the discontinued operation of a ferrosilicon facility in Pohang and Won 70 billion related to the discontinued operation of a compact endless cast-rolling mill facility in Gwangyang. 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.decreases in the prices of competing products or services that make our products or services less competitive. 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.

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.

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

As a steel producer with global sales and operations, we are involved in trade remedy proceedings in markets worldwide, including in the United States. We proactivelyactively participate in and plan for such proceedings to minimize any adverse effects and associated risks. While there has been an increase in the number of trade cases in recent years, and an increased focus on trade issues by government officials, all such cases have been product andmarket-specific, and thus have been limited in scope relative to our global 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 International Trade. Our products that are subject toanti-dumping duties, safeguard duties, countervailing duties, quotas or tariffs 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.

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

As part of our efforts to diversify our operations, we carefully seek out promising overseas natural resources exploration, development and production opportunities. We also participate in natural resources projects as part of consortia or through acquisitions of minority interests, we engage in overseas natural resources exploration, development and production projects in various locations, includingsuch as a gas field exploration project in Myanmar through POSCO Daewoo.International. 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 selectively 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, 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.projects, potentially resulting in impairment losses. 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 2008,2019, we recognized Won 96 billion of impairment loss on assets held for sale in 2015 as well as an additional loss of Won 189118 billion from our disposalrelated to the termination of such assetsthe BlockAD-7 exploration project in 2015. WeMyanmar by POSCO International.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.

We typically pursue our 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;ours;

 

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.

We engage in engineering and construction activities through POSCO E&C. The 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. From time to time, the construction industry has experienced significant and sometimes prolonged downturns, and our construction revenues have fluctuated in the past depending on the level of public and private sector construction 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 industry in recent years, 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 residential real estate market has shown signs of recovery inIn recent years, the demand for construction activities in Korea and abroad remainshas remained weak, and the overall prospects for Korean construction companies in 20182020 and beyond remain uncertain. A prolonged general downturn in the construction market resulting in weaker demand may adversely affect our 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.

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 incurred expenses in recent years relating to contamination of land near our magnesium smelting plant located in Gangneung, 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 significantSignificant breaches of information security could lead to legal and financial exposure, damage to our reputation and a loss of confidence ofby our customers.

Our business relies heavily on mission-critical, complex and interdependent information technology systems that support our business processes. It involves the storage and transmission of large amounts of confidential information relating to us as well as our customers and cybersecurity breachessuppliers. Any significant breach in our information security could expose us to a risk of loss, of this information, which may lead to improper use or disclosure of such information, ensuing potentialand could give rise to significant liability andor litigation, any of which could harm our reputation and adversely affect our business. Although

We believe that there has been no instance of a material instance where an unauthorized party was ablebreach in our information security to obtain access todate that resulted in significant disruption of our dataoperations and had a significant adverse effect on our operational results, or on third parties, including our customers’ data,customers and suppliers. However, there can be no assurance that we will not be vulnerableable to cyber-attackscontinue to prevent security incidents or other breaches in the future. Our cybersecurityour information security from having a material adverse effect on our business, results of operation, financial viability or reputation.

In addition, our information security measures may also be breachedfail due to employee error,external and internal security threats, outages, malicious intrusions and attacks, programming or human errors and malfeasance, or otherwise. other similar events.

Instituting appropriate access controls and safeguards across all our information technology infrastructure is challenging. Furthermore, outside parties may attempt to fraudulently induce employees to disclosedivulge 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.credentials. Because the techniques used to obtain unauthorized access, disable or degrade serviceservices or sabotage systems change frequently and often are not recognized until attacks are 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 cybersecurityinformation security measures is harmed, wecompromised, this may incurlead to significant legal and financial exposure, including legal claims and regulatory fines and penalties, damage to our reputationreputational harm 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 siliconautomotive steel manufacturing technologies,technology andhigh-manganese steel manufacturing technology, is critical to the success of our business. Webusiness.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 take

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.

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 employee’s “ordinary wage” is used as the basis for calculating various statutory benefits. Prior to the Supreme Court of Korea’s decision described below,

we and other companies in Korea had interpreted the previous guidelines issued by the Ministry of Employment and Labor as excluding fixed bonuses that are paid other than on a monthly basis, such as bi monthly, quarterly or biannually paid bonuses, from employees’ ordinary wages.

OnIn December 18, 2013, the Supreme Court of Korea ruled that regularly paid bonuses, including those that are paid other than on a monthly basis, are included in the scope of employees’ ordinary wages if these bonuses are paid “regularly”(i) “regularly,” (ii) “uniformly” and “uniformly”(iii) on a “fixed basis”basis,” notwithstanding

differential amounts based on seniority. Under this decision, any provision of a collective bargaining agreement or other agreements that attempt to exclude such regular bonuses from employees’ ordinary wages will be deemed void for violation of the mandatory provisions of Korean law.

The Supreme Court of Korea’s decision 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 guidelines onin January 23, 2014 (the “Guidelines”). According to the Guidelines, the Government excludes, from ordinary 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 we have paid to our employees are likely not required to be included in their ordinary wages because we have paid regular bonuses only to those working for us on the 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 past three years or in the future, we may be liable for additional payments reflecting the expanded scope of employees’ ordinary wages. 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, there have been heightened security concerns in recent years stemming from North Korea’s nuclear weapon and ballistic missile programs as well as its hostile military actions against Korea. Some of the significant incidents in recent years include the following:

 

North Korea renounced its obligations under the NuclearNon-Proliferation Treaty in January 2003 and conducted six rounds of nuclear tests since October 2006, including claimed detonations of hydrogen bombs, which are more powerful than plutonium bombs, and warheads that can be mounted on ballistic missiles. Over the years, North Korea has also conducted a series of ballistic missile tests, including missiles launched from submarines and 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 has passed a series of resolutions condemning North Korea’s actions and significantly expanding the scope of sanctions applicable to North Korea, most recently in 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 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 utilizing loudspeakers near the demilitarized zone. In retaliation, the North Korean army fired artillery rounds on the loudspeakers, resulting in the highest level of 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

 

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

Although a bilateral summit meetings were held between the two Koreas was held onKorea and North Korea in April, 27,May and September 2018 and there has been an announcement in March 2018 of a potential summit between the United States and North Korea in June 2018, February 2019 and June 2019, 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 or the United States and North Korea break down or further military hostilities occur, could have a material adverse effect on the Korean economy and on our business, financial condition and results of operations.operations and the market value of our common stock and ADSs.

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 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 Iran Sudan and 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 DaewooInternational engages in the trading of steel, raw materials and other items with entities in countries that are deemed Sanctions Targets, including Iran Sudan and Cuba.We believe that such activities and investments do not involve any U.S. goods or services. Our activities in Iran Sudan and Cuba accounted for approximately 0.7%0.6% of our consolidated revenues in 2015, 0.5%2017, 0.3% in 20162018 and 0.6%0.01% in 2017.2019.

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, and 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.

Uncertainty relating to benchmark regulation reforms may adversely affect our securities linked to a benchmark.

The London Interbank Offered Rate (“LIBOR”) and the Euro Interbank Offered Rate (“EURIBOR”) and other indices which are deemed to be “benchmarks” are the subject of recent national, international and other regulatory guidance and proposals for reform. Some of these reforms are already effective while others have yet to be implemented. These reforms may cause such benchmarks to perform differently than in the past, or to disappear entirely, or have other consequences which cannot be predicted. Any such consequence could have a material adverse effect on any securities linked to such benchmarks.

Regulation (EU) 2016/1011 (the “Benchmark Regulation”) was published in the Official Journal of the European Union on June 29, 2016 and has been in force since January 1, 2018. The Benchmark Regulation applies to the provision of benchmarks, the contribution of input data to a benchmark and the use of a benchmark, within the European Union. Among other things, (i) it requires benchmark administrators (such as ICE Benchmark Administration Limited and the European Money Market Institute, which currently administer LIBOR and EURIBOR, respectively) to be authorized or registered (or, ifnon-European Union based, to be subject to an equivalent regime or otherwise recognized or endorsed) and (ii) it prevents certain uses by European Union-supervised entities of benchmarks of administrators that are not authorized or registered (or, ifnon-European Union based, not deemed equivalent or recognized or endorsed). On July 27, 2017, the U.K. Financial Conduct Authority (the “FCA”) announced that it will no longer persuade or compel banks to submit rates for the calculation of the LIBOR after 2021. The FCA announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021.

The Benchmark Regulation could have a material impact on any securities linked to a rate or index deemed to be a benchmark, in particular, if the methodology or other terms of the benchmark are changed in order to comply with the requirements of the Benchmark Regulation. Such changes could, among other things, have the effect of reducing, increasing or otherwise affecting the volatility of the published rate or level of the benchmark. More broadly, any of the international, national or other proposals for reform, or the general increased regulatory scrutiny of benchmarks, could increase the costs and risks of administering or otherwise participating in the setting of a benchmark and complying with any such regulations or requirements.

Such factors may have the following effects on certain benchmarks: (i) discourage market participants from continuing to administer or contribute to such benchmark; (ii) trigger changes in the rules or methodologies used in the benchmarks or (iii) lead to the disappearance of the benchmark. Any of the above changes or any other consequential changes as a result of international, national or other proposals for reform or other initiatives or investigations, could have a material adverse effect on the value of and return on any securities linked to a benchmark. Moreover, if a benchmark ceases to be calculated or administered and no replacement base rate is identified or selected, the fallback provisions for the interest rate calculations under the securities may result in interest accruing at a fixed rate based on the rate which applied in the previous period when the benchmark was available, effectively converting the securities into fixed rate securities.

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

This annual report contains“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, theseTheseforward-looking statements can be identified by the use offorward-looking terminologyinclude, but are not limited to, those statements using words such as “anticipate,” “believe,” “estimate,“continues,” “expect,” “estimate,” “intend,” “project,” “should,“aim, “plan,” “likely to,” “target,” “contemplate,” “predict,” “potential” and similar expressions.expressions and future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may,” or similar expressions generally intended to identify forward-looking statements. 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 44.  .  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 06194, and our telephone number is (822)3457-0114.+82-2-3457-0114. The address of our English website ishttp://www.posco.com.

The SEC maintains a website (http://www.sec.gov), which contains reports, information statements and other information regarding issuers that file electronically with the SEC.

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 42.242.9 million tons of crude steel and stainless steel in 2017,2019, a substantial portion of which was produced at Pohang Works and Gwangyang Works. As of December 31, 2017,2019, we had approximately 47.647.5 million tons of annual crude steel and stainless steel production capacity, including 17.6 million tons of production capacity of Pohang Works and 24.8 million tons of production capacity of Gwangyang

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.

Korea is our most important market. Domestic sales accounted for 39.0%37.3% of our total revenue from steel products produced and sold by us in 20172019 and 39.4%38.4% in 2016.2018. On anon-consolidated basis, we believe that we had an overall market share ofour steel products constituted approximately 43%48% of the total sales volume of such steel products sold in Korea in 20172019 and approximately 41%49% in 2016.2018. Our export sales and overseas sales to customers abroad accounted for 61.0%62.7% of our total revenue from steel products produced and sold by us in 20172019 and 60.6%61.6% in 2016.2018. Our major export market is Asia, with China accounting for 28.5%29.3%, Asia other than China and Japan accounting for 23.3%22.5%, and Japan accounting for 11.3%10.8% of our total steel export revenue from steel products produced and exported by us in 20172019 and China accounting for 29.0%28.9%, Asia other than China and Japan accounting for 23.9%23.4%, and Japan accounting for 10.4%10.3% of our total steel export revenue from steel products produced and exported by us in 2016.2018.

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 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 throughout the world. 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. POSCO Daewoo 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 is the largest private power generation company in Korea.

We generated revenue of Won 52,94064,786 billion and profit of Won 1,0322,038 billion in 2016,2019, compared to revenue of Won 60,18765,155 billion and profit of Won 2,9091,932 billion in 2017.2018. We had total assets of Won 80,13879,371 billion and total equity of Won 45,76547,763 billion as of December 31, 2016,2019, compared to total assets of Won 79,78678,777 billion and total equity of Won 47,32746,673 billion as of December 31, 2017.2018.

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 salesales of steel products produced by us prior to the transfer of its merger intosteel product sales business to POSCO DaewooInternational in March 2017), which are recognized as external revenue of the Steel Segment, by major steel product categories for the periods indicated. Suchindicated.Such amounts do not include steel products produced by us and sold to our consolidated subsidiaries (including POSCO International) other than POSCO P&S (including POSCO Daewoo). Although&S. Commencing March 2017, our external revenue of the Steel Segment increased in 2017 compared to 2016, they werewas negatively impacted in 2017 by the recognition of the external revenue of

revenue of POSCO P&S&S’s steel product sales business under the Trading Segment commencing March 2017 following its merger intothe transfer of such business to POSCO Daewoo.International.

 

  For the Year Ended December 31,   For the Year Ended December 31, 
  2015 2016 2017   2017 2018 2019 

Steel Products

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

Cold rolled products

  8,373    29.6 8,467    31.5 9,441    31.2  9,441    31.2 10,585    32.7 10,057    31.4

Hot rolled products

   4,685    16.6   4,377    16.3   5,101    16.9    5,101    16.9   5,620    17.4   5,252    16.4 

Stainless steel products

   6,085    21.5   6,064    22.6  ��6,624    21.9    6,624    21.9   6,624    20.5   6,956    21.7 

Plates

   2,809    9.9   2,762    10.3   3,087    10.2    3,087    10.2   3,587    11.1   4,070    12.7 

Wire rods

   1,932    6.8   1,747    6.5   1,880    6.2    1,880    6.2   1,882    5.8   1,749    5.5 

Silicon steel sheets

   1,323    4.7   1,100    4.1   1,025    3.4    1,025    3.4   1,012    3.1   923    2.9 
  

 

   

 

  

 

   

 

  

 

   

 

   

 

   

 

  

 

   

 

  

 

   

 

 

Sub-total

   25,208    89.1   24,517    91.3   27,159    89.8    27,159    89.8   29,309    90.6   29,007    90.6 
  

 

   

 

  

 

   

 

  

 

   

 

   

 

   

 

  

 

   

 

  

 

   

 

 

Others

   3,085    10.9   2,327    8.7   3,072    10.2    3,072    10.2   3,049    9.4   3,070    9.4 
  

 

   

 

  

 

   

 

  

 

   

 

   

 

   

 

  

 

   

 

  

 

   

 

 

Total

      28,293    100.0     26,844    100.0     30,230    100.0      30,230    100.0     32,358    100.0     32,078    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 the transfer of its merger intosteel product sales business to POSCO DaewooInternational 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 (including POSCO International) other than POSCO P&S (including POSCO Daewoo). In&S. Commencing March 2017, our external sales volume of the Steel Segment was negatively impacted by the recognition of the external sales volume of POSCO P&S&S’s steel product sales business under the Trading Segment commencing March 2017 following its merger intothe transfer of such business to POSCO Daewoo.International.

 

  For the Year Ended December 31,   For the Year Ended December 31, 
  2015 2016 2017   2017 2018 2019 

Steel Products

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

Cold rolled products

   11,995    38.0  12,713    38.7  11,279    37.5   11,279    37.5  12,300    39.2  11,196    36.9

Hot rolled products

   8,541    27.0   8,632    26.2   7,786    25.9    7,786    25.9   8,153    26.0   7,891    26.0 

Stainless steel products

   2,758    8.7   3,027    9.2   2,874    9.6    2,874    9.6   2,853    9.1   2,973    9.8 

Plates

   4,588    14.5   4,748    14.4   4,896    16.3    4,896    16.3   4,957    15.8   5,399    17.8 

Wire rods

   2,667    8.4   2,737    8.3   2,333    7.8    2,333    7.8   2,227    7.1   2,095    6.9 

Silicon steel sheets

   1,031    3.3   1,032    3.1   877    2.9    877    2.9   892    2.8   816    2.7 
  

 

   

 

  

 

   

 

  

 

   

 

   

 

   

 

  

 

   

 

  

 

   

 

 

Total(1)

   31,580    100.0  32,888    100.0  30,046    100.0   30,046    100.0  31,381    100.0  30,369    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 the transfer of its merger intosteel product sales business to POSCO DaewooInternational in March 2017), we engage our consolidated sales subsidiaries (including POSCO Daewoo)International) 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 8,365 billion in 2015, Won 6,403 billion in 2016 and Won 7,385 billion in 2017.2017, Won 7,492 billion in 2018 and Won 7,740 billion in 2019. 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 11.311.2 million tons in 2017,2019, representing 37.5%36.9% 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 2017,2019, our sales volume of cold rolled products produced by us and directly sold to external customers decreased by 11.3%9.0% compared to our sales volume in 20162018 primarily due to the impact of the merger of POSCO P&S into POSCO Daewoo described above as well as rationalization of our production facilitiesa decrease in 2017 that reduced productionsales of cold rolled products.products manufactured and sold by our subsidiaries in Southeast Asia.

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 believe we had a domestic market share for cold rolled products of approximately 40%59% on anon-consolidated basis in 2017.2019.

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 thicknesses 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 7.87.9 million tons in 2017,2019, representing 25.9%26.0% 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 2017,2019, our sales volume of hot rolled products produced by us and directly sold to external customers decreased by 9.8%3.2% compared to our sales volume in 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 facilities2018 reflecting a decrease in 2017 that reduced production of hot rolleddemand for such 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 believe we had a domestic market share for hot rolled products of approximately 39%50% on anon-consolidated basis in 2017.2019.

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 2.93.0 million tons in 2017,2019, representing 9.6%9.8% 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 9.6%9.8% of total sales volume of the principal steel products produced by us and directly sold to external customers in 2017,2019, they represented 21.9%21.7% of our total revenue from steel products in 2017.2019. In 2017,2019, our sales volume of stainless steel products produced by us and directly sold to external customers decreasedincreased by 5.1%4.2% compared to our sales volume in 2016.2018, in part due to an increase in sales of stainless steel products manufactured and sold by our Chinese subsidiaries.

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 believe we had a domestic market share for stainless steel products of approximately 43%41% on anon-consolidated basis in 2017.2019.

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 4.95.4 million tons in 2017,2019, representing 16.3%17.8% 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 2017,2019, our sales volume of plates produced by us and directly sold to external customers increased by 3.1%8.9% compared to our sales volume in 20162018 primarily due to an increase in sales of platesdemand from PT. Krakatau POSCO.the shipbuilding industry.

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 believe we had a domestic market share for plates of approximately 48%49% on anon-consolidated basis in 2017.2019.

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 2.32.1 million tons in 2017,2019, representing 7.8%6.9% 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 2017,2019, our sales volume of wire rods produced by us and directly sold to external customers decreased by 14.7%5.9% compared to 20162018 primarily due to the impact of the merger of POSCO P&S into POSCO Daewoo described above.a decrease in demand for such products in Korea.

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 believe we had a domestic market share for wire rods of approximately 57%55% on anon-consolidated basis in 2017.2019.

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 0.90.8 million tons in 2017,2019, representing 2.9%2.7% of our total sales volume of principal steel products produced by us and directly sold to external customers.

In 2017,2019, our sales volume of silicon steel sheets produced by us and directly sold to external customers decreased by 15.1%8.6% compared to 20162018 primarily due to a decrease in sales ofdemand for silicon steel sheets in China.Europe and Southeast Asia.

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 believe we had a domestic market share for silicon steel sheets of approximately 81%82% on anon-consolidated basis in 2017.2019.

Others

Other products include lowervalue-addedsemi-finished products such as pig iron, billets, blooms and slab.

Markets

Korea is our most important market. Domestic sales represented 39.0%37.3% of our total revenue from steel products produced and sold by us in 2017.2019. Our export sales and overseas sales to customers abroad represented 61.0%62.7% of our total revenue from steel products in 2017.2019. 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 our 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

      2015         2016         2017           2017         2018         2019     

POSCO’s sales(1)

   40.8  40.6  43.4   43.1  49.2  48.1

Other domestic steel companies’ sales

   27.7   27.6   28.2    28.4   27.9   27.0 

Imports

   31.5   31.8   28.4    28.5   22.9   24.9 
  

 

  

 

  

 

   

 

  

 

  

 

 

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 61.0%62.7% of our total revenue from steel products produced and sold by us in 2017, 63.1%2019, 62.6% 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 13.9%1.7% from Won 20,16324,551 billion in 20162018 to Won 22,96324,971 billion in 2017.2019.

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, 
  2015   2016   2017   2017   2018   2019 

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%    6,542    28.5%    7,097    28.9%    7,322    29.3% 

Asia (other than China and Japan)

   6,174    28.2    4,821    23.9    5,354    23.3    5,354    23.3    5,749    23.4    5,622    22.5 

Japan

   2,075    9.5    2,089    10.4    2,601    11.3    2,601    11.3    2,530    10.3    2,686    10.8 

Europe

   1,751    8.0    1,914    9.5    2,181    9.5    2,181    9.5    2,212    9.0    2,662    10.7 

Middle East

   372    1.7    187    0.9    163    0.7    163    0.7  �� 204    0.8    271    1.1 

North America

   2,162    9.9    2,019    10.0    1,947    8.5    1,947    8.5    1,861    7.6    1,858    7.4 

Others

   3,826    17.5    3,292    16.3    4,176    18.2    4,176    18.2    4,898    19.9    4,551    18.2 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total

      21,901    100.0%       20,163    100.0%       22,963    100.0%       22,963    100.0%       24,551    100.0%       24,971    100.0% 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

 

  For the Year Ended December 31,   For the Year Ended December 31, 
  2015   2016   2017   2017   2018   2019 

Steel Products

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

Cold rolled products

  6,373    29.1%   6,852    34.0%   9,224    40.2%   9,224    40.2%   10,499    42.8%    9,949    39.8% 

Hot rolled products

   4,032    18.4    2,999    14.9    2,604    11.3    2,604    11.3    2,738    11.2    3,159    12.6 

Stainless steel products

   5,265    24.0    5,227    25.9    5,345    23.3    5,345    23.3    5,661    23.1    5,918    23.7 

Plates

   1,465    6.7    1,486    7.4    2,000    8.7    2,000    8.7    1,812    7.4    2,128    8.5 

Wire rods

   674    3.1    585    2.9    606    2.6    606    2.6    677    2.8    729    2.9 

Silicon steel sheets

   807    3.7    821    4.1    950    4.1    950    4.1    1,021    4.2    988    4.0 

Others

   3,284    15.0    2,194    10.9    2,235    9.7    2,235    9.7    2,143    8.7    2,101    8.4 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total

      21,901    100.0%       20,163    100.0%       22,963    100.0%       22,963    100.0%       24,551    100.0%       24,971    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 20172019 was China, which accounted for 28.5%29.3% 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. Ourproducts.Our exports to China increased by 12.0%3.2% from Won 7,097 billion in 20172018 to Won 7,322 billion in 2019 primarily due to an increaseincreases in sales of automotivestainless steel sheets.products to steel processing companies in China.

Our second largest export market in 20172019 was Asia (other than China and Japan), which accounted for 23.3%22.5% of our export revenue from steel products produced and sold by us. The principal products exported to Asia (other than China and Japan) were cold rolled products, including continuous galvanized products. Ourproducts.Our exports to Asia (other than China and Japan) increaseddecreased by 11.1%2.2% from Won 4,8215,749 billion in 20162018 to Won 5,3545,622 billion in 20172019 primarily due to an increasedecreases in sales of automotive steel sheetsproducts in Southeast Asia.Vietnam.

Anti-Dumping, Safeguard and Countervailing Duty Proceedings

From time to time, our exporting activities have become subject toanti-dumping, safeguard and countervailing proceedings. As a steel producer with global sales and operations, we are involved in trade remedy proceedings in markets worldwide, including in the United States. We proactivelyactively participate in and plan for such proceedings to minimize any adverse effects and associated risks. While there has been an increase in the number of trade cases in recent years, and an increased focus on trade issues by government officials, all such cases have been product andmarket-specific, and thus have been limited in scope relative to our global 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 International Trade. Our products that are subject toanti-dumping duties, safeguard duties, countervailing duties, quotas or tariffs 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.conditions, taking into consideration production outlook of the global steel industry and global economic conditions in general. 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 2014 to 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 0.80.7 tons of coal to produce one ton of steel. We import all of the coal and virtually all of the iron ore that we use. In 2017,2019, POSCO imported approximately 52.955 million dry metric tons of iron ore and 27.429 million wet metric tons of coal. Iron ore is imported primarily from Australia, Brazil and Canada. Coal is imported primarily from Australia, Canada and Russia.

We purchase a substantial portion of our iron ore and coal imports pursuant tolong-term contracts. 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 adjustments 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. In the case of coal, globally influential buyers and sellers of coal determine benchmark prices of coal, based on which other buyers and sellers negotiate their prices after taking into consideration the quality ofFor both coal and other factors. In the case of iron ore, the supplier and we typically agree on the purchase price with the suppliers primarily based on the spot market price periodically announced by Platts (Iron(Premium Low Vol Coking Coal, FOB Australia Index and 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 investmentsengage in exploration and production projects abroad to enhance our ability to meet the requirements forhigh-quality raw materials, by acquiring mining rights of raw materials or by investing in projects either as part of a consortium or through an acquisition of a minority interest. In 2017,2019, we purchased approximately 37%39% of our iron ore imports and 21%19% of our coal imports 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. 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)(Premium Low Vol Coking Coal, FOB Australia Index announced by Platts) was US$102188 in 2015,2017, US$114207 in 20162018 and US$217176 in 2017.2019. The average market price of iron ore per dry metric ton (Iron Ore 62% Fe, CFR China indexIndex announced by Platts) was US$5171 in 2015,2017, US$5469 in 20162018 and US$6493 in 2017.2019. 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 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 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$11,83610,411 in 2015,2017, US$9,59913,122 in 20162018 and US$10,40213,936 in 2017.2019.

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. Such contracts are on a consecutive voyage basis with maximum capacity loading, where the shipping company is compensated for the maximum amount of cargo on each trip regardless of whether the vessel is loaded to such amount. These dedicated vessels transported approximately 82%69% of the total requirements in 2017,2019, and the remaining approximately 18%31% was transported by vessels retained through short to medium term contracts, depending on market conditions. 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 believe we had a market share of approximately 39%50% on anon-consolidated basis in 2017,2019, 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 believe we had a market share of approximately 40%59% and 43%41%, respectively, on anon-consolidated basis in 2017,2019, 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 competitor in Korea is Hyundai Steel Co., Ltd. with an annual crude steel production of approximately 21 million tons.

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. 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, such as the consolidation of Baosteel Group and Wuhan Iron and Steel in 2016, that has resulted in fewer but larger steel manufacturers that are able to compete more effectively in the global steel industry. Competition from global steel manufacturers with significant production capacity such as ArcelorMittal S.A., and Nippon Steel & Sumitomo Metal Corporation, 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.

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), which commenced production of stainless cold rolled steel products in December 1998. As of December 31, 2019, Zhangjiagang Pohang Stainless

Steel had an annual production capacity of 1,100 thousand tons of stainless steel products and it produced 1,1591,134 thousand tons of stainless steel products in 2017.See2019.See “— Production Facilities Abroad — Zhangjiagang Pohang Stainless 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. Weventure.We completed the construction of a steel manufacturing plant in December 2013 with2013. As of December 31, 2019, PT. Krakatau POSCO had an annual production capacity of 3.0 million2,944 thousand tons of plates and slabs. PT. Krakatau POSCOslabs and it produced 2.9 million3,018 thousand tons of plates and slabs in 2017.2019. See “— Production Facilities Abroad — PT. Krakatau POSCO.”

Vietnam. We established POSCO SS VINA Co., Ltd.JOINT STOCK COMPANY (“POSCO SS VINA”), a wholly owned subsidiary engaged in the manufacture and sale of shape steel and steel reinforcement products. The plant became operational in June 2015, with2015. As of December 31, 2019, POSCO SS VINA had an annual production capacity of 1.1 million1,100 thousand tons of shape steel and steel reinforcement products. POSCO SS VINA Co., Ltd.products and it produced 905789 thousand tons of shape steel and steel reinforcement products in 2017.2019. See “Production Facilities Abroad — POSCO SS VINA.”

Trading

Our trading activities consist primarily of trading activities of POSCO Daewoo.International. Our consolidated subsidiaries that also engage in trading activities include POSCO Asia Company LimitedCo., Ltd. located in Hong Kong, POSCO Japan Co., Ltd. located in Tokyo, Japan, POSCO America Corporation located in Georgia, U.S.A., POSCO (Thailand) Company Limited located in Chonburi, Thailand and POSCO South Asia Co.,Singapore LNG Trading Pte. 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.Singapore.

POSCO DaewooInternational 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.textiles and agricultural commodities. POSCO DaewooInternational 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. In order to expand and strengthen its core business and to further promote efficiency within the POSCO Group, POSCO International acquired the steel product sales business from POSCO P&S in March 2017.

The following table sets forth a breakdown of POSCO Daewoo’sInternational’s total consolidated sales by export sales, domestic sales andthird-country trades as well as product category for the periods indicated:

 

   For the Year Ended December 31, 

Product Category

  2015  2016  2017 
   (in billions of Won, except percentages) 

Export trading sales:

       

Steel and metal

  4,648   26.5 4,185   25.4 5,059   22.4

Chemical and commodities

   1,445   8.2   1,277   7.7   1,429   6.3 

Automobile and machinery parts

   2,003   11.4   1,986   12.0   2,224   9.9 

Electronics and miscellaneous items

   42   0.2   3   0.0       

Natural resources items

         2   0.0       
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Sub-total

   8,138   46.4   7,453   45.2   8,712   38.6 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Domestic trading sales:

       

Steel and metal

  506   2.9 473   2.9 2,322   10.3

Chemical and commodities

   92   0.5   90   0.5   23   0.1 

Automobile and machinery parts

   62   0.4   40   0.2   59   0.2 

Electronics and miscellaneous items

                   

Other goods

   23   0.1         17   0.1 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Sub-total

   683   3.9   603   3.7   2,421   10.7 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Manufactured product sales

  6   0.0  13   0.1  502   2.2 

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

   242   1.4   192   1.2   221   1.0 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Totalthird-country trades

   12,525   71.5   12,072   73.2   15,763   69.8 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Consolidation adjustments

   (3,910  (22.3  (3,649  (22.1  (4,826  (21.4
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total sales

  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.
   For the Year Ended December 31, 

Product Category

  2017  2018  2019 
   (in billions of Won, except percentages) 

Export trading sales:

       

Steel and metal

  5,059   22.4 5,354   21.3 5,041   20.6

Chemical and commodities

   1,429   6.3   1,563   6.2   1,711   7.0 

Automobile and machinery parts

   2,224   9.9   1,795   7.1   1,015   4.2 

Other goods

         0   0.0   0   0.0 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Sub-total

   8,712   38.6   8,712   34.6   7,767   31.8 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Domestic trading sales:

       

Steel and metal

  2,322   10.3 3,316   13.2 3,107   12.7

Chemical and commodities

   23   0.1   19   0.1   10   0.0 

Automobile and machinery parts

   59   0.2   36   0.1   97   0.4 

Other goods

   17   0.1             
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Sub-total

   2,421   10.7   3,371   13.4   3,213   13.2 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Manufactured product sales

  502   2.2  547   2.2  635   2.6 

Others

  253   1.1  222   0.9  458   1.9 

Third-Country Trades:

       

Trading

      14,969   66.3     17,390   69.1     17,367   71.1

Natural resources development

   573   2.5   829   3.3   1,359   5.6 

Manufactured product trading

   221   1.0   329   1.3   101   0.4 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Totalthird-country trades

   15,763   69.8   18,547   73.7   18,827   77.1 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total sales prior to consolidation adjustments

   27,650   122.4   31,399   124.7   30,900   126.5 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Consolidation adjustments

   (5,079  (22.4  (6,225  (24.7  (6,477  26.5 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total sales

  22,572   100.0 25,174   100.0 24,423   100.0
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Trading Activities.POSCO Daewoo’sInternational’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 DaewooInternational 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 POSCO Daewoo’sInternational’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 DaewooInternational enters into trading transactions after the underlying sale and purchase contracts have been matched, which mitigates inventory and price risks to POSCO Daewoo.International. POSCO DaewooInternational 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 DaewooInternational 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 DaewooInternational does not assume the risks and rewards of ownership of the goods. In the instances in which it acts as an arranger for a third country transaction, POSCO DaewooInternational 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 POSCO Daewoo’sInternational’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 DaewooInternational has accounts receivable and payable in a number of currencies, but principally in Dollars. POSCO Daewoo’sInternational’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 POSCO Daewoo’sInternational’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 substantially mitigated by such strategies, POSCO DaewooInternational also periodically enters into derivative contracts, primarily currency forward contracts, to further hedge its foreign exchange risks.

In connection with its trading activities, POSCO DaewooInternational 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 DaewooInternational also provides necessary project planning and organizing services to its customers.

Natural Resources Development Activities.POSCO DaewooInternational also invests in energy and mineral development projects throughout the world. In particular, POSCO DaewooInternational holds interests in several gas field projects in Myanmar, where production of gas commenced in July 2013. POSCO DaewooInternational recognized revenues of approximately Won 652 billion in 2015, Won 530 billion in 2016 and Won 498 billion in 2017, Won 474 billion in 2018 and Won 723 billion in 2019 from the Myanmar gas field projects. Such natural resources development projects, while entailing higher risks than the traditional trading business, offer higher potential returns. POSCO DaewooInternational intends to continue to expand its operations by carefully seeking out promising energy development projects abroad.

Competition. POSCO DaewooInternational competes principally with six other Korean general trading companies each of which isthat are affiliated with a major domestic business group,groups, 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. POSCO Daewoo’sInternational’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 DaewooInternational 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 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”)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 and a coal-fired thermal power plantsplant in VentanasSamcheok, Korea, an ultra-supercritical coal-fired power plant in Matarbari, Bangladesh, a combined cycle power plant in Erbil, Iraq and Angamos, Chile.an integrated cycle power plant and an LNG terminal facility in Colón, Panama. In response to increasing demand from the energy industry, POSCO E&C plans to continue to target opportunities in power plant construction, especially in Asia and Africa, which it believes offers significant growth potential. In order to further promote efficiency among the member companies of the POSCO Group as well as to enhance 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 and other major Korean construction companies with overseas operations, 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.countries.

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, manufacturing of various industrial materials and network and system integration.

POSCO Energy Corporation. 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 subsequently renamed it POSCO Energy Corporation. Since our acquisition, POSCO Energy Corporation has expanded its power generation capacity by constructing additional power plants in Korea and Southeast Asia. POSCO Energy Corporation’s total power generation

capacity was approximately 4,5263,794 megawatts as of December 31, 2017.2019. 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.

LNG Logistics. We operate

POSCO Energy Corporation also operates an LNG receiving terminal with an aggregate capacity to process up to 2.43.0 million tons of LNG annually in Gwangyang. In order to achieve maximum operational efficiency of our LNG terminal, we participateit participates in the LNG trading and LNG ship gas trial businesses. We also operate a synthetic natural gas production plant with an annual capacity of 500,000 tons in Gwangyang.

Others.We acquired or established several subsidiaries that address specific services to support the operations of Pohang Works and Gwangyang Works. POSCO ICTChemical Co., Ltd. provides information and technology consulting and system network integration and outsourcing services. POSCO Chemtech CompanyChemical Co., Ltd. specializes in the manufacturing of refractories and lime used in steel manufacturing processes as well as a wide range of chemical products. It also expanded into the anode and cathode manufacturing business in 2018 following its merger with POSCO ESM Co., Ltd., our former subsidiary specializing in the production of battery materials.

Others. POSCOM-Tech Co., Ltd. produces aluminum deoxidizers, substances used to remove excess oxygen during the steel manufacturing process to improve durability of steel products, and it also provides integrated steel product packing solutions for steel production facilities. POSCO ICT Co., Ltd. provides information and technology consulting and system network integration and outsourcing services.

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:subsidiaries as of December 31, 2019:

 

Name

  Jurisdiction of
Incorporation
  Percentage of
Ownership
 

POSCO DaewooInternational Corporation

  Korea   62.9

POSCO Engineering & Construction Co., Ltd

  Korea   52.8

POSCO Energy Corporation

  Korea   100.089.0

PT. Krakatau POSCO

Indonesia70.0

POSCO Asia Co., Ltd.

Hong Kong100.0

POSCO Maharashtra Steel Private Limited

India100.0

Zhangjiagang Pohang Stainless Steel Co., Ltd.

  China   82.5% (1) 

POSCO ICTChemical Co., Ltd.

  Korea   61.365.4

POSCO SS VINA

Vietnam100.0

 

 

(1)

POSCO holds a 58.6% interest and POSCO-China holds a 23.9% interest.

Item 4.D.  Property,

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 also maintain and operate production properties abroad, including plants operated by Zhangjiagang Pohang Stainless Steel in China, PT. Krakatau POSCO in Indonesia and POSCO SS VinaVINA 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 17.6 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 ofiron-making, crude steelmaking and continuous casting and other rolling facilities. Pohang Works also has docking facilities capable of accommodating large ships for unloading raw materials, storage areas for raw materials and separate docking facilities for ships carrying products for export. Pohang Works is equipped with a highly advanced computerizedproduction-management system allowing constant monitoring and control of the production process.

Gwangyang Works

Construction of Gwangyang Works began in 1985 on a site of 13.7 million square meters reclaimed from the seaand ended in Gwangyang City in the southwestern region of Korea.1992. Gwangyang Works currently has an annual crude steel production capacity of 24.8 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.

Situated on a site of 13.7 million square meters reclaimed from the sea in Gwangyang City in the southwestern region of Korea, Gwangyang Works is comprised ofiron-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 large ships for unloading raw materials, storage areas for raw materials and separate docking facilities for ships carrying products for export.

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 Rates

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

 

      As of or for the Year Ended December 31,            As of or for the Year Ended December 31,      
  2015 2016 2017   2017 2018 2019 

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

   42.41   42.39   42.39    42.39   42.39   42.39 

Actual crude steel and stainless steel output (million tons)

   37.97   37.50   37.21    37.21   37.74   38.01 

Capacity utilization rate (%) (1)

   89.5  88.5  87.8   87.8  89.0  89.7

 

 

(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.VINA 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,            As of or for the Year Ended December 31,      
  2015 2016 2017   2017 2018 2019 

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

   1.10   1.10   1.10    1.10   1.10   1.10 

Actual crude steel and stainless steel output (million tons)

   1.17   1.16   1.16    1.16   1.16   1.13 

Capacity utilization rate (%) (1)

   106.1  105.2  105.4   105.4  105.3  103.1

 

 

(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,        As of or for the Year Ended December 31,     
  2015 2016 2017   2017 2018 2019 

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

   3.00   3.00   3.00    3.00   3.00   2.94 

Actual crude steel output (million tons)

   2.72   2.91   2.92    2.92   3.01   3.02 

Capacity utilization rate (%) (1)

   90.7  97.0  97.4   97.4  100.3  102.5

 

 

(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.

POSCO SS VINA

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, 
   2017  2018  2019 

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

   1.10   1.10   1.10 

Actual crude steel output (million tons)

   0.91   0.97   0.79 

Capacity utilization rate (%) (1)

   82.3  87.7  71.7

(1)

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

Item 4.E.4A.  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 — a steel segment, a trading segment, an engineering anda 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.International. POSCO DaewooInternational exports and imports 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, manufacturing of various industrial materials and network and system integration. See Note 40 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 — Item 3.D. Risk 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 fluctuations.

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 2016,2018, unit sales prices in Won for each 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 6.6% from 2015 to 2016, despite a depreciation in the 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 ofother than 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%3.3% from 20162017 to 2017,2018, despite an appreciation in the average value of the Won against the Dollar in 20172018 that decreased our export prices in Won terms. The average exchange rate of the Won against the Dollar, as announced by Seoul Money Brokerage Services, Ltd., appreciated from Won 1,160.5 to US$1.00 in 2016 to Won 1,130.8 to US$1.00 in 2017.2017 to Won 1,100.3 to US$1.00 in 2018.

The unit sales price of hot rolled products,plates, which accounted for 25.9%15.8% of total sales volume of the principal steel products produced by us and directly sold to external customers, increased by 29.2%14.8% in 2017.2018. The unit sales price of hot rolled products, which accounted for 26.0% of total sales volume of such products, increased by 5.2% in 2018. The unit sales price of wire rods, which accounted for 7.8%7.1% of total sales volume of such products, increased by 26.2%4.9% in 2017.2018. The unit sales price of cold rolled products, which accounted for 37.5%39.2% of total sales volume of such products, increased by 25.7%2.8% in 2017.2018. The unit sales price of stainless steel products, which accounted for 9.6%9.1% of total sales volume of such products, increased by 15.0%0.8% in 2017. The2018. On the other hand, the unit sales price of silicon steel products, which accounted for 2.8% of total sales volume of such products, decreased by 2.9% in 2018.

In 2019, the unit sales prices in Won of cold rolled products, plates and stainless steel products produced by us and directly sold to external customers increased, while the unit sales prices in Won of the remainder of our principal product lines of steel products decreased. The weighted average unit price for such products increased by 2.3% from 2018 to 2019, which was enhanced by the depreciation in the average value of the Won against the Dollar in 2019 that increased our export prices in Won terms. The average exchange rate of the Won against the Dollar, as announced by Seoul Money Brokerage Services, Ltd., depreciated from Won 1,100.3 to US$1.00 in 2018 to Won 1,165.7 to US$1.00 in 2019.

The unit sales price of cold rolled products, which accounted for 36.9% of total sales volume of the principal steel products produced by us and directly sold to external customers, increased by 4.4% in 2019. The unit sales price of plates, which accounted for 17.8% of total sales volume of such products, increased by 9.7%4.2% in 2017.2019. The unit sales price of plates,stainless steel products, which accounted for 16.3%9.8% of total sales volume of such products, increased by 8.4%0.8% in 2017.2019. On the other hand, the unit sales price of hot rolled products, which accounted for 26.0% of total sales volume of such products, decreased by 3.4% in 2019. The unit sales price of wire rods, which accounted for 6.9% of total sales volume of such products, decreased by 1.2% in 2019. The unit sales price of silicon steel sheets, which accounted for 2.7% of total sales volume of such products, decreased by 0.3% in 2019.

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

      2015           2016           2017           2017           2018           2019     
  (In thousands of Won per ton)   (In thousands of Won per ton) 

Cold rolled products

  698   666   837   837   861   898 

Hot rolled products

   549    507    655    655    689    666 

Stainless steel products

       2,207        2,003        2,304        2,304        2,322        2,340 

Plates

   612    582    631    631    724    754 

Wire rods

   724    638    806    806    845    835 

Silicon steel sheets

   1,284    1,065    1,169    1,169    1,135    1,132 
  

 

   

 

   

 

   

 

   

 

   

 

 

Average(1)

  798   745   904   904   934   955 

 

 

(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,             
       2015          2016          2017     
   (Percentage of net sales) 

Cost of sales

   88.9  87.4  86.3

Selling and administrative expenses

   7.0   7.3   6.2 

Gross margin

   11.1   12.6   13.7 

Operating profit margin

   2.5   4.3   7.0 

               For the Year Ended December 31,             
       2017          2018          2019     
   (Percentage of net sales) 

Cost of sales

   86.3  87.7  90.2

Selling and administrative expenses

   6.2   3.7   3.7 

Gross margin

   13.7   12.3   9.8 

Operating profit margin

   7.0   6.2   5.0 

Our operating profit margin increaseddecreased from 2.5% in 2015 to 4.3% in 2016 and increased further to 7.0% in 2017 to 6.2% in 2018 and 5.0% in 2019 as discussed below.

We are closely monitoring changes in market conditions and we implemented the following measures in recent years to improve our profit margins:

 

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

 

focusing on marketing activities to increase the sales of higher margin, highervalue-added products and to strengthen our domestic market 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,                    For the Year Ended December 31,          
  2015 2016 2017   2017 2018 2019 

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

   47.6   47.6   47.6    47.6   47.6   47.5 

POSCO

   42.4   42.4   42.4    42.4   42.4   42.4 

Zhangjiagang Pohang Stainless Steel Co., Ltd.

   1.1   1.1   1.1    1.1   1.1   1.1 

PT. Krakatau POSCO

   3.0   3.0   3.0    3.0   3.0   2.9 

POSCO SS VINA Co., Ltd.

   1.1   1.1   1.1 

POSCO SS VINA

   1.1   1.1   1.1 

Actual crude steel and stainless steel output (million tons)

   42.0   42.2   42.2    42.2   42.9   42.9 

POSCO

   38.0   37.5   37.2    37.2   37.7   38.0 

Zhangjiagang Pohang Stainless Steel Co., Ltd.

   1.2   1.2   1.2    1.2   1.2   1.1 

PT. Krakatau POSCO

   2.7   2.9   2.9    2.9   3.0   3.0 

POSCO SS VINA Co., Ltd.

   0.2   0.6   0.9 

POSCO SS VINA

   0.9   1.0   0.8 

Capacity utilization rate (%)

   88.3  88.7  88.7   88.7  90.1  90.4

POSCO

   89.5  88.5  87.8   87.8  89.0  89.7

Zhangjiagang Pohang Stainless Steel Co., Ltd.

   106.1  105.2  105.4   105.4  105.3  103.1

PT. Krakatau POSCO

   90.7  97.0  97.4   97.4  100.3  102.5

POSCO SS VINA Co., Ltd.

   15.8  58.0  82.3

POSCO SS VINA

   82.3  87.7  71.7

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 2017, 61.0%2019, 62.7% 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 foreign-currency denominated 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.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, POSCO Daewoo’sInternational’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 POSCO Daewoo’sInternational’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 DaewooInternational 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. 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 0.7% in 2015, 1.0% in 2016 and 1.9% in 2017, 1.5% in 2018 and 0.5% in 2019 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 often require us to make the most difficult, subjective orand 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, 2017,2019, the percentage of allowance for doubtful accounts related to net trade accounts and notes receivablereceivables compared to our trade accounts and othernotes receivables was 8.23%6.96%. Our allowance for doubtful accounts increaseddecreased by 11.9%2.0%, or Won 11719 billion, from Won 978917 billion as of December 31, 20162018 to Won 1,094898 billion as of December 31, 2017.2019. See Note 23 of Notes to Consolidated Financial Statements. Assumptions and judgments related to the allowance for doubtful accounts did not change in 2017.

Specifically, allowances for doubtful accountsLifetime expected credit losses are recorded whenexpected credit losses from any of the following loss events occur: (i) there is objective evidence as to the uncollectability 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 customerthat may occur over the collectionexpected life of a financial instrument.12-month expected credit losses are portions of lifetime expected credit losses that result from defaults that may occur within the account persists for more than three years.12 months after the reporting

date. The expected life of a financial instrument is the entire contractual period over which we are exposed to credit risk. Expected credit losses are probability-weighted estimates of credit losses. Credit losses are measured as the present value of all cash shortfalls, such as the difference between cash flows specified under contracts and cash flows that we expect to receive.

The actual average annual uncollected percentage rate of accounts receivables resulting inwrite-offs for the three years in the period ended December 31, 20172019 was 1.02%1.22%. 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, 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. IfAs of December 31, 2019, if the discount rates used in these valuations were increased by 1%, then the estimated fair values would have decreased by 12%approximately 10% in total.In addition, as of December 31, 2019, if the revenue growth rate assumptions were decreased by 1% in the cash flow models, then the estimated fair values would have decreased by 13%approximately 11% in total.

We recognized impairment losses onavailable-for-sale financial assets of Won 143 billion in 2015, Won 248 billion in 2016 and Won 123 billion in 2017.See2017, but we did not recognize any such impairment loss in 2018 and 2019 due to our adoption of IFRS 9 “Financial Instruments,” effective as of January 1, 2018, which classifiesavailable-for-sale financial assets as financial assets at fair value through other comprehensive income. See Note 833 of Notes to Consolidated Financial Statements.

Our estimates and assumptions used to evaluate impairmentthe fair value of investments 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 impairmentrevise the fair value 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 less costs to sell) and its value in use. When the book value oflong-lived asset exceeds the recoverable amount 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 amount and the resulting impairment loss is charged to current operations. Such recoverable amount 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, 2017,2019, we recognized impairment loss on property, plant and equipment amounting to Won 117443 billion in 2017,2019, which related primarily to impairment loss of long-lived assetsWon 205 billion incurred by POSCO SS VINA, Won 74 billion related to the discontinued operation of Suncheon Eco Trans Co., Ltd.a ferrosilicon facility in Pohang and Won 70 billion related to the discontinued operation of a compact endless cast-rolling mill facility in Gwangyang.

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. Our estimates of the useful lives and recoverable amount 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 amount 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. Beyond the specifically forecasted period, we extrapolate the cash flows for the remaining years based on an estimated growth rate. This estimated growth rate does not exceed the long-term average growth rate of our industry. As of December 31, 2017,2019, for the applicable cash generating units, we estimated a discount rate of 7.6%6.25% to 14.0%9.00% and a revenue growth rate of 1.0% to 2.1%. 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. 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 discount rates used in these valuations were increased by 1%, then the estimated recoverable amount would have decreased by 5.0%5.42% to 6.1%6.84% in total. If the estimated revenue growth rate were decreased by 1%, then the estimated recoverable amount would have decreased by 0.6%1.23% to 2.5%6.75% in total.Wetotal. We believe that any reasonably possible negative change in the key assumptions on which the recoverable amount is based would result in impairment loss of 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, terminal growth rates and expected changes to selling prices and direct costsestimated sales during the period.

Our management estimates discount rates usingpost-tax rates that reflect current market rates for investments of similar risk. GrowthTerminal growth rates are based on industry growth forecasts, and changes in selling prices and direct costsestimated sales 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. IfAs of December 31, 2019, 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 3.02% to 3.45%Won 158 billion or 4.65% in total. IfAs of December 31, 2019, 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 1.78% to 2.06%Won 69 billion or 2.05% in total.Basedtotal. Based on an impairment test as of December 31, 2017,2019, we recognized impairment loss on goodwill of Won 2155 billion in 2017, which related primarily to impairment of goodwill ofincurred by POSCO E&C. WeInternational.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 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 on 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. Thedate.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.Foramount less 5.0% of the gross profit margin to the inventory cost amount plus 15.6% of the gross profit margin. 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 2015, 20162017, 2018 and 2017.2019. The valuation losses of inventories recognized within cost of goods sold were Won 153 billion in 2015, Won 152 billion in 2016 and Won 79 billion in 2017.2017, Won 142 billion in 2018 and Won 96 billion in 2019.

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, 2017,2019, the book value of our investments in associates and joint ventures was Won 3,5583,928 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 ContractsRecognized by the Input Method

POSCO E&C, our consolidated subsidiary, engages in various construction activities, including construction of industrial plants and commercial and residential buildings,civil engineering projects, and revenue recognition areis different based on types of contracts. We recognize revenue over time when (i) our customers receive the benefits from our construction activities simultaneously with our performance of such activities, (ii) our construction activities create or improve an asset when such asset is under the customer’s control or (iii) our construction activities do not provide alternative benefits to us, and we have an enforceable right to payment for performance completed to date.

In the case of construction contracts where we construct plants or other similar structures, our customers control the assets as they are being constructed. Under such contracts, we perform construction of the projects according to the customers’on-going specifications, and if a contract is terminated by the customer, we are entitled to reimbursement of all costs incurred to date, including a reasonable margin. When the outcomerevenue and costs of a construction contract can be reliably estimated, reliably, contractwe recognize

such estimated revenue is recognized in profit or loss in proportion toand costs based on the stageprogress of construction as of the end of the reporting period. The percentage 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. OnIf the other hand, when the outcomerevenue and costs of a construction contract cannot be estimated reliably theestimated, revenue is recognized only to the extent the recovery of contract costs incurred that are probable. If the total contract cost is likely to be recoverable. Anexceed the total contract revenue, expected loss on the construction contract islosses are immediately recognized as an expense immediately.costs.

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 2017,2019, the estimated total contract costs were changed. Details of changes in estimated total contract costs and the impact on profit before income taxes for 20172019 and future periods are as follows:

 

   Amount 
   (In millions of Won) 

Changes in estimated total contract costs

      164,812533,639

Changes in profit before income taxes of construction contracts:

  

Current period

   (69,656166,077

Future periods

   (6,04143,584

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 2017.2019. 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 mountamount 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 124168 billion, or 6.7%6.9% in total.total, as of December 31, 2019. If the estimated future pay inflation rates were decreased by 1%, then the estimated provision for severance benefits would have decreased by Won 124171 billion, or 6.7%7.0% in total.total, as of December 31, 2019.

Recent Accounting Changes

For a discussion of new standards, interpretations and amendments to existing standards that have been published, including our adoption of IFRS No. 16 “Leases” starting on January 1, 2019, see Note 32 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 FSCMA.

K-IFRS differs in certain respects from IFRS as issued by the IASB 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, 2015, 20162017, 2018 and 20172019 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, 
   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, 
   2017  2018  2019 
   (In millions of Won) 

Operating profit under IFRS as issued by the IASB

      4,196,121      4,041,827      3,222,713 

Additions:

    

Impairment loss on other receivables

   98,177   63,092   80,323 

Impairment loss on assets held for sale

      50,829   38,328 

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

   19,985   5,226   6,539 

Loss on disposals of property, plant and equipment

   151,343   117,614   120,227 

Impairment loss on property, plant and equipment

   117,231   1,004,704   442,700 

Impairment loss on investment property

      51,461   32,642 

Impairment loss on intangible assets

   167,995   337,519   191,021 

Increase to provisions

   33,964   134,632   23,074 

Loss on valuation of firm commitment

   43,164   66,281   37,685 

Donations

��  51,424   52,074   51,567 

Idle tangible asset expenses

   10,490   9,257   34,152 

Others

   95,780   184,865   112,029 
  

 

 

  

 

 

  

 

 

 
   789,553   2,077,554   1,170,287 

Deductions:

    

Gain on disposals of assets held for sale

   (1,180  (27,171  (37,461

Gain on disposals of investment in subsidiaries, associates and joint ventures

   (81,794  (45,241  (27,836

Gain on disposals of property, plant and equipment

   (32,145  (53,139  (49,367

Gain on disposals of intangible assets

   (23,391  (117,139  (1,896

Gain on valuation of firm commitment

   (56,301  (39,028  (60,201

Gain on valuation of emission rights

         (25,440

Gain on disposals of emission rights

         (11,141

Reversal of other provisions

      (3,557  (36,522

Others

   (253,670  (238,311  (201,027
  

 

 

  

 

 

  

 

 

 
   (448,481  (523,586  (450,891
  

 

 

  

 

 

  

 

 

 

Revenue recognition related to development and sale of real estate

   468,233   (176,859  (418,862

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

   (383,592  123,664   345,605 
  

 

 

  

 

 

  

 

 

 

Operating profit underK-IFRS

   4,621,834   5,542,600  3,868,854 
  

 

 

  

 

 

  

 

 

 

Net income under IFRS as issued by the IASB

  2,909,311  1,932,386  2,038,165 

Adjustments related to development and sale of real estate:

    

Revenue

   468,233   (176,859  (418,862

Cost of sales

   (383,592  123,664   345,605 

Income tax

   (20,483  12,873   17,728 
  

 

 

  

 

 

  

 

 

 

Net income underK-IFRS

   2,973,469   1,892,064  1,982,637 
  

 

 

  

 

 

  

 

 

 

Operating Results — 20162018 Compared to 20172019

The following table presents our statement of comprehensive income statement information and changes therein for 20162018 and 2017.2019.

 

      Changes     Changes 
  For the Year Ended December 31,   2016 versus 2017   For the Year Ended December 31, 2018 versus 2019 
  2016 2017   Amount %   2018   2019 Amount % 
  (In billions of Won)   (In billions of Won) 

Revenue

      52,940      60,187        7,247   13.7      65,155       64,786  (369  (0.6)% 

Cost of sales

   46,271   51,916    5,645   12.2    57,129    58,462   1,333   2.3 
  

 

  

 

      

 

   

 

   

Gross profit

   6,668   8,271    1,603   24.0    8,026    6,324   (1,702  (21.2

Administrative expenses

   2,292   2,177    (115  (5.0

Selling and administrative expenses:

      

Impairment loss (reversal of impairment loss) on trade accounts and notes receivable

   75    (28  (103  N.A. (1) 

Other administrative expenses

   1,986    2,041   56   2.8 

Selling expenses

   1,554   1,557    3   0.2    369    368   (1  (0.3

Other operating income and expenses:

      

Impairment loss on other receivables

   63    80   17   27.3 

Other operating income

   215   451    236   109.7    524    451   (73  (13.9

Other operating expenses

   756   792    36   4.8    2,014    1,090   (924  (45.9
  

 

  

 

      

 

   

 

   

Operating profit

   2,282   4,196    1,914   83.8    4,042    3,223   (819  (20.3

Share of gain (loss) ofequity-accounted investees

   (89  11    100   N.A. (1) 

Share of profit ofequity-accounted investees, net

   113    274   161   143.0 

Finance income

   2,232   2,373    141   6.3    1,706    1,872   166   9.7 

Finance costs

   3,014   2,484    (530  (17.6   2,244    2,242   (2  (0.1
  

 

  

 

      

 

   

 

   

Profit before income tax

   1,412   4,096    2,683   190.1    3,616    3,127   (489  (13.5

Income tax expense

   380   1,186    806   212.4    1,684    1,088   (595  (35.4
  

 

  

 

      

 

   

 

   

Profit (loss)

   1,032   2,909    1,877   181.9 

Profit

   1,932    2,038   106   5.5 

Profit for the period attributable to owners of the controlling company

   1,355   2,756    1,401   103.4    1,712    1,864   152   8.9 

Loss for the period attributable tonon-controlling interests

   (323  153    476   N.A. (1) 

Profit for the period attributable tonon-controlling interests

   220    174   (46  (20.9

 

 

(1)

N.A. means not applicable.

Revenue

The following table presents our revenue by segment and changes therein for 20162018 and 2017.2019.

 

    Changes     Changes 
  For the Year Ended December 31, 2016 versus 2017   For the Year Ended December 31, 2018 versus 2019 
  2016 2017 Amount %   2018 2019 Amount % 
  (In billions of Won)   (In billions of Won) 

Steel Segment:

          

External revenue

      26,844      30,230      3,386   12.6      32,358      32,078      (280  (0.9)% 

Internal revenue

   16,062   17,381   1,319   8.2    18,063   17,730   (333  (1.8
  

 

  

 

     

 

  

 

   

Total revenue from Steel Segment

   42,906   47,611   4,705   11.0    50,421   49,808   (613  (1.2
  

 

  

 

     

 

  

 

   

Trading Segment:

          

External revenue

   16,774   20,802   4,028   24.0    22,408   22,157   (251  (1.1

Internal revenue

   9,646   14,076   4,430   45.9    15,911   15,468   (443  (2.8
  

 

  

 

     

 

  

 

   

Total revenue from Trading Segment

   26,420   34,878   8,458   32.0    38,319   37,625   (694  (1.8
  

 

  

 

     

 

  

 

   

Construction Segment:

          

External revenue

   6,768   6,887   119   1.7    6,769   6,945   175   2.6 

Internal revenue

   714   399   (315  (44.1   551   743   192   34.8 
  

 

  

 

     

 

  

 

   

Total revenue from Construction Segment

   7,482   7,286   (196  (2.6   7,321   7,688   367   5.0 
  

 

  

 

     

 

  

 

   

Others Segment:

          

External revenue

   2,697   2,736   39   1.4    3,443   3,187   (256  (7.4

Internal revenue

   2,380   2,549   169   7.1    2,755   2,796   41   1.5 
  

 

  

 

     

 

  

 

   

Total revenue from Others Segment

   5,077   5,285   208   4.1    6,198   5,983   (215  (3.5
  

 

  

 

     

 

  

 

   

Total revenue prior to consolidation adjustments and basis difference

   81,885   95,060   13,175   16.1 

Total revenue prior to consolidation adjustments

   102,259   101,104   (1,154  (1.1
  

 

  

 

     

 

  

 

   

Consolidation adjustments

   (28,802  (34,405  (5,603  19.5    (37,281  (36,737  543   (1.5

Basis difference (1)

   (144  (468  (324  225.7 

Basis difference adjustments (1)

   177   419   242   136.8 
  

 

  

 

     

 

  

 

   

Revenue

  52,940  60,187   7,247   13.7  65,155  64,786   (369  (0.6
  

 

  

 

     

 

  

 

   

 

 

(1)

Basis difference isadjustments are 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.

Our revenue increaseddecreased by 13.7%0.6%, or Won 7,247369 billion, from Won 52,94065,155 billion in 20162018 to Won 60,18764,786 billion in 20172019 due to increasesdecreases in external revenues from each of our four segments.the Steel Segment, the Others Segment and the Trading Segment, which were offset in part by an increase in revenue from the Construction Segment. Specifically:

Steel Segment.External revenue from the Steel Segment, which does not include internal revenue frominter-company transactions that are eliminated during consolidation increasedand basis difference adjustments, decreased by 12.6%0.9%, or Won 3,386280 billion, from Won 26,84432,358 billion in 20162018 to Won 30,23032,078 billion in 20172019 primarily due to an increase 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 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)., which was partially offset by an increase in the average unit sales price per ton of the principal steel products produced by us and sold to external customers. The overall sales volume of the principal steel products produced by us and directly sold to external customers decreased by 3.2% from 31.4 million tons in 2018 to 30.4 million tons in 2019, while the weighted average unit sales price per ton of the principal steel products produced by us and directly sold to external customers increased by 21.3%2.3% from Won 745,476933,990 per ton in 20162018 to Won 903,897955,209 per ton in 2017, while the overall sales volume of the principal steel products produced by us and directly sold to external customers decreased by 8.6% from 32.9 million tons in 2016 to 30.0 million tons in 2017.2019. Such factors were principally attributable to the following:

The unit sales prices in Won of each of our major product categories 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 and stainless steel products, decreased from 20162018 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.2019. 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 by 15.1%, 14.7%, 11.3%, 9.8% and 5.1%, respectively, from 2016 to 2017. On the other hand, the sales volume of plates increased by 3.1% from 2016 to 2017.

silicon steel sheets, wire rods and hot rolled products produced by us and directly sold to external customers decreased by 9.0%, 8.6%, 5.9% and 3.2%, respectively, from 2018 to 2019. On the other hand, the sales volume of plates and stainless steel products produced by us and directly sold to external customers increased by 8.9% and 4.2%, respectively, from 2018 to 2019. For a discussion of changes in the sales volume of each of our principal product lines, see “Item 4.B. Business Overview — Major Products.”

In 2019, the unit sales prices in Won of cold rolled products, plates and stainless steel products produced by us and directly sold to external customers increased, while the unit sales prices in Won of the remainder of our principal product lines of steel products decreased. The unit sales prices in Won of cold rolled products, plates and stainless steel products produced by us and directly sold to external customers increased by 4.4%, 4.2% and 0.8%, respectively, from 2018 to 2019. On the other hand, the unit sales prices in Won of hot rolled products, wire rods and silicon steel sheets produced by us and directly sold to external customers decreased by 3.4%, 1.2% and 0.3% from 2018 to 2019. 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 frominter-company transactions, increaseddecreased by 11.0%1.2%, or Won 4,705613 billion, from Won 42,90650,421 billion in 20162018 to Won 47,61149,808 billion in 20172019 as internal revenue frominter-company transactions increaseddecreased by 8.2%1.8%, or Won 1,319333 billion, from Won 16,06218,063 billion in 20162018 to Won 17,38117,730 billion in 2017. Such increase2019 primarily reflected,due to a decrease in addition to factors discussed above, an increase in the average unitour steel sales price of the steel products sold toactivities through trading subsidiaries, particularly POSCO Daewoo.International.

Trading Segment.External revenue from the Trading Segment, which does not include internal revenue frominter-company transactions that are eliminated during consolidation increasedand basis difference adjustments, decreased by 24.0%1.1%, or Won 4,028251 billion, from Won 16,77422,408 billion in 20162018 to Won 20,80222,157 billion in 20172019 primarily due to the recognition of thedecreases in POSCO International’s export trading sales of POSCO P&S under the Trading Segment commencing from March 2017 following its merger into POSCO Daewoo,automobiles and machinery parts as well as an increasesteel and metal products, which was offset inthird-country trades part by POSCO Daewoo and our other trading subsidiaries from 2016 to 2017, reflecting an increase in salesrevenue from the natural resources development activities of slabs produced by CSP (Compania Siderurgica do Pecem) and PT. Krakatau POSCO as well as an increase in trading of petrochemical products.International.

Total revenue from the Trading Segment, which includes internal revenue frominter-company transactions, increaseddecreased by 32.0%1.8%, or Won 8,458694 billion, from Won 26,42038,319 billion in 20162018 to Won 34,87837,625 billion in 20172019 as internal revenue frominter-company transactions increaseddecreased by 45.9%2.8%, or Won 4,430443 billion, from Won 9,64615,911 billion in 20162018 to Won 14,07615,468 billion in 20172019 primarily due to an increasea decrease 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 and basis difference adjustments, increased by 1.7%2.6%, or Won 119175 billion, from Won 6,7686,769 billion in 20162018 to Won 6,8876,945 billion in 20172019 primarily due to a general increase in POSCO E&C’s construction activities reflecting favorable market conditions in the domestic construction industry as well as an increase in demand for EPCexternal revenue from construction projects in Korea and abroad.Korea.

Total revenue from the Construction Segment, which includes internal revenue frominter-company transactions, decreasedincreased by 2.6%5.0%, or Won 196367 billion, from Won 7,4827,321 billion in 20162018 to Won 7,2867,688 billion in 20172019 as internal revenue frominter-company transactions decreasedincreased by 44.1%34.8%, or Won 315192 billion, from Won 714551 billion in 20162018 to Won 399743 billion in 2017.2019. Such decreaseincrease in internal revenue reflected a decreasean increase in the amount of construction activities for member companies of the POSCO Group in 20172019 compared to 2016.2018.

Others Segment. The Others Segment primarily includes power generation, coal chemistry and carbonmanufacturing of various industrial materials production and information technology service.services. External revenue from the Others Segment, which does not include internal revenue frominter-company transactions that are eliminated during consolidation and basis difference adjustments, decreased by 7.4%, or Won 256 billion, from Won 3,443 billion in 2018 to Won 3,187 billion in 2019, primarily due to decreases in revenue of

during consolidation, increasedPOSCO Energy Corporation and revenue from information technology services, which were offset in part by 1.4%, or Won 39 billion, from Won 2,697 billion in 2016 to Won 2,736 billion in 2017 primarily due to an increase in the unit price andrevenue of POSCO Chemical Co., Ltd. from an increase in sales volume of coal chemistry products of POSCO Chemtech Co., Ltd.anode and cathode materials.

Total revenue from the Others Segment, which includes internal revenue frominter-company transactions, increaseddecreased by 4.1%3.5%, or Won 208215 billion, from Won 5,0776,198 billion in 20162018 to Won 5,2855,983 billion in 20172019 as external revenue decreased as discussed above. Such decrease was partially offset by an increase in internal revenue frominter-company transactions increased by 7.1%1.5%, or Won 16941 billion, from Won 2,3802,755 billion in 20162018 to Won 2,5492,796 billion in 2017. Such increase2019 primarily reflecteddue to 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 increased by 12.2%, or Won 5,644 billion, from Won 46,271 billion in 2016 to Won 51,916 billion in 2017. The increase in cost of sales was primarily due to increases in the average price in Won terms of key raw materials that were used to manufacture our finished goods sold, which were partially offset by a decrease 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 20162018 and 2017.2019.

 

      Changes       Changes 
  For the Year Ended December 31, 2016 versus 2017   For the Year Ended December 31, 2018 versus 2019 
  2016 2017 Amount %   2018 2019 Amount % 
  (In billions of Won)   (In billions of Won) 

Steel Segment

      37,437      41,479      4,042   10.8   44,377   45,642      1,265   2.9

Trading Segment

   25,090   33,388   8,298   33.1    37,202   36,330   (872  (2.3

Construction Segment

   7,564   6,598   (966  (12.8   6,651   7,155   504   7.6 

Others Segment

   4,507   4,636   129   2.9    5,603   5,324   (279  (5.0

Consolidation adjustments

   (28,204  (33,802  (5,598  19.8    (36,828  (36,334  494   (1.3

Basis difference(1)

   (123  (383  (261  211.4 

Basis difference adjustments (1)

   124   346   222   179.5 
  

 

  

 

     

 

  

 

   

Cost of sales

      46,271      51,916      5,644   12.2      57,129      58,462   1,333   2.3 
  

 

  

 

     

 

  

 

   

 

 

(1)

Basis difference isadjustments are 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.

Our cost of sales increased by 2.3%, or Won 1,333 billion, from Won 57,129 billion in 2018 to Won 58,462 billion in 2019 due to increases in cost of sales of the Steel Segment and the Construction Segment, which were offset in part by decreases in cost of sales of the Trading Segment and the Others Segment. Specifically:

Steel Segment.The cost of sales of our Steel Segment, prior to consolidation and basis difference adjustments, increased by 10.8%2.9%, or Won 4,0421,265 billion, from Won 37,43744,377 billion in 20162018 to Won 41,47945,642 billion in 20172019 primarily due to increasesan increase in the average priceprices in Won terms of keycertain raw materials that were used to manufacture our finished goods sold, the impact ofsteel products, which was partially offset in part by a slight decrease 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 and basis difference adjustments, increaseddecreased by 33.1%2.3%, or Won 8,298872 billion, from Won 25,09037,202 billion in 20162018 to Won 33,38836,330 billion in 20172019 primarily due to the recognition of the cost of salesdecreases in export and domestic trading activities of POSCO P&S under the Trading Segment commencing March 2017 following its merger into POSCO Daewoo as well asInternational, which were offset in part by an increase in cost of export and import products sold.its natural resources development activities.

Construction Segment.The cost of sales of our Construction Segment, prior to consolidation and basis difference adjustments, decreasedincreased by 12.8%7.6%, or Won 966504 billion, from Won 7,5646,651 billion in 20162018 to Won 6,5987,155 billion in 2017,2019, reflecting the recognitionprogress of additional costs related to certain EPClarge-scale construction projects abroad in 2016 compared to no such costs in 2017.Korea.

Others Segment.The cost of sales of our Others Segment, prior to consolidation and basis difference adjustments, increaseddecreased by 2.9%5.0%, or Won 129279 billion, from Won 4,5075,603 billion in 20162018 to Won 4,6365,324 billion in 20172019 primarily due to increasesa decrease in the average price in Won termscost of key raw materials used bysales of POSCO Chemtech Co., Ltd. to produce coal chemistry products.Energy Corporation.

Gross Profit

Our gross profit increased by 24.0%, or Won 1,603 billion, from Won 6,668 billion in 2016 to Won 8,271 billion in 2017 primarily due to increases in gross profit of each of our four segments. Our gross margin increased from 12.6% in 2016 to 13.7% in 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 20162018 and 2017.2019.

 

    Changes     Changes 
  For the Year Ended December 31, 2016 versus 2017   For the Year Ended December 31, 2018 versus 2019 
  2016 2017 Amount %   2018 2019 Amount % 
  (In billions of Won)   (In billions of Won) 

Steel Segment

      5,469      6,132      663   12.1  6,044  4,166  (1,878)   (31.1)% 

Trading Segment

   1,330   1,490   160   12.0    1,117   1,295           178   16.0 

Construction Segment

   (82  688   770   N.A. (2)    669   533   (136  (20.4

Others Segment

   570   649   79   13.9    595   659   64   10.7 

Consolidation adjustments

   (598  (603  (5  0.9    (453  (403  50   (11.1

Basis difference(1)

   (21  (85  (64  298.4 

Basis difference adjustments (1)

   53   73   20   37.7 
  

 

  

 

     

 

  

 

   

Gross profit

  6,668  8,271      1,603   24.0      8,026      6,324   (1,702  (21.2
  

 

  

 

     

 

  

 

   

 

 

(1)

Basis difference isadjustments are 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.

Our gross profit decreased by 21.2%, or Won 1,702 billion, from Won 8,026 billion in 2018 to Won 6,324 billion in 2019 primarily due to decreases in gross profit of the Steel Segment and the Construction Segment, which were offset in part by increases in gross profit of the Trading Segment and the Others Segment. Our gross margin, which is gross profit as a percentage of total revenue, decreased from 12.3% in 2018 to 9.8% in 2019.

(2)N.A. means not applicable.

Steel Segment.The gross profit of our Steel Segment, prior to consolidation and basis difference adjustments, increaseddecreased by 12.1%31.1%, or Won 6631,878 billion, from Won 5,4696,044 billion in 20162018 to Won 6,1324,166 billion in 20172019 primarily due to an increase in the average prices in Won terms of certain raw materials used to manufacture our finished steel products that outpaced an increase in the average unit sales price per ton of the principal steel products produced by us and sold to external and internal customers which were partially offset by an increase induring the period. In particular, the average market price of iron ore per dry metric ton (Iron Ore 62% Fe, CFR China Index announced by Platts) was US$69 in Won terms of coal2018 and other key raw materials that were used to manufacture our finished steel products sold as well as a decreaseUS$93 in the overall sales volume of our principal steel products, as discussed above.2019. The gross margin of our Steel Segment which is gross profit as a percentage of total revenue priordecreased from 12.0% in 2018 to consolidation adjustments, increased from 12.7%8.4% in 2016 to 12.9% in 2017, as we focused our production and marketing efforts on selling higher margin, higher value added premium products in 2017.2019.

Trading Segment.The gross profit of our Trading Segment, prior to consolidation and basis difference adjustments, increased by 12.0%16.0%, or Won 160178 billion, from Won 1,3301,117 billion in 20162018 to Won 1,4901,295 billion in 2017,2019 primarily due to the 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 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.POSCO International’s natural resources development activities. The gross margin of our Trading Segment priorincreased from 2.9% in 2018 to consolidation adjustments, decreased from 5.0%3.4% in 2016 to 4.3% in 2017.2019.

Construction Segment. Our Construction Segment recorded gross loss of Won 82 billion in 2016 compared toThe gross profit of Won 688 billion in 2017, and the gross margin,our Construction Segment, prior to consolidation and basis difference adjustments, improveddecreased by 20.4%, or Won 136 billion, from (1.1)%Won 669 billion in 20162018 to 9.4%Won 533 billion in 2017,2019 primarily duereflecting a decrease in POSCO E&C’s participation in higher margin construction projects in 2019. The gross margin of our Construction Segment decreased from 9.1% in 2018 to our engagement6.9% in higher-margin construction activities in 2017 reflecting more favorable market conditions in the2019.

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 for member companies of the POSCO Group.

Others Segment.The gross profit of our Others Segment, prior to consolidation and basis difference adjustments, increased by 13.9%10.7%, or Won 7964 billion, from Won 570595 billion in 20162018 to Won 649659 billion in 20172019 primarily due to an increase in the gross profitsprofit of POSCO ChemtechChemical Co., Ltd. and POSCO Energy Corporation. The gross margin of our Others Segment increasedimproved from 11.2%9.6% in 20162018 to 12.3%11.0% in 2017.2019.

Selling and Administrative Expenses

The following table presents a breakdown of our selling and administrative expenses and changes therein for 20162018 and 2017.2019.

 

          Changes         Changes 
  For the Year Ended December 31,   2016 versus 2017   For the Year Ended December 31, 2018 versus 2019 
  2016   2017   Amount %   2018   2019 Amount % 
  (In billions of Won) 

Impairment loss (reversal of impairment loss) on trade accounts and notes receivable

  75   (28 (103)   N.A. (1) 
  (In billions of Won)   

 

   

 

   

Freight and custody expenses

  1,342   1,337       (5  (0.4)%   185   180  (4  (2.3)% 

Sales commissions

   94    116    22   22.8    79    74   (5  (6.5

Sales promotion

   11    12    1   16.3    14    10   (4  (27.6

Sales insurance premium

   31    37    6   16.5    37    33   (5  (12.4

Contract cost

   49    23    (26  (53.4   17    38   21   124.1 

Others

   26    32    6   25.6    37    33   (4  (11.0
  

 

   

 

      

 

   

 

   

Total selling expenses

      1,554       1,557    3   0.2   369   368   (1  (0.3
  

 

   

 

      

 

   

 

   

Wages and salaries

  770   775           5   0.7  813    841          27   3.3

Expenses related topost-employment benefits

   201    79    (122  (60.9   73    89   16   21.3 

Other employee benefits

   177    160    (17  (9.5   176    178   2   0.9 

Depreciation

   103    97    (6  (6.0   101    131   30   29.7 

Amortization

   140    146    6   4.8    112    112   (0  (0.2

Taxes and public dues

   79    73    (6  (7.7   72    79   7   9.7 

Rental

   82    70    (12  (14.7   70    40   (30  (42.6

Advertising

   86    120    34   39.0    107    83   (24  (22.7

Research and development

   121    126    5   4.3    108    110   2   1.8 

Service fees

   201    193    (8  (3.8   166    193   28   16.6 

Bad debt expenses

   165    174    9   5.2 

Others

   167    164    (3  (1.7   186    185   (1  (0.7
  

 

   

 

      

 

   

 

   

Total administrative expenses

  2,292   2,177    (115  (5.0

Total other administrative expenses

  1,986   2,041   56   2.8 
  

 

   

 

      

 

   

 

   

Total selling and administrative expenses

      3,845   3,734    (111  (2.9      2,430       2,381   (48  (2.0
  

 

   

 

      

 

   

 

   

(1)

N.A. means not applicable.

Our selling and administrative expenses decreased by 2.9%2.0%, or Won 11148 billion, from Won 3,8452,430 billion in 20162018 to Won 3,7342,381 billion in 20172019, primarily due to an impairment loss on trade accounts and notes receivable in 2018 compared to a reversal of such impairment loss in 2019 as well as decreases in expenses related to post-employment benefits, contract cost, other employment benefitsrental and rentaladvertising expenses, which were partially offset in part by increases in advertisingdepreciation expenses and sales commissions.wages and salaries. Such factors were principally attributable to the following:

 

Our expensesWe recognized impairment loss on trade accounts and notes receivable of Won 75 billion in 2018 primarily related to post-employment benefits decreased by 60.9%, or Won 122 billion, from Won 201 billion in 2016 to Won 79 billion in 2017 primarily due to expenses related to the early retirement programsimpairment loss on trade accounts and notes receivables of POSCO E&C and POSCO Engineering Co., Ltd.its subsidiary in 2016 compared to noVietnam. However, we recognized reversal of such programs in 2017.

Our contract cost decreased by 53.4%, orimpairment loss of Won 26 billion, from Won 4928 billion in 2016 to Won 23 billion in 20172019 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.reversal of impairment loss on trade accounts and notes receivables of POSCO E&C.

 

Our rental expenses decreased by 14.7%42.6%, or Won 1230 billion, from Won 82 billion in 2016 to Won 70 billion in 20172018 to Won 40 billion in 2019 primarily due to decreasesthe adoption of IFRS No. 16 in costs related2019 which has impacted rental expenses of POSCO E&C and POSCO International. See Note 2 of Notes to vehicle leases and leases related to information technology infrastructure.Consolidated Financial Statements.

Our advertising expenses increaseddecreased by 39.0%22.7%, or Won 3424 billion, from Won 86107 billion in 20162018 to Won 12083 billion in 20172019 primarily due to an increasereflecting our advertising activities in our general advertising activities2018 related to our sponsorship of the 2018 PyeongChang Olympic Games.Games compared to no such advertising activities in 2019.

Our depreciation expenses increased by 29.7%, or Won 30 billion, from Won 101 billion in 2018 to Won 131 billion in 2019 primarily due to our adoption of IFRS No. 16 in 2019, under which we recognized depreciation expenses related to ourright-of-use assets. See Note 2 of Notes to Consolidated Financial Statements.

 

Our sales commissionswages and salaries increased by 22.8%3.3%, or Won 2227 billion, from Won 94813 billion in 20162018 to Won 116841 billion in 20172019 primarily reflecting a general increasedue to increases in commissions related to increased sales revenue.base salaries at our domestic subsidiaries.

Other Operating Income and Expenses

The following table presents our impairment loss on other receivables and changes therein for 2018 and 2019.

       Changes 
   For the Year Ended December 31,   2018 versus 2019 
   2018   2019   Amount   % 
   (In billions of Won) 

Impairment loss on other receivables

      63           80           17    27.3

Our impairment loss on other receivables increased by 27.3%, or Won 17 billion, from Won 63 billion in 2018 to Won 80 billion in 2019 primarily due to a decrease in our reversals of allowances for bad debt, as well as an increase in allowance for bad debt of POSCO International.

The following table presents a breakdown of our other operating income and changes therein for 20162018 and 2017.2019.

 

      Changes       Changes 
  For the Year Ended December 31,   2016 versus 2017   For the Year Ended December 31,   2018 versus 2019 
          2016                   2017               Amount     %   2018   2019       Amount         %     
  (In billions of Won)   (In billions of Won) 

Gain on disposal of assets held for sale

  23   1   (22  (94.9)%   27   37   10   37.9

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

   23    82    59   251.0    45    28    (17  (38.5

Gain on disposal of property, plant and equipment

   24    32    8   34.9    53    49    (4  (7.1

Gain on disposal of intangible assets

   1    23    22   3,386.0    117    2    (115  (98.4

Recovery of allowance for other doubtful accounts

   13    3    (10  (78.3

Gain on valuation of firm commitment

       56    56   N.A. (1)    39    60    21   54.3 

Gain on insurance proceeds

   22    6    (16  (73.8

Gain on valuation of emission rights

       25    25   N.A. (1) 

Gain on disposal of emission rights

       11    11   N.A. (1) 

Reversal of other provisions

   4    37    33   926.8 

Others

   109    248        138   127.0    238    201    (37  (15.6
  

 

   

 

      

 

   

 

    

Total other operating income

    215     451    236   109.7 

Total othernon-operating income

      524       451    (73  (13.9
  

 

   

 

      

 

   

 

    

 

 

(1)

N.A. means not applicable.

Our other operating income increaseddecreased by 109.7%13.9%, or Won 23673 billion, from Won 215524 billion in 20162018 to Won 451 billion in 20172019, primarily due to ourdecreases in gain on disposal of intangible assets and the recognition of a tax refund of Won 133 billion in 2017 as well as2018, which were partially offset by increases in gain on disposalreversal of investments in subsidiaries, associates and joint venturesother provisions and gain on valuation of firm commitment, which were partially offset by a decrease in gain on disposal of assets held for sale.emission rights. Such factors were principally attributable to the following:

 

Our gain on disposal of intangible assets decreased by 98.4%, or Won 115 billion, from Won 117 billion in 2018 to Won 2 billion in 2019 primarily due to a gain from exchange or disposal of emission allowances in 2018, compared to no such gain in 2019.

In 2017,2018, we recognized a tax refund of Won 13355 billion which we categorized in “others,” relatedrelating to a successful appealcorrection of the results of a tax audit,investigation (which is included in “others”), compared to no such refund in 2016.2019.

 

Our gain on disposalreversal of investments in subsidiaries, associates and joint venturesother provisions increased by 251.0%926.8%, or Won 5933 billion, from Won 234 billion in 20162018 to Won 8237 billion in 20172019 primarily due to an increase in dispositiona reversal of our interests in some of our subsidiaries and associates as part of our reorganization efforts.other provisions related to a lawsuit involving POSCO E&C.

 

We recognized gain on valuation of firm commitmentemission rights of Won 5625 billion in 20172019 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.2018.

Our gain on disposal of assets held for sale decreased by 94.9%, or Won 22 billion, from Won 23 billion in 2016 to Won 1 billion in 2017. We recognized a gain of Won 23 billion 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 our other operating expenses and changes therein for 20162018 and 2017.2019.

 

       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 applicable.
       Changes 
   For the Year Ended December 31,   2018 versus 2019 
   2018   2019   Amount  % 
   (In billions of Won) 

Impairment loss on assets held for sale

   51    38   (13  (24.6)% 

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

   5    7    1   25.1 

Loss on disposals of property, plant and equipment

   118    120    3   2.2 

Impairment loss on property, plant and equipment

   1,005    443    (562  (55.9

Impairment loss on investment property

   51    33    (19  (36.6

Impairment loss on intangible assets

   338    191    (146  (43.4

Loss on valuation of firm commitment

   66    38    (29  (43.1

Idle tangible asset expenses

   9    34    25   268.9 

Increase to provisions

   135    23    (112  (82.9

Donations

   52    52    (1  (1.0

Others

   185    112    (73  (39.4
  

 

 

   

 

 

    

Total other operating expenses

      2,014       1,090    (924  (45.9
  

 

 

   

 

 

    

Our other operating expenses increaseddecreased by 4.8%45.9%, or Won 36924 billion, from Won 7562,014 billion in 2016the 2018 to Won 7921,090 billion in 2017,2019, primarily due to increases in our loss on disposal of property, plant and equipment, other bad debt expenses, loss on valuation of firm commitment and impairment losses on goodwill and intangible assets, which were partially offset by a decreasedecreases in impairment lossesloss on property, plant and equipment and impairment lossesloss on assets held for sale.intangible assets. Such factors were principally attributable to the following:

 

Our loss on disposal of property, plant and equipment increased by 74.7%, or Won 64 billion, from Won 87 billion in 2016 to Won 151 billion in 2017 primarily due to our blast furnace upgrading project at Pohang Works.

Our other bad debt expenses increased by 100.9%, or Won 51 billion, from Won 50 billion in 2016 to Won 101 billion in 2017. In 2016, our other bad debt expenses related primarily to financing of the Dongtan Metapolis project of POSCO E&C. In 2017, our bad debt expenses related primarily to joint venture projects of POSCO E&C.

We recognized loss on valuation of firm commitment of Won 43 billion in 2017 compared to no such loss in 2016, reflecting our decision to adopt hedge accounting starting in 2017, pursuant to which loss on valuation of firm commitment contracts is recognized.

Our impairment losses on goodwill 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 lossesloss on property, plant and equipment decreased by 40.5%55.9%, or Won 80562 billion, from Won 1971,005 billion in 20162018 to Won 117443 billion in 2017.2019. In 2016,2018, we recognized impairment losses on property, plant and equipmentloss of Won 62810 billion related to the discontinuation of our synthetic natural gas production facility in Gwangyang Works. In 2019, we recognized impairment loss of Won 205 billion incurred by POSCO SS VINA, Won 74 billion related to the discontinued operation of a ferro silicon facility in Pohang Works and Won 70 billion related to the discontinued operation of a compact endless cast-rolling mill in Gwangyang Works.

Our impairment loss on intangible assets decreased by 43.4%, or Won 146 billion, from Won 338 billion in 2018 to Won 191 billion in 2019. In 2018, our impairment loss on intangible assets related primarily to impairment loss on goodwill of Won 158 billion attributable to POSCO International and Won 66 billion attributable to POSCO E&C in connection with a decrease invalue-in-use of such entities due to reduced expected cash flow arising from the uncertain global economic climate, as well as impairment of industrial property rights of Won 78 billion related to our investment in Hume Coal Pty Limited, a coal mining company in Australia. In 2019, we recognized write-offs of intangible assets of Won 118 billion related to the termination of the BlockAD-7 exploration project in Myanmar by POSCO International.

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 Won 25 billion in 2016 related primarily to a decrease in value of a building in Songdo, compared to no impairment losses on assets held for sale in 2017.

Operating Profit

Due to the factors described above, our operating profit increaseddecreased by 83.8%20.3%, or Won 1,914819 billion, from Won 2,2824,042 billion in 20162018 to Won 4,1963,223 billion in 2017.2019. Our operating margin increaseddecreased from 4.3%6.2% in 20162018 to 7.0%5.0% in 2017.2019.

Share of Profit (Loss) ofEquity-Accounted Investees

We recorded a net loss for our proportionateOur share of profit of equity-accounted investees ofincreased by 143.0%, or Won 89161 billion, from Won 113 billion in 2016 compared2018 to a net gain for our proportionate share ofequity-accounted investees of Won 11274 billion in 2017. 2019.

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). In 2017,2018, we recognized a net gain for our proportionate share ofequity-accounted investees of Won 11113 billion primarily due to our share of gains of Won 75 billion of KOBRASCO, (Won 56 billion)Won 70 billion of POSCO Mitsubishi Carbon Technology Ltd., Won 59 billion of Roy Hill Holdings Pty Ltd. (Won 46 billion), South-East Asia Gas Pipelineand Won 30 billion ofAES-VCM Mong Duong Power Company Ltd. (Won 43 billion) and POSCO Mitsubishi Carbon Technology Ltd. (Won 28 billion),Limited, which were partially offset by our share of loss of Won 110 billion ofCSP-Compania Siderurgica do Pecem (Won 148 billion).Pecem.

In 2019, we recognized a net gain for our proportionate share of equity-accounted investees of Won 274 billion primarily due to our share of gains of Won 158 billion of Roy Hill Holdings Pty Ltd, Won 64 billion of South-East Asia Gas Pipeline Company Ltd., Won 56 billion of KOBRASCO and Won 28 billion of SNNC Co., Ltd., which were offset in part by our share of loss of Won 58 billion of CSP – Compania Siderurgica do Pacem. 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 20162018 and 2017.2019.

 

      Changes       Changes 
  For the Year Ended December 31,   2016 versus 2017   For the Year Ended December 31,   2018 versus 2019 
          2016                   2017               Amount     %   2018   2019   Amount % 
  (In billions of Won)   (In billions of Won) 

Interest income

  182   212   30   16.4  337   352   15   4.5

Dividend income

   41    93    52   126.7    63    75    12   19.1 

Gain on foreign currency transactions

   1,033    786    (247  (23.9   716    825    109   15.2 

Gain on foreign currency translations

   378    564    186   49.3    212    206    (6  (3.0

Gain on derivatives transactions

   317    211    (106  (33.4   248    196    (52  (20.8

Gain on valuation of derivatives

   147    65    (82  (56.0

Gain on disposals ofavailable-for-sale financial assets

   131    426    295   225.4 

Gain on valuations of derivatives

   97    163    67   68.6 

Gain on disposals of financial assets at fair value through profit or loss

   9    9    (0  (2.5

Gain on valuations of financial assets at fair value through profit or loss

   16    42    26   161.9 

Others

   4    16    13   337.6    7    3    (4  (53.5
  

 

   

 

      

 

   

 

    

Total finance income

      2,232       2,373    141   6.3   1,706   1,872    166   9.7 
  

 

   

 

      

 

   

 

    

Interest expenses

  659   653    (6  (0.9)%   741   756    14   1.9

Loss on foreign currency transactions

   1,147    757    (391  (34.0   811    747    (64  (7.9

Loss on foreign currency translations

   405    423    17   4.3    322    319    (2  (0.7

Loss on derivatives transactions

   338    236    (102  (30.2   209    228    19   9.3 

Loss on valuation of derivatives

   163    226    64   39.2 

Impairment losses onavailable-for-sale financial assets

   248    123    (125  (50.4

Loss on valuations of derivatives

   41    47    7   16.7 

Loss on disposal of trade accounts and notes receivable

   40    37    (3  (7.6

Loss on disposal of financial assets at fair value through profit or loss

   1    3    1   101.4 

Loss on valuations of financial assets at fair value through profit or loss

   59    66    6   10.8 

Others

   53    66    12   22.7    20    39    19   92.9 
  

 

   

 

      

 

   

 

    

Total finance costs

  3,014   2,484    (530  (17.6  2,244   2,242    (2  (0.1
  

 

   

 

      

 

   

 

    

We recognized a net loss on foreign currency translations of Won 28 billion in 2016 compared to a net gain on foreign currency translations of Won 141 billion in 2017, and we recorded a net loss on foreign currency transactions of Won 11595 billion in 20162018 compared to a net gain on foreign currency transactions of Won 2978 billion in 2017,2019 and our net loss on foreign currency translations increased by 3.8%, or Won 4 billion, from Won 109 billion in 2018 to Won 113 billion in 2019, as the Won depreciated against the Dollar in 2016 but appreciated2018 and further depreciated in 2017.2019. In terms of the market average exchange rates announced by Seoul Money Brokerage Services, Ltd., the Won depreciated from Won 1,172.0 to US$1.00 as of December 31, 2015 to Won 1,208.5 to US$1.00 as of December 31, 2016 but appreciated to Won 1,071.4 to US$1.00 as of December 31, 2017.2017 to Won 1,118.1 to US$1.00 as of December 31, 2018 and further depreciated to Won 1,157.8 to US$1.00 as of December 31, 2019. Against such fluctuations, our net lossgain on valuationvaluations of derivatives increased by 939.2%106.1%, or Won 14660 billion, from Won 1656 billion in 20162018 to Won 162116 billion in 2017,2019, and ourwe recognized a net gain on transactions of derivatives of Won 39 billion in 2018 compared to a net loss on transactions of derivatives increased by 17.2%, orof Won 4 billion, from Won 2232 billion in 2016 to Won 26 billion in 2017.

Our gain on disposal ofavailable-for-sale financial assets increased by 225.4%, or Won 295 billion, from Won 131 billion in 2016 to Won 426 billion in 2017. In 2016, our gain on disposals ofavailable-for-sale financial assets related primarily to 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 Inc.

Our interest income increased by 16.4%, or Won 30 billion, from Won 182 billion in 2016 to Won 212 billion in 2017 primarily due to a general increase in interest rates in Korea in 2017.2019.

Profit before Income Taxes

Due to the factors described above, our profit before income taxes increaseddecreased by 190.1%13.5%, or Won 2,683489 billion, from Won 1,4123,616 billion in 20162018 to Won 4,0953,127 billion in 2017.2019.

The following table presents our profit and loss by segment, prior to adjusting for goodwill and corporatefair-value fair value adjustments, elimination of inter-segment profits, income tax expense and basis difference, and changes therein for 20162018 and 2017.2019.

 

    Changes     Changes 
  For the Year Ended December 31, 2016 versus 2017   For the Year Ended December 31, 2018 versus 2019 
          2016                 2017             Amount     %           2018                 2019             Amount     % 
  (In billions of Won)   (In billions of Won) 

Steel Segment

          1,511          2,791  1,279   84.7          1,268          586  (682  (53.8)% 

Trading Segment

   53   113   59   111.6    49   165   116   235.6 

Construction Segment

   (1,404  25   1,428   N.A. (1)    0   28   28   N.M (2) 

Others Segment

   (26  233   259   N.A. (1)    14   545   531   3,904.7 

Goodwill and corporate fair value adjustments

   (123  (84  39   N.A. (1)    (78  (80  (2  3.2 

Elimination ofinter-segment profits

   1,036   (103  (1,139  N.A. (1)    638   739   100   15.7 

Income tax expense

   385   1,206   822   213.6    1,671   1,071   (600  (35.9

Basis difference(2)

   (21  (85  (63  298.4 

Basis difference adjustments (1)

   53   73   20   37.7 
  

 

  

 

     

 

  

 

   

Profit before income taxes

  1,412  4,095   2,683   190.1   3,616  3,127   (489  (13.5
  

 

  

 

     

 

  

 

   

 

 

(1)N.A. means not applicable.

(2)Basis difference isadjustments are 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.M. means not meaningful.

Income Tax Expense

Our income tax expense increaseddecreased by 212.4%35.4%, or Won 806595 billion, from Won 3801,684 billion in 20162018 to Won 1,1861,088 billion in 2017.2019, primarily reflecting a decrease in profit before income tax described above. Our effective tax rate increaseddecreased from 26.9%46.6% in 20162018 to 29.0%34.8% in 20172019. In 2018, our effective tax rate was higher than the statutory rate of 27.5% primarily due to adjustments related to(i) non-deductible impairment loss related to a synthetic natural gas production facility in Gwangyang Works and (ii) a tax audit. In 2019, our effective tax rate was higher than the statutory rate primarily due to the effect of tax rate change of Won 176 billiondeductible temporary difference in 2017 (that resulted in an increase in effective tax rate of 4.3%). In 2017, the Government announced a revision of tax law 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 a decrease in tax related toour investments in subsidiaries, associates and joint ventures, from Won 77 billion in 2016 to Won 55 billion in 2017 (that resulted in a decrease in effectivefor which no deferred tax rate of 4.1%).assets were recognized. See Note 35 of Notes to Consolidated Financial Statements.

Profit

Due to the factors described above, our profit increased by 181.9%5.5%, or Won 1,877106 billion, from Won 1,0321,932 billion in 20162018 to Won 2,9092,038 billion in 2017.2019.

Operating Results – 20152017 Compared to 20162018

The following table presents our statement of comprehensive income statement information and changes therein for 20152017 and 2016.2018.

 

      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.
       Changes 
   For the Year Ended December 31,   2017 versus 2018 
   2017   2018   Amount  % 
   (In billions of Won) 

Revenue

      60,187       65,155       4,968   8.3

Cost of sales

   51,916    57,129    5,123   10.0 
  

 

 

   

 

 

    

Gross profit

   8,271    8,026    (246  (3.0

Selling and administrative expenses:

       

Impairment loss on trade accounts and notes receivable

   174    75    (99  (56.9

Other administrative expenses

   2,003    1,986    (17  (0.9

Selling expenses

   1,557    369    (1,188  (76.3

Other operating income and expenses:

       

Impairment loss on other receivables

   98    63    (35  (35.7

Other operating income

   448    524    75   16.7 

Other operating expenses

   691    2,014    1,323   191.4 
  

 

 

   

 

 

    

Operating profit

   4,196    4,042    (154  (3.7

Share of profit ofequity-accounted investees, net

   11    113    102   968.6 

Finance income

   2,373    1,706    (667  (28.1

Finance costs

   2,484    2,244    (240  (9.7
  

 

 

   

 

 

    

Profit before income tax

   4,095    3,616    (479  (11.7

Income tax expense

   1,186    1,684    498   42.0 
  

 

 

   

 

 

    

Profit

   2,909    1,932    (977  (33.6

Profit for the period attributable to owners of the controlling company

   2,756    1,712    (1,044  (37.9

Profit for the period attributable tonon-controlling interests

   153    220    67   44.0 

Revenue

The following table presents our revenue by segment and changes therein for 20152017 and 2016.2018.

 

    Changes     Changes 
  For the Year Ended December 31, 2015 versus 2016   For the Year Ended December 31, 2017 versus 2018 
          2015                 2016                 Amount         %   2017 2018 Amount % 
  (In billions of Won)   (In billions of Won) 

Steel Segment:

          

External revenue

  28,293  26,844  (1,449  (5.1)%   30,230  32,358  2,128   7.0

Internal revenue

   16,544   16,062   (482  (2.9   17,381   18,063   682   3.9 
  

 

  

 

     

 

  

 

   

Total revenue from Steel Segment

   44,837   42,906   (1,931  (4.3   47,611   50,421   2,810   5.9 
  

 

  

 

     

 

  

 

   

Trading Segment:

          

External revenue

   18,315   16,774   (1,541  (8.4   20,802   22,408   1,606   7.7

Internal revenue

   8,692   9,646           954   11.0    14,076   15,911   1,835   13.0 
  

 

  

 

     

 

  

 

   

Total revenue from Trading Segment

   27,008   26,420   (587  (2.2   34,878   38,319   3,441   9.9 
  

 

  

 

     

 

  

 

   

Construction Segment:

          

External revenue

   8,516   6,768   (1,747  (20.5   6,887   6,769   (117  (1.7

Internal revenue

   1,352   714   (638  (47.2   399   551   152   38.2 
  

 

  

 

     

 

  

 

   

Total revenue from Construction Segment

   9,868   7,482   (2,386  (24.2   7,286   7,321   35   0.5 
  

 

  

 

     

 

  

 

   

Others Segment:

          

External revenue

   3,068   2,697   (371  (12.1   2,736   3,443   707   25.8 

Internal revenue

   2,691   2,380   (311  (11.6   2,549   2,755   207   8.1 
  

 

  

 

     

 

  

 

   

Total revenue from Others Segment

   5,760   5,077   (683  (11.9   5,285   6,198   913   17.3 
  

 

  

 

     

 

  

 

   

Total revenue prior to consolidation adjustments and basis difference

   87,472   81,885   (5,589  (6.4   95,060   102,259   7,199   7.6 
  

 

  

 

     

 

  

 

   

Consolidation adjustments

   (29,279  (28,802  478   (1.6   (34,405  (37,281  (2,876  8.4 

Basis difference (1)

   330   (144  (474  N.A.(2) 

Basis difference adjustments (1)

   (468  177   645   N.A. (2) 
  

 

  

 

     

 

  

 

   

Revenue

  58,522  52,940   (5,582  (9.5  60,187  65,155   4,968   8.3
  

 

  

 

     

 

  

 

   

 

 

(1)

Basis difference isadjustments are 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.

Our revenue decreasedincreased by 9.5%8.3%, or Won 5,5824,968 billion, from Won 58,52260,187 billion in 20152017 to Won 52,94065,155 billion in 20162018 due to decreasesincreases in external revenues from each of our four segments.the Steel Segment, the Trading Segment and the Others Segment, which were offset in part by a decrease in external revenue from the Construction Segment. Specifically:

Steel Segment.External revenue from the Steel Segment, which does not include internal revenue frominter-company transactions that are eliminated during consolidation decreasedand basis difference adjustments, increased by 5.1%7.0%, or Won 1,4492,128 billion, from Won 28,29330,230 billion in 20152017 to Won 26,84432,358 billion primarilyin 2018 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)., as well as an increase 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 principal steel products produced by us and directly sold to external customers increased by 4.4% from 30.0 million tons in 2017 to 31.4 million tons in 2018, while the weighted average unit sales price per ton of the principal steel products produced by us and directly sold to external

customers decreasedincreased by 6.6%3.3% from Won 798,217903,897 per ton in 20152017 to Won 745,476933,990 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 2016.2018. 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, other than wire rods and stainless steel products, increased from 20152017 to 2016.2018. The sales volume of stainless steel products, cold rolled products, plates, wire rods, hot rolled products, silicon steel products and siliconplates produced by us and directly sold to external customers increased by 9.1%, 4.7%, 1.7% and 1.2%, respectively, from 2017 to 2018. On the other hand, the sales volume of wire rods and stainless steel products produced by us and directly sold to external customers increaseddecreased by 9.8%, 6.0%, 3.5%, 2.6%, 1.1%4.6% and 0.2%0.8%, respectively, from 20152017 to 2016.2018. 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 each of our major product categories, other than silicon steel products, increased from 2017 to 2018. The unit sales prices in Won of plates, hot rolled products, wire rods, cold rolled products and stainless steel products produced by us and directly sold to external customers increased by 14.8%, 5.2%, 4.9%, 2.8% and 0.8%, respectively, from 2017 to 2018. On the other hand, the unit sales price in Won of silicon steel products produced by us and directly sold to external customers decreased by 2.9% from 2017 to 2018. 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 frominter-company transactions, decreasedincreased by 4.3%5.9%, or Won 1,9312,810 billion, from Won 44,83747,611 billion in 20152017 to Won 42,90650,421 billion in 20162018 as internal revenue frominter-company transactions decreasedincreased by 2.9%3.9%, or Won 482682 billion, from Won 16,54417,381 billion in 20152017 to Won 16,06218,063 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.2018.

Trading Segment.External revenue from the Trading Segment, which does not include internal revenue frominter-company transactions that are eliminated during consolidation decreasedand basis difference adjustments, increased by 8.4%7.7%, or Won 1,5411,606 billion, from Won 18,31520,802 billion in 20152017 to Won 16,77422,408 billion in 20162018 primarily due to a decreasean increase inthird-country trades by POSCO DaewooInternational and our other trading subsidiaries from 20152017 to 2016,2018, reflecting market conditions related toan increase in trading of agricultural products and steel slabs, as well as the deteriorationrecognition 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.sales of POSCO P&S’s steel product sales business under the Trading Segment commencing March 2017 following the transfer of such business to POSCO International.

Total revenue from the Trading Segment, which includes internal revenue frominter-company transactions, decreasedincreased by 2.2%9.9%, or Won 5873,441 billion, from Won 27,00834,878 billion in 20152017 to Won 26,42038,319 billion in 20162018 as internal revenue frominter-company transactions increased by 11.0%13.0%, or Won 9541,835 billion, from Won 8,69214,076 billion in 20152017 to Won 9,64615,911 billion in 2016 primarily due to an increase in our steel sales activities through trading subsidiaries.2018.

Construction Segment.External revenue from the Construction Segment, which does not include internal revenue frominter-company transactions that are eliminated during consolidation and basis difference adjustments, decreased by 20.5%1.7%, or Won 1,747117 billion, from Won 8,5166,887 billion in 20152017 to Won 6,7686,769 billion in 20162018 primarily due to a general decrease in POSCO E&C’s construction activities reflecting weakeningin Brazil following the completion of market conditionsconstruction ofCSP-Companhia Siderurgia do Pecem steel plant complex in the domestic construction industry as well as a decrease in demand for EPC projects in Korea and abroad.2017.

Total revenue from the Construction Segment, which includes internal revenue frominter-company transactions, decreasedincreased by 24.2%0.5%, or Won 2,38635 billion, from Won 9,8687,286 billion in 20152017 to Won 7,4827,321 billion in 20162018 as internal revenue frominter-company transactions decreasedincreased by 47.2%38.2%, or Won 638152 billion, from Won 1,352399 billion in 20152017 to Won 714551 billion in 2016.2018. Such decreaseincrease in internal revenue reflected a decreasean increase in the amount of construction activities for member companies of the POSCO Group in 20162018 compared to 2015.2017, which was partially offset by a decrease in external revenue as discussed above.

Others Segment. The Others Segment primarily includes power generation, LNG production, networklogistics, manufacturing of various industrial materials 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 decreasedand basis difference adjustments, increased by 12.1%25.8%, or Won 371707 billion, from Won 3,0682,736 billion in 20152017 to Won 2,6973,443 billion in 20162018 primarily due to a decreaseincreases in revenue of POSCO Energy Corporation reflecting decreases in the unit price as well as volume of electric power sold.and POSCO Chemical Co., Ltd.

Total revenue from the Others Segment, which includes internal revenue frominter-company transactions, decreasedincreased by 11.9%17.3%, or Won 683913 billion, from Won 5,7605,285 billion in 20152017 to Won 5,0776,198 billion in 20162018 as internal revenue frominter-company transactions decreasedincreased by 11.6%8.1% or Won 311207 billion, from Won 2,6912,549 billion in 20152017 to Won 2,3802,755 billion in 2016.2018. Such decreaseincrease primarily reflected a decreasean increase ininter-company sales relatedof coal cokingby-products from POSCO Chemical Co., Ltd. to a general reduction in investments made by the POSCO Group in 2016.POSCO.

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 20152017 and 2016.2018.

 

    Changes     Changes 
  For the Year Ended December 31, 2015 versus 2016   For the Year Ended December 31, 2017 versus 2018 
      2015     2016             Amount     %   2017 2018 Amount % 
  (In billions of Won)   (In billions of Won) 

Steel Segment

  40,381  37,437  (2,944  (7.3)%   41,479  44,377  2,898   7.0

Trading Segment

   25,563   25,090   (473  (1.8   33,388   37,202   3,814   11.4 

Construction Segment

   9,248   7,564   (1,685  (18.2   6,598   6,651   53   0.8 

Others Segment

   5,158   4,507   (651  (12.6   4,636   5,603   967   20.9 

Consolidation adjustments

   (28,692  (28,204        488   (1.7   (33,802  (36,828  (3,026  9.0 

Basis difference(1)

   360   (123  (483  N.A. (2) 

Basis difference adjustments(1)

   (383  124       507   N.A. (2) 
  

 

  

 

     

 

  

 

   

Cost of sales

      52,018      46,271  (5,747  (11.0)%       51,916      57,129      5,213   10.0
  

 

  

 

     

 

  

 

   

 

 

(1)

Basis difference isadjustments are 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. TheOur cost of sales of our Steel Segment, prior to consolidation adjustments, decreasedincreased by 7.3%10.0%, or Won 2,9445,213 billion, from Won 40,38151,916 billion in 20152017 to Won 37,43757,129 billion in 20162018. The increase in cost of sales was primarily due to decreasesincreases in the average price in Won terms of key raw materials that were used to manufacture our finished goods sold the impactas well as in our sales volume of steel products. Following our adoption of IFRS No. 15 “Revenue from Contracts with Customers” starting on January 1, 2018, we also began classifying a substantial majority of our freight and custody expenses as cost of sales, which had all been recognized as selling expenses in 2017. We recognized Won 1,415 billion as freight and custody expenses in 2018, of which was partially offsetwe recognized Won 1,230 billion as cost of sales and Won 185 billion as selling expenses.

Steel Segment. The cost of sales of our Steel Segment, prior to consolidation and basis difference adjustments, increased by an increase7.0%, or Won 2,898 billion, from Won 41,479 billion in 2017 to Won 44,377 billion in 2018 primarily due to increases in our sales volume of the principal steel products produced by us and sold to external and internal customers.customers and in the average price in Won terms of key raw materials that were used to manufacture our finished goods sold, as well as our classification of Won 919 billion of freight and custody expenses of the Steel Segment as cost of sales (instead of selling expenses) following our adoption of IFRS 15 starting in 2018.

Trading Segment. The cost of sales of our Trading Segment, prior to consolidation and basis difference adjustments, decreasedincreased by 1.8%11.4%, or Won 4733,814 billion, from Won 25,56333,388 billion in 20152017 to Won 25,09037,202 billion in 20162018 primarily due to decreasesan increase in costthe volume of export and import products sold, as well as our trading volumes,classification of Won 307 billion of freight and custody expenses of the impactTrading Segment as cost of which was partially offset by an increasesales (instead of selling expenses) following our adoption of IFRS 15 starting in the production costs related to gas produced at the Myanmar gas fields and sold to customers.2018.

Construction Segment. The cost of sales of our Construction Segment, prior to consolidation and basis difference adjustments, decreasedincreased by 18.2%0.8%, or Won 1,68553 billion, from Won 9,2486,598 billion in 20152017 to Won 7,5646,651 billion in 20162018 in line with the decreasean increase in the levelamount of construction activities described above.

Others Segment.The cost of sales of our Others Segment, prior to consolidation and basis difference adjustments, decreasedincreased by 12.6%20.9%, or Won 651967 billion, from Won 5,1584,636 billion in 20152017 to Won 4,5075,603 billion in 2016

2018 primarily due to decreasesincreases 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 20152017 and 2016.2018.

 

    Changes     Changes 
  For the Year Ended December 31, 2015 versus 2016   For the Year Ended December 31, 2017 versus 2018 
          2015                 2016             Amount     %   2017 2018 Amount % 
  (In billions of Won)   (In billions of Won) 

Steel Segment

  4,456  5,469      1,013   22.7  6,132  6,044  (88)   (1.4)% 

Trading Segment

   1,445   1,330   (115  (7.9   1,490   1,117   (374  (25.1

Construction Segment

   619   (82  (701  N.A.(2)    688   669   (18  (2.6

Others Segment

   601   570   (32  (5.3   649   595   (54  (8.3

Consolidation adjustments

   (587  (598  (11  1.9    (603  (453  150   (24.8

Basis difference(1)

   (30)   (21  9   (30.0

Basis difference adjustments (1)

   (85  53       138   N.A. (2) 
  

 

  

 

     

 

  

 

   

Gross profit

      6,504      6,668  164   2.5      8,271      8,026  (246  (3.0
  

 

  

 

     

 

  

 

   

 

 

(1)

Basis difference isadjustments are 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.

Our gross profit decreased by 3.0%, or Won 246 billion, from Won 8,271 billion in 2017 to Won 8,026 billion in 2018 due to decreases in gross profit of each of our four segments, particularly from the Trading Segment. Our gross margin decreased from 13.7% in 2017 to 12.3% in 2018.

Steel Segment. The gross profit of our Steel Segment, prior to consolidation and basis difference adjustments, increaseddecreased by 22.7%1.4%, or Won 1,01388 billion, from Won 4,4566,132 billion in 20152017 to Won 5,4696,044 billion in 20162018 primarily due to a decreaseour classification of Won 919 billion of freight and custody expenses of the Steel Segment as cost of sales (instead of selling expenses) following our adoption of IFRS 15 starting 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,2018, which were partiallywas largely offset by the impact from our external revenue from the Steel Segment increasing at a decrease in the average unitgreater rate than its cost of sales price per ton of the principal steel products produced by us(excluding freight and soldcustody expenses), prior to externalconsolidation and internal customers,basis difference adjustments, as discussed above. TheDue to such factors, the gross margin of our Steel Segment, which is gross profit as a percentage of total revenue prior to consolidation and basis difference adjustments, increaseddecreased from 9.9%12.9% in 20152017 to 12.7%12.0% in 2016, as we focused our production and marketing efforts on selling higher margin, higher value added premium products in 2016.2018.

Trading Segment. The gross profit of our Trading Segment, prior to consolidation and basis difference adjustments, decreased by 7.9%25.1%, or Won 115374 billion, from Won 1,4451,490 billion in 20152017 to Won 1,3301,117 billion in 2016, reflecting2018 primarily due to a decrease in trading margins resulting from weaker demandour classification of Won 307 billion of freight and falling prices for export and import products, which was partially offset by an increase in gross profitcustody expenses of the Myanmar gas fields.Trading Segment as cost of sales (instead of selling expenses) following our adoption of IFRS 15 starting in 2018. The gross margin of our Trading Segment, prior to consolidation and basis difference adjustments, decreased from 5.3%4.3% in 20152017 to 5.0%2.9% in 2016.2018.

Construction Segment. Our Construction Segment recordedThe gross profit of our Construction Segment, prior to consolidation and basis difference adjustments, decreased by 2.6%, or Won 61918 billion, from Won 688 billion in 2015 compared2017 to gross loss of Won 82669 billion in 2016, and the gross margin decreased from 6.3% in 2015 to (1.1)% in 2016,2018 primarily due to losses incurreda decrease in connection withPOSCO E&C’s construction activities 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 amountits participation of relatively high-margin construction projects for member companieswith higher margins in 2018.The gross margin of the POSCO Group.

Weakening of market conditionsour Construction Segment, prior to consolidation and basis difference adjustments, decreased from 9.4% in the domestic construction industry2017 to 9.1% in recent years, particularly relating to the public sector, resulted in an increase in competition.2018.

Others Segment.The gross profit of our Others Segment, prior to consolidation and basis difference adjustments, decreased by 5.3%8.3%, or Won 3254 billion, from Won 601649 billion in 20152017 to Won 570595 billion in 20162018 primarily due to decreasesa decrease in gross profit of POSCO Energy Corporation. Despite such decreases,Corporation.The gross margin increasedof our Others Segment, prior to consolidation and basis difference adjustments, decreased from 10.4%12.3% in 20152017 to 11.2%9.6% in 2016 due to the larger decrease in revenue as discussed above.2018.

Selling and Administrative Expenses

The following table presents a breakdown of our selling and administrative expenses and changes therein for 20152017 and 2016.2018.

 

      Changes           Changes 
  For the Year Ended December 31,   2015 versus 2016   For the Year Ended December 31,   2017 versus 2018 
  2015   2016   Amount %   2017   2018   Amount % 
  (In billions of Won)   (In billions of Won) 

Impairment loss on trade accounts and notes receivable

  174   75   (99  (56.9)% 

Freight and custody expenses

          1,532           1,342           (190  (12.4)%   1,337   185   (1,152  (86.2)% 

Sales commissions

   80    94    14   17.7    116    79    (37  (31.8

Sales promotion

   22    11    (12  (52.5   12    14    1   11.1 

Sales insurance premium

   31    31    1   2.3    37    37    1   1.9 

Contract cost

   38    49    11   28.8    23    17    (6  (26.3

Others

   25    26    0   1.7    32    37    5   15.7 
  

 

   

 

      

 

   

 

    

Total selling expenses

  1,729   1,554    (175  (10.1  1,557   369    (1,188  (76.3
  

 

   

 

      

 

   

 

    

Wages and salaries

  811   770   (41  (5.1)%   775   813           39   5.0

Expenses related topost-employment benefits

   87    201    114   130.2    79    73    (5  (6.8

Other employee benefits

   194    177    (17  (8.9   160    176    16   10.2 

Depreciation and amortization

   274    243    (31  (11.3

Depreciation

   97    101    4   4.1 

Amortization

   146    112    (34  (23.2

Taxes and public dues

   74    79    5   6.2    73    72    (1  (9.6

Rental

   120    82    (38  (31.6   70    70    (0  (0.7

Advertising

   91    86    (5  (5.0   120    107    (13  (10.7

Research and development

   136    121    (15  (11.0   126    108    (17  (13.9

Service fees

   219    201    (18  (8.1   193    166    (27  (14.2

Bad debt expenses

   190    165    (24  (12.9

Others

   200    167    (33  (16.5   164    186    22   13.4 
  

 

   

 

      

 

   

 

    

Total administrative expenses

  2,395   2,292    (104  (4.3

Total other administrative expenses

  2,003   1,986    (17  (0.9
  

 

   

 

      

 

   

 

    

Total selling and administrative expenses

  4,124   3,845    (279  (6.8      3,734       2,430    (1,304  (34.9
  

 

   

 

      

 

   

 

    

Our selling and administrative expenses decreased by 6.8%34.9%, or Won 2791,304 billion, from Won 4,1243,734 billion in 20152017 to Won 3,8452,430 billion in 20162018 primarily due to decreases inour classification of a substantial majority of our freight and custody expenses wagesas cost of sales starting in 2018 (as compared to the entire amount as selling expenses in 2017), as well as decreases in impairment loss on trade

accounts and salariesnotes receivable, sales commissions, amortization expenses and rental expenses,service fees, which were partially offset by an increase in expenses related topost-employment benefits.wages and salaries. Such factors were principally attributable to the following:

 

Our freight and custody expenses decreased by 12.4%86.2%, or Won 1901,152 billion, from Won 1,5321,337 billion in 20152017 to Won 1,342185 billion in 20162018 primarily due to our classification of Won 1,230 billion of freight and custody expenses as cost of sales starting in 2018.

Our impairment loss on trade accounts and notes receivable decreased by 56.9%, or Won 99 billion, from Won 174 billion in 2017 to Won 75 billion in 2018 primarily due to a decrease in freight rates, which was offsetimpairment loss on trade accounts and notes receivable of POSCO International.

Our sales commissions decreased by 31.8%, or Won 37 billion, from Won 116 billion in part by2017 to Won 79 billion in 2018 primarily due to a largeone-time sales commission in 2017 that did not reoccur in 2018, as well as an increase in transactions without sales commissions.

Our amortization expenses decreased by 23.2%, or Won 34 billion, from Won 146 billion in 2017 to Won 112 billion in 2018 primarily due to a decrease in amortization of intangible assets related to upgrading of our export volume.information technology infrastructure.

 

Our wages and salaries decreasedincreased by 5.1%5.0%, or Won 4139 billion, fromFrom Won 811775 billion in 20152017 to Won 770813 billion in 20162018 primarily due to a decreasean increase 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.employee incentive bonuses.

Other Operating Income and Expenses

The following table presents our impairment loss on other receivables and changes therein for 2017 and 2018.

       Changes 
   For the Year Ended December 31,   2017 versus 2018 
   2017   2018   Amount  % 
   (In billions of Won) 

Impairment loss on other receivables

      98           63           (35)   (35.7)% 

Our impairment loss on other receivables decreased by 35.7%, or Won 35 billion, from Won 98 billion in 2017 to Won 63 billion in 2018. In 2017, our impairment loss on other receivables related primarily to joint venture projects of POSCO E&C. In 2018, our impairment loss on other receivables related primarily to uncollectible loans made by POSCO E&C to PT. POSCO E&C Indonesia.

The following table presents a breakdown of our other operating income and changes therein for 20152017 and 2016.2018.

 

      Changes       Changes 
  For the Year Ended December 31,   2015 versus 2016   For the Year Ended December 31,   2017 versus 2018 
          2015                   2016               Amount     %   2017   2018   Amount % 
  (In billions of Won)   (In billions of Won) 

Gain on disposal of assets held for sale

  228   23           (205  (89.9)%   1   27       26   2,202.6

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

   89    23    (65  (73.7   82    45    (37  (44.7

Gain on disposal of property, plant and equipment

   23    24    1   4.8    32    53    21   65.3 

Recovery of allowance for other doubtful accounts

   10    13    2   21.1 

Gain on insurance proceeds

   15    22    7   49.6 

Gain on disposal of intangible assets

   23    117    94   400.8 

Gain on valuation of firm commitment

   56    39    (17  (30.7

Reversal of other provisions

       4    4   N.A. (1) 

Others

   184    110    (74  (40.4   254    238    (16  (6.3
  

 

   

 

      

 

   

 

    

Total other operating income

      549       215    (334  (60.8      448       524    75   16.7 
  

 

   

 

      

 

   

 

    

(1)

N.A. means not applicable.

Our other operating income decreasedincreased by 60.8%16.7%, or Won 33475 billion, from Won 549448 billion in 20152017 to Won 215524 billion in 20162018 primarily due to decreasesincreases in gain on disposal of intangible assets, gain on disposal of assets held for sale and gain on disposal of property, plant and equipment, which were partially offset by a decrease in gain on disposal of investments in subsidiaries, associates and joint ventures. Such factors were principally attributable to the following:

Our gain on disposal of intangible assets increased significantly, by Won 94 billion, from Won 23 billion in 2017 to Won 117 billion in 2018 primarily due to an increase in gain from disposal of our carbon credits.

Our gain on disposal of assets held for sale decreasedincreased significantly, by 89.9%, or Won 20526 billion, from Won 2281 billion in 20152017 to Won 2327 billion in 2016. In 2015, we recognized a2018 primarily due to the disposal of assets of POSPower Co., Ltd. in 2018, compared to no such gain of Won 228 billion onfrom our 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 a2017.

Our gain of Won 23 billion on disposal of assets held for saleproperty, plant and equipment increased by 65.3%, or Won 21 billion, from Won 32 billion in 2017 to Won 53 billion in 2018 primarily due to an increase in gains from the disposalsales of our 80.0% interest in POSCO LED Co., Ltd. corporate housing units to employees.

Our gain on disposal of investments in subsidiaries, associates and joint ventures decreased by 73.7%44.7%, or Won 6537 billion, from Won 8982 billion in 20152017 to Won 2345 billion in 20162018 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 20152017 and 2016.2018.

 

      Changes       Changes 
  For the Year Ended December 31,   2015 versus 2016   For the Year Ended December 31,   2017 versus 2018 
      2015           2016           Amount     %   2017   2018   Amount % 
  (In billions of Won)   (In billions of Won) 

Impairment losses on assets held for sale

  134   25    (109  (81.4)%       51    51   N.A. (1)

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    20    5    (15  (73.9

Loss on disposal of property, plant and equipment

   102    87    (15  (14.9   151    118    (34  (22.3

Impairment losses on property, plant and equipment

   136    197    61   44.5    117    1,005    887   757.0 

Impairment losses on goodwill and intangible assets

   161    128    (34  (20.8

Other bad debt expenses

   158    50    (108  (68.2

Impairment losses on investment property

       51    51   N.A. (1) 

Impairment losses on intangible assets

   168    338    170   100.9 

Increase to provisions

   34    135    101   296.4 

Loss on valuation of firm commitment

   43    66    23   53.6 

Donations

   51    52    1   1.3 

Idle tangible assets expenses

   13    6    (6  (49.6   10    9    (1  (11.8

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

Others

   96    185    89   92.7 
  

 

   

 

      

 

   

 

    

Total other operating expenses

      1,442       756    (687  (47.6      691       2,014    1,323   191.4 
  

 

   

 

      

 

   

 

    

 

 

(1)Includes lawsuit settlement expenses of Won 299 billion in 2015.

N.A. means not applicable.

Our other operating expenses decreasedincreased by 47.6%191.4%, or Won 6871,323 billion, from Won 1,442691 billion in 20152017 to Won 7562,014 billion in 2016,2018 primarily due to our recognition of lawsuit settlement expenses related to the litigation with Nippon Steel & Sumitomo Metal Corporationincreases 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 expensesproperty, plant and equipment, impairment losses on goodwillintangible assets and intangible assets,increase to provisions, which were partially offset by an increasea decrease in impairment lossesloss on disposal of 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 decreasedproperty, plant and equipment increased significantly, by 81.4%, or Won 109887 billion, from Won 134117 billion in 20152017 to Won 251,005 billion in 2016.2018. In 2015,2017, our impairment losses on property, plant and equipment related primarily to classification of our investment in Nacional Minerios S.A.SkyCube operated by Suncheon Eco Trans Co., Ltd. as assets held for sale and impairment losses from the fair value of such investment less cost to sell being below the carrying amount.well as disposal plans regarding certain assets. In 2016, our impairment losses related primarily to a decrease in value of a building in Songdo.

2018, we recognized impairment losses on property, plant and equipment of Won 810 billion related to our synthetic natural gas production facility in Gwangyang due to our discontinuation of such business, as well as impairment losses of Won 54 billion related to the operating loss of POSCO Energy Corporation’s fuel cell business.

 

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 decreasedincreased significantly, by 20.8%, or Won 34170 billion, from Won 161168 billion in 20152017 to Won 128338 billion in 2016.2018. 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 2016,2017, our impairment losses on goodwill andintangible assets related primarily to losses of POSCO Engineering, which merged into POSCO E&C. In 2018, our impairment losses on intangible assets related primarily to impairment losses on goodwill of Won 83158 billion relatingincurred by POSCO International and Won 66 billion incurred by POSCO E&C in connection with a decrease invalue-in-use of such entities due to POSCO Engineering Co., Ltd. In addition, we recognized fullreduced expected cash flow arising from the uncertain global economic climate, as well as impairment lossesof industrial property rights of Won 1278 billion relatingrelated to SANTOS CMI S.A.our investment in Hume Coal Pty Limited, a coal mining company in Australia.

 

Our impairment lossesincrease to provisions increased significantly, by Won 101 billion, from Won 34 billion in 2017 to Won 135 billion in 2018 primarily due to an increase in provisions related to our synthetic natural gas production facility in Gwangyang due to our discontinuation of such business in 2018.

Our loss on disposal of property, plant and equipment increaseddecreased by 44.5%22.3%, or Won 6134 billion, from Won 136151 billion in 20152017 to Won 197118 billion in 20162018. In 2017, our loss on disposal of property, plant and equipment related primarily due to Won 62 billionour blast furnace upgrading project at Pohang Works. In 2018, our loss on disposal of impairment losses in 2016property, plant and equipment related primarily to continuing operating lossrationalization 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.LNG plants at Gwangyang Works.

Operating Profit

Due to the factors described above, our operating profit increaseddecreased by 53.6%3.7%, or Won 796154 billion, from Won 1,4864,196 billion in 20152017 to Won 2,2824,042 billion in 2016.2018. Our operating margin increaseddecreased from 2.5%7.0% in 20152017 to 4.3%6.2% in 2016.2018.

Share of LossProfit (Loss) ofEquity-Accounted Investees

Our share of lossprofit ofequity-accounted investees decreased by 82.5%, orincreased significantly, by Won 417102 billion, from Won 50611 billion in 20152017 to Won 89113 billion in 2016.2018. In 2015,2017, we recognized a net lossgain for our proportionate share ofequity-accounted investees of Won 50611 billion primarily due to our share of lossesgains of Eureka Moly LLC (Won 147 billion)Won 56 billion of KOBRASCO, Won 46 billion of Roy Hill Holdings Pty Ltd.,CSP-Compania Siderurgica do Pecem (Won 145 billion)

Won 43 billion of South-East Asia Gas Pipeline Company Ltd. and DMSA/AMSA (Won 138 billion)Won 28 billion of POSCO Mitsubishi Carbon Technology Ltd., which were partially offset by our share of profitsloss of Won 148 billion ofSouth-EastCSP-Compania Asia Gas Pipeline Company Ltd. (Won 54 billion), KOBRASCO (Won 31 billion) andAES-VCM Mong Duong Power Company Limited (Won 30 billion).Siderurgica do Pecem. In 2016,2018, we recognized a net lossgain for our proportionate share ofequity-accounted investees of Won 89113 billion primarily due to our share of lossesgains of Won 75 billion of KOBRASCO, Won 70 billion of POSCO Plantec Co.Mitsubishi Carbon Technology Ltd., Won 59 billion of Roy Hill Holdings Pty Ltd. (Won 172 billion) and DMSA/AMSA (Won 60 billion),Won 30 billion ofAES-VCM Mong Duong Power Company Limited, which were partially offset by our share of profitsloss of Won 110 billion ofCSP-Compania Siderurgica do Pecem (Won 117 billion) andSouth-East Asia Gas Pipeline Company Ltd. (Won 47 billion).Pecem. 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 20152017 and 2016.2018.

 

      Changes       Changes 
  For the Year Ended December 31,     2015 versus 2016     For the Year Ended December 31,   2017 versus 2018 
  2015   2016   Amount %           2017                   2018               Amount     % 
  (In billions of Won)   (In billions of Won) 

Interest income

  210   182   (28  (13.2)%   212   337   125   58.7

Dividend income

   184    41    (143  (77.7   93    63    (30  (31.9

Gain on foreign currency transactions

   1,025    1,033    7   0.7    786    716    (70  (8.9

Gain on foreign currency translations

   466    378    (88  (19.0   564    212    (352  (62.3

Gain on derivatives transactions

   366    317    (50  (13.6   211    248    37   17.5 

Gain on valuation of derivatives

   155    147    (8  (5.3   65    97    32   49.8 

Gain on disposals ofavailable-for-sale financial assets

   139    131    (8  (6.0   426        (426  (100.0

Gain on valuations of financial assets at fair value through profit or loss

       16    16   N.A. (1) 

Others

   11    4    (7  (65.4   16    16    (0  (1.6
  

 

   

 

      

 

   

 

    

Total finance income

      2,557       2,232    (325  (12.7      2,373       1,706    (667  (28.1
  

 

   

 

      

 

   

 

    

Interest expenses

  789   659    (130  (16.5)%   653   741    88   13.5

Loss on foreign currency transactions

   1,157    1,147    (10  (0.9   757    811    54   7.2 

Loss on foreign currency translations

   717    405    (311  (43.4   423    322    (101  (23.9

Loss on derivatives transactions

   343    338    (5  (1.4   236    209    (28  (11.6

Loss on valuation of derivatives

   72    163    91   125.5    226    41    (186  (82.0

Impairment loss onavailable-for-sale financial assets

   143    248    106   74.0 

Impairment losses onavailable-for-sale financial assets

   123        (123  (100.0

Loss on valuations of financial assets at fair value through profit or loss

       59    59   N.A. (1) 

Others

   166    53    (113  (67.8   66    62    (4  (6.1
  

 

   

 

      

 

   

 

    

Total finance costs

  3,387   3,014    (373  (11.0  2,484   2,244    (240  (9.7
  

 

   

 

      

 

   

 

    

Our

(1)

N.A. means not applicable.

We recognized a net gain on foreign currency translations of Won 141 billion in 2017 compared to a net loss on foreign currency translations decreased by 89.0%, orof Won 223 billion, from Won 251109 billion in 2015 to2018, and we recorded a net gain on foreign currency transactions of Won 2829 billion in 2016, and our2017 compared to a net loss on foreign currency transactions decreased by 13.1%, orof Won 17 billion, from Won 13295 billion in 2015 to Won 115 billion in 2016,2018, as the Won depreciatedappreciated 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 dollar2017 but depreciated in 2015 compared to appreciation of the Won against the Brazilian real and the Australian dollar in 2016.2018. In terms of the market average exchange rates announced by Seoul Money Brokerage Services, Ltd., the Won depreciatedappreciated 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, 2016.2016 to Won 1,071.4 to US$1.00 as of December 31, 2017 but depreciated to Won 1,118.1 to US$1.00 as of December 31, 2018. 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 16162 billion in 2016,2017 compared to a net gain on valuations of derivatives of Won 56 billion in 2018, as well as a net loss on transactions of derivatives of Won 26 billion in 2017 compared to a net gain on transactions of derivatives of Won 2339 billion in 2015 compared to2018.

We recognized a net lossgain on transactionsdisposals 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 of Won 426 billion in 2017 related primarily to disposals of our interests in Hyundai Heavy Industries Co., Ltd. and KB Financial Group Inc., compared to no such gain in 2018.

Our interest income increased by 74.0%58.7%, or Won 106125 billion, from Won 143212 billion in 20152017 to Won 248337 billion in 20162018 primarily due to an increase in ourinterest-earning financial assets, as well as a general increase in interest rates in Korea in 2018.

We recognized impairment losses onavailable-for-sale financial assets of Won 123 billion in 2017 related primarily to a significant and prolonged decline in the fair value of shares of Nippon Steel & Sumitomo Metal CorporationCongonhas Minèrios S.A. 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.cost, compared to no such dividendsimpairment loss in 2016.2018.

Profit before Income Taxes

Due to the factors described above, our profit before income taxes increaseddecreased by 838.9%11.7%, or Won 1,261479 billion, from Won 1504,095 billion in 20152017 to Won 1,4123,616 billion in 2016.2018.

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 20152017 and 2016.2018.

 

    Changes     Changes 
  For the Year Ended December 31, 2015 versus 2016   For the Year Ended December 31, 2017 versus 2018 
  2015 2016 Amount %       2017                 2018             Amount     % 
  (In billions of Won)   (In billions of Won) 

Steel Segment

      181  1,511  1,330   732.7  2,791  1,268      (1,523  (54.6)% 

Trading Segment

   39   53   14   37.1    113   49   (63  (56.3

Construction Segment

   (276  (1,404  (1,128  409.2    25   0   (24  (99.0

Others Segment

   (66  (26  40   (60.5   233   14   (219  (94.2

Goodwill and corporate fair value adjustments

   (95  (123  (28  29.4    (84  (78  7   (7.8

Elimination ofinter-segment profits

   120   1,036   916   764.6    (103  638   741   N.A. (1) 

Income tax expense

   277   385   108   38.9    1,206   1,671   465   38.5 

Basis difference(1)

   (30  (21  9   (30.1

Basis difference adjustments (2)

   (85  53   137   N.A. (1) 
  

 

  

 

     

 

  

 

   

Profit before income taxes

  150  1,412  1,261   838.9      4,095      3,616   (479  (11.7
  

 

  

 

     

 

  

 

   

 

 

(1)

N.A. means not applicable.

(2)

Basis difference isadjustments are 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%42.0%, or Won 113498 billion, from Won 2671,186 billion in 20152017 to Won 3801,684 billion in 2016.2018. Our effective tax rate decreasedincreased from 177.3%29.0% in 20152017 to 26.9%46.6% in 20162018 primarily due to the following:

 

a decreasean increase in income tax related to investments in subsidiaries, associates and joint venturesexpenses from Won 44028 billion in 20152017 to Won 77272 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 20162018 (that resulted in an increase in effective tax rate of 99.1%6.8%). In 2015, there was a large amount of tax credit primarily due to claim for rectification; in connection withnon-deductible impairment losses on property, plant and equipment that we recognized on our synthetic natural gas production facility in Gwangyang in 2018.

 

a decrease in over provision from prior years fromtax effect of Won 47130 billion in 2015 to Won 12 billion2018 in 2016connection with the reconciliation of discrepancies in the interpretation of certain tax laws between the tax authority and us (that resulted in an increase in effective tax rate of 30.5%3.6%). In 2015, there was an increase compared to no such effect in over provision from prior years related to a favorable ruling in a tax audit appeal.2017.

See Note 35 of Notes to Consolidated Financial Statements.

Profit (Loss)

Due to the factors described above, we recorded loss ofour profit decreased by 33.6%, or Won 116977 billion, from Won 2,909 billion in 2015 compared2017 to profit of Won 1,0321,932 billion in 2016.2018.

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, 
   2015  2016  2017 
   (In billions of Won) 

Net cash provided by operating activities

      7,602      5,269      5,607 

Net cash used in investing activities

   (4,535  (3,755  (3,818

Net cash used in financing activities

   (2,242  (3,951  (1,566

Effect of exchange rate fluctuations on cash held

   23   13   (59

Cash and cash equivalents at beginning of period

   4,022   4,871   2,448 

Cash and cash equivalents at end of period

   4,871   2,448   2,613 

Net increase (decrease) in cash and cash equivalents

   849   (2,424  165 
   For the Year Ended December 31, 
   2017  2018  2019 
   (In billions of Won) 

Net cash provided by operating activities

      5,607      5,870      6,005 

Net cash used in investing activities

   (3,818  (2,648  (3,683

Net cash used in financing activities

   (1,566  (3,195  (1,512

Effect of exchange rate fluctuation on cash held

   (59  5   62 

Cash and cash equivalents at beginning of the period

   2,448   2,613   2,644 

Cash and cash equivalents at end of the period

   2,613   2,644   3,515 

Net increase in cash and cash equivalents

   165   31   871 

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. From time to time, we also use cash for repurchases of our shares.

Net cash used in investing activities was Won 4,535 billion in 2015, Won 3,755 billion in 2016 and Won 3,818 billion in 2017. These amounts included2017, Won 2,648 billion in 2018 and Won 3,683 billion in 2019. Our cash outflows for acquisition of property, plant and equipment of Won 2,560 billion in 2015, Won 2,324 billion in 2016 andwere Won 2,288 billion in 2017.2017, Won 2,136 billion in 2018 and Won 2,519 billion in 2019. We plan to spend approximately Won 4.26.0 trillion in capital expenditures in 2018,2020, 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. We had net acquisitions ofshort-term financial instruments of Won 2,443 billion in 2015, Won 1,401 billion in 2016 and Won 1,697 billion in 2017. We also had net disposals ofavailable-for-sale investments of2017, Won 2201,068 billion in 2015, net acquisition ofavailable-for-sale investments of2018 and Won 48647 billion in 2016 and net disposals ofavailable-for-sale investments of Won 941 billion in 2017.2019.

In our financing activities, we used cash of Won 3,5103,136 billion in 2015, Won 4,275 billion in 2016 and2017, Won 3,136 billion in 20172018 and Won 3,747 billion in 2019 for repayments of borrowings. We paid dividends on common stock in the amount of Won 823 billion in 2015, Won 709 billion in 2016 and Won 863 billion in 2017.2017, Won 724 billion in 2018 and Won 946 billion in 2019. In April 2020, we entered into a trust contract to engage in repurchases of our shares until April 2021 for up to Won 1.0 trillion.

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. 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 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, 2017.2019.

 

  Payments Due by Period   Payments Due by Period 
  Total   Less than
1 Year
   1 to 3 Years   4 to 5 Years   More than
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)

      12,951   3,003   5,386   3,026   1,536   15,230   3,118   6,851   3,599   1,662 

Interest payments onlong-term debt(b)

   1,378    491    563    226    98    1,290    503    520    202    66 

Capital lease obligations

   98    18    40    39    1 

Operating lease obligations

   204    33    41    41    89 

Lease obligations

   242    34    107    78    23 

Purchase obligations(c)

   21,075    9,758    6,425    3,324    1,568    24,311    10,047    8,958    3,637    1,669 

Long-term shipping service contract

   21,079    2,329    4,659    4,659    9,423 

Accrued severance benefits(d)

   2,519    109    280    334    1,796    2,902    280    603    483    1,536 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total

  38,225       13,412       12,735       6,990       5,088       65,054       16,311       21,698       12,658       14,379 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

 

 

(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, 2017,2019, a portion of ourlong-term debt carried variable interest rates. We used the interest rate in effect as of December 31, 20172019 in calculating the interest payments onlong-term debt for the periods indicated.

 

(c)

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, 2017, 1162019, 102 million tons of iron ore and 1811 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, 20172019 in calculating the iron ore, coal and LNG purchase obligations described above for the periods indicated.

 

(d)

Represents, as of December 31, 2017,2019, 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 throughlong-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 decreasedincreased by 30.7%4.7%, or Won 2,332263 billion, from Won 7,6025,607 billion in 20152017 to Won 5,2695,870 billion in 2016.2018. Our gross cash flow from our sales activities decreasedincreased 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 level in 2016 in response to the continuing uncertainties in the global economy and overcapacity in the global steel industry. Offsetting such impact from usage of cash, our outstanding trade accounts and notes payable increased in 2016,2018, as we lengthened payment terms of some of our key suppliers, which further enhanced our net cash provided by operating activities. However, our inventory of raw materials andmaterials-in-transit increased in 2018, which in turn positivelynegatively impacted our net cash provided by operating activities.

Our net cash provided by operating activities increased by 6.4%2.3%, or Won 338135 billion, from Won 5,2695,870 billion in 20162018 to Won 5,6076,005 billion in 2017.2019. Our gross cash flow from our sales activities increased

decreased as discussed above. In addition, our costHowever, we recorded cash outflow related to the buildup of sales decreased as a percentageinventories in 2018 compared to cash inflow related to more efficient management of sales revenue from 87.4%inventories in 2016 to 86.2%2019, which in 2017, further enhancingturn positively impacted our net cash provided by operating

activities. However,On the other hand, we recorded cash inflow related to our outstandingmanagement of trade accounts and notes payable and our subsidiaries’ outstanding notes payable decreased in 2017,2018 compared to cash outflow in 2019, which in turn negatively impacted our net cash provided by operating activities. In addition, cash outflows related to income taxes paid increased from Won 1,140 billion in 2018 to Won 1,513 billion in 2019.

We had net repayments of borrowings, after adjusting for proceeds from borrowings, of Won 1,731 billion in 2015, Won 2,286 billion in 2016 and Won 1,410 billion in 2017. We had2017 and Won 374 billion in 2018 and net repayment ofshort-termproceeds from borrowings, after deductingadjusting for proceedsrepayments ofshort-term borrowings, of Won 8461,900 billion in 2015 and Won 886 billion in 2016 and2019. We had net proceeds of short-term borrowings, after deducting for repayment of short-term borrowings, of Won 558 billion in 2017.2017, and net repayment of short-term borrowings, after deducting for proceeds of short-term borrowings, of Won 855 billion in 2018 and Won 2,195 billion in 2019.Long-term borrowings, excluding current installments, were Won 12,849 billion as of December 31, 2015, Won 12,510 billion as of December 31, 2016 and Won 9,789 billion as of December 31, 2017.2017, Won 9,920 billion as of December 31, 2018 and Won 11,893 billion as of December 31, 2019. Totalshort-term borrowings and current installments oflong-term borrowings were Won 12,371 billion as of December 31, 2015, Won 10,195 billion as of December 31, 2016 and Won 11,275 billion as of December 31, 2017.2017, Won 10,290 billion as of December 31, 2018 and Won 8,548 billion as of December 31, 2019. Outstanding hybrid bonds were Won 997 billion as of December 31, 2015, 20162017 and 2017.Won 199 billion as of December 31, 2018 and 2019. 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 45.21% as of December 31, 2015, 44.26% as of December 31, 2016 and 38.99% as of December 31, 2017.2017, 37.64% as of December 31, 2018 and 35.43% as of December 31, 2019.

We periodically increase ourshort-term borrowings and adjust ourlong-term debt financing levels depending on changes in our capital requirements. From time to time, we also generate cash 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 9,148 billion as of December 31, 2015, Won 10,711 billion as of December 31, 2016 and Won 12,354 billion as of December 31, 2017.2017, Won 14,721 billion as of December 31, 2018 and Won 18,593 billion as of December 31, 2019. Our holdings of cash and cash equivalents (which do not include 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, 2017.2017, Won 2,644 billion as of December 31, 2018 and Won 3,515 billion as of December 31, 2019. See Notes 5 and 10 of Notes to Consolidated Financial Statements. Our holding of other receivables and othershort-term financial assets were Won 5,590 billion as of December 31, 2015, Won 6,765 billion as of December 31, 2016 and Won 8,682 billion as of December 31, 2017.2017, Won 9,467 billion as of December 31, 2018 and Won 10,578 billion as of December 31, 2019. As of December 31, 2017,2019, approximately 18%14% 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 1,5741,064 billion as of December 31, 2017, Won 300 billion2019, none 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 2,560 billion in 2015, Won 2,324 billion in 2016 and Won 2,288 billion in 2017.2017, Won 2,136 billion in 2018 and Won 2,519 billion in 2019. We plan to spend approximately Won 4.26.0 trillion in capital expenditures in 2018,2020, 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.

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.costs and construction and expansion of facilities related to ournon-steel businesses. The following table sets out the major items of our capital expenditures as of December 31, 2017:2019:

 

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 

Project

  Expected
Completion Date
   Total Cost of
Project
   Estimated
Remaining Cost of
Completion as of
December 31,
2019
 
       (In billions of Won) 

Rationalization of furnace no. 3 at Gwangyang Works and construction of facilities for removing nitrogen oxide during iron ore processing at Pohang Works

   December 2021       2,027       1,159 

Construction ofby-product gas plant at Pohang Works and expansion of hyper-strength steel manufacturing facilities at Gwangyang Works

   August 2022    615    474 

Construction of cathode materials production facilities at Gwangyang Works

   March 2020    225    73 

Additional major capital expenditure projects that we plan to start in 20182020 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 

Project

  Expected
Spending in
2020
   Expected
Spending in
2021
   Expected
Spending in
2022
   Total 
       (In billions of Won) 

Rationalization and upgrading of facilities at Gwangyang Works and Pohang Works related to periodic maintenance and improvement of steel products

      233       816       670       1,720 

Rationalization and upgrading of facilities at Gwangyang Works and Pohang Works related to cost reduction

   122    239    317    678 

Construction and expansion of anode materials production facilities

   59    66        125 

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, 2017,2019, POSCO Technical Research Laboratories employed 934914 personnel, including 502 researchers. Our500 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 356 billion as cost of sales in 2015, Won 324 billion in 2016 and Won 361 billion in 2017, as well as research and development expenses of Won 136 billion as administrative expenses in 2015, Won 121 billion in 2016 and Won 126 billion in 2017.

Our research and development program has filed 42,448approximately 44,500 industrial rights applications relating tosteel-making technology, 15,722approximately 14,000 of which were registered as of December 31, 2017,2019, and has successfully applied many of these to the improvement of our manufacturing process.

Item 5.D.  Trend

Item 5.D.  Trend Information

These matters are discussed under Item 5.A. and Item 5.B. above where relevant.

Item 5.E.Off-balance Sheet Arrangements

As of December 31, 20162018 and 2017,2019, 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 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. Pursuant 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 fivesub-committees:

 

the Director Candidate Recommendation and Management Committee;

 

the Evaluation and Compensation Committee;

 

the Finance and Related Party Transactions Committee;

 

the Executive Management Committee; and

 

the Audit 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 currentAs of March 31, 2020, our Inside Directors are:are as follows:

 

Name

  

Position

  

Responsibilities and
Division

  Years
as
Director
   Age   Expiration
of Term of
Office
  

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

Choi,Jeong-Woo

  Chief Executive Officer and Representative Director  —                       2    62   March
2021

Chang,In-Hwa

  President and Representative Director  Chief Operating Officer II / Head of Steel Production Division   1    62   March
2019
  President and Representative Director  Head of Steel Business Unit   3    64   March
2021

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
  Senior Executive Vice President  Head of Global & Infra Business Unit and Head of Corporate Strategy & Planning Division   2    57   March
2021

Kim,Hag-Dong

  Senior Executive Vice President  Head of Steel Production & Technology Division   1    60   March
2021

Jeong, Tak

  Senior Executive Vice President  Head of Marketing Division   1    60   March
2021

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”).FSCMA.

 

Name

  Position  

Principal Occupation

  Years
as
Director
   Age   Expiration
of Term of
Office
   Position  

Principal Occupation

  Years
as
Director
   Age   Expiration
of Term of
Office
 

Chung,Moon-Ki

  Chairman  Professor of Accounting, Sungkyunkwan University   3    60    March 2022 

Kim,Joo-Hyun

  Chairman  President, the Financial News   3    65    March 2021   Director  Former President, the Financial News   5    67    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   Director  Former Chairman, Korea Employers Federation   5    67    March 2021 

Kim,Shin-Bae

  Director  Former Vice Chairman, SK Group   1    63    March 2019   Director  Former Vice Chairman, SK Group   3    65    March 2022 

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   Director  Professor of Law, Seoul National University   2    56    March 2023 

Kim,Sung-Jin

  Director  Former Minister, Ministry of Oceans and Fisheries   0    68    March 2021   Director  Former Minister, Ministry of Oceans and Fisheries   2    70    March 2021 

Pahk,Heui-Jae

  Director  Professor of Mechanical & Aerospace Engineering, Seoul National University   1    58    March 2022 

The term of office of the DirectorsDirector elected in March 20182020 is up to three (3) 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:officers as of March 19, 2020:

 

Name

  

Position

  

Responsibility and Division

  Age 

Oh,Gyu-Seok

Senior Executive Vice PresidentHead of New Growth Business Unit57

Kim,Hag-DongJhi-Yong

Senior Executive Vice PresidentPresident, PT Krakatau POSCO Co., Ltd.58

Chung,Chang-Hwa

Senior Executive Vice PresidentHead of Management Support Division59

Yoo,Byeong-Og

Senior Executive Vice PresidentHead of Purchasing and Investment Division58

Lee,Si-Woo

  Senior Executive Vice President  Head of Gwangyang Works   5860 

Jeong, TakLee,Duk-Lak

  Senior Executive Vice President  Head of Steel Business DivisionTechnical Research Laboratories   5960 

Oh,Nam,Hyoung-SooSoo-Hi

  Senior Executive Vice President  Head of Pohang Works   61

Lee, Sung-Wook

Senior Executive Vice PresidentHead of Legal Affairs Office56

Kim,Gyo-Sung

Executive Vice PresidentHead of Automotive Steel Research Lab59

Yang,Weon-Jun

Executive Vice PresidentHead of Corporate Citizenship Office55

Lim,Seung-Kyu

Executive Vice PresidentHead of Finance Office57

Choo,Se-Don

Executive Vice PresidentHead of Steel Solution Research Lab59

Jung,Duk-Kyoon

Executive Vice PresidentHead of Information Planning Office58

Choi,In-Suk

Executive Vice PresidentDeputy Head of Pohang Works (Administration)57

Lee,Ju-Tae

Executive Vice PresidentHead of Corporate Strategy Office56

Ha,Dae-Ryong

Executive Vice PresidentHead of Europe Office56

Kim,Soon-Ki

Executive Vice PresidentHead of Labor and Cooperation Office56

Kim,Bok-Tae

Executive Vice PresidentLogistics Integration TF Team Leader58

Kim,Jeoung-Su

Executive Vice PresidentDeputy Head of Gwangyang Works (Administration)57

Kim,Kwang-Moo

Executive Vice PresidentHead of Steel Business Planning & Coordination Office56

Kim,Kyung-Han

Executive Vice PresidentHead of International Trade Office55

Kim,Min-Chul

Executive Vice PresidentHead of Investment Planning & Engineering Office58

Kim,Ki-Soo

Executive Vice PresidentHead of Process and Engineering Research Lab55

Choi,Yong-Jun

Executive Vice PresidentDeputy Head of Pohang Works (Process & Quality)56

Lee,Jae-Yeol

Executive Vice PresidentHead of Business & Administration Support Office59

Park, Hyeon

Senior Vice PresidentHead of Safety & Environmental Planning Office53

Song,Kyung-Hwa

Senior Vice PresidentHead of Stainless Steel Marketing Office58

Lee,Jean-Su

Senior Vice PresidentDeputy Head of Gwangyang Works (Hot and Cold Rolling)57

Kim, Young-Joong

Senior Vice PresidentHead of Marketing Strategy Office55

Song,Yong-Sam

Senior Vice PresidentHead of Automotive Materials Marketing Office57

Lee,Yu-Kyung

Senior Vice PresidentHead of Plant, Equipment and Materials Procurement Office53

Lee,Hee-Geun

Senior Vice PresidentDeputy Head of Pohang Works (Iron and Steel Making)58

Lee,Ju-Hyeob

Senior Vice PresidentDeputy Head of Pohang Works (Stainless Steel Production)56

An,Geun-Sik

Senior Vice PresidentDeputy Head of Gwangyang Works (Process & Quality)59

Lee,Kyung-Sub

Senior Vice PresidentHead of Investment Strategy Office55

Jung,Bum-Su

Senior Vice PresidentDeputy Head of Gwangyang Works (Maintenance)56 

Name

  

Position

  

Responsibility and Division

  Age 

Kim,Nam,Jhi-YongJae-Bok

  Senior Executive Vice President  President, 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 PresidentGiga Steel 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 LaboratoriesCommercialization TF Team Leader, Gwangyang Works   59 

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 President  Head 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

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 Sang-Gyun

  Senior Vice President  Head of Construction Steel Materials Marketing Office   56 

Nam,Chung,Jae-BokSeok-Mo

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 President  Head of Wire Rod MarketingLiB Materials Business Office   54 

Suh,Kim,In-ShikWon-Hee

  Senior Vice President  TechnicalHead of Global Infra Business Management Office55

Ahn,Sang-Bog

Senior Vice PresidentHead of Steel Product Research LaboratoriesLab58

Han,Soo-Ho

Senior Vice PresidentPT KP Downstream Construction Cooperation TF Team Leader59

Choi, Young

Senior Vice PresidentHead of Communication Office52

Lee,Cheol-Ho

Senior Vice PresidentHead of Labor and Management Development Group55

Yoon,Chang-Woo

Senior Vice PresidentHead of Electrical and Electronic Materials Marketing Office56

Jeong,Dae-Hyung

Senior Vice PresidentHead of Business Assessment Office52

Yang,Byeong-Ho

Senior Vice PresidentHead of Human Resources and Corporate Culture Office54

Hwang,Guy-Sam

Senior Vice PresidentDeputy Head of Pohang Works (Hot and Cold Rolling)56

Kim, Sang-Chul

Senior Vice PresidentHead of Energy and Shipbuilding Materials Marketing Office53

Cho,Ju-Ik

Senior Vice PresidentHead of New Growth Planning Office55

Kim,Yong-Soo

Senior Vice PresidentHead of Human Resources Management Office55

Oh, Kyung-Shik

Senior Vice PresidentPosMC Technology Development TF Team Leader62

Kim, Kyeong-Chan

Senior Vice PresidentHead of Steel Business Planning & Coordination Group51

Choi,Jong-Kyo

Senior Vice PresidentHigh Manganese Steel Solutions TF Team Leader59

Chung,Kyung-Jin

Senior Vice PresidentHead of Corporate Audit Office55

Song,Chi-Young

Senior Vice PresidentDeputy Head of Pohang Works (Safety and Environment)56

Choun,Si-Youl

Senior Vice PresidentHead of Steel Production Technology Strategy Office55

Kang, Sung-Wook

Senior Vice PresidentHead of Raw Materials Office I   55 

Lee,Baik-HeeChan-Gi

  Senior Vice President  Deputy Head of Pohang Works (Iron(Maintenance)57

Lee, Chang-Hyun

Senior Vice PresidentDeputy Head of Gwangyang Works (Safety and Environment)59

Park,Sung-Jin

Senior Vice PresidentHead of Industry-Academy-Research Cooperation Office52

Do,Han-Eui

Senior Vice PresidentHead of International Trade, Europe Office55

Kim, Hee

Senior Vice PresidentHead of Steel Making, Gwangyang Works)Production Coordination Office   53 

Lee,Park,Jae-YoungNam-Sik

  Senior Vice President  Head of Sales & Production and Technology and Investment DivisionPlanning Group53

Yang,Keun-Sik

Senior Vice PresidentHead of Global Quality & Service Management Office57

Kim,Dae-Up

Senior Vice PresidentHead of Hot Rolled Steel & Wire Rod Marketing Office56

Yoon,Sung-Won

Senior Vice PresidentHead of Raw Materials Office II   55

Lee, Dong-Ryeol

Senior Vice PresidentDeputy Head of Gwangyang Works (Iron and Steel Making)56 

 

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. In 2017,2019, the aggregate compensation paid and accrued to all Directors and executive officers was approximately Won 6647 billion and the aggregate amount set aside or accrued by us to provide pension and retirement benefits to such persons was Won 1512 billion.

The compensation of our directors and executive officers

Among those who received total annual compensation exceeding Won 500 million in 20172019, the highest-paid five individuals were as follows:

 

Name

Position

Total Compensation
in 2017

Long-term Incentive Compensation for
Payment Subsequent to 2017

(In millions of Won)

Kwon,Oh-Joon

Chief Executive Officer and Representative Director2,473759

Oh,In-Hwan

President and Representative Director1,461343

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 President862

Kim,Jin-Il

Former President and Representative Director1,453W 627

Name

 

Position

 Total
Compensation in
2019
  Long-term Incentive Compensation for
Payment Subsequent to 2019
 
    (In millions of Won) 

You, Seong

 Former Senior Executive Vice President  2,143   287 

Choi,Jeong-Woo

 Chief Executive Officer and Representative Director  1,617    

Oh,In-Hwan

 President and Representative Director  1,450   186 

Chang,In-Hwa

 President and Representative Director  1,141    

Min,Kyung-Jun

 Former Senior Executive Vice President  1,135    

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.

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,Pahk,Seung-Wha,Heui-Jae, 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,Chang,Moung-Woo,Seung-Wha, Kim,Joo-Hyun, 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,Chang,Myoung-Woo,Seung-Hwa, Kim,Shin-Bae, Kim,Sung-Jin and one Inside Director, Oh,Chang,In-Hwan.In-Hwa. 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,Choi,Oh-Joon, Oh,In-Hwan,Jeong-Woo, Chang,In-Hwa, Yu, SeongChon,Jung-Son, Kim,Hag-Dong and Chon,Jung-Son.Jeong, Tak. 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 Chung,Moon-Ki,Bahk,Byong-Won Chang,Seung-Whaand Chung,Pahk,Moon-Ki.Heui-Jae.

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.

Item 6.D.Employees

Item 6.D.Employees

As of December 31, 2017,2019, we had 32,28735,261 employees, including 15,23217,758 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 31,76833,784 employees, including 15,18416,634 persons employed by our subsidiaries, as of December 31, 2016,2018, and 37,32732,287 employees, including 17,28215,232 persons employed by our subsidiaries, as of December 31, 2015.2017.

We consider our relations with our work force to be good.satisfactory. 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 consultationnegotiations between the management and employee representatives, who are currently elected outside the framework of the POSCOmajority labor union. A labor union was formed by our employees in June 1988. As of December 31, 2017, 10limited number of our employees wereare members of the POSCO labor union.Federation of Korean Metal Workers’ Trade Unions or the Korean Metal Workers’ Union. The Federation of Korean Metal Workers’ Trade Unions currently negotiates the terms of employment with the management.

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, 2017,2019, our employees owned, through our employee stock ownership association, approximately 1.72%1.71% of our common stock in their employee accounts.

Item 6.E.

Item 6.E.  Share Ownership

Common Stock

The persons who are currently our Directors or executive officers held, as a group, 18,59335,388 common shares as of March 31, 2018,2020, 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

  Number of
Common Shares
 

Kwon,Choi,Oh-JoonJeong-Woo

   2,448

Noh,Min-Yong

7681,526 

Kim,Hag-Dong

   697

Oh,In-Hwan

690

Yu, Seong

666

Park,Yong-Kyu

611

Kim,Sun-Koo

595

Lee,Ki-Ho

5741,460 

Chang,In-Hwa

   531

KwakJeong-Shik

5301,389 

Kim,Soon-Ki

   528

Choi, Joo

527

Jung,Hae-Seong

4501,332 

Jeong, Tak

   4031,299

Chon,Jung-Son

1,262 

Yoo,Byeong-Og

   4011,149 

Kim,Jhi-YongGyo-Sung

   3851,041

Lee, Chang-Hyun

1,023

Nam,Soo-Hi

987

Lee,Si-Woo

905

Choi,In-Suk

859

Song,Chi-Young

800

Lee,Duk-Lak

774

Kim,Bok-Tae

738

Lee,Chan-Gi

737

Lim,Seung-Kyu

692

Kim,Min-Chul

680

Chung,Chang-Hwa

650

Lee,Jean-Su

648

Lee,Ju-Tae

623

Jung,Bum-Su

583

Kim,Jeoung-Su

578

Yang, Weon-Jun

576

Park, Hyeon

523

Lee,Cheol-Ho

509

Choo,Se-Don

505

Oh,Gyu-Seok

500

Lee,Ju-Hyeob

500

Lee,Jae-Yeol

450

Kim,Dae-Up

441 

Lee,Yu-Kyung

   337437

Kim, Hee

433 

Kim,Ahn,Gyo-SungSang-Bog

   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

176420 

Name

  Number of
Common Shares
 

Kim,Ha,Jeoung-SuDae-Ryong

   158402 

Lee,Kim,Si-WooJhi-Yong

   156385 

Kim,Bok-Tae Sang-Gyun

   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

89380 

Kim,Ki-Soo

   77373

Han,Soo-Ho

359

Choi, Young

355 

Kim, Sang-GyunYoung-Joong

   76350 

Song,Yong-Sam

Lee,Jae-Young


60

36


Choi,Yong-Jun

   27344

Lee,Hee-Geun

335 

Choi,Hyeon-SooJong-Kyo

   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

11324 

Lee,Sang-Ho

   4312

An,Geun-Sik

300

Chung,Kyung-Jin

294

Oh, Kyung-Shik

274

Choun,Si-Youl

264

Song,Yong-Sam

260

Park,Nam-Sik

244

Nam,Jae-Bok

217

Yang,Keun-Sik

208

Lee, Sung-Wook

200

Kim,Kyung-Han

200

Lee,Kyung-Sub

200

Chung,Seok-Mo

200

Kim, Sang-Chul

200

Cho,Ju-Ik

200

Park,Sung-Jin

200

Hwang,Guy-Sam

157

Jeong,Dae-Hyung

130

Yang,Byeong-Ho

123

Kim,Won-Hee

120

Kang, Sung-Wook

104

Yoon,Chang-Woo

100

Lee, Dong-Ryeol

100

Kim,Kwang-Moo

73

Yoon,Sung-Won

50

Kim,Yong-Soo

12

Jung,Duk-Kyoon

10 
  

 

 

 

Total

   18,59335,388 
  

 

 

 

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, 2017.2019.

 

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
  

 

 

   

 

 

 

Shareholders

  Number of Shares
Owned
   Percentage 

National Pension Service

   10,291,670    11.80

BlackRock Fund Advisors(1) (2) (3)

   5,429,071    6.23 

Nippon Steel Corporation(1)

   2,894,712    3.32 

Samsung Group and subsidiaries(2)

   2,401,789    2.75 

GIC Private Limited

   1,777,316    2.04 

Others

   64,392,277    73.86 
  

 

 

   

 

 

 

Total issued shares of common stock

   87,186,835    100.00
  

 

 

   

 

 

 

 

 

(1)Held in the form of

Includes ADRs.

(2)

Includes ADRs.shares held by subsidiaries and others.

(3)

The number of shares owned by the shareholder is based on the status report of large-scale shareholders filed with the Korea Exchange on April 16, 2019.

As of December 31, 2017,2019, there were 9,210,0738,706,978 shares of common stock outstanding in the form of ADRs, representing 10.6%9.99% 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, 20162017, 2018 and 2017,2019, 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.F-143.

Legal Proceedings

As a steel producer with global sales and operations, we are involved in trade remedy proceedings in markets worldwide, including in the United States. We proactively participate in and plan for such proceedings to minimize any adverse effects and associated risks. While there has been an increase in the number of trade cases in recent years, and an increased focus on trade issues by government officials, all such cases have been product andmarket-specific, and thus have been limited in scope relative to our global 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 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.”

In 2012,2013, the Korea Fair Trade Commission imposed a total fine of Won 108.6 billion on us and POSCO Coated & Color Steel Co., Ltd. (“POSCO Coated & Color Steel”), our consolidated subsidiary, as well as two corrective orders on us for alleged antitrust violations in 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 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 fine imposed on us, which was subsequently appealed by the Korea Fair Trade Commission to the Supreme Court of Korea. TheIn November 2016, the Supreme Court of Korea subsequentlyvacated the Seoul High Court’s ruling and remanded the proceeding toin November 2016. In February 2019, the Seoul High Court in November 2016,revoked the fine and one of the two corrective orders initially imposed on us, which outcomewas subsequently appealed by both us and the Korea Fair Trade Commission. In July 2019, the Supreme Court of Korea dismissed the appeal, and the Korea Fair Trade Commission is currently pending.recalculating the fine to be imposed on us. We intend to continue to vigorously defend against such administrative action.action if necessary. In January 2016, the Seoul High Court 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 it lost in November 2016.

In May 2002, Industrial Development Bank of India brought a suit against Daewoo International Corporation (currently, POSCO Daewoo)International), Daewoo Motors India Ltd., Daewoo Corporation and Daewoo Construction & Engineering Co., Ltd. in the India Delhi Mumbai Court, regarding its loans to Daewoo Motors India Ltd. guaranteed by Daewoo Co., Ltd. (predecessor of POSCO Daewoo)International). The total claim amount is Won 774.46 billion Indian Rupees, and POSCO DaewooInternational recorded provision of Won 2022 billion relating to its portion of the guarantee alleged by Industrial Development bankBank of India. Daewoo International Corporation challenged the jurisdiction of the court in 2003. The outcome of such lawsuits remains uncertain and POSCO Daewoo’sInternational’s provision is classified as anon-current liability as of December 31, 2017.2019.

In March 2019, affiliates of Gale Investments Company, LLC, a former joint venture partner of POSCO E&C in the urban planning and development project in Songdo International City in Incheon (the “Songdo Project”), filed a claim in the United States District Court for the Southern District of New York and filed a request for arbitration pursuant to the rules of the International Court of Arbitration of the International Chamber of Commerce against POSCO E&C, claiming POSCO E&C wrongfully seized and sold certain properties of the claimants. In December 2013, POSCO E&C and one of the claimants entered into a series of loan facility agreements with several lenders to finance the Songdo Project, with their respective stakes in the joint venture pledged as collateral. The loan facility agreements entitled POSCO E&C to certain subrogation rights related to guaranteeing the obligations of the claimant to repay the principal amounts of the loans. In 2017, upon default of certain series of the loans, POSCO E&C exercised such subrogation rights, claimed the pledged assets of the claimant and sold such assets. The claimants are seeking damages of approximately Won 2,400 billion allegedly resulting from POSCO E&C’s purported wrongful seizure and sale of such properties as well as alleged overcharges made by POSCO E&C while serving as the construction contractor for the Songdo Project. POSCO E&C believes that its actions were legally permissible and plans to vigorously defend against the claims made by the claimants.

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 quarterly dividends under our articles of incorporation. If we decide to pay quarterly dividends, our articles of incorporation authorize us to pay them in cash to the shareholders of record as of the end of March, June and 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 of the years indicated. A total of 87,186,835 shares of common stock were issued as of December 31, 2017.2019. Of these shares and as of such date, 79,999,60480,115,641 shares were outstanding and 7,187,2317,071,194 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) 

2013

  6,000  2,000   8,000 

2014

  6,000  2,000   8,000 

2015

  6,000  2,000   8,000   6,000  2,000   8,000 

2016

  5,750  2,250   8,000   5,750  2,250   8,000 

2017

  3,500  4,500   8,000   3,500  4,500   8,000 

2018

  5,000  5,000   10,000 

2019

  4,000  6,000   10,000 

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 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
 
   High   Low   
   (In Won)   (Number of
Shares)
 

2013

      

First Quarter

   371,000    321,500    169,232 

Second Quarter

   326,000    292,500    182,277 

Third Quarter

   340,000    292,500    225,474 

Fourth Quarter

   338,000    307,500    183,055 

2014

      

First Quarter

   322,000    272,500    222,494 

Second Quarter

   317,000    285,500    170,778 

Third Quarter

   361,000    291,500    201,548 

Fourth Quarter

   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

   344,000    313,000    249,145 

November

   335,000    307,500    253,629 

December

   345,000    326,000    227,144 

2018

      

First Quarter

   395,000    321,500    241,496 

January

   395,000    339,000    236,977 

February

   395,000    352,000    217,743 

March

   358,000    321,500    266,589 

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 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, 2017, 36,840,2922019, 34,827,912 ADSs representing 9,210,0738,706,978 common shares were outstanding, representing 10.6%9.99% 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
 
   High   Low   
   (In US$)   (Number of
ADSs)
 

2013

      

First Quarter

   86.69    72.41    258,130 

Second Quarter

   74.82    63.23    252,261 

Third Quarter

   78.75    64.29    186,347 

Fourth Quarter

   80.40    72.19    177,415 

2014

      

First Quarter

   75.88    64.03    298,320 

Second Quarter

   76.56    69.60    223,292 

Third Quarter

   86.37    71.97    232,861 

Fourth Quarter

   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

   75.41    69.47    177,025 

November

   75.69    70.14    157,742 

December

   79.20    75.59    158,122 

2018

      

First Quarter

  ��92.78    74.27    247,054 

January

   92.78    82.35    289,208 

February

   90.69    79.77    245,073 

March

   82.72    74.27    206,693 

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 SecuritiesSee “Item 9.A. Offering 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 FuturesListing Details.”

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, 2017, the aggregate market value of equity securities listed on the KRX KOSPI Market and the KRX KOSDAQ Market was approximately Won 1,889 trillion, and the average daily trading volume of equity securities for 2017 was approximately 1,076 million shares with an average transaction value of Won 9,014 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.

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

Shares are quoted“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” and“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 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 0.5% 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)
   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    14,022    214,263 

1992

   688    84,712    24,028    308,246 

1993

   693    112,665    35,130    574,048 

1994

   699    151,217    36,862    776,257 

1995

   721    141,151    26,130    487,762 

1996

   760    117,370    26,571    486,834 

1997

   776    70,989    41,525    555,759 

1998

   748    137,799    97,716    660,429 

1999

   725    349,504    278,551    3,481,620 

2000

   704    188,042    306,163    2,602,211 

2001

   689    255,850    473,241    1,997,420 

2002

   683    258,681    857,245    3,041,598 

2003

   684    355,363    542,010    2,216,636 

2004

   683    412,588    372,895    2,232,109 

2005

   702    655,075    467,629    3,157,662 

2006

   731    704,588    279,096    3,435,180 

2007

   745    951,900    363,741    5,539,653 

2008

   763    576,888    352,599    3,211,039 

2009

   770    887,935    485,657    5,595,552 

2010

   777    1,141,885    380,859    5,619,768 

2011

   791    1,041,999    353,760    6,836,146 

2012

   930    1,154,294    486,479    4,823,642 

2013

   777    1,185,974    328,425    3,993,422 

2014

   773    1,192,253    278,081    3,983,580 

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

The Korean securities markets are principally regulated by the Financial Services Commission and under the regulations set forth in the FSCMA. In August 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 thenon-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, 2017,2019, 87,186,835 Common Shares were issued, of which 7,187,2317,071,194 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, 5, 10, 50, 100, 500, 1,000 and 10,000 shares.

Item 10.B.Memorandum and Articles of Association

This sectionUnder Article 2 of our articles of incorporation, the primary purpose of POSCO is to engage in, among others: manufacturing, marketing, promoting, selling and distributing iron, steel and rolled products; harbor loading and unloading, transportation and warehousing businesses; power generation and distribution as well as resources development; technology license sales and engineering businesses; and any other activities that are related, directly or indirectly, to the attainment and continuation of the foregoing.

The following 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.

Board of Directors

Under our articles of incorporation and the Commercial Code, any director who has a special interest in a proposal or a resolution is prohibited from voting on such proposal or resolution at the meeting of the board of directors. Any resolution of the board of directors must be approved by an affirmative majority vote of the directors present at the meeting of the board of directors. The compensation for directors, including severance benefits, is paid within the limitation approved by the annual general meeting of shareholders.

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, interimquarterly dividends pursuant to a board resolution once aeach fiscal year to the eligible shareholders recorded as of the end of March, June and September of the relevant fiscal year. We may distribute the annual dividend in cash, Shares or other form of property. However, we may distribute the quarterly dividend only in cash. A dividend of Shares must be distributed at par value and may not exceedone-half of the annual and quarterly dividends declared each fiscal year in the aggregate. 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 dividenddividends 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 earned surplus reserve accumulated up to the end of the relevant dividend period, (iii) the legal reserve to be set aside for annual dividend,dividends, and (iv) unrealized profits determined in the Presidential Decree to the Commercial Code. We may not pay an annual dividenddividends unless we have set aside as earned surplus reserve an amount equal to at least 10% of the cash portion of the annual dividenddividends 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 or our articles of incorporation, 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;FSCMA and other applicable regulations;

 

issued to members of our employee stock ownership association pursuant to the FSCMA;FSCMA and other applicable regulations;

 

represented by depositary receipts pursuant to the FSCMA;FSCMA and other applicable regulations;

 

issued in a general public offering pursuant to a board resolution in accordance with the FSCMA and other applicable regulations, 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 corporationsentities pursuant to a joint venture agreement, strategic coalition or technology inducementlicense or transfer 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, 2017,2019, our employees owned, through our employee stock ownership association, approximately 1.72%1.71% 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 or other applicable laws and regulations, 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.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% (or more) 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 Boardboard of Directors.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, maintainsWe maintain the register of our shareholders at its office in Seoul, Korea. It registers transferselectronically through Kookmin Bank, our transfer agent. Kookmin Bank performs electronic registration of our Shares, onmanages the electronic register of our shareholders on presentation of the Share certificates.and oversees other matters related to our Shares.

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. However, pursuant to the Act on Electronic Registration of Stocks, Bonds, etc., which became effective on September 16, 2019, the closure of the register of shareholders is not required in order to determine the shareholders entitled to certain shareholder rights. Instead, we may set the record date by a board resolution and determine the shareholders of record as of such record date without closing the register of shareholders.

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 websites of the Financial Services Commission and the Korea Exchange.

Transfer of Shares

Under the Commercial Code, the transfer of Shares is effected by deliveryelectronic registration of share certificates.such transfer. 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-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 Boardboard of Directors.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 StrategyEconomy 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 StrategyEconomy and Finance may (i) 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, (ii) impose an obligation to deposit,safe-keep or sell precious metal or any other means of payment to The Bank of Korea, a foreign exchange stabilization fund or certain other governmental agencies or financial companies;companies or (iii) require Korean creditors to collect debts owned bynon-Korean debtors and deposit them in their bank accounts in Korea; 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,its currency policies, exchange ratesrate policies or other macroeconomic policies, the Ministry of StrategyEconomy 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 or 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 StrategyEconomy 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 a listed company’s 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 of such listed company 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 (1) for certain professional investors, as specified by the Presidential Decrees under the FSCMA, (i) to the tenth day of the month immediately following the month of such change in their shareholding if the shares are held with the intention of actively exercising shareholder rights as provided by the applicable laws, but without the intention of exercising management control or (ii) to the tenth day of the month immediately following the quarter of such change in their shareholding if the shares are held for (1) certainportfolio investment purposes; and (2) for persons other than such professional investors, (i) to the tenth business day of the date of such change in their shareholding if the shares are held with the intention of exercising the statutory rights of shareholders as specified underprovided by the FSCMA,applicable laws, but without the intention of exercising management control or (2) persons who hold(ii) to the tenth day of the month immediately following the month of such change in their shareholding if the shares are held for purposes other than management control.portfolio investment purposes. 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.Securities for which the reporting requirements were violated.

In addition to the reporting requirements described above, any person whose direct or beneficial ownership of a listed company’s sharesvoting stock accounts for 10% or more of the total issued and outstanding shares with voting rightsstock (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 thehis or her ownership interest subsequent to the report must be reported to the Securities and Futures Commission and the Korea Exchange within five business days. However, the reporting deadline of such reporting requirement is extended (i) to the tenth day of the month immediately following the month of such change in their shareholding for certain professional investors, as specified by the fifth businessPresidential Decree under the FSCMA, who hold shares with the intention of actively exercising shareholder rights as provided by the applicable laws, but without the intention of exercising management control or (ii) to the tenth day of any changesthe month immediately following the quarter of such change in his or her shareholding.their shareholding if the shares are held for portfolio investment purposes. 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, exchange right under exchangeable 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 shares of a class of sharespublic service corporation for which the ceiling on aggregate acquisition by foreigners, as explained below, has been reached or exceeded with certain exceptions;

 

acquisition of shares acquired by direct investment as defined in the Foreign Investment Promotion Law;Law or disposal of such shares;

 

disposal of shares pursuant to the exercise of appraisal rights of dissenting shareholders;

 

acquisition or disposal of shares in connection with a tender offer;

 

acquisition of underlying 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.

Forover-the-counter transactions between foreign investors outside the KRX KOSPI Market or the KRX KOSDAQ Market involving shares of a public service corporation for which the limit on aggregate foreign ownership has been reached or exceeded, an investment broker licensed in Korea must act as an intermediary.Odd-lot trading of shares outside the KRX KOSPI Market or the KRX KOSDAQ Market must involve an investment dealer licensed in Korea. Foreign investors are prohibited from engaging in margin trading by borrowing shares from investment brokers or investment dealers with respect to shares that are subject to foreign ownership limitation.

The Investment Rules require a foreign investor who wishes to invest in or dispose of 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;investment or disposal; 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 classshares of sharescertain public service corporations 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 (including domestic branches of foreign financial investment companies) 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 owned by a foreign investor 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 (including domestic branches of foreign financial investment companies), 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 service corporations are subject to a 40% ceiling on the acquisition of shares by foreigners in the aggregate. Designated public service corporations may set a ceiling on the acquisition of shares by a single personforeign investor 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 and in the amount of not less than Won 10 million of a Korean company is defined as a foreign 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. Changes in ownership of a Korean company by a foreign direct investor, as well as changes in certain aspects of the foreign direct investment (including changes in the foreign direct investor’s name, address or business), are also subject to reporting requirements.

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, either as counterparty to or on behalf of 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. While it is the payer which is required to withhold the tax, Korean law generally entitles the person who was subject to the withholding of Korean tax to recover from the Government any part of the Korean tax withheld, upon providing evidence that it was entitled to have tax withheld at a lower rate, if certain 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 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 a 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 the rate varies from 10% to 50% depending on the value of the 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 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%0.45% 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%0.25% 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%0.45% 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.

For anon-resident of Korea to obtain the benefits oftreaty-reduced tax rates on certain Korean source income (e.g., capital gains and interest) under an applicable tax treaty, Korean tax law requires suchnon-resident (or its agents) to submit to the payer of such Korean source income an application fortreaty-reduced tax rates prior to receipt of such Korean source income; provided, however, that an owner of ADSs who is anon-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. 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.

If Korean source income is 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 submit to the payer of such Korean source incomes 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 reflecting such 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 an 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 shares 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 20162018 or 20172019 taxable year. In addition, based on 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 20182020 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 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 to 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 on the last day of the taxable year or US$75,000 at any time during the taxable year 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 sitewebsite 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 of Won 83 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 16 billion in 2016, and net loss on valuation of derivatives of Won 162 billion and net loss on derivatives transactions of Won 26 billion in 2017.2017, net gain on valuation of derivatives of Won 56 billion and net gain on derivatives transactions of Won 39 billion in 2018 and net gain on valuation of derivatives of Won 116 billion and net loss on derivatives transactions of Won 32 billion in 2019.

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, POSCO Daewoo’sInternational’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 POSCO Daewoo’sInternational’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 DaewooInternational 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, 
   2015   2016   2017 
   Increase  Decrease   Increase  Decrease   Increase  Decrease 
   (In billions of Won) 

US Dollars

      (166     166       (163     163       (173     173 

Japanese Yen

   (97  97    (78  78    (54  54 

Euro

   (22  22    (9  9    (10  10 

   For the Years Ended December 31, 
   2017  2018  2019 
   Increase  Decrease  Increase  Decrease  Increase  Decrease 
   (In billions of Won) 

US Dollars

      (173 173      (204     204      (174     174 

Japanese Yen

   (54  54   (29  29   (17  17 

Euro

   10   (10  15   (15  41   (41

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, 
           2015                   2016                   2017         
   (In billions of Won) 

Increase or decrease in annual profit and net equity

      118       120       100 
   For the Years Ended December 31, 
           2017                   2018                   2019         
   (In billions of Won) 

Increase or decrease in annual profit and net equity

  100   85   79 

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, 20172019 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,
2017
 December 31,
2016
              December 31,
2019
 December 31,
2018
 
 2018 2019 2020 2021 2022 Thereafter Total Fair
Value
 Total Fair
Value
  2020 2021 2022 2023 2024 Thereafter Total Fair
Value
 Total Fair
Value
 
 (In billions of Won except rates)  (In billions of Won except rates) 
Local currency:                                          

Fixed rate

  3,350   1,281   554   288   244   266   5,983   5,882   6,064   5,943   1,105   882   1,008   150   449   2,968   6,562   6,475   5,707   5,620 

Average weighted rate(1) .

  3.09  3.36  2.75  3.54  2.66  3.00  3.12   2.45 

Average weighted rate(1)

  2.41  3.35  2.18  2.79  2.01  0.33  1.55   2.92 

Variable rate

  699   180   134   22   15   12   1,062   1,062   1,039   1,034   252   78   30   3   0   7   370   369   512   511 
          

Average weighted rate(1)

  3.08  2.58  2.94  3.33  2.99  2.51  2.98   2.84   2.71  3.86  2.84  0.49  0.00  1.60  2.93   2.80 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Sub-total

  4,049   1,461   688   310   259   278   7,045   6,944   7,103   6,977   1,357   960   1,038   153   449   2,975   6,932   6,844   6,219   6,131 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Foreign currency, principally Dollars and Yen:

                    

Fixed rate

  3,009   88   966   889   0   205   5,157   5,016   5,775   5,639   2,666   1,230   658   612   573   331   6,070   5,990   6,026   5,944 

Average weighted rate(1)

  2.23  4.13  3.87  4.86  8.40  3.16  3.05   3.15   3.71  3.89  2.16  4.06  2.78  0.55  3.41   3.33 

Variable rate

  4,824   309   767   29   7   2,925   8,861   8,871   9,827   9,837   3,832   900   317   215   38   2,139   7,441   7,439   7,964   7,966 
          

Average weighted rate(1)

  3.17  2.20  3.20  3.59  3.24  6.77  4.33   2.92   2.90  3.32  2.67  2.78  5.15  6.67  4.03   4.80 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Sub-total

  7,833   397   1,733   918   7   3,130   14,018   13,887   15,602   15,476   6,498   2,130   975   827   611   2,470   13,511   13,429   13,909   13,910 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total

  11,882   1,858   2,421   1,228   266   3,408   21,063   20,831   22,705   22,453   7,855   3,090   2,013   980   1,060   5,445   20,443   20,273   20,209   20,041 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

 

 

(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

  Up 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

  Up to $5.00 per 100 ADSs held

Distribution of securities other than ADSs or rights to purchase additional ADSs

  Up to $5.00 per 100 ADSs held

General depositary services

  Up to $5.00 per 100 ADSs held

Holders of our ADSs are also responsible for paying certain fees and expenses incurred by the depositary 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);

 

expenses incurred for converting foreign currency into Dollars;

 

expenses for cable, telex and fax transmissions and for delivery of securities;

 

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 2017,2019, we received $770,000approximately $1.5 million from the depositary for reimbursement of 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.

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 Officerchief executive officer and Chief Financial Officer,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, 2017.2019. 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 Officerchief executive officer and Chief Financial Officerchief 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 Officerchief executive officer and Chief Financial Officer,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, 20172019 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, 2017.2019.

c.    Report of the Independent Registered Public Accounting Firm

The report of our independent registered public accounting firm, KPMG Samjong Accounting Corp. (“KPMG Samjong”KPMG”), on the effectiveness of our internal control over financial reporting as of December 31, 20172019 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 16.A.Audit Committee Financial Expert

The board of directors has approved the members of our audit committee.determined that Chung,Moon-Ki is an audit committee financial expert and is independent within the meaning of applicable SEC rules.

Item 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,Ethics, applies to our chief executive officer and chief financial officer, as well as to our directors, other officers and employees. Our Code of ConductEthics is available on our web sitewebsite athttp://www.posco.com. If we amend the provisions of our Code of ConductEthics 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 sitewebsite at the same address.

Item 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,registered public accounting firm, KPMG, in 20162018 and 2017:2019:

 

  For the Year Ended
December 31,
   For the Year Ended
December 31,
 
  2016   2017   2018   2019 
  (In millions of Won)   (In millions of Won) 

Audit fees

  5,159   6,164   6,019   7,448 

Audit-related fees

   167    422 

Tax fees

   1,267    805    841    1,002 

Other fees

   989    971 
  

 

   

 

   

 

   

 

 

Total fees

  6,426   6,969       8,016       9,843 
  

 

   

 

   

 

   

 

 

Audit fees in 20162018 and 20172019 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 2018 and 2019 as set forth in the above table are fees billed by KPMG for issuing comfort letters in connection with our securities offering.

Tax fees in 20162018 and 20172019 as set forth in the above table are fees billed by KPMG for our tax compliance and tax planning, as well as compliance related to transfer pricing.

Other fees in 2018 and 2019 as set forth in the above table are fees billed by KPMG in connection with statutory audits unrelated to the audit of our annual financial statements.

Audit CommitteePre-Approval Policies and Procedures

Our audit committee has not establishedUnder our Audit Committee’spre-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 forall audit andnon-audit services to be provided to us by an independent registered public accounting firm must bepre-approved by our subsidiaries or us.Audit Committee. Our Audit Committee does notpre-approve any audit andnon-audit services that are prohibited from being provided to us by an independent registered public accounting firm under the rules of SEC and applicable law.

Item 16.D.Exemptions from the Listing Standards for Audit Committees

Not applicable

Item 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, 2017:2019:

 

Period

  Total Number
of
Shares
Purchased
   Average Price Paid
Per Share (In Won)

(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 16.F.Change in Registrants Certifying Accountant

Not applicable

Item 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 seven out of 12 directors are Outside Directors.UnderDirectors. Under our articles of incorporation, we may have up to five Inside Directors and eight 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 committee.  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 management.

  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 year.  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 website.  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 plan.  

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.

Shareholder Approval of Equity Offerings

Listed companies must allow its shareholders to exercise their voting rights with respect to equity offerings that do not qualify as public offerings for cash, and offerings of equity of related parties.Our board of directors is generally authorized to issue new shares, subject to certain limitations as provided by our articles of incorporation.

Corporate Governance Guidelines

  
Listed companies must adopt and disclose corporate governance guidelines.  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 athttp://www.posco.com.

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 officers.  We have adopted a Code of ConductEthics for all directors, officers and employees. A copy of our Code of ConductEthics is available on our website athttp://www.posco.com.

Item 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-2 

Report of Independent Registered Public Accounting Firm, KPMG Samjong Accounting Corp., on Internal Control over Financial Reporting

   F-3F-5 

Consolidated Statements of Financial Position as of December 31, 20162018 and 20172019

   F-5F-7 

Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2015, 20162017, 2018 and 20172019

   F-7F-9 

Consolidated Statements of Changes in Equity for the Years Ended December 31, 2015, 20162017, 2018 and 20172019

   F-8F-10 

Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 20162017, 2018 and 20172019

   F-11F-13 

Notes to Consolidated Financial Statements

   F-13F-15 

Item 19.Exhibits

 

 1.1       Articles of Incorporation of POSCO (English translation)
 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)*
2.3Description of common stock (see Item 10.B. Memorandum and Articles of Association)
2.4Description of American Depositary Shares
 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
101Interactive Data Files (XBRL-related Documents)

 

 

*

Filed previously

(P) Paper filing

Table of Contents

 

   Page 

Report of Independent Registered Public Accounting Firm

   F-2 

Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting

   F-3  F-5 

Consolidated Financial Statements

  

Consolidated Statements of Financial Position

   F-5  F-7 

Consolidated Statements of Comprehensive Income (Loss)

   F-7  F-9 

Consolidated Statements of Changes in Equity

   F-8  F-10 

Consolidated Statements of Cash Flows

   F-11F-13 

Notes to the Consolidated Financial Statements

   F-13F-15 

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

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, 20162018 and 2017 and2019, 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, 20172019, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20162018 and 20172019 and the results of theirits operations and theirits cash flows for each of the years in the three-year period ended December 31, 2017,2019, 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 PCAOB), the Company’s internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control-IntegratedControl - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated April 26, 201829, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Adoption of New Accounting Standards

As discussed in Note 2 to the consolidated financial statements, effective January 1, 2019, the Company has changed its methods of accounting for leases due to the adoption of IFRS No.16, Leases.

As discussed in Note 3 to the consolidated financial statements, effective January 1, 2018, the Company has changed its method of accounting for revenue recognition due to adoption of IFRS No. 15, Revenue from contracts with customers.

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.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

(a)

Assessment of goodwill impairment in the POSCO INTERNATIONAL Corporation cash generating unit

As discussed in Notes 3 and 15 to the consolidated financial statements, goodwill amounted to1,097,809 million as of December 31, 2019, of which951,434 million related to the cash generating unit (“CGU”) of POSCO INTERNATIONAL Corporation. The Company performs goodwill impairment testing on an annual basis irrespective of whether there is any indication of impairment and whenever there is an indication that the CGU may be impaired. Recoverable amount of POSCO INTERNATIONAL Corporation was determined based on value-in-use.

We identified the assessment of goodwill impairment in the POSCO INTERNATIONAL Corporation CGU as a critical audit matter. Goodwill impairment has been recognized in 2018, indicating a higher risk that the goodwill may continue to be impaired in 2019 and therefore involved a high degree of challenging, subjective and complex auditor judgment. Specifically, estimated sales, discount rate and terminal growth rate were challenging to test as minor changes in those assumptions would have had a significant effect on the Company’s assessment of the carrying value of the goodwill.

The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s goodwill impairment assessment process, including controls related to the determination of value-in-use of the CGU and the development of the estimated sales, discount rate and terminal growth rate assumptions. We evaluated the estimated sales by comparing the growth assumptions to the latest financial budgets approved by the board of directors, historical performance and industry reports. We compared the estimated sales prepared in prior year with the current year’s actual results to assess the Company’s ability to accurately forecast. We performed sensitivity analysis over the estimated sales, discount rate and terminal growth rate to assess their impact on the conclusion reached in the Company’s goodwill impairment assessment. We involved valuation professionals with specialized skill and knowledge, who assisted us in evaluating the discount rate used in the valuation by comparing it against a discount rate that was independently developed using observable information for comparable entities.

(b)

Evaluation of estimated total contract costs at completion for construction contract revenue recognition

As discussed in Notes 3, 28 and 29 to the consolidated financial statements, revenue from construction contracts amounted to7,339,399 for the year ended December 31, 2019. When contract revenue and contract cost can be reliably estimated, the Company recognizes contract revenue over time based on the percentage of completion. The percentage of completion is determined based on the proportion of contract costs incurred to date, excluding contract costs incurred that do not reflect the stage of completion, bear to the estimated total contract costs at completion.

We identified evaluation of estimated total contract costs at completion for construction contract revenue recognition as a critical audit matter. It requires subjective and complex auditor judgments in evaluating the underlying assumptions, including estimated material costs, labor costs and outsourcing costs, for construction contracts over a long term duration. Changes in these assumptions may have a significant impact on the amount of estimated total contract costs at completion, which has a significant impact on the amount of revenue recognized during a specific period.

The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the determination of estimated total contract costs at completion for construction contracts, including controls over the assumptions used to develop the estimated total contract costs at completion. We evaluated the estimated total contract costs at completion by:

inspecting the documentation prepared by the person in charge of construction field regarding rationale and reliability of the estimated total contract costs at completion including estimated material costs, labor costs and outsourcing costs to complete the construction for major projects;

questioning the person in charge of construction field, and inspecting source documentation to test each of the three assumptions of the estimated total contract costs at completion for new major projects commenced in 2019;

questioning the Company’s finance manager and the person in charge of construction field, and inspecting documents as to the cause of the changes in estimated total contract costs at completion made during 2019 for selected projects; and

assessing the Company’s ability to accurately forecast estimated total contract costs at completion, comparing the actual total contract costs for construction contracts completed during 2019 against the estimated total contract costs at completion in prior year’s estimate.

/s/ KPMG Samjong Accounting Corp.

We have served as the Company’s auditor since 2008.

Seoul, Korea

April 26, 201829, 2020

Report of Independent Registered Public Accounting Firm

on Internal Control over Financial Reporting

To the Shareholders and Board of Directors

POSCO:

Opinion on Internal Control over Financial Reporting

We have audited POSCO and subsidiariessubsidiaries’ (the Company)’s internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2019, 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 PCAOB), the consolidated statements of financial position of the Company as of December 31, 20162018 and 2017,2019, 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, 20172019, and the related notes (collectively, the consolidated financial statements), and our report dated April 26, 201829, 2020 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 the 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 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.

/s/ KPMG Samjong Accounting Corp.

Seoul, Korea

April 26, 201829, 2020

POSCO and Subsidiaries

Consolidated Statements of Financial Position

As of December 31, 20162018 and 20172019

 

 

 

  Notes   December 31,
2016
   December 31,
2017
 
  (in millions of Won) 
(in millions of Won)  Notes   December 31,
2018
   December 31,
2019
 

Assets

            

Cash and cash equivalents

   4,5,23    2,447,619    2,612,530    4,5,23   2,643,865    3,514,872 

Trade accounts and notes receivable, net

   6,17,23,29,37    9,674,026    8,824,563    6,17,23,29,37    9,130,204    9,070,031 

Other receivables, net

   7,23,37    1,539,742    1,636,006    7,23,37    1,385,629    1,581,517 

Other short-term financial assets

   8,23    5,224,911    7,045,880    8,23    8,081,096    8,996,049 

Inventories

   9    9,515,895    10,793,781    9    12,153,303    11,230,759 

Current income tax assets

   35    46,473    38,489    35    51,557    45,930 

Assets held for sale

   10    311,958    71,768    10    21,854    74,158 

Other current assets

   16    894,484    821,242    16    684,464    631,177 
    

 

   

 

     

 

   

 

 

Total current assets

     29,655,108    31,844,259      34,151,972    35,144,493 
    

 

   

 

     

 

   

 

 

Long-term trade accounts and notes receivable, net

   6,23    51,124    731,570    6,23    427,125    198,785 

Other receivables, net

   7,23,37    762,912    879,176    7,23,37    863,240    1,140,879 

Other long-term financial assets

   8,23    2,657,692    1,911,684    8,23    1,647,898    1,669,389 

Investments in associates and joint ventures

   11    3,882,389    3,557,932    11    3,650,003    3,927,755 

Investment property, net

   13    1,117,720    1,064,914    13    928,615    878,227 

Property, plant and equipment, net

   14    33,770,339    31,883,535    14    30,018,273    29,925,973 

Intangible assets, net

   15    6,088,729    5,952,269    15    5,170,825    4,908,473 

Defined benefit assets, net

   21    83,702    8,224    21    1,489    4,280 

Deferred tax assets

   35    1,500,219    1,463,055    35    1,408,787    1,247,313 

Other non-current assets

   16    567,680    489,011    16    508,764    325,241 
    

 

   

 

     

 

   

 

 

Totalnon-current assets

     50,482,506    47,941,370      44,625,019    44,226,315 
    

 

   

 

     

 

   

 

 

Total assets

     80,137,614    79,785,629     78,776,991    79,370,808 
    

 

   

 

     

 

   

 

 

 

F-7

See accompanying notes to the consolidated financial statements.


POSCO and Subsidiaries

Consolidated Statements of Financial Position, Continued

As of December 31, 20162018 and 20172019

 

 

 

  Notes   December 31,
2016
 December 31,
2017
 
  (in millions of Won) 
(in millions of Won)  Notes   December 31,
2018
 December 31,
2019
 

Liabilities

          

Trade accounts and notes payable

   23,37   4,073,286  3,465,146    23,37   4,006,135  3,422,922 

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

   4,17,23    10,194,807  11,274,516    4,17,23    10,289,619  8,548,212 

Other payables

   18,23    1,851,659  1,753,461    18,23    1,720,097  1,879,508 

Other short-term financial liabilities

   19,23,37    149,748  129,812    19,23,37    77,800  77,827 

Current income tax liabilities

   35    446,071  515,538    35    948,166  396,616 

Liabilities directly associated with the assets held for sale

   10    —    8 

Provisions

   20    114,865  110,946    20    298,453  360,337 

Other current liabilities

   22,29    2,113,873  2,240,919    22,29    2,090,307  1,865,638 
    

 

  

 

     

 

  

 

 

Total current liabilities

     18,944,309  19,490,338      19,430,577  16,551,068 
    

 

  

 

     

 

  

 

 

Long-term trade accounts and notes payable

   23,37    44,512  12,532    23,37    29,825  20,067 

Long-term borrowings, excluding current installments

   4,17,23    12,510,191  9,789,141    4,17,23    9,919,651  11,893,401 

Other payables

   18,23    208,559  147,750    18,23    148,868  585,129 

Other long-term financial liabilities

   19,23    81,309  114,105    19,23    64,162  31,494 

Defined benefit liabilities, net

   21    123,604  137,193    21    140,933  181,011 

Deferred tax liabilities

   35    1,642,939  1,904,242    35    1,688,893  1,691,498 

Long-term provisions

   20    337,739  477,172    20    431,036  458,154 

Othernon-current liabilities

   22    479,183  386,431    22    250,432  195,688 
    

 

  

 

     

 

  

 

 

Totalnon-current liabilities

     15,428,036  12,968,566      12,673,800  15,056,442 
    

 

  

 

     

 

  

 

 

Total liabilities

     34,372,345  32,458,904      32,104,377  31,607,510 
    

 

  

 

     

 

  

 

 

Equity

          

Share capital

   24    482,403  482,403    24    482,403  482,403 

Capital surplus

   24    1,407,247  1,422,021    24    1,420,007  1,385,707 

Hybrid bonds

   25    996,919  996,919    25    199,384  199,384 

Reserves

   26    (143,985 (682,556   26    (1,404,368 (1,157,980

Treasury shares

   27    (1,533,468 (1,533,054   27    (1,532,728 (1,508,303

Retained earnings

     41,125,712  42,974,658      44,160,660  45,054,077 
    

 

  

 

     

 

  

 

 

Equity attributable to owners of the controlling company

     42,334,828  43,660,391      43,325,358  44,455,288 

Non-controlling interests

   25    3,430,441  3,666,334    25    3,347,256  3,308,010 
    

 

  

 

     

 

  

 

 

Total equity

     45,765,269  47,326,725      46,672,614  47,763,298 
    

 

  

 

     

 

  

 

 

Total liabilities and equity

        80,137,614  79,785,629     78,776,991  79,370,808 
    

 

  

 

     

 

  

 

 

F-8

See accompanying notes to the consolidated financial statements.


POSCO and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

For the years ended December 31, 2015, 20162017, 2018 and 20172019

 

 

 

(in millions of Won, except per share information) Notes  2017  2018  2019 

Revenue

  28,29,37  60,186,867   65,154,636   64,785,709 

Cost of sales

  29,31,34,37   (51,915,597  (57,129,060  (58,462,100
  

 

 

  

 

 

  

 

 

 

Gross profit

   8,271,270   8,025,576   6,323,609 

Selling and administrative expenses

  30,34    

Reversal of (Impairment loss) on trade accounts and notes receivable

   (173,694  (74,781  28,105 

Other administrative expenses

  31   (2,003,106  (1,985,755  (2,041,286

Selling expenses

   (1,557,277  (369,245  (368,318

Other operating income and expenses

  32,37    

Impairment loss on other receivables

   (98,177  (63,092  (80,323

Other operating income

   448,481   523,586   450,891 

Other operating expenses

  34   (691,376  (2,014,462  (1,089,965
  

 

 

  

 

 

  

 

 

 

Operating profit

   4,196,121   4,041,827   3,222,713 

Share of profit of equity-accounted investees, net

  11   10,540   112,635   273,741 

Finance income and costs

  23,33    

Finance income

   2,372,667   1,705,970   1,872,143 

Finance costs

   (2,484,277  (2,244,416  (2,242,063
  

 

 

  

 

 

  

 

 

 

Profit before income taxes

   4,095,051   3,616,016   3,126,534 

Income tax expense

  35   (1,185,740  (1,683,630  (1,088,369
  

 

 

  

 

 

  

 

 

 

Profit

   2,909,311   1,932,386   2,038,165 

Other comprehensive income (loss)

    

Items that will not be reclassified subsequently to profit or loss :

    

Remeasurements of defined benefit plans

  21   (47,543  (173,489  (117,152

Net changes in fair value of equity investments at fair value through other comprehensive income

   —     (149,188  (10,541

Items that are or may be reclassified subsequently to profit or loss :

    

Capital adjustment arising from investments in equity-accounted investees

   (217,388  (62,732  66,134 

Net changes in unrealized fair value ofavailable-for-sale investments

  23   (31,389  —     —   

Foreign currency translation differences

   (264,695  (42,908  208,117 

Losses on valuation of derivatives

  23   (143  (212  (90
  

 

 

  

 

 

  

 

 

 

Other comprehensive income (loss), net of tax

   (561,158  (428,529  146,468 
  

 

 

  

 

 

  

 

 

 

Total comprehensive income

  2,348,153   1,503,857   2,184,633 
  

 

 

  

 

 

  

 

 

 

Profit attributable to :

    

Owners of the controlling company

  2,756,230   1,711,902   1,864,405 

Non-controlling interests

   153,081   220,484   173,760 
  

 

 

  

 

 

  

 

 

 

Profit

  2,909,311   1,932,386   2,038,165 
  

 

 

  

 

 

  

 

 

 

Total comprehensive income attributable to :

    

Owners of the controlling company

  2,184,402   1,292,785   2,027,049 

Non-controlling interests

   163,751   211,072   157,584 
  

 

 

  

 

 

  

 

 

 

Total comprehensive income

  2,348,153   1,503,857   2,184,633 
  

 

 

  

 

 

  

 

 

 

Basic and diluted earnings per share (in Won)

  36   34,040   21,177   23,189 

 

   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 

F-9

See accompanying notes to the consolidated financial statements.


POSCO and Subsidiaries

Consolidated Statements of Changes in Equity

For the years ended December 31, 2015, 20162017, 2018 and 20172019

 

 

 

 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
 Subtotal 
 (in millions of Won) 

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

(in millions of Won)

  Share
capital
   Capital
surplus
 Hybrid
bonds
   Reserves Treasury
shares
 Retained
earnings
 Subtotal  Non-
controlling
interests
 Total 

Balance as of January 1, 2017

  482,403    1,407,247  996,919    (143,985 (1,533,468 41,125,712  42,334,828 

Comprehensive income:

            

Profit

   —      —     —      —     —    2,756,230  2,756,230  153,081  2,909,311 

Other comprehensive income (loss)

                     

Remeasurements of defined benefit plans, net of tax

                38,771  38,771  3,183  41,954    —      —     —      —     —    (38,043 (38,043 (9,500 (47,543

Capital adjustment arising from investments
in equity-accounted investees, net of tax

          (81,418       (81,418 (1,091 (82,509   —      —     —      (214,794  —     —    (214,794 (2,594 (217,388

Net changes in the unrealized fair value of
available-for-sale investments, net of tax

          (183,077       (183,077 (4,777 (187,854   —      —     —      (45,953  —     —    (45,953 14,564  (31,389

Foreign currency translation differences, net of tax

          78,094        78,094  (11,814 66,280    —      —     —      (272,902  —     —    (272,902 8,207  (264,695

Gain or losses on valuation of derivatives, net of tax

   —      —     —      (136  —     —    (136 (7 (143
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

   

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Total comprehensive income (loss)

          (186,401    210,265  23,864  (302,208 (278,344

Total comprehensive income

   —      —     —      (533,785  —    2,718,187  2,184,402  163,751  2,348,153 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

   

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Transactions with owners of the controlling company, recognized directly in equity:

                     

Year-end dividends

                (479,958 (479,958 (32,410 (512,368   —      —     —      —     —    (459,987 (459,987 (42,909 (502,896

Interim dividends

                (159,987 (159,987 (67,700 (227,687   —      —     —      —     —    (359,993 (359,993  —    (359,993

Changes in subsidiaries

                      (311,548 (311,548   —      —     —      —     —     —     —    (7,151 (7,151

Changes in ownership interests in subsidiaries

    310,485              310,485  844,769  1,155,254    —      16,287   —      —     —     —    16,287  147,420  163,707 

Interest of hybrid bonds

                (43,574 (43,574 (24,187 (67,761   —      —     —      —     —    (43,600 (43,600 (24,187 (67,787

Disposal of treasury shares

    (35       559     524     524    —      126   —      —    414   —    540   —    540 

Others

    (1,089    418     (2,398 (3,069 804  (2,265   —      (1,639  —      (4,786  —    (5,661 (12,086 (1,031 (13,117
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

   

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Total transactions with owners of the controlling company

    309,361     418  559  (685,917 (375,579 409,728  34,149    —      14,774   —      (4,786 414  (869,241 (858,839 72,142  (786,697
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

   

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

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 

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 Changes in Equity, Continued

For the years ended December 31, 2015, 20162017, 2018 and 20172019

 

 

 

 Attributable to owners of the controlling company Non-controlling
interests
  Total   Attributable to owners of the controlling company Non-  Total 
(in millions of Won)  Share
capital
   Capital
surplus
 Hybrid
bonds
 Reserves Treasury
shares
 Retained
earnings
 Subtotal controlling
interests
 

Balance as of January 1, 2018

  482,403    1,422,021  996,919  (682,556 (1,533,054 42,974,658  43,660,391  3,666,334  47,326,725 

Adjustment on initial application of IFRS No. 15, net of tax

   —      —     —     —     —    (70,907 (70,907 (58,976 (129,883

Adjustment on initial application of IFRS No. 9, net of tax

   —      —     —    (498,517  —    447,067  (51,450 (34,754 (86,204
 Share
capital
 Capital
surplus
 Hybrid
bonds
 Reserves Treasury
shares
 Retained
earnings
 Subtotal Non-controlling
interests
  Total   

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
 (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 

Adjusted balance as of January 1, 2018

   482,403    1,422,021  996,919  (1,181,073 (1,533,054 43,350,818  43,538,034  3,572,604  47,110,638 

Comprehensive income:

           

Profit

   —      —     —     —     —    1,711,902  1,711,902  220,484  1,932,386 

Other comprehensive income (loss)

                    

Remeasurements of defined benefit plans, net of tax

                9,787  9,787  10,753  20,540    —      —     —     —     —    (145,488 (145,488 (28,001 (173,489

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 

Capital adjustment arising from investments
in equity-accounted investees, net of tax Capital adjustment arising from investments
in equity-accounted investees, net of tax

   —      —     —    (76,587  —     —    (76,587 13,855  (62,732

Net changes in fair value of equity investments
at fair value through other comprehensive income, net of tax

   —      —     —    (104,293  —    (46,883 (151,176 1,988  (149,188

Foreign currency translation differences, net of tax

          10,382        10,382  (21,873 (11,491   —      —     —    (45,650  —     —    (45,650 2,742  (42,908

Gain or losses on valuation of derivatives, net of tax

   —      —     —    (216  —     —    (216 4  (212
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total comprehensive income (loss)

          449,436     1,364,594  1,814,030  (327,718 1,486,312 

Total comprehensive income

   —      —     —    (226,746  —    1,519,531  1,292,785  211,072  1,503,857 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Transactions with owners of the controlling company, recognized directly in equity:

                    

Year-end dividends

                (479,974 (479,974 (50,333 (530,307   —      —     —     —     —    (279,999 (279,999 (54,240 (334,239

Interim dividends

                (179,992 (179,992    (179,992   —      —     —     —     —    (400,003 (400,003  —    (400,003

Changes in subsidiaries

                      49,250  49,250    —      —     —     —     —     —     —    (2,092 (2,092

Changes in ownership interests in subsidiaries

    8,650              8,650  (16,544 (7,894   —      (1,497  —     —     —     —    (1,497 (654 (2,151

Repayment of hybrid bonds

   —      (2,769 (797,535  —     —     —    (800,304 (359,018 (1,159,322

Interest of hybrid bonds

                (43,832 (43,832 (24,253 (68,085   —      —     —     —     —    (24,443 (24,443 (18,448 (42,891

Disposal of treasury shares

    32        430     462     462    —      133   —     —    326   —    459   —    459 

Others

    5,486     1,335     3,420  10,241  (7,919 2,322    —      2,119   —    3,451   —    (5,244 326  (1,968 (1,642
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total transactions with owners of the controlling company

    14,168     1,335  430  (700,378 (684,445 (49,799 (734,244   —      (2,014 (797,535 3,451  326  (709,689 (1,505,461 (436,420 (1,941,881
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

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 

Balance as of December 31, 2018

  482,403    1,420,007  199,384  (1,404,368 (1,532,728 44,160,660  43,325,358  3,347,256  46,672,614 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

 

See accompanying notes to the consolidated financial statements.

POSCO and Subsidiaries

Consolidated Statements of Changes in Equity, Continued

For the years ended December 31, 2015, 20162017, 2018 and 20172019

 

 

 

 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
 Subtotal  Share
capital
 Capital
surplus
 Hybrid
bonds
 Reserves Treasury
shares
 Retained
earnings
 Subtotal 
 (in millions of Won) 

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 
(in millions of Won)   

Balance as of January 1, 2019

 482,403  1,420,007  199,384  (1,404,368 (1,532,728 44,160,660  43,325,358  3,347,256  46,672,614 

Comprehensive income:

                  

Profit

                2,756,230  2,756,230  153,081  2,909,311   —     —     —     —     —    1,864,405  1,864,405  173,760  2,038,165 

Other comprehensive income (loss)

                  

Remeasurements of defined benefit plans, net of tax

                (38,043 (38,043 (9,500 (47,543  —     —     —     —     —    (100,218 (100,218 (16,934 (117,152

Capital adjustment arising from investments in equity-accounted investees, net of tax

          (214,794       (214,794 (2,594 (217,388  —     —     —    58,308   —     —    58,308  7,826  66,134 

Net changes in the unrealized fair value ofavailable-for-sale investments, net of tax

          (45,953       (45,953 14,564  (31,389

Net changes in fair value of equity investments at fair value through other comprehensive income, net of tax

  —     —     —    10,228   —    (20,769 (10,541  —    (10,541

Foreign currency translation differences, net of tax

          (272,902       (272,902 8,207  (264,695  —     —     —    215,181   —     —    215,181  (7,064 208,117 

Gain or losses on valuation of derivatives, net of tax

          (136       (136 (7 (143  —     —     —    (86  —     —    (86 (4 (90
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total comprehensive income

          (533,785    2,718,187  2,184,402  163,751  2,348,153   —     —     —    283,631   —    1,743,418  2,027,049  157,584  2,184,633 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Transactions with owners of the controlling company, recognized directly in equity:

                  

Year-end dividends

                (459,987 (459,987 (42,909 (502,896  —     —     —     —     —    (400,006 (400,006 (60,274 (460,280

Interim dividends

                (359,993 (359,993    (359,993  —     —     —     —     —    (480,694 (480,694  —    (480,694

Changes in subsidiaries

                      (7,151 (7,151  —     —     —     —     —     —     —    1,281  1,281 

Changes in ownership interests in subsidiaries

    16,287              16,287  147,420  163,707   —    (48,538  —     —     —     —    (48,538 (128,587 (177,125

Interest of hybrid bonds

                (43,600 (43,600 (24,187 (67,787  —     —     —     —     —    (9,200 (9,200 (7,294 (16,494

Disposal of treasury shares

    126        414     540     540   —    12,576   —     —    24,425   —    37,001   —    37,001 

Others

    (1,639    (4,786    (5,661 (12,086 (1,031 (13,117  —    1,662   —    (37,243  —    39,899  4,318  (1,956 2,362 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total transactions with owners of the controlling company

    14,774     (4,786 414  (869,241 (858,839 72,142  (786,697  —    (34,300  —    (37,243 24,425  (850,001 (897,119 (196,830 (1,093,949
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

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 

Balance as of December 31, 2019

 482,403  1,385,707  199,384  (1,157,980 (1,508,303 45,054,077  44,455,288  3,308,010  47,763,298 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

See accompanying notes to the consolidated financial statements.

POSCO and Subsidiaries

Consolidated Statements of Cash Flows

For the years ended December 31, 2015, 20162017, 2018 and 20172019

 

 

 

  Notes   2015 2016 2017 
      (in millions of Won) 
(in millions of Won)  Notes   2017 2018 2019 

Cash flows from operating activities

            

Profit (loss)

    (116,215 1,032,065  2,909,311 

Profit

    2,909,311  1,932,386  2,038,165 

Adjustments for:

            

Depreciation

     2,836,663  2,835,843  2,887,646      2,887,646  2,911,048  3,029,868 

Amortization

     381,583  378,004  409,774      409,774  356,581  431,247 

Finance income

     (1,165,340 (882,905 (1,376,324     (1,376,324 (737,745 (855,382

Finance costs

     1,852,862  1,501,953  1,440,282      1,440,282  1,168,225  1,197,705 

Income tax expense

     266,560  379,544  1,185,740      1,185,740  1,683,630  1,088,369 

Gain on disposal of property, plant and equipment

     (22,730 (23,826 (32,145     (32,145 (53,139 (49,367

Loss on disposal of property, plant and equipment

     101,732  86,622  151,343      151,343  117,614  120,227 

Impairment losses on property, plant and equipment

     136,269  196,882  117,231      117,231  1,004,704  442,700 

Gain on disposal of intangible assets

     (22,391 (117,139 (1,896

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

     (88,718 (23,305 (81,794     (81,794 (45,241 (27,836

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

     18,996  22,499  19,985      19,985  5,226  6,539 

Share of loss (profit) of equity-accounted investees

     506,054  88,677  (10,540

Share of profit of equity-accounted investees

     (10,540 (112,635 (273,741

Expenses related to post-employment benefits

     245,402  333,139  199,926      199,926  216,489  240,425 

Increase to provisions

     86,903  189,914  215,383      215,383  240,146  76,538 

Bad debt expenses

     337,235  202,717  271,871 

Impairment loss on trade and other receivables

     271,871  137,873  52,218 

Loss on valuation of inventories

     152,952  152,249  78,560      78,560  141,799  96,201 

Impairment losses on goodwill and intangible assets

     161,412  127,875  167,995      167,995  337,519  191,021 

Gain on disposal of assets held for sale

     (227,956 (23,112 (1,180     (1,180 (27,171 (37,461

Loss on disposal of assets held for sale

     190,357  254  608 

Impairment losses on assets held for sale

     133,547  24,890         —    50,829  38,328 

Others, net

     48,079  7,879  (33,092     (10,093 77,945  894 
    

 

  

 

  

 

     

 

  

 

  

 

 
     5,951,862  5,575,793  5,611,269      5,611,269  7,356,558  5,766,597 
    

 

  

 

  

 

     

 

  

 

  

 

 

Changes in operating assets and liabilities

   39    2,784,452  (404,570 (1,841,633   39    (1,841,633 (2,105,726 (114,045

Interest received

     198,193  206,839  244,980      244,980  352,337  320,336 

Interest paid

     (831,566 (691,264 (735,735     (735,735 (750,410 (760,175

Dividends received

     237,715  152,559  225,514      225,514  224,410  266,774 

Income taxes paid

     (622,612 (602,004 (806,396     (806,396 (1,139,830 (1,512,997
    

 

  

 

  

 

     

 

  

 

  

 

 

Net cash provided by operating activities

    7,601,829  5,269,418  5,607,310     5,607,310  5,869,725  6,004,655 
    

 

  

 

  

 

     

 

  

 

  

 

 

 

F-13

See accompanying notes to the consolidated financial statements.


POSCO and Subsidiaries

Consolidated Statements of Cash Flows, Continued

For the years ended December 31, 2015, 20162017, 2018 and 20172019

 

 

 

   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
    

 

 

  

 

 

  

 

 

 

Cash flows from financing activities

      

Proceeds from borrowings

     1,779,097   1,988,665   1,725,983 

Repayment of borrowings

     (3,509,970  (4,274,895  (3,136,016

Proceeds from (repayment of) short-term borrowings, net

     (846,230  (885,861  558,083 

Payment of cash dividends

     (822,570  (708,970  (863,450

Payment of interest of hybrid bonds

     (67,725  (68,097  (67,783

Capital contribution fromnon-controlling interests and proceeds from disposal of subsidiary while maintaining control

     1,260,053   24,704   266,219 

Capital deduction fromnon-controlling interests and additional acquisition of interests in subsidiaries

     (10,810  (11,301  (26,288

Others, net

     (23,446  (15,212  (22,276
    

 

 

  

 

 

  

 

 

 

Net cash used in financing activities

   39    (2,241,601  (3,950,967  (1,565,528
    

 

 

  

 

 

  

 

 

 

Effect of exchange rate fluctuation on cash held

     23,496   12,611   (58,997
    

 

 

  

 

 

  

 

 

 

Net increase (decrease) in cash and cash equivalents

     849,048   (2,423,565  164,911 

Cash and cash equivalents at beginning of the period

   5    4,022,136   4,871,184   2,447,619 
    

 

 

  

 

 

  

 

 

 

Cash and cash equivalents at end of the period

   5   4,871,184   2,447,619   2,612,530 
    

 

 

  

 

 

  

 

 

 

(in millions of Won)  Notes   2017  2018  2019 

Cash flows from investing activities

      

Acquisitions of short-term financial instruments

    (20,843,530)   (32,173,134  (36,063,406

Proceeds from disposal of short-term financial instruments

     19,146,634   31,105,544   35,415,822 

Increase in loans

     (1,055,895  (627,783  (450,638

Collection of loans

     667,045   941,962   398,838 

Acquisitions of securities

     —     (321,916  (296,827

Proceeds from disposal of securities

     —     221,646   62,492 

Acquisitions ofavailable-for-sale investments

     (66,278  —     —   

Proceeds from disposal ofavailable-for-sale investments

     1,006,856   —     —   

Acquisitions of investments in associates and joint ventures

     (60,277  (47,355  (160,404

Proceeds from disposal of investments in associates and joint ventures

     74,881   88,852   16,458 

Acquisitions of property, plant and equipment

     (2,287,580  (2,135,550  (2,519,219

Proceeds from disposal of property, plant and equipment

     39,183   90,412   51,800 

Acquisitions of investment property

     (69,169  (44,106  (19,344

Proceeds from disposal of investment property

     5,771   70,817   12,057 

Acquisitions of intangible assets

     (343,423  (447,616  (299,587

Proceeds from disposal of intangible assets

     28,502   77,654   24,161 

Proceeds from disposal of assets held for sale

     203,958   93,338   67,246 

Increase in cash from (payment for) acquisition of business, net of cash acquired

     (174,165  —     (37,345

Cash received (decrease in cash) from disposal of business, net of cash transferred

     (75,540  447,917   45,360 

Collection of lease receivables

     —     —     56,889 

Others, net

     (14,847  11,348   12,788 
    

 

 

  

 

 

  

 

 

 

Net cash used in investing activities

     (3,817,874  (2,647,970  (3,682,859
    

 

 

  

 

 

  

 

 

 

Cash flows from financing activities

      

Proceeds from borrowings

     1,725,983   2,762,446   5,646,977 

Repayment of borrowings

     (3,136,016  (3,136,308  (3,746,845

Proceeds from (repayment of) short-term borrowings, net

     558,083   (854,554  (2,194,727

Payment of cash dividends

     (863,450  (723,934  (946,218

Repayment of hybrid bonds

     —     (1,160,000  —   

Payment of interest of hybrid bonds

     (67,783  (46,166  (16,494

Capital contribution fromnon-controlling interests and proceeds from disposal of subsidiary while maintaining control

     266,219   5,808   29,475 

Capital deduction fromnon-controlling interests and additional acquisition of interests in subsidiaries

     (26,288  (3,823  (123,304

Repayment of lease liabilities

     (10,536  (30,481  (167,427

Others, net

     (11,740  (8,036  6,384 
    

 

 

  

 

 

  

 

 

 

Net cash used in financing activities

   39    (1,565,528  (3,195,048  (1,512,179
    

 

 

  

 

 

  

 

 

 

Effect of exchange rate fluctuation on cash held

     (58,997  4,628   61,764 
    

 

 

  

 

 

  

 

 

 

Net increase in cash and cash equivalents

     164,911   31,335   871,381 

Cash and cash equivalents at beginning of the period

   5    2,447,619   2,612,530   2,643,865 
    

 

 

  

 

 

  

 

 

 

Cash and cash equivalents at end of the period

   5,10   2,612,530   2,643,865   3,515,246 
    

 

 

  

 

 

  

 

 

 

See accompanying notes to the consolidated financial statements.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2015, 20162018 and 20172019

 

 

 

1.

General Information

General information about POSCO, its 4032 domestic subsidiaries including POSCO ENGINEERING & CONSTRUCTION CO., LTD., 139131 foreign subsidiaries including POSCO America Corporation (collectively “the Company”) and its 111131 associates and joint ventures are as follows:

(a)

(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 onsince June 10, 1988. POSCO owns and operates two steel plants (Pohang and Gwangyang) and one office in Korea and it also operates internationally through six of its overseas liaison offices.

As of December 31, 2017,2019, POSCO’s shareholders are as follows:

 

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 
  

 

 

   

 

 

 

Shareholder’s name

  Number of shares   Ownership (%) 

National Pension Service

   10,291,670    11.80 

BlackRock Fund Advisors(*1,2,3)

   5,429,071    6.23 

Nippon Steel Corporation(*1)

   2,894,712    3.32 

Samsung Group and subsidiaries(*2)

   2,401,789    2.75 

GIC Private Limited

   1,777,316    2.04 

Others

   64,392,277    73.86 
  

 

 

   

 

 

 
   87,186,835    100.00 
  

 

 

   

 

 

 

 

(*1)

Includes 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 Articlesand others.

(*3)

The number of Incorporation.shares held by the shareholder based on the information in the status report of large-scale shareholders filed with Korea Exchange on April 16, 2019.

As of December 31, 2017,2019, the shares of POSCO are listed on the Korea Exchange while its ADRs are listed on the New York Stock Exchange.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

(b)

(b) Consolidated subsidiaries

Details of consolidated subsidiaries as of December 31, 20162018 and 20172019 are as follows:

 

 

Principal operations

 Ownership (%)    

Principal operations

 Ownership (%)  
 December 31, 2016 December 31, 2017  December 31, 2018 December 31, 2019 
 POSCO Subsidiaries Total POSCO Subsidiaries Total Region  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 ENGINEERING & CONSTRUCTION., CO., LTD.

 Engineering and construction 52.80   —    52.80  52.80   —    52.80  Pohang

POSCO COATED & COLOR STEEL Co., Ltd.

 Coated steel manufacturing 56.87     56.87  56.87     56.87  Pohang  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  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  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 O&M CO.,Ltd.
(formerly, POSMATE)

 Business facility maintenance 59.80  40.20  100.00  47.17  52.83  100.00  Seoul

POSCO A&C

 Architecture and consulting 100.00     100.00  100.00     100.00  Seoul  Architecture and consulting 100.00   —    100.00  45.66  54.34  100.00  Seoul

POSCO Venture Capital Co., Ltd.

 Investment in venture companies 95.00     95.00  95.00     95.00  Pohang  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  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 CHEMICAL CO., LTD. (formerly, POSCO CHEMTECH)

 Refractories manufacturing and sales 60.00   —    60.00  61.26   —    61.26  Pohang

POSCO-Terminal Co., Ltd.

 Transporting and warehousing 51.00     51.00  51.00     51.00  Gwangyang  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  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  Generation of electricity 89.02   —    89.02  100.00   —    100.00  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 

PNR

 Steel byproduct manufacturing and sales 70.00   —    70.00  70.00   —    70.00  Pohang

Future Creation Fund Postech Early Stage account

 Investment in venture companies    40.00  40.00     40.00  40.00  Seoul  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  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 

SPH Co, LTD.

 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  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  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  Investment in venture companies  —    25.00  25.00   —    25.00  25.00  Pohang

POSCO Research & Technology

 Intellectual Property Services and consulting 100.00   —    100.00  100.00   —    100.00  Seoul

TANCHEON E&E
(formerly, POSCO E&E)

 Refuse derived fuel and power generation  —    100.00  100.00   —    100.00  100.00  Seoul

POSCO Humans

��Construction 90.30   —    90.30  75.49  24.51  100.00  Pohang

Mapo Hibroad Parking Co., Ltd.

 Construction  —    71.00  71.00   —    71.00  71.00  Seoul

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

  

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
  

Principal operations

 Ownership (%)   
  December 31, 2018  December 31, 2019 
  POSCO  Subsidiaries  Total  POSCO  Subsidiaries  Total  Region
[Domestic]                      

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 INTERNATIONAL Corporation (formerly, POSCO DAEWOO Corporation)

 Trading, energy & resource development and others  62.90   0.04   62.94   62.91   0.03   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

Songdo Development PMC (Project Management Company) LLC.

 Housing business agency  —     100.00   100.00   —     100.00   100.00  Incheon

Korea Fuel Cell

 Fuel cell  —     —     —     —     100.00   100.00  Pohang

POSCO GEM 1th Fund

 Investment in venture companies  —     —     —     98.81   1.19   100.00  Pohang

POSCO Processing&Service

 Steel sales and trading  93.95   0.45   94.40   —     —     —    Seoul

MegaAsset Co.,Ltd.

 Real estate rental and sales  —     100.00   100.00   —     —     —    Incheon

HOTEL LAONZENA

 Hotel business  —     100.00   100.00   —     —     —    Daegu

Posco e&c Songdo International Building

 Non-residental building rental  —     100.00   100.00   —     —     —    Seoul

POSCO ES MATERIALS CO., LTD.

 Secondary and storage battery manufacturing  90.00   —     90.00   —     —     —    Gumi

BLUE O&M Co.,Ltd.

 Engineering service  —     100.00   100.00   —     —     —    Pohang
[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

POSCAN Elkview

 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  61.91   38.09   100.00   100.00   —     100.00  China

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 (Thailand) Company Limited

 Steel manufacturing and sales  88.58   11.42   100.00   100.00   —     100.00  Thailand

POSCO-MKPC SDN BHD

 Steel manufacturing and sales  44.69   25.31   70.00   70.00   —     70.00  Malaysia

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

 

Principal operations

 Ownership (%)   

Principal operations

 Ownership (%)  
 December 31, 2016 December 31, 2017  December 31, 2018 December 31, 2019 
 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 and sales 70.00     70.00  70.00     70.00  Myanmar

POSCO-MKPC SDN BHD

 Steel manufacturing and sales 44.69  25.31  70.00  44.69  25.31  70.00  Malaysia
[Foreign]             

Qingdao Pohang Stainless Steel Co., Ltd.

 Stainless steel manufacturing and sales 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 and sales 90.00  10.00  100.00  90.00  10.00  100.00  China 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 and sales    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 and sales    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 and sales 99.99     99.99  99.99     99.99  India Steel manufacturing and sales 100.00   —    100.00  100.00   —    100.00  India

POSCO-India Pune Processing Center. Pvt. Ltd.

 Steel manufacturing and sales 65.00     65.00  65.00     65.00  India Steel manufacturing and sales 65.00   —    65.00  65.00   —    65.00  India

POSCO Japan PC CO., LTD

 Steel manufacturing and sales    86.12  86.12     86.12  86.12  Japan Steel manufacturing and sales  —    86.12  86.12   —    86.12  86.12  Japan

POSCO-CFPC Co., Ltd.

 Steel manufacturing and sales 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.

 Civil engineering and construction    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 and sales    95.00  95.00  21.02  75.29  96.31  Mexico Steel manufacturing and sales 21.02  75.29  96.31  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

POSCO-VIETNAM Co., Ltd.

 Steel manufacturing and sales 100.00     100.00  100.00     100.00  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 and sales
 84.84  15.16  100.00  84.84  15.16  100.00  Mexico Automotive steel sheet
manufacturing and sales
 83.28  14.88  98.16  83.28  14.88  98.16  Mexico

POSCAN Elkview

 Coal sales    100.00  100.00     100.00  100.00  Canada

POSCO-Poland Wroclaw
Processing Center Sp. z o. o.

 Steel manufacturing and sales 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 RUS LLC

 Trading and business development 90.00  10.00  100.00  90.00  10.00  100.00  Russia

POSCO DAEWOO WAIGAOQIAO
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 (POSCO E&C AUSTRALIA) PTY LTD

 Construction and engineering service  —    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 and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

  

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
  

Principal operations

 Ownership (%)   
  December 31, 2018  December 31, 2019 
  POSCO  Subsidiaries  Total  POSCO  Subsidiaries  Total  Region
[Foreign]                      

POSCO Thainox Public Company Limited

 STS cold-rolled steel manufacturing and sales  84.66   —     84.66   84.39   —     84.39  Thailand

Hunchun Posco Hyundai Logistics

 Logistics  —     80.00   80.00   —     80.00   80.00  China

POSCO INTERNATIONAL VIETNAM COMPANY LIMITED

 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   84.85   15.15   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

POSCO Center Beijing

 Real estate development, rental and management  —     100.00   100.00   —     100.00   100.00  China

POSCO AMERICA COMERCIALIZADORA 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-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 treamtment facilities operation and maintenance  —     67.00   67.00   —     67.00   67.00  Indonesia

POSCO INTERNATIONAL MYANMAR CORPORATION LIMITED

 Trading business  —     100.00   100.00   —     100.00   100.00  Myanmar

POSCO-Italy Processing Center

 Stainless steel sheetmanufacturing and sales  80.00   10.00   90.00   88.89   11.11   100.00  Italy

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  —     81.51   81.51   —     81.51   81.51  Singapore

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

  

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
  

Principal operations

 Ownership (%)   
  December 31, 2018  December 31, 2019 
  POSCO  Subsidiaries  Total  POSCO  Subsidiaries  Total  Region
[Foreign]                      

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 sheetmanufacturing and sales  100.00   —     100.00   100.00   —     100.00  Thailand
[Foreign]                      

Daewoo Amara Company Limited

 Real estate development  —     85.00   85.00   —     85.00   85.00  Myanmar

POSMATE-CHINA CO., LTD

 Business facility maintenance  —     100.00   100.00   —     100.00   100.00  China

POSCO-Mexico VillagranWire-rod Processing Center

 Steel manufacturing and sales  56.75   10.00   66.75   56.75   10.00   66.75  Mexico

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 INTERNATIONAL POWER (PNGLAE) 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

SANPU TRADING Co., Ltd.

 Raw material trading  —     70.04   70.04   —     70.04   70.04  China

Zhangjiagang BLZ Pohang
International Trading

 Steel Intermediate trade  —     100.00   100.00   —     100.00   100.00  China

POSCO RU Limited Liability Company

 Trade and business development  100.00   —     100.00   100.00   —     100.00  Russia

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

  

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
  

Principal operations

 Ownership (%)   
  December 31, 2018  December 31, 2019 
  POSCO  Subsidiaries  Total  POSCO  Subsidiaries  Total  Region
[Foreign]                      

GOLDEN LACE POSCO
INTERNATIONAL CO., LTD.

 Rice processing  —     60.00   60.00   —     60.00   60.00  Myanmar

POSCOICT-China Co., Ltd

 IT service and DVR business  —     100.00   100.00   —     100.00   100.00  China

Pos-Sea Pte Ltd

 Steel Intermediate trade  —     100.00   100.00   —     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 INTERNATIONAL UKRAINE, LLC.

 Grain sales  —     100.00   100.00   —     100.00   100.00  Ukraine

Zhangjiagang Pohang Refractories Co., Ltd.

 Refractory materials sales & furnace maintenance  —     51.00   51.00   —     51.00   51.00  China

POSCO Maharashtra Steel Private Limited

 Steel manufacturing and sales  100.00   —     100.00   100.00   —     100.00  India

POSCO INDIA PROCESSING CENTER PRIVATE LIMITED

 Steel manufacturing and sales  93.34   1.98   95.32   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 Processing Center. Co., Ltd

 Steel manufacturing and sales  83.54   5.29   88.83   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

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 AMERICA ALABAMA PROCESSING CENTER CO., LTD.

 Steel manufacturing and sales  —     97.80   97.80   —     97.80   97.80  USA

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  79.52   11.70   91.22   79.52   11.70   91.22  China

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

  

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
  

Principal operations

 Ownership (%)   
  December 31, 2018  December 31, 2019 
  POSCO  Subsidiaries  Total  POSCO  Subsidiaries  Total  Region
[Foreign]                      

POSCO SS VINA JOINT STOCK COMPANY (Formerly, POSCO SS VISA 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 AUSTRALIA GP PTY LIMITED

 Resource development  —     100.00   100.00   —     100.00   100.00  Australia

POSCO INTERNATIONAL 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 INTERNATIONAL AMERICA CORP.

 Trading business  —     100.00   100.00   —     100.00   100.00  USA

POSCO INTERNATIONAL Deutschland GMBH

 Trading business  —     100.00   100.00   —     100.00   100.00  Germany

POSCO INTERNATIONAL JAPAN CORP.

 Trading business  —     100.00   100.00   —     100.00   100.00  Japan

POSCO INTERNATIONAL SINGAPORE PTE. LTD.

 Trading business  —     100.00   100.00   —     100.00   100.00  Singapore

POSCO INTERNATIONAL ITALIA S.R.L.

 Trading business  —     100.00   100.00   —     100.00   100.00  Italy

POSCO INTERNATIONAL (CHINA) CO., LTD

 Trading business  —     100.00   100.00   —     100.00   100.00  China

POSCO INTERNATIONAL TEXTILE LLC.

 Textile manufacturing  —     100.00   100.00   —     100.00   100.00  Uzbekistan

POSCO INTERNATIONAL 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 INTERNATIONAL MEXICO S.A DE C.V.

 Trading business  —     100.00   100.00   —     100.00   100.00  Mexico

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

  

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
  

Principal operations

 Ownership (%)   
  December 31, 2018  December 31, 2019 
  POSCO  Subsidiaries  Total  POSCO  Subsidiaries  Total  Region
[Foreign]                      

POSCO INTERNATIONAL MALAYSIA SDN BHD

 Trading business  —     100.00   100.00   —     100.00   100.00  Malaysia

PT.POSCO INDONESIA INTI

 Mine development  100.00   —     100.00   100.00   —     100.00  Indonesia

POSCO INTERNATIONAL 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 INTERNATIONAL 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  Hongkong

JB CLARK HILLS(*1)

 Apartment construction  —     25.00   25.00   —     70.00   70.00  Philippines

POS-LT Pty Ltd

 Lithium mining investment  —     100.00   100.00   —     100.00   100.00  Australia

ZHEJIANG POSCO-HUAYOU ESM CO., LTD

 Anode material manufacturing  100.00   —     100.00   60.00   —     60.00  China

POSCO Argentina S.A.U.

 Mineral exploration/manufacturing/sales  100.00   —     100.00   100.00   —     100.00  Argentina

GRAIN TERMINAL HOLDING PTE. LTD.

 Trade  —     —     —     —     75.00   75.00  Singapore

Mykolaiv Milling Works PJSC.

 Grain trading  —     —     —     —     100.00   100.00  Ukraine

Yuzhnaya Stevedoring Company Limited LLC.

 Cargo handling  —     —     —     —     100.00   100.00  Ukraine

Myanmar POSCO Steel Co., Ltd

 Steel manufacturing and sales  —     70.00   70.00   —     70.00   70.00  Myanmar

POSCO SINGAPORE LNG TRADING PTE. LTD.

 LNG trading  50.00   50.00   100.00   —     —     —    Singapore

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

  

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

  

Principal operations

 Ownership (%)   
  December 31, 2018  December 31, 2019 
  POSCO  Subsidiaries  Total  POSCO  Subsidiaries  Total  Region
[Foreign]                      

POSCO DAEWOO E&P CANADA CORPORATION

 Crude oil and natural gas mining  —     100.00   100.00   —     —     —    Canada

Daewoo Power and Infra (PTY) Limited

 Electricity  —     100.00   100.00   —     —     —    South
Africa

Daewoo Precious Resources Co., Ltd.

 Resources development  —     70.00   70.00   —     —     —    Myanmar

POSCO E&C (THAILAND) CO., Ltd.

 Construction and engineering  —     100.00   100.00   —     —     —    Thailand

POSCO Gulf SFC LLC

 Steel manufacturing and sales  —     65.72   65.72   —     —     —    United Arab
Emirates

POSCO-South Asia Company Limited

 Steel sales  100.00   —     100.00   —     —     —    Thailand

POSCO(Guangdong) Coated Steel Co., Ltd.

 Steel manufacturing and sales  87.04   10.04   97.08   —     —     —    China

DAEWOO INTERNATIONAL GUANGZHOU CORP.

 Trading business  —     100.00   100.00   —     —     —    China

 

(*1)

Reclassified to subsidiary from associate during the year ended December 31, 2017.

(*2)Reclassified to joint venture from subsidiary during the year ended December 31, 2017.2019.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

The equity investment of controlling company increaseddecreased by8,65048,538 million (POSCO Processing & ServiceCHEMICAL CO., LTD. and others) and16,2881,497 million (POSCO DAEWOO Corporation, POSMATEGulf SFC LLC and others) in 20162018 and 2017,2019, respectively, as a result of changes in the Company’s ownership interests in subsidiaries that did not result in a loss of control.

Cash dividends paid to POSCO by subsidiaries in 2015, 20162017, 2018 and 20172019 amounted to437,19470,087 million,75,830100,582 million and70,087100,862 million, respectively.

As of December 31, 2017,2019, there are no restrictions on the ability of subsidiaries to transfer funds to the 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, 2015, 2016 and 2017 are as follows:

1) December 31, 2015

  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

 3,930,857   441,999   360,812   5,115,325   590,460   9,648,917   20,088,370 

Non-current assets

  4,777,482   3,363,935   248,549   1,756,367   3,333,351   7,776,264   21,255,948 

Current liabilities

  (3,568,714  (1,004,002  (106,167  (3,125,697  (663,945  (9,692,004  (18,160,529

Non-current liabilities

  (1,941,909  (2,315,554  (5,405  (768,529  (2,420,547  (2,567,980  (10,019,924

Equity

  3,197,716   486,378   497,789   2,977,466   839,319   5,165,197   13,163,865 

Non-controlling interests

  1,269,096   145,913   199,116   1,405,391   535,878   1,182,137   4,737,531 

Sales

  16,890,723   1,227,266   1,175,272   6,866,802   1,909,919   25,784,254   53,854,236 

Profit (loss) for the period

  79,092   (398,438  35,516   108,895   15,831   (835,389  (994,493

Profit (loss) attributable tonon-controlling interests

  31,390   (119,531  14,206   51,399   1,738   (247,106  (267,904

Cash flows from operating activities

  433,493   (13,595  19,921   434,257   6,075   (72,371  807,780 

Cash flows from investing activities

  (74,644  (8,994  25,318   21,075   (20,980  (110,712  (168,937

Cash flows from financing activities (before dividends tonon-controlling interest)

  (340,532  18,886   66   69,615   11,572   289,715   49,322 

Dividend tonon-controlling interest

  (22,597     (4,135  (703  (24,125  (145,582  (197,142

Effect of exchange rate fluctuation on cash held

  430   83      819      3,502   4,834 

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, 2015, 20162018 and 20172019

 

 

 

2) December 31, 2016
(c)

Details ofnon-controlling interest as of and for the years ended December 31, 2017, 2018 and 2019 are as follows:

 

  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

 4,038,313   460,376   397,370   5,163,436   713,039   9,696,140   20,468,674 

Non-current assets

  4,510,085   3,304,292   243,401   1,710,398   3,038,665   7,749,277   20,556,118 

Current liabilities

  (3,662,811  (1,120,077  (109,016  (3,284,090  (937,668  (9,669,053  (18,782,715

Non-current liabilities

  (1,681,182  (2,337,612  (2,337  (855,791  (2,172,226  (2,856,498  (9,905,646

Equity

  3,204,405   306,979   529,418   2,733,953   641,810   4,919,866   12,336,431 

Non-controlling interests

  1,271,750   92,094   211,767   1,290,450   514,200   945,962   4,326,223 

Sales

  15,417,550   1,244,711   1,076,455   5,352,395   1,657,890   23,251,563   48,000,564 

Profit (loss) for the period

  113,832   (187,151  41,829   (760,187  (130,809  (461,034  (1,383,520

Profit (loss) attributable tonon-controlling interests

  45,177   (56,145  16,732   (358,815  (14,357  (312,297  (679,705

Cash flows from operating activities

  337,338   45,672   30,295   (211,182  18,107   53,050   273,280 

Cash flows from investing activities

  (35,054  (8,804  (42,021  (102,939  (1,047  (253,206  (443,071

Cash flows from financing activities (before dividends tonon-controlling interest)

  (295,226  (36,286  (1,250  (20,953  (2,875  204,797   (151,793

Dividend tonon-controlling interest

  (22,597     (4,726  (14,800  (24,378  (7,349  (73,850

Effect of exchange rate fluctuation on cash held

  10   67   1   760      1,687   2,525 

Net increase (decrease) in cash and cash equivalents

  (15,529  649   (17,701  (349,114  (10,193  (1,021  (392,909
1)

December 31, 2017

(in millions of Won) POSCO
INTERNATIONAL
Corporation
  PT.
KRAKATAU
POSCO
  POSCO
CHEMICAL
  POSCO
ENGINEERING &
CONSTRUCTION
CO., LTD.
  POSCO
ENERGY
CO., LTD.
  Others  Total 

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, 20162018 and 20172019

 

 

 

3) December 31, 2017
2)

December 31, 2018

 

 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) POSCO
INTERNATIONAL
Corporation
 PT.
KRAKATAU
POSCO
 POSCO
CHEMICAL
 POSCO
ENGINEERING &
CONSTRUCTION
CO., LTD.
 POSCO
ENERGY
CO., LTD.
 Others Total 

Current assets

 4,483,544  557,041  441,325  4,878,251  1,054,538  8,579,813  19,994,512  5,311,596  615,491  416,284  4,100,967  825,241  9,137,798  20,407,377 

Non-current assets

 4,590,394  2,771,504  316,724  2,444,616  2,859,824  6,676,559  19,659,621  4,363,490  2,730,865  460,905  1,911,844  2,767,203  5,493,324  17,727,631 

Current liabilities

 (4,221,443 (1,237,255 (145,649 (3,896,680 (785,462 (8,313,902 (18,600,391 (4,724,056 (1,368,498 (140,268 (3,007,029 (1,197,845 (8,026,474 (18,464,170

Non-current liabilities

 (1,549,013 (1,933,247 (970 (833,403 (2,200,065 (2,048,454 (8,565,152 (1,563,107 (1,754,797 (10,767 (608,089 (1,445,288 (1,925,084 (7,307,132

Equity

 3,303,482  158,043  611,430  2,592,784  928,835  4,894,016  12,488,590  3,387,923  223,061  726,154  2,397,693  949,311  4,679,564  12,363,706 

Non-controlling interests

 1,224,303  47,413  244,572  1,223,816  762,390  974,941  4,477,435  1,255,728  66,918  290,461  1,131,733  335,203  929,506  4,009,549 

Sales

 20,891,526  1,635,837  1,163,918  5,794,532  1,578,026  23,547,072  54,610,911  23,314,595  1,871,634  1,340,984  6,799,292  1,841,187  24,721,939  59,889,631 

Profit (loss) for the period

 115,321  (117,729 101,019  169,011  70,795  258,053  596,470  113,196  54,257  142,918  290,131  (73,948 (56,151 470,403 

Profit (loss) attributable tonon-controlling interests

 42,739  (35,318 40,408  79,775  7,770  39,605  174,979  41,956  16,277  57,167  136,944  (8,116 (101,156 143,072 

Cash flows from operating activities

 128,875  (27,817 20,042  (84,840 30,295  140,418  206,973  (61,173 89,131  29,865  207,729  16,211  14,869  296,632 

Cash flows from investing activities

 (86,365 (5,502 (18,699 (171,924 (2,792 (63,621 (348,903 (12,780 (6,432 (15,801 272,230  35,460  (13,199 259,478 

Cash flows from financing activities (before dividends tonon-controlling interest)

 (19,295 31,782  8  150,801  220,317  (38,090 345,523  99,496  (82,295  —    (400,499 (71,378 (16,094 (470,770

Dividend tonon-controlling interest

 (22,597    (7,088    (24,183 (12,777 (66,645 (22,862  —    (8,270  —    (19,813 (6,906 (57,851

Effect of exchange rate fluctuation on cash held

 (459 (147 (6 (3,541    (15,532 (19,685 807  21  (17 1,257   —    1,682  3,750 

Net increase (decrease) in cash and cash equivalents

 159  (1,684 (5,743 (109,504 223,637  10,398  117,263  3,488  425  5,777  80,717  (39,520 (19,648 31,239 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

(d) Details of associates and joint ventures

1) Associates

Details of associates as of December 31, 2016 and 2017 are as follows:
3)

December 31, 2019

 

    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 
(in millions of Won) POSCO
INTERNATIONAL
Corporation
  PT.
KRAKATAU
POSCO
  POSCO
CHEMICAL
  POSCO
ENGINEERING &
CONSTRUCTION
CO., LTD.
  POSCO
ICT
  Others  Total 

Current assets

 4,396,683   520,057   624,017   4,242,954   441,208   8,062,428   18,287,347 

Non-current assets

  4,186,197   2,723,254   1,050,406   1,808,919   210,037   4,740,887   14,719,700 

Current liabilities

  (3,013,269  (1,570,204  (236,968  (2,734,305  (262,265  (7,672,691  (15,489,702

Non-current liabilities

  (2,087,769  (1,590,810  (462,361  (786,191  (38,836  (2,095,797  (7,061,764

Equity

  3,481,842   82,297   975,094   2,531,377   350,144   3,034,827   10,455,581 

Non-controlling interests

  1,290,600   24,689   377,770   1,194,833   121,213   1,124,381   4,133,486 

Sales

  22,745,239   1,906,302   1,434,507   7,625,389   925,551   22,975,605   57,612,593 

Profit (loss) for the period

  199,721   (146,975  94,481   330,298   32,954   (587,146  (76,667

Profit (loss) attributable tonon-controlling interests

  74,030   (44,093  36,604   155,904   11,408   (89,676  144,177 

Cash flows from operating activities

  580,372   61,398   22,794   24,636   21,571   (16,324  694,447 

Cash flows from investing activities

  (40,264  (7,173  (111,996  (6,620  (2,129  31,057   (137,125

Cash flows from financing activities (before dividends tonon-controlling interest)

  (502,801  (53,890  134,609   (25,448  (336  (4,295  (452,161

Dividend tonon-controlling interest

  (27,432  —     (9,451  (9,867  (2,628  (11,079  (60,457

Effect of exchange rate fluctuation on cash held

  1,736   25   (7  1,401   (47  3,931   7,039 

Net increase (decrease) in cash and cash equivalents

  11,611   360   35,949   (15,898  16,431   3,290   51,743 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

    Ownership (%)    

Investee

 

Category of business

   2016      2017    Region 

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

 Raw material manufacturing and sales  20.00   20.00   USA 

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
 
 

NCR LLC

 Coal sales  29.41   29.41   Canada 

KOREA LNG LTD.

 Gas production and sales  20.00   20.00   England 

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 

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 processing and sales  50.00   50.00   Vietnam 

IMFA ALLOYS FINLEASE LTD

 Raw material manufacturing and sales  24.00   24.00   India 

General Medicines Company Ltd.

 Medicine manufacturing and sales  33.00   33.00   Sudan 

PT.INDONESIA POS CHEMTECH CHOSUN Ref

 Refractory manufacturing and sales  30.19   30.19   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 processing and sales  25.00   25.00   China 

SHANGHAI WAIGAOQIAO FREE TRADE ZONE LANSHENG DAEWOO IN’L TRADING CO., LTD.

 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 

Hamparan Mulya

 Resource development  45.00   45.00   Indonesia 

Sebang Steel

 Scrap sales  49.00   49.00   Japan 

GLOBAL KOMSCO Daewoo LLC

 Cotton celluloid manufacturing and sales  35.00   35.00   Uzbekistan 

POSCO-Poggenamp Electrical Steel Pvt. Ltd.

 Steel manufacturing and sales  26.00   26.00   India 

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 

LI3 ENERGY INC

 Energy & resource development  26.06   26.06   Peru 
(d)

Details of associates and joint ventures

1)

Associates

Details of associates as of December 31, 2018 and 2019 are as follows:

    Ownership (%)   

Investee

 

Category of business

 2018  2019  Region
[Domestic]          

New Songdo International City Development, LLC

 Real estate rental  29.90   29.90  Seoul

Gale International Korea, LLC

 Real estate rental  29.90   29.90  Seoul

SNNC

 Raw material manufacturing and sales  49.00   49.00  Gwangyang

KONES, Corp.

 Technical service  41.67   41.67  Gyeongju

CHUNGJU ENTERPRISE CITY DEVELOPMENT Co.,Ltd

 Real estate development  29.53   29.53  Chungju

DAEHO GLOBAL MANAGEMENT CO., LTD.

 Investment advisory service  35.82   35.82  Pohang

Mokpo Deayang Industrial Corporation

 Real estate development and rental  27.40   27.40  Mokpo

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

KoFC POSCO HANWHA KB Shared Growth NO. 2. Private Equity Fund(*1)

 Investment in new technologies  12.50   12.50  Seoul

EQP POSCO Global NO1 Natural Resources Private Equity Fund

 Investment in new technologies  31.27   33.41  Seoul

KC Chemicals CORP.(*1)

 Machinery manufacturing  19.00   19.00  Hwaseong

Garolim Tidal Power Plant Co.,Ltd

 Tidal power plant construction and management  32.13   32.13  Seosan

POSTECH Social Enterprise Fund(*1)

 Investment in new technologies  9.17   9.17  Seoul

QSONE Co.,Ltd.

 Real estate rental and facility management  50.00   50.00  Seoul

Chun-cheon Energy Co., Ltd

 Electricity generation  45.67   49.10  Chuncheon

Keystone NO. 1 Private Equity Fund(*6)

 Private equity financial  40.45   52.58  Seoul

Noeul Green Energy(*1)

 Electricity generation  10.00   10.00  Seoul

Posco-IDV Growth Ladder IP Fund(*1)

 Investment in new technologies  17.86   17.86  Seoul

Daesung Steel(*1)

 Steel sales  17.54   17.54  Busan

Pohang E&E Co., LTD

 Investment in waste energy  30.00   30.00  Pohang

POSCO Energy Valley Fund

 Investment in new technologies  20.00   20.00  Pohang

Hyundai Invest Guggenheim CLO Qualified Private Special Asset Trust No.2

 Investment in new technologies  38.47   35.44  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 Agri-Food Export Fund

 Investment in new technologies  30.00   30.00  Seoul

PoscoPlutus Project 2nd Project 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

 Investment in new technologies  24.10   24.10  Seoul

PCC Amberstone Private Equity Fund 1(*1)

 Investment in new technologies  8.80   8.80  Seoul

UITrans LRT Co., Ltd.

 Transporting  38.19   38.19  Seoul

POSCO Advanced Technical Staff Fund(*1)

 Investment in new technologies  15.87   15.87  Seoul

POSCO 4th Industrial Revolution Fund(*1)

 Investment in new technologies  19.05   19.05  Seoul

Incheon-Gimpo Expressway Co., Ltd.(*1)

 Construction  18.26   18.26  Anyang

Pureun Tongyeong Enviro Co., Ltd.

 Sewerage treatment  20.40   20.40  Tongyeong

Pure Gimpo Co., Ltd.

 Construction  28.79   28.79  Seoul

POSCO PLANTEC Co., Ltd.(*2,6)

 Construction of industrial plant  73.94   73.94  Ulsan

Posgreen Co., Ltd.(*1)

 Lime and plaster manufacturing  19.00   19.00  Gwangyang

Clean Iksan Co., Ltd.

 Construction  23.50   23.50  Iksan

Innovalley Co., Ltd.

 Real estate development  28.77   28.77  Yongin

Pohang Techno Valley PFV Corporation(*6)

 Real estate development, supply and rental  57.39   57.39  Pohang

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

    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
    Ownership (%)   

Investee

 

Category of business

 2018  2019  Region
[Domestic]          

BLUE OCEAN Private Equity Fund

 Private equity financial  27.52   27.52�� Seoul

Western Inland highway CO.,LTD.

 Construction  27.50   30.00  Incheon

Metropolitan Outer Ring Expressway co., ltd.

 Investment in Expressway  47.58   21.27  Incheon

IT ENGINEERING CO., LTD.(*1)

 Vehicle engineering  10.84   4.99  Seoul

PCC Bio 1ST Fund(*1)

 Investment in new technologies  13.46   13.46  Seoul

INNOPOLIS Job Creation Fund II(*1)

 Investment in new technologies  6.43   6.21  Seoul

POSPower Co., Ltd.

 Generation of electricity  34.00   34.00  Samcheok

INKOTECH, INC.(*1)

 Electricity generation and sales  10.00   10.00  Seoul

PCC Social Enterprise Fund II(*1)

 Investment in venture companies  16.67   16.67  Seoul

PCC Amberstone Private Equity Fund II(*1)

 Private equity trust  19.70   19.91  Seoul

Synapse Fund(*1)

 Investment in new technologies  16.26   16.26  Seoul

NEXTRAIN Co.,Ltd

 Service maintenance and management  32.00   32.00  Incheon

TK CHEMICAL CORPORATION(*1)

 Chemical  8.80   5.01  Daegu

Hanil-Daewoo Cement Co., Ltd.(*1)

 Cement  15.00   15.00  Incheon

PCC S/W 2nd Fund(*1,3)

 Investment in new technologies business  —     12.81  Pohang

PCC-Conar No.1 Fund l(*1,3)

 Investment in venture  —     13.64  Pohang

Hyochun Co., Ltd(*1,3)

 Screen door operation and other  —     18.00  Seoul

RPSD Project Co., Ltd(*3)

 Real estate development  —     29.00  Incheon

PCC EV Fund(*1,3)

 Investment in new technologies business  —     18.18  Pohang

IBKC-PCC 1st Fund(*1,3)

 Investment in new technologies business  —     18.18  Pohang

2019 PCC Materials and Parts Fund(*1,3)

 Investment in new technologies business  —     8.70  Pohang

Shinahn wind Power generation(*1,3)

 Electric, gas, steam  —     19.00  Suwon

2019 PCC New technology Fund(*1,3)

 Investment in new technologies business  —     4.76  Pohang

PCC-Woori LP secondary Fund(*1,3)

 Investment in new technologies business  —     18.85  Pohang

2016 Posco Plutus New technology Fund(*4)

 New technology business investment  25.17   —    Seoul

Clean Gimpo Co., Ltd(*5)

 Waste treatment and others  29.58   —    Gimpo

Postech Early Stage Fund(*4)

 investment in New technology  10.00   —    Pohang

Appliedscience Co., Ltd(*4)

 Machine manufacturing for semiconductor manufacturing  22.89   —    Paju
[Foreign]          

VSC POSCO Steel Corporation

 Steel processing and sales  50.00   50.00  Vietnam

JB CLARK HILLS(*7)

 Apartment Construction  25.00  70.00  Philippines

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

Nickel Mining Company SAS

 Raw material manufacturing and sales  49.00   49.00  New Caledonia

PT. Wampu Electric Power

 Construction and civil engineering  20.00   20.00  Indonesia

POSK(Pinghu) Steel Processing Center Co., Ltd.

 Steel processing and sales  20.00   20.00  China

PT.INDONESIA POS CHEMTECH CHOSUN Ref

 Refractory manufacturing and sales  30.19   30.19  Indonesia

NS-Thainox Auto Co., Ltd.

 Steel manufacturing and sales  49.00   49.00  Vietnam

Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd

 Tinplate manufacturing and sales  34.00   34.00  China

PT. Tanggamus Electric Power(*1)

 Construction and civil engineering  17.50   17.50  Indonesia

LLP POSUK Titanium

 Titanium manufacturing and sales  36.83   35.30  Kazakhstan

LI3 ENERGY INC

 Resource development  26.06   26.06  Peru

IMFA ALLOYS FINLEASE LTD

 Raw material manufacturing and sales  24.00   24.00  India

KRAKATAUPOS-CHEMDONG-SUH CHEMICAL(*1)

 Chemicalby-product manufacturing and sales  19.00   19.00  Indonesia

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

 

    Ownership (%)   

Investee

 

Category of business

 2018  2019  Region
[Foreign]          

7623704 Canada Inc.(*1)

 Investments management  10.40   10.40  Canada

Hamparan Mulya

 Resource development  45.00   45.00  Indonesia

POS-SEAHSTEELWIRE(TIANJIN)CO.,Ltd.

 Steel manufacturing and sales  25.00   25.00  China

Eureka Moly LLC

 Raw material manufacturing and sales  20.00   20.00  USA

PT. Batutua Tembaga Raya

 Raw material manufacturing and sales  22.00   22.00  Indonesia

KIRIN VIETNAM CO., LTD(*1)

 Panel manufacturing  19.00   19.00  Vietnam

POSCO SeAH Steel Wire(Nantong) Co., Ltd.

 Steel processing and sales  25.00   25.00  China

POS-SeAH Steel Wire (Thailand) Co., Ltd.

 Steel manufacturing and sales  25.00   25.00  Thailand

Jupiter Mines Limited(*1)

 Resource development  6.93   6.93  Australia

SAMHWAN VINA CO., LTD(*1)

 Steel manufacturing and sales  19.00   19.00  Vietnam

Saudi-Korean Company for Maintenance Properties Management LLC(*1)

 Building management  19.00   19.00  Saudi
Arabia

NCR LLC

 Coal sales  29.41   29.40  Canada

AMCI (WA) PTY LTD

 Iron ore sales & mine development  49.00   49.00  Australia

SHANGHAI LANSHENG DAEWOO CORP.

 Trading  49.00   49.00  China

SHANGHAI WAIGAOQIAO FREE TRADE ZONE LANSHENG DAEWOO IN’L TRADING CO., LTD.

 Trading  49.00   49.00  China

General Medicines Company Ltd.

 Medicine manufacturing and sales  33.00   33.00  Sudan

KOREA LNG LTD.

 Gas production and sales  20.00   20.00  England

AES-VCM Mong Duong Power Company Limited

 Electricity generation  30.00   30.00  Vietnam

KG Power(M) SDN. BHD

 Resource development  20.00   20.00  Malaysia

South-East Asia Gas Pipeline Company Ltd.

 Pipeline construction and management  25.04   25.04  Myanmar

GLOBAL KOMSCO Daewoo LLC

 Cotton celluloid manufacturing and sales  35.00   35.00  Uzbekistan

POSCO-Poggenamp Electrical Steel Pvt. Ltd.

 Steel processing and sales  26.00   26.00  India

Qingdao Pohang DGENX Stainless SteelPipeCo., Ltd

 Exhaust meter manufacturing  40.00   40.00  China

SHINPOONG DAEWOO PHARMA VIETNAM CO.,LTD(*1)

 Medicine production  3.42   3.42  Vietnam

ZHEJIANG HUAYOU-POSCO ESM(*3)

 Produce  —     40.00  China

Sebang Steel(*4)

 Scrap sale  49.00   —    Japan

ERAE Automotive Systems Mexico, S. DE R.L. DE C.V(*4)

 Automobile parts manufacturing  7.65   —    Mexico

 

(*1)

Considering the composition of board of directors, the Company is able to exercise significant influence 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)

During the year ended December 31, 2019, the entity was newly classified to associates.

(*4)

During the year ended December 31, 2019, the entity was excluded from associates due to liquidation.

(*5)

During the year ended December 31, 2019, the entity was excluded from associates due to sale of interest.

(*6)

Considering the composition of board of directors, the Company does not havehas no control and classified its shares as investment in an associate, even though the Company’s percentage of ownership is overif above 50%.

(*4)7)These associates were newly established or acquired in 2017.

(*5)Excluded from associates due to the disposal of shares during

During the year ended December 31, 2017.

(*6)Excluded2019, the Company reclassified to subsidiaries from associates due to loss of significant influence during the year ended December 31, 2017.associates.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

2)

2) Joint ventures

Details of joint ventures as of December 31, 20162018 and 20172019 are as follows:

 

    Ownership (%)    

Investee

 

Category of business

   2016      2017    Region 

[Domestic]

    

POSCO MITSUBISHI CARBON TECHNOLOGY

 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   Australia 

POSCO-NPS Niobium LLC

 Mine development  50.00   50.00   USA 

CSP — Compania Siderurgica do Pecem

 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 

PT. POSMI Steel Indonesia

 Steel processing and sales  36.69   36.69   Indonesia 

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 

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 

Hyunson Engineering & Construction HYENCO

 Construction  4.90   4.90   Algeria 

USS-POSCO Industries

 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 

    Ownership (%)    

Investee

 

Category of business

 2018  2019  Region 

[Domestic]

    

POSCO MITSUBISHI CARBON TECHNOLOGY

 Steel processing and sales  60.00   60.00   Gwangyang 

POSCO-SGI Falcon Pharmaceutic Bio Secondary Fund 1

 Investment in new technologies  24.55   24.55   Seoul 

POSCO-KB Shipbuilding Restructuring Fund

 Investment in new technologies  18.75   18.75   Seoul 

POSCO-NSC Venture Fund

 Investment in new technologies  16.67   16.67   Seoul 

PoscoPlutus Project 3rd Project fund

 Investment in new technologies  5.96   5.96   Seoul 

PCC Bio 2nd Fund

 Investment in new technologies  19.72   19.72   Seoul 

PCC Material 3rd Fund

 Investment in new technologies  2.38   2.38   Seoul 

Union PCC Portfolio Fund(*1)

 Investment in venture  —     14.12   Seoul 

PCC S/W FUND(*1)

 Investment in new technologies  —     0.46   Seoul 

[Foreign]

    

KOBRASCO

 Steel materials manufacturing and sales  50.00   50.00   Brazil 

USS-POSCO Industries

 Cold-rolled steel manufacturing and sales  50.00   50.00   USA 

PT. POSMI Steel Indonesia

 Steel processing and sales  36.69   36.69   Indonesia 

United Spiral Pipe, LLC

 Material manufacturing and sales  35.00   35.00   USA 

CSP - Compania Siderurgica do Pecem

 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 

POSCO-SAMSUNG-Slovakia Processing Center

 Steel processing and sales  30.00   30.00   Slovakia 

YULCHON MEXICO S.A. DE C.V.

 Tube for automobile manufacturing  19.00   19.00   Mexico 

Hyunson Engineering & Construction HYENCO

 Construction  4.89   4.89   Algeria 

POSCO E&C Saudi Arabia

 Civil engineering and construction  40.00   40.00   
Saudi
Arabia
 
 

Pos-Austem Suzhou Automotive Co., Ltd

 Automotive parts manufacturing  19.90   19.90   China 

POS-InfraAuto (Suzhou) Co., Ltd

 Automotive parts manufacturing  16.20   16.20   China 

POS-AUSTEM YANTAI AUTOMOTIVE CO.,LTD

 Automotive parts manufacturing  11.10   11.10   China 

POS-AUSTEM WUHAN AUTOMOTIVE CO.,LTD

 Automotive parts manufacturing  13.00   13.00   China 

Kwanika Copper Corporation

 Energy & resource development  35.00   35.00   Canada 

DMSA/AMSA

 Energy & resource development  4.00   4.00   Madagascar 

Roy Hill Holdings Pty Ltd

 Energy & resource development  12.50   12.50   Australia 

POSCO-NPS Niobium LLC

 Mine development  50.00   50.00   USA 

VNS-DAEWOO Co., Ltd.(*2)

 Fabricate and sell iron scraps  50.00   —     Vietnam 

 

(*1)

These joint ventures were newly established in 2017.2019.

(*2)Reclassified

Excluded from joint ventures due to joint venture from subsidiaryliquidation during the year ended December 31, 2017.

2019.

(*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, 2015, 20162018 and 20172019

 

 

 

(e)

(e) Newly included subsidiaries

Consolidated subsidiaries acquired or newly established during the year ended December 31, 20172019 are as follows:

 

Company

  Date of addition  Ownership (%)   Reason

POSCO RU Limited Liability CompanyGRAIN TERMINAL HOLDING PTE. LTD.

  January 2017June 201975.00Acquisition of control

Mykolaiv Milling Works PJSC.

June 2019100.00Acquisition of control

Yuzhnaya Stevedoring Company Limited LLC.

June 2019100.00Acquisition of control

Chargev Co., Ltd

September 2019   100.00   New establishment

Golden Lace DAEWOO Company LimitedKorea Fuel Cell

  April 2017November 2019   100.00   New establishment

POSCO Research & TechnologyJB CLARK HILLS

  June 2017December 201970.00Reclassified to subsidiary from associate

POSCO GEM 1th Fund

December 2019   100.00   New establishment

POSCO DAEWOO UKRAINE LLC

(f)
July 2017100.00New establishment

Zhangjiagang Pohang Refractories Co., Ltd.

July 201751.00Reclassification from associate

Kyobo Securities Bond Plus 6M Professional Private Equity TrustW-2

October 201797.47Acquisition of control

Mirae Asset Smart Q Sigma 2.0 Professional Private Equity Trust

October 201799.01Acquisition of control

Kyobo Securities Bond Plus 6M Professional Private Equity TrustW-5

November 201799.67Acquisition of control

KIS Devonian Canada Corporation

December 2017100.00Acquisition of control

(f) Excluded subsidiaries

Subsidiaries that were excluded from consolidation during the year ended December 31, 20172019 are as follows:

 

Company

  

    Date of exclusion    

  

Reason

POSCO MAPC SA DE CVProcessing & Service Co., Ltd.

  January 20172019  Merged into POSCO MPPC S.A. de C.V.Co.,Ltd

POSCO (Zhangjiagang) STS Processing CenterDaewoo Precious Resources Co., LtdLtd.

  January 20172019  Merged into Zhangjiagang Pohang Stainless Steel Co., Ltd.Liquidation

POSCO Engineering CO.BLUE O&M Co., LtdLtd.

  February 20172019  Merged into POSCO ENGINEERING & CONSTRUCTIONO&M CO., LTD.Ltd.

Mega asset Co.,Ltd.

February 2019Merged into POSCO O&M CO.,Ltd.

POSCO YongXin Rare Earth MetalESM Co.,Ltd.

April 2019Merged into POSCO Chemical CO.,Ltd.

Daewoo International Guangzhou Corp.

April 2019Merged into POSCO INTERNATIONAL(CHINA) CO.,Ltd.

POSCO(Guangdong) Coated Steel Co., Ltd.

  March 2017Disposal

SANTOS CMI S.A.

March 2017Disposal

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 2017June 2019  Disposal

POSCO Electrical Steel India PrivateE&C (THAILAND) CO.,Ltd.

June 2019Liquidation

POSCO Gulf SFC LLC

June 2019Liquidation

Hotel laonzena

July 2019Disposal

Daewoo Power and Infra (PTY) Limited

  March 2017July 2019  Merged into POSCO Maharashtra Steel Private Limited

POSEC Hawaii, Inc.

May 2017Exclusion upon liquidation

PT. 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

Liquidation

POSCO VIETNAM HOLDINGS CO., LTDSINGAPORE LNG TRADING PTE. LTD.

  July 2017September 2019  Merged into POSCO VIETNAM HOLDINGS CO., LTD (formerly, POSCO-VNPC CO., LTD.)Liquidation

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 SteelPOSCO-South Asia Co., Ltd.

  September 20172019  Loss of controlLiquidation

IT Engineering Co.PSIB CO.,Ltd.

  November 2017October 2019Liquidation

Chargev Co., Ltd

December 2019  Disposal

POSCO 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-SRDCDAEWOO E&P CANADA CORPORATION

  December 20172019  Exclusion upon liquidationLiquidation

 

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”IFRS”), as issued by the International Accounting Standards Board.

The consolidated financial statements were authorized for issue by the authorized directors on February 28, 2018.March 20, 2020.

In 2019, the Company adopted IFRS No.16 “Leases” for the first time. Changes to significant accounting policies are described in Note 2 “Changes in Accounting Policies”.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

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 measured at fair value through profit or loss

 

(c)Available-for-sale financial assets are

Financial instruments measured at fair value through other comprehensive income

 

(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 respectiveeach operation. These consolidated financial statements are presented in Korean Won, which isthe POSCO’s functional currency, which 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.

 

(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 ventures

 

Note 10 — Assets held for sale2 - Changes in accounting policies (leases)

 

Note 3 - Summary of significant accounting policies (leases)

Note 11 - Investments in associates and joint ventures

 

Note 12 - Joint operations

 

Note 25 - Hybrid bonds

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

 

(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 fiscal year is included in the following notes:

 

Note 9 - Inventory

Note 11 - Investments in associates and joint ventures

 

Note 14 - Property, plant and equipment, net

Note 15 - Goodwill and other intangible assets, net

 

Note 20 - Provisions

 

Note 21 - Employee benefits

 

Note 29 — Construction contracts23 – Financial instruments

 

Note 35 — Income taxes29 – Revenue – contract balances

 

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.

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.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

Information about the assumptions made in measuring fair values is included in the following note:

 

Note 23 - Financial instruments

Changes in Accounting Policies

Except for the application of the amendments to standards for the first time for the annual period beginning onThe Company has initially adopted IFRS No.16 “Leases” from January 1, 2017, as described below,2019. The other accounting standards adopted from January 1, 2019 had no significant effect on the Company’s consolidated financial statements.

IFRS No.16 “Leases” introduced a single accounting policies have been consistently applied bymodel for lessees. As a result, the Company, as a lessee, recognizedright-of-use assets representing its rights to use the underlying assets and lease liabilities representing its obligation to make lease payments. Lessor accounting remains similar to previous accounting policies.

The Company applied IFRS No.16 “Leases” using the modified retrospective approach by recognizing the cumulative effect of initial application as of January 1, 2019, the date of initial application. Accordingly, the comparative information presented for the periods presented.2017 and 2018, has not been restated.

 

(a)Amendments to IAS No. 7 “Statement

Definition of Cash Flows”a lease

ForPreviously, the year beginningCompany determined at contract inception whether an arrangement was or contained a lease under IFRIC No.4 “Determining Whether an Arrangement Contains a Lease”. The Company now assesses whether a contract is or contains a lease based on the new definition of a lease. Under IFRS No.16 “Leases”, a contract is, or contains, a lease if the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration.

On transition to IFRS No.16 “Leases”, the Company elected to apply the practical expedient to grandfather the assessment of which transactions are leases. The Company applied IFRS No.16 only to contracts that were previously identified as leases. Contracts that were not identified as leases under IAS No.17 “Leases” and IFRIC No.4 “Determining Whether an Arrangement Contains a Lease” were not reassessed. Therefore, the definition of a lease under IFRS No.16 has been applied only to contracts entered into or changed on or after January 1, 2017,2019.

At inception or reassessment of a contract that contains a lease component, the Company appliedallocates the amendmentsconsideration in the contract to IAS No. 7 “Statementeach lease andnon-lease component on the basis of Cash Flows”. IAS No. 7 requires that changes intheir relative stand-alone prices.

(b)

As a lessee

The Company leases many assets, including land, warehouses, handling equipment and IT equipment. As a lessee, the Company previously classified leases as operating or finance leases based on its assessment of whether the lease transferred substantially all of the risks and rewards of ownership. Under IFRS No.16 “Leases”, the Company recognizesright-of-use assets and lease liabilities related to the cash flows that were classified as a financing activityfor most leases in the statement of cash flows or will be classified as a financing activity in the future should be disclosed as follows:financial position.

Changes from financing cash flows

Changes arising from obtaining or losing control of subsidiaries or other businesses

The effect of changes in foreign 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 included in note 39.

(b)Amendments to IAS No. 12 “Income Taxes”

For the year beginning on January 1, 2017,However, the Company appliedhas elected not to recognizeright-of-use assets and lease liabilities for some leases oflow-value assets (e.g. desktops, IT supplies, etc.). The Company recognizes lease payments associated with these leases as an expense on a straight-line basis over the amendments to IAS No. 12 “Income Taxes”. In accordance with IAS No. 12, in the case of debt instruments measured at fair value, deferred tax accounting treatment is clarified. The differencelease term.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

betweenThe Company measured lease liabilities andright-of-use assets related to leases classified as operating leases under IAS No.17 “Leases” previously, on transition. Lease liabilities are measured at the present value of the remaining lease payments, discounted at the Company’s incremental borrowing rate as of January 1, 2019 andright-of-use assets are measured at the lease liabilities adjusted by the amount of any prepaid or accrued lease payments.

The Company used a number of practical expedients when applying IFRS No.16, to leases previously classified as operating leases under IAS No.17. In particular, the Company:

did not recognizeright-of-use assets and liabilities for leases for which the lease term ends within 12 months from the date of initial application;

excluded initial direct costs from the measurement of theright-of-use asset at the date of initial application; and

used hindsight when determining the lease term

For finance leases under IAS No.17, the carrying amountamounts of theright-of-use assets and taxable base amountthe lease liabilities as of January 1, 2019 were determined at the carrying amounts of the debtfinance lease assets and lease liabilities is consideredunder IAS No.17 immediately before that date.

(c)

As a lessor

The Company leases out its investment properties. The Company classified these leases as temporary differences, regardless ofoperating leases, and the 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 thataccounting policies applicable to the Company will recoveras a lessor are not different from those under IAS No.17 “Leases”. However, when the Company is an intermediate lessor thesub-leases are classified with reference to theright-of-useasset arising from the head lease, not with reference to the underlying asset.

The Company providessub-leasesfor more than its carrying amount. leases of vessels classified as operating leases under IAS No.17 “Leases” as an intermediate lessor, and classified thesub-leases as finance leases as of January 1, 2019, the date of initial application of IFRS No.16 “Leases”. Accordingly, the Company recognized finance lease receivables amounting to264,809 million.

In addition, the estimatedCompany did not make any adjustments to leases for which the Company is a lessor, except forsub-leases described above as of probable future taxable income are determined asJanuary 1, 2019, the amount before considering the deductible effect from reversaldate of the deductible temporary differences.initial application IFRS No.16.

(d)

Impact on financial statements

The Company believes thatrecognizedright-of-use assets and lease liabilities related to leases previously classified as operating leases as of January 1, 2019, the date of initial application. The effect of the amendments toon the consolidated financial statements as of January 1, 2019, the date of initial application is not significant. Therefore,as follows:

(in millions of Won)The date of initial
application

(January 1, 2019)

Consolidated statement of financial position

Right-of-use assets presented as property, plant and equipment(*1)

704,458

Lease receivable

264,809

Lease liabilities

677,370

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

(*1)

The prepaid lease payments of271,825 million were reclassified from other assets to property, plant and equipment for leases previously classified as operating leases as of December 31, 2018.

When measuring lease liabilities for leases previously classified as operating leases, the Company has not retrospectivelydiscounted lease payments using its incremental borrowing rates as of January 1, 2019, the date of initial application, and the weighted-average rates applied are 1.8 ~ 18.5%. The carrying amount of lease liabilities as of January 1, 2019, the amendments in accordance with the transitional requirements.date of initial application, is as follow:

(in millions of Won)The date of initial
application

(January 1, 2019)

Operating lease commitments as of December 31, 2018

913,630

Operating lease commitments not recognized as lease liabilities

- Leases oflow-value assets

(50,364

- Leases with less than 12 months of lease term at transition

(17,635

Operating lease commitments recognized as lease liabilities

845,631

Amount discounted using the incremental borrowing rate as of January 1, 2019, the date of initial application

677,370

Finance lease liabilities recognized as of December 31, 2018

94,754

Lease liabilities as of January 1, 2019, the date of initial application

772,124

 

3.

Summary of Significant Accounting Policies

The significant accounting policies applied by the Company in the 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 asthe changes in accounting policies disclosed in noteNote 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.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

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, 2015, 2016 and 2017

 

(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 derecognizes 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-controlequity-accounted 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.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

 

(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

 

(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 statementsperiod end are recognized in profit or

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

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.

 

(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 atusing 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 to the presentation currency at the closing rate.

When a foreign operation is disposed of, the relevant amount in the translation recognized in other comprehensive income 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

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

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 recognizesTrade receivables and measuresnon-derivativedebt securities issued are initially recognized when they are originated. All other 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 positionare initially recognized when the Company becomes a party to the contractual provisions of the instrument.instruments.

A financial asset (unless it is a trade receivable without a significant financing component) is initially measured at fair value plus, for an item not at financial assets measured at fair value through profit or loss, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.

On initial recognition, a financial asset is classified as measured at amortized cost, debt instruments measured at fair value through other comprehensive income, equity instruments measured at fair value through other comprehensive income or financial assets measured at fair value through profit or loss.

Financial assets are not reclassified subsequent to their initial recognition unless the Company changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the reporting period following the change in the business model.

(a)

Financial assets measured at amortized cost

A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at fair value through profit or loss.

it is held within a business model whose objective is to hold assets to collect contractual cash flows, and

its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Financial assets measured at amortized cost are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, gains and losses on foreign currency translation and impairment losses are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.

(b)

Debt instruments measured at fair value through other comprehensive income

A debt instrument is measured at fair value through other comprehensive income if it meets both of the following conditions and is not designated as at fair value through profit or loss.

it is held within a business model whose objective is achieved by both collection contractual cash flows and selling financial assets, and

its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Debt instruments measured at fair value through other comprehensive income are subsequently measured at fair value. Interest income which is calculated using the effective

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

Uponinterest method, gains and losses from foreign currency translation and impairment losses are recognized in profit or loss and other net profit or loss is recognized in other comprehensive income. At the time of elimination, other accumulated comprehensive income is reclassified to profit or loss.

(c)

Equity instruments measured at fair value through other comprehensive income

On initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to present subsequent changes in the investment’s fair value in other comprehensive income. This election is made on annon-derivativeinvestment-by-investment basis.

Equity instruments measured at fair value through other comprehensive income are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in other comprehensive income and never reclassified to profit or loss.

(d)

Financial assets measured at fair value through profit or loss

All financial assets arenot classified as measured at theiramortized cost or fair value plus, in the case of a financial asset notthrough other comprehensive income as described above are measured at fair value through profit or loss, transaction costsloss. This includes all derivative financial assets. On initial recognition, the Company may irrevocably designate a financial asset that are directly attributableotherwise meets the requirements to the asset’s acquisitionbe measured at amortized cost or issuance.

(a) Financial assets at fair value through profit or loss

Financial assets are classifiedother comprehensive income as at fair value through profit or loss if they are held for tradingdoing so eliminates or designated as such upon initial recognition. Upon initial recognition, transaction costs are recognized in profit or loss when incurred. significantly reduces an accounting mismatch that would otherwise arise.

Financial assets measured at fair value through profit or loss are subsequently measured at fair value,value. Net gains and changes thereinlosses, including any interest or dividend income, are recognized in profit or loss.

(b)Held-to-maturity financial assets

(e)

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.

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.

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.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

The carrying amount of those inventories sold 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”.recognized.

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.

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, and

(a)

it is probable that future economic benefits associated with the item will flow to the Company, and

(b)

(b)

the cost can be measured reliably.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

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

  3-505-50 years

Structures

  4-50 years

Machinery and equipment

  4-25 years

Vehicles

  3-20 years

Tools

  3-10 years

Furniture and fixtures

  3-20 years

Lease assets

  3-302-30 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 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 determinedetermines the amount of borrowing costs

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

eligible for capitalization by applying a capitalization rate to the expenditures on that asset. The capitalization rate shall beis 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 shalldoes 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

  4-25 years

Development costsexpense

 3-5 years

Port facilities usage rights

  4-75 years

Other intangible assets

  2-15 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, 2015, 20162018 and 20172019

 

 

 

Exploration for and evaluation of mineral resources

POSCO is engaged in exploration projects for mineral resources through subsidiaries, associates and joint ventures 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.expenditures.

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 applied IFRS No.16 “Leases” using the modified retrospective approach by recognizing the cumulative effect of initial application as of January 1, 2019, the date of initial application. Therefore, the comparative information has not been restated and continues to be reported under IAS No.17 “Lease” and IFRIC No.4 “Determining Whether an Arrangement Contains a Lease”.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

1)

As a lessee: policy applicable from January 1, 2019

The Company recognizes aright-of-use asset and a lease liability at the lease commencement date. Theright-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located.

Theright-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Company by the end of the lease term or the cost of theright-of-use asset reflects that the Company will exercise a purchase option. In that case theright-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as that of property, plant and equipment. In addition, theright-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined the Company’s incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate.

In determining the lease term and assessing the length of the non-cancellable period of a lease, The Company determines the period for which the contract is enforceable. When the Company determining the enforceable period of the lease period, it considers (a) if either party has an economic incentive not to terminate the lease such that it would incur a penalty on termination that is more than insignificant, the contract is enforceable beyond the date on which the contract can be terminated; and (b) whether each of the parties has the right to terminate the lease without permission from the other party with no more than an insignificant penalty. In addition, a lease is no longer enforceable only when both parties have such a right.

The Company determines its incremental borrowing rate by obtaining interest rates from various external sources and makes certain adjustments to reflect the terms of the lease and type of the asset leased.

Lease payments included in the measurement of the lease liability comprise the followings:

fixed payments

variable lease payments that depend on an index or a rate

amounts expected to be payable under a residual value guarantee; and

the exercise price under a purchase option that the Company is reasonably certain to exercise, lease payments in an optional renewal period if the Company is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Company is reasonably certain not to terminate early.

The lease liability is measured at amortized cost using the effective interest method. When the lease liability is remeasured, a corresponding adjustment is made to the carrying amount of theright-of-use asset, or is recorded in profit of loss if the carrying amount of theright-of-use asset has been reduced to zero. The lease liability is remeasured when there is:

a revisedin-substance fixed lease payment,

a change in future lease payments arising from a change in an index or rate,

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

a change in the Company’s estimate of the amount expected to be payable under a residual value guarantee, or

a change in the Company’s assessment of whether it will exercise a purchase, extension or termination option

The Company presentsright-of-use assets in the same line item as it presents underlying assets of the same nature that it owns, and lease liabilities are included in other payables on the consolidated statement of financial position.

The Company has elected not to recognizeright-of-use assets and lease liabilities for leases oflow-value assets and short-term leases, including IT equipment. The Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

2)

As a lessee: policy applicable before January 1, 2019

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)FinanceIn the case of 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 value of the minimum lease payments, each determined at the inception of the lease.lease at the commencement of the lease term. Any initial direct costs are added to the amount recognized as an asset.

POSCO and Subsidiaries

Notes toThe minimum lease payment is recognized by dividing the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

Minimum lease payments are apportioned between the finance chargefinancial cost and the reductionrepayment amount of the outstanding liability.lease liabilities. The finance chargefinancial cost 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.for each reporting period so that a fixed interest rate is calculated. Contingent rents are charged as expenses in the periodsperiod 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 underIn the case of an operating leases are recognizedlease, the Company recognizes the lease payment 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)3)Determining whether an arrangement contains

As a leaselessor

DeterminingWhen the Company acts as a lessor, it determines at lease inception whether an arrangement is, or contains, aeach lease is based ona finance lease or an operating lease. To the substanceCompany classifies the lease that transfers substantially all of the arrangementrisks 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 rightrewards incidental 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 valueownership of the underlying asset that was identified as a finance lease, and all other leases as operating leases. As part of this assessment, the subjectCompany considers certain indicators such as whether the lease is for the major part 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 recognitioneconomic life of the asset,asset.

The Company leases out its investment properties. The Company classified these leases as operating leases, and that the loss event had a negative effect onaccounting policies applicable to the estimated future cash flows of that asset that can be estimated reliably. However, losses expectedCompany as a result of future events, regardless of likelihood,lessor 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;

(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, 20162018 and 20172019

 

 

 

(e)the disappearance of an active market for that financial asset because of financial difficulties; or

different from those under IAS No.17 “Leases”. However, when the Company is an intermediate lessor, thesub-leases are classified with reference to theright-of-use asset arising from the head lease, not with reference to the underlying asset.

(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.

The Company providessub-leases leased vessels classified as operating leases under IAS No.17 “Leases” as an intermediate lessor, and classified thesub-leases as finance leases as of January 1, 2019, the date of initial application of IFRS No.16 “Leases”. Accordingly, the Company recognized finance lease receivables amounting to264,809 million. In addition, the Company did not make any adjustment to leases for an investment in an equity security,which the Company is a lessor, other than the abovesub-leases, as of January 1, 2019, the date of initial application.

Impairment for financial assets

The Company recognizes loss allowances for expected credit losses on:

financial assets measured at amortized cost;

debt instruments measured at fair value through other comprehensive income; and

lease receivables, contractual assets, loan commitments, and financial guarantee contracts

If credit risk has increased significantly since the initial recognition, a loss allowance for lifetime expected credit loss is 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 measured for contract assets or trade receivables that do not contain 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.financing component.

 

(a)Financial assets measured at amortized cost

Judgments on credit risk

An impairment loss in respectWhen determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating expected credit losses, the Company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Company’s historical experience and informed credit assessment including forward-looking information.

The Company assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due. The Company considers a financial asset to be in default when the borrower is unlikely to pay its credit obligations to the Company in full, without recourse by the Company to actions such as realizing security (if any is held). The Company considers a debt security to have low credit risk when its credit risk rating is equivalent to the globally understood definition of investment grade.

(b)

Measurement of expected credit losses

Lifetime expected credit losses are the expected credit losses that result from all possible default events over the expected life of a financial instrument.12-month expected credit losses are the

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

portion of lifetime expected credit losses that result from default that are possible within the 12 months after the reporting date. The maximum period considered when estimating expected credit losses is the maximum contractual period over which the Company is exposed to credit risk.

Expected credit losses are a probability-weighted estimate of credit losses. Credit losses are measured at amortized cost is calculated as the difference between its carrying amount and the present value of its estimated futureall 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 ofshortfalls such an unquoted equity instrument, the amount of the impairment loss is measured as the difference between the carrying amount ofcash flows due to the financial assetentity in accordance with the contract 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 equityCompany expects to profit or loss as a reclassification adjustment even though thereceive.

Expected credit losses for financial asset has not been derecognized. Impairment losses recognized in profit or loss for an investment in an equity instrument classified asavailable-for-saleassets measured at amortized cost 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. Loss allowances for financial assets measured at amortized cost are deducted from carrying amount of the assets. For debt instruments measured at fair value through other comprehensive income, the loss allowance is charged to profit or loss and is recognized in other comprehensive income.

(c)

Credit-impaired financial assets

At each reporting date, the Company assesses whether financial assets measured at amortized cost and debt instrument measured at fair value through other comprehensive income are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Objective evidence that a financial asset or group of financial assets are impaired includes:

significant financial difficulty of the issuer or borrower

a breach of contract, such as a default or delinquency in interest or principal payments

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

becoming probable that the borrower will enter bankruptcy or other financial reorganization

the disappearance of an active market for that financial asset because of financial difficulties

(d)

Write-off

The gross carrying amount of a financial asset is written off when the Company has no reasonable expectations of recovering a financial asset in entirety or a portion. The Company individually makes an assessment with respect to the timing and amount ofwrite-off based on whether there is a reasonable expectation of recovery based on continuous payments and extinct prescriptions. The Company expects no significant recovery from the amount written off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Company’s procedures for recovery of amounts due.

Impairment fornon-financial assets

The carrying amounts of the Company’snon-financial assets, other than assets arising from constructioncontract assets recognized in accordance with revenue from contracts with customers, 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

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

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 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 amount 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 hedgesincluding hedge accounting

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.as describe below.

 

(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, 20162018 and 20172019

 

 

 

a derivative hedging instrument and the gain or loss on the 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.

(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 measured at fair value through profit or loss or other financial liabilities measured at amortized cost 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 measured at fair value through profit or loss

Financial liabilitiesA financial liability is classified as at fair value through profit or loss include financial liabilities held for tradingif it is classified asheld-for-trading, it is a derivative or it is designated as such uponon 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

Financial liabilities measured at amortized cost

Non-derivative financial liabilities other than financial liabilities measured at fair value through profit or loss are classified as other financial liabilities.liabilities measured at amortized cost. At the date of initial

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

recognition, other financial liabilities measured at amortized cost are measured at fair value minusafter deducting transaction costs that are directly attributable to the acquisition. Subsequent to initial recognition, other financialFinancial liabilities measured at amortized cost are measured at amortized cost using the effective interest method. method subsequently to initial recognition.

(c)

Derecognition of financial liabilities

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 isits contractual obligations are discharged or cancelled, or expires).expire. The Company also derecognizes a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognized at fair value. On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including anynon-cash assets transferred or liabilities assumed) is recognized in profit or loss.

Construction work in progress

The gross amount due from customers for contract work is presented for all contracts in which costs incurred plus recognized profits (less recognized losses)multiply cumulativepercentage-of-completion exceed progress billings. If progress billings exceed costs incurred plus recognized profits (less recognized losses),multiply cumulativepercentage-of-completion, 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.

The Company recognizes advances received regardingaccounts for the amount receivedremaining rights and performance obligation on the contract with each customer on a net basis. Due from the ordering organization before the commencement of the construction. Also, the Company recognized trade accountscustomers for contract work and notes receivable with respectdue to the amount billed to the ordering organization.customers for contract work for a contract are offset and presented on a net basis.

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 12twelve 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. 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, 20162018 and 20172019

 

 

 

(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.

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, 20162018 and 20172019

 

 

 

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 beis recognized when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement shall beis 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.

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.

If the estimated total contract cost of the construction contract exceeds the total contract revenue, the estimated contract cost exceeding the contract revenue is recognized as a provision for construction losses for incomplete construction projects.

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.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

The Company derecognizes an emission right asset when the emission allowance is unusable, disposed or submitted to government and 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, 2015, 2016 and 2017

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 equitycontra-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.equity. When the Company has an unconditional right to avoid delivering cash or anotherother financial asset to settle a contractual obligation, the instruments are classified as equity instruments.

Revenue from contracts with customers

The Company has initially applied IFRS No. 15 “Revenue from Contracts with Customers” from January 1, 2018. The Company applied 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 of IFRS No. 15, 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.

Revenue from the sale of goods, services provided and the use of assets is measured at the fair value ofbased on the consideration receivedpromised in a contract with a customer. The Company recognizes revenue when the control over a good 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 activitiesservice 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 ofcustomer. The following are 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 policies for different types ofperformance obligations in the 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. Thewith customers.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

(a)

Sale of good

stageThe goods sold by the Company consist mainly of completionsteel products from the steel segment and products such as steel, chemicals, auto parts and machinery in the trade segment.

For domestic sales, the control of the product is usually transferred to the customer when the product is delivered to the customer, at which point revenue is recognized. Invoices are generally payable within 10 to 90 days. When a customer makes payment prior to the due date, they are offered a discount at certain percentage of the invoice amount.

For export sales, revenue is recognized at the time when control of the product is transferred to the customer based on the “International Incoterms for Interpretation of Trade Terms” prescribed in the respective contracts, which is generally when the products are loaded to the transportation vessels. Invoices are usually issued at the date of bill of lading and payments are settled by the terms of Letter of Credit (L / C), Document against Acceptance (D / A), Document against Payment (D / P), Telegraphic Transfer (T / T) and others.

The Company provides certain discount when the customer prepays according to the payment terms. The Company recognized revenue only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur when discount period expires.

(b)

Transportation service

For the performance obligation for transportation services included in the Company’s product sales contracts, revenue is recognized over the period when the services are provided and the revenue is measured by reference to examining the degree to which the service has been completed. The billing date and payment terms for the service charge are the same as the billing date and payment terms for sale of goods.

(c)

Construction contracts

In the case of construction contracts where the Company renders construction services for plants, etc., the customer controls the assets as they are being constructed. Under those contracts, the Company performs construction or design services to meet the customer’s specifications, and if a contract is terminated by the customer, the Company is entitled to reimbursement of all costs incurred to date, including a reasonable margin. When the contract can be reliably estimated, the company recognizes the contract revenue and contract cost as revenue and costs based on the progress of the contract activity as of the end of the reporting period. The percentage of completion is determined based on the proportion that contract costs incurred for work performed, to date bearexcluding contract cost incurred that do not reflect the progress of construction, 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.

WhenIf the outcome of a constructionthe contract cannot be reliably estimated, reliably, the revenue is recognized only to the extent of the contract costs incurred that itare probable to be recovered. If the total contract cost is probable will be recoverable. Anlikely to exceed the total contract revenue, expected loss on the construction contract islosses are immediately recognized as an expense immediately.a cost.

The Company issues an invoice when the customer has construction contracts in which controlcompleted a progress confirmation and generally the significant riskspayment is made within 45 days from the invoice date.

POSCO and rewards of ownership of the residential real estate are transferredSubsidiaries

Notes to the buyer upon the delivery. RevenueConsolidated Financial Statements, Continued

As of December 31, 2018 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.2019

 

(d)(c)Services rendered

Certain construction contracts for condominiums

Revenue from services renderedFor certain construction service contracts for condominiums where the criterion of an enforceable right to payment for performance is met under IFRS No.15, even if the legal ownership or physical occupancy of the incomplete construction is not transferred to the customer during the construction period, revenue is recognized based on percentage of completion by considering the terms and conditions described in profit or loss in proportionthe relevant law and contracts such as the guarantee for sale policy, government approval on business plan, payment and termination terms. For certain construction contracts for condominiums and shopping centers where the criterion of an enforceable right to payment for performance is not met during the construction period, the Company recognizes revenue upon completion of construction when the control of the condominiums and shopping centers are transferred to customers.

The timing of the billing and the payment terms of the sales contracts are different according to the stage of completionterms of the transaction at the reporting date. The stage of completion is assessed by reference to surveys of work performed.

(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.contracts.

Finance income and finance costs

FinanceThe Company’s finance income comprises and finance costs include:

interest incomeincome;

interest expense;

dividend income;

foreign currency gain or loss on funds invested (includingavailable-for-sale financial assets), dividend income, gains on the disposal ofavailable-for-sale financial assets changes in the fair value ofand financial liabilities;

net gain or loss on financial assets measured at fair value through profit or loss, and gains on valuations of hedging instruments that areloss;

hedge ineffectiveness recognized in profit or loss. loss; and

net gain or loss on disposal of investments in debt securities measured at fair value through other comprehensive income.

Interest income or expense 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 thaton which the Company’s right to receive payment is established. The ‘effective interest rate’ is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument to:

Finance costs comprise

the gross carrying amount of the financial asset; or

the amortized cost of the financial liability.

In calculating interest expense on borrowingsincome 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 usingexpense, the effective interest rate method.is applied to the gross carrying amount of the asset (when the asset is not credit-impaired) or to the amortized cost of the liability. However, for financial assets that have become credit-impaired subsequent to initial recognition, interest income is calculated by applying the effective interest rate to the amortized cost of the financial asset. If the asset is no longer credit-impaired, then the calculation of interest income reverts to the gross basis.

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.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

The Company recognizes interest and penalties related to corporate income tax as if it is related to the income taxes in accordance with IAS No.12 “Income Taxes”, otherwise, the Company applies IAS No. 12 “Income Taxes”, if it is not related to the income taxes, the Company applies IAS No. 37No.37 “Provisions Contingent Liabilities and Contingent Assets”.

If there is an uncertainty on tax treatment such as dispute of a particular tax treatment by the taxation authority, the Company determines whether it is probable that the taxation authority will accept an uncertain tax treatment in determining taxable profit, tax bases, unused tax losses, unused tax credits or tax rates.

If the Company concludes it is probable that the taxation authority will accept an uncertain tax treatment, the Company determines the taxable profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates consistently with the tax treatment used or planned to be used in its income tax filings. If the Company concludes it is not probable that the taxation authority will accept an uncertain tax treatment, the Company reflects the effect of uncertainty for each uncertain tax treatment by using either of the most likely amount or the expected value depending on which method the entity expects to better predict the resolution of the uncertainty.

 

(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.

The Company offsets current tax assets and current tax liabilities if, and only if, the Company:

has a legally enforceable right to set off the recognized amounts, and

intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.

 

(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 liabilityliabilities 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 temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The Company recognizes a deferred income tax assetassets 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.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

A deferred income tax asset is recognized for the carryforward of unused tax losses, tax credits and deductible temporary differences to the extent that it is probable that future taxable profit will be available against which the unused tax losses, tax credits and deductible temporary differences can be utilized. The future taxable profit depends on reversing taxable temporary differences. When there are insufficient taxable temporary differences, the probability of future taxable profit (including the reversal of temporary differences) should be considered.

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 income 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 POSCO’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 POSCO 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: 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 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

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

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.

Segment results that are reported to the CEO include items directly attributable to a segment and items allocated 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.

New standards and interpretations not yet adopted

The following new standards have been published but are not mandatory for the Company for annual period beginning on January 1, 2019, and the Company has not early adopted them.

(a)

IAS No.1 “Presentation of Financial Statements” and IAS No.8 “Accounting Policies, Changes in Accounting Estimates and Errors”

The definition of materiality has been clarified, and IAS No.1 “Presentation of Financial Statements” and IAS No.8 “Accounting Policies, Changes in Accounting Estimates and Errors” have been amended according to the clarified definition. In determining the materiality, information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity. The Company believes that the effect of the amendments to the consolidated financial statements is not significant.

(b)

IFRS No.3 “Business Combinations”

The amendment clarifies the definition of business when it includes input and process together significantly contribute to ability to create output and requires a simplified assessment that result in an asset acquisition if substantially all of the fair value of the gross assets is concentrated in a single identifiable asset or a group of similar identifiable assets. The Company expects that the amendments will not have a material impact on its consolidated financial statements.

4.

Financial risk management

The Company has exposure to the following risks in relation to its of financial instruments:

credit risk

liquidity risk

market risk

capital risk

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

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 but are not mandatory for the Company for annual periods beginning on January 1, 2017, and the Company has not early adopted them.

(a)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”.

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. Such exemptions will be applied by the Company. The Company 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.

The standard’s expected impact on the 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 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 “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”.

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 periods beginning on or after January 1, 2019, with early adoption 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 has not yet initiated the preparation for the application of IFRS No. 16 and has not performed an assessment of the impact resulting from the application of IFRS 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, 2015, 2016 and 2017

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 framework

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 investmentdebt securities. In addition, credit risk arises from finance guarantees.guarantees which are provided by the Company.

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 incurredexpected 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 companiesbased on group of financial assets with similar assetsrisk characteristics 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, 2015, 2016 and 2017

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.incurred.

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 asincluding 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 board of directors.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

 

 3)

Liquidity risk

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 anotherother 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,operations, 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

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

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 hedgingtransactions is not permitted. Based on this policy, the Company has performedmanages currency risk management specific to variousconsidering characteristics of differentrespective segments. The entities in the steel segment reducesreduce the foreign currency exposure by repayment of foreign currency borrowings subjectedrelated to investment in overseas when its maturities come.they mature. The entities in the engineering and construction 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 segment have hedged foreign currency risks by using forward exchange contracts when the foreign currencies receivedreceivables and paidpayables are different.

 

 

Interest rate risk

The Company manages the exposure to interest rate risk by adjusting of borrowing structure ratio between borrowings at fixed interest rates and variable interest rate.rates. The Company monitors interest rate risks regularly in order to avoid exposure to interest rate risk on borrowings at variable interest rate.

 

 

Other market price risk

Equity price risk arises from fluctuation of market price of listed equity securities amongavailable-for-sale equity securities. Management of the CompanyThe Company’s management measures regularly the fair value of listed equity securities and the risk of variance in future cash flowflows caused by market price fluctuations. Significant investments are managed separately and allAll buy and sell decisions related to significant investments are managed and approved by managementthe Company’s management.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of the Company.December 31, 2018 and 2019

 

(b)

Management of capital

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 borrowings (after deducting(borrowings less cash and cash equivalents) and current financial instruments from borrowings.. The Company applied the same capital risk management strategy that was applied in the previous period.

Netborrowing-to-equity ratio as of December 31, 20162018 and 20172019 is as follows:

 

  2016 2017 
  (in millions of Won) 
(in millions of Won)  2018 2019 

Total borrowings

      22,704,998  21,063,657     20,209,270  20,441,613 

Less: Cash and cash equivalents

   2,447,619  2,612,530    2,643,865  3,514,872 
  

 

  

 

   

 

  

 

 

Net borrowings

   20,257,379  18,451,127    17,565,405  16,926,741 

Total equity

   45,765,269  47,326,725    46,759,551  47,794,707 

Netborrowings-to-equity ratio

   44.26 38.99   37.57 35.42

 

5.

Cash and Cash Equivalents

Cash and cash equivalents as of December 31, 20162018 and 20172019 are as follows:

 

  2016   2017 (*1) 
  (in millions of Won) 
(in millions of Won)  2018   2019 

Cash

  11,960    1,896   1,668    2,081 

Demand deposits and checking accounts

   1,312,426    1,259,813    1,471,891    1,581,428 

Time deposits

   254,888    360,985    538,130    701,865 

Other cash equivalents

   868,345    989,836    632,176    1,229,498 
  

 

   

 

   

 

   

 

 
      2,447,619    2,612,530    2,643,865    3,514,872 
  

 

   

 

   

 

   

 

 

In connection with the jointly held accounts of joint operations and others, as of December 31, 2019, cash and cash equivalents amounting to1,699 million of POSCO ENGINEERING & CONSTRUCTION CO., LTD., a subsidiary of the Company, is restricted in use.

(*1)As 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, 20162018 and 20172019

 

 

 

6.

Trade Accounts and Notes Receivable

(a) Trade accounts and notes receivable as of December 31, 20162018 and 20172019 are as follows:

 

  2016 2017 
  (in millions of Won) 
(in millions of Won)  2018   2019 

Current

       

Trade accounts and notes receivable

      9,320,915  8,579,620   8,648,250    8,352,968 

Finance lease receivables

   10,300  10,469    57,487    221 

Unbilled due from customers for contract work

   860,287  728,007    810,655    1,128,116 

Less: Allowance for doubtful accounts

   (517,476 (493,533   (386,188   (411,274
  

 

  

 

   

 

   

 

 
  9,674,026  8,824,563   9,130,204    9,070,031 
  

 

  

 

   

 

   

 

 

Non-current

       

Trade accounts and notes receivable

  80,447  871,432   583,797    209,310 

Finance lease receivables

   11,326  734    45,873    43,725 

Less: Allowance for doubtful accounts

   (40,649 (140,596   (202,545   (54,250
  

 

  

 

   

 

   

 

 
  51,124  731,570   427,125    198,785 
  

 

  

 

   

 

   

 

 

Trade accounts and notes receivable sold to financial institutions, for which the derecognition conditions were not met, amounted to344,410468,706 million and309,964244,305 million as of December 31, 20162018 and 2017,2019, respectively. The fair value of trade accounts and notes receivable that have been transferred but not have been derecognized approximates the carrying amounts and trade accounts and notes receivable are included in short-term borrowings from financial institutions (Note 17).

(b)

(b)

Finance lease receivables are as follows:

(in millions of Won)           

Customer

  

Contents

  2018   2019 

Officers and employees

  

Songdo apartment rental

  103,360    43,445 

ZHAOHUUI PROSPERITY INT’L LTD

  

Office rental

   —      501 
    

 

 

   

 

 

 
    103,360    43,946 
    

 

 

   

 

 

 

(c) As of December 31, 2018 and 2019, the Company’s gross investment and net investment in the leases are as follows:

 

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, 2016 and 2017 are as follows:

  2016 2017 
  (in millions of Won) 
(in millions of Won)  2018   2019 

Less than 1 year

  13,114  11,771   57,820    237 

1 year – 5 years

   12,547  828 

1 year - 3 years

   49,678    46,161 

Undiscounted lease payments

   107,498    46,398 

Unrealized interest income

   (4,035 (1,396   (4,138   (2,452
  

 

  

 

   

 

   

 

 

Present value of minimum lease payment

  21,626  11,203   103,360    43,946 
  

 

  

 

   

 

   

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

7.

Other Receivables

Other receivables as of December 31, 2016 and 2017 are as follows:

   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, 2016 and 2017 are as follows:

   2016   2017 
   (in millions of Won) 

Current

    

Derivatives assets held for trading

  49,281    63,912 

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)

   5,172,256    6,843,436 
  

 

 

   

 

 

 
  5,224,911    7,045,880 
  

 

 

   

 

 

 

Non-current

    

Derivatives assets held for trading

  98,301    4,378 

Available-for-sale securities (equity instruments) (*3,4)

   2,392,534    1,730,753 

Available-for-sale securities (bonds)

   46,330    54,439 

Available-for-sale securities (others)

   73,108    56,782 

Held-to-maturity securities

   2,048    4,790 

Long-term financial instruments (*2)

   45,371    60,542 
  

 

 

   

 

 

 
  2,657,692    1,911,684 
  

 

 

   

 

 

 

(*1)As of December 31, 2016 and 2017,6,813 million and10,080 million, respectively, are restricted for use in a government project.

 

(*2)(1)As

The details of other receivables as of December 31, 20162019 and 2017, financial instruments amounting to82,008 million and78,477 million, respectively,2018, are restricted for use in financial arrangements, pledge and others.as follows:

(in millions of Won)  2018   2019 

Current

    

Loans

  236,782    367,580 

Other accounts receivable

   954,030    971,845 

Accrued income

   220,066    272,528 

Deposits

   108,640    86,519 

Lease receivables

   —      48,744 

Others

   16,201    14,510 

Less: Allowance for doubtful accounts

   (150,090   (180,209
  

 

 

   

 

 

 
  1,385,629    1,581,517 
  

 

 

   

 

 

 

Non-current

    

Loans

  731,344    701,529 

Other accounts receivable

   155,936    209,039 

Accrued income

   1,855    65,275 

Deposits

   152,072    238,261 

Lease receivables

   —      179,315 

Less: Allowance for doubtful accounts

   (177,967   (252,540
  

 

 

   

 

 

 
  863,240    1,140,879 
  

 

 

   

 

 

 

(2)

The details of lease receivables are as follows:

 

(*3)During the year ended December 31, 2017, there were objective evidences
(in millions of impairment for listed equity securities such as FINE BESTEELWon)

Customer

Content of lease agreement

2019

HEUNG-A SHIPPING CO., LTDLTD., MSC KOGAS, ONGC Videsh Limited,

6 Container Ships, 4 Tankers

212,933

GAIL(India) Limited,Myanma Oil 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. As a result, an impairment losses ofGas Enterprise

Helicopter, Ship, Office, Jetty

15,126

123,214 million was recognized in profit or loss for the year ended December 31, 2017.228,059

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

(*4)(3)

As of December 31, 20162019, gross investment and 2017,net investment in the leases are as follows:

(in millions of Won)

total lease investment and lease net investment

- Undiscounted contractual cash flows

2019

Less than 1 year

56,796

1 year - 3 years

107,955

3 year - 5 years

70,742

Over 5 years

16,089

Undiscounted lease payments

251,582

Unrealized interest income

(23,523

Present value of minimum lease payment

228,059

8.

Other Financial Assets

Other financial assets as of December 31, 2018 and 2019 are as follows:

(in millions of Won)  2018   2019 

Current

    

Derivatives assets

  47,288    47,541 

Debt securities

   2,987    342,371 

Deposit instruments(*1,2)

   1,931,518    1,744,895 

Short-term financial instruments(*2)

   6,099,303    6,861,242 
  

 

 

   

 

 

 
  8,081,096    8,996,049 
  

 

 

   

 

 

 

Non-current

    

Derivatives assets

  1,795    64,737 

Equity securities(*3)

   1,238,630    1,204,902 

Debt securities

   34,327    22,380 

Other securities(*3)

   338,106    343,183 

Deposit instruments(*2)

   35,040    34,187 
  

 

 

   

 

 

 
  1,647,898    1,669,389 
  

 

 

   

 

 

 

(*1)

As of December 31, 2018 and 2019,123,2205,715 million and136,0994,524 million, respectively, are restricted for the use in a government project.

(*2)

As of December 31, 2018 and 2019, financial instruments amounting toavailable-for-sale73,935 million and73,525 million, respectively, are restricted in use in relation to financial arrangements, provision as collateral and others.

(*3)

As of December 31, 2018 and 2019,115,431 million and109,395 million of equity and other securities, respectively, have been provided as collateral for borrowings, construction projects and others.

9.Inventories

(a) Inventories as of December 31, 2016 and 2017 are as follows:

   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, 2015, 2016 and 2017 were as follows:

   2015  2016  2017 
   (in millions of Won) 

Beginning

  161,940   231,378   203,164 

Loss on valuation of inventories

   152,952   152,249   78,560 

Realization on disposal of inventories

   (77,102  (161,458  (138,967

Others

   (6,412  (19,005  (7,126
  

 

 

  

 

 

  

 

 

 

Ending

  231,378   203,164   135,631 
  

 

 

  

 

 

  

 

 

 

10.Assets Held for Sale

Details of assets held for sale as of December 31, 2016 and 2017 are as follows:

   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)During the year ended December 2016, Posco e&c Songdo International Building, a subsidiary of the Company, entered into a sales contract regarding disposal of the office building of POSCO ENGINEERING & CONSTRUCTION CO., LTD. in Songdo and classified the accompanying property, plant and equipment as assets held for sale. During the year ended December 2017, disposal of the accompanying assets held for sale was completed.

(*2)During the year ended December 2017, POSCO ENGINEERING & CONSTRUCTION CO., LTD., a subsidiary of the Company, determined to dispose of the office building, Seomyeon Fiesta, in Busan and classified the 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, 20162018 and 20172019

 

 

 

11.9.Investments in Associates and Joint ventures

Inventories

(a) Investments in associates and joint ventures

(a)

Inventories as of December 31, 2018 and 2019 are as follows:

(in millions of Won)  2018   2019 

Finished goods

  1,886,040    1,655,228 

Merchandise

   1,131,416    1,058,874 

Semi-finished goods

   1,945,567    2,097,289 

Raw materials

   2,821,972    2,656,341 

Fuel and materials

   888,941    1,026,133 

Construction inventories

   1,372,259    1,045,088 

Materials-in-transit

   2,245,740    1,824,044 

Others

   68,150    83,905 
  

 

 

   

 

 

 
   12,360,085    11,446,902 
  

 

 

   

 

 

 

Less: Allowance for inventories valuation

   (206,782   (216,143
  

 

 

   

 

 

 
  12,153,303    11,230,759 
  

 

 

   

 

 

 

(b)

The changes in allowance for inventories valuation for the years ended December 31, 2017, 2018 and 2019 were as follows:

(in millions of Won)  2017   2018   2019 

Beginning

  203,164    135,631    206,782 

Loss on valuation of inventories

   78,560    141,799    96,201 

Realization on disposal of inventories

   (138,967   (69,426   (79,419

Others

   (7,126   (1,222   (7,421
  

 

 

   

 

 

   

 

 

 

Ending

  135,631    206,782    216,143 
  

 

 

   

 

 

   

 

 

 

10.

Assets Held for Sale

Details of assets held for sale as of December 31, 20162018 and 20172019 are as follows:

 

   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, 2016 and 2017 are as follows:

(in millions of Won)  2018   2019 
   Subsidiaries(*2)   Controlling
company(*1)
   Subsidiaries   Total 

Assets

        

Cash and cash equivalents(*3)

  —      —      374    374 

Other financial assets

   778    —      185    185 

Property, plant and equipment

   21,076    36,321    32,972    69,293 

Others

   —      —      4,306    4,306 
  

 

 

   

 

 

   

 

 

   

 

 

 
    21,854   36,321   37,837   74,158 
  

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities

        

Others

  —      —      8    8 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

   Number of
shares
   Ownership
(%)
   Acquisition
cost
   Book value 

Company

        2016   2017 
   (in millions of Won) 

[Domestic]

          

EQP POSCO Global NO1 Natural Resources PEF

   178,713,975,892    31.14   178,787   175,690    175,553 

SNNC

   18,130,000    49.00    90,650    107,859    110,424 

QSONE Co.,Ltd.

   200,000    50.00    84,395    84,799    85,049 

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

   333    27.52    33,300    35,752    19,620 

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

   6,485    12.50    6,485    11,890    6,828 

KONES, Corp.

   3,250,000    41.67    6,893    5,641    2,827 

Others (35 companies)(*1)

         55,061    67,325 
        

 

 

   

 

 

 
         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

       20.00    240,123    89,601    79,398 

AMCI (WA) PTY LTD

   49    49.00    209,664    70,501    63,378 

Nickel Mining Company SAS

   3,234,698    49.00    157,585    45,138    45,905 

NCR LLC

       29.41    37,634    36,738    33,738 

KOREA LNG LTD.

   2,400    20.00    135,205    63,058    33,422 

PT. Batutua Tembaga Raya

   128,285    22.00    21,824    22,723    21,823 

Zhongyue POSCO (Qinhuangdao) Tinplate
Industrial Co., Ltd

   10,200,000    34.00    9,517    18,008    15,617 

PT. Wampu Electric Power(*1)

   8,708,400    20.00    10,054    8,706    13,391 

POSCO SeAH Steel Wire(Nantong) Co., Ltd.

   50    25.00    4,723    6,840    6,517 

Others (26 companies)(*1)

         98,320    111,497 
        

 

 

   

 

 

 
         980,282    885,805 
        

 

 

   

 

 

 
        1,595,441    1,520,441 
        

 

 

   

 

 

 
(*1)

During the year ended December 31, 2019, the Company decided to dispose individual assets for which use was suspended, such as CEM plants, and classified the assets as held for sale.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 2017

2019

 

 

 

(*1)During the year ended December 31, 2019, the Company recognized impairment loss of659 million, which is the difference between the fair value less cost to sell and the carrying amount of the assets.
(*2)

During the year ended December 31, 2018, the subsidiary, DAESAN (CAMBODIA) Co., Ltd., decided to sell its land and classified the property, plant and equipment as held for sale. As of December 31, 20162019 the sale is completed and 2017,gain on disposal of 22,683 million was recognized.

(*3)

Cash and cash equivalents in the statement of cash flows include cash and cash equivalents that are classified as assets held for sale.

11.

Investments in Associates and Joint ventures

(a)

Investments in associates and joint ventures as of December 31, 2018 and 2019 are as follows:

(in millions of Won)  2018   2019 

Investments in associates

  1,738,692    1,864,509 

Investments in joint ventures

   1,911,311    2,063,246 
  

 

 

   

 

 

 
  3,650,003    3,927,755 
  

 

 

   

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

(b)

Details of investments in associates as of December 31, 2018 and 2019 are as follows:

(in millions of Won)  Number
of shares
   Ownership
(%)
   Acquisition
cost
   Book value 

Company

  2018   2019 

[Domestic]

          

EQP POSCO Global NO1 Natual Resources Private Equity Fund

   178,787,468,209    33.41   178,787   174,123    175,907 

POSPower Co., Ltd(*2)

   4,507,138    34.00    179,410    161,477    161,280 

SNNC

   18,130,000    49.00    90,650    116,922    142,602 

QSONE Co.,Ltd.

   200,000    50.00    84,395    85,550    85,887 

Chun-cheon Energy Co., Ltd(*2)

   17,308,143    49.10    86,541    62,478    56,679 

Nextrain Co., Ltd.

   8,321,920    32.00    41,610    10    41,447 

Keystone NO. 1. Private Equity Fund(*5)

   22,523,123    52.58    22,523    11,183    19,438 

CHUNGJU ENTERPRISE CITY DEVELOPMENT Co.,Ltd

   2,008,000    29.53    10,040    17,382    17,824 

Daesung Steel(*4)

   108,038    17.54    14,000    15,644    15,375 

Incheon-Gimpo Expressway Co., Ltd.(*2,4)

   9,032,539    18.26    45,163    13,329    7,904 

KoFC POSCO HANWHA KB Shared Growth NO. 2. Private Equity Fund(*4)

   6,485    12.50    6,485    5,739    6,177 

KONES, Corp.

   3,250,000    41.67    6,893    2,849    2,473 

Others (53 companies)(*2)

         123,724    112,621 
        

 

 

   

 

 

 
         790,410    845,614 
        

 

 

   

 

 

 

[Foreign]

          

AES-VCM Mong Duong Power Company Limited(*3)

   —      30.00    164,303    209,936    178,892 

South-East Asia Gas Pipeline Company Ltd.

   135,219,000    25.04    135,899    179,459    225,933 

7623704 Canada Inc.(*4)

   114,452,000    10.40    124,341    126,885    131,529 

Eureka Moly LLC

   —      20.00    240,123    82,447    85,349 

AMCI (WA) PTY LTD

   49    49.00    209,664    71,086    72,937 

Nickel Mining Company SAS

   3,234,698    49.00    157,585    41,712    37,940 

KOREA LNG LTD.

   2,400    20.00    135,205    43,554    46,557 

NCR LLC

   —      29.40    49,744    37,602    46,391 

ZHEJIANG HUAYOU-POSCO ESM CO., LTD(*1)

   134,400,000    40.00    22,423    —      22,356 

PT. Batutua Tembaga Raya

   128,285    22.00    21,824    20,479    14,717 

PT. Wampu Electric Power(*2)

   8,708,400    20.00    10,054    14,120    13,363 

Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd

   10,200,000    34.00    9,517    14,796    15,128 

POSCO SeAH Steel Wire(Nantong) Co., Ltd.

   50    25.00    4,723    6,478    6,755 

Others (26 companies)(*2)

         99,728    121,048 
        

 

 

   

 

 

 
         948,282    1,018,895 
        

 

 

   

 

 

 
        1,738,692    1,864,509 
        

 

 

   

 

 

 

(*1)

During the year ended December 31, 2019, ZHEJIANG HUAYOU-POSCO ESM CO., LTD was established and classified as investment in an associate.

(*2)

As of December 31, 2018 and 2019, investments in associates amounting to124,963285,066 million and158,370258,754 million, respectively, are provided as collateral in relation to the associates’ borrowings.

(*2)3)

As of December 31, 2016 and 2017,2018, shares of PSC Energy Global Co., Ltd., a subsidiary of the Company, are provided as collateral in relation to the associates’associate’s borrowings.

(c) Details of investments in joint ventures as of December 31, 2016 and 2017 are as follows:

   Number
of shares
   Ownership
(%)
   Acquisition
cost
   Book value 

Company

        2016   2017 
   (in millions of Won) 

[Domestic]

          

POSCO MITSUBISHI CARBON TECHNOLOGY

   11,568,000    60.00   115,680   83,113    110,760 

Others (5 companies)

             6,094 
        

 

 

   

 

 

 
         83,113    116,854 
        

 

 

   

 

 

 

[Foreign]

          

Roy Hill Holdings Pty Ltd(*1)

   13,117,972    12.50    1,528,672    1,186,859    1,125,133 

POSCO-NPS Niobium LLC

   325,050,000    50.00    364,609    393,570    348,836 

CSP — Compania Siderurgica do Pecem

   1,108,696,532    20.00    558,821    330,463    146,427 

KOBRASCO

   2,010,719,185    50.00    32,950    88,308    108,485 

BX STEEL POSCO Cold Rolled Sheet Co., Ltd.

       25.00    61,961    97,369    88,305 

DMSA/AMSA(*1)

       4.00    304,623    74,935    56,735 

Others (14 companies)

         32,331    46,716 
        

 

 

   

 

 

 
         2,203,835    1,920,637 
        

 

 

   

 

 

 
        2,286,948    2,037,491 
        

 

 

   

 

 

 

(*1)As of December 31, 2016 and 2017, the investments in joint ventures are provided as collateral in relation to the joint ventures’ borrowings.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

(d) The movements of investments in associates and joint ventures for the years ended December 31, 2016 and 2017 were as follows:

1) For the year ended December 31, 2016
(*4)

As of December 31, 2019, it was classified as an associate even though the Company’s ownership percentage is less than 20% of ownership percentage since the Company has significant influence over the investee when considering its structure of the associate’s Board of Directors and others.

(*5)

Although the Company’s shareholding exceeds 50%, the entity is classified as an associate because the Company does not have control when considering the structure of the Board of Directors.

 

Company

 December 31,
2015
Book value
  Acquisition  Dividends  Share of profits
(losses)
  Other
increase
(decrease) (*1)
  December 31,
2016
Book value
 
    (in millions of Won)  

[Domestic]

      

EQP POSCO Global NO1 Natural Resources PEF

 175,676   222      (399  191   175,690 

SNNC

  111,326         (3,417  (50  107,859 

QSONE Co.,Ltd.

  83,919         880      84,799 

Chun-cheon Energy Co., Ltd

  30,420   19,832      (5,175     45,077 

Incheon-Gimpo Expressway Co., Ltd.

  39,447         (2,758  683   37,372 

BLUE OCEAN Private Equity Fund

  35,437         643   (328  35,752 

CHUNGJU ENTERPRISE CITY
DEVELOPMENT Co.,Ltd

  12,265         286      12,551 

UITrans LRT Co., Ltd.

  40,903   6,817      (29,825  (44  17,851 

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

  14,829   1,875      1,186   (6,000  11,890 

KONES, Corp.

  5,775         (256  122   5,641 

POSCO MITSUBISHI CARBON TECHNOLOGY

  104,970         (21,929  72   83,113 

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 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  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

  87,878         (18  1,741   89,601 

AMCI (WA) PTY LTD

  72,289         (3,358  1,570   70,501 

Nickel Mining Company SAS

  76,445         (31,047  (260  45,138 

NCR LLC

  35,447         (41  1,332   36,738 

KOREA LNG LTD.

  53,548      (6,342  6,392   9,460   63,058 

PT. Batutua Tembaga Raya

  15,382   7,040         301   22,723 

Zhongyue POSCO (Qinhuangdao) Tinplate
Industrial Co., Ltd

  19,311         (412  (891  18,008 

PT. Wampu Electric Power

  8,855         (397  248   8,706 

POSCO SeAH Steel Wire(Nantong) Co., Ltd.

  7,061         242   (463  6,840 

Roy Hill Holdings Pty Ltd

  1,153,434         12,643   20,782   1,186,859 

POSCO-NPS Niobium LLC

  381,461      (10,893  11,499   11,503   393,570 

CSP - Compania Siderurgica do Pecem

  80,805   88,930      116,694   44,034   330,463 

KOBRASCO

  78,364      (29,297  20,761   18,480   88,308 

BX STEEL POSCO Cold Rolled Sheet Co., Ltd.

  100,908         258   (3,797  97,369 

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 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  2,853,999   149,587   (111,422  146,071   145,882   3,184,117 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
     3,945,333   198,394   (111,622  (88,677  (61,039  3,882,389 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
(c)

Details of investments in joint ventures as of December 31, 2018 and 2019 are as follows:

 

(in millions of Won) Number
of shares
  Ownership
(%)
  Acquisition
cost
  Book value 

Company

 2018  2019 

[Domestic]

     

POSCO MITSUBISHI CARBON TECHNOLOGY

  11,568,000   60.00  115,680  180,192   182,648 

Others (8 companies)

     9,124   10,305 
    

 

 

  

 

 

 
     189,316   192,953 
    

 

 

  

 

 

 

[Foreign]

     

Roy Hill Holdings Pty Ltd(*1)

  13,117,972   12.50   1,528,672   1,041,600   1,235,682 

POSCO-NPS Niobium LLC

  325,050,000   50.00   364,609   363,506   376,410 

KOBRASCO

  2,010,719,185   50.00   32,950   133,449   115,641 

BX STEEL POSCO Cold Rolled Sheet Co., Ltd.

  —     25.00   61,961   88,391   88,935 

DMSA/AMSA(*1)

  —     4.00   346,278   26,709   12,189 

CSP - Compania Siderurgica do Pecem

  1,221,586,532   20.00   594,173   24,832   —   

Others (12 companies)

     43,508   41,436 
    

 

 

  

 

 

 
     1,721,995   1,870,293 
    

 

 

  

 

 

 
    1,911,311   2,063,246 
    

 

 

  

 

 

 

 

(*1)

As of December 31, 2018 and 2019, the investments in joint ventures are provided as collateral in relation to the joint ventures’ borrowings.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

(d)

The changes in investments in associates and joint ventures for the years ended December 31, 2018 and 2019 were as follows:

1)

For the year ended December 31, 2018

(in millions of Won)                  

Company

 December 31,
2017

Book value
  Acquisition  Dividends  Share
of

profits
(losses)
  Other
increase

(decrease)(*1)
  December 31,
2018

Book value
 

[Domestic]

      

EQP POSCO Global NO1 Natural Resources Private Equity Fund

 175,553   —     —     (1,430  —     174,123 

POSPower Co., Ltd

  —     176,731   —     (3,198  (12,056  161,477 

SNNC

  110,424   —     —     6,624   (126  116,922 

QSONE Co.,Ltd.

  85,049   —     (550  1,051   —     85,550 

Chun-cheon Energy Co., Ltd

  74,378   —     —     (11,900  —     62,478 

CHUNGJU ENTERPRISE CITY DEVELOPMENT Co.,Ltd

  17,252   —     —     130   —     17,382 

BLUE OCEAN Private Equity Fund

  19,620   —     —     (17,930  (1,690  —   

Daesung Steel

  15,500   —     —     144   —     15,644 

Incheon-Gimpo Expressway Co., Ltd.

  31,660   —     —     (18,331  —     13,329 

Keystone NO. 1. Private Equity Fund

  12,379   —     —     (1,295  99   11,183 

UITrans LRT Co., Ltd.

  15,841   —     —     (15,841  —     —   

KoFC POSCO HANWHA KB Shared Growth NO. 2. Private Equity Fund

  6,828   —     —     (1,089  —     5,739 

KONES, Corp.

  2,827   —     —     29   (7  2,849 

POSCO MITSUBISHI CARBON TECHNOLOGY

  110,760   —     —     69,594   (162  180,192 

Others (52 companies)

  73,419   44,629   (784  18,942   (3,348  132,858 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  751,490   221,360   (1,334  25,500   (17,290  979,726 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

[Foreign]

      

AES-VCM Mong Duong Power Company Limited

  142,348   —     (26,108  30,096   63,600   209,936 

South-East Asia Gas Pipeline Company Ltd.

  197,069   —     (29,301  17,709   (6,018  179,459 

7623704 Canada Inc.

  121,702   —     (4,509  4,373   5,319   126,885 

Eureka Moly LLC

  79,398   —     —     (406  3,455   82,447 

AMCI (WA) PTY LTD

  63,378   —     —     (3,412  11,120   71,086 

Nickel Mining Company SAS

  45,905   —     —     (4,268  75   41,712 

KOREA LNG LTD.

  33,422   —     (10,544  10,542   10,134   43,554 

NCR LLC

  33,738   2,505   —     (5,909  7,268   37,602 

PT. Batutua Tembaga Raya

  21,823   —     —     (1,817  473   20,479 

PT. Wampu Electric Power

  13,391   —     —     177   552   14,120 

Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd

  15,617   —     —     (735  (86  14,796 

POSCO SeAH Steel Wire(Nantong) Co., Ltd.

  6,517   —     —     23   (62  6,478 

Roy Hill Holdings Pty Ltd

  1,125,133   —     —     59,095   (142,628  1,041,600 

POSCO-NPS Niobium LLC

  348,836   —     (22,254  21,536   15,388   363,506 

KOBRASCO

  108,485   —     (37,710  75,170   (12,496  133,449 

BX STEEL POSCO Cold Rolled Sheet Co., Ltd.

  88,305   —     —     540   (454  88,391 

DMSA/AMSA

  56,735   17,973   —     (48,802  803   26,709 

CSP - Compania Siderurgica do Pecem

  146,427   —     —     (109,714  (11,881  24,832 

Others (42 companies)

  158,213   2,771   (22,588  42,937   (38,097  143,236 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  2,806,442   23,249   (153,014  87,135   (93,535  2,670,277 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
 3,557,932   244,609   (154,348  112,635   (110,825  3,650,003 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

(*1)

Other increase or decrease represents the changes in investments in associates and joint ventures due to disposals, change in capital adjustments from translations of financial statements of foreign investees and others.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

2)

For the year ended December 31, 2019

(in millions of Won)                  

Company

 December 31,
2018

Book value
  Acquisition  Dividends  Share of
profits
(losses)
  Other
increase
(decrease)(*1)
  December 31,
2019

Book value
 

[Domestic]

      

EQP POSCO Global NO1 Natural Resources Private Equity Fund

 174,123   —     —     (976  2,760   175,907 

POSPower Co., Ltd

  161,477   —     —     (4,744  4,547   161,280 

SNNC

  116,922   —     (1,450  27,655   (525  142,602 

QSONE Co.,Ltd.

  85,550   —     (950  1,287   —     85,887 

Chun-cheon Energy Co., Ltd

  62,478   6,050   —     (11,849  —     56,679 

Nextrain Co., Ltd.

  10   41,600   —     (163  —     41,447 

Keystone NO. 1. Private Equity Fund

  11,183   8,723   —     (342  (126  19,438 

CHUNGJU ENTERPRISE CITY DEVELOPMENT Co.,Ltd

  17,382   —     —     442   —     17,824 

Daesung Steel

  15,644   —     —     (269  —     15,375 

Incheon-Gimpo Expressway Co., Ltd.

  13,329   —     —     (5,425  —     7,904 

KoFC POSCO HANWHA KB Shared Growth NO. 2. Private Equity Fund

  5,739   —     —     438   —     6,177 

KONES, Corp.

  2,849   —     —     (403  27   2,473 

POSCO MITSUBISHI CARBON TECHNOLOGY

  180,192   —     (16,369  19,377   (552  182,648 

Others (61 companies)

  132,848   30,973   (1,392  (18,146  (21,357  122,926 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  979,726   87,346   (20,161  6,882   (15,226  1,038,567 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

[Foreign]

      

AES-VCM Mong Duong Power Company Limited

  209,936   —     (18,099  24,126   (37,071  178,892 

South-East Asia Gas Pipeline Company Ltd.

  179,459   —     (24,267  63,749   6,992   225,933 

7623704 Canada Inc.

  126,885   —     (9,902  9,912   4,634   131,529 

Eureka Moly LLC

  82,447   —     —     (25  2,927   85,349 

AMCI (WA) PTY LTD

  71,086   —     —     (4,377  6,228   72,937 

Nickel Mining Company SAS

  41,712   —     —     (4,250  478   37,940 

KOREA LNG LTD.

  43,554   —     (13,404  13,501   2,906   46,557 

NCR LLC

  37,602   9,605   —     (822  6   46,391 

ZHEJIANG HUAYOU-POSCO ESM CO., LTD

  —     22,423   —     61   (128  22,356 

PT. Batutua Tembaga Raya

  20,479   —     —     (6,209  447   14,717 

PT. Wampu Electric Power

  14,120   —     —     (1,247  490   13,363 

Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd

  14,796   —     —     10   322   15,128 

POSCO SeAH Steel Wire(Nantong) Co., Ltd.

  6,478   —     —     80   197   6,755 

Roy Hill Holdings Pty Ltd

  1,041,600   —     —     158,562   35,520   1,235,682 

POSCO-NPS Niobium LLC

  363,506   —     (24,933  24,543   13,294   376,410 

KOBRASCO

  133,449   —     (74,716  56,474   434   115,641 

BX STEEL POSCO Cold Rolled Sheet Co., Ltd.

  88,391   —     (1,574  665   1,453   88,935 

DMSA/AMSA

  26,709   23,682   —     (40,415  2,213   12,189 

CSP - Compania Siderurgica do Pecem

  24,832   35,352   —     (57,647  (2,537  —   

Others (38 companies)

  143,236   552   (19,430  30,168   7,958   162,484 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  2,670,277   91,614   (186,325  266,859   46,763   2,889,188 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
 3,650,003   178,960   (206,486  273,741   31,537   3,927,755 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

(*1)

Other increase or decrease represents the changes in investments in associates and joint ventures due to disposals, change in capital adjustments effect from translations of financial statements of foreign investees and others.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

2) For the year ended December 31, 2017

Company

 December 31,
2016

Book value
  Acquisition  Dividends  Share of
profits
(losses)
  Other
increase

(decrease) (*1)
  December 31,
2017

Book value
 
  (in millions of Won) 

[Domestic]

      

EQP POSCO Global NO1 Natural Resources PEF

 175,690         418   (555  175,553 

SNNC

  107,859         2,370   195   110,424 

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.

  37,372         (6,463  751   31,660 

BLUE OCEAN Private Equity Fund

  35,752         (8,154  (7,978  19,620 

CHUNGJU ENTERPRISE CITY

      

DEVELOPMENT Co.,Ltd

  12,551         4,701      17,252 

UITrans LRT Co., Ltd.

  17,851         (2,010     15,841 

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.

  5,641         (2,774  (40  2,827 

POSCO MITSUBISHI CARBON TECHNOLOGY

  83,113         27,582   65   110,760 

Others (40 companies)

  55,061   28,348   (137  (7,995  (1,858  73,419 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  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

  89,601         (35  (10,168  79,398 

AMCI (WA) PTY LTD.

  70,501         (4,299  (2,824  63,378 

Nickel Mining Company SAS

  45,138         424   343   45,905 

NCR LLC

  36,738   276      (60  (3,216  33,738 

KOREA LNG LTD.

  63,058      (6,466  (70,180  47,010   33,422 

PT. Batutua Tembaga Raya

  22,723         260   (1,160  21,823 

Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd

  18,008         (1,268  (1,123  15,617 

PT. Wampu Electric Power

  8,706         5,927   (1,242  13,391 

POSCO SeAH Steel Wire(Nantong) Co., Ltd.

  6,840         303   (626  6,517 

Roy Hill Holdings Pty Ltd.

  1,186,859         46,020   (107,746  1,125,133 

POSCO-NPS Niobium LLC

  393,570      (17,277  17,173   (44,630  348,836 

CSP-Compania Siderurgica do Pecem

  330,463         (147,847  (36,189  146,427 

KOBRASCO

  88,308      (22,135  56,445   (14,133  108,485 

BX STEEL POSCO Cold Rolled Sheet Co., Ltd.

  97,369      (5,542  1,555   (5,077  88,305 

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 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  3,184,117   36,197   (131,205  (1,378  (281,289  2,806,442 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
     3,882,389   92,336   (131,710  10,540   (295,623  3,557,932 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

(*1)(e)Other increase or decrease represents the changes in investments in

Summarized financial information of associates and joint ventures due to disposals, change in capital adjustments effect from translationsas of financial statements of foreign investees and others.for the years ended December 31, 2018 and 2019 are as follows:

1)

December 31, 2018

(in millions of Won)                   

Company

  Assets   Liabilities   Equity  Sales   Net income
(loss)
 

[Domestic]

         

EQP POSCO Global NO1 Natural Resources Private Equity Fund

  552,760    783    551,977   —      10,249 

POSPower Co., Ltd

   425,632    35,761    389,871   —      (4,536

SNNC

   645,013    384,586    260,427   656,320    14,229 

QSONE Co., Ltd.

   249,384    78,285    171,099   16,597    2,101 

Chun-cheon Energy Co., Ltd

   667,454    525,308    142,146   320,950    (18,796

Nextrain Co., Ltd.

   30    —      30   —      —   

CHUNGJU ENTERPRISE CITY DEVELOPMENT Co., Ltd

   63,554    35,003    28,551   16,237    439 

BLUE OCEAN Private Equity Fund

   305,876    174,640    131,236   459,491    (5,294

Daesung Steel

   169,305    111,502    57,803   75,474    824 

Incheon-Gimpo Expressway Co., Ltd.

   1,049,629    931,937    117,692   45,566    (92,202

Keystone NO. 1. Private Equity Fund

   177,024    144,186    32,838   15,507    (3,962

UITrans LRT Co., Ltd.

   430,227    435,699    (5,472  12,929    (85,344

KoFC POSCO HANWHA KB Shared Growth NO. 2. Private Equity Fund

   59,464    1,061    58,403   2,401    (12,313

KONES, Corp.

   2,618    1,414    1,204   5,167    70 

POSCO MITSUBISHI CARBON TECHNOLOGY

   537,138    237,563    299,575   300,986    116,049 

[Foreign]

         

South-East Asia Gas Pipeline Company Ltd.

   1,726,410    1,009,731    716,679   343,471    70,717 

7623704 Canada Inc.

   1,232,208    1    1,232,207   —      44,320 

Nickel Mining Company SAS

   465,463    329,084    136,379   207,956    (4,569

KOREA LNG LTD.

   217,883    110    217,773   54,357    52,720 

PT. Batutua Tembaga Raya

   332,305    274,580    57,725   128,609    (8,451

PT. Wampu Electric Power

   223,009    155,407    67,602   13,461    887 

Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd

   73,515    24,264    49,251   121,104    (2,231

POSCO SeAH Steel Wire (Nantong) Co., Ltd.

   61,782    34,740    27,042   85,619    78 

Roy Hill Holdings Pty Ltd

   9,666,619    6,043,492    3,623,127   3,259,256    497,469 

POSCO-NPS Niobium LLC

   726,810    —      726,810   —      41,812 

KOBRASCO

   317,842    50,945    266,897   229,340    150,550 

BX STEEL POSCO Cold Rolled Sheet Co., Ltd.

   710,518    384,572    325,946   1,341,849    2,159 

DMSA/AMSA

   5,562,877    4,171,896    1,390,981   731,127    (529,844

CSP - Compania Siderurgica do Pecem

   4,194,242    4,192,867    1,375   1,860,198    (542,865

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

(e) Summarized financial information of associates and joint ventures as of and for the years ended December 31, 2016 and 2017 are as follows:

1) December 31, 2016
2)

December 31, 2019

 

(in millions of Won)                  

Company

  Assets   Liabilities   Equity
(deficit)
 Sales   Net
income
(loss)
   Assets   Liabilities   Equity
(deficit)
 Sales   Net income
(loss)
 
  (in millions of Won) 

[Domestic]

                  

EQP POSCO Global NO1 Natural Resources PEF

  597,767    864    596,903       (1,349

EQP POSCO Global NO1 Natural Resources Private Equity Fund

  516,659    786    515,873   —      7,479 

POSPower Co., Ltd

   707,051    199,846    507,205   —      (5,294

SNNC

   725,987    482,429    243,558  527,101    2,022    677,508    357,843    319,665  738,977    63,269 

QSONE Co.,Ltd.

   247,385    77,786    169,599  15,961    1,760 

QSONE Co., Ltd.

   250,364    78,589    171,775  17,591    2,576 

Chun-cheon Energy Co., Ltd

   547,805    378,613    169,192       (3,748   610,089    492,620    117,469  313,438    (24,677

Nextrain Co., Ltd.

   136,203    7,322    128,881   —      (509

Keystone NO. 1. Private Equity Fund

   187,156    138,219    48,937  18,342    (887

CHUNGJU ENTERPRISE CITY DEVELOPMENT Co., Ltd

   53,019    22,971    30,048  17,824    1,497 

Daesung Steel

   164,708    108,441    56,267  85,537    (1,536

Incheon-Gimpo Expressway Co., Ltd.

   929,539    718,107    211,432       (1,910   1,014,410    951,321    63,089  50,575    (36,449

BLUE OCEAN Private Equity Fund

   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.

   400,761    307,625    93,136       (822

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

   96,213    1,094    95,119  14,157    9,561    50,479    1,062    49,417  2,841  �� 3,502 

KONES, Corp.

   2,627    1,519    1,108  3,952    (615   1,950    1,648    302  4,416    (966

POSCO MITSUBISHI CARBON TECHNOLOGY

   448,618    311,070    137,548  53,908    (36,572   474,387    170,678    303,709  216,648    32,334 

POSCO PLANTEC Co., Ltd.

   501,659    678,004    (176,345 361,351    (43,195

[Foreign]

                  

South-East Asia Gas Pipeline Company Ltd.

   2,171,689    1,305,942    865,747  491,011    187,114    1,808,529    906,254    902,275  555,075    254,582 

7623704 Canada Inc.

   1,334,391    1    1,334,390       19,485    1,276,857    1    1,276,856   —      95,306 

Nickel Mining Company SAS

   491,458    347,194    144,264  145,571    (61,473   471,377    331,194    140,183  245,509    2,432 

ZHEJIANG HUAYOU-POSCO ESM CO., LTD

   73,604    17,765    55,839  641    153 

KOREA LNG LTD.

   303,389    19,704    283,685  33,035    31,962    232,935    147    232,788  69,577    67,507 

PT. Batutua Tembaga Raya

   351,119    332,037    19,082           423,608    392,226    31,382  112,568    (28,360

PT. Wampu Electric Power

   222,266    158,451    63,815  18,163    (6,233

Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd

   83,291    24,676    58,615  117,387    (1,216   65,413    15,232    50,181  101,101    28 

PT. Wampu Electric Power

   206,052    165,618    40,434  3,405    (1,984

POSCO SeAH Steel Wire(Nantong) Co., Ltd.

   67,905    40,451    27,454  81,260    938 

POSCO SeAH Steel Wire (Nantong) Co., Ltd.

   61,847    33,989    27,858  77,371    327 

Roy Hill Holdings Pty Ltd

   10,962,261    8,059,714    2,902,547  845,243    129,968    11,143,705    5,718,152    5,425,553  5,037,471    1,660,577 

POSCO-NPS Niobium LLC

   786,937        786,937       24,719    752,617    —      752,617   —      47,521 

CSP - Compania Siderurgica do Pecem

   5,682,161    4,237,247    1,444,914  226,669    243,151 

KOBRASCO

   178,853    2,236    176,617  72,274    41,522    268,139    36,857    231,282  167,022    112,949 

BX STEEL POSCO Cold Rolled Sheet Co., Ltd.

   789,336    427,475    361,861  948,488    1,033    969,280    637,478    331,802  1,145,794    1,704 

DMSA/AMSA

   6,570,172    4,842,560    1,727,612  579,388    (519,969   5,703,501    4,202,704    1,500,797  638,797    (504,077

CSP - Compania Siderurgica do Pecem

   3,959,365    4,249,083    (289,718 1,623,843    (465,853

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 2017

2) December 31, 2017

Company

  Assets   Liabilities   Equity   Sales   Net
income
(loss)
 
   (in millions of Won) 

[Domestic]

          

EQP POSCO Global NO1 Natural Resources PEF

  562,698    866    561,832        1,261 

SNNC

   705,975    459,519    246,456    576,023    2,417 

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.

   1,132,233    922,338    209,895        (23,221

BLUE OCEAN Private Equity Fund

   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.

   464,074    384,202    79,872    3,689    (13,263

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

   55,936    1,315    54,621    10,212    (1,578

KONES, Corp.

   2,766    1,616    1,150    5,379    139 

POSCO MITSUBISHI CARBON TECHNOLOGY

   478,847    295,052    183,795    154,312    46,138 

[Foreign]

          

South-East Asia Gas Pipeline Company Ltd.

   1,911,942    1,121,783    790,159    445,682    171,303 

7623704 Canada Inc.

   1,182,376    9    1,182,367        82,344 

Nickel Mining Company SAS

   465,700    324,687    141,013    179,683    (4,450

KOREA LNG LTD.

   179,269    86    179,183    34,640    32,446 

PT. Batutua Tembaga Raya

   336,085    272,542    63,543    195,520    49,091 

Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd

   70,437    18,722    51,715    85,850    (3,736

PT. Wampu Electric Power

   212,095    148,177    63,918    779    29,634 

POSCO SeAH Steel Wire(Nantong) Co., Ltd.

   70,701    43,588    27,113    84,973    1,210 

Roy Hill Holdings Pty Ltd

   10,148,416    6,600,900    3,547,516    2,988,372    797,008 

POSCO-NPS Niobium LLC

   697,470        697,470        32,481 

CSP - Compania Siderurgica do Pecem

   4,805,353    4,223,392    581,961    1,290,767    (740,591

KOBRASCO

   252,813    35,843    216,970    179,453    112,890 

BX STEEL POSCO Cold Rolled Sheet Co., Ltd.

   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, 2015, 2016 and 20172019

 

 

 

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, 20172019 are as follows:

 

Joint operations

  

Operation

  Ownership
(%)
  Location

MyanmarA-1/A-3 mine

  MineralMine development and gas production  51.00  Myanmar

Offshore midstream

  Gas transportation facility  51.00  Myanmar

Greenhills mine

  Mine development  20.00  Canada

Arctos Anthracite coal project

  Mine development  50.00  Canada

Mt. Thorley J/V

  Mine development  20.00  Australia

POSMAC J/V

  Mine development  20.00  Australia

RUM J/V

  Mine development  10.00  Australia

Hanam-Gamil package public housing project

  Construction  7.70Korea

Hanam-Gamil district B6, C2, C3 Block public housing lot development project

Construction27.00Korea

Yangsan-Sasong district public housing project (private-participation)

Construction13.08Korea

Yangsan-Sasong district public housing project

Construction49.00  Korea

Sejong2-1 P3 Block public housing project

  Construction  37.00  Korea

Yongin-Giheung Station area city development project

  Construction  61.00  Korea

Korean wave world complexWave World Complex land multi-purpose building development project

  Construction  33.30  Korea

Sejong4-1 P3 Block public housing project

  Construction  60.00  Korea

 

13.

Investment Property, Net

(a) Investment property as of December 31, 2016 and 2017

(a)

Investment property as of December 31, 2018 and 2019 are as follows:

 

  2016   2017 
  Acquisition
cost
   Accumulated
depreciation
and
impairment
loss
 Book
value
   Acquisition
cost
   Accumulated
depreciation
and
impairment
loss
 Book
value
 
(in millions of Won) 2018 2019 
  (in millions of Won)  Acquisition cost Accumulated
depreciation
and

impairment
loss
 Book value Acquisition cost Accumulated
depreciation
and

impairment
loss
 Book value 

Land

  423,910    (31,187 392,723    360,402      360,402  295,328  (16,743 278,585  295,183  (16,718 278,465 

Buildings

   807,657    (136,118 671,539    727,022    (92,982 634,040  681,518  (110,183 571,335  778,816  (180,657 598,159 

Structures

   3,148    (1,001 2,147    7,717    (1,436 6,281  3,327  (1,919 1,408  3,455  (2,277 1,178 

Right of use assets

  —     —     —    434  (9 425 

Construction-in-progress

   51,311      51,311    64,191      64,191  101,665  (24,378 77,287   —     —     —   
  

 

   

 

  

 

   

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
      1,286,026    (168,306 1,117,720    1,159,332    (94,418 1,064,914  1,081,838  (153,223 928,615  1,077,888  (199,661 878,227 
  

 

   

 

  

 

   

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

As of December 31, 2017,2019, the fair value of investment property is1,663,682 million, among which the Company believed the fair value of its investment property of six subsidiaries, including POSCO (Dalian) IT Center Development Co., Ltd. approximate its book value of126,0261,545,310 million. Also, the Company used the prior year’s fair value for some of the investment property since it is believed that the fair value has not changed significantly.

(b) Changes in the carrying amount of investment property for the years ended December 31, 2016 and 2017 were as follows:

1) For the year ended December 31, 2016

   Beginning   Acquisitions   Disposals  Depreciation (*1)  Others (*2)  Ending 
   (in millions of Won) 

Land

  346,879    24,116    (8,056     29,784   392,723 

Buildings

   696,526    7,548    (3,339  (24,043  (5,153  671,539 

Structures

   1,819    1       (288  615   2,147 

Construction-in-progress

   39,068    13,910          (1,667  51,311 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 
      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, 20162018 and 2017

2019

 

 

 

(b)

Changes in the carrying amount of investment property for the years ended December 31, 2018 and 2019 were as follows:

1)

For the year ended December 31, 2018

(in millions of Won)  Beginning   Acquisitions   Disposals  Depreciation(*1)  Others(*2)  Ending 

Land

  360,402    1,327    (26,826  (16,743  (39,575  278,585 

Buildings

   634,040    727    (32,807  (28,358  (2,267  571,335 

Structures

   6,281    —      —     (603  (4,270  1,408 

Construction-in-progress

   64,191    42,052    —     (24,948  (4,008  77,287 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 
  1,064,914    44,106    (59,633  (70,652  (50,120  928,615 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

(*1)Impairment

Includes impairment loss on investment property recognized by each of the consolidated subsidiaries, including the office lease of POSCO (Dalian) IT Center Development Co., Ltd. amounting to318 million is included.51,461 million.

(*2)

Includes reclassification resulting from changing the purpose of use, adjustment of foreign currency translation difference and others.

2) For the year ended December 31, 2017

2)

For the year ended December 31, 2019

 

   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 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

(in millions of Won)  Beginning   Acquisitions   Disposals  Depreciation(*1)  Others(*2)  Ending 

Land

  278,585    —      (5,921  —     5,801   278,465 

Buildings

   571,335    1,548    (5,343  (52,416  83,035   598,159 

Structures

   1,408    —      (50  (625  445   1,178 

Right of use assets

   —      —      —     —     425   425 

Construction-in-progress

   77,287    18,644    —     —     (95,931  —   
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 
  928,615    20,192    (11,314  (53,041  (6,225  878,227 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

 

(*1)

Includes impairment loss on investment property recognized by POSCO (Dalian) IT Center Development Co., Ltd., a subsidiary, in relation to its office lease amounting to32,642 million.

(*2)

Includes reclassification resulting from changing the 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, 2016 and 2017 are as follows:

  2016  2017 
  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) 

Land

 2,607,660   (6,452     2,601,208   2,534,102   (6,452     2,527,650 

Buildings

  9,180,028   (4,183,974  (423  4,995,631   9,311,426   (4,433,996  (412  4,877,018 

Structures

  5,385,365   (2,476,818  (67  2,908,480   5,452,713   (2,686,802  (59  2,765,852 

Machinery and equipment

  46,698,254   (26,379,544  (320  20,318,390   46,669,612   (27,301,410  (245  19,367,957 

Vehicles

  306,770   (259,986  (85  46,699   296,815   (263,884  (70  32,861 

Tools

  385,960   (312,266  (2,314  71,380   380,144   (315,446  (1,058  63,640 

Furniture and fixtures

  609,736   (477,064  (266  132,406   643,779   (498,192  (148  145,439 

Finance lease assets

  248,590   (89,577     159,013   243,160   (97,903     145,257 

Bearer plants

              70,031   (4,516     65,515 

Construction-in-progress

  2,542,233      (5,101  2,537,132   1,897,885      (5,539  1,892,346 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
     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, 2015, 2016 and 2017

(b) Changes in the carrying amount of property, plant and equipment for the years ended December 31, 2016 and 2017 were as follows:

1) For the year ended December 31, 2016

  Beginning  Acquisitions  Business
combination
  Disposals  Depreciation (*1)  Others (*2)  Ending 
  (in millions of Won) 

Land

 2,572,807   8,901   15,687   (16,176  (6,452  26,441   2,601,208 

Buildings

  5,165,725   37,493   277,242   (12,857  (396,899  (75,073  4,995,631 

Structures

  2,949,413   19,043      (1,994  (216,631  158,649   2,908,480 

Machinery and equipment

  21,093,743   193,856   47,021   (36,095  (2,277,740  1,297,605   20,318,390 

Vehicles

  52,005   8,967   88   (1,990  (18,484  6,113   46,699 

Tools

  73,478   17,546   635   (848  (27,396  7,965   71,380 

Furniture and fixtures

  148,099   30,650   32   (4,248  (51,361  9,234   132,406 

Finance lease assets

  92,796   79,556      (38  (13,409  108   159,013 

Construction-in-progress

  2,374,789   1,935,339   2,181   (4,255     (1,770,922  2,537,132 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
     34,522,855   2,331,351   342,886   (78,501  (3,008,372  (339,880  33,770,339 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

(*1)Includes impairment losses on property, plant and equipment amounting to196,882 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 related to POSCO for individual assets based on disposal plans.

(*2)Represents 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, 2017

  Beginning  Acquisitions  Disposals  Depreciation (*1)  Others (*2)  Ending 
  (in millions of Won) 

Land

 2,601,208   3,477   (18,226     (58,809  2,527,650 

Buildings

  4,995,631   53,961   (5,782  (361,531  194,739   4,877,018 

Structures

  2,908,480   18,943   (2,558  (246,229  87,216   2,765,852 

Machinery and equipment

  20,318,390   194,653   (93,210  (2,217,435  1,165,559   19,367,957 

Vehicles

  46,699   9,982   (1,623  (22,340  143   32,861 

Tools

  71,380   16,424   (976  (28,539  5,351   63,640 

Furniture and fixtures

  132,406   61,597   (1,296  (48,416  1,148   145,439 

Finance lease assets

  159,013   4,760   (453  (14,810  (3,253  145,257 

Bearer plants

           (4,830  70,345   65,515 

Construction-in-progress

  2,537,132   1,894,067   (817  (36,706  (2,501,330  1,892,346 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
     33,770,339   2,257,864   (124,941  (2,980,836  (1,038,891  31,883,535 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

(*1)Includes impairment losses on property, plant and equipment amounting to117,231 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 related to POSCO for individual assets due to a decline in economic result and others.

(*2)Represents 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.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

(c) Borrowing costs capitalized and the capitalized interest rate for the years ended December 31, 2016 and 2017 were as follows:
14.

Property, Plant and Equipment, Net

 

   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, 2016 and 2017
(a)

Property, plant and equipment as of December 31, 2018 and 2019 are as follows:

 

(in millions of Won) 2018 2019 
 Acquisition
cost
 Accumulated
depreciation
and
impairment
loss
 Government
grants
 Book value Acquisition
cost
 Accumulated
depreciation
and
impairment
loss
 Government
grants
 Book value 

Land

 2,553,957  (5,955  —    2,548,002  2,527,972  (1,913  —    2,526,059 

Buildings

 9,146,294  (4,743,449 (393 4,402,452  9,227,064  (5,010,770 (840 4,215,454 

Structures

 5,884,277  (2,966,304 (49 2,917,924  6,066,000  (3,161,453 (41 2,904,506 

Machinery and equipment

 47,610,225  (29,091,754 (342 18,518,129  47,548,589  (30,326,324 (4,001 17,218,264 

Vehicles

 302,767  (271,381 (45 31,341  305,275  (272,977 (13 32,285 

Tools

 399,638  (333,387 (87 66,164  418,829  (348,032 (46 70,751 

Furniture and fixtures

 638,553  (502,215 (51 136,287  658,467  (528,066 (269 130,132 

Finance lease assets

 213,873  (76,309  —    137,564  970,891  (196,309  —    774,582 

Bearer plants

 88,773  (8,002  —    80,771  138,818  (14,625  —    124,193 

Construction-in-
progress

 1,964,267  (778,373 (6,255 1,179,639  2,800,412  (856,548 (14,117 1,929,747 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
     Book value  68,802,624  (38,777,129 (7,222 30,018,273  70,662,317  (40,717,017 (19,327 29,925,973 
  

Collateral right holder

  2016   2017 (*2)  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
     (in millions of Won) 

Land(*1)

  Korean Development Bank and others  925,670    822,057 

Buildings and structures(*1)

  Korean Development Bank and others   1,734,543    1,678,403 

Machinery and equipment

  Korean Development Bank and others   4,037,813    3,527,420 

Construction-in-progress

  Korean Development Bank and others       15,389 
    

 

   

 

 
    6,698,026    6,043,269 
    

 

   

 

 

 

(b)

Changes in the carrying amount of property, plant and equipment for the years ended December 31, 2018 and 2019 were as follows:

1)

For the year ended December 31, 2018

(in millions of Won) Beginning  Acquisitions  Disposals  Depreciation  Impairment
loss(*1,2)
  Others(*3)  Ending 

Land

 2,527,650   28,998   (26,157  —     6,399   11,112   2,548,002 

Buildings

  4,877,018   46,129   (21,501  (331,688  (73,523  (93,983  4,402,452 

Structures

  2,765,852   18,749   (2,834  (220,218  (6,652  363,027   2,917,924 

Machinery and equipment

  19,367,957   145,220   (62,135  (2,224,000  (143,293  1,434,380   18,518,129 

Vehicles

  32,861   8,538   (1,149  (14,835  (56  5,982   31,341 

Tools

  63,640   21,337   (1,867  (26,421  (206  9,681   66,164 

Furniture and fixtures

  145,439   32,258   (577  (51,835  (1,494  12,496   136,287 

Finance lease assets

  145,257   28,466   (420  (19,224  —     (16,515  137,564 

Bearer plants

  65,515   —     —     (3,636  —     18,892   80,771 

Construction-in-progress

  1,892,346   1,884,125   (23,814  —     (778,373  (1,794,645  1,179,639 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
 31,883,535   2,213,820   (140,454  (2,891,857  (997,198  (49,573  30,018,273 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

(*1)Investment

During 2018, the Controlling Company evaluated future economic performance of its Synthetic Natural Gas (SNG) facility that was still in trial run stage. Considering the continuous decline in LNG price, increase in coal prices and the need for additional capital investment in the SNG facility, the Controlling Company concluded that the profitability for the SNG facility is unlikely to be sustainable and decided to terminate the operation of SNG facility as of December 31, 2018. The property, plant and equipment in the SNG facility are primarily comprised of machinery and

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

equipment, among which assets with a carrying value of167,054 million are expected to bere-used in other facilities of the Controlling Company therefore no impairment test was conducted. For the remaining assets, impairment test was performed by estimating the recoverable amount of each individual assets. For the assets which are determined to be technically obsolete and therefore sale is unlikely, recoverable amount represents expected scrap value less cost of disposal.

For the assets for which sale is probable, the recoverable amount is determined based on fair value less cost of disposal. Fair value was measured using cost approach, which is based on an estimation of the current cost to purchase or replace the asset less applicable depreciation and obsolescence. Specifically, the Controlling Company used indirect cost approach to estimate the replacement cost for a new asset by applying asset specific inflation factors to the asset’s historical cost. Then the Controlling Company estimated and deducted depreciation for physical deterioration. Depreciation factors are applied primarily based on estimated useful life of the asset and declining balance depreciation method. The fair value measurement of assets in SNG facility is considered to be level 3 because significant inputs used in the estimate, such as asset specific inflation factors and estimated useful lives, are unobservable.

As a result of the impairment test, the Company recognized an impairment loss of809,737 million in connection with the property, plant and equipment in the SNG facility.

The Controlling Company also has recognized an impairment loss amounting to61,787 million since recoverable amounts on Strip Casting facilities and others is less than their carrying amount for the year ended December 31, 2018.

(*2)

As of December 31, 2018, POSCO ENERGY CO., LTD., a subsidiary, performed an impairment test due to the continued operating losses of the fuel cell business, and recognized impairment losses amounting to54,250 million.

(*3)

Represents assets transferred fromconstruction-in-progress to intangible assets and otherassets(land-use right) are included. property, plant and equipment, reclassifications resulting from changing the purpose of use, adjustments of foreign currency translation differences and others.

 

2)

For the year ended December 31, 2019

(in millions of Won) Beginning  Acquisitions  Business
Combination
  Disposals  Depreciation  Impairment
loss(*1,2)
  Others(*3)  Ending 

Land

 2,548,002   6,550   —     (2,128  —     —     (26,365  2,526,059 

Buildings

  4,402,452   39,551   22,836   (10,376  (314,107  (90,036  165,134   4,215,454 

Structures

  2,917,924   49,931   2   (3,350  (228,616  (27,217  195,832   2,904,506 

Machinery and equipment

  18,518,129   175,743   1,216   (78,236  (2,250,022  (309,604  1,161,038   17,218,264 

Vehicles

  31,341   8,027   189   (742  (15,057  (559  9,086   32,285 

Tools

  66,164   19,178   5,792   (1,340  (28,537  (2,106  11,600   70,751 

Furniture and fixtures

  136,287   34,618   252   (1,630  (36,309  (1,808  (1,278  130,132 

Lease assets(*4)

  137,564   72,640   490   (8,401  (130,905  —     703,194   774,582 

Bearer plants

  80,771   —     —     —     (5,916  —     49,338   124,193 

Construction-in-progress

  1,179,639   2,261,663   17,697   (24,840  —     (10,150  (1,494,262  1,929,747 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
 30,018,273   2,667,901   48,474   (131,043  (3,009,469  (441,480  773,317   29,925,973 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

(*1)

During the year ended December 31, 2019, the Controlling Company estimated recoverable amount of individual assets in CEM andFe-Si factories that ceased operations due to the disposal plan and others. The Company measured recoverable amounts based on appraisal value or scrap

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

value. The Company recognized impairment losses of205,396 million since recoverable amounts are less than their carrying amounts.
(*2)

As of December 31, 2017,2019, POSCO SS VINA JOINT STOCK COMPANY (formerly, POSCO SS VINA Co., Ltd.), a subsidiary, performed impairment test due to the pledged amount iscontinued operating losses and recognized impairment losses amounting to4,984,841 million.204,546 million since recoverable amount based onvalue-in-use is less than its carrying amount.

(*3)

Represents assets transferred fromconstruction-in-progress to intangible assets and other property, plant and equipment, reclassifications resulting from changing the purpose of use, adjustments of foreign currency translation differences and others.

(*4)

On the date of initial application of IFRS No.16 “Leases” (January 1, 2019), recognition of704,458 million ofright-of-use assets is included in others.

(c)

Borrowing costs capitalized and the capitalized interest rate for the years ended December 31, 2018 and 2019 were as follows:

(in millions of Won)  2018   2019 

Weighted average expenditure

  628,595    587,628 

Borrowing costs capitalized

   22,619    22,775 

Capitalization rate (%)

   2.51 ~ 3.90    3.57 ~ 5.46 

(d)

Property, plant and equipment and investment property pledged as collateral as of December 31, 2018 and 2019 are as follows:

(in millions of Won) 

Collateral right holder

 Book value 
  2018  2019 

Land

 

Korean Development Bank and others

 769,843   765,307 

Buildings and structures

 

Korean Development Bank and others

  1,522,129   1,363,709 

Machinery and equipment

 

Korean Development Bank and others

  3,419,528   2,440,777 
  5,711,500   4,569,793 
  

 

 

  

 

 

 

As of December 31, 2019, assets pledged as collateral related to the Company’s borrowings and others amounting to5,016,568 million include investment properties and other assets such as land use right.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

(e)

Changes in the carrying amount of right of use assets presented as property, plant and equipment for the year ended December 31, 2019 were as follows:

(in millions of Won)  Beginning
(Initial
applicaion
date)
   Right of use
assets

Acquisitions
   Depreciation  Others  Ending 

Land

  340,107    22,850    (11,461  (10,154  341,342 

Buildings and structures

   209,455    23,015    (38,853  (22,505  171,112 

Machinery and equipment

   219,877    14,610    (33,751  15,092   215,828 

Vehicles

   20,555    8,735    (10,050  (5,135  14,105 

others

   52,028    3,430    (36,790  13,527   32,195 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 
  842,022    72,640    (130,905  (9,175  774,582 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

(f)

The amount recognized in profit or loss related to leases for the year ended December 31, 2019 are as follows:

(in millions of Won)2019

Interest on lease liabilities

35,483

Expenses related to short-term leases

41,974

Expenses related to leases oflow-value assets

14,150

91,607

15. Goodwill and Other Intangible Assets, Net

(a) Goodwill and other intangible assets as of December 31, 20162018 and 20172019 are as follows:

 

 2016 2017  2018 2019 
 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) Acquisition
cost
 Accumulated
amortization
and
impairment
loss
 Government
grants
 Book value Acquisition
cost
 Accumulated
amortization
and
impairment
loss
 Government
grants
 Book value 

Goodwill

 1,669,556  (294,425    1,375,131  1,604,288  (254,450    1,349,838  1,603,308  (478,159  —    1,125,149  1,631,413  (533,604  —    1,097,809 

Intellectual property rights

 2,923,030  (401,156 (703 2,521,171  3,140,159  (690,966    2,449,193  3,300,638  (901,113  —    2,399,525  3,449,796  (1,170,586  —    2,279,210 

Premium in rental

 139,843  (20,804    119,039  139,873  (21,563    118,310  158,338  (23,545  —    134,793  170,247  (22,169  —    148,078 

Development expense

 376,327  (259,184 (131 117,012  397,129  (316,892 (19 80,218  445,752  (346,589  —    99,163  483,539  (389,200  —    94,339 

Port facilities usage rights

 633,025  (376,408    256,617  705,692  (396,319    309,373  724,375  (419,294  —    305,081  686,525  (405,127  —    281,398 

Exploration and evaluation assets

 196,124  (33,856    162,268  296,320  (90,376    205,944  285,845  (93,715  —    192,130  294,874  (217,603  —    77,271 

Customer relationships

 859,643  (345,398    514,245  857,624  (390,679    466,945  860,951  (439,178  —    421,773  865,821  (490,946  —    374,875 

Power generation permit

 539,405        539,405  539,405        539,405 

Other intangible assets

 1,007,871  (524,000 (30 483,841  1,006,219  (573,152 (24 433,043  1,115,742  (622,417 (114 493,211  1,220,641  (665,026 (122 555,493 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
     8,344,824  (2,255,231 (864 6,088,729  8,686,709  (2,734,397 (43 5,952,269  8,494,949  (3,324,010 (114 5,170,825  8,802,856  (3,894,261 (122 4,908,473 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

(b) The changes in carrying amount of goodwill and other intangible assets for the years ended December 31, 2016 and 2017
(b)

The changes in carrying amount of goodwill and other intangible assets for the years ended December 31, 2018 and 2019 were as follows:

1) For the year ended December 31, 2016

 

  Beginning  Acquisitions  Disposals  Amortization  Impairment
loss
  Others (*2)  Ending 
  (in millions of Won) 

Goodwill

 1,461,954            (95,984  9,161   1,375,131 

Intellectual property rights

  2,667,086   56,849   (753  (204,112  (16,786  18,887   2,521,171 

Premium in rental(*1)

  127,949   1,964   (7,526  (243  (1,559  (1,546  119,039 

Development expense

  135,796   4,027   (60  (61,732  (298  39,279   117,012 

Port facilities usage rights

  264,801         (15,217     7,033   256,617 

Exploration and evaluation assets

  151,144   45,524         (3,290  (31,110  162,268 

Customer relationships

  559,809         (47,790     2,226   514,245 

Power generation permit

  539,405                  539,405 

Other intangible assets

  497,810   52,350   (1,454  (48,910  (7,353  (8,602  483,841 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
     6,405,754   160,714   (9,793  (378,004  (125,270  35,328   6,088,729 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
1)

For the year ended December 31, 2018

 

(in millions of Won)  Beginning   Acquisitions   Disposals  Amortization  Impairment
loss
  Others(*3)  Ending 

Goodwill

  1,349,838              (223,709  (980  1,125,149 

Intellectual property rights

   2,449,193    334,667    (18,619  (198,282  (96,475  (70,959  2,399,525 

Premium in rental(*1)

   118,310    36,196    (15,675  (330  (4,218  510   134,793 

Development expense

   80,218    4,248    (32  (37,305  (411  52,445   99,163 

Port facilities usage rights

   309,373    —      —     (22,975  —     18,683   305,081 

Exploration and evaluation assets

   205,944    2,654    —     —     (3,339  (13,129  192,130 

Customer relationships

   466,945    —      —     (48,499  —     3,327   421,773 

Power generation permit(*2)

   539,405    —      —     —     —     (539,405  —   

Other intangible assets

   433,043    164,594    (1,644  (49,190  (8,844  (44,748  493,211 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  5,952,269    542,359    (35,970  (356,581  (336,996  (594,256  5,170,825 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

(*1)

Premium in rental includes memberships with indefinite useful lives.

(*2)

During the year ended December 31, 2018, the Company disposed of a portion of shares of its subsidiary, POSPower Co., Ltd, which resulted in the Company’s loss of control, and derecognition of corresponding intangible assets.

(*3)

Represents assets transferred fromconstruction-in-progress to intangible assets and 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, 2018 and 2019

2)

For the year ended December 31, 2019

2) For the year ended December 31, 2017

  Beginning  Acquisitions  Business
combination
  Disposals  Amortization  Impairment
loss
  Others (*2)  Ending 
  (in millions of Won) 

Goodwill

 1,375,131               (21,750  (3,543  1,349,838 

Intellectual property rights

  2,521,171   167,580   47,625   (450  (217,932  (74,524  5,723   2,449,193 

Premium in rental(*1)

  119,039   6,006      (3,666  (611  (1,661  (797  118,310 

Development expense

  117,012   3,479      (1,179  (66,847  (694  28,447   80,218 

Port facilities usage rights

  256,617            (19,912     72,668   309,373 

Exploration and evaluation assets

  162,268   91,548            (56,519  8,647   205,944 

Customer relationships

  514,245            (46,508     (792  466,945 

Power generation permit

  539,405                     539,405 

Other intangible assets

  483,841   84,502      (1,641  (57,964  (11,829  (63,866  433,043 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
     6,088,729   353,115   47,625   (6,936  (409,774  (166,977  46,487   5,952,269 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

(in millions of Won) Beginning  Acquisitions  Business
Combination
  Disposals  Amortization  Impairment
loss(*2)
  Others(*3)  Ending 

Goodwill

 1,125,149   —     26,256   —     —     (55,445  1,849   1,097,809 

Intellectual property rights

  2,399,525   127,479   —     (6,566  (271,694  (2  30,468   2,279,210 

Premium in rental(*1)

  134,793   15,636   —     (3,326  (181  24   1,132   148,078 

Development expense

  99,163   4,484   —     (35  (44,418  (666  35,811   94,339 

Port facilities usage rights

  305,081   —     —     (4,674  (22,923  —     3,914   281,398 

Exploration and evaluation assets

  192,130   9,642   —     —     —     (123,888  (613  77,271 

Customer relationships

  421,773   —     —     —     (51,768  —     4,870   374,875 

Other intangible assets

  493,211   141,578   74   (10,718  (40,263  (10,111  (18,278  555,493 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  —     —     —     —     —     —     —     —   
 5,170,825   298,819   26,330   (25,319  (431,247  (190,088  59,153   4,908,473 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

(*1)

Premium in rental includes memberships with indefinite useful lives.

(*2)

From exploration and evaluation of natural gas in theAD-7 block in Myanmar, POSCO INTERNATIONAL Corporation failed to find economic natural gas. The Company recognized impairment loss of the amount of118,140 million in excess of the Special Energy Loan.

(*3)

Represents assets transferred fromconstruction-in-progress to intangible assets and 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, 2015, 20162018 and 20172019

 

 

 

(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, 2016 and 2017
(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, 2018 and 2019 are as follows:

 

Reportable segments

  Total number of CGUs            
  2016   2017   

CGUs

  2016   2017 
              (in millions of Won) 

Steel

   9    7   POSCO VST CO., LTD.  36,955    36,955 
      Others(*1)   13,151    12,494 

Trading

   2    2   POSCO DAEWOO Corporation(*1)   1,163,922    1,165,030 
      PT. Bio Inti Agrindo   8,070    7,099 

E&C

   4    2   POSCO ENGINEERING
& CONSTRUCTION CO., LTD.(*2)
       90,426 
      POSCO Engineering CO.,Ltd(*2)   111,309     
      DONG FANG JIN HONG   166    157 

Others

   6    5   POSCO ENERGY CO., LTD.   26,471    26,471 
      Others   15,087    11,206 
  

 

 

   

 

 

     

 

 

   

 

 

 

Total

   21    16         1,375,131    1,349,838 
  

 

 

   

 

 

     

 

 

   

 

 

 

(in millions of Won)

Reportable

segments

  Total number of
CGUs
            
  2018   2019   

CGUs

  2018   2019 

Steel

   7    7   POSCO VST CO., LTD.  36,955    36,955 
      Others   12,484    13,721 

Trading

   2    3   POSCO INTERNATIONAL CORPORATION(*1)   1,006,879    951,434 
      GRAIN TERMINAL HOLDING(*2)   —      26,256 
      PT. Bio Inti Agrindo   6,902    7,468 
      Others   16    —   

E&C

   2    2   POSCO ENGINEERING & CONSTRUCTION CO., LTD.   24,868    24,868 
      POSCO Center Beijing   155    158 
      POSCO ENERGY CO., LTD.   26,471    26,471 

Others

   5    5   Others   10,419    10,478 
  

 

 

   

 

 

     

 

 

   

 

 

 
   16    17     1,125,149    1,097,809 
  

 

 

   

 

 

     

 

 

   

 

 

 

 

(*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 POSCO DAEWOOINTERNATIONAL Corporation are determined based on its value in use. As of December 31, 2017,2019, value in use is estimated by applying 8.1%a 6.84% discount rate and a 1.9% terminal growth rate withinafter 5 years, the period for the estimated future cash flows, based on management’s business plan. The terminal growth rate does not exceed long-term average growth rate of its industry. No impairment loss on goodwill was recognized for the year ended December 31, 2017 as the recoverable amount exceeded the carrying amount of the CGU.

The estimated recoverable amount of the CGU exceeded the carrying amount by117,324 million. Value in use of the 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 3.45% and when the terminal growth rate decreases by 0.25%, value in use will be decreased by 1.78%. 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 exceed long-term average growth rate of its industry. Impairment loss on goodwill of20,88355,445 million was recognized for the year endedas of December 31, 20172019 as the recoverable amount is lowerless than the carrying amount of the CGU.

Value in use of the CGU was affected by the assumptions such as discount rate, terminal growth rate and estimated sales used in discounted cash flow model. When the discount rate increases by 0.25%, value in use will be decreased by157,501 million or 4.65% and when the terminal growth rate decreases by 0.25%, value in use will be decreased by69,413 million or 2.05%.

 

(*2)Value in use

In connection with the acquisition of Grain Terminal Holding, the 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%.Company recognized goodwill of26,256 million.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

16.

Other Assets

Other current assets and othernon-current assets as of December 31, 20162018 and 20172019 are as follows:

 

   2016   2017 
   (in millions of Won) 

Current

    

Advance payment

  787,452    661,779 

Prepaid expenses

   105,102    143,032 

Firm commitment asset

       15,115 

Others

   1,930    1,316 
  

 

 

   

 

 

 
   894,484    821,242 
  

 

 

   

 

 

 

Non-current

    

Long-term advance payment

   27,189    24,201 

Long-term prepaid expenses

   380,678    333,153 

Others(*1)

   159,813    131,657 
  

 

 

   

 

 

 
  567,680    489,011 
  

 

 

   

 

 

 

(in millions of Won)  2018   2019 

Current

    

Advance payment

  539,894    453,538 

Prepaid expenses

   123,770    145,834 

Firm commitment asset

   11,246    17,490 

Others

   9,553    14,315 
  

 

 

   

 

 

 
   684,463    631,177 
  

 

 

   

 

 

 

Non-current

    

Long-term advance payment

   24,280    21,950 

Long-term prepaid expenses

   334,918    41,256 

Others(*1)

   149,566    262,036 
  

 

 

   

 

 

 
  508,764    325,242 
  

 

 

   

 

 

 

 

(*1)

) As of December 31, 20162018 and 2017,2019 the Company recognized tax assets amounting to100,693116,693 million and88,633213,071 million, respectively, based on the Company’s best estimate of the income 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 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, 20162018 and 20172019 are as follows:

 

 

Bank

 

Issuance date

 

Maturity date

 Interest
rate (%)
 2016 2017 
 (in millions of Won) 
(in millions of Won) 

Bank

 

Issuance date

 

Maturity date

 Interest
rate (%)
 2018 2019 

Short-term borrowings

            

Bank overdrafts

 

JP Morgan and
others

 January, 2017~ December, 2017 

January, 2018~ December, 2018

 1.2~9.0  254,036  217,879  JP Morgan and others 

January, 2019~

December, 2019

 

January, 2020~

December, 2020

 0.5~8.9  294,364  159,075 

Short-term borrowings

 

HSBC and others

 January, 2017~ December, 2017 

January, 2018~ December, 2018

 0.3~10.5  7,725,691  7,956,939  HSBC and others 

January, 2019~

December, 2019

 

January, 2020~

December, 2020

 0.2~12.7  7,193,416  5,327,258 
     

 

  

 

      

 

  

 

 
     7,979,727  8,174,818      7,487,780  5,486,333 
     

 

  

 

      

 

  

 

 

Current portion of long-term liabilities

            

Current portion of long-term borrowings

 

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  Export-Import Bank of Korea and others 

November, 2004~

October, 2019

 

January, 2020~

December, 2020

 0.7~6.6  1,234,915  1,491,934 

Current portion of debentures

 

Korean Development
Bank and others

 

August, 2009~

November, 2016

 

February, 2018~ December, 2018

 1.4~6.1  825,176  1,693,974  Korea Development Bank and others 

October, 2010~

September, 2018

 

April, 2020~

October, 2020

 1.5~4.3  1,568,108  1,571,194 

Less: Current portion of discount on debentures issued

     (829 (1,399     (1,184 (1,249
     

 

  

 

      

 

  

 

 
     2,215,080  3,099,698      2,801,839  3,061,879 
     

 

  

 

      

 

  

 

 
     10,194,807  11,274,516      10,289,619  8,548,212 
     

 

  

 

      

 

  

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

(b) Long-term borrowings, excluding current portion as of December 31, 2016 and 2017 are as follows:

  

Bank

 

Issuance date

 

Maturity date

 Interest
rate (%)
  2016  2017 
  (in millions of Won) 

Long-term borrowings

 

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

      (55,799  (36,459

Bonds

 

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

      (18,518  (13,174
     

 

 

  

 

 

 
     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)(b)Includes otherassets(land-use right).

Long-term borrowings, excluding current portion as of December 31, 2018 and 2019 are as follows:

(in millions of Won) 

Bank

 

Issuance date

 

Maturity date

 Interest
rate (%)
  2018  2019 

Long-term borrowings

 

Export-Import Bank of

Korea and others

 

September, 2001~

December, 2019

 

February, 2021~

March, 2037

  0.2~12.5  4,499,199   3,827,152 

Less: Present value discount

      (30,526  (24,374

Bonds

 KB Securities co.,Ltd. and others 

April, 2011~

November, 2019

 

February, 2021~

October, 2029

  1.6~5.3   5,469,580   8,124,194 

Less: Discount on debentures issued

      (18,602  (33,571
     

 

 

  

 

 

 
     9,919,651   11,893,401 
     

 

 

  

 

 

 

(c)

Assets pledged as collateral in regard to the borrowings as of December 31, 2019 are as follows:

(in millions of Won)  

Bank

  Book value   Pledged
amount
 

Cash and cash equivalents

  Sinhan Bank and others   26,923    26,923 

Property, plant and equipment and Investment property

  Korea Development Bank and others   4,420,551    4,967,168 

Trade accounts and notes receivable

  Korea Development Bank and others   7,498    7,498 

Inventories

  Export-Import Bank of Korea and others   118,824    12,650 

Financial instruments

  KB Kookmin Bank and others   46,217    45,017 
    

 

 

   

 

 

 
    4,620,013    5,059,256 
    

 

 

   

 

 

 

 

18.

Other Payables

Other payables as of December 31, 20162018 and 20172019 are as follows:

 

  2016   2017 
  (in millions of Won) 
(in millions of Won)  2018   2019 

Current

        

Accounts payable

  854,623    800,374   783,562    832,845 

Accrued expenses

   665,295    653,923    720,773    742,370 

Dividend payable

   7,770    7,213    8,673    3,106 

Finance lease liabilities

   24,523    17,763 

Lease liabilities(*1)

   10,152    149,176 

Withholdings

   299,448    274,188    196,937    152,011 
  

 

   

 

   

 

   

 

 
  1,851,659    1,753,461   1,720,097    1,879,508 
  

 

   

 

   

 

   

 

 

Non-current

        

Accounts payable

  6,823    4,632   1,624    2,718 

Accrued expenses

   41,082    14,234    19,021    4,805 

Finance lease liabilities

   89,886    75,255 

Lease liabilities(*1)

   84,602    526,294 

Long-term withholdings

   70,768    53,629    43,621    51,312 
  

 

   

 

   

 

   

 

 
  208,559    147,750   148,868    585,129 
  

 

   

 

   

 

   

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

19.(*1)Other Financial Liabilities

As of December 31, 2019, the Company recognized additional lease liabilities of590,225 million upon initial application of IFRS 16 “Leases”.

19. Other Financial Liabilities

Other financial liabilities as of December 31, 20162018 and 20172019 are as follows:

 

  2016   2017 
  (in millions of Won) 
(in millions of Won)  2018   2019 

Current

        

Derivatives liabilities

  85,786    69,872   27,328    28,021 

Financial guarantee liabilities

   63,962    59,940    50,472    49,806 
  

 

   

 

   

 

   

 

 
      149,748    129,812   77,800    77,827 
  

 

   

 

   

 

   

 

 

Non-current

        

Derivatives liabilities

  37,110    85,638   46,429    17,033 

Financial guarantee liabilities

   44,199    28,467    17,733    14,461 
  

 

   

 

   

 

   

 

 
  81,309    114,105   64,162    31,494 
  

 

   

 

   

 

   

 

 

20. Provisions

(a) Provisions as of December 31, 2016 and 2017

(a)

Provisions as of December 31, 2018 and 2019 are as follows:

 

   2016   2017 
   Current   Non-current   Current   Non-current 
   (in millions of Won) 

Provision for bonus payments

  42,986        49,171     

Provision for construction warranties

   10,551    86,158    11,804    106,232 

Provision for legal contingencies and claims(*1)

   4,348    80,498    495    36,269 

Provision for the restoration(*2)

   10,169    52,425    12,273    121,917 

Others(*3,4)

   46,811    118,658    37,203    212,754 
  

 

 

   

 

 

   

 

 

   

 

 

 
      114,865    337,739    110,946    477,172 
  

 

 

   

 

 

   

 

 

   

 

 

 

(in millions of Won)  2018   2019 
   Current   Non-current   Current   Non-current 

Provision for bonus payments

  46,514    26,964    76,432    47,237 

Provision for construction warranties

   11,842    130,391    7,655    162,773 

Provision for legal contingencies and claims(*1)

   16,981    94,169    6,996    77,488 

Provision for the restoration(*2)

   9,379    79,789    6,783    80,520 

Others(*3,4)

   213,737    99,723    262,471    90,136 
  

 

 

   

 

 

   

 

 

   

 

 

 
  298,453    431,036    360,337    458,154 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(*1)

The Company recognized probable outflow of resources amounting to30,42550,888 million and27,96354,228 million as provisions for legal contingencies and claims in relation to lawsuits against the Company as of December 31, 20162018 and 2017,2019, respectively.

(*2)

Due to contamination of lands near the Company’s magnesium smelting plant located in Gangneung province and others, the Company recognized present values of estimated costs for recovery of29,47122,725 million as provisions for restoration as of December 31, 2017.2019. In order to determine the estimated costs, the Company has assumed that it would use all of technologies and materials that are currently available for now to recover the land. In addition, theThe Company has applied a discount rate of 2.73%1.74%~1.84% to measure present value of these costs.

(*3)

As of December 31, 20162018 and 2017,2019, POSCO ENERGY CO., LTD., a subsidiary of the Company,and Korea Fuel Cell, recognized87,827200,407 million and157,461178,959 million of provisions for warranties, respectively, for the service contract on fuel cell based on its estimate of probable outflow of resources.to fulfill the service requirements.

(*4)As

The Company has recognized emission liabilities of50,965 million for greenhouse gas emissions exceeding the quantity of free quota emission rights expected to be submitted as of December 31, 2016 and 2017, the amount includes a provision of23,600 million for expected outflow of resources in connection with the performance guarantee for the Hwaseong-Dongtan complexes development project of POSCO ENGINEERING & CONSTRUCTION CO., LTD.2019.

(b)

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

(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 and service provided

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

(c)

Changes in provisions for the years ended December 31, 2018 and 2019 were as follows:

1)

For the year ended December 31, 2018

(in millions of Won)  Beginning   Increase   Utilization  Reversal  Others(*1)  Ending 

Provision for bonus payments

  49,171    88,879    (60,723  (3,856  7   73,478 

Provision for construction warranties

   118,036    56,560    (24,608  (7,660  (95  142,233 

Provision for legal contingencies and claims

   36,764    84,242    (6,066  (3,399  (391  111,150 

Provision for the restoration

   134,190    14,912    (9,212  (47,682  (3,040  89,168 

Others

   249,957    328,879    (118,388  (216,668  69,680   313,460 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 
   588,118   573,472   (218,997)  (279,265)  66,161  729,489 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

(*1)

Includes adjustments of foreign currency translation differences and others.

2)

For the year ended December 31, 2019

(in millions of Won)  Beginning   Increase   Utilization  Reversal  Others(*1)   Ending 

Provision for bonus payments

  73,478    122,714    (86,084  (3,077  16,638    123,669 

Provision for construction warranties

   142,233    53,203    (22,858  (3,444  1,294    170,428 

Provision for legal contingencies and claims

   111,150    26,407    (37,087  (18,098  2,112    84,484 

Provision for the restoration

   89,168    23,559    (13,411  (14,379  2,366    87,303 

Others

   313,460    95,747    (38,260  (86,458  68,118    352,607 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

   

 

 

 
   729,489   321,630   (197,700)  (125,456)  90,528   818,491 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

   

 

 

 

(*1)

Includes adjustments of foreign currency translation differences and others.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

(c) Changes in provisions for the years ended December 31, 2016 and 2017 were as follows:

1) For the year ended December 31, 2016

   Beginning   Increase   Utilization  Reversal  Others (*1)  Ending 
   (in millions of Won) 

Provision for bonus payments

  42,602    44,106    (42,211  (272  (1,239  42,986 

Provision for construction warranties

   81,446    33,925    (19,469  (2,695  3,502   96,709 

Provision for legal contingencies and claims

   52,610    45,525    (14,012  (188  911   84,846 

Provisions for the restoration

   45,111    42,529    (13,367  (12,475  796   62,594 

Others

   102,243    131,911    (68,143  (3,086  2,544   165,469 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 
      324,012    297,996    (157,202  (18,716  6,514   452,604 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

(*1)21.Includes adjustments of foreign currency translation differences and others.

2) For the year ended December 31, 2017

Employee Benefits

   Beginning   Increase   Utilization  Reversal  Others (*1)  Ending 
   (in millions of Won) 

Provision for bonus payments

  42,986    74,728    (64,319  (3,035  (1,189  49,171 

Provision for construction warranties

   96,709    40,916    (18,006  (2,502  919   118,036 

Provision for legal contingencies and claims

   84,846    27,459    (70,156  (1,749  (3,636  36,764 

Provisions for the restoration

   62,594    63,438    (8,530     16,688   134,190 

Others

   165,469    161,054    (64,850  (20,199  8,483   249,957 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 
      452,604    367,595    (225,861  (27,485  21,265   588,118 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

(*1)Includes adjustments of foreign currency translation differences and others.

 

21.(a)Employee Benefits

(a) Defined contribution plans

The expenses related to post-employment benefit plans under defined contribution plans for the years ended December 31, 2015, 20162017, 2018 and 20172019 were as follows:

 

   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, 2016 and 2017 are as follows:

(in millions of Won)  2017   2018   2019 

Expense related to post-employment benefit plans under defined contribution plans

  35,538    42,825    46,846 

 

   2016  2017 
   (in millions of Won) 

Present value of funded obligations

      1,715,583   1,826,907 

Fair value of plan assets(*1)

   (1,693,118  (1,714,166

Present value ofnon-funded obligations

   17,437   16,228 
  

 

 

  

 

 

 

Net defined benefit liabilities

  39,902   128,969 
  

 

 

  

 

 

 
(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, 2018 and 2019 are as follows:

(in millions of Won)  2018   2019 

Present value of funded obligations

  2,117,829    2,416,203 

Fair value of plan assets(*1)

   (1,997,717   (2,255,149

Present value ofnon-funded obligations

   19,332    15,677 
  

 

 

   

 

 

 

Net defined benefit liabilities

  139,444    176,731 
  

 

 

   

 

 

 

 

(*1)

As of December 31, 20162018 and 2017,2019, the Company recognized net defined benefit assets amounting to83,7021,489 million and8,2244,280 million, respectively, since there are consolidated entities whose fair value of plan assets exceeded the present value of defined benefit obligations.

2)

Changes in present value of defined benefit obligations for the years ended December 31, 2018 and 2019 were as follows:

(in millions of Won)  2018   2019 

Defined benefit obligations at the beginning of year

  1,843,135    2,137,161 

Current service costs

   212,323    236,735 

Interest costs

   54,950    51,900 

Remeasurements :

   212,678    152,713 

- Gain from change in financial assumptions

   173,084    103,850 

- Loss (gain) from change in demographic assumptions

   526    (492

- Others

   39,068    49,355 

Benefits paid

   (189,165   (152,275

Others

   3,240    5,646 
  

 

 

   

 

 

 

Defined benefit obligations at the end of year

  2,137,161    2,431,880 
  

 

 

   

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

2) Changes in present value of defined benefit obligations for the years ended December 31, 2016 and 2017
3)

Changes in fair value of plan assets for the years ended December 31, 2018 and 2019 were as follows:

 

   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, 2016 and 2017 were as follows:

  2016 2017 
  (in millions of Won) 

Fair value of plan assets at the beginning of period

  1,532,090  1,693,118 
(in millions of Won)  2018   2019 

Fair value of plan assets at the beginning of year

  1,714,166    1,997,717 

Interest on plan assets

   37,385  45,516    50,784    48,210 

Remeasurement of plan assets

   (6,963 (17,190   (19,761   (8,692

Contributions to plan assets

   328,671  164,828    408,326    342,915 

Benefits paid

   (189,817 (168,643   (163,112   (124,962

Others

   (8,248 (3,463   7,314    (39
  

 

  

 

   

 

   

 

 

Fair value of plan assets at the end of period

      1,693,118  1,714,166 

Fair value of plan assets at the end of year

  1,997,717    2,255,149 
  

 

  

 

   

 

   

 

 

The Company expects to make an estimated contribution of164,865 million331,415million to the defined benefit plan assets in 2018.

4) The fair value of plan assets as of December 31, 2016 and 2017 are as follows:2020.

 

   2016   2017 
   (in millions of Won) 

Equity instruments

  56,187    41,218 

Debt instruments

   411,726    367,027 

Deposits

   1,167,475    1,254,571 

Others

   57,730    51,350 
  

 

 

   

 

 

 
      1,693,118    1,714,166 
  

 

 

   

 

 

 

5) The amounts recognized in consolidated statements of comprehensive income for the years ended December 31, 2015, 2016 and 2017 were
4)

The fair value of plan assets as of December 31, 2018 and 2019 are as follows:

 

   2015   2016   2017 
   (in millions of Won) 

Current service costs

  239,508    285,706    209,612 

Net interest costs(*1)

   5,894    1,901    (9,686
  

 

 

   

 

 

   

 

 

 
      245,402    287,607    199,926 
  

 

 

   

 

 

   

 

 

 
(in millions of Won)  2018   2019 

Equity instruments

  3,151    10,386 

Debt instruments

   692,825    1,013,716 

Deposits

   1,244,802    1,159,455 

Others

   56,939    71,592 
  

 

 

   

 

 

 
  1,997,717    2,255,149 
  

 

 

   

 

 

 

 

5)

The amounts recognized in consolidated statements of comprehensive income for the years ended December 31, 2017, 2018 and 2019 were as follows:

(in millions of Won)  2017   2018   2019 

Current service costs

  209,612    212,323    236,735 

Net interest costs(*1)

   (9,686   4,166    3,690 
  

 

 

   

 

 

   

 

 

 
  199,926    216,489    240,425 
  

 

 

   

 

 

   

 

 

 

 

(*1)

The actual return on plan assets amounted to32,63030,422 million,30,42231,023 million and28,32639,518 million for the years ended December 31, 2015, 20162017, 2018 and 2017,2019, respectively.

The expenses by function were as follows:

(in millions of Won)  2017   2018   2019 

Cost of sales

  131,724    150,822    169,206 

Selling and administrative expenses

   67,424    64,505    70,060 

Others

   778    1,162    1,159 
  

 

 

   

 

 

   

 

 

 
  199,926    216,489    240,425 
  

 

 

   

 

 

   

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

The above expenses by function
6)

Accumulated actuarial gains (losses), net of tax recognized in other comprehensive income for the years ended December 31, 2017, 2018 and 2019 were as follows:

 

   2015   2016   2017 
   (in millions of Won) 

Cost of sales

  170,334    161,810    131,724 

Selling and administrative expenses

   74,210    124,994    67,424 

Others

   858    803    778 
  

 

 

   

 

 

   

 

 

 
      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, 2015, 2016 and 2017 were as follows:

(in millions of Won)  2017   2018   2019 

Beginning

  (251,612   (299,155   (472,644

Current actuarial gains (losses)

   (47,543   (173,489   (117,152
  

 

 

   

 

 

   

 

 

 

Ending

  (299,155   (472,644   (589,796
  

 

 

   

 

 

   

 

 

 

 

   2015  2016  2017 
   (in millions of Won) 

Beginning

  (314,106  (272,152  (251,612

Current actuarial gains (losses)

   41,954   20,540   (47,543
  

 

 

  

 

 

  

 

 

 

Ending

      (272,152  (251,612  (299,155
  

 

 

  

 

 

  

 

 

 

7) The principal actuarial assumptions as of December 31, 2016 and 2017
7)

The principal actuarial assumptions as of December 31, 2018 and 2019 are as follows:

 

   2016   2017 
   (%) 

Discount rate

   2.15~8.59    2.70~7.75 

Expected future increase in salaries(*1)

   1.00~10.00    1.04~10.00 

(%)  2018   2019 

Discount rate

   2.24~10.03    1.72 ~ 13.00 

Expected future increase in salaries(*1)

   2.54~10.00    2.00 ~ 11.00 

 

(*1)

The expected future increase in salaries is based on the average salary increase rate for the past three3 years.

All assumptions are reviewed at the end of the reporting period. Additionally, to determine the total estimatedpresent value of defined benefit obligation includesobligations, the Company uses actuarial assumptions associated with the long-term characteristics of the defined benefit plan.

8)

8)

Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding the other assumptions constant, would have affected the defined benefit obligation by the amounts shown below:

 

   1% Increase  1% Decrease 
   Amount  Percentage (%)  Amount  Percentage (%) 
   (in millions of Won) 

Discount rate

      (123,568  (6.7  138,196   7.5 

Expected future increase in salaries

   136,385   7.4   (124,400  (6.7

9) As of December 31, 2017 the maturity of the expected benefit payments are as follows:

(in millions of Won)  1% Increase   1% Decrease 
   Amount   Percentage(%)   Amount   Percentage(%) 

Discount rate

  (167,767   (6.9   194,809    8.0 

Expected future increase in salaries

   195,098    8.0    (170,997   (7.0

 

   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 
9)

As of December 31, 2019, the maturity of the expected benefit payments are as follows:

(in millions of Won)  Within
1 year
   1 year
- 5 years
   5 years
- 10 years
   10 years
- 20 years
   After
20 years
   Total 

Benefits paid

  279,554    928,288    513,133    771,500    409,976    2,902,451 

The maturity analysis of the defined benefit obligation wasis based on nominal amounts of defined benefit obligations usingaccording to expected remaining period of serviceworking lives of employees.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

22.

Other Liabilities

Other liabilities as of December 31, 20162018 and 20172019 are as follows:

 

   2016   2017 
   (in millions of Won) 

Current

  

Due to customers for contract work

  1,031,663    782,968 

Advances received

   864,536    1,183,108 

Unearned revenue

   8,702    7,121 

Withholdings

   186,665    221,940 

Firm commitment liability

       12,192 

Others

   22,307    33,590 
  

 

 

   

 

 

 
      2,113,873    2,240,919 
  

 

 

   

 

 

 

Non-current

    

Advances received

   418,832    353,631 

Unearned revenue

   20,013    18,440 

Others

   40,338    14,360 
  

 

 

   

 

 

 
  479,183    386,431 
  

 

 

   

 

 

 

23.Financial Instruments

(a) Classification of financial instruments

1) Financial assets as of December 31, 2016 and 2017 are as follows:

   2016   2017 
   (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

   147,582    65,051 

Derivatives assets designated as hedging instruments

       3,239 

Available-for-sale financial assets

   2,514,924    1,978,115 

Held-to-maturity financial assets

   2,470    5,211 

Loans and receivables

   19,277,709    21,268,107 
  

 

 

   

 

 

 
      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.

(in millions of Won)  2018   2019 

Current

    

Due to customers for contract work

  641,064    644,947 

Advances received

   1,130,910    746,169 

Unearned revenue

   49,805    61,795 

Withholdings

   233,981    388,486 

Firm commitment liability

   24,373    15,637 

Others

   10,174    8,604 
  

 

 

   

 

 

 
  2,090,307    1,865,638 
  

 

 

   

 

 

 

Non-current

    

Advances received

   123,071    116,178 

Unearned revenue

   42,992    27,161 

Others

   84,369    52,349 
  

 

 

   

 

 

 
  250,432    195,688 
  

 

 

   

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

2) Financial liabilities as of December 31, 2016 and 2017 are as follows:
23.

Financial Instruments

 

   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 
  

 

 

   

 

 

 
(a)

Classification and fair value of financial instruments

3) Finance income and costs by category of financial instrument for the years ended December 31, 2015, 2016 and 2017 were

1)

The carrying amount and the fair values of financial assets and financial liabilities by fair value hierarchy as of December 31, 2018 and 2019 are as follows:

December 31, 20152018

 

  Finance income and costs  Other
comprehensive
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) 

Derivatives assets

    129,949      357,715         487,664    

Available-for-sale financial assets

  1,956         138,782   (142,781  183,712   181,669   (187,854

Held-to-maturity financial assets

  456               (688  (232   

Loans and receivables

  207,781      283,030   (15,406     (217  475,188    

Derivatives liabilities

     (46,748     (334,340        (381,088   

Financial liabilities measured at amortized cost

  (788,772     (665,583        (138,827  (1,593,182   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
     (578,579  83,201   (382,553  146,751   (142,781  43,980   (829,981  (187,854
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

December 31, 2016

(in millions of Won)      Fair value 
   Book value   Level 1   Level 2   Level 3   Total 

Financial assets

          

Fair value through profit or loss

          

Derivative assets

  16,662    —      16,662    —      16,662 

Short-term financial instruments

   6,099,303    —      6,099,303    —      6,099,303 

Debt securities

   27,229    —      —      27,229    27,229 

Other securities

   338,106    1,224    5,205    331,677    338,106 

Other receivables

   2,000    —      —      2,000    2,000 

Derivative hedging instruments(*2)

   32,421    —      32,421    —      32,421 

Fair value through other comprehensive income

          

Equity securities

   1,238,630    891,514    —      347,116    1,238,630 

Debt securities

   1,638    —      —      1,638    1,638 

Financial assets measured at amortized cost(*1)

   —           

Cash and cash Equivalents

   2,643,865    —      —      —      —   

Trade accounts and notes receivable

   8,819,617    —      —      —      —   

Other receivables

   1,843,381    —      —      —      —   

Debt securities

   8,447    —      —      —      —   

Deposit instruments

   1,966,558    —      —      —      —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  23,037,857    892,738    6,153,591    709,660    7,755,989 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financial liabilities

          

Fair value through profit or loss

          

Derivative liabilities

  60,047    —      60,047    —      60,047 

Derivative hedging instruments(*2)

   13,710    —      13,710    —      13,710 

Financial liabilities measured at amortized cost(*1)

          

Trade accounts and notes payable

   4,035,960    —      —      —      —   

Borrowings

   20,209,270    —      20,377,105    —      20,377,105 

Financial guarantee liabilities

   68,205    —      —      —      —   

Others

   1,803,353    —      —      —      —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  26,190,545    —      20,450,862    —      20,450,862 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  Finance income and costs    
  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) 

Derivatives assets

    57,411      310,625         368,036    

Available-for-sale financial assets

  431         127,524   (248,404  41,000   (79,449  310,608 

Held-to-maturity financial assets

  266               38   304    

Loans and receivables

  181,778      140,751   (17,854     (172  304,503    

Derivatives liabilities

     (72,976     (332,415        (405,391   

Financial liabilities measured at amortized cost

  (658,726     (283,059  (61     (28,367  (970,213   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
     (476,251  (15,565)   (142,308  87,819   (248,404  12,499   (782,210  310,608 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
(*1)

Fair value of financial assets and liabilities measured at amortized cost except borrowings approximates carrying amounts.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

December 31, 20172019

 

  Finance income and costs    
  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) 

Financial assets held for trading

    16               16    

Derivatives assets

     (99,942     206,362         106,420   (143

Available-for-sale financial assets

  60         418,789   (123,214  92,961   388,596   (31,389

Held-to-maturity financial assets

  236               7   243    

Loans and receivables

  212,155      (607,837  (32,456     (304  (428,442   

Derivatives liabilities

     (61,809     (231,908        (293,717   

Financial liabilities measured at amortized cost

  (653,115     777,935         (9,546  115,274    
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
     (440,664  (161,735  170,098   360,787   (123,214  83,118   (111,610  (31,532
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
(in millions of Won)      Fair value 
   Book value   Level 1   Level 2   Level 3   Total 

Financial assets

          

Fair value through profit or loss

          

Derivative assets

  106,104    —      106,104    —      106,104 

Short-term financial instruments

   6,861,242    —      6,861,242    —      6,861,242 

Debt securities

   28,087    —      —      28,087    28,087 

Other securities

   340,008    1,222    3,330    335,456    340,008 

Other receivables

   2,000    —      —      2,000    2,000 

Derivative hedging instruments(*2)

   6,174    —      6,174    —      6,174 

Fair value through other comprehensive income

          

Equity securities

   1,204,902    782,108    73    422,721    1,204,902 

Debt securities

   5,686    —      —      5,686    5,686 

Financial assets measured at amortized cost(*1)

          

Cash and cash Equivalents

   3,514,872    —      —      —      —   

Trade accounts and notes receivable

   8,214,459    —      —      —      —   

Other receivables

   2,193,700    —      —      —      —   

Debt securities

   334,153    —      —      —      —   

Deposit instruments

   1,779,082    —      —      —      —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  24,590,469    783,330    6,976,923    793,950    8,554,203 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financial liabilities

          

Fair value through profit or loss

          

Derivative liabilities

  32,193    —      32,193    —      32,193 

Derivative hedging instruments(*2)

   12,861    —      12,861    —      12,861 

Financial liabilities measured at amortized cost(*1)

          

Trade accounts and notes payable

   3,442,989    —      —      —      —   

Borrowings

   20,441,613    —      20,666,476    —      20,666,476 

Financial guarantee liabilities

   64,267    —      —      —      —   

Others

   2,401,382    —      —      —      —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  26,395,305    —      20,711,530    —      20,711,530 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(b) Credit

(*1)

Fair value of financial assets and liabilities measured at amortized cost except borrowings approximates carrying amounts.

(*2)

The Company applies fair value hedge for certain forward contracts utilized in hedging the risk of changes in fair value of product prices regarding firm commitments or purchase commitments. Also, the Company applies cash flow hedge for certain currency swap utilized in hedging the risk of changes in foreign currency which influences cash flow from borrowings.

1)

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

2)

Financial assets and financial liabilities classified as fair value hierarchy Level 2

Fair values of derivatives are measured using valuation models such as discounted cash flow method and others. Inputs of the 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.

3)

Financial assets and financial liabilities classified as fair value hierarchy Level 3

Fair value measurement method and significant but not observable inputs for the financial assets classified as fair value hierarchy Level 3 as of December 31, 2019 are as follows:

(in millions of Won)Fair value

Valuation technique

Inputs

Range of inputs

Effect on fair value
assessment

with unobservable input

Financial assets at fair value

417,683Discounted cash flowsGrowth rate0% ~ 0.5%As growth rate increases, fair value increases
Discount rate6.0% ~ 18.4%As discount rate increases, fair value decreases
17,931Proxy firm valuation methodPrice multiples0.621 ~ 2.645As price multiples increases, fair value increases
358,336Asset 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, 2019 and one of the significant but not observable input is changed, the effect on fair value measurement is as follows:

(in millions of Won)  

Input variable

  Favorable
changes
   Unfavorable
changes
 

Financial assets at fair value

  Fluctuation 0.5% of growth rate  1,325    1,224 
  Fluctuation 0.5% of discount rate   24,766    21,845 

Changes in fair value of financial assets and financial liabilities classified as Level 3 for the years ended December 31, 2018 and 2019 were as follows:

(in millions of Won)  2018   2019 

Beginning

  880,012    709,660 

Acquisition

   134,325    68,461 

Loss on valuation of financial assets

   (34,555   (9,412

Other comprehensive income

   26,771    106,586 

Disposal and others

   (296,893   (81,345
  

 

 

   

 

 

 

Ending

  709,660    793,950 
  

 

 

   

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

4)

Finance income and costs by category of financial instrument for the years ended December 31, 2017, 2018 and 2019 were as follows:

For the year ended December 31, 2017

  Finance income and costs  Other
comprehensive
loss
 
(in millions of Won) Interest
income
(expense)
  Gain and
loss on
valuation
  Gain and
loss on
foreign
currency
  Gain and
loss on
disposal
  Impairment
loss
  Others  Total 

Financial assets held for trading

 —     16   —     —     —     —     16   —   

Derivatives assets

  —     (99,942  —     206,362   —     —     106,420   (143

Available-for-sale financial assets

  60   —     —     418,789   (123,214  92,961   388,596   (31,389

Held-to-maturity financial assets

  236   —     —     —     —     7   243   —   

Loans and receivables

  212,155   —     (607,837  (32,456  —     (304  (428,442  —   

Derivatives liabilities

  —     (61,809  —     (231,908  —     —     (293,717  —   

Financial liabilities measured at amortized cost

  (653,115  —     777,935   —     —     (9,546  115,274   —   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
 (440,664  (161,735  170,098   360,787   (123,214  83,118   (111,610  (31,532
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

For the year ended December 31, 2018

  Finance income and costs  Other
comprehensive
income (loss)
 
(in millions of Won) Interest
income
(expense)
  Gain and
loss on
valuation
  Gain and
loss on
foreign
currency
  Gain and
loss on
disposal
  Others  Total 

Financial assets at fair value through profit or loss

 140,116   (43,293  —     11,919   3,644   112,386   —   

Derivative assets

  —     47,720   —     233,187   —     280,907   —   

Financial assets at fair value through other comprehensive income

  —     —     —     —     59,701   59,701   (149,188

Financial assets measured at amortized cost

  197,142   —     234,606   (39,970  (370  391,408   —   

Derivative liabilities

  —     8,592   —     (194,446  —     (185,854  (212

Financial liabilities measured at amortized cost

  (741,296  —     (438,708  —     (16,990  (1,196,994  —   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
 (404,038  13,019   (204,102  10,690   45,985   (538,446  (149,400
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

For the year ended December 31, 2019

  Finance income and costs  Other
comprehensive
income (loss)
 
(in millions of Won) Interest
income
(expense)
  Gain and
loss on
valuation
  Gain and
loss on
foreign
currency
  Gain and
loss on
disposal
  Others  Total 

Financial assets at fair value through profit or loss

 142,873   (23,551  —     5,556   630   125,508   —   

Derivative assets

  —     123,538   —     184,861   —     308,399   —   

Financial assets at fair value through other comprehensive income

  —     —     —     —     74,825   74,825   (10,541

Financial assets measured at amortized cost

  209,511   —     295,319   (36,935  (8,042  459,853   —   

Derivative liabilities

  —     (7,494  —     (217,072  —     (224,566  (90

Financial liabilities measured at amortized cost

  (755,711  —     (330,808  (2,432  (24,988  (1,113,939  —   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
 (403,327  92,493   (35,489  (66,022  42,425   (369,920  (10,631
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

(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, 20162018 and 20172019 are as follows:

 

   2016   2017 
   (in millions of Won) 

Cash and cash equivalents

  2,447,619    2,612,530 

Financial assets held for trading

       1,970 

Derivative assets

   147,582    68,290 

Available-for-sale financial assets

   51,649    192,866 

Held-to-maturity financial assets

   2,470    5,211 

Loans and other receivables

   7,104,940    9,099,444 

Trade accounts and notes receivable, net

   9,674,026    8,824,563 

Long-term trade accounts and notes receivable, net

   51,124    731,570 
  

 

 

   

 

 

 
      19,479,410    21,536,444 
  

 

 

   

 

 

 
(in millions of Won)  2018   2019 

Cash and cash equivalents

  2,643,865    3,514,872 

Derivative assets

   49,083    112,278 

Short-term financial instrument

   6,099,303    6,861,242 

Debt securities

   37,314    367,926 

Other securities

   338,106    340,008 

Other receivables

   1,845,381    2,195,700 

Trade accounts and nores receivable

   8,819,617    8,214,459 

Deposit instruments

   1,966,558    1,779,082 
  

 

 

   

 

 

 
  21,799,227    23,385,567 
  

 

 

   

 

 

 

The Company provided financial guaranteesguarantee for the repayment of loans of associates, joint ventures and third parties. As of December 31, 20162018 and 2017,2019, the maximum exposure to credit risk related to the financial guaranteesguarantee amounted to2,995,5443,147,280 million and3,135,0844,959,011 million, respectively.

2)

Impairment losses on financial assets

The Company assesses expected credit losses by estimating the default rate based on the credit loss experience of prior periods and current overdue conditions and considers the credit default swap (CDS) premium to reflect changes in credit risk by sector. For credit-impaired assets and significant receivables where the credit risk is significantly increased, credit losses are individually assessed.

Allowance for doubtful accounts as of December 31, 2018 and 2019 are as follows:

(in millions of Won)  2018   2019 

Trade accounts and notes receivable

  588,733    465,524 

Other accounts receivable

   160,729    210,313 

Loans

   147,980    195,339 

Other assets

   19,348    27,098 
  

 

 

   

 

 

 
  916,790    898,274 
  

 

 

   

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

2) Impairment losses on financial assets

Allowance for doubtful accounts as of December 31, 2016 and 2017 are

Impairment losses on financial assets for the years ended December 31, 2018 and 2019 were as follows:

 

   2016   2017 
   (in millions of Won) 

Trade accounts and notes receivable

  558,125    634,129 

Other accounts receivable

   203,346    187,706 

Loans

   210,346    258,957 

Other assets

   5,954    13,672 
  

 

 

   

 

 

 
      977,771    1,094,464 
  

 

 

   

 

 

 

Impairment losses on financial assets for the years ended December 31, 2016 and 2017 were as follows:

   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 
  

 

 

  

 

 

 

(in millions of Won)  2018   2019 

Bad debt expenses

  74,781    (28,105

Other bad debt expenses(*1)

   81,353    88,787 

Less: Recovery of allowance for other bad debt accounts

   (18,261   (8,464
  

 

 

   

 

 

 
  137,873    52,218 
  

 

 

   

 

 

 

 

(*1)

Other bad debt expenses are mainly related to loans and other accounts receivable.

The aging and allowance for doubtful accounts of trade accounts and notes receivable as of December 31, 2018 and 2019 are as follows:

   2018   2019 
(in millions of Won)  Trade accounts and
notes receivable
   Impairment   Trade accounts and
notes receivable
   Impairment 

Current (not past due)

  8,021,110    70,418    7,528,607    75,324 

Over due less than 1 month

   632,082    14,434    876,753    9,395 

1 month - 3 months

   226,082    4,116    228,115    6,647 

3 months - 12 months

   118,094    11,774    134,888    7,954 

Over 12 months

   1,148,694    487,991    965,977    366,204 
  

 

 

   

 

 

   

 

 

   

 

 

 
  10,146,062    588,733    9,734,340    465,524 
  

 

 

   

 

 

   

 

 

   

 

 

 

The aging and allowance for doubtful accounts of other receivables as of December 31, 2018 and loans.2019 are as follows:

The aging and impairment losses of trade accounts and notes receivable as of December 31, 2016 and 2017 are as follows:

  ��2016   2017 
   Trade accounts and
notes receivable
   Impairment   Trade accounts and
notes receivable
   Impairment 
   (in millions of Won) 

Not due

  7,963,491    62,511    7,736,092    65,314 

Over due less than 1 month

   790,042    27,482    445,390    12,546 

1 month – 3 months

   205,394    8,955    170,682    742 

3 months – 12 months

   189,605    26,814    384,313    21,030 

Over 12 months

   1,134,743    432,363    1,453,785    534,497 
  

 

 

   

 

 

   

 

 

   

 

 

 
      10,283,275    558,125    10,190,262    634,129 
  

 

 

   

 

 

   

 

 

   

 

 

 

The aging and impairment losses of other receivables as of December 31, 2016 and 2017 are as follows:

   2016   2017 
   Other
receivables
   Impairment   Other
receivables
   Impairment 
   (in millions of Won) 

Not due

  1,641,924    23,958    1,888,726    9,672 

Over due less than 1 month

   197,772    75,207    235,559    35,539 

1 month – 3 months

   27,525    1,189    69,372    54,335 

3 months – 12 months

   82,337    20,300    96,942    64,467 

over 12 months

   357,401    298,992    365,202    296,322 
  

 

 

   

 

 

   

 

 

   

 

 

 
      2,306,959    419,646    2,655,801    460,335 
  

 

 

   

 

 

   

 

 

   

 

 

 
   2018   2019 
(in millions of Won)  Loans and other
account receivable
   Impairment   Loans and other
account receivable
   Impairment 

Current (not past due)

  1,754,293    140,072    1,220,756    56,354 

Over due less than 1 month

   100,102    4,307    432,220    1,546 

1 month - 3 months

   28,351    851    91,521    239 

3 months - 12 months

   59,946    12,411    271,814    10,846 

over 12 months

   230,746    170,416    612,139    363,765 
  

 

 

   

 

 

   

 

 

   

 

 

 
  2,173,438    328,057    2,628,450    432,750 
  

 

 

   

 

 

   

 

 

   

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

Changes in the allowance for doubtful accounts for the years ended December 31, 2015, 2016 and 2017, 2018 and 2019 were as follows:

 

   2015  2016  2017 
   (in millions of Won) 

Beginning

  954,153   999,678   977,771 

Bad debt expenses

   189,616   165,150   173,694 

Other bad debt expenses

   147,619   37,567   98,177 

Others (*1)

   (291,710  (224,624  (155,178
  

 

 

  

 

 

  

 

 

 

Ending

      999,678   977,771   1,094,464 
  

 

 

  

 

 

  

 

 

 

(in millions of Won)  2017   2018   2019 

Beginning

  977,771    1,094,464    916,790 

Initial application of IFRS No.9

   —      107,454    —   

Bad debt expenses

   173,694    74,781    (28,105

Other bad debt expenses

   98,177    63,092    80,323 

Others(*1)

   (155,178   (423,001   (70,735
  

 

 

   

 

 

   

 

 

 

Ending

  1,094,464    916,790    898,273 
  

 

 

   

 

 

   

 

 

 

 

(*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, 20162017, 2018 and 2017,2019, included decreases mainly due towrite-off amounting to216,657119,964 million,383,714 million and119,96478,505 million, respectively.

(c) Liquidity risk

1) Contractual maturities fornon-derivative financial liabilities, including estimated interest, are as follows:
(c)

Liquidity risk

 

   Book value   Contractual
cash flow
   Within
1 year
   1 year -
5 years
   After
5 years
 
   (in millions of Won) 

Trade accounts and notes payable

  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)

   88,407    3,135,084    3,135,084         

Other financial liabilities

   1,865,683    1,874,667    1,721,004    153,663     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      26,495,425    31,416,855    20,415,605    9,367,070    1,634,180 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
1)

Contractual maturities ofnon-derivative financial liabilities are as follows:

 

(in millions of Won)  Book value   Contractual
cash flow
   Within
1 year
   1 year
- 5 years
   After
5 years
 

Trade accounts and notes payable

  3,442,989    3,444,596    3,422,957    21,639    —   

Borrowings

   20,441,613    22,161,306    9,262,808    11,171,927    1,726,571 

Financial guarantee liabilities(*1)

   64,267    3,406,609    3,406,609    —      —   

Lease liabilities

   675,470    858,662    166,854    502,674    189,134 

Other financial liabilities

   1,725,912    1,797,765    1,667,087    130,678    —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  26,350,251    31,668,938    17,926,315    11,826,918    1,915,705 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(*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

2)

Contractual maturities of derivative financial liabilities are as follows:

 

   Within 1 year   1 year -
5 years
   Total 
   (in millions of Won) 

Currency forward

  9,744    300    10,044 

Currency futures

   9,632    74,834    84,466 

Currency swaps

   25,553    10,504    36,057 

Interest swaps

   153        153 

Other forwards

   24,790        24,790 
  

 

 

   

 

 

   

 

 

 
      69,872    85,638    155,510 
  

 

 

   

 

 

   

 

 

 
(in millions of Won)  Within
1 year
   1 year
- 5 years
   After
5 years
   Total 

Currency forward

  11,779    10,132    —      21,911 

Currency swap

   570    1,687    3,845    6,102 

Interest rate swap

   1,525    1,368    —      2,893 

Others

   14,148    —      —      14,148 
  

 

 

   

 

 

   

 

 

   

 

 

 
  28,022    13,187    3,845    45,054 
  

 

 

   

 

 

   

 

 

   

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

(d)

(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, 2016 and 2017 are as follows:

 

   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 
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, 2018 and 2019 is as follows:

(in millions of Won)  2018   2019 
   Assets   Liabilities   Assets   Liabilities 

USD

      4,346,481    6,389,276    4,423,107    6,166,765 

EUR

   657,690    509,437    592,381    180,816 

JPY

   97,722    389,625    79,664    253,542 

Others

   259,949    142,868    481,455    319,046 

2)

As of December 31, 2018 and 2019, provided that functional currency against foreign currencies other than functional currency hypothetically strengthens or weakens by 10%, the changes in gain or loss for the years ended December 31, 2018 and 2019 were as follows:

(in millions of Won)  2018   2019 
   10% increase   10% decrease   10% increase   10% decrease 

USD

      (204,280   204,280    (174,366   174,366 

EUR

   14,825    (14,825   41,156    (41,156

JPY

   (29,190   29,190    (17,388   17,388 

(e)

Interest rate risk

1)

The carrying amount of interest-bearing financial instruments as of December 31, 2018 and 2019 are as follows:

(in millions of Won)  2018   2019 

Fixed rate

    

Financial assets

  11,565,519    13,391,637 

Financial liabilities

   (11,781,701   (13,264,607
  

 

 

   

 

 

 
   (216,182   127,030 
  

 

 

   

 

 

 

Variable rate

    

Financial liabilities

  (8,522,323   (7,852,476

2)

Sensitivity analysis on the cash flows of financial instruments with variable interest rate

The Company’s interest rate risk mainly arises from borrowings with variable interest rate. As of December 31, 20162018 and 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, 2016 and 2017 were as follows:

   2016   2017 
   10% increase  10% decrease   10% increase  10% decrease 
   (in millions of Won) 

USD

      (162,842  162,842    (172,523  172,523 

EUR

   (8,713  8,713    9,856   (9,856

JPY

   (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, 2016 and 2017 are as follows:

   2016  2017 
   (in millions of Won) 

Fixed rate

   

Financial assets

  8,650,483   10,943,300 

Financial liabilities

   (10,794,724  (11,179,635
  

 

 

  

 

 

 
   (2,144,241  (236,335
  

 

 

  

 

 

 

Variable rate

   

Financial liabilities

      (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 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 cash flows of financial instruments with variable interest rate

As of December 31, 2016 and 2017,2019, 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, 20162018 and 20172019 were as follows:

 

   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 
(in millions of Won)  2018   2019 
   1% increase   1% decrease   1% increase   1% decrease 

Variable rate financial instruments

      (85,223   85,223    (78,525   78,525 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 2017

(f) Fair value

1) Fair value and book value

The carrying amount and the fair value of financial instruments as of December 31, 2016 and 2017 are as follows:

   2016   2017 
   Book value   Fair value   Book value   Fair value 
   (in millions of Won) 

Financial assets measured at fair value

        

Available-for-sale financial assets (*1)

  2,139,687    2,139,687    1,506,893    1,506,893 

Financial assets held for trading

           1,970    1,970 

Derivatives assets

   147,582    147,582    68,290    68,290 
  

 

 

   

 

 

   

 

 

   

 

 

 
   2,287,269    2,287,269    1,577,153    1,577,153 
  

 

 

   

 

 

   

 

 

   

 

 

 

Financial assets measured at amortized cost (*2)

        

Cash and cash equivalents

   2,447,619    2,447,619    2,612,530    2,612,530 

Trade accounts and notes receivable, net

   9,725,150    9,725,150    9,556,133    9,556,133 

Loans and other receivables, net

   7,104,940    7,104,940    9,099,444    9,099,444 

Held-to-maturity financial assets

   2,470    2,470    5,211    5,211 
  

 

 

   

 

 

   

 

 

   

 

 

 
   19,280,179    19,280,179    21,273,318    21,273,318 
  

 

 

   

 

 

   

 

 

   

 

 

 

Financial liabilities measured at fair value

        

Derivatives liabilities

   122,896    122,896    155,510    155,510 

Financial liabilities measured at amortized cost (*2)

        

Trade accounts and notes payable

   4,117,798    4,117,798    3,477,678    3,477,678 

Borrowings

   22,704,998    22,956,571    21,063,657    21,217,415 

Financial guarantee liabilities

   108,161    108,161    88,407    88,407 

Others

   2,007,114    2,007,114    1,865,683    1,865,683 
  

 

 

   

 

 

   

 

 

   

 

 

 
      28,938,071    29,189,644    26,495,425    26,649,183 
  

 

 

   

 

 

   

 

 

   

 

 

 

(*1)Available-for-sale financial assets which are not measured at fair value are not included.

(*2)The fair value of financial assets and liabilities measured at amortized cost is measured using discounted cash flow method, and the fair value is mainly calculated for the disclosures in the 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) The fair values of financial assets and financial liabilities by fair value hierarchy as of December 31, 2016 and 2017 are as follows:

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, 2015, 2016 and 20172019

 

 

 

24.December 31, 2017

Share Capital and Capital Surplus

 

   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

(a)Value measurement method and significant but not observable inputs for the financial assets classified as fair value hierarchy level 3

Share capital as of December 31, 20172018 and 2019 are as follows:

 

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 assets and financial liabilities classified as Level 3 for the years ended December 31, 2016 and 2017 were as follows:

   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 
  

 

 

  

 

 

 

24.Share Capital and Capital Surplus

(a) Share capital as of December 31, 2016 and 2017 are as follows:

  2016   2017 
  (Share, in Won) 
(Share, in Won)  2018   2019 

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 

Shared capital(*2)

      482,403,125,000    482,403,125,000 

Issued shares(*1)

   87,186,835    87,186,835 

Shared capital(*2)

      482,403,125,000    482,403,125,000 

 

(*1)

As of December 31, 2017,2019, total shares of ADRs of 36,840,29234,827,912 outstanding in overseas stock market are equivalent to 9,210,0738,706,978 of common stock.

(*2)

As of December 31, 2017,2019, 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, 2016 and 2017

(b)

The changes in issued common stock for the years ended December 31, 2018 and 2019 were as follows:

 

   2016   2017 
   Issued
shares
   Treasury
shares
  Number of
outstanding
shares
   Issued
shares
   Treasury
shares
  Number of
outstanding
shares
 
   (share) 

Beginning

   87,186,835    (7,191,187  79,995,648    87,186,835    (7,189,170  79,997,665 

Disposal of treasury shares

       2,017   2,017        1,939   1,939 

Ending

   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, 2016 and 2017 are as follows:

(share)  2018   2019 
   Issued
shares
   Treasury
shares
  Number of
outstanding
shares
   Issued
shares
   Treasury
shares
  Number of
outstanding
shares
 

Beginning

   87,186,835    (7,187,231  79,999,604    87,186,835    (7,185,703  80,001,132 

Disposal of treasury shares

   —      1,528   1,528    —      114,509   114,509 
  

 

 

   

 

 

  

 

 

   

 

 

   

 

 

  

 

 

 

Ending

   87,186,835    (7,185,703  80,001,132    87,186,835    (7,071,194  80,115,641 
  

 

 

   

 

 

  

 

 

   

 

 

   

 

 

  

 

 

 

 

   2016   2017 
   (in millions of Won) 

Share premium

  463,825    463,825 

Gain on disposal of treasury shares

   783,788    783,914 

Other capital deficit

   159,634    174,282 
  

 

 

   

 

 

 
      1,407,247    1,422,021 
  

 

 

   

 

 

 
(c)

Capital surplus as of December 31, 2018 and 2019 are as follows:

(in millions of Won)  2018   2019 

Share premium

  463,825    463,825 

Gain on disposal of treasury shares

   784,047    796,623 

Other capital deficit

   172,135    125,259 
  

 

 

   

 

 

 
      1,420,007    1,385,707 
  

 

 

   

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

(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
(d)

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, 2019 are as follows:

 

(Share, in Won)  

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,Cumulative,Non-participating

· Minimum dividend rate for 1~1 year : 3.98%

· Dividend rate for 2~3 years: 3.98%years : 4.48%

· Minimum dividend rate after 4 years: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 stocksshares 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, 2016 and 2017

(a)

Hybrid bonds classified as equity as of December 31, 2018 and 2019 are as follows:

 

  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 
(in millions of Won)  Date of issue   Date of
maturity
   Interest
rate (%)
   2018 2019 

Hybrid bond1-2(*1)

   2013-06-13    2043-06-13    4.60   200,000  200,000 

Issuance cost

         (3,081 (3,081         (616 (616
        

 

  

 

         

 

  

 

 
            996,919  996,919             199,384  199,384 
        

 

  

 

         

 

  

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 2017

2019

 

 

 

(*1)

Details of issuance of hybrid bonds as of December 31, 20172019 are as follows:

 

   

Hybrid bond1-1

  

Hybrid bond1-2

   (in millions of Won)

Issue price

  800,000  200,000

Maturity date

  30 years (POSCO has a right to extend the maturity date)

Interest rate

  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 condition

  Quarterly (Optional deferral of interest payment is available to POSCO)

Others

  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

Hybrid bond1-2

Maturity date

30 years (POSCO has a right to extend the maturity date)

Interest rate

Issue date ~2023-06-12 : 4.60%

Reset every 10 years as follows;

· After 10 years : return on government bond (10 years) + 1.40%

· After 10 years : additionally +0.25% according toStep-up clauses

· After 30 years : additionally +0.75%

Interest payments condition

Quarterly (Optional deferral of interest payment is available to POSCO)

Others

POSCO can call the hybrid bond at year 10 and interest payment date afterwards

The hybrid bond holders’holder’s preference in the event of liquidation is higher thansenior to the common stock holders,shareholders, but lower thansubordinate to other creditors. The interest accumulated but not paid on the hybrid bonds as of December 31, 20172019 amounts to2,389479 million.

(b)

(b)

POSCO ENERGY CO., 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, 2018 and 2019 are as follows:

(in millions of Won)  Date of issue   Date of maturity   Interest rate (%)   2018  2019 

Hybrid bond1-4(*1)

   2013-08-29    2043-08-29    5.21    140,000   140,000 

Issuance cost

         (429  (429
        

 

 

  

 

 

 
            139,571   139,571 
        

 

 

  

 

 

 

(*1)

Details of issuance of hybrid bonds of POSCO ENERGY Co., Ltd .as of December 31, 2019 are as follows:

Hybrid bond1-4

Maturity date30 years (The Company has a right to extend the maturity date)
Interest rate

Issue date ~2023-08-29 : 5.21%

Reset every 10 years as follows;

· 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 conditionQuarterly (Optional deferral of interest payment is available to the issuer)
OthersThe issuer can call the hybrid bond at year 10 and interest payment date afterwards

The hybrid bond holders’ preference in the event of liquidation is senior to the common shareholders, but subordinate to other creditors. The interest accumulated but not paid on the hybrid bonds as of December 31, 2016 and 2017 are as follows:2019 amounts to639 million.

   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, 2015, 20162018 and 2017

2019

 

 

 

(*1)26.Details of issuance of hybrid bonds of POSCO ENERGY CO., LTD.

Reserves

(a)

Reserves as of December 31, 20172018 and 2019 are as follows:

 

  

Hybrid bond1-1

 

Hybrid bond1-2 and1-3

 

Hybrid bond1-4

  (in millions of Won)

Issue price

 165,000 195,000 140,000

Maturity date

 30 years (The Company has a right to extend the maturity date)

Interest rate

 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

 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 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

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, 2017 amounts to2,004 million.

(in millions of Won)  2018   2019 

Accumulated comprehensive loss of investments in associates and joint ventures

  (670,435   (648,712

Changes in fair value of equity investments at fair value through other comprehensive income

   (295,300   (285,073

Foreign currency translation differences

   (417,817   (202,636

Gain or losses on valuation of derivatives

   (352   (438

Others

   (20,464   (21,121
  

 

 

   

 

 

 
  (1,404,368   (1,157,980
  

 

 

   

 

 

 

 

26.(b)Reserves

(a) Reserves as of December 31, 2016 and 2017 are as follows:

   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 and changes in fair value of equity investments at fair value through other comprehensive income for the years ended December 31, 2018 and 2019 were as follows:

(in millions of Won)  2018   2019 

Beginning balance

  230,190    (295,300

Initial application of IFRS No. 9

   (421,525   —   

Changes in unrealized fair value of equity investments

   (139,226   (9,422

Reclassification upon disposal

   45,737    21,902 

Others

   (10,476   (2,253
  

 

 

   

 

 

 

Ending balance

  (295,300   (285,073
  

 

 

   

 

 

 

27.

Treasury Shares

Based on the Board of Directors’ resolution, POSCO holds treasury shares for business purposes including its share price stabilization. The changes in treasury shares for the years ended December 31, 20162018 and 20172019 were as follows:

 

   2016  2017 
   (in millions of Won) 

Beginning balance

  (38,294  276,143 

Changes in the unrealized fair value ofavailable-for-sale investments

   218,542   183,761 

Reclassification to profit or loss upon disposal

   (88,781  (299,862

Impairment ofavailable-for-sale investments

   187,108   96,083 

Others

   (2,432  (25,935
  

 

 

  

 

 

 

Ending balance

  276,143   230,190 
  

 

 

  

 

 

 
(shares, in millions of Won)  2018   2019 
   Number of shares   Amount   Number of shares   Amount 

Beginning

   7,187,231   1,533,054    7,185,703   1,532,728 

Disposal of treasury shares

   (1,528   (326   (114,509   (24,425
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending

   7,185,703   1,532,728    7,071,194   1,508,303 
  

 

 

   

 

 

   

 

 

   

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

27.28.Treasury Shares

Revenue

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, 2016 and 2017 were as follows:

   2016  2017 
   Number of shares  Amount  Number of shares  Amount 
   (shares, in millions of Won) 

Beginning

   7,191,187  1,533,898   7,189,170  1,533,468 

Disposal of treasury shares

   (2,017  (430  (1,939  (414
  

 

 

  

 

 

  

 

 

  

 

 

 

Ending

   7,189,170  1,533,468   7,187,231  1,533,054 
  

 

 

  

 

 

  

 

 

  

 

 

 

 

28.(a)Revenue

Disaggregation of revenue

Details of revenue for the years ended December 31, 2015, 2016 and 2017 were as follows:

   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 Contracts1)

Details of revenue disaggregated by types of revenue and timing of revenue recognition for the years ended December 31, 2017, 2018 and 2019 were as follows:

(a) Details ofin-progress construction contracts as of December 31, 2016 and 2017 are as follows:

For the year ended December 31, 2017

 

   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) Details of due from customers for contract work and due to customers for contract work related to construction as of December 31, 2016 and 2017 are as follows:

(in millions of Won)  Steel   Trading   Construction   Others   Total 

Types of revenue

          

Revenue from sales of goods

  30,064,680    20,655,267    20,368    617,394    51,357,709 

Revenue from services

   111,494    28,793    48,408    1,876,179    2,064,874 

Revenue from construction contract

   —      —      6,262,038    37,154    6,299,192 

Others

   54,194    118,147    87,559    205,192    465,092 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  30,230,368    20,802,207    6,418,373    2,735,919    60,186,867 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Timing of revenue recognition

          

Revenue recognized at a point in time

  30,118,874    20,773,414    334,345    832,369    52,059,002 

Revenue recognized over time

   111,494    28,793    6,084,028    1,903,550    8,127,865 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  30,230,368    20,802,207    6,418,373    2,735,919    60,186,867 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

   2016  2017 
   (in millions of Won) 

Unbilled due from customers for contract work

  860,287   728,007 

Due to customers for contract work

   (1,031,663  (782,968
  

 

 

  

 

 

 
  (171,376  (54,961
  

 

 

  

 

 

 

For the year ended December 31, 2018

(in millions of Won)  Steel   Trading   Construction   Others   Total 

Types of revenue

          

Revenue from sales of goods

  31,733,609    21,632,183    3,568    605,206    53,974,566 

Revenue from services

   583,359    611,752    63,922    2,274,606    3,533,639 

Revenue from construction contract

   —      —      6,860,995    272,778    7,133,773 

Others

   41,041    163,782    17,784    290,051    512,658 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  32,358,009    22,407,717    6,946,269    3,442,641    65,154,636 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Timing of revenue recognition

          

Revenue recognized at a point in time

  31,774,650    21,795,965    743,448    906,120    55,220,183 

Revenue recognized over time

   583,359    611,752    6,202,821    2,536,521    9,934,453 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  32,358,009    22,407,717    6,946,269    3,442,641    65,154,636 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

For the year ended December 31, 2019

(c) Due

(in millions of Won)  Steel   Trading   Construction   Others   Total 

Types of revenue

          

Revenue from sales of goods

  31,456,714    21,629,838    —      712,196    53,798,748 

Revenue from services

   573,463    369,730    49,696    2,217,862    3,210,751 

Revenue from construction contract

   —      —      7,308,401    30,998    7,339,399 

Others

   48,276    157,564    5,393    225,578    436,811 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  32,078,453    22,157,132    7,363,490    3,186,634    64,785,709 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Timing of revenue recognition

          

Revenue recognized at a point in time

  31,504,990    21,787,402    747,917    943,037    54,983,346 

Revenue recognized over time

   573,463    369,730    6,615,573    2,243,597    9,802,363 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  32,078,453    22,157,132    7,363,490    3,186,634    64,785,709 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(b)

Details of contract assets and liabilities from contracts with customers as of December 31, 2018 and 2019, are as follows.

(in millions of Won)  2018   2019 

Receivables

    

Account receivables

  8,819,617    8,214,459 

Contract assets

    

Due from customers for contract work

   737,712    1,054,357 

Contract liabilities

    

Advance received

   1,278,731    864,480 

Due to customers for contract work

   641,064    644,947 

Unearned revenue

   91,872    88,733 

29.

Revenue – Contract Balances

(a)

Details ofin-progress contracts as of December 31, 2018 and 2019 are as follows:

(in millions of Won)  2018   2019 

Accumulated cost

  26,153,452    27,281,031 

Accumulated contract profit

   1,848,718    2,462,008 

Accumulated contract loss

   (804,538   (1,185,200

Accumulated contract revenue

   27,197,632    28,557,839 

POSCO and Subsidiaries

Notes to the factors causing the variationConsolidated Financial Statements, Continued

As of costs for the years ended December 31, 20162018 and 2017, the estimated total contract costs 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:2019

 

   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

(b)

Details of due from customers for contract work and due to customers for contract work as of December 31, 2018 and 2019 are as follows:

(in millions of Won)  2018   2019 

Unbilled due from customers for contract work

  810,655    1,128,116 

Due to customers for contract work

   (641,064   (644,947
  

 

 

   

 

 

 
  169,591    483,169 
  

 

 

   

 

 

 

(c)

Due to the factors causing the variation of costs for the years ended December 31, 2018 and 2019, the estimated total contract costs have changed. Details of changes in estimated total contract costs and the impact on profit before income taxes for the years ended December 31, 2018, 2019 and future periods are as follows:

(in millions of Won)  2018   2019 

Changes in estimated total contract costs

  427,812    533,639 

Changes in profit before income taxes of construction contract :

    

- Current period

   (38,720   (166,077

- Future periods

   69,428    (43,584

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

(d)

(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, claims 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, thisthe measurement of contract revenues is affected by the uncertainty of the occurrence of future events.

 

 2)

Total contract costs

ConstructionContract revenues are recognized based on the percentage of completion, which is measured on the basis of the gross cost 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 estimates on future estimatescontract costs 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 significant assumptions including uncertainty of the estimate of total contract costs are as follows:

 

   

Method of significant assumption

Material cost

  Assumption based on recent purchasing price and quoted market price

Labor cost

  Assumption based on standard monthly and daily labor cost

Outsourcing cost

  Assumption based on the past experience rate of similar project and market price

Management reviews the assumptions used in estimated contract costs at each reporting period end and adjusts them, if necessary.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

30.Selling and Administrative Expenses

(a) Administrative expenses

Administrative expenses for the years ended December 31, 2015, 2016 and 2017 were as follows:

   2015   2016   2017 
   (in millions of Won) 

Wages and salaries

  810,851    769,589    774,900 

Expenses related to post-employment benefits

   87,293    200,956    78,654 

Other employee benefits

   193,967    176,794    159,920 

Travel

   48,426    40,828    39,790 

Depreciation

   105,470    103,442    97,261 

Amortization

   168,525    139,569    146,314 

Communication

   12,502    11,186    11,740 

Electricity expenses

   9,573    7,527    7,050 

Taxes and public dues

   74,315    78,895    72,826 

Rental

   119,836    82,005    69,976 

Repairs

   11,677    11,316    9,859 

Entertainment

   15,740    13,157    11,582 

Advertising

   90,698    86,141    119,724 

Research & development

   135,508    120,608    125,795 

Service fees

   218,751    201,129    193,387 

Vehicles maintenance

   10,756    10,090    8,211 

Industry association fee

   12,603    13,468    10,140 

Conference

   16,053    13,108    14,494 

Increase to provisions

   14,900    6,532    10,990 

Bad debt expenses

   189,616    165,150    173,694 

Others

   48,188    40,050    40,493 
  

 

 

   

 

 

   

 

 

 
      2,395,248    2,291,540    2,176,800 
  

 

 

   

 

 

   

 

 

 

(b) Selling expenses

Selling expenses for the years ended December 31, 2015, 2016 and 2017 were as follows:

   2015   2016   2017 
   (in millions of Won) 

Freight and custody expenses

  1,531,906    1,342,009    1,336,969 

Operating expenses for distribution center

   11,021    10,315    10,503 

Sales commissions

   80,165    94,377    115,925 

Sales advertising

   3,220    5,117    3,800 

Sales promotion

   22,443    10,670    12,414 

Sample

   2,576    2,335    1,989 

Sales insurance premium

   30,682    31,379    36,546 

Contract cost

   38,425    49,480    23,061 

Others

   8,518    8,004    16,070 
  

 

 

   

 

 

   

 

 

 
      1,728,956    1,553,686    1,557,277 
  

 

 

   

 

 

   

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 2016 and 2017

31.Research and Development Expenditures Recognized as Expenses

Research and development expenditures recognized as expenses for the years ended December 31, 2015, 2016 and 2017 were as follows:

   2015   2016   2017 
   (in millions of Won) 

Administrative expenses

  135,508    120,608    125,795 

Cost of sales

   356,173    324,190    361,093 
  

 

 

   

 

 

   

 

 

 
      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, 2015, 2016 and 2017 were as follows:

   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)The Company recognized the refund of VAT and others amounting to160,501 million as other operating income for the year ended December 31, 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, 2015, 20162018 and 2019

Management reviews the assumptions used in estimated contract costs at each reporting period end and adjusts them, if necessary.

(e)

As of December 31, 2019, revenue expected to be recognized in the future in relation to performance obligations that have not been fulfilled (or partially fulfilled) is as follows:

(in millions of Won)  2020   2021   2022   After 2023   Total 

Expected Revenue

  6,387,124    4,279,557    2,105,577    1,965,478    14,737,736 

30.

Selling and Administrative Expenses

(a)

Other administrative expenses

Other administrative expenses for the years ended December 31, 2017, 2018 and 2019 were as follows:

(in millions of Won)  2017   2018   2019 

Wages and salaries

  774,900    813,467    840,599 

Expenses related to post-employment benefits

   78,654    73,290    88,880 

Other employee benefits

   159,920    176,240    177,908 

Travel

   39,790    40,929    42,692 

Depreciation

   97,261    101,274    131,337 

Amortization

   146,314    112,418    112,171 

Communication

   11,740    10,616    11,150 

Electricity

   7,050    8,309    8,799 

Taxes and public dues

   72,826    71,973    78,932 

Rental

   69,976    69,516    39,886 

Repairs

   9,859    15,291    13,454 

Entertainment

   11,582    11,816    11,123 

Advertising

   119,724    106,875    82,574 

Research & development

   125,795    108,352    110,315 

Service fees

   193,387    165,938    193,486 

Vehicles maintenance

   8,211    8,942    7,660 

Industry association fee

   10,140    9,571    9,609 

Conference

   14,494    14,510    15,104 

Increase to provisions

   10,990    14,433    18,071 

Others

   40,493    51,995    47,536 
  

 

 

   

 

 

   

 

 

 
  2,003,106    1,985,755    2,041,286 
  

 

 

   

 

 

   

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

 

 

 

33.(b)Finance Income and Costs

Selling expenses

Details of finance income and costsSelling expenses for the years ended December 31, 2015, 20162017, 2018 and 20172019 were as follows:

 

   2015  2016  2017 
   (in millions of Won) 

Finance income

    

Interest income

  210,193   182,475   212,451 

Dividend income

   183,712   41,000   92,962 

Gain on foreign currency transactions

   1,025,240   1,032,552   785,616 

Gain on foreign currency translations

   466,090   377,723   564,016 

Gain on derivatives transactions

   366,482   316,524   210,727 

Gain on valuations of derivatives

   155,334   147,111   64,735 

Gain on disposals ofavailable-for-sale financial assets

   139,136   130,830   425,684 

Others

   10,886   3,765   16,476 
  

 

 

  

 

 

  

 

 

 
  2,557,073   2,231,980   2,372,667 
  

 

 

  

 

 

  

 

 

 

Finance costs

    

Interest expenses

  (788,772  (658,726  (653,115

Loss on foreign currency transactions

   (1,157,161  (1,147,192  (756,654

Loss on foreign currency translations

   (716,722  (405,391  (422,880

Loss on derivatives transactions

   (343,118  (338,314  (236,273

Loss on valuation of derivatives

   (72,133  (162,676  (226,487

Impairment loss onavailable-for-sale financial assets

   (142,781  (248,404  (123,214

Others

   (166,367  (53,487  (65,654
  

 

 

  

 

 

  

 

 

 
      (3,387,054  (3,014,190  (2,484,277
  

 

 

  

 

 

  

 

 

 
(in millions of Won)  2017   2018   2019 

Freight and custody(*1)

  1,336,969    184,675    180,341 

Operating expenses for distribution center

   10,503    10,614    9,222 

Sales commissions

   115,925    79,080    73,941 

Sales advertising

   3,800    4,821    1,552 

Sales promotion

   12,414    13,792    9,989 

Sample

   1,989    2,716    2,287 

Sales insurance premium

   36,546    37,251    32,632 

Contract cost

   23,061    16,992    38,081 

Others

   16,070    19,304    20,273 
  

 

 

   

 

 

   

 

 

 
  1,557,277    369,245    368,318 
  

 

 

   

 

 

   

 

 

 

 

34.(*1)Expenses by Nature

From the year ended December 31, 2018, upon adoption of IFRS No. 15, the Company recognized the freight expenses included in selling expenses incurred for the delivery of transportation services identified as a separate performance obligations in cost of sales.

Expenses that are recorded by nature

31.

Research and Development Expenditures Recognized as Expenses

Research and development expenditures recognized as cost of sales, selling and administrative expenses and other operating expenses in the statements of comprehensive income for the years ended December 31, 2015, 20162017, 2018 and 20172019 were as follows (excluding finance costs and income tax expense):follows:

 

   2015   2016   2017 
   (in millions of Won) 

Raw material used, changes in inventories and others

  33,939,108    30,177,732    35,584,184 

Employee benefits expenses(*2)

   3,472,295    3,444,276    3,357,861 

Outsourced processing cost

   8,681,271    7,678,055    7,074,948 

Electricity expenses

   1,251,546    1,018,429    933,045 

Depreciation(*1)

   2,836,663    2,835,843    2,887,646 

Amortization

   381,583    378,004    409,774 

Freight and custody expenses

   1,531,906    1,342,009    1,336,969 

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

   62,957    43,810    51,424 

Other expenses

   4,861,126    3,258,583    4,038,242 
  

 

 

   

 

 

   

 

 

 
      57,584,936    50,872,411    56,441,970 
  

 

 

   

 

 

   

 

 

 
(in millions of Won)  2017   2018   2019 

Administrative expenses

  125,795    108,352    110,315 

Cost of sales

   361,093    418,250    389,460 
  

 

 

   

 

 

   

 

 

 
  486,888    526,602    499,775 
  

 

 

   

 

 

   

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

 

32.

Other Operating Income and Expenses

Details of other operating income and expenses for the years ended December 31, 2017, 2018 and 2019 were as follows:

(in millions of Won)  2017  2018  2019 

Other operating income

    

Gain on disposals of assets held for sale

  1,180   27,171   37,461 

Gain on disposals of investment in subsidiaries, associates and joint ventures

   81,794   45,241   27,836 

Gain on disposals of property, plant and equipment

   32,145   53,139   49,367 

Gain on disposals of intangible assets

   23,391   117,139   1,896 

Gain on valuation of firm commitment

   56,301   39,028   60,201 

Gain on valuation of emission rights

   —     —     25,440 

Gain on disposals of emission rights

   —     —     11,141 

Reversal of other provisions

   —     3,557   36,522 

Others(*1,3)

   253,670   238,311   201,027 
  

 

 

  

 

 

  

 

 

 
  448,481   523,586   450,891 
  

 

 

  

 

 

  

 

 

 

Other operating expenses

    

Impairment loss on assets held for sale

  —     (50,829  (38,328

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

   (19,985  (5,226  (6,539

Loss on disposals of property, plant and equipment

   (151,343  (117,614  (120,227

Impairment loss on property, plant and equipment

   (117,231  (1,004,704  (442,700

Impairment loss on investment property

   —     (51,461  (32,642

Impairment loss on intangible assets

   (167,995  (337,519  (191,021

Loss on valuation of firm commitment

   (43,164  (66,281  (37,685

Idle tangible asset expenses

   (10,490  (9,257  (34,152

Increase to provisions

   (33,964  (134,632  (23,074

Donations

   (51,424  (52,074  (51,567

Others(*2)

   (95,780  (184,865  (112,029
  

 

 

  

 

 

  

 

 

 
  (691,376  (2,014,462  (1,089,964
  

 

 

  

 

 

  

 

 

 

 

(*1)Includes depreciation expense

During the year ended December 31, 2019, the Company recognized other operating income of investment property.74,044 million as a result of request for judgment on refund of value added tax related to imported LNG.

(*2)

During the 2018, the Company recognized the other-operating expenses of52,997 million in fines for additional value added tax related to imported LNG.

(*3)

During the year ended December 31, 2018, the Company recognized other operating income of55,306 million as a result of request for judgment and correction of tax investigation.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

33.

Finance Income and Costs

Details of finance income and costs for the years ended December 31, 2017, 2018 and 2019 were as follows:

(in millions of Won)  2017  2018  2019 

Finance income

    

Interest income(*1)

  212,451   337,258   352,384 

Dividend income

   92,962   63,345   75,455 

Gain on foreign currency transactions

   785,616   716,060   824,565 

Gain on foreign currency translations

   564,016   212,443   206,019 

Gain on derivatives transactions

   210,727   247,513   195,933 

Gain on valuations of derivatives

   64,735   96,986   163,491 

Gain on disposals of financial assets at fair value through profit of loss

   —     8,742   8,525 

Gain on disposals ofavailable-for-sale financial assets

   425,684   —     —   

Gain on valuations of financial assets at fair value through profit or loss

   —     16,149   42,297 

Others

   16,476   7,474   3,474 
  

 

 

  

 

 

  

 

 

 
  2,372,667   1,705,970   1,872,143 
  

 

 

  

 

 

  

 

 

 

Finance costs

    

Interest expenses

  (653,115  (741,296  (755,711

Loss on foreign currency transactions

   (756,654  (810,857  (746,603

Loss on foreign currency translations

   (422,880  (321,748  (319,470

Loss on derivatives transactions

   (236,273  (208,772  (228,144

Loss on valuations of derivatives

   (226,487  (40,674  (47,447

Loss on disposals of trade accounts and notes receivable

   (32,456  (39,970  (36,935

Impairment loss onavailable-for-sale financial assets

   (123,214  —     —   

Loss on disposals of financial assets at fair value through profit or loss

   —     (1,474  (2,969

Loss on valuations of financial assets at fair value through profit or loss

   —     (59,442  (65,848

Others

   (33,198  (20,183  (38,936
  

 

 

  

 

 

  

 

 

 
  (2,484,277  (2,244,416  (2,242,063
  

 

 

  

 

 

  

 

 

 

(*1)

Interest income calculated using the effective interest method for the years ended December 31, 2017, 2018 and 2019 were130,710 million,197,142 million and209,511 million, respectively.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

34.

Expenses by Nature

Expenses that are recorded by nature as cost of sales, selling and administrative expenses, impairment loss on other receivables and other operating expenses in the statements of comprehensive income for the years ended December 31, 2017, 2018 and 2019 were as follows (excluding finance costs and income tax expense):

(in millions of Won)  2017   2018   2019 

Raw material used, changes in inventories and others

  35,584,184    38,884,690    39,279,866 

Employee benefits(*2)

   3,357,861    3,639,192    3,623,611 

Outsourced processing cost

   7,074,948    7,462,656    8,250,372 

Electricity

   933,045    949,435    912,832 

Depreciation(*1)

   2,887,646    2,911,048    3,029,868 

Amortization

   409,774    356,581    431,247 

Freight and custody

   1,336,969    1,414,940    1,446,628 

Sales commissions

   115,925    79,080    73,941 

Loss on disposal of property, plant and equipment

   151,343    117,614    120,227 

Impairment loss on property, plant and equipment

   117,231    1,004,704    442,700 

Impairment loss on goodwill and intangible assets

   167,995    337,519    191,021 

Donations

   51,424    52,074    51,567 

Other

   4,253,625    4,445,124    4,168,470 
  

 

 

   

 

 

   

 

 

 
  56,441,970    61,654,657    62,022,350 
  

 

 

   

 

 

   

 

 

 

(*1)

Includes depreciation of investment property.

(*2)

The details of employee benefits expenses for the years ended December 31, 2015, 20162017, 2018 and 20172019 were as follows:

 

  2015   2016   2017 
  (in millions of Won) 
(in millions of Won)  2017   2018   2019 

Wages and salaries

  3,186,237    3,016,488    3,105,364   3,105,364    3,372,831    3,313,642 

Expenses related to post-employment benefits

   286,058    427,788    252,497    252,497    266,361    309,969 
  

 

   

 

   

 

   

 

   

 

   

 

 
      3,472,295    3,444,276    3,357,861   3,357,861    3,639,192    3,623,611 
  

 

   

 

   

 

   

 

   

 

   

 

 

 

35.

Income Taxes

(a)

(a)

Income tax expense for the years ended December 31, 2017, 2018 and 2019 was as follows:

(in millions of Won)  2017   2018   2019 

Current income taxes(*1)

  864,143    1,577,581    913,286 

Deferred income tax due to temporary differences

   300,037    (38,851   164,078 

Items recorded directly in equity

   21,560    144,900    11,005 
  

 

 

   

 

 

   

 

 

 

Income tax expense

  1,185,740    1,683,630    1,088,369 
  

 

 

   

 

 

   

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 2017 was as follows:2019

 

   2015  2016  2017 
   (in millions of Won) 

Current income taxes

  553,041   699,269   864,143 

Deferred income tax due to temporary differences

   (253,860  (209,706  300,037 

Items recorded directly in equity

   (32,621  (110,019  21,560 
  

 

 

  

 

 

  

 

 

 

Income tax expense

      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 rate (24.2%) to the actual amount of taxes recorded by the Company for the years ended December 31, 2015, 2016 and 2017.

   2015  2016  2017 
   (in millions of Won) 

Profit before income tax expense

      150,345   1,411,609   4,095,051 

Income tax expense computed at statutory rate

   35,921   341,148   990,540 

Adjustments:

    

Tax credits

   (152,139  (30,124  (40,757

Over provisions from prior years

   (47,053  (11,829  (20,912

Investment in subsidiaries, associates and joint ventures

   439,575   76,751   55,113 

Tax effects due to permanent differences

   (26,045  (9,962  4,798 

Effect of tax rate change(*1)

         175,647 

Others

   16,301   13,560   21,311 
  

 

 

  

 

 

  

 

 

 
   230,639   38,396   195,200 
  

 

 

  

 

 

  

 

 

 

Income tax expense

  266,560   379,544   1,185,740 
  

 

 

  

 

 

  

 

 

 

Effective tax rate (%)

   177.30  26.89  28.96

 

 

(*1)

Refund (additional payment) of income taxes when filing a final corporation tax return credited (charged) directly to current income taxes.

(b)

The income taxes credited (charged) directly to equity for the years ended December 31, 2017, 2018 and 2019 were as follows:

(in millions of Won)  2017   2018   2019 

Net changes in the unrealized fair value ofavailable-for-sale investments

  1,271    47,423    (26,744

Gain on disposal of treasury shares

   (40   (50   —   

Others

   20,329    97,527    37,749 
  

 

 

   

 

 

   

 

 

 
  21,560    144,900    11,005 
  

 

 

   

 

 

   

 

 

 

(c)

The following table reconciles the calculated income tax expense based on POSCO’s statutory rate (27.5%) to the actual amount of taxes recorded by the Company for the years ended December 31, 2017, 2018 and 2019.

(in millions of Won)  2017  2018  2019 

Profit before income tax expense

  4,095,051   3,616,016   3,126,534 

Income tax expense computed at statutory rate

   990,540   982,287   847,017 

Adjustments:

    

Tax credits

   (40,757  (32,103  (39,709

Additional income tax expense for prior years (over provisions from prior years)

   (20,912  44,336   (35,389

Tax effect from tax audit

   —     130,196   14,775 

Investment in subsidiaries, associates and joint ventures

   (12,510  114,856   317,977 

Tax effects due to permanent differences

   72,421   64,708   (5,588

Effect of tax rate change(*1)

   175,647   —     —   

Others(*2)

   21,311   379,350   (10,714
  

 

 

  

 

 

  

 

 

 
   195,200   701,343   241,352 
  

 

 

  

 

 

  

 

 

 

Income tax expense

  1,185,740   1,683,630   1,088,369 
  

 

 

  

 

 

  

 

 

 

Effective tax rate (%)

   28.96  46.56  34.81

(*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.

(*2)

Includes the effect of undeductible impairment loss related to Synthetic Natural Gas (SNG) facility for the year ended December 31, 2018.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

(d) The movements in deferred tax assets (liabilities) for the years ended December 31, 2016 and 2017
(d)

The movements in deferred tax assets (liabilities) for the years ended December 31, 2018 and 2019 were as follows:

 

 2016 2017 
 Beginning Inc. (Dec.) Ending Beginning Inc. (Dec.) Ending 
(in millions of Won)  2018 2019 
 (in millions of Won)   Beginning Inc.
(Dec.)
 Ending Beginning Inc.
(Dec.)
 Ending 

Deferred income tax due to temporary differences

             

Allowance for doubtful accounts

 202,592  10,527  213,119  213,119  60,875  273,994   273,994  (92,851 181,143  181,143  (28,007 153,136 

Reserve for technology developments

 (177,676 85,716  (91,960 (91,960 53,973  (37,987   (37,987 37,987   —     —     —     —   

PP&E — Depreciation

 (15,240 3,601  (11,639 (11,639 26,280  14,641 

PP&E - Depreciation

   14,641  (4,804 9,837  9,837  12,374  22,211 

Share of profit or loss of equity-accounted investees

 (45,174 115,433  70,259  70,259  125,783  196,042    196,042  31,552  227,594  227,594  (108,480 119,114 

Allowance for inventories valuation

 13,373  2,278  15,651  15,651  (4,871 10,780    10,780  (104 10,676  10,676  (1,231 9,445 

PP&E — Revaluation

 (1,393,501 (130,648 (1,524,149 (1,524,149 (304,015 (1,828,164

PP&E - Revaluation

   (1,828,164 (33,548 (1,861,712 (1,861,712 43,251  (1,818,461

Prepaid expenses

 19,180  485  19,665  19,665  335  20,000    20,000  (2,741 17,259  17,259  (2,047 15,212 

PP&E — Impairment loss

 8,055  (2,760 5,295  5,295  245  5,540 

PP&E - Impairment loss

   5,540  (927 4,613  4,613  (208 4,405 

Gain or loss on foreign currency translation

 (29,355 23,398  (5,957 (5,957 (42,515 (48,472   (48,472 10,462  (38,010 (38,010 45,046  7,036 

Defined benefit obligations

 354,175  7,663  361,838  361,838  68,279  430,117 

Plan assets

 (287,839 (28,686 (316,525 (316,525 (36,129 (352,654

Defined benefit liabilities

   (36,754 (36,835 (73,589 (73,589 (22,094 (95,683

Provision for construction losses

 612  385  997  997  (556 441    441  6,964  7,405  7,405  (102 7,303 

Provision for construction warranty

 21,604  2,718  24,322  24,322  4,395  28,717    28,717  41,601  70,318  70,318  (8,517 61,801 

Accrued income

 (8,982 (459 (9,441 (9,441 (3,474 (12,915   (12,915 (179 (13,094 (13,094 (17,722 (30,816

Impairment loss on AFS

 266,474  (21,306 245,168  245,168  (42,373 202,795    202,795  (126,876 75,919  75,919  36,636  112,555 

Difference in acquisition costs of treasury shares

 62,116  (17 62,099  62,099  8,448  70,547    70,547  (15 70,532  70,532  (1,124 69,408 

Others

 296,207  107,541  403,748  403,748  (27,740 376,008    490,225  (65,906 424,319  424,319  (30,535 393,784 
 

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 
 (713,379 175,869  (537,510 (537,510 (113,060 (650,570   (650,570 (236,220 (886,790 (886,790 (82,760 (969,550
 

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Deferred income taxes recognized directly to equity

             

Loss (gain) on valuation ofavailable-for-sale investments

 50,043  (100,550 (50,507 (50,507 1,271  (49,236

Net changes in fair value of equity investments at fair value through other comprehensive income(*1)

   (49,236 206,121  156,885  156,885  (26,744 130,141 

Others

 61,291  (9,459 51,832  51,832  20,329  72,161    72,161  58,111  130,272  130,272  37,749  168,021 
 

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 
 111,334  (110,009 1,325  1,325  21,600  22,925    22,925  264,232  287,157  287,157  11,005  298,162 
 

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Deferred tax from tax credit

             

Tax credit carry-forward and others

 277,261  30,074  307,335  307,335  (189,303 118,032    118,032  (2,443 115,589  115,589  (23,750 91,839 

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    68,426  135,512  203,938  203,938  (68,574 135,364 
 

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 
 (342,873 200,153  (142,720 (142,720 (298,467 (441,187  (441,187 161,081  (280,106 (280,106 (164,079 (444,185
 

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

(*1)

These changes include the cumulative impact of initial application of IFRS No. 15 and IFRS No. 9 from the year ended December 31, 2018.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

(e) Deferred tax assets and liabilities as of December 31, 2016 and 2017
(e)

Deferred tax assets and liabilities for the years ended December 31, 2018 and 2019 are as follows:

 

 2016 2017 
 Assets Liabilities Net Assets Liabilities Net 
(in millions of Won)  2018 2019 
 (in millions of Won)   Assets   Liabilities Net Assets   Liabilities Net 

Deferred income tax due to temporary differences

               

Allowance for doubtful accounts

 213,119     213,119  273,994     273,994   181,143    —    181,143  153,136    —    153,136 

Reserve for technology developments

    (91,960 (91,960    (37,987 (37,987   —      —     —     —      —     —   

PP&E — Depreciation

 50,843  (62,482 (11,639 59,912  (45,271 14,641 

PP&E - Depreciation

   55,354    (45,517 9,837  68,649    (46,438 22,211 

Share of profit or loss of equity-accounted investees

 178,538  (108,279 70,259  236,637  (40,595 196,042    278,466    (50,872 227,594  177,467    (58,353 119,114 

Allowance for inventories valuation

 15,651     15,651  10,780     10,780    10,676    —    10,676  9,445    —    9,445 

PP&E — Revaluation

    (1,524,149 (1,524,149    (1,828,164 (1,828,164

PP&E - Revaluation

   —      (1,861,712 (1,861,712  —      (1,818,461 (1,818,461

Prepaid expenses

 19,665     19,665  20,000     20,000    17,259    —    17,259  15,212    —    15,212 

PP&E — Impairment loss

 5,397  (102 5,295  5,639  (99 5,540 

PP&E - Impairment loss

   5,240    (627 4,613  4,405    —    4,405 

Gain or loss on foreign currency translation

 99,836  (105,793 (5,957 113,760  (162,232 (48,472   121,797    (159,807 (38,010 136,360    (129,324 7,036 

Defined benefit obligations

 361,838     361,838  430,117     430,117 

Plan assets

    (316,525 (316,525    (352,654 (352,654

Defined benefit liabilities

   390,972    (464,561 (73,589 426,930    (522,613 (95,683

Provision for construction losses

 997     997  441     441    7,405    —    7,405  7,303    —    7,303 

Provision for construction warranty

 24,322     24,322  28,717     28,717    70,318    —    70,318  61,801    —    61,801 

Accrued income

    (9,441 (9,441    (12,915 (12,915   —      (13,094 (13,094  —      (30,816 (30,816

Impairment loss on AFS

 245,168     245,168  202,795     202,795    75,919    —    75,919  112,555    —    112,555 

Difference in acquisition costs of treasury shares

 62,099     62,099  70,547     70,547    70,532    —    70,532  69,408    —    69,408 

Others

 452,425  (48,677 403,748  473,025  (97,017 376,008    820,611    (396,292 424,319  471,621    (77,836 393,784 
 

 

  

 

  

 

  

 

  

 

  

 

   

 

   

 

  

 

  

 

   

 

  

 

 
 1,729,898  (2,267,408 (537,510 1,926,364  (2,576,934 (650,570   2,105,692    (2,992,482 (886,790 1,714,292    (2,683,841 (969,550
 

 

  

 

  

 

  

 

  

 

  

 

   

 

   

 

  

 

  

 

   

 

  

 

 

Deferred income taxes recognized directly to equity

               

Loss (gain) on valuation ofavailable-for-sale investments

 50,245  (100,752 (50,507 110,865  (160,101 (49,236

Net changes in fair value of equity investments at fair value through other comprehensive income

   247,921    (91,036 156,885  220,276    (90,135 130,141 

Others

 65,532  (13,700 51,832  92,981  (20,820 72,161    153,609    (23,337 130,272  193,384    (25,363 168,021 
 

 

  

 

  

 

  

 

  

 

  

 

   

 

   

 

  

 

  

 

   

 

  

 

 
 115,777  (114,452 1,325  203,846  (180,921 22,925    401,530    (114,373 287,157  413,660    (115,498 298,162 
 

 

  

 

  

 

  

 

  

 

  

 

   

 

   

 

  

 

  

 

   

 

  

 

 

Deferred tax from tax credit

               

Tax credit carry-forward and others

 307,335     307,335  118,032     118,032    115,589    —    115,589  91,839    —    91,839 

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    547,662    (343,724 203,938  441,172    (305,808 135,364 
 

 

  

 

  

 

  

 

  

 

  

 

   

 

   

 

  

 

  

 

   

 

  

 

 
     2,714,516  (2,857,236 (142,720 2,811,648  (3,252,835 (441,187  3,170,473    (3,450,579 (280,106 2,660,963    (3,105,147 (444,185
 

 

  

 

  

 

  

 

  

 

  

 

   

 

   

 

  

 

  

 

   

 

  

 

 

(f) As of December 31, 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 of3,933,428 million and4,362,127 million (deferred tax liabilities of951,890 million and1,137,632 million), respectively, mainly relating to increase in retained earnings of subsidiaries since it is probable that the temporary difference

(f)

As of December 31, 2019, deductible temporary differences of7,217,365 million and taxable temporary differences of6,195,282 million (deferred tax liabilities of1,678,379 million) related to investments in subsidiaries and associates were not recognized as deferred tax assets or liabilities, because it is not probable they will not reverse in the foreseeable future.

(g)

The Company recognized current tax payable or receivable at the best of the tax amount expected to be paid or received that reflects uncertainty related to income taxes.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

36.

Earnings per Share

Basic and diluted earnings per share for the years ended December 31, 2015, 20162017, 2018 and 20172019 were as follows:

 

   2015  2016  2017 
   (in Won, except per share information) 

Profit attribute to controlling interest

  171,493,811,117   1,354,806,734,940   2,756,230,487,872 

Interests of hybrid bonds

   (33,029,632,499  (33,225,163,081  (33,048,799,997

Weighted-average number of common shares
outstanding (*1)

   79,993,834   79,996,389   79,998,600 
  

 

 

  

 

 

  

 

 

 

Basic and diluted earnings per share

  1,731   16,521   34,040 
  

 

 

  

 

 

  

 

 

 

(in Won, except per share
information)
 2017  2018  2019 

Profit attribute to controlling interest

 2,756,230,487,872   1,711,901,875,666   1,864,405,092,477 

Interests of hybrid bonds

  (33,048,799,997  (17,720,986,299  (6,669,999,999

Weighted-average number of common shares outstanding(*1)

  79,998,600   80,000,606   80,113,759 
 

 

 

  

 

 

  

 

 

 

Basic and diluted earnings per share

 34,040   21,177   23,189 
 

 

 

  

 

 

  

 

 

 

 

(*1)

The weighted-average number of common shares used to calculate basic and diluted earnings per share are as follows:

 

(shares)

  2015 2016 2017   2017   2018   2019 

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

   (7,193,001 (7,190,446 (7,188,235   (7,188,235   (7,186,229   (7,073,076
  

 

  

 

  

 

   

 

   

 

   

 

 

Weighted-average number of common shares outstanding

   79,993,834  79,996,389  79,998,600    79,998,600    80,000,606    80,113,759 
  

 

  

 

  

 

   

 

   

 

   

 

 

Since there were no potential shares of common stock which had dilutive effects as of December 31, 2015, 20162017, 2018 and 2017,2019, diluted earnings per share is equal to basic earnings per share.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

37.

Related Party Transactions

(a) Significant transactions between the controlling company and related parties

(a)

Significant transactions between the controlling company and related companies for the years ended December 31, 2015, 2016 and 2017, 2018 and 2019 were as follows:

1) For the year ended December 31, 20152017

 

   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 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(in millions of Won) Sales and others(*1)  Purchase and others (*2) 
  Sales  Others  Purchase of
material
  Purchase of
fixed assets
  Outsourced
processing
cost
  Others 

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 CHEMICAL CO., LTD
(Formerly, POSCO CHEMTECH)

  359,862   33,076   479,896   23,043   296,296   6,860 

POSCO ENERGY CO., LTD.

  179,966   1,456   —     —     —     2 

POSCO INTERNATIONAL Corporation (Formerly, 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. 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.

(*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 These are priced on an associate.

arm`s length basis.

(*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, 20162018 and 20172019

 

 

 

2) For the year ended December 31, 2016
(*3)

As of December 31, 2017, the Company provided guarantees to related parties (Note 38).

(*4)

Others (purchase) mainly consist of service fees related to maintenance and repair of ERP System.

 

   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 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
2)

For the year ended December 31, 2018

 

(in millions of Won) Sales and others(*1)  Purchase and others(*2) 
  Sales  Others  Purchase of
material
  Purchase of
fixed assets
  Outsourced
processing
cost
  Others 

Subsidiaries(*3)

      

POSCO ENGINEERING & CONSTRUCTION CO., LTD.

 7,827   97   —     322,924   47   36,428 

POSCO COATED & COLOR STEEL Co., Ltd.

  476,105   2,725   —     —     9,211   1,434 

POSCO ICT(*4)

  2,624   7,479   —     341,472   34,376   196,252 

eNtoB Corporation

  12   60   377,198   27,508   390   31,455 

POSCO CHEMICAL CO., LTD
(Formerly, POSCO CHEMTECH)

  417,957   35,762   531,452   21,730   319,868   2,802 

POSCO ENERGY CO., LTD.

  206,638   1,445   —     —     —     —   

POSCO INTERNATIONAL Corporation
(Formerly, POSCO DAEWOO Corporation)

  5,835,226   42,888   690,345   —     57,624   4,318 

POSCO Thainox Public Company Limited

  299,450   5,335   10,115   —     —     71 

POSCO America Corporation

  336,366   —     —     —     —     2,486 

POSCO Canada Ltd.

  —     2,155   300,982   —     —     —   

POSCO Asia Co., Ltd.

  1,857,665   253   536,280   650   2,449   6,524 

Qingdao Pohang Stainless Steel Co., Ltd.

  188,252   7   —     —     —     34 

POSCO JAPAN Co., Ltd.

  1,353,313   6   25,773   4,204   —     5,411 

POSCO-VIETNAM Co., Ltd.

  273,573   156   —     —     —     8 

POSCO MEXICO S.A. DE C.V.

  299,276   17   —     —     —     35 

POSCO Maharashtra Steel Private Limited

  563,618   584   —     —     —     156 

POSCO(Suzhou) Automotive Processing Center Co., Ltd.

  196,095   —     2,616   —     —     5 

Others(*5)

  1,158,122   44,098   456,804   31,787   264,060   140,869 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  13,472,119   143,067   2,931,565   750,275   688,025   428,288 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Associates and joint ventures(*3)

      

POSCO PLANTEC Co., Ltd.

  10,904   240   3,166   215,023   24,192   10,257 

SNNC

  5,105   4,108   558,425   —     —     80 

POSCO-SAMSUNG-Slovakia Processing Center

  61,981   —     —     —     —     —   

Roy Hill Holdings Pty Ltd

  —     —     810,196   —     —     —   

Others

  14,199   54,747   64,335   —     —     6 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  92,189   59,095   1,436,122   215,023   24,192   10,343 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
 13,564,308   202,162   4,367,687   965,298   712,217   438,631 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

(*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, 2018, the Company provided guarantees to related parties (Note 38).

(*4)

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, 20162018 and 20172019

 

 

 

3) For the year ended December 31, 2017
(*5)

During the year ended December 31, 2018, the Company made loans of2,950 million to Suncheon Eco Trans Co., Ltd., a subsidiary of the Company. As of December 31, 2018, corresponding amounts of those loans were recorded as allowance for doubtful accounts.

 

   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 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
3)

For the year ended December 31, 2019

 

(in millions of Won) Sales and others(*1)  Purchase and others(*2) 
  Sales  Others  Purchase of
material
  Purchase of
fixed assets
  Outsourced
processing
cost
  Others 

Subsidiaries(*3)

      

POSCO ENGINEERING & CONSTRUCTION CO., LTD.

 6,688   11,137   4,725   416,734   57   24,174 

POSCO COATED & COLOR STEEL Co., Ltd.

  468,070   2,014   95   —     20,298   724 

POSCO ICT(*4)

  2,924   4,994   —     344,977   34,638   181,128 

eNtoB Corporation

  15   60   304,846   64,845   126   25,754 

POSCO CHEMICAL CO., LTD (Formerly, POSCO CHEMTECH)

  389,731   35,592   522,493   17,549   315,530   4,561 

POSCO ENERGY CO., LTD.

  148,205   2,211   5,123   94   —     7,561 

POSCO INTERNATIONAL Corporation (Formerly, POSCO DAEWOO Corporation)

  6,025,938   46,661   541,002   —     49,506   7,149 

POSCO Thainox Public Company Limited

  265,374   13,795   10,037   —     —     3 

POSCO America Corporation

  300,598   —     —     —     —     2,994 

POSCO Canada Ltd.

  1,067   1,833   306,552   —     —     —   

POSCO Asia Co., Ltd.

  1,781,841   1,352   390,056   1,338   1,574   7,561 

Qingdao Pohang Stainless Steel Co., Ltd.

  146,468   —     —     —     —     110 

POSCO JAPAN Co., Ltd.

  1,509,631   36   38,631   6,269   —     5,835 

POSCO-VIETNAM Co., Ltd.

  265,849   368   —     —     —     66 

POSCO MEXICO S.A. DE C.V.

  303,924   159   —     —     —     809 

POSCO Maharashtra Steel Private Limited

  644,652   311   —     —     —     800 

POSCO(Suzhou) Automotive Processing Center Co., Ltd.

  121,633   27   2,189   —     —     —   

POSCO VST CO., LTD.

  299,307   —     —     —     —     114 

POSCO INTERNATIONAL SINGAPORE PTE LTD.

  —     154   694,600   —     —     —   

Others

  964,532   20,679   134,296   34,444   246,184   169,849 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  13,646,447   141,383   2,954,645   886,250   667,913   439,192 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Associates and joint ventures(*3)

      

POSCO PLANTEC Co., Ltd.

  1,364   86   2,882   306,927   15,089   30,317 

SNNC

  5,527   4,100   588,276   —     —     9 

POSCO-SAMSUNG-Slovakia Processing Center

  65,688   —     —     —     —     —   

Roy Hill Holdings Pty Ltd

  —     —     1,272,878   —     —     —   

Others

  16,084   112,390   76,427   —     —     85,167 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  88,663   116,576   1,940,463   306,927   15,089   115,493 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
 13,735,110   257,959   4,895,108   1,193,177   683,002   554,685 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

(*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, 2017, the Company provided guarantees to related parties (Note 38).

(*4)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, 2015, 20162018 and 20172019

 

 

 

(b) The related account balances of significant transactions between the controlling company and related companies as of December 31, 2016 and 2017 are as follows:

1) December 31, 2016
(*3)

As of December 31, 2019, the company provided guarantees to related parties (Note 38)

(*4)

Others (purchase) mainly consist of service fees related to maintenance and repair of ERP System.

 

  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.

 3    3,359   3,362       9,825    515    10,340 

POSCO Processing & Service

  207,744    178   207,922   1,085    5,367    5,184    11,636 

POSCO COATED & COLOR STEEL Co., Ltd.

  48,716    324   49,040       5    1,600    1,605 

POSCO ICT

      128   128   1,062    89,382    6,074    96,518 

eNtoB Corporation

            9,948    29,310    15    39,273 

POSCO CHEMTECH

  27,253    3,868   31,121   54,702    11,870    19,282    85,854 

POSCO ENERGY CO., LTD.

  18,701    2,012   20,713           1,425    1,425 

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

  10,008       10,008                

POSCO Asia Co., Ltd.

  375,823    458   376,281   25,101            25,101 

Qingdao Pohang Stainless Steel Co., Ltd.

  25,386       25,386       5        5 

POSCO MEXICO S.A. DE C.V.

  114,166    1,024   115,190                

POSCO Maharashtra Steel Private Limited

  208,737    9,923   218,660                

Others

  333,031    64,526   397,557   17,374    46,455    26,974    90,803 
 

 

 

   

 

 

  

 

 

  

 

 

   

 

 

   

 

 

   

 

 

 
  1,614,302    96,992   1,711,294   109,732    192,626    61,118    363,476 
 

 

 

   

 

 

  

 

 

  

 

 

   

 

 

   

 

 

   

 

 

 

Associates and joint ventures

           

POSCO PLANTEC Co., Ltd.

  30    9   39   2,125    39,647        41,772 

SNNC

  223    26   249   40,201            40,201 

Others

  800    1   801   991    17,685        18,676 
 

 

 

   

 

 

  

 

 

  

 

 

   

 

 

   

 

 

   

 

 

 
  1,053    36   1,089   43,317    57,332        100,649 
 

 

 

   

 

 

  

 

 

  

 

 

   

 

 

   

 

 

   

 

 

 
     1,615,355    97,028   1,712,383   153,049    249,958    61,118    464,125 
 

 

 

   

 

 

  

 

 

  

 

 

   

 

 

   

 

 

   

 

 

 
(b)

The related account balances of receivables and payables resulting from significant transactions between the controlling company and related companies as of December 31, 2018 and 2019 are as follows:

1)

December 31, 2018

(in millions of Won) Receivables  Payables 
  Trade accounts
and notes

receivable
  Others  Total  Trade accounts
and notes
payable
  Accounts
payable
  Others  Total 

Subsidiaries

       

POSCO ENGINEERING & CONSTRUCTION CO., LTD.

 57   5,181   5,238   —     52,775   438   53,213 

POSCO COATED & COLOR STEEL Co., Ltd.

  55,598   317   55,915   —     25   1,194   1,219 

POSCO ICT

  —     229   229   1,572   112,960   8,717   123,249 

eNtoB Corporation

  —     —     —     10,860   22,072   11   32,943 

POSCO CHEMICAL CO., LTD (Formerly, POSCO CHEMTECH)

  40,258   3,883   44,141   19,911   58,725   19,012   97,648 

POSCO ENERGY CO., LTD.

  22,163   1,700   23,863   —     —     1,425   1,425 

POSCO INTERNATIONAL Corporation (Formerly, POSCO DAEWOO Corporation)

  437,554   1,056   438,610   161   1,881   5,304   7,346 

POSCO Thainox Public Company Limited

  71,189   —     71,189   467   71   —     538 

POSCO America Corporation

  14,338   —     14,338   —     221   —     221 

POSCO Asia Co., Ltd.

  480,205   1,047   481,252   7,839   —     —     7,839 

Qingdao Pohang Stainless Steel Co., Ltd.

  52,037   —     52,037   —     —     —     —   

POSCO MEXICO S.A. DE C.V.

  101,179   218   101,397   —     —     —     —   

POSCO Maharashtra Steel Private Limited

  390,413   1,428   391,841   —     —     —     —   

Others

  379,950   54,407   434,357   33,183   36,591   85,745   155,519 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  2,044,941   69,466   2,114,407   73,993   285,321   121,846   481,160 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Associates and joint ventures

       

POSCO PLANTEC Co., Ltd.

  249   10   259   3,275   34,803   —     38,078 

SNNC

  541   61   602   22,188   —     —     22,188 

Roy Hill Holdings Pty Ltd

  —     —     —     22,997   —     —     22,997 

Others

  918   910   1,828   217   76   —     293 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  1,708   981   2,689   48,677   34,879   —     83,556 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
        2,046,649   70,447   2,117,096   122,670   320,200   121,846   564,716 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 ��

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

2) December 31, 2017
2)

December 31, 2019

 

  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 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

(in millions of Won) Receivables  Payables 
  Trade accounts
and notes
receivable
  Others  Total  Trade accounts
and notes
payable
  Accounts
payable
  Others  Total 

Subsidiaries

       

POSCO ENGINEERING & CONSTRUCTION CO.,LTD.

 5,702   65   5,767   —     78,512   385   78,897 

POSCO COATED & COLOR STEEL Co., Ltd.

  57,792   —     57,792   —     11   3,828   3,839 

POSCO ICT

  225   1   226   1,147   129,424   42,844   173,415 

eNtoB Corporation

  —     —     —     3,459   27,431   —     30,890 

POSCO CHEMICAL CO., LTD (Formerly, POSCO CHEMTECH)

  35,102   3,578   38,680   17,839   52,710   19,369   89,918 

POSCO ENERGY CO., LTD.

  1,876   4   1,880   —     3,229   14,912   18,141 

POSCO INTERNATIONAL Corporation (Formerly, POSCO DAEWOO Corporation)

  633,073   —     633,073   345   2,218   3,839   6,402 

POSCO Thainox Public Company Limited

  52,826   2   52,828   916   —     —     916 

POSCO America Corporation

  8,448   —     8,448   —     —     —     —   

POSCO Asia Co., Ltd.

  508,962   748   509,710   12,784   171   —     12,955 

Qingdao Pohang Stainless Steel Co., Ltd.

  29,842   —     29,842   —     —     —     —   

POSCO MEXICO S.A. DE C.V.

  90,351   702   91,053   —     —     —     —   

POSCO Maharashtra Steel Private Limited

  235,917   444   236,361   —     —     —     —   

Others(*1)

  470,734   33,851   504,585   14,397   40,233   87,652   142,282 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  2,130,850   39,395   2,170,245   50,887   333,939   172,829   557,655 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Associates and joint ventures

       

POSCO PLANTEC Co., Ltd.

  84   10   94   471   49,511   —     49,982 

SNNC

  297   65   362   19,769   —     —     19,769 

Roy Hill Holdings Pty Ltd

  —     —     —     93,383   —     —     93,383 

Others

  942   706   1,648   3,447   586   —     4,033 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  1,323   781   2,104   117,070   50,097   —     167,167 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
        2,132,173   40,176   2,172,349   167,957   384,036   172,829   724,822 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

(*1)

During the year ended December 31, 2018, the Company made loans of2,950 million to Suncheon Eco Trans Co., Ltd., a subsidiary of the Company. As of December 31, 2016, the Company recognizes bad debt2019, corresponding amounts of those loans were recorded as allowance for receivables amounting to48,891 million.doubtful accounts.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

(c)

Significant transactions between the Company, excluding the controlling company, and related companies for the years ended December 31, 2017, 2018 and 2019 were as follows:

1)

For the year ended December 31, 2017

(in millions of Won)  Sales and others   Purchase and others 
   Sales   Others   Purchase of
material
   Others 

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 

Chuncheon Energy Co., Ltd.

   42,147    —      —      —   

Noeul Green Energy Co., Ltd.

   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 
  

 

 

   

 

 

   

 

 

   

 

 

 

2)

For the year ended December 31, 2018

(in millions of Won)  Sales and others   Purchase and others 
   Sales   Others   Purchase of
material
   Others 

Associates and joint ventures

        

POSCO PLANTEC Co., Ltd.

  19,394    —      83    24,103 

New Songdo International City Development, LLC

   30,997    53,316    —      97 

SNNC

   66,075    128    2,395    71,421 

Chuncheon Energy Co., Ltd.

   25,693    —      —      —   

Noeul Green Energy Co., Ltd.

   6,444    —      —      587 

VSC POSCO Steel Corporation

   12,504    —      2,314    —   

USS-POSCO Industries

   —      —      2,595    —   

CSP - Compania Siderurgica do Pecem

   239,922    9,678    346,602    26,324 

Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd

   46,538    —      62,851    —   

BX STEEL POSCO Cold Rolled Sheet Co., Ltd.

   —      —      10,572    —   

POS-SEAHSTEELWIRE(TIANJIN)CO., Ltd

   12,244    —      —      —   

PT. Batutua Tembaga Raya

   —      168    15,663    —   

POSCO SeAH Steel Wire(Nantong) Co., Ltd.

   30,417    —      249    —   

Sebang Steel

   —      —      13,571    —   

DMSA/AMSA

   —      —      46,293    —   

South-East Asia Gas Pipeline Company Ltd.

   —      50,789    —      —   

Others

   359,124    62,375    20,136    50,918 
  

 

 

   

 

 

   

 

 

   

 

 

 
  849,352    176,454    523,324    173,450 
  

 

 

   

 

 

   

 

 

   

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 20172018 and 2019

 

  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 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

3)

For the year ended December 31, 2019

(in millions of Won)  Sales and others   Purchase and others 
   Sales   Others   Purchase of
material
   Others 

Associates and joint ventures

        

POSCO PLANTEC Co., Ltd.

  15,637    —      39    14,778 

New Songdo International City Development, LLC

   33,885    44,131    —      36 

SNNC

   74,034    —      35,910    65,503 

Chuncheon Energy Co., Ltd.

   1,156    —      —      —   

Noeul Green Energy Co., Ltd.

   6,579    —      —      1,217 

USS-POSCO Industries

   4    —      1,835    —   

CSP - Compania Siderurgica do Pecem

   98,330    12,718    416,541    23,398 

Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd

   34,895    —      39,733    —   

BX STEEL POSCO Cold Rolled Sheet Co., Ltd.

   10    —      4,222    —   

POS-SEAHSTEELWIRE(TIANJIN)CO., Ltd

   11,500    —      —      —   

PT. Batutua Tembaga Raya

   —      772    45,841    —   

POSCO SeAH Steel Wire(Nantong) Co., Ltd.

   30,083    —      353    —   

Sebang Steel

   —      —      4,862    —   

DMSA/AMSA

   —      —      71,275    —   

South-East Asia Gas Pipeline Company Ltd.

   64    42,010    —      —   

POSCO MITSUBISHI CARBON TECHNOLOGY

   88,506    16,424    4,769    2,144 

POSPower Co., Ltd.

   163,167    —      —      —   

TK CHEMICAL CORPORATION

   172,133    —      63,836    —   

Others

   252,125    53,596    31,460    28,039 
  

 

 

   

 

 

   

 

 

   

 

 

 
  982,108    169,651    720,676    135,115 
  

 

 

   

 

 

   

 

 

   

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

(d)

The related account balances of receivables and payables resulting from significant transactions between the Company, excluding the controlling company, and related companies as of December 31, 2018 and December 31, 2019 are as follows:

1)

December 31, 2018

(in millions of Won) Receivables(*1)  Payables 
  Trade accounts
and notes
receivable
  Loan  Others  Total  Trade accounts
and notes
payable
  Others  Total 

Associates and joint ventures

       

POSCO PLANTEC Co., Ltd.

 3,593   —     6   3,599   6,160   217   6,377 

New Songdo International City Development, LLC

  233,157   —     —     233,157   —     —     —   

Chuncheon Energy Co., Ltd

  —     —     —     —     —     1,758   1,758 

POSPower Co.,Ltd

  13,703   —     —     13,703   —     66,856   66,856 

Nickel Mining Company SAS

  —     59,664   118   59,782   —     —     —   

CSP - Compania Siderurgica do Pecem

  364,190   —     9,669   373,859   62,578   —     62,578 

Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd

  10,836   —     —     10,836   2,101   —     2,101 

PT. Batutua Tembaga Raya

  —     35,100   171   35,271   —     —     —   

POSCO SeAH Steel Wire(Nantong) Co., Ltd.

  6,274   3,354   27   9,655   66   —     66 

DMSA/AMSA

  —     64,297   —     64,297   —     —     —   

South-East Asia Gas Pipeline Company Ltd.

  —     191,107   —     191,107   —     —     —   

Others

  75,382   136,117   83,786   295,285   7,768   5,363   13,131 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
 707,135   489,639   93,777   1,290,551   78,673   74,194   152,867 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

(*1)

As of December 31, 2017,2018, the Company recognizes bad debt allowance for receivables amounting to4,217102,694 million.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

(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
2)

December 31, 2019

 

   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 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

(in millions of Won) Receivables(*1)  Payables 
  Trade accounts
and notes
receivable
  Loan  Others  Total  Trade accounts
and notes
payable
  Others  Total 

Associates and joint ventures

       

POSCO PLANTEC Co., Ltd.

 4,121   —     205   4,326   791   8   799 

New Songdo International City Development, LLC

  23,626   —     20,592   44,218   —     10   10 

Chuncheon Energy Co., Ltd.

  —     8,234   —     8,234   657   —     657 

POSPower Co., Ltd.

  34,945   —     —     34,945   —     67,543   67,543 

Nickel Mining Company SAS

  —     60,516   120   60,636   —     —     —   

CSP - Compania Siderurgica do Pecem

  244,700   —     14,264   258,964   —     33   33 

Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd

  10,273   —     —     10,273   633   —     633 

PT. Batutua Tembaga Raya

  —     36,291   19,993   56,284   56   —     56 

POSCO SeAH Steel Wire(Nantong) Co., Ltd.

  7,035   —     —     7,035   101   —     101 

DMSA/AMSA

  —     57,999   1,672   59,671   —     —     —   

South-East Asia Gas Pipeline Company Ltd.

  14   147,367   —     147,381   —     —     —   

POSCO MITSUBISHI CARBON TECHNOLOGY

  8,078   —     —     8,078   916   —     916 

TK CHEMICAL CORPORATION

  37,373   —     —     37,373   110   —     110 

Others

  94,914   138,663   97,804   331,381   7,128   13,379   20,507 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
 465,079   449,070   154,650   1,068,799   10,392   80,973   91,365 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

(*1)During the year ended

As of December 31, 2016, it was classified as a subsidiary from an associate.

(*2)During2019, the year ended December 31, 2016, loansCompany recognizes bad debt allowance for receivables amounting to24,624 million have been converted to shares of DMSA/AMSA, and its amount is included in others.132,554 million.

(*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, 20162018 and 2017

2019

 

 

 

(e)

Significant financial transactions between the Company, excluding the controlling company, and related companies for the years ended December 31, 2018 and 2019 were as follows:

1)

December 31, 2018

(in millions of Won)  Beginning   Lend   Collect  Others(*2)  Ending 

Associates and joint ventures

        

New Songdo International City Development, LLC

  282,775    150    (252,759  (30,166  —   

GALE International Korea, LLC

   2,000    8,500    (10,500  —     —   

UITrans LRT Co., Ltd.

   —      5,695    —     —     5,695 

DMSA/AMSA(*1)

   69,713    9,965    (342  (15,039  64,297 

South-East Asia Gas Pipeline Company Ltd.

   229,880    —      (47,569  8,796   191,107 

PT. Batutua Tembaga Raya

   29,048    4,678    —     1,374   35,100 

PT. Tanggamus Electric Power

   3,197    —      —     1,226   4,423 

PT. Wampu Electric Power

   5,107    —      —     223   5,330 

PT. POSMI Steel Indonesia

   4,286    —      (2,200  150   2,236 

Nickel Mining Company SAS

   59,668    —      —     (4  59,664 

Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd

   5,357    —      (5,357  —     —   

KRAKATAUPOS-CHEMDONG-SUH CHEMICAL

   6,428    —      —     281   6,709 

POSCO SeAH Steel Wire(Nantong) Co., Ltd.

   5,357    4,451    (6,454  —     3,354 

POS-SeAH Steel Wire (Thailand) Co., Ltd.

   6,428    —      —     281   6,709 

AMCI (WA) PTY LTD

   92,061    3,795    —     (5,376  90,480 

POS-AUSTEM YANTAI AUTOMOTIVE CO.,LTD

   5,357    5,564    (5,357  26   5,590 

POS-AUSTEM WUHAN AUTOMOTIVE CO.,LTD

   8,571    8,902    (8,571  43   8,945 

SAMHWAN VINA CO., LTD

   1,071    —      (1,071  —     —   
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 
  816,304    51,700    (340,180  (38,185  489,639 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

(*1)

During the year ended December 31, 2017, it was excluded from associates.

(*2)During the year ended December 31, 2017,2018, loans amounting to13,71217,559 million have been converted to shares of DMSA/AMSA, and its amountwhich is included in others.

(*3)2)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.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

2)

December 31, 2019

(f) For the years ended December 31, 2015, 2016 and 2017, details of compensation to key management officers were as follows:

(in millions of Won)  Beginning   Lend   Collect  Others(*2)  Ending 

Associates and joint ventures

        

UITrans LRT Co., Ltd.

  5,695    4,884    —     —     10,579 

DMSA/AMSA(*1)

   64,297    15,451    —     (21,749  57,999 

South-East Asia Gas Pipeline Company Ltd.

   191,107    —      (48,027  4,287   147,367 

PT. Batutua Tembaga Raya

   35,100    —      —     1,191   36,291 

PT. Tanggamus Electric Power

   4,423    —      —     157   4,580 

PT. Wampu Electric Power

   5,330    —      —     189   5,519 

PT. POSMI Steel Indonesia

   2,236    —      —     80   2,316 

Nickel Mining Company SAS

   59,664    —      —     852   60,516 

KRAKATAUPOS-CHEMDONG-SUH CHEMICAL

   6,709    —      —     238   6,947 

POSCO SeAH Steel Wire(Nantong) Co., Ltd.

   3,354    —      (3,354  —     —   

POS-SeAH Steel Wire (Thailand) Co., Ltd.

   6,709    —      —     238   6,947 

AMCI (WA) PTY LTD

   90,480    4,669    —     (16,596  78,553 

POS-AUSTEM YANTAI AUTOMOTIVE CO.,LTD

   5,590    —      —     199   5,789 

POS-AUSTEM WUHAN AUTOMOTIVE CO.,LTD

   8,945    —      —     317   9,262 

Hyo-chun Co., Ltd.(*3)

   —      —      —     2,382   2,382 

Chuncheon Energy Co., Ltd.

   —      8,234    —     —     8,234 

POS-AUSTEM Suzhou Automotive Co., Ltd

   —      5,827    —     (38  5,789 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 
  489,639    39,065    (51,381  (28,253  449,070 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

 

   2015   2016   2017 
   (in millions of Won) 

Short-term benefits

  111,278    90,916    112,688 

Long-term benefits

   19,513    17,905    8,632 

Retirement benefits

   21,850    17,870    20,422 
  

 

 

   

 

 

   

 

 

 
  152,641    126,691    141,742 
 ��

 

 

   

 

 

   

 

 

 
(*1)

During the year ended December 31, 2019, loans amounting to23,682 million have been converted to shares of DMSA/AMSA, which is included in others.

(*2)

Includes adjustments of foreign currency translation differences and others.

(*3)

During the year ended December 31, 2019, it was newly classified to associates.

(f)

For the years ended December 31, 2017, 2018 and 2019, details of compensation to key management officers were as follows:

(in millions of Won)  2017   2018   2019 

Short-term benefits

  112,688    115,618    119,658 

Long-term benefits

   8,632    13,400    13,562 

Retirement benefits

   20,422    21,658    21,231 
  

 

 

   

 

 

   

 

 

 
  141,742    150,676    154,451 
  

 

 

   

 

 

   

 

 

 

Key management officers include directors (includingnon-standing directors), executive officialsofficers and fellow officialsofficers who have significant influences and responsibilities in the Company’s business and operations.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

 

38.

Commitments and Contingencies

(a)

(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 orof 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, 20162018 and 20172019

 

 

 

(b)

(b) Details of guarantees

Contingent liabilities on outstanding guarantees and others provided by the Company as of December 31, 20172019 are as follows:follows.

 

 

Guarantee limit

 Guarantee amount 

Guarantors

 

Guarantee

beneficiary

 

Financial
institution

 

Foreign currency

 Won
equivalent
 Foreign
currency
 Won
equivalent
 
 (in millions of Won) 
(in millions of Won) Guarantee limit Guarantee amount 

Guarantor

 

Guarantee
beneficiary

 

Financial
institution

 Foreign currency Won
equivalent
 Foreign
currency
 Won
equivalent
 

[The Company]

             

POSCO

 POSCO Asia Co., Ltd. BOC USD  50,000,000   53,570   50,000,000   53,570  POSCO Asia Co., Ltd. BOC and others USD 100,000,000   115,780   100,000,000   115,780 
 POSCO ASSAN TST STEEL INDUSTRY SMBC and others USD  146,527,500   156,990   131,874,750   141,291  POSCO ASSAN TST STEEL INDUSTRY SMBC and others USD 146,527,500   169,650   131,874,750   152,685 
 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 COATED STEEL (THAILAND) CO., LTD. The Great & CO Co., Ltd.(SPC) THB 5,501,000,000   212,669   5,501,000,000   212,669 
 POSCO Maharashtra Steel Private Limited Export-Import Bank of Korea and others USD  649,853,000   696,252   323,918,500   347,045  POSCO Maharashtra Steel Private Limited Export-Import Bank of Korea and others USD83,784,000   97,005   83,784,000   97,005 
 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. BOA and others USD120,000,000   138,936   120,000,000   138,936 
 POSCOSS-VINA CO., LTD. Export-Import Bank of Korea and others USD  354,351,050   379,652   314,599,225   337,062  POSCO SS VINA Co., Ltd. Export-Import Bank of Korea and others USD298,000,000   345,024   298,000,000   345,024 
 POSCO VST CO., LTD. ANZ and others USD  65,000,000   69,641   8,125,000   8,706  POSCO-VIETNAM Co., Ltd. SMBC and others USD156,000,000   180,617   156,000,000   180,617 
 POSCO-VIETNAM Co., Ltd. Export-Import Bank of Korea USD  196,000,000   209,994   196,000,000   209,994  PT. KRAKATAU POSCO Export-Import Bank of Korea and others USD1,350,300,000   1,563,377   940,488,348   1,088,897 
 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 
 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 

POSCO INTERNATIONAL Corporation (Formerly, POSCO DAEWOO Corporation)

 Daewoo Global Development. Pte., Ltd Export-Import Bank of Korea and others USD199,884,500   231,426   183,992,000   213,026 
  MIRAE ASSET DAEWOO CO.,LTD. KRW  29,137   29,137   10,703   10,703  Daewoo Power PNG Ltd. Export-Import Bank of Korea USD53,517,404   61,962   41,167,234   47,663 
 Daewoo Power PNG Ltd. Export-Import Bank of Korea USD  54,400,000   58,284   54,400,000   58,284  POSCO ASSAN TST STEEL INDUSTRY ING and others USD14,652,750   16,965   14,652,750   16,965 
Daewoo Textile LLC Export-Import Bank of Korea USD  4,000,000   4,286   4,000,000   4,286  Songdo Posco family Housing SHINYOUNG SECURITIES CO., LTD. KRW10,000   10,000   —      —    
POSCO ASSAN TST STEEL INDUSTRY ING and others USD  14,652,750   15,699   14,652,750   15,699  PT. Bio Inti Agrindo Export-Import Bank of Korea and others IDR150,000,000,000   12,465   150,000,000,000   12,465 
 POSCO DAEWOO INDIA PVT., LTD. Shinhan Bank and others USD  162,400,000   173,995   51,237,684   54,896   KEB Hana Bank USD135,000,000   156,303   134,224,401   155,405 
  SC Bank and others INR  7,350,000,000   122,892   2,037,278,075   34,063  Golden Lace DAEWOO Company Limited Shinhan Bank USD11,000,000   12,736   11,000,000   12,736 
 PT. Bio Inti Agrindo Export-Import Bank of Korea and others USD  120,875,000   129,505   120,875,000   129,505  POSCO INTERNATIONAL AMERICA Corp.     
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, 2015, 20162018 and 20172019

 

 

 

(in millions of Won) Guarantee limit Guarantee amount 

Guarantor

 

Guarantee
beneficiary

 

Financial institution

 Foreign
currency
 Won
equivalent
 Foreign
currency
 Won
equivalent
 
 POSCO INTERNATIONAL SINGAPORE Pte. Ltd.     
 

Guarantee limit

 Guarantee amount  POSCO INTERNATIONAL MEXICO S.A. de C.V.     

Guarantors

 

Guarantee

beneficiary

 

Financial
institution

 

Foreign currency

 Won
equivalent
 Foreign
currency
 Won
equivalent
 
 POSCO INTERNATIONAL Japan Corp. Bank Mendes Gans USD50,000,000   57,890   5,602,997   6,487 
 POSCO INTERNATIONAL Malaysia SDN BHD     
 POSCO INTERNATIONAL Deutschland GmbH     
 POSCO INTERNATIONAL Italia S.R.L.     
 (in millions of Won)  Mykolaiv Milling Works PJSC. Black Sea Trade and Development Bank EUR23,250,000   30,165   23,250,000   30,165 

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  POSCO E&C Vietnam Co., Ltd. Export-Import Bank of Korea and others USD47,000,000   54,417   47,000,000   54,417 
 HONG KONG POSCO E&C (CHINA) INVESTMENT Co., Ltd. Woori Bank and others USD  138,000,000   147,853   138,000,000   147,853  HONG KONG POSCO E&C (CHINA) INVESTMENT Co., Ltd. Woori bank and others USD160,000,000   185,248   149,740,000   173,369 
 POSCO ENGINEERING & CONSTRUCTION DO BRAZIL LTDA. HSBC USD  100,000,000   107,140   100,000,000   107,140  POSCO Engineering and Construction India Private Limited KEB Hana Bank INR221,000,000   3,587   171,200,000   2,779 
 POSCO ENGINEERING (THAILAND) CO., LTD. POSCO Asia Co., Ltd USD  39,451,000   42,268   39,451,000   42,268  PT. POSCO E&C INDONESIA POSCO Asia Co., Ltd. and others USD10,900,000   12,620   10,900,000   12,620 
 POSCO Engineering and Construction India Private Limited Woori Bank USD  2,100,000   2,250   2,100,000   2,250  JB CLARK HILLS Korea Investment & Securities Co., Ltd. KRW60,000   60,000   55,000   55,000 
 PT PEN INDONESIA POSCO Asia Co., Ltd. USD  5,000,000   5,357   5,000,000   5,357  Daewoo Global Development. Pte., Ltd SMBC and others USD163,633,000   189,454   163,633,000   189,454 
 PT. POSCO E&C INDONESIA BNP Indonesia IDR  79,000,000,000   6,241   79,000,000,000   6,241  Songdo Posco family Housing SHINYOUNG SECURITIES CO., LTD. KRW10,000   10,000   —      —    
 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  PT.POSCO ICT INDONESIA POSCO Asia Co., Ltd. USD1,500,000   1,737   1,500,000   1,737 

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 CHEMCAL CO., LTD (Formerly, POSCO CHEMTECH)

 PT.Krakatau Posco Chemtech Calcination POSCO Asia Co., Ltd. USD15,200,000   17,599   12,000,000   13,894 

POSCO COATED & COLOR STEEL Co.,Ltd.

 Myanmar POSCO C&C Company, Limited. POSCO Asia Co., Ltd. USD13,986,947   16,194   13,986,947   16,194 

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  PT. KRAKATAU POSCO ENERGY Export-Import Bank of Korea and others USD193,900,000   224,497   105,067,663   121,647 

POSCO Asia Co., Ltd.

 POSCO ASSAN TST STEEL INDUSTRY SMBC USD  25,000,000   26,785   25,000,000   26,785  POSCO America Corporation SMBC USD70,000,000   81,046   70,000,000   81,046 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

 

Guarantee limit

 Guarantee amount 

Guarantors

 

Guarantee

beneficiary

 

Financial
institution

 

Foreign currency

 Won
equivalent
 Foreign
currency
 Won
equivalent
 
 (in millions of Won) 
(in millions of Won) Guarantee limit Guarantee amount 

Guarantor

 

Guarantee
beneficiary

 

Financial institution

 Foreign
currency
 Won
equivalent
 Foreign
currency
 Won
equivalent
 

[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  CSP - Compania Siderurgica do Pecem Export-Import Bank of Korea and others USD420,000,000   486,276   373,565,631   432,514 
  BNDES BRL  464,060,000   150,100   464,060,000   150,100   BNDES BRL464,060,000   133,672   464,060,000   133,672 
 LLP POSUK Titanium SMBC USD  15,000,000   16,071   15,000,000   16,071  LLP POSUK Titanium SMBC USD15,000,000   17,367   15,000,000   17,367 
 Nickel Mining Company SAS SMBC EUR  46,000,000   58,846   37,000,000   47,332  Nickel Mining Company SAS SMBC EUR46,000,000   59,682   46,000,000   59,682 

POSCO DAEWOO Corporation

 GLOBAL KOMSCO Daewoo LLC Industrial & Commercial Bank of China USD  8,225,000   8,812   8,225,000   8,812 

POSCO INTERNATIONAL Corporation (Formerly, POSCO DAEWOO Corporation)

 GLOBAL KOMSCO Daewoo LLC KEB Hana Bank USD8,225,000   9,523   8,050,000   9,320 

POSCO ENGINEERING & CONSTRUCTION CO., LTD.

 New Songdo International City Development, LLC Others KRW  340,000   340,000   317,900   317,900  New Songdo International City Development, LLC Others KRW386,000   386,000   386,000   386,000 
 RPSD Project Co., Ltd Others KRW45,000   45,000   35,000   35,000 
 Chun-cheon Energy Co., Ltd Kookmin Bank and others KRW12,430   12,430   8,234   8,234 
 Pohang E&E Co., Ltd Heungkuk Life Insurance Co., Ltd. KRW71,930   71,930   64,592   64,592 
 Incheon-Gimpo Expressway Co, Ltd. Kookmin Bank and others KRW28,940   28,940   —      —    
 PT. Wampu Electric Power KEB Hana Bank USD2,365,099   2,738   2,365,099   2,738 
 PT.Tanggamus Electric Power KEB Hana Bank USD1,936,699   2,242   1,936,699   2,242 
 Metropolitan Outer Ring Expressway co., ltd. Others KRW276,521   276,521   14,486   14,486 
 UITrans LRT Co., Ltd. Kookmin Bank and others KRW121,750   121,750   107,176   107,176 
 NEXTRAIN Co., Ltd Others KRW634,752   634,752   —      —    
 Pureun Tongyeong Enviro Co., Ltd. KDB Bank and others KRW22,714   22,714   16,017   16,017 
 UITrans LRT Co., Ltd. Kookmin Bank and others KRW  20,740   20,740   20,740   20,740  Pure Gimpo Co., Ltd. KDB Bank and others KRW44,740   44,740   32,847   32,847 
 Chun-cheon Energy Co., Ltd Kookmin Bank and others KRW  11,600   11,600   10,993   10,993  Clean Iksan Co., Ltd. Samsung Fire & Marine Insurance Co., Ltd. KRW44,054   44,054   31,062   31,062 

POSCO ICT

 Incheon-Gimpo Expressway co., Ltd. Korea Development Bank KRW  100,000   100,000   100,000   100,000  Incheon-Gimpo Expressway Co, Ltd. KDB Bank KRW100,000   100,000   100,000   100,000 
 UITrans LRT Co., Ltd. Kookmin Bank KRW  76,000   76,000   76,000   76,000  UITrans LRT Co., Ltd. Kookmin Bank KRW76,000   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 
 Hyochun CO., LTD KYOBO SECURITIES CO., LTD.  39,575   39,575   39,575   39,575 
 Metropolitan Outer Ring Expressway co., ltd. Woori bank and others KRW193,700   193,700   7,748   7,748 

POSCO CHEMCAL CO., LTD (Formerly, POSCO CHEMTECH)

 KRAKATAUPOS-CHEMDONG-SUH CHEMICAL KEB Hana Bank USD1,140,000   1,320   506,667   587 

POSCO(Suzhou) Automotive Processing Center Co.,Ltd.

 POS-InfraAuto (Suzhou) Co., Ltd Korea Development Bank USD  780,000   836   780,000   836  POS-InfraAuto (Suzhou) Co., Ltd KDB Bank USD769,500   891   769,500   891 

[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, 2015, 20162018 and 20172019

 

 

 

      

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 
   

 

 

 

 

  

 

 

  

 

 

  

 

 

 

(c) POSCO ENGINEERING & CONSTRUCTION CO., LTD. has provided the completion guarantees for Samsung C&T Corporation amounting to395,792 million while Samsung C&T Corporation has provided the construction guarantees or payment guarantees on customers’ borrowings on behalf of POSCO ENGINEERING & CONSTRUCTION CO., LTD. amounting to269,455 million as of December 31, 2017.

(in millions of Won)     Guarantee limit  Guarantee amount 

Guarantor

 

Guarantee
beneficiary

 

Financial
institution

 Foreign currency  Won
equivalent
  Foreign
currency
  Won
equivalent
 

[Others]

      

POSCO INTERNATIONAL Corporation (Formerly, POSCO DAEWOO Corporation)

 Ambatovy Project Investments Ltd. and others Export-Import Bank of Korea USD21,818,182   25,261   3,451,287   3,996 

POSCO ICT

 Soosungenc and others KEB Hana Bank KRW1,198,724   1,198,724   1,198,724   1,198,724 

POSCO ENGINEERING & CONSTRUCTION CO., LTD.

 Ecocity CO., LTD and others Others KRW3,616,714   3,616,714   2,156,506   2,156,506 

POSCO AUSTRALIA PTY LTD

 Department of Trade and Investment (NSW Government) and others Woori bank and others AUD26,525,154   21,495   26,525,154   21,495 
   

 

 

  

 

 

  

 

 

  

 

 

 
   AUD26,525,154   21,495   26,525,154   21,495 
   BRL464,060,000   133,672   464,060,000   133,672 
   EUR69,250,000   89,847   69,250,000   89,847 
   IDR150,000,000,000   12,465   150,000,000,000   12,465 
   INR221,000,000   3,587   171,200,000   2,779 
   KRW6,993,544   6,993,544   4,329,507   4,329,507 
   THB5,501,000,000   212,669   5,501,000,000   212,669 
   USD3,866,040,581   4,476,101   3,200,258,973   3,705,259 
   

 

 

  

 

 

  

 

 

  

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

(c)

(d) Other commitments

Details of other commitments of the Company as of December 31, 20172019 are as follows:

 

Company

Description

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, 2017, 1162019, 102 million tons of iron ore and 1811 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.

 

POSCO has long-term service contracts for the transportation of raw materials. As of December 31, 2019, there are 39 vessels under contracts, and the average remaining contract period is about 10 years.

As of December 31, 2017, the Company2019, POSCO entered into commitmentsa commitment with KOREA ENERGY AGENCY for long-term foreign currency borrowings, which enables the Company to borroware limited up to the amount of USD 6.494.12 million. The borrowings areborrowing is related to the Company’s the exploration of gas hydrates in Western Fergana-Chinabad. The repayment of the borrowings depends on the success of the projects. The CompanyPOSCO is not liable for the repayment ofin full or in part of the amount borrowed if the respective projects fail. The CompanyPOSCO has agreed to pay a certain portion of its profits under certain conditions, as defined by the borrowing agreements. As of December 31, 2017,2019, the ending balance of the borrowing amounts to USD 1.02 million.

 

POSCO provides a9.8 billion fund supplement agreement for Busan E&E Co., LTD. a subsidiary of our company, at the request of creditors, including the Korea Development Bank.

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.LTD., a subsidiary of the Company, 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, 2017,2019, POSCO ENGINEERING & CONSTRUCTION CO., LTD. has foreign currency guarantee of up to USD 2,3112,425 million and uses USD 1,306710 million with Woori Bank and others.

 

POSCO ICT

As of December 31, 2017,2019, The out standing balance of loans related to major liability compliance agreements is2,613.7 billion from three projects including development of Park One in relationYeouido. If the responsibility is not fulfilled, the obligation is to contract enforcement, POSCO ICT was provided with143,582 milliontake over the debt and22,432 million guaranties from Korea Software Financial Cooperative and Seoul Guarantee Insurance, respectively. lease the liability.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

Company

Description

POSCO ICT

As of December 31, 2019, the company is provided with a guarantee of85,182 million and3,482 million and305 million, respectively, from the Software credit union and the Seoul guarantee insurance company and Engineering credit union.

In connection with 15 projects, including the construction of the Bundang Center of Doosan Co.,LTD, the company is responsible for fulfilling its obligations, and as of the end of the current quarter, outstanding loans related to the liability compliance agreement are worth882 billion. If the responsibility is not fulfilled, the principal and interest of Daeju is liable for damages.

(e)

(d)

Litigation in progress

1)

Request for Arbitration of NSC Investment and TGC

In March 2019, NSC Investment and TGC(“Applicant”), a joint venture former partner of POSCO E&C, in connection with the Songdo International City Development Project in Incheon, have filed an arbitration (mediation price: about USD 2 billion) for violations of POSCO E&C. In addition, the Applicants filed an appeal in the United States District Court for the Southern District of New York in March 2019, confirming that all claims specified in the above arbitration application must be resolved by ICC arbitration. As of December 31, 2019, the Company has determined that the applicant’s claim is not legally valid, and did not recognize a provision because it believes that the present obligation does not exist.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2017,2018 and 2019

2)

Other litigations

As of December 31, 2019, litigations in progress that POSCO and certain subsidiaries are defendants in legal actions arising from the normal course of business are as follows:

 

(in millions of Won, in thousands of
foreign currencies)
         

Company

 Legal
actions
 

Claim amount

 Korean Won
equivalent
 

Description

 Legal
actions
 Claim amount Won
equivalent
 

Descrioption

 (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)  23   KRW   39,500   39,500  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)

POSCO INTERNATIONAL Corporation (Formerly, POSCO DAEWOO Corporation)

 1  CAD  79,000  ��70,038  Lawsuit on claim for damages
  10  KRW  9,903   9,903  Lawsuit on claim for payment and others 5  INR  4,518,694  73,338  Lawsuit on claim for payment on guarantees and others(*1)
  3  USD  22,228   23,815  Lawsuit on claim for damages and others(*1) 8  KRW  18,786  18,786  Litigation for confirmation of deposit bond and others
 1  PKR 124,775  1,208  Lawsuit on claim for damages 4  USD  22,813  26,413  Lawsuit on claim for damages and others
  1  CAD  79,000   67,363  Lawsuit on claim for damages 1  PKR  124,775  931  Lawsuit on claim for damages

POSCO ENGINEERING & CONSTRUCTION CO., LTD.

 104  KRW 461,134  461,134  Arbitration on construction costs allocation and others 123  KRW  2,838,122  2,838,122  Lawsuit on claim for damages and others(*1)

POSCO ICT

  13  KRW  9,894   9,894  Lawsuit on claim for payment and others 1  BRL  10,244  2,951  Lawsuit on revocation of claim for damage(*1)
 11  KRW  8,500  8,500  Lawsuit on claim for damages and others(*1)

POSCO A&C

  3  KRW  3,985   3,985  Lawsuit on claim for payment on construction 10  KRW  6,043  6,043  Lawsuit on claim for payment on construction and others

POSCO ENERGY CO., LTD.

  4  KRW  7,017   7,017  Lawsuit on claim for damages and revocation of electricity supply contract and others 3  KRW  3,669  3,669  Lawsuit on claim for damages 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 5  CNY  66,655  11,047  Lawsuit over contract dispute and others

POSCO COATED & COLOR STEEL Co., Ltd.

 1  KRW  1,400  1,400  Lawsuit on claim for damages

POSCO ENGINEERING (THAILAND) CO., LTD.

 2  THB  160,929  6,222  Lawsuit on claim for payment on construction and others
  1  KRW  3,305   3,305  Lawsuit on claim for payment on construction 1  USD  1,046  1,211  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

PT. KRAKATAU POSCO

 1  IDR  211,407,872  17,568  Lawsuit on claim for payment on construction

POSCO E&C Vietnam Co., Ltd.

 3  USD  5,131  5,941  Lawsuit on claim for payment on construction

Pos-Sea Pte Ltd

 1  USD  12,700  14,704  Lawsuit over contract dispute

POSCO TNPC Otomotiv Celik San. Ve Tic. A.S

 6  TRY 31  9  Lawsuit on claim for unfair dismissal and others 7  TRY  102  20  Lawsuit over industrial accidents 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

POSCO India Steel Distribution Center Private Ltd.

 1  INR  223,795  3,632  Lawsuit on claim for tax restitution

Brazil Sao Paulo Steel Processing Center

 3  BRL 12,167  3,935  Lawsuit on claim for payment on construction and others 3  BRL  4,321  1,245  Lawsuit on claim for labor 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

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

(in millions of Won, in thousands of foreign
currencies)
              

Company

 Legal
actions
  Claim amount  Won
equivalent
  

Descrioption

POSCO ENGINEERING & CONSTRUCTION DO BRAZIL LTDA.

  104   BRL   152,077   43,806  Lawsuit on claim for payment on construction and others(*1)

POSCO ASSAN TST STEEL INDUSTRY

  1   TRY   1,965   383  Lawsuit on compensation

POSCO Asia Co., Ltd.

  1   USD   950   1,099  Lawsuit on claim for receivable

ZHANGJIAGANG POHANG STAINLESS STEEL CO., LTD.

  1   CNY   807   134  Lawsuit on claim for labor

POSCO CHEMCAL CO., LTD (Formerly, POSCO CHEMTECH)

  1   KRW   15,383   15,383  Calculation of stock purchase value

POSCOM-TECH

  2   KRW   425   425  Lawsuit on claim for damages

POSCO Engineering and Construction India Private Limited

  3   INR   27,995   454  Lawsuit on claim for payment

POSCO INTERNATIONAL AMERICA Corp.

  1   USD   150   174  Lawsuit over injury

HONG KONG POSCO E&C (CHINA) INVESTMENT Co., Ltd.

  1   KRW   3,305   3,305  Lawsuit on claim for payment

 

(*1)

The Company made a reliable estimate in 163105 lawsuits by considering the possibility and estimated amount of outflow of resources and recognized27,96354,228 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 ofprovisions.

(e)

Other contingent circumstances

Other major contingencies for the Company for the years ended December 31, 2017 for the matters.2019 are as follows:

Company

Description

POSCO

POSCO has provided 3 blank checks to Korea Energy Agency as collateral for long-term foreign currency borrowings.

POSCO INTERNATIONAL Corporation (Formerly, POSCO DAEWOO Corporation)

As of December 31, 2019, POSCO INTERNATIONAL Corporation (Formerly, POSCO DAEWOO Corporation) has provided 33 blank promissory notes and 20 blank checks to Korea Energy Agency and others as collateral for the guarantee on performance for contracts and others.

POSCO ENGINEERING & CONSTRUCTION Co., LTD.

As of December 31, 2019, POSCO ENGINEERING & CONSTRUCTION CO., LTD. has provided 26 blank checks and 4 blank promissory notes as collateral for agreements and outstanding loans, and has provided joint guarantee of9,887,559 million for guarantee that partners had issued from Korea Housing & Urban Guarantee Corporation and others.

POSCO ICT

As of December 31, 2019, POSCO ICT has provided 2 blank promissory notes and 6 blank checks to financial institutions as collateral for the guarantee on performance for contracts and others.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

39.

Additional Information of Cash Flow Statements

(a) Changes in operating assets and liabilities for the years ended December 31, 2015, 2016 and 2017 were as follows:

   2015  2016  2017 
   (in millions of Won) 

Trade accounts and notes receivable

  1,586,113   273,419   63,075 

Other receivables

   259,741   191,591   113,740 

Inventories

   2,456,068   (889,998  (1,435,170

Other current assets

   42,131   (287,377  110,688 

Othernon-current assets

   72,826   33,584   12,455 

Trade accounts and notes payable

   (894,129  769,337   (607,999

Other payables

   39,811   (179,174  (26,922

Other current liabilities

   (457,947  2,490   338,273 

Provisions

   (119,172  (124,884  (145,763

Payments of severance benefits

   (157,983  (278,278  (185,220

Plan assets

   (115,274  (138,854  3,815 

Othernon-current liabilities

   72,267   223,574   (82,605
  

 

 

  

 

 

  

 

 

 
  2,784,452   (404,570  (1,841,633
  

 

 

  

 

 

  

 

 

 

(b) Changes in liabilities arising from financial activities for the year ended December 31, 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 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

40.(a)Operating Segments

Changes in operating assets and Geographic Informationliabilities for the years ended December 31, 2017, 2018 and 2019 were as follows:

(a) The Company’s operating businesses are organized based on the nature of markets and customers. The Company has four reportable operating 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 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.

(in millions of Won)  2017  2018  2019 

Trade accounts and notes receivable

  63,075   17,806   286,121 

Other receivables

   113,740   (20,786  (163,234

Inventories

   (1,435,170  (1,451,009  1,136,819 

Other current assets

   110,688   1,118   42,337 

Othernon-current assets

   12,455   5,974   (30,010

Trade accounts and notes payable

   (607,999  379,742   (732,741

Other payables

   (26,922  (111,893  2,762 

Other current liabilities

   338,273   (197,154  (173,762

Provisions

   (145,763  (119,617  (75,514

Payments of severance benefits

   (185,220  (189,165  (152,275

Plan assets

   3,815   (245,214  (217,953

Othernon-current liabilities

   (82,605  (175,528  (36,595
  

 

 

  

 

 

  

 

 

 
  (1,841,633  (2,105,726  (114,045
  

 

 

  

 

 

  

 

 

 

(b)

Changes in liabilities arising from financial activities for the years ended December 31, 2018 and 2019 were as follows:

1)

December 31, 2018

(in millions of Won)  Liabilities  Derivatives
that hedge
borrowings
 
   Short-term
borrowings
  long-term
borrowings
  Dividend
payable
  Finance lease
liabilities
 

Beginning

  8,174,818   12,888,839   7,213   93,018   119,320 

Changes from financing cash flows

   (854,554  (373,862  (770,099  (14,955  (17,237

Changes arising from obtaining or losing control of subsidiaries or other business

   (342  —     —     —     —   

The effect of changes in foreign exchange rates

   167,858   200,308   (5,573  (7,766  —   

Changes in fair values

   —     —     —     —     (58,666

Other changes:

       —   

Decrease in retained earnings

   —     —     704,444   —     —   

Decrease innon-controlling interest

   —     —     72,688   —     —   

Amortization of discount on debentures issued

   —     6,205   —     —     —   

Increase in finance lease assets

   —     —     —     24,457   —   
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Ending

  7,487,780   12,721,490   8,673   94,754   43,417 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

(b) Information about reportable segments as of and for the years ended December 31, 2015, 2016 and 2017 was as follows:

1) As of and for the year ended December 31, 2015
2)

December 31, 2019

 

   Steel  Trading  Construction  Others  Total 
   (in millions of Won) 

External revenues

      28,292,824   18,315,487   8,515,780   3,068,254   58,192,345 

Internal revenues

   16,543,951   8,692,020   1,352,067   2,691,361   29,279,399 

Including inter segment revenue

   9,146,808   4,480,744   1,090,193   2,571,219   17,288,964 

Total revenues

   44,836,775   27,007,507   9,867,847   5,759,615   87,471,744 

Interest income

   139,821   55,630   27,134   16,173   238,758 

Interest expenses

   (560,767  (76,672  (91,742  (141,095  (870,276

Depreciation and amortization

   (2,782,680  (166,814  (50,605  (282,817  (3,282,916

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

   (562,133  (212,535  (25,223  (22,618  (822,509

Income tax expense

   (390,000  (4,772  (30,615  (18,718  (444,105

Segment profit (loss)

   181,495   38,843   (275,651  (65,570  (120,883

Segment assets

   70,102,972   12,160,406   9,997,683   10,962,594   103,223,655 

Investment in associates

   17,457,391   1,097,971   1,076,024   1,186,307   20,817,693 

Acquisition ofnon-current assets

   2,102,674   303,753   276,863   345,971   3,029,261 

Segment liabilities

   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, 2016

(in millions of Won)  Liabilities  Derivatives
that hedge
borrowings
 
   Short-term
borrowings
  Long-term
borrowings
  Dividend
payable
  Lease
liabilities
 

Beginning

  7,487,780   12,721,490   8,673   94,754   43,417 

Changes from financing cash flows

   (2,194,727  1,900,132   (962,712  (167,427  7,657 

Changes arising from obtaining or losing control of subsidiaries or other business

   (45,589  (88,966  324   —     —   

The effect of changes in foreign exchange rates

   238,869   415,028   (649  (1,867  —   

Changes in fair values

   —     —     —     —     (117,023

Other changes:

      

Decrease in retained earnings

   —     —     889,900   —     —   

Decrease innon-controlling interest

   —     —     67,569   —     —   

Amortization of discount on debentures issued

   —     7,596   —     —     —   

Initial application of IFRS No.16

   —     —     —     677,370   —   

Increase in lease assets

   —     —     —     72,640   —   
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Ending

  5,486,333   14,955,280   3,105   675,470   (65,949
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

   Steel  Trading  Construction  Others  Total 
   (in millions of Won) 

External revenues

      26,844,154   16,774,078   6,768,348   2,696,933   53,083,513 

Internal revenues

   16,062,016   9,646,026   713,703   2,379,945   28,801,690 

Including inter segment revenue

   8,992,783   5,296,847   557,526   2,285,128   17,132,284 

Total revenues

   42,906,170   26,420,104   7,482,051   5,076,878   81,885,203 

Interest income

   126,210   40,424   65,256   13,564   245,454 

Interest expenses

   (459,345  (70,841  (102,292  (126,523  (759,001

Depreciation and amortization

   (2,788,535  (165,863  (57,719  (264,299  (3,276,416

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

   (211,084  (53,586  (283,833  (6,369  (554,872

Income tax expense

   (495,874  (18,629  107,520   (56,026  (463,009

Segment profit (loss)

   1,511,383   53,244   (1,403,712  (25,889  135,026 

Segment assets

   69,914,939   13,580,179   9,501,046   8,529,600   101,525,764 

Investment in associates

   16,109,360   1,100,973   795,445   1,200,295   19,206,073 

Acquisition ofnon-current assets

   2,334,842   249,597   25,533   191,715   2,801,687 

Segment liabilities

   20,292,764   10,134,170   6,780,380   4,709,689   41,917,003 
40.

Operating Segments and Geographic Information

(a)

The Company’s operating segments are organized based on the nature of markets and customers. The Company has four reportable operating 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 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, 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, 20162018 and 20172019

 

 

 

3) As of and for the year
(b)

Information about reportable segments as of and for the years ended December 31, 2017, 2018 and 2019 were as follows:

 

   Steel  Trading  Construction  Others  Total 
   (in millions of Won) 

External revenues

      30,230,368   20,802,207   6,886,606   2,735,919   60,655,100 

Internal revenues

   17,381,010   14,075,996   398,924   2,548,674   34,404,604 

Including inter segment revenue

   12,004,614   8,043,643   329,215   2,446,029   22,823,501 

Total revenues

   47,611,378   34,878,203   7,285,530   5,284,593   95,059,704 

Interest income

   128,827   32,799   100,922   17,940   280,488 

Interest expenses

   (422,357  (121,967  (112,983  (100,656  (757,963

Depreciation and amortization

   (2,856,133  (206,490  (42,123  (255,620  (3,360,366

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

   8,352      (8,555  (1,518  (1,721

Income tax expense

   (977,853  (109,710  (109,961  (77,172  (1,274,696

Segment profit (loss)

   2,790,855   112,661   24,545   232,700   3,160,761 

Segment assets

   70,017,816   14,139,098   8,609,753   8,776,090   101,542,757 

Investment in associates

   16,116,654   1,134,798   668,392   1,193,895   19,113,739 

Acquisition ofnon-current assets

   2,033,184   286,185   99,190   251,665   2,670,224 

Segment liabilities

   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
1)

As of and for the year ended December 31, 2017

 

   2015  2016  2017 
   (in millions of Won) 

Total revenue for reportable segments

      87,471,744   81,885,203   95,059,704 

Elimination of inter-segment revenue

   (29,279,399  (28,801,690  (34,404,604

Basis difference(*2)

   329,923   (143,742  (468,233
  

 

 

  

 

 

  

 

 

 
  58,522,268   52,939,771   60,186,867 
  

 

 

  

 

 

  

 

 

 

2) Profit

(in millions of Won)  Steel  Trading  Construction  Others  Total 

External revenues

  30,230,368   20,802,207   6,886,606   2,735,919   60,655,100 

Internal revenues

   17,381,010   14,075,996   398,924   2,548,674   34,404,604 

Including inter segment revenue

   12,004,614   8,043,643   329,215   2,446,029   22,823,501 

Total revenues

   47,611,378   34,878,203   7,285,530   5,284,593   95,059,704 

Interest income

   128,827   32,799   100,922   17,940   280,488 

Interest expenses

   (422,357  (121,967  (112,983  (100,656  (757,963

Depreciation and amortization

   (2,856,133  (206,490  (42,123  (255,620  (3,360,366

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

   8,352   —     (8,555  (1,518  (1,721

Income tax expense

   (977,853  (109,710  (109,961  (77,172  (1,274,696

Segment profit (loss)

   2,790,855   112,661   24,545   232,700   3,160,761 

Segment assets

   70,017,816   14,139,098   8,609,753   8,776,090   101,542,757 

Investment in associates

   16,116,654   1,134,798   668,392   1,193,895   19,113,739 

Acquisition ofnon-current assets

   2,033,184   286,185   99,190   251,665   2,670,224 

Segment liabilities

   19,057,249   10,386,294   5,744,693   4,620,902   39,809,138 

 

   2015  2016  2017 
   (in millions of Won) 

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

   119,852   1,036,253   (102,922

Income tax expense

   276,939   384,685   1,206,223 

Basis difference(*2)

   (30,413  (21,245  (84,641
  

 

 

  

 

 

  

 

 

 

Profit before income tax expense

      150,345   1,411,609   4,095,051 
  

 

 

  

 

 

  

 

 

 
2)

As of and for the year ended December 31, 2018

(in millions of Won)  Steel  Trading  Construction  Others  Total 

External revenues

  32,358,009   22,407,717   6,769,410   3,442,641   64,977,777 

Internal revenues

   18,063,213   15,911,138   551,324   2,755,176   37,280,851 

Including inter segment revenue

   12,496,287   8,743,666   465,057   2,639,561   24,344,571 

Total revenues

   50,421,222   38,318,855   7,320,734   6,197,817   102,258,628 

Interest income

   199,016   36,437   115,019   23,454   373,926 

Interest expenses

   (468,681  (189,165  (111,101  (94,613  (863,560

Depreciation and amortization

   (2,812,666  (210,493  (36,840  (265,416  (3,325,415

Impairment loss on property, plant and equipment and others

   (1,057,474  (86,085  (82,521  (117,280  (1,343,360

Impairment loss on investment in associates and JVs

   (733,879  (160,085  (155,371  —     (1,049,335

Income tax expense

   (1,307,292  (52,914  (238,441  (65,611  (1,664,258

Segment profit (loss)

   1,268,313   49,264   234   13,608   1,331,419 

Segment assets

   70,976,493   15,550,854   7,333,221   8,017,433   101,878,001 

Investment in subsidiaries, associates and joint ventures

   16,099,692   1,379,045   511,230   932,107   18,922,074 

Acquisition ofnon-current assets

   2,239,467   132,017   49,095   232,281   2,652,860 

Segment liabilities

   20,289,037   11,454,079   4,386,852   4,134,352   40,264,320 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

3)

As of and for the year ended December 31, 2019

3) Assets

(in millions of Won)  Steel  Trading  Construction  Others  Total 

External revenues

  32,078,453   22,157,131   6,944,629   3,186,635   64,366,848 

Internal revenues

   17,729,990   15,467,687   743,376   2,796,306   36,737,359 

Including inter segment revenue

   12,184,743   8,130,503   686,881   2,638,449   23,640,576 

Total revenues

   49,808,443   37,624,818   7,688,005   5,982,941   101,104,207 

Interest income

   211,715   41,739   118,102   28,036   399,592 

Interest expenses

   (529,743  (183,129  (77,005  (81,778  (871,655

Depreciation and amortization

   (2,892,901  (276,817  (29,266  (226,693  (3,425,677

Impairment loss on property, plant and equipment and others

   (497,583  (131,914  (1,490  (3,758  (634,745

Share of loss of equity-accounted investees, net

   (865,769  (76,038  (85,628  —     (1,027,435

Income tax expense

   (725,448  (119,044  (86,106  (105,171  (1,035,769

Segment profit

   585,948   165,348   27,789   544,961   1,324,046 

Segment assets

   71,153,809   14,482,538   7,653,637   9,212,225   102,502,209 

Investment in subsidiaries,

   —     —     —     —     —   

associates and joint ventures

   15,650,654   1,409,764   527,418   1,062,215   18,650,051 

Acquisition ofnon-current assets

   2,275,103   192,805   30,563   404,963   2,903,434 

Segment liabilities

   21,101,474   10,184,521   4,584,423   4,454,502   40,324,920 

(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

(in millions of Won)  2017  2018  2019 

Total revenue for reportable segments

  95,059,704   102,258,628   101,104,207 

Elimination of inter-segment revenue

   (34,404,604  (37,280,851  (36,737,359

Basis difference(*2)

   (468,233  176,859   418,861 
  

 

 

  

 

 

  

 

 

 
  60,186,867   65,154,636   64,785,709 
  

 

 

  

 

 

  

 

 

 

2)

Profit

(in millions of Won)  2017  2018  2019 

Total profit (loss) for reportable segments

  3,160,761   1,331,419   1,324,046 

Goodwill and corporate FV adjustments

   (84,370  (77,756  (80,218

Elimination of inter-segment profits

   (102,922  638,401   738,809 

Income tax expense

   1,206,223   1,670,757   1,070,641 

Basis difference(*2)

   (84,641  53,195   73,256 
  

 

 

  

 

 

  

 

 

 

Profit before income tax expense

  4,095,051   3,616,016   3,126,534 
  

 

 

  

 

 

  

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 and 2019

 

   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 
  

 

 

  

 

 

 

3)

Assets

(in millions of Won)  2018  2019 

Total assets for reportable segments(*1)

  101,878,001   102,502,209 

Equity-accounted investees

   (15,272,243  (14,400,831

Goodwill and corporate FV adjustments

   2,722,115   2,622,409 

Elimination of inter-segment assets

   (11,079,608  (11,665,126

Basis difference(*2)

   528,726   312,147 
  

 

 

  

 

 

 
  78,776,991   79,370,808 
  

 

 

  

 

 

 

 

(*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)

4)

Liabilities

 

   2016  2017 
   (in millions of Won) 

Total liabilities for reportable segments

  41,917,003   39,809,138 

Corporate FV adjustments

   442,178   483,693 

Elimination of inter-segment liabilities

   (8,434,580  (8,731,880

Basis difference (*2)

   447,744   897,953 
  

 

 

  

 

 

 
      34,372,345   32,458,904 
  

 

 

  

 

 

 

5) Other significant items

a) December 31, 2015

(in millions of Won)  2018  2019 

Total liabilities for reportable segments

  40,264,320   40,324,920 

Corporate FV adjustments

   321,320   292,124 

Elimination of inter-segment liabilities

   (9,096,926  (9,353,090

Basis difference(*2)

   615,663   343,556 
  

 

 

  

 

 

 
  32,104,377   31,607,510 
  

 

 

  

 

 

 

 

   Total
segment
  Corporate FV
adjustments
  Elimination of
inter-segment
transactions
  Basis
difference (*2)
   Consolidated 
   (in millions of Won) 

Interest income

  238,758      (28,565      210,193 

Interest expenses

   (870,276  1,282   80,222       (788,772

Depreciation and amortization

   (3,282,916  (117,595  182,265       (3,218,246

Share of profit or loss of investment in associates

   (822,509     316,455       (506,054

Income tax expense

   (444,105  24,294   142,872   10,379    (266,560

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
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 
  (5,734,271  (92,019  649,024   10,379    (5,166,887
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 
5)

Other significant items

a)

December 31, 2017

(in millions of Won) Total segment  corporate FV
adjustments
  Elimination of
inter-segment
transactions
  Basis
difference(*2)
  Consolidated 

Interest income

 280,488   —     (68,037  —     212,451 

Interest expenses

  (757,963  1,304   103,544   —     (653,115

Depreciation and amortization

  (3,360,366  (106,195  169,141   —     (3,297,420

Share of profit or loss of investment in associates

  (1,721  —     12,261   —     10,540 

Income tax expense

  (1,274,696  21,270   47,203   20,483   (1,185,740

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
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
 (5,578,296  (84,488  302,836   20,483   (5,339,465
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

b) December 31, 2016
b)

December 31, 2018

 

   Total
segment
  Corporate FV
adjustments
  Elimination of
inter-segment
transactions
  Basis
difference (*2)
   Consolidated 
   (in millions of Won) 

Interest income

  245,454      (62,979      182,475 

Interest expenses

   (759,001  (807  101,082       (658,726

Depreciation and amortization

   (3,276,416  (104,949  167,518       (3,213,847

Share of profit or loss of investment in associates

   (554,872  (38,732  504,927       (88,677

Income tax expense

   (463,009  21,945   56,379   5,141    (379,544

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
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 
  (5,365,572  (122,543  707,312   5,141    (4,775,662
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

c) December 31, 2017

(in millions of Won) Total
segment
  corporate FV
adjustments
  Elimination of
inter-segment
transactions
  Basis
difference(*2)
  Consolidated 

Interest income

 373,926   —     (36,668  —     337,258 

Interest expenses

  (863,560  1,035   121,229   —     (741,296

Depreciation and amortization

  (3,325,415  (103,932  161,718   —     (3,267,629

Share of profit or loss of investment in associates

  (1,049,335  —     1,161,970   —     112,635 

Income tax expense

  (1,664,258  25,921   (32,420  (12,873  (1,683,630

Impairment loss on property, plant and equipment and others

  (1,343,360  (779  (107,258  —     (1,451,397
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
 (7,872,002  (77,755  1,268,571   (12,873  (6,694,059
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

   Total
segment
  Corporate FV
adjustments
  Elimination of
inter-segment
transactions
  Basis
difference (*2)
   Consolidated 
   (in millions of Won) 

Interest income

  280,488      (68,037      212,451 

Interest expenses

   (757,963  1,304   103,544       (653,115

Depreciation and amortization

   (3,360,366  (106,195  169,141       (3,297,420

Share of profit or loss of investment in associates

   (1,721     12,261       10,540 

Income tax expense

   (1,274,696  21,270   47,203   20,483    (1,185,740

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
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 
  (5,578,296  (84,488  302,836   20,483    (5,339,465
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 
c)

December 31, 2019

 

(in millions of Won) Total segment  Goodwill and
corporate FV
adjustments
  Elimination of
inter-segment
transactions
  Basis
difference(*2)
  Consolidated 

Interest income

 399,592   —     (47,208  —     352,384 

Interest expenses

  (871,655  806   115,138   —     (755,711

Depreciation and amortization

  (3,425,677  (109,941�� 74,503   —     (3,461,115

Share of profit of equity-accounted investees, net

  (1,027,435  —     1,301,176   —     273,741 

Income tax expense

  (1,035,769  28,917   (63,789  (17,728  (1,088,369

Impairment loss on property, plant and equipment and others

  (634,745  —     (70,011  —     (704,756
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
 (6,595,689  (80,218  1,309,809   (17,728  (5,383,826
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

(*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.

(d)

(d)

Revenue by geographic area for the years ended December 31, 2015, 2016 and 2017, 2018 and 2019 was as follows:

 

  2015   2016 2017 
  (in millions of Won) 
(in millions of Won)  2017 2018   2019 

Domestic

  39,268,907    34,883,941  38,882,220   38,882,220  41,671,930    40,890,972 

Japan

   1,934,808    1,892,022  2,200,405    2,200,405  2,084,061    2,202,075 

China

   5,756,867    5,908,046  6,731,214    6,731,214  6,945,266    7,165,271 

Asia-other

   5,888,045    5,649,843  7,750,553    7,750,553  8,904,532    8,976,593 

North America

   1,921,039    1,899,291  1,725,120    1,725,120  1,834,534    1,711,859 

Others

   3,422,679    2,850,370  3,365,588    3,365,588  3,537,454    3,420,078 
  

 

   

 

  

 

   

 

  

 

   

 

 
   58,192,345    53,083,513  60,655,100    60,655,100  64,977,777    64,366,848 

Basis difference

   329,923    (143,742 (468,233   (468,233 176,859    418,861 
  

 

   

 

  

 

   

 

  

 

   

 

 
  58,522,268    52,939,771  60,186,867   60,186,867  65,154,636    64,785,709 
  

 

   

 

  

 

   

 

  

 

   

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2015, 20162018 and 20172019

 

 

 

In presenting geographic information on the basis of geography, segment revenue is based on the geographical location of customers.

(e)Non-current assets by geographic area as of December 31, 2016 and 2017

(e)

Non-current assets by geographic area as of December 31, 2018 and 2019 are as follows:

 

  2016   2017 
  (in millions of Won) 
(in millions of Won)  2018   2019 

Domestic

  31,772,641    30,790,462   28,298,293    27,742,370 

Japan

   187,266    162,328    146,490    175,719 

China

   1,451,405    1,284,561    1,185,828    1,307,847 

Asia-other

   6,163,388    5,266,799    5,067,936    4,916,775 

North America

   168,800    277,249    173,914    221,565 

Others

   1,233,288    1,119,319    1,245,252    1,348,397 
  

 

   

 

   

 

   

 

 
  40,976,788    38,900,718   36,117,713    35,712,673 
  

 

   

 

   

 

   

 

 

Non-current assets by geographic area include investment property, property, plant and equipment, goodwill and other intangible assets.

(f)

(f)

There are no customers whose revenue is 10% or more of the consolidated revenue.

41.

Events after the Reporting Period

(a)

On January 17, 2020, the Company issued non-guaranteed senior dollar bonds (issued at USD 500 million and USD 440 million) and non-guaranteed senior euro bonds (issued at EUR 500 million). The maturity of the bonds is January 17, 2023, January 17, 2025, and January 17, 2024.

(b)

POSCO ENERGY, a subsidiary, resolved to repay the convertible preferred stock at the Board of Directors meeting on February 17, 2020 and the Extraordinary Shareholders’ meeting on February 21, 2020. The repayment of160,000 million was made on February 25, 2020.

(c)

POSCO ENGINEERING & CONSTRUCTION CO., LTD., a subsidiary, decided to refinance funds in February 2020, to raise funds for repayment of principal funds and minimize financial expenses of Chun-cheon Energy Co., Ltd, an associate. In doing so, POSCO ENGINEERING & CONSTRUCTION CO., LTD. expects to enter into a guarantee arrangement to provide payment guarantees of about149.2 billion out of approximately534.6 billion.

Exhibit Index

 

  1.1     Articles of incorporation of POSCO (English translation)
  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)*
  2.3Description of common stock (see Item 10.B. Memorandum and Articles of Association)
  2.4Description of American Depositary Shares
  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
101Interactive Data Files (XBRL-related Documents)

 

 

*

Filed previously

(P)

Paper filing


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,Choi,Oh-JoonJeong-Woo

Name:

 Kwon,Choi,Oh-JoonJeong-Woo

Title:

 Chief Executive Officer and Representative Director

Date:

 April 27, 201829, 2020