As filed with the Securities and Exchange Commission on April 30, 201929, 2021

 

 

 

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, 20182020

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

(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, 2018,2020, there were 80,001,13276,015,472 shares of common stock, par value Won 5,000 per share, outstanding

(not including 7,185,70311,171,363 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          No  

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

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 every Interactive Data File required to be submitted 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 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” in Rule12b-2 of the Exchange Act. (Check one):

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

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

Indicate by check mark 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           Item 18  

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

 

*

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   2124 
 Item 4.A.  History and Development of the Company   2124 
 Item 4.B.  Business Overview   2124 
 Item 4.C.  Organizational Structure   3537 
 Item 4.D.  Property, Plants and Equipment   3537 

ITEM 4A.

 UNRESOLVED STAFF COMMENTS   3839 

ITEM 5.

 OPERATING AND FINANCIAL REVIEW AND PROSPECTS   3839 
 Item 5.A.  Operating Results   3839 
 Item 5.B.  Liquidity and Capital Resources   7371 
 Item 5.C.  Research and Development, Patents and Licenses, Etc.   7675 
 Item 5.D.  Trend Information   7675 
 Item 5.E.  Off-balance Sheet Arrangements   7775 
 Item 5.F.  Tabular Disclosure of Contractual Obligations   7775 
 Item 5.G.  Safe Harbor   7775 

ITEM 6.

 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES   7776 
 Item 6.A.  Directors and Senior Management   7776 
 Item 6.B.  Compensation   8079 
 Item 6.C.  Board Practices   8179 
 Item 6.D.  Employees   8281 
 Item 6.E.  Share Ownership   8381 

ITEM 7.

 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS   8483 
 Item 7.A.  Major Shareholders   8483 
 Item 7.B.  Related Party Transactions   8483 
 Item 7.C.  Interests of Experts and Counsel   8483 

ITEM 8.

 FINANCIAL INFORMATION   8483 
 Item 8.A.  Consolidated Statements and Other Financial Information   8483 
 Item 8.B.  Significant Changes   8685 

ITEM 9.

 THE OFFER AND LISTING   8685 
 Item 9.A.  Offer and Listing Details   8685 

 

i


 Item 9.B.  Plan of Distribution   8786 
 Item 9.C.  Markets   8786 
 Item 9.D.  Selling Shareholders   8786 
 Item 9.E.  Dilution   8786 
 Item 9.F.  Expenses of the Issuer   8786 

ITEM 10.

 ADDITIONAL INFORMATION   8786 
 Item 10.A.  Share Capital   8786 
 Item 10.B.  Memorandum and Articles of Association   8786 
 Item 10.C.  Material Contracts   92 
 Item 10.D.  Exchange Controls   92 
 Item 10.E.  Taxation   97 
 Item 10.F.  Dividends and Paying Agents   102103 
 Item 10.G.  Statements by Experts   102103 
 Item 10.H.  Documents on Display   103 
 Item 10.I.  Subsidiary Information   103 

ITEM 11.

 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   103 

ITEM 12.

 DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES   105 
 Item 12.A.  Debt Securities   105 
 Item 12.B.  Warrants and Rights   105 
 Item 12.C.  Other Securities   105 
 Item 12.D.  American Depositary Shares   106 
PART II   107 

ITEM 13.

 DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES   107 

ITEM 14.

 MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS   107 

ITEM 15.

 CONTROLS AND PROCEDURES   107 

ITEM 16.

 [RESERVED]   108 
 Item 16.A.  Audit Committee Financial Expert   108 
 Item 16.B.  Code of Ethics   108 
 Item 16.C.  Principal Accountant Fees and Services   109 
 Item 16.D.  Exemptions from the Listing Standards for Audit Committees   109 
 Item 16.E.  Purchases of Equity Securities by the Issuer and Affiliated Purchasers   110 
 Item 16.F.  Change in Registrant’s Certifying Accountant   110 
 Item 16.G.  Corporate Governance   110 
 Item 16.H.  Mine Safety Disclosure   111112 
PART III   112 

ITEM 17.

 FINANCIAL STATEMENTS   112 

ITEM 18.

 FINANCIAL STATEMENTS   112 

ITEM 19.

 EXHIBITS   112 

 

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.

“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”

  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 1.Identity of Directors, Senior Managers and Advisers

Item 1.A.  Directors and Senior Management

Not applicable

Item 1.B.Advisers

Not applicable

Item 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

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, 20172019 and 20182020 and for each of the years in thethree-year period ended December 31, 20182020 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-IFRS6-K. K-IFRS differs in certain respects from IFRS as issued by the IASB in the presentation of operating profit. Additionally,For example, underK-IFRS, revenue from the development and sale of certain real estate is recognized using the percentage of completion method. However, under IFRS as issued by the IASB, revenue from the development and sale of real estate is recognized when an individual unit of residential real estate is delivered to the buyer. As a result, our consolidated statements of comprehensive income and our consolidated statements of financial position prepared in accordance with IFRS as issued by the IASB included in this annual report differ from our consolidated statements of comprehensive income and consolidated statements of financial position prepared in accordance withK-IFRS. See “Item 5.A. Operating Results — 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, 
      2014         2015         2016         2017           2018           2016         2017           2018  (1)           2019  (2)         2020     
  (In billions of Won, except per share data)   (In billions of Won, except per share data) 

Revenue

      64,759      58,522      52,940      60,187       65,155       52,940      60,187       65,155       64,786      57,467 

Cost of sales

   57,465   52,018   46,271   51,916    57,129    46,271   51,916    57,129    58,462   52,799 
  

 

  

 

  

 

  

 

   

 

   

 

  

 

   

 

   

 

  

 

 

Gross profit

   7,293   6,504   6,668   8,271    8,026    6,668   8,271    8,026    6,324   4,668 

Impairment loss on trade accounts and notes receivable

   109   190   165   174    75 

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

   165   174    75    (28  1 

Other administrative expenses

   2,201   2,206   2,126   2,003    1,986    2,126   2,003    1,986    2,041   1,940 

Selling expenses

   1,760   1,729   1,554   1,557    369    1,554   1,557    369    368   377 

Impairment loss on other receivables

   96   158   38   98    63    38   98    63    80   53 

Other operating income

   269   549   215   448    524    215   448    524    451   402 

Other operating expenses

   884   1,285   718   691    2,014    718   691    2,014    1,090   646 
  

 

  

 

  

 

  

 

   

 

   

 

  

 

   

 

   

 

  

 

 

Operating profit

   2,513   1,486   2,282   4,196    4,042    2,282   4,196    4,042    3,223   2,054 

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

   (300  (506  (89  11    113    (89  11    113    274   133 

Finance income

   2,397   2,557   2,232   2,373    1,706    2,232   2,373    1,706    1,872   2,677 

Finance costs

   3,222   3,387   3,014   2,484    2,244    3,014   2,484    2,244    2,242   2,892 
  

 

  

 

  

 

  

 

   

 

   

 

  

 

   

 

   

 

  

 

 

Profit before income tax

   1,388   150   1,412   4,095    3,616    1,412   4,095    3,616    3,127   1,973 

Income tax expense

   824   267   380   1,186    1,684    380   1,186    1,684    1,088   224 
  

 

  

 

  

 

  

 

   

 

   

 

  

 

   

 

   

 

  

 

 

Profit (loss)

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

Total comprehensive income (loss)

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

Profit

   1,032   2,909    1,932    2,038   1,748 

Total comprehensive income

   1,486   2,348    1,504    2,185   1,531 

Profit (loss) for the period attributable to:

               

Owners of the controlling company

   633   171   1,355   2,756    1,712    1,355   2,756    1,712    1,864   1,581 

Non-controlling interests

   (69  (288  (323  153    220    (323  153    220    174   167 

Total comprehensive income (loss) attributable to:

               

Owners of the controlling company

   182   24   1,814   2,184    1,293    1,814   2,184    1,293    2,027   1,394 

Non-controlling interests

   (73  (302  (328  164    211    (328  164    211    158   136 

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

   7,514   1,731   16,521   34,040    21,177    16,521   34,040    21,177    23,189   19,900 

Dividends per share of common stock

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

Selected consolidated statements of financial position data

 

  As of December 31,   As of December 31, 
      2014           2015           2016           2017           2018           2016           2017           2018  (1)           2019 (2)             2020     
  (In billions of Won)   (In billions of Won) 

Working capital(2)(4)

      10,833       9,148       10,711       12,354       14,721       10,711       12,354       14,721       18,593       19,193 

Total current assets

   33,208    29,502    29,655    31,844    34,152    29,655    31,844    34,152    35,144    36,405 

Property, plant and equipment, net

   35,241    34,523    33,770    31,884    30,018    33,770    31,884    30,018    29,926    29,400 

Totalnon-current assets

   52,636    51,246    50,483    47,941    44,625    50,483    47,941    44,625    44,226    43,279 

Total assets

   85,844    80,748    80,138    79,786    78,777    80,138    79,786    78,777    79,371    79,684 

Short-term borrowings and current installments oflong-term borrowings

   12,195    12,371    10,195    11,275    10,290    10,195    11,275    10,290    8,548    8,678 

Long-term borrowings, excluding current installments

   15,233    12,849    12,510    9,789    9,920    12,510    9,789    9,920    11,893    11,820 

Total liabilities

   40,586    35,735    34,372    32,459    32,104    34,372    32,459    32,104    31,608    32,080 

Share capital

   482    482    482    482    482    482    482    482    482    482 

Total equity

   45,257    45,013    45,765    47,327    46,673    45,765    47,327    46,673    47,763    47,604 

Selected consolidated statements of cash flows data

 

  For the Year Ended December 31,   For the Year Ended December 31, 
  2014 2015 2016 2017 2018   2016 2017 2018 (1) 2019 (2) 2020 
  (In billions of Won)   (In billions of Won) 

Net cash provided by operating activities

      3,412      7,602      5,269      5,607      5,870       5,269      5,607      5,870      6,005      8,686 

Net cash used in investing activities

   (3,745  (4,535  (3,755  (3,818  (2,648   (3,755  (3,818  (2,648  (3,683  (6,259

Net cash provided by (used in) financing activities

   135   (2,242  (3,951  (1,566  (3,195

Net cash used in financing activities

   (3,951  (1,566  (3,195  (1,512  (1,091

Net increase (decrease) in cash and cash equivalents

   (186  849   (2,424  165   31    (2,424  165   31   871   1,240 

Cash and cash equivalents at beginning of the year

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

Cash and cash equivalents at end of the year

   4,022   4,871   2,448   2,613   2,644    2,448   2,613   2,644   3,515   4,756 

 

 

(1)

We have adopted IFRS No. 15 “Revenue from Contracts with Customers” and IFRS No. 9 “Financial Instruments” in the fiscal year beginning on January 1, 2018. We have adopted IFRS No. 15 and IFRS No. 9 by recognizing the cumulative effect of initially applying IFRS No. 15 and IFRS No. 9 as adjustments to the opening balance of retained earnings as of January 1, 2018. Accordingly, the comparative information presented for 2016 and 2017 has not been restated.

(2)

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 2016, 2017 and 2018 has not been restated and is presented under IAS No. 17 and related interpretations.

(3)

See Note 36 of Notes to the 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, 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, 79,998,600 shares as of December 31, 2017, and 80,000,606 shares as of December 31, 2018.2018, 80,113,759 shares as of December 31, 2019 and 79,120,963 shares as of December 31, 2020.

 

(2)(4)

“Working capital” means current assets minus current liabilities.

Item 3.B.  Capitalization and Indebtedness

Not applicable

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

Not applicable

Item 3.D.  Risk Factors

You should carefully consider the risks described below.

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

Our business is affected by highly cyclical market demand for our steel products from a number of industries, including the construction, automotive, shipbuilding and electrical appliances industries as well as downstream steel processors, which are sensitive to general conditions in the global economy. Macroeconomic factors, such as the economic growth rate, employment levels, interest rates, inflation rates, exchange rates, commodity prices, demographic trends and fiscal policies of governments can have a significant effect on such industries. From time to time, these industries have experienced significant and sometimes prolonged downturns, which in turn have negatively impacted our steel business. Global economic conditions have deteriorated in recent years, with global financial and capital markets experiencing substantial volatility. In particular, the ongoing global pandemic of a new strain of coronavirus (“COVID-19”) has materially and adversely affected the global economy and financial markets starting in early 2020. See “— Earthquakes, tsunamis, floods, severe health epidemics (including the ongoing global COVID-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, 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, as well as uncertainty regarding the timing and method of the United Kingdom’s exit from the European Union (“Brexit”), and a deterioration in economic and trade relations between the United States and its major trading partners, including China, Canada and Mexico.particularly China.

An actual or anticipated further deterioration of global economic conditions may result in a decline in demand for our products that could haveproducts. In the case of a negative impact on the prices at which they can be sold. In such a case, we will likely face pressure to reduce prices andprolonged decrease in demand, we may need to rationalize our production capacity and reduce fixed costs. In the past,costs, and we will likely face pressure to reduce prices of our products. From time to time, 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. In particular, the global recession exacerbated by COVID-19 and the resulting decline in demand for steel products have adversely affected the overall sales volume of our principal steel products produced by us and directly sold to external customers in 2020 compared to 2019 as well as our sales prices. We produced 42.242.9 million tons of crude

steel and stainless steel in 2016, 42.2each of 2018 and 2019 but reduced our production to 40.6 million tons in 2017 and 42.9 million tons2020 in 2018.response to a decrease in demand for our products. The weighted average unit sales prices for oursemi-finished and finished steel products produced by us and directly sold to external customers were Won 745 thousand933,990 per ton in 2016,2018 and Won 904 thousand955,209 per ton in 2017 and2019 but decreased to Won 934 thousand898,008 per ton in 2018.2020. Primarily reflecting such decreases, our revenue decreased by 11.3%, or Won 7,319 billion, from Won 64,786 billion in 2019 to Won 57,467 billion in 2020, and our profit decreased by 14.2%, or Won 290 billion, from Won 2,038 billion in 2019 to Won 1,748 billion in 2020.

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, ourOur 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 global COVID-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 spread globally, has materially and adversely affected the global economy and financial markets in recent months. In light of government recommendations for social distancing, we have periodically implemented remote work arrangements for a portion of our workforce, particularly for employees in areas severely impacted by the pandemic, minimized business travel and assisted our employees with quarantine measures.

The World Health Organization declared the COVID-19 as a pandemic in March 2020. While we do not believe that such disruptions and arrangements have had a material adverse impact on our business, a prolonged outbreak of COVID-19 may result in further disruptions in the normal operations of our business, including disruptions in the operation of our production facilities, delays in our production facility expansion projects, implementation of further work arrangements requiring employees to work remotely and restrictions on overseas and domestic business travel, which may lead to a reduction in labor productivity.

Other risks associated with prolonged outbreak of COVID-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 of COVID-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 time to time, we implemented staggered remote working arrangements for our employees at our headquarters);

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 from COVID-19. In the event that COVID-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 38.4%38.6% of our total revenue from steel products produced and sold by us in 2018.2020. 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 International Corporation (“POSCO 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, 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,particular, the on-going COVID-19 pandemic has had an 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,impact on the Korean economy. The valueFollowing the Government’s announcement of the Won relativefirst confirmed case of COVID-19 in Korea in January 2020, it has implemented a number of measures in order to major foreign currencies has also fluctuated significantly and, as a result of changing global and Korean economic conditions, there has been volatility incontain 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 repatriationspread of the proceedsCOVID-19 disease, including a nationwide order for social distancing, implementation of such salesstrict self-isolation and quarantine measures for those who may adversely affectbe infected, and the valuetemporary closure of all school and other public facilities. In addition, the Government has undertaken a series of actions to mitigate the adverse impact of the Won,COVID-19 pandemic on the foreignKorean economy, including (i) lowering of The Bank of Korea’s policy rates, (ii) execution of a bilateral currency reserves held byswap agreement with the U.S. Federal Reserve, (iii) provision of loans, guarantees and maturity extensions to eligible financial institutions, in Koreasmall- and medium business enterprises and self-employed business owners facing liquidity crises; (iv) offering emergency relief payments for those impacted by the ability of Korean companies to raise capital. Any future deteriorationCOVID-19 pandemic; and (v) establishment of the Key Industry Stabilization Fund in May 2020 to support businesses in certain key industries, such as the air transport and maritime industries. However, the impact of the on-going COVID-19 pandemic to the Korean or global economy could adversely affect our business, financial conditionin 2021 and results of operations.for the foreseeable future remains highly uncertain.

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

 

declines in consumer confidence and a slowdown in consumer spending;

the occurrence of additional severe health epidemics and pandemics in Korea or other parts of the world;

 

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 inongoing trade disputes with Japan);

March 2017 and the ensuing economic and other retaliatory measures by China against Korea during the remainder of 2017);

 

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 related to Brexit;resulting from the United Kingdom’s exit from the European Union on January 31, 2020;

 

adverse changes or volatility in foreign currency reserve levels, commodity prices (including oil prices), exchange rates (including fluctuation of the U.S. dollar, Euro or Japanese Yen exchange rates or revaluation of the 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-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 to 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, their suppliers or the financial sector;

 

loss of investor confidence arising from corporate accounting irregularities or corporate governance issues concerning 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 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 61.6%61.4% of our total revenue from steel products produced and sold by us in 2018.2020. Our export sales volume to customers in Asia, including China, Japan, Indonesia, Thailand and Malaysia, accounted for 62.6%65.5% of our total export sales revenue from steel products produced and exported by us in 2018,2020, 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 28.9%35.8% of our total export sales revenue from steel products produced and exported by us in 2018.2020. 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 ensuing economic and other retaliatory actions by China against Korea 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 2018, 61.6%2020, 61.4% 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 International’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 International’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 International and POSCO Engineering & Construction Co., Ltd. (“POSCO E&C”), also periodically enter into derivative contracts, primarily foreign currency swaps and forward exchange contracts, to further hedge some of our foreign exchange risks. However, our results of operations have historically been affected by exchange rate fluctuations and there can be no assurance that such strategies will be sufficient to reduce or eliminate the adverse impact of such fluctuations in the future.

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 KOSPIKorea Composite Stock Price Index (the “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 5451 million dry metric tons of iron ore and 2927 million wet metric tons of coal in 2018. 2020.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 (Premium Low Vol Coking Coal, FOB Australia Index announced by Platts) was US$143 in 2016, US$188 in 2017 and US$207 in 2018.2018, US$176 in 2019 and US$124 in 2020. The average market price of iron ore per dry metric ton (Iron Ore 62% Fe, CFR China Index announced by Platts) was US$58 in 2016, US$71 in 2017 and US$69 in 2018.2018, US$93 in 2019 and US$109 in 2020.

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. For both coal and iron ore, we typically agree on the purchase price with the suppliers primarily based on the spot market price periodically announced by Platts (Premium Low Vol Coking Coal, FOB Australia Index and Iron Ore 62% Fe, CFR China Index). As of December 31, 2018, 1002020, 57 million tons of iron ore and 1410 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 as well as the impact from the COVID-19 pandemic, 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 mergers of Mittal and Arcelor in 2006 and Nippon Steel and Sumitomo Metal in 2012.past. Competition from such global steel manufacturers with expanded production capacity as well as 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, increasedIncreased 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 which in turn has resulted in downward pressure on global steel prices. For example,Such production over-capacity in the global steel prices decreasedindustry was exacerbated in the fourth quarter of 2018 in part2020 due to a decrease in demand from China as well as an increasecaused by the COVID-19 pandemic. Although demand for steel products has shown signs of recovery in select regions starting in the second half of 2020, production capacity of Chinese manufacturers that survived the consolidation of the Chinese steel industry. Productionover-capacity in global steel industry may intensify if global economic growthrecovery 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 athe prolonged 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 International competes principally with other Korean general trading companies that are affiliated with major domestic business 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 International operates are also highly competitive. POSCO International’s principal competitors in 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 International diversifies into businesses other than traditional trading such as natural resources development, it also increasingly competes with other Korean and international companies involved in these businesses. Some of POSCO International’s competitors may be more experienced and have greater financial resources and pricing flexibility than POSCO International, as well as more extensive global networks and wider access to customers. There is no assurance that POSCO International will be able to continue to compete successfully in this economic environment or that the prolonged slowdown of the global economy will not have a material adverse effect on its business, results of operations or financial condition. In 2018, 2019 and 2020, we recognized impairment of goodwill of Won 158 billion, Won 55 billion and Won 189 billion, respectively, related to a decrease in value-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. 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 our diversification strategy will depend, in part, on our ability to realize the anticipated growth opportunities and synergies. Some of our diversification efforts have not been successful. For example, in 2018, we incurred impairment loss of Won 810 billion in 2018 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 from our diversification efforts 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 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 ourOur international expansion efforts willmay 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, 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. For instance, we purchased lithium mining rights at the Salar del Hombre Muerto salt flat in northern Argentina in August 2018 for $280 million. We also participate in natural resources projects as part of consortia or through acquisitions of minority interests, such as a gas field exploration project in Myanmar through POSCO International. We may also selectively acquire or invest in companies or businesses that engage in such activities. 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. For example, in February 2021, Myanmar’s military declared a state of emergency for a year with detention of Myanmar’s national adviser Aung San Suu Kyi and senior members of the ruling party’s National League for Democracy. See Note 41(b) to the Consolidated Financial Statements. 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, potentially resulting in impairment losses. For example, in 2018,2019, we recognized impairment of industrial property rightsloss of Won 78118 billion related to our investment in Hume Coal Pty Limited, a coal mining company in Australia, and Won 50 billion in connection with a shale oil and gasthe termination of the Block AD-7 exploration project in Canada.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, that the performance of our projects will not be adversely affected by the occurrence of military hostility, political unrest or acts of terrorism, 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 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. Although the construction industry in Korea has shown signs of recovery in recent years, the demand for construction activities abroad remains weak and theThe overall prospects for Korean construction companies in 20192021 and beyond remain uncertain. Auncertain, and 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 is 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 confidential information relating to us as well as our customers and suppliers, and anysuppliers. Any significant breach in our cybersecurityinformation security could expose us to a risk of loss, the improper use or disclosure of such information, ensuing potentialand could give rise to significant liability or 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 fail 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 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 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 adversely affected, 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, automotive steel manufacturing 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 (i) “regularly,” (ii) “uniformly” and (iii) on a “fixed 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.

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

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

Although bilateral summit meetings were held between Korea and North Korea in April, May and September 2018 and between the United States and North Korea in June 2018, February 2019 and FebruaryJune 2019, there can be no assurance that the level of tensions affecting the Korean peninsula will not escalate in the future. Any 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 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 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 InternationalCoated & Color Steel Co., Ltd. (“POSCO Coated & Color Steel”) engages in the tradingsales of coated steel raw materials and other itemssheets with entities in countries that are deemed Sanctions Targets, including Iran and Cuba.WeIran.We believe that such activities and

investments do not involve any U.S. goods or services.Our activities in Iran and Cuba accounted for approximately 0.5%0.3% of our consolidated revenues in 2016, 0.6%2018, 0.01% in 20172019 and 0.3%0.00005% in 2018.2020. POSCO Coated & Color Steel also holds a 70% interest in Myanmar POSCO C&C Co., Ltd. (“Myanmar POSCO C&C”), a joint venture with Myanma Economic Holdings Public Company Limited that was designated as a U.S. Sanctions Target by OFAC on March 25, 2021. Myanmar POSCO C&C engages in the production and sale of coated steel roofing sheets in Myanmar, and its sales accounted for approximately 0.03% of our consolidated revenues in 2018, 0.04% in 2019 and 0.05% in 2020. POSCO Coated & Color Steel is currently reassessing the future of this joint venture.

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, if non-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, if non-European Union based, not deemed equivalent or recognized or endorsed). In March 2021, the U.K. Financial Conduct Authority (the “FCA”), which has regulatory authority with respect to LIBOR, announced that all LIBOR settings will either cease to be provided by any administrator or no longer be representative (i) after December 31, 2021 in the case of all Sterling, Euro, Swiss Franc and Japanese Yen settings and the one-week and two-month Dollar settings and (ii) after June 30, 2023 in the case of remaining Dollar settings. While the ICE Benchmark Administration may publish certain LIBOR settings on the basis of a synthetic methodology for “tough legacy” contracts, there is no guarantee that such rates will be determined and published after the announced deadlines nor confirmed to be representative by the FCA.

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.

U.S. investors could be subject to adverse U.S. federal income tax consequences if we are treated as a passive foreign investment company (“PFIC”) for any taxable year during which they hold our common stock of ADSs.

We will be classified as a PFIC for U.S. federal income tax purposes if, for any taxable year, either (i) 75 percent or more of our gross income for the taxable year is passive income or (ii) at least 50 percent of the average gross quarterly value of our assets is attributable to assets that produce or are held for the production of passive income. The determination of whether we are a PFIC must be made annually based on the facts and circumstances at the relevant time, some of which may be beyond our control, including the valuation of our assets as implied by the market price for our common stock or ADSs. Accordingly, it is possible that we could become a PFIC.

If we were to be classified as a PFIC in any taxable year during which a U.S. holder (as defined in “Item 10.E. Taxation — United States Taxation”) holds our common stock or ADSs, such U.S. holder could be subject to a special tax at ordinary income rates on “excess distributions,” including certain distributions by us and gain that the U.S. holder recognizes on the sale of our common stock or ADSs. The amount of income tax on any excess distributions would be increased by an interest charge to compensate for tax deferral, calculated as if the excess distributions were earned ratably over the period the U.S. holder held the common stock or ADSs. See “Item 10.E. Taxation — United States Taxation — Shares of Common Stock and ADSs — Passive Foreign Investment Company Rules.”

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. Theseforward-looking statements include, but are not limited to, those statements using words such as “anticipate,” “believe,” “continues,” “expect,” “estimate,” “intend,” “project,” “aim,” “plan,” “likely to,” “target,” “contemplate,” “predict,” “potential” and similar 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 the

forward-looking statements. We do not undertake to release the results of any revisions of theseforward-looking statements to reflect future events or circumstances.

Item 4.  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+82-2-3457-0114. +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 42.940.6 million tons of crude steel and stainless steel in 2018,2020, a substantial portion of which was produced at Pohang Works and Gwangyang Works. As of December 31, 2018,2020, we had approximately 47.645.3 million tons of annual crude steel and stainless steel production capacity, including 17.640.7 million tons of production capacity of Pohang Works and 24.8 million tons of production capacity of Gwangyang Works.Wein Korea.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 38.4%38.6% of our total revenue from steel products produced and sold by us in 20182020 and 39.0%37.3% in 2017.2019. On anon-consolidated basis, we believe that our steel products constituted approximately 50%51% of the total sales volume of such steel products sold in Korea in 20182020 and approximately 44%48% in 2017. 2019.Our export sales and overseas sales to customers abroad accounted for 61.6%61.4% of our total revenue from steel products produced and sold by us in 20182020 and 61.0%62.7% in 2017.2019. Our major export market is Asia, with China accounting for 28.9%35.8%, Asia other than China and Japan accounting for 23.4%20.4%, and Japan accounting for 10.3%9.3% of our total steel export revenue from steel products produced and exported by us in 20182020, and 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 2017.2019.

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 Energy Corporation is the largest private power generation company in Korea.

We generated revenue of Won 65,15557,467 billion and profit of Won 1,9321,748 billion in 2018,2020, compared to revenue of Won 60,18764,786 billion and profit of Won 2,9092,038 billion in 2017.2019. We had total assets of Won 78,77779,684 billion and total equity of Won 46,67347,604 billion as of December 31, 2018,2020, compared to total assets of Won 79,78679,371 billion and total equity of Won 47,32747,763 billion as of December 31, 2017.2019.

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 subsidiary that primarily engaged in sales of steel products produced by us prior to the transfer of its steel product sales business to POSCO International 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. Although our external revenue of the Steel Segment increased in 2017 compared to 2016 and 2018 compared to 2017, they were negatively impacted in 2017 and 2018 by the recognition of the external revenue 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..

 

  For the Year Ended December 31,   For the Year Ended December 31, 
  2016 2017 2018   2018 2019 2020 

Steel Products

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

Cold rolled products

  8,467    31.5 9,441    31.2 10,585    32.7  10,585    32.7 10,057    31.4 8,539    29.6

Hot rolled products

   4,377    16.3   5,101    16.9   5,620    17.4    5,620    17.4   5,252    16.4   5,148    17.8 

Stainless steel products

   6,064    22.6   6,624    21.9   6,624    20.5��   6,624    20.5   6,956    21.7   6,779    23.5 

Plates

   2,762    10.3   3,087    10.2   3,587    11.1    3,587    11.1   4,070    12.7   3,128    10.8 

Wire rods

   1,747    6.5   1,880    6.2   1,882    5.8    1,882    5.8   1,749    5.5   1,489    5.2 

Silicon steel sheets

   1,100    4.1   1,025    3.4   1,012    3.1    1,012    3.1   923    2.9   1,118    3.9 
  

 

   

 

  

 

   

 

  

 

   

 

   

 

   

 

  

 

   

 

  

 

   

 

 

Sub-total

   24,517    91.3   27,159    89.8   29,309    90.6    29,309    90.6   29,007    90.6   26,201    90.7 
  

 

   

 

  

 

   

 

  

 

   

 

   

 

   

 

  

 

   

 

  

 

   

 

 

Others

   2,327    8.7   3,072    10.2   3,049    9.4    3,049    9.4   3,070    9.4   2,692    9.3 
  

 

   

 

  

 

   

 

  

 

   

 

   

 

   

 

  

 

   

 

  

 

   

 

 

Total

      26,844    100.0     30,230    100.0     32,358    100.0      32,358    100.0     32,078    100.0     28,893    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 steel product sales business to POSCO International 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. In 2017 and 2018, our external sales volume of the Steel Segment was negatively impacted by the recognition of the external sales volume 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..

 

  For the Year Ended December 31,   For the Year Ended December 31, 
  2016 2017 2018   2018 2019 2020 

Steel Products

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

Cold rolled products

   12,713    38.7  11,279    37.5  12,300    39.2   12,300    39.2  11,196    36.9  10,341    35.4

Hot rolled products

   8,632    26.2   7,786    25.9   8,153    26.0    8,153    26.0   7,891    26.0   8,237    28.2 

Stainless steel products

   3,027    9.2   2,874    9.6   2,853    9.1    2,853    9.1   2,973    9.8   2,990    10.2 

Plates

   4,748    14.4   4,896    16.3   4,957    15.8    4,957    15.8   5,399    17.8   4,768    16.3 

Wire rods

   2,737    8.3   2,333    7.8   2,227    7.1    2,227    7.1   2,095    6.9   1,955    6.7 

Silicon steel sheets

   1,032    3.1   877    2.9   892    2.8    892    2.8   816    2.7   886    3.0 
  

 

   

 

  

 

   

 

  

 

   

 

   

 

   

 

  

 

   

 

  

 

   

 

 

Total(1)

   32,888    100.0  30,046    100.0  31,381    100   31,381    100.0  30,369    100.0  29,177    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 steel product sales business to POSCO International in March 2017), we engage our consolidated sales subsidiaries (including POSCO 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 6,403 billion in 2016, Won 7,385 billion in 2017 and Won 7,492 billion in 2018.2018, Won 7,740 billion in 2019 and Won 7,018 billion in 2020. 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 12.310.3 million tons in 2018,2020, representing 39.2%35.4% 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 2018,2020, our sales volume of cold rolled products produced by us and directly sold to external customers increaseddecreased by 9.1%7.6% compared to our sales volume in 20172019 primarily due to an increasedecreases in sales of cold rolled products manufactured and sold by our Chinese subsidiaries.subsidiaries in Mexico, India and Thailand as a result of the ongoing global COVID-19 pandemic.

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 61%64% on anon-consolidated basis in 2018.2020.

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 8.2 million tons in 2018,2020, representing 26.0%28.2% 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 2018,2020, our sales volume of hot rolled products produced by us and directly sold to external customers increased by 4.7%4.4% compared to our sales volume in 20172019 primarily due to completion of rationalization of furnace no. 3 at Pohang Works, whichan increase in turn led to increases in our production and sales volume of hot rolled products.products manufactured and sold by our subsidiaries in China.

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 52%55% on anon-consolidated basis in 2018.2020.

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 2018,2020, representing 9.1%10.2% 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 9.1%10.2% of total sales volume of the principal steel products produced by us and directly sold to external customers in 2018,2020, they represented 20.5%23.5% of our total revenue from steel products in 2018.2020. In 2018,2020, our sales volume of stainless steel products produced by us and directly sold to external customers decreasedincreased by 0.8%0.6% compared to our sales volume in 2017, in part2019 primarily due to a decreasean increase in demand from the automotive industry.sales of stainless steel products manufactured and sold by POSCO (Zhangjiagang) Stainless Steel Co., Ltd. (“POSCO (Zhangjiagang)” and formerly known as Zhangjiagang Pohang Stainless Steel Co., Ltd.).

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 40%41% on anon-consolidated basis in 2018.2020.

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 5.04.8 million tons in 2018,2020, representing 15.8%16.3% of our total sales volume of principal steel products produced by us and directly sold to external customers. The Korean shipbuilding industry, which uses plates to manufacture chemical tankers, rigs, bulk carriers and containers, and the construction industry are our largest customers of plates.

In 2018,2020, our sales volume of plates produced by us and directly sold to external customers increaseddecreased by 1.2%11.7% compared to our sales volume in 20172019 primarily due to an increasea decrease in demand fromsales of plates manufactured and sold by our subsidiaries in Southeast Asia as a result of the shipbuilding industry.ongoing global COVID-19 pandemic.

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 49%50% on anon-consolidated basis in 2018.2020.

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 2.22.0 million tons in 2018,2020, representing 7.1%6.7% 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 2018,2020, our sales volume of wire rods produced by us and directly sold to external customers decreased by 4.6%6.7% compared to 20172019 primarily due to decreasesa decrease in sales of our wire rods manufactured and sold by our subsidiaries in Vietnam and Japan.India as a result of the ongoing global COVID-19 pandemic.

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 59%60% on anon-consolidated basis in 2018.2020.

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 0.9 million tons in 2018,2020, representing 2.8%3.0% of our total sales volume of principal steel products produced by us and directly sold to external customers.

In 2018,2020, our sales volume of silicon steel sheets produced by us and directly sold to external customers increased by 1.7%8.6% compared to 20172019 primarily due to an increase in demand forsales of silicon steel sheets manufactured and sold by our subsidiaries in India.China.

Including sales of silicon steel sheets produced by us and sold through our consolidated sales subsidiaries in addition to silicon steel sheets produced by us and directly sold to external customers, we believe we had a domestic market share for silicon steel sheets of approximately 80% on anon-consolidated basis in 2018.2020.

Others

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

Markets

Korea is our most important market. Domestic sales represented 38.4%38.6% of our total revenue from steel products produced and sold by us in 2018.2020. Our export sales and overseas sales to

customers abroad represented 61.6%61.4% of our total revenue from steel products in 2018.2020. 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 in Korea for the periods indicated based on sales volume.

 

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

Source

      2016         2017         2018           2018         2019         2020     

POSCO’s sales(1)

   40.6  43.4  49.5   49.2  48.1  51.0

Other domestic steel companies’ sales

   27.6   28.2   28.0    27.9   27.0   29.2 

Imports

   31.8   28.4   22.5    22.9   24.9   19.8 
  

 

  

 

  

 

   

 

  

 

  

 

 

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 61.6%61.4% of our total revenue from steel products produced and sold by us in 2018, 62.6%2020, 65.5% 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 increaseddecreased by 6.9%11.7% from Won 22,96324,971 billion in 20172019 to Won 24,55122,056 billion in 2018.2020.

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, 
   2016   2017   2018 

Region

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

China

   5,840    29.0%    6,542    28.5%    7,097    28.9% 

Asia (other than China and Japan)

   4,821    23.9    5,354    23.3    5,749    23.4 

Japan

   2,089    10.4    2,601    11.3    2,530    10.3 

Europe

   1,914    9.5    2,181    9.5    2,212    9.0 

Middle East

   187    0.9    163    0.7    204    0.8 

North America

   2,019    10.0    1,947    8.5    1,861    7.6 

Others

   3,292    16.3    4,176    18.2    4,898    19.9 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

      20,163    100.0%       22,963    100.0%       24,551    100.0% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   For the Year Ended December 31, 
   2018   2019   2020 

Region

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

China

  7,097    28.9%   7,322    29.3%   7,888    35.8% 

Asia (other than China and Japan)

   5,749    23.4    5,622    22.5    4,506    20.4 

Japan

   2,530    10.3    2,686    10.8    2,052    9.3 

Europe

   2,212    9.0    2,662    10.7    2,324    10.5 

Middle East

   204    0.8    271    1.1    189    0.9 

North America

   1,861    7.6    1,858    7.4    1,315    6.0 

Others

   4,898    19.9    4,551    18.2    3,782    17.1 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

      24,551    100.0%       24,971    100.0%       22,056    100.0% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

   For the Year Ended December 31, 
   2018   2019   2020 

Steel Products

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

Cold rolled products

  10,499    42.8%   9,949    39.8%   8,011    36.3% 

Hot rolled products

   2,738    11.2    3,159    12.6    3,115    14.1 

Stainless steel products

   5,661    23.1    5,918    23.7    5,410    24.5 

Plates

   1,812    7.4    2,128    8.5    1,859    8.4 

Wire rods

   677    2.8    729    2.9    683    3.1 

Silicon steel sheets

   1,021    4.2    988    4.0    999    4.5 

Others

   2,143    8.7    2,101    8.4    1,979    9.0 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

      24,551    100.0%       24,971    100.0%       22,056    100.0% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

   For the Year Ended December 31, 
   2016   2017   2018 

Steel Products

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

Cold rolled products

  6,852    34.0%   9,224    40.2%   10,499    42.8% 

Hot rolled products

   2,999    14.9    2,604    11.3    2,738    11.2 

Stainless steel products

   5,227    25.9    5,345    23.3    5,661    23.1 

Plates

   1,486    7.4    2,000    8.7    1,812    7.4 

Wire rods

   585    2.9    606    2.6    677    2.8 

Silicon steel sheets

   821    4.1    950    4.1    1,021    4.2 

Others

   2,194    10.9    2,235    9.7    2,143    8.7 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

      20,163    100.0%       22,963    100.0%       24,551    100.0% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

We distribute our export products mostly through Korean trading companies, including POSCO International, and our overseas sales subsidiaries. Our largest export market in 20182020 was China, which accounted for 28.9%35.8% 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 increased by 8.5%7.7% from Won 6,5427,322 billion in 20172019 to Won 7,0977,888 billion in 20182020 primarily due to increases in sales of coldsilicon steel sheets, stainless steel products and hot rolled products to steel processing companies in China.

Our second largest export market in 20182020 was Asia (other than China and Japan), which accounted for 23.4%20.4% 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 7.4%

19.9% from Won 5,3545,622 billion in 20172019 to Won 5,7494,506 billion in 20182020 primarily due to increasesdecreases in sales of steel products in Thailand and 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 in 2016, reflecting productionover-capacity in the global steel industry. In 2017 and the first three quarters of 2018, our export prices

and domestic sales prices generally 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 until the fourth quarter of 2018. The global steel prices decreased in the fourth quarter of 2018 in part due to a decrease in demand from China as well as an increase in the production capacity of Chinese manufacturers that survived the consolidation of the Chinese steel industry. We will continue 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 0.7 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 2018,2020, POSCO imported approximately 5451 million dry metric tons of iron ore and 2927 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. For both coal and iron ore, we typically agree on the purchase price with the suppliers primarily based on the spot market price periodically announced by Platts (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 engage 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 2018,2020, we

purchased approximately 36%44% of our iron ore imports and 18%21% 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 (Premium Low Vol Coking Coal, FOB Australia Index announced by Platts) was US$143 in 2016, US$188 in 2017 and US$207 in 2018. 2018, US$176 in 2019 and US$124 in 2020.The average market price of iron ore per dry metric ton (Iron Ore 62% Fe, CFR China Index announced by Platts) was US$58 in 2016, US$71 in 2017 and US$69 in 2018. 2018, US$93 in 2019 and US$109 in 2020.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$9,609 in 2016, US$10,411 in 2017 and US$13,122 in 2018.2018, US$13,936 in 2019 and US$13,789 in 2020.

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 vessels arevessel is loaded to such amount. These dedicated vessels transported approximately 73%67% of the total requirements in 2018,2020, and the remaining approximately 27%33% 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 52%55% on anon-consolidated basis in 2018,2020, 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 61%64% and 40%41%, respectively, on anon-consolidated basis in 2018,2020, 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 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.POSCO (Zhangjiagang), 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, 2018, Zhangjiagang Pohang Stainless SteelIn 2020, POSCO (Zhangjiagang) had an annual production capacity of 1,100 thousand tons of stainless steel products and it produced 1,158989 thousand tons of stainless steel products in 2018.Seeproducts. See “— Production Facilities Abroad — Zhangjiagang Pohang Stainless Steel.POSCO (Zhangjiagang).

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. As of December 31, 2018,In 2020, PT. Krakatau POSCO had an annual production capacity of 3,000 thousand tons of plates and slabs and it produced 3,0093,100 thousand tons of plates and slabs in 2018.slabs. See “— Production Facilities Abroad — PT. Krakatau POSCO.”

Vietnam. We established POSCO YAMATO VINA STEEL JOINT STOCK COMPANY (“POSCO VINA” and formerly known as POSCO SS VINA Co., Ltd.JOINT STOCK COMPANY), a wholly owned subsidiary engaged in the manufacture and sale of shape steel and steel reinforcement products. The plant became operational in June 2015. As of December 31, 2018,In 2020, POSCO SS VINA Co., Ltd. had an annual production capacity of 1,100550 thousand tons of shape steel and steel reinforcement products and it produced 965554 thousand tons of shape steel and steel reinforcement products in 2018. products.See “Production“— Production Facilities Abroad — POSCO SS VINA.”

Trading

Our trading activities consist primarily of trading activities of POSCO International. Our consolidated subsidiaries that also engage in trading activities include POSCO Asia Co., 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 Singapore LNG Trading Pte. Ltd. in Singapore.

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. It also manufactures and sells textiles and agricultural commodities. POSCO International was established in December 2000 when the international trading and construction businesses of Daewoo Corporation were spun off into three separate companies as part of a debt workout program of Daewoo Corporation. 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 International’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

  2016  2017  2018 
   (in billions of Won, except percentages) 

Export trading sales:

       

Steel and metal

  4,185   25.4 5,059   22.4 5,354   21.3

Chemical and commodities

   1,277   7.7   1,429   6.3   1,563   6.2 

Automobile and machinery parts

   1,986   12.0   2,224   9.9   1,795   7.1 

Electronics and miscellaneous items

   3   0.0             

Natural resources items

   2   0.0             

Other goods

               0   0.0 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Sub-total

   7,453   45.2   8,712   38.6   8,712   34.6 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Domestic trading sales:

       

Steel and metal

   473   2.9 2,322   10.3 3,316   13.2

Chemical and commodities

   90   0.5   23   0.1   19   0.1 

Automobile and machinery parts

   40   0.2   59   0.2   36   0.1 

Electronics and miscellaneous items

                   

Other goods

         17   0.1       
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Sub-total

   603   3.7   2,421   10.7   3,371   13.4 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Manufactured product sales

   13   0.1  502   2.2  547   2.2 

Others

  90   0.5  253   1.1  222   0.9 

Third-Country Trades:

       

Trading(1)

      10,376   62.9     14,969   66.3     17,390   69.1

Natural resources development(1)

   1,504   9.1   573   2.5   829   3.3 

Manufactured product trading

   192   1.2   221   1.0   329   1.3 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Totalthird-country trades

   12,072   73.2   15,763   69.8   18,547   73.7 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total sales prior to consolidation adjustments

   20,229   122.7   27,650   122.4   31,399   124.7 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Consolidation adjustments

   (3,737  (22.7  (5,079  (22.4  (6,225  (24.7
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total sales

  16,492   100.0 22,572   100.0 25,174   100.0
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

(1)

In 2016, revenues from trading of raw materials were included as natural resources development revenues. However, in 2017 and 2018, revenues from trading of raw materials were included as trading revenues.

   For the Year Ended December 31, 

Sales Category

  2018  2019  2020 
   (in billions of Won, except percentages) 

Export trading sales

  8,863   35.2 8,210   33.6 6,825   31.8

Domestic trading sales

   3,989   15.8   3,863   15.8   3,181   14.8 

Third-country trades

   18,547   73.7   18,827   77.1   17,538   81.7 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total sales prior to consolidation adjustments

   31,399   124.7   30,900   126.5   27,543   128.3 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Consolidation adjustments

   (6,225  (24.7  (6,477  26.5   (6,071  (28.3
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total sales

      25,174   100.0     24,423   100.0     21,472   100.0
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Trading Activities.POSCO International’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 International is also engaged inthird-country trade that does not involve exports from or imports to Korea. The products are obtained from and supplied to numerous suppliers and purchasers in Korea and overseas, which are procured through a global trading network comprised of overseas trading subsidiaries, branches and representative offices. Such subsidiaries and offices support POSCO International’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 International enters into trading transactions after the underlying sale and purchase contracts have been matched, which mitigates inventory and price risks to POSCO International. POSCO International typically enters into trading transactions as a principal, and in limited cases as an import or export agent. When acting as a principal or an agent, POSCO International derives its gross trading profit from the margin between the selling price of the products and the purchase price it pays for such products. In the case of principal transactions, the selling price is recorded as sales and the purchase price is recorded as cost of sales, while only the margin is recorded as sales in the case of agency transactions in which POSCO International 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 International derives its gross trading profit from, and records as sales, the commission paid to it by the customer. The sizes of margins and commissions for POSCO International’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 International has accounts receivable and payable in a number of currencies, but principally in Dollars. POSCO International’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 International’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 International also periodically enters into derivative contracts, primarily currency forward contracts, to further hedge its foreign exchange risks.

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

POSCO International also provides necessary project planning and organizing services to its customers.

Natural Resources Development Activities.POSCO International also invests in energy and mineral development projects throughout the world. In particular, POSCO International holds interests in several gas field projects in Myanmar, where production of gas commenced in July 2013. POSCO International recognized revenues of approximately Won 530 billion in 2016, Won 498 billion in 2017 and Won 474 billion in 2018, Won 723 billion in 2019 and Won 605 billion in 2020 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 International intends to continue to expand its operations by carefully seeking out promising energy development projects abroad.

Competition. POSCO International competes principally with other Korean general trading companies that are affiliated with major domestic business 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 International’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 International diversifies into businesses other than traditional trading such as natural resources development, it also increasingly competes with other Korean and international companies involved in these businesses.

Construction

POSCO E&C 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. In September 2015, we completed the sale of oura 38.0% interest in POSCO E&C to PIF, thePublic Investment Fund, a sovereign wealth fund ofin 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 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,coal-fired thermal power plants in Ventanas and Angamos, Chile and 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.

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 4,5703,412 megawatts as of December 31, 2018.2020. 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 operatePOSCO Energy Corporation also operates an LNG receiving terminal with an aggregate capacity to process up to 2.43.3 million tons of LNG annually in Gwangyang.Gwangyang as of December 31, 2020. In order to achieve maximum operational efficiency of our LNG terminal, we participateit participates in the LNG trading and LNG ship gas trial businesses. In April 2019, our board of directors resolved to transfer our LNG logistics business to POSCO Energy Corporation. The transfer is expected to be completed in September 2019.

Others.POSCO Chemical Co., Ltd. POSCO Chemical Co., Ltd. (formerly known as POSCO Chemtech 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, 2020:

 

Name

  Jurisdiction of
Incorporation
  Percentage of
Ownership
 

POSCO International Corporation

  Korea   62.9

POSCO Engineering & Construction Co., Ltd

  Korea   52.8

POSCO Energy Corporation

  Korea   89.0100.0

PT. Krakatau POSCO

  Indonesia   70.0

POSCO Asia Co., Ltd.

  Hong Kong   100.0

POSCO Maharashtra Steel Private Limited

  India   100.0

Zhangjiagang PohangPOSCO (Zhangjiagang) Stainless Steel Co., Ltd.

  China   82.5%(1) 

POSCO Chemical Co., Ltd.

  Korea   60.061.3

POSCO SSYAMATO VINA Co., Ltd.STEEL JOINT STOCK COMPANY

  Vietnam   100.051.0

 

 

(1)

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

 

Item 4.D.  Property,

Plants and Equipment

Our principal properties are Pohang Works, which is located at Youngil Bay on the southeastern coast of Korea, and Gwangyang Works, which is located in Gwangyang City in the southwestern region of Korea. We also maintain and operate production properties abroad, including plants operated by Zhangjiagang Pohang Stainless SteelPOSCO (Zhangjiagang) 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

Our main production facilities in Korea consist of Pohang Works and Gwangyang Works. In 2020, our crude steel and stainless steel production capacity in Korea was 40.68 million tons.

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 and ended in 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,      
  2016 2017 2018   2018 2019 2020 

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

   42.39   42.39   42.39 

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

   42.39   42.39   40.68 

Actual crude steel and stainless steel output (million tons)

   37.50   37.21   37.74    37.74   38.01   35.94 

Capacity utilization rate (%) (1)

   88.5  87.8  89.0   89.0  89.7  88.3

 

 

(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.POSCO (Zhangjiagang) 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 SteelPOSCO (Zhangjiagang)

The following table sets out Zhangjiagang’sPOSCO (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,      
  2016 2017 2018   2018 2019 2020 

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

   1.10   1.10   1.10 

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

   1.10   1.10   1.10 

Actual crude steel and stainless steel output (million tons)

   1.16   1.16   1.16    1.16   1.13   0.99 

Capacity utilization rate (%) (1)

   105.2  105.4  105.3   105.3  103.1  89.9

 

 

(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,      
   2016  2017  2018 

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

   3.00   3.00   3.00 

Actual crude steel output (million tons)

   2.91   2.92   3.01 

Capacity utilization rate (%) (1)

   97.0  97.4  100.3

(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 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  2018 

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)

   0.64   0.91   0.97 

Capacity utilization rate (%)(1)

   58.0  82.3  87.7
       As of or for the Year Ended December 31,      
   2018  2019  2020 

Crude steel production capacity for the year (million tons per year)

   3.00   2.94   3.00 

Actual crude steel output (million tons)

   3.01   3.02   3.10 

Capacity utilization rate (%) (1)

   100.3  102.5  103.3

 

 

(1)

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

POSCO VINA

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

       As of or for the Year Ended December 31,      
   2018  2019  2020 

Crude steel production capacity for the year (million tons per year)

   1.10   1.10   0.55 

Actual crude steel output (million tons)

   0.97   0.79   0.55 

Capacity utilization rate (%) (1)

   87.7  71.7  100.8

(1)

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

Item 4A.  Unresolved

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

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, a 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 International. POSCO International 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 the 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 2017,2019, the unit sales prices in Won for each of our principal product lines ofcold rolled products, plates and stainless steel products produced by us and directly sold to external customers increased.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 21.3%2.3% from 20162018 to 2017, despite an appreciation2019, which was enhanced by the depreciation in the average value of the Won against the Dollar in 20172019 that decreasedincreased our export prices in Won terms. The average exchange rate of the Won against the Dollar, as announced by Seoul Money Brokerage Services, Ltd., appreciateddepreciated from Won 1,160.51,100.3 to US$1.00 in 20162018 to Won 1,130.81,165.7 to US$1.00 in 2017.2019.

The unit sales price of hotcold rolled products, which accounted for 25.9%36.9% of total sales volume of the principal steel products produced by us and directly sold to external customers, increased by 29.2%4.4% in 2017.2019. The unit sales price of wire rods,plates, which accounted for 7.8%17.8% of total sales volume of such products, increased by 26.2%4.2% in 2017. The unit sales price of cold rolled products, which accounted for 37.5% of total sales volume of such products, increased by 25.7% in 2017.2019. The unit sales price of stainless steel products, which accounted for 9.6%9.8% of total sales volume of such products, increased by 15.0%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 products,sheets, which accounted for 2.9%2.7% of total sales volume of such products, increaseddecreased by 9.7%0.3% in 2017. The unit sales price of plates, which accounted for 16.3% of total sales volume of such products, increased by 8.4% in 2017.2019.

In 2018,The unit sales prices in Won for each of our principal product lines of steel products, produced by us and directly sold to external customers, other than silicon steel products, increased.sheets, decreased from 2019 to 2020, reflecting generally weak global market conditions in 2020 due to the COVID-19 pandemic. The weighted average unit price for suchour principal product lines of steel products increaseddecreased by 3.3%6.0% from 20172019 to 2018, despite an appreciation2020, which was mitigated by the depreciation in the

average value of the Won against the Dollar in 20182020 that decreasedincreased our export prices in Won terms. The average exchange rate of the Won against the Dollar, as announced by Seoul Money Brokerage Services, Ltd., appreciateddepreciated from Won 1,130.81,165.7 to US$1.00 in 20172019 to Won 1,100.31,180.1 to US$1.00 in 2018.2020.

The unit sales price of plates, which accounted for 15.8%16.3% of total sales volume of the principal steel products produced by us and directly sold to external customers, increaseddecreased by 14.8%13.0% in 2018.2020. The unit sales price of wire rods, which accounted for 6.7% of total sales volume of such products, decreased by 8.8% in 2020. The unit sales price of cold rolled products, which accounted for 35.4% of total sales volume of such products, decreased by 8.1% in 2020. The unit sales price of hot rolled products, which accounted for 26.0%28.2% of total sales volume of such products, increaseddecreased by 5.2%6.1% in 2018. The unit sales price of wire rods, which accounted for 7.1% of total sales volume of such products, increased by 4.9% in 2018. The unit sales price of cold rolled products, which accounted for 39.2% of total sales volume of such products, increased by 2.8% in 2018.2020. The unit sales price of stainless steel products, which accounted for 9.1%10.2% of total sales volume of such products, increaseddecreased by 0.8%3.1% in 2018.2020. On the other hand, the unit sales price of silicon steel products,sheets, which accounted for 2.8%3.0% of total sales volume of such products, decreasedincreased by 2.9%11.5% in 2018.2020.

The table below sets out the average unit sales prices for oursemi-finished and finished steel products produced by us and directly sold to external customers for the periods indicated.

 

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

Products

      2016           2017           2018           2018           2019           2020     
  (In thousands of Won per ton)   (In thousands of Won per ton) 

Cold rolled products

  666   837   861   861   898   826 

Hot rolled products

   507    655    689    689    666    625 

Stainless steel products

       2,003        2,304        2,322        2,322        2,340        2,267 

Plates

   582    631    724    724    754    656 

Wire rods

   638    806    845    845    835    762 

Silicon steel sheets

   1,065    1,169    1,135    1,135    1,132    1,262 
  

 

   

 

   

 

   

 

   

 

   

 

 

Average(1)

  745   904   934   934   955   898 

 

 

(1)

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

Costs and Production Efficiency

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

 

              For the Year Ended December 31,                           For the Year Ended December 31,             
      2016         2017         2018           2018         2019         2020     
  (Percentage of net sales)   (Percentage of net sales) 

Cost of sales

   87.4  86.3  87.7   87.7  90.2  91.9

Selling and administrative expenses

   7.3   6.2   3.7    3.7   3.7   4.0 

Gross margin

   12.6   13.7   12.3    12.3   9.8   8.1 

Operating profit margin

   4.3   7.0   6.2    6.2   5.0   3.6 

Our operating profit margin increaseddecreased from 4.3%6.2% in 20162018 to 7.0%5.0% in 2017, but2019 and further decreased to 6.2%3.6% in 20182020 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,          
  2016 2017 2018   2018 2019 2020 

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

   47.6   47.6   47.6    47.6   47.5   45.3 

POSCO

   42.4   42.4   42.4    42.4   42.4   40.7 

Zhangjiagang Pohang Stainless Steel Co., Ltd.

   1.1   1.1   1.1 

POSCO (Zhangjiagang).

   1.1   1.1   1.1 

PT. Krakatau POSCO

   3.0   3.0   3.0    3.0   2.9   3.0 

POSCO SS VINA Co., Ltd.

   1.1   1.1   1.1 

POSCO VINA

   1.1   1.1   0.6 

Actual crude steel and stainless steel output (million tons)

   42.2   42.2   42.9    42.9   42.9   40.6 

POSCO

   37.5   37.2   37.7    37.7   38.0   35.9 

Zhangjiagang Pohang Stainless Steel Co., Ltd.

   1.2   1.2   1.2 

POSCO (Zhangjiagang).

   1.2   1.1   1.0 

PT. Krakatau POSCO

   2.9   2.9   3.0    3.0   3.0   3.1 

POSCO SS VINA Co., Ltd.

   0.6   0.9   1.0 

POSCO VINA

   1.0   0.8   0.6 

Capacity utilization rate (%)

   88.7  88.7  90.1   90.1  90.4  89.5

POSCO

   88.5  87.8  89.0   89.0  89.7  88.3

Zhangjiagang Pohang Stainless Steel Co., Ltd.

   105.2  105.4  105.3

POSCO (Zhangjiagang).

   105.3  103.1  89.9

PT. Krakatau POSCO

   97.0  97.4  100.3   100.3  102.5  103.3

POSCO SS VINA Co., Ltd.

   58.0  82.3  87.7

POSCO VINA

   87.7  71.7  100.8

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 2018, 61.6%2020, 61.4% 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 International’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 International’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 International and POSCO E&C, also periodically enter into derivative contracts, primarily foreign currency swaps and forward exchange contracts, to further hedge some of our foreign exchange risks. 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.

Inflation

Inflation in Korea, which was 1.0% in 2016, 1.9% in 2017 and 1.5% in 2018, 0.4% in 2019 and 0.5% in 2020 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 difficult, subjective and 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 accountaccounts 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, 2018,2020, the percentage of allowance for doubtful accounts related to net trade accounts and notes receivablereceivables compared to our trade accounts and othernotes receivables was 7.12%6.47%. Our allowance for doubtful accounts decreased by 16.2%16.0%, or Won 178144 billion, from Won 1,094898 billion as of December 31, 20172019 to Won 917754 billion as of December 31, 2018.2020. See Note 23 of Notes to the Consolidated Financial Statements.

Lifetime expected credit losses are expected credit losses from any default that may occur over the expected 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 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, 20182020 was 1.14%1.07%. These historical results, as well as current known conditions impacting the collectability of our accounts receivable balances, are significant factors for us when we estimate the amount of the necessary allowance for doubtful accounts.Historically,accounts. Historically, losses from uncollectible accounts receivables have been within expectations and in line with the allowances established. However, unforeseen circumstances such as adverse market conditions that deviate significantly from our estimates may require us to change the timing of, and make additional allowances to, our receivable balances. In this case, our results of operations, financial condition and net worth could be materially and adversely affected.

Valuation of Financial Instruments including Debt and Equity Securities and Derivatives

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

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

We assess at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity investments classified asavailable-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, 2020, if the discount rates used in these valuations were increased by 1%, then the estimated fair values would have decreased by approximately 10% in total.In addition, as of December 31, 2020, if the revenue growth rate assumptions

were decreased by 1% in the cash flow models, then the estimated fair values would have decreased by approximately 13%11% in total.

We recognized impairment losses onavailable-for-sale financial assets of Won 248 billion in 2016 and Won 123 billion in 2017, but we did not recognize any such impairment loss in 2018 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 Notes 2 and 33 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, 2018,2020, we recognized impairment loss on property, plant and equipment amounting to Won 81027 billion in 2018,2020, which related primarily to our synthetic natural gasincluded impairment loss of Won 17 billion from a fire at a stainless steel production facility in Gwangyang due to our discontinuation of such business that we had launched in 2011, which was adversely impacted by a decline in the market price of LNG. In addition, we recognized impairment loss on industrial property rights of Won 78 billion related to our investment in Hume Coal Pty Limited, a coal mining company in Australia, as well as impairment loss on property, plant and equipment of Won 54 billion in 2018 in connection with the restructuring of our fuel cell business.at Pohang Works.

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, 2018,2020, for the applicable cash generating units, we estimated a discount rate of 4.6%5.80% to 10.4%9.10% and a revenue growth rate of 0.6%0.7% to 2.0%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 4.2%4.48% to 4.9%6.37% in total. If the estimated revenue growth rate were decreased by 1%, then the estimated recoverable amount would have decreased by 1.9%1.26% to 8.5%4.52% 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, 2020, if the estimated average discount rates used in these valuations were increased by 0.25%0.5%, the estimatedvalue-in-use for the respective cash generating units would have decreased by 2.72% to 3.71%Won 239 billion or 7.42% in total. IfAs of December 31, 2020, if the estimated terminal growth rates were decreased by 0.25%0.5%, the estimatedvalue-in-use for the respective cash generating units would have decreased by 1.49% to 1.76%Won 129 billion or 4.00% in total. Based on an impairment test as of December 31, 2018,2020, we recognized impairment loss on goodwill of Won 158189 billion incurred by POSCO International and Won 66 billion incurred by POSCO E&C in connection with decreases in value-in-use of such entities, 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. International.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 the Consolidated Financial Statements.

Inventories

Inventories are stated at the lower of cost or net realizable value. Costs of inventories are determined using themoving-weighted average or weighted average method.Materials-in-transit are determined using the specific identification method. Amounts of inventory are written down to net

realizable value due to losses occurring in the normal course of business and the allowance is reported as a contra inventory account, while the related charge is recognized in cost of goods sold.

The net realizable value is determined based on the latest selling price available at the end of each quarter taking into account the directly attributable selling costs. The latest selling price is the base price which is the negotiated selling price based upon the recent transactions entered into with major customers. Considering that our inventory turnover is approximately two months and inventories at the balance sheet date would be sold during the following two months, we perform valuation of inventories using the base price as of the balance sheet date and adjust for significant changes in selling price occurring subsequent to the reporting date.The selling price range used for determining the net realizable value of our inventories ranged from 92.9% to 116.1% of the inventory cost amount.Foramount less 4.7% of the gross profit margin to the inventory cost amount plus 10.9% 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 2016, 20172018, 2019 and 2018. 2020.The valuation losses of inventories recognized within cost of goods sold were Won 152 billion in 2016, Won 79 billion in 2017 and Won 142 billion in 2018.2018, Won 96 billion in 2019 and Won 54 billion in 2020.

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, 2018,2020, the book value of our investments in associates and joint ventures was Won 3,6503,876 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 Recognized by the Input Method

POSCO E&C, our consolidated subsidiary, engages in various construction activities, including construction of industrial plants and civil engineering projects, and revenue recognition is 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 revenue and costs of a contract can be reliably estimated, we recognize such estimated revenue and costs based on the progress of construction 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 bear to the estimated total contract costs. If the revenue and costs of a contract cannot be reliably estimated, revenue is recognized only to the extent the recovery of contract costs are probable. If the total contract cost is likely to exceed the total contract revenue, expected losses are immediately recognized as 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 2018,2020, the estimated total contract costs were changed. Details of changes in estimated total contract costs and the impact on profit before income taxes for 20182020 and future periods are as follows:

 

   Amount 
   (In millions of Won) 

Changes in estimated total contract costs

      427,812180,065 

Changes in profit before income taxes of construction contracts:

  

Current period

   (38,72040,743) 

Future periods

   69,428105,137 

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 2018.2020. 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 the 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 144178 billion, or 6.7%7.3% in total, as of December 31, 2018.2020. If the estimated future pay inflation rates were decreased by 1%, then the estimated provision for severance benefits would have decreased by Won 147181 billion, or 6.9%7.4% in total, as of December 31, 2018.2020.

Recent Accounting Changes

For a discussion of new standards, interpretations and amendments to existing standards that have been published, see Note 3 of Notes2 to the Consolidated Financial Statements.

IFRS No. 16 “Leases”

IFRS No. 16 “Leases” replaces existing guidance regarding leases, including IAS No. 17 “Leases,” IFRIC No. 4 “Determining whether an Arrangement contains a Lease,” SIC No. 15 “Operating Leases-Incentives” and SIC No. 27 “Evaluating the Substance of Transactions Involving the Legal Form of a Lease.”

IFRS No. 16 introduces a single accounting model that requires a lessee to recognize lease related assets and liabilities in the financial statements. A lessee is required to recognize as an asset its right to use the underlying leased asset and recognize as a liability its obligation to make lease payments. The lessee may elect not to apply the standard to short-term lease with a term of 12 months or less or low value assets. Accounting treatment for a lessor is similar to the existing standard which classifies leases into finance and operating leases.

We will apply IFRS No. 16 “Leases” beginning on January 1, 2019. Based on information currently available, we estimate that we will recognizeright-of-use assets and lease liabilities of Won 619 billion as of January 1, 2019, which is the present value of the lease payments of Won 856 billion that are not paid at the date of initial application for the assets currently used as operating leases.

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,For example, 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, 2016, 20172018, 2019 and 20182020 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,   For the Year Ended December 31, 
  2016 2017 2018   2018 2019 2020 
  (In millions of Won)   (In millions of Won) 

Operating profit under IFRS as issued by the IASB

      2,282,496      4,196,121      4,041,827       4,041,827      3,222,713      2,054,370 

Additions:

        

Impairment loss on other receivables

   37,567   98,177   63,092    63,092   80,323   53,105 

Impairment loss on assets held for sale

   24,890      50,829    50,829   38,328   5,030 

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

   22,499   19,985   5,226    5,226   6,539   14,632 

Loss on disposals of property, plant and equipment

   86,622   151,343   117,614    117,614   120,227   142,126 

Impairment loss on property, plant and equipment

   196,882   117,231   1,004,704    1,004,704   442,700   27,040 

Impairment loss on investment property

   318      51,461    51,461   32,642    

Loss on disposals of investment property

   21   1,966   9,154 

Impairment loss on intangible assets

   127,875   167,995   337,519    337,519   191,021   197,776 

Increase to provisions

   53,058   33,964   134,632    134,632   23,074   30,536 

Loss on valuation of firm commitment

      43,164   66,281    66,281   37,685   93,098 

Donations

   43,810   51,424   52,074    52,074   51,567   45,652 

Idle tangible asset expenses

   6,437   10,490   9,257    9,257   34,152   19,276 

Others

   143,083   93,814   175,711    184,865   112,029   70,408 
  

 

  

 

  

 

   

 

  

 

  

 

 
   743,062   789,553   2,077,554    2,077,554   1,170,287   698,679 

Deductions:

        

Gain on disposals of assets held for sale

   (23,112  (1,180  (27,171   (27,171  (37,461  (841

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

   (23,305  (81,794  (45,241   (45,241  (27,836  (88,836

Gain on disposals of property, plant and equipment

   (23,826  (32,145  (53,139   (53,139  (49,367  (15,548

Gain on disposals of intangible assets

   (671  (23,391  (117,139   (117,139  (1,896  (815

Gain on valuation of firm commitment

      (56,301  (39,028   (39,028  (60,201  (107,511

Gain on insurance proceeds

   (22,400  (5,878  (14,034

Gain on valuation of emission rights

      (25,440   

Gain on disposals of emission rights

      (11,141  (24,851

Reversal of other provisions

   (3,557  (36,522  (5,154

Others

   (109,164  (247,792  (227,834   (238,311  (201,027  (158,780
  

 

  

 

  

 

   

 

  

 

  

 

 
   (202,478  (448,481  (523,586  (523,586) (450,891) (402,336) 
  

 

  

 

  

 

   

 

  

 

  

 

 

Revenue recognition related to development and sale of real estate

   143,742   468,233   (176,859   (176,859  (418,862  326,118 

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

   (122,497  (383,592  123,664    123,664   345,605   (273,796
  

 

  

 

  

 

   

 

  

 

  

 

 

Operating profit underK-IFRS

   2,844,325   4,621,834   5,542,600   5,542,600  3,868,854  2,403,035 
  

 

  

 

  

 

   

 

  

 

  

 

 

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

  1,032,065  2,909,311  1,932,386 

Net profit under IFRS as issued by the IASB

  1,932,386  2,038,165  1,748,492 

Adjustments related to development and sale of real estate:

        

Revenue

   143,742   468,233   (176,859   (176,859  (418,862  326,118 

Cost of sales

   (122,497  (383,592  123,664    123,664   345,605   (273,796

Income tax

   (5,141  (20,483  12,873    12,873   17,728   (12,662
  

 

  

 

  

 

   

 

  

 

  

 

 

Net income (loss) underK-IFRS

  1,048,169   2,973,469   1,892,064 

Net income under K-IFRS

  1,892,064  1,982,637  1,788,152 
  

 

  

 

  

 

   

 

  

 

  

 

 

Operating Results — 2017– 2019 Compared to 20182020

The following table presents our statement of comprehensive income information and changes therein for 20172019 and 2018.2020.

 

      Changes       Changes 
  For the Year Ended December 31,   2017 versus 2018   For the Year Ended December 31,   2019 versus 2020 
  2017   2018   Amount %   2019 2020   Amount % 
  (In billions of Won)   (In billions of Won) 

Revenue

      60,187       65,155       4,968   8.3      64,786      57,467       (7,319  (11.3)% 

Cost of sales

   51,916    57,129    5,123   10.0    58,462   52,799    (5,664  (9.7
  

 

   

 

      

 

  

 

    

Gross profit

   8,271    8,026    (246  (3.0   6,324   4,668    (1,656  (26.2

Selling and administrative expenses:

             

Impairment loss on trade accounts and notes receivable

   174    75    (99  (56.9

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

   (28  1    29   N.A. (1) 

Other administrative expenses

   2,003    1,986    (17  (0.9   2,041   1,940    (102  (5.0

Selling expenses

   1,557    369    (1,188  (76.3   368   377    9   2.3 

Other operating income and expenses:

             

Impairment loss on other receivables

   98    63    (35  (35.7   80   53    (27  (33.9

Other operating income

   448    524    75   16.7    451   402    (49  (10.8

Other operating expenses

   691    2,014    1,323   191.4    1,090   646    (444  (40.8
  

 

   

 

      

 

  

 

    

Operating profit

   4,196    4,042    (154  (3.7   3,223   2,054    (1,168  (36.3

Share of profit ofequity-accounted investees, net

   11    113    102   968.6    274   133    (140  (51.3

Finance income

   2,373    1,706    (667  (28.1   1,872   2,677    805   43.0 

Finance costs

   2,484    2,244    (240  (9.7   2,242   2,892    650   29.0 
  

 

   

 

      

 

  

 

    

Profit before income tax

   4,095    3,616    (479  (11.7   3,127   1,973    (1,154  (36.9

Income tax expense

   1,186    1,684    498   42.0    1,088   224    (864  (79.4
  

 

   

 

      

 

  

 

    

Profit

   2,909    1,932    (977  (33.6   2,038   1,748    (290  (14.2

Profit for the period attributable to owners of the controlling company

   2,756    1,712    (1,044  (37.9   1,864   1,581    (283  (15.2

Profit for the period attributable tonon-controlling interests

   153    220    67   44.0    174   167    (6  (3.7

(1)

N.A. means not applicable.

Revenue

The following table presents our revenue by segment and changes therein for 20172019 and 2018.2020.

 

    Changes     Changes 
  For the Year Ended December 31, 2017 versus 2018   For the Year Ended December 31, 2019 versus 2020 
  2017 2018 Amount %   2019 2020 Amount % 
  (In billions of Won)   (In billions of Won) 

Steel Segment:

          

External revenue

   30,230   32,358   2,128   7.0      32,078      28,893      (3,186  (9.9)% 

Internal revenue

   17,381   18,063   682   3.9    17,730   15,365   (2,365  (13.3
  

 

  

 

     

 

  

 

   

Total revenue from Steel Segment

   47,611   50,421   2,810   5.9    49,808   44,258   (5,550  (11.1
  

 

  

 

     

 

  

 

   

Trading Segment:

          

External revenue

   20,802   22,408   1,606   7.7   22,157   19,345   (2,812  (12.7

Internal revenue

   14,076   15,911   1,835   13.0    15,468   12,947   (2,521  (16.3
  

 

  

 

     

 

  

 

   

Total revenue from Trading Segment

   34,878   38,319   3,441   9.9    37,625   32,292   (5,333  (14.2
  

 

  

 

     

 

  

 

   

Construction Segment:

          

External revenue

   6,887   6,769   (117  (1.7   6,945   6,576   (369  (5.3

Internal revenue

   399   551   152   38.2    743   1,034   290   39.1 
  

 

  

 

     

 

  

 

   

Total revenue from Construction Segment

   7,286   7,321   35   0.5    7,688   7,610   (78  (1.0
  

 

  

 

     

 

  

 

   

Others Segment:

          

External revenue

   2,736   3,443   707   25.8    3,187   2,979   (208  (6.5

Internal revenue

   2,549   2,755   207   8.1    2,796   2,610   (186  (6.7
  

 

  

 

     

 

  

 

   

Total revenue from Others Segment

   5,285   6,198   913   17.3    5,983   5,588   (394  (6.6
  

 

  

 

     

 

  

 

   

Total revenue prior to consolidation adjustments and basis difference

   95,060   102,259   7,199   7.6 

Total revenue prior to consolidation adjustments

   101,104   89,749   (11,355  (11.2
  

 

  

 

     

 

  

 

   

Consolidation adjustments

   (34,405  (37,281  (2,876  8.4    (36,737  (31,956  4,781   (13.0

Basis difference adjustments(1)

   (468  177   645   N.A. (2)    419   (326  (745  N.A.(2) 
  

 

  

 

     

 

  

 

   

Revenue

  60,187  65,155   4,968   8.3  64,786  57,467   (7,319  (11.3
  

 

  

 

     

 

  

 

   

(1)

Basis difference adjustments are related to the difference in recognizing revenue and expenses of the Construction Segment in connection with the 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 to the Consolidated Financial Statements.

(2)

N.A. means not applicable.

Our revenue decreased by 11.3%, or Won 7,319 billion, from Won 64,786 billion in 2019 to Won 57,467 billion in 2020 due to decreases in external revenues of all of our segments. Specifically:

Steel Segment. External revenue from the Steel Segment, which does not include internal revenue from inter-company transactions that are eliminated during consolidation, decreased by 9.9%, or Won 3,186 billion, from Won 32,078 billion in 2019 to Won 28,893 billion in 2020 primarily due to a decrease in the average unit sales price per ton of the principal steel products produced by us and sold to external customers and, to a lesser extent, a decrease in our sales volume of the principal steel products produced by us and directly sold to external customers. The weighted average unit sales price per ton of the principal steel products produced by us and directly sold to external customers decreased by 6.0% from Won 955,209 per ton in 2019 to Won 898,008 per ton in 2020, reflecting generally weak global market conditions in 2020 due to the COVID-19 pandemic. Our sales prices generally decreased in the first, second and third quarters of 2020 compared to the prior quarter, but recovered in the fourth quarter of 2020. The overall sales volume of the principal steel products produced by us and directly sold to external customers decreased by 3.9% from 30.4 million tons in 2019 to 29.2 billion tons in 2020, reflecting weak demand in 2020 due to the COVID-19 pandemic. Our sales volume decrease from the first quarter of 2020 to the second quarter of 2020, but gradually

recovered in the third and fourth quarters of 2020. Such factors were principally attributable to the following:

The unit sales prices in Won of each of our principal product lines, other than silicon steel sheets, decreased from 2019 to 2020. The unit sales prices in Won of plates, wire rods, cold rolled products, hot rolled products and stainless steel products produced by us and directly sold to external customers decreased by 13.0%, 8.8%, 8.1%, 6.1% and 3.1%, respectively, from 2019 to 2020. On the other hand, the unit sales price in Won of silicon steel sheets increased by 11.5% from 2019 to 2020. 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 plates, cold rolled products and wire rods decreased from 2019 to 2020, the impact of which was partially offset by increases in the sales volume of silicon steel sheets, hot rolled products and stainless steel products from 2019 to 2020. The sales volume of plates, cold rolled products and wire rods produced by us and directly sold to external customers decreased by 11.7%, 7.6% and 6.7%, respectively, from 2019 to 2020. On the other hand, the sales volume of silicon steel sheets, hot rolled products and stainless steel products produced by us and directly sold to external customers increased by 8.6%, 4.4% and 0.6%, respectively, from 2019 to 2020. For a discussion of changes in the sales volume of each of our principal product lines, see “Item 4.B. Business Overview — Major Products.”

Total revenue from the Steel Segment, which includes internal revenue from inter-company transactions, decreased by 11.1%, or Won 5,550 billion, from Won 49,808 billion in 2019 to Won 44,258 billion in 2020 as internal revenue from inter-company transactions decreased by 13.3%, or Won 2,365 billion, from Won 17,730 billion in 2019 to Won 15,365 billion in 2020 primarily due to a decrease in our steel sales activities through trading subsidiaries, particularly POSCO International.

Trading Segment. External revenue from the Trading Segment, which does not include internal revenue from inter-company transactions that are eliminated during consolidation, decreased by 12.7%, or Won 2,812 billion, from Won 22,157 billion in 2019 to Won 19,345 billion in 2020 primarily due to a decrease in POSCO International’s trading sales that were negatively impacted by the COVID-19 pandemic and a decrease in revenue from its Myanmar gas field projects, which was negatively impacted by a decrease in global prices of natural gas in 2020 as well as a temporary suspension of production for 20 days in September 2020 for maintenance activities.

Total revenue from the Trading Segment, which includes internal revenue from inter-company transactions, decreased by 14.2%, or Won 5,333 billion, from Won 37,625 billion in 2019 to Won 32,292 billion in 2020 as internal revenue from inter-company transactions decreased by 16.3%, or Won 2,521 billion, from Won 15,468 billion in 2019 to Won 12,947 billion in 2020 primarily due to a decrease in our steel sales activities through trading subsidiaries from 2019 to 2020.

Construction Segment.External revenue from the Construction Segment, which does not include internal revenue from inter-company transactions that are eliminated during consolidation and basis difference adjustments, decreased by 5.3%, or Won 369 billion, from Won 6,945 billion in 2019 to Won 6,576 billion in 2020 primarily due to a decrease in external revenue from architectural works construction projects, which was partially offset by an increase in external revenue from plant construction projects.

Total revenue from the Construction Segment, which includes internal revenue from inter-company transactions, decreased by 1.0%, or Won 78 billion, from Won 7,688 billion in 2019 to Won 7,610 billion in 2020 as internal revenue from inter-company transactions increased by 39.1%, or Won 290 billion, from Won 743 billion in 2019 to Won 1,034 billion in 2020. Such increase in internal revenue reflected an increase in the amount of construction activities for member companies of the POSCO Group from 2019 to 2020.

Others Segment. The Others Segment primarily includes power generation, manufacturing of various industrial materials and provision of information technology services. External revenue from the Others Segment, which does not include internal revenue from inter-company transactions that are eliminated during consolidation, decreased by 6.5%, or Won 208 billion, from Won 3,187 billion in 2019 to Won 2,979 billion in 2020, primarily due to a decrease in revenue of POSCO Energy Corporation, which was partially offset by an increase in revenue of POSCO Chemical Co., Ltd. The decrease in revenue of POSCO Energy Corporation primarily reflected a decrease in the price of electricity, which was partially offset by an increase in revenue from its LNG terminal-related businesses. On the other hand, the revenue of POSCO Chemical Co., Ltd. increased primarily due to an increase in sales of anode and cathode materials used, among others, in electric batteries.

Total revenue from the Others Segment, which includes internal revenue from inter-company transactions, decreased by 6.6%, or Won 394 billion, from Won 5,983 billion in 2019 to Won 5,588 billion in 2020 as internal revenue from inter-company transactions decreased by 6.7%, or Won 186 billion, from Won 2,796 billion in 2019 to Won 2,610 billion in 2020 primarily due to a decrease in POSCO Energy’s revenue from sales of electricity to member companies of the POSCO group from 2019 to 2020.

Cost of Sales

The following table presents a breakdown of our cost of sales by segment, prior to adjusting for inter-company transactions that are eliminated during consolidation and basis difference, and changes therein for 2019 and 2020.

         Changes 
   For the Year Ended December 31,  2019 versus 2020 
   2019  2020  Amount  % 
   (In billions of Won) 

Steel Segment

   45,642   41,598      (4,044  (8.9)% 

Trading Segment

   36,330   31,258   (5,072  (14.0

Construction Segment

   7,155   6,904   (251  (3.5

Others Segment

   5,324   4,874   (450  (8.5

Consolidation adjustments

   (36,334  (31,562  4,772   (13.1

Basis difference adjustments (1)

   346   (274  (619  N.A.(2) 
  

 

 

  

 

 

   

Cost of sales

      58,462      52,799   (5,664)   (9.7
  

 

 

  

 

 

   

(1)

Basis difference adjustments are related to the difference in recognizing revenue and expenses of the Construction Segment in connection with the 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 to the Consolidated Financial Statements.

(2)

N.A. means not applicable.

Our cost of sales decreased by 9.7%, or Won 5,664 billion, from Won 58,462 billion in 2019 to Won 52,799 billion in 2020 due to decreases in cost of sales of all of our segments. Specifically:

Steel Segment. The cost of sales of our Steel Segment, prior to consolidation, decreased by 8.9%, or Won 4,044 billion, from Won 45,642 billion in 2019 to Won 41,598 billion in 2020 primarily due to a decrease in the average prices in Won terms of coal used to manufacture our steel products as well as a decrease in our sales volume of principal steel products produced by us and sold to external customers, the impact of which was partially offset by an increase in the average price in Won terms of iron ore used to manufacture our steel products. The average market price of coal per wet metric ton (Premium Low Vol Coking Coal, FOB Australia Index announced by Platts) decreased from US$176 in 2019 to US$124 in 2020. On the other hand, the average market price of iron ore per dry metric ton (Iron Ore 62% Fe, CFR China Index announced by Platts) increased from US$93 in 2019 to US$109 in 2020.

Trading Segment. The cost of sales of our Trading Segment, prior to consolidation, decreased by 14.0%, or Won 5,072 billion, from Won 36,330 billion in 2019 to Won 31,258 billion in 2020 primarily due to decreases in trading activities as well as natural resources development activities of POSCO International.

Construction Segment. The cost of sales of our Construction Segment, prior to consolidation and basis difference adjustments, decreased by 3.5%, or Won 251 billion, from Won 7,155 billion in 2019 to Won 6,904 billion in 2020 reflecting a decrease in the average prices in Won terms of certain raw materials used in construction activities as well as a decrease in the progress of architectural works construction projects, which impact was partially offset by an increase in the progress of plant construction projects.

Others Segment. The cost of sales of our Others Segment, prior to consolidation, decreased by 8.5%, or Won 450 billion, from Won 5,324 billion in 2019 to Won 4,874 billion in 2020 primarily due to a decrease in the cost of sales of POSCO Energy Corporation reflecting a decrease in the global price of LNG in 2020 as well as its decision to directly import LNG used in some of its power plants.

Gross Profit

The following table presents our gross profit by segment, prior to adjusting for inter-company transactions that are eliminated during consolidation and basis difference, and changes therein for 2019 and 2020.

      Changes 
   For the Year Ended December 31,  2019 versus 2020 
   2019  2020  Amount  % 
   (In billions of Won) 

Steel Segment

  4,166  2,660  (1,506)   (36.1)% 

Trading Segment

   1,295   1,034           (261  (20.1

Construction Segment

   533   706   173   32.5 

Others Segment

   659   714   56   8.4 

Consolidation adjustments

   (403  (394  8   (2.1

Basis difference adjustments (1)

   73   (52  (126  N.A. (2) 
  

 

 

  

 

 

   

Gross profit

      6,324      4,668   (1,656  (26.2
  

 

 

  

 

 

   

(1)

Basis difference adjustments are related to the difference in recognizing revenue and expenses of the Construction Segment in connection with the 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 to the Consolidated Financial Statements.

(2)

N.A. means not applicable.

Our gross profit decreased by 26.2%, or Won 1,656 billion, from Won 6,324 billion in 2019 to Won 4,668 billion in 2020 primarily due to decreases in gross profit of the Steel Segment and the Trading Segment, the impact of which was partially offset by increases in gross profit of the Construction Segment and the Others Segment. Our gross margin, which is gross profit as a percentage of total revenue, decreased from 9.8% in 2019 to 8.1% in 2020.

Steel Segment. The gross profit of our Steel Segment, prior to consolidation, decreased by 36.1%, or Won 1,506 billion, from Won 4,166 billion in 2019 to Won 2,660 billion in 2020 primarily due to a decrease in the average unit sales price per ton of the principal steel products produced by us and sold to external and internal customers that outpaced a decrease in the average prices in Won terms of certain raw materials used to manufacture our finished steel products. The gross margin of our Steel Segment decreased from 8.4% in 2019 to 6.0% in 2020.

Trading Segment. The gross profit of our Trading Segment, prior to consolidation, decreased by 20.1%, or Won 261 billion, from Won 1,295 billion in 2019 to Won 1,034 billion in 2020 primarily due

to a decrease in gross profit from POSCO International’s natural resources development activities. In particular, gross profit from POSCO International’s Myanmar gas field projects was negatively impacted by a decrease in global prices of natural gas in 2020 as well as a temporary suspension of production for 20 days in September 2020 for maintenance activities. The gross margin of our Trading Segment decreased from 3.4% in 2019 to 3.2% in 2020.

Construction Segment. The gross profit of our Construction Segment, prior to consolidation and basis difference adjustments, increased by 32.5%, or Won 173 billion, from Won 533 billion in 2019 to Won 706 billion in 2020 primarily reflecting an increase in POSCO E&C’s participation in higher margin plant and architectural works construction projects in 2020. The gross margin of our Construction Segment increased from 6.9% in 2019 to 9.3% in 2020.

Others Segment. The gross profit of our Others Segment, prior to consolidation, increased by 8.4%, or Won 56 billion, from Won 659 billion in 2019 to Won 714 billion in 2020 primarily due to an increase in the gross profit of POSCO Energy Corporation. POSCO Energy Corporation’s gross profit increased from 2019 to 2020 primarily due to its decision to directly import LNG used in some of its power plants as well as improved operational efficiency of its LNG terminal-related businesses. The gross margin of our Others Segment improved from 11.0% in 2019 to 12.8% in 2020.

Selling and Administrative Expenses

The following table presents a breakdown of our selling and administrative expenses and changes therein for 2019 and 2020.

       Changes 
   For the Year Ended December 31,   2019 versus 2020 
   2019  2020   Amount  % 
   (In billions of Won) 

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

  (28 1   29   N.A. (1) 
  

 

 

  

 

 

    

Freight and custody expenses

  180  181   0   0.1

Sales commissions

   74   87    13   17.5 

Sales promotion

   10   7    (3  (29.1

Sales insurance premium

   33   30    (2  (7.0

Contract cost

   38   46    8   21.4 

Others

   33   26    (7  (22.3
  

 

 

  

 

 

    

Total selling expenses

  368  377    9   2.3 
  

 

 

  

 

 

    

Wages and salaries

      841      829           (12  (1.4)% 

Expenses related to post-employment benefits

   89   83    (6  (6.6

Other employee benefits

   178   187    9   5.2 

Depreciation

   131   146    15   11.5 

Amortization

   112   115    3   2.7 

Taxes and public dues

   79   59    (20  (24.9

Rental

   40   35    (5  (12.3

Advertising

   83   72    (11  (13.1

Research and development

   110   116    6   5.4 

Service fees

   193   157    (37  (19.1

Others

   185   140    (45  (24.2
  

 

 

  

 

 

    

Total other administrative expenses

  2,041  1,940    (102  (5.0
  

 

 

  

 

 

    

Total selling and administrative expenses

      2,381      2,317    (64  (2.7
  

 

 

  

 

 

    

(1)

N.A. means not applicable.

Our selling and administrative expenses decreased by 2.7%, or Won 64 billion, from Won 2,381 billion in 2019 to Won 2,317 billion in 2020, primarily due to decreases in service fees, taxes and public fees and wages and salaries, the impact of which was partially offset by a reversal of

impairment loss on trade accounts and notes receivable in 2019 compared to impairment loss on trade accounts and notes receivable in 2020 as well as an increase in depreciation and sales commissions. Such factors were principally attributable to the following:

Our service fees decreased by 19.1%, or Won 37 billion, from Won 193 billion in 2019 to Won 157 billion in 2020 primarily due to decreases in brokerage fees relating to imports and exports and third-party consulting fees.

Taxes and public fees decreased by 24.9%, or Won 20 billion, from Won 79 billion in 2019 to Won 59 billion in 2020 primarily due to the business combination of our LNG storage facilities and off-gas combined cycle power plants in 2019, which were not repeated in 2020.

Our wages and salaries decreased by 1.4%, or Won 12 billion, from Won 841 billion in 2019 to Won 829 billion in 2020 primarily due to a decrease in the employees of POSCO ICT Co., Ltd.

We recognized reversal of such impairment loss of Won 28 billion in 2019 primarily due to a reversal of impairment loss on trade accounts and notes receivables of POSCO E&C. On the other hand, in 2020, we recognized impairment loss on trade accounts and notes receivables of Won 1 billion primarily due to impairment loss on accounts receivables of Donghoon SP Co., Ltd.

Our depreciation increased by 11.5%, or Won 15 billion, from Won 131 billion in 2019 to Won 146 billion in 2020 primarily due to acquisitions of new assets, including silos in Pohang Works, by us and POSCO Energy.

Our sales commissions increased by 17.5%, or Won 13 billion, from Won 74 billion in 2019 to Won 87 billion in 2020 primarily due to an increase in claim expenses that are included in sales commissions.

Other Operating Income and Expenses

The following table presents our impairment loss on other receivables and changes therein for 2019 and 2020.

       Changes 
   For the Year Ended December 31,   2019 versus 2020 
   2019   2020   Amount  % 
   (In billions of Won) 

Impairment loss on other receivables

      80           53           (27  (33.9)% 

Our impairment loss on other receivables decreased by 33.9%, or Won 27 billion, from Won 80 billion in 2019 to Won 53 billion in 2020 primarily due to a reversal of impairment loss of POSCO E&C in 2020 resulting from its collection of previously impaired receivables, compared to no such reversal in 2019.

The following table presents a breakdown of our other operating income and changes therein for 2019 and 2020.

       Changes 
   For the Year Ended December 31,   2019 versus 2020 
   2019   2020       Amount          %     
   (In billions of Won) 

Gain on disposal of assets held for sale

  37   1       (37)   (97.8)% 

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

   28    89    61   219.1 

Gain on disposal of property, plant and equipment

   49    16    (34  (68.5

Gain on disposal of intangible assets

   2    1    (1  (57.0

Gain on valuation of firm commitment

   60    108    47   78.6 

Gain on valuation of emission rights

   25        (25  (100.0

Gain on disposal of emission rights

   11    25    14   123.1 

Reversal of other provisions

   37    5    (31  (85.9

Premium income

   3    25    22   659.3 

Others

   198    134    (64  (32.5
  

 

 

   

 

 

    

Total other operating income

      451       402    (49  (10.8
  

 

 

   

 

 

    

Our other operating income decreased by 10.8%, or Won 49 billion, from Won 451 billion in 2019 to Won 402 billion in 2020, primarily due to our recognition of a refund of value added tax related to imported LNG in 2019, compared to no such refund in 2020, as well as decreases in gain on disposal of assets held for sale, gain on disposal of property, plant and equipment and reversal of other provisions, the impact of which was partially offset by an increase in gain on disposal of investments in subsidiaries, associates and joint ventures.

In 2019, we recognized a refund of Won 74 billion of value added tax related to imported LNG (which is included in “others”), compared to no such refund in 2020.

Our gain on disposal of assets held for sale decreased by 97.8%, or Won 37 billion, from Won 37 billion in 2019 to Won 1 billion in 2020. In 2019, we recognized gain from our disposal of FINEX plant no. 1, compared to no such gain in 2020.

Our gain on disposal of property, plant and equipment decreased by 68.5%, or Won 34 billion, from Won 49 billion in 2019 to Won 16 billion in 2020 primarily due to gains from the disposal of equipment of FINEX plant no. 1 in 2019, compared to no such gain in 2020.

Our reversal of other provisions decreased by 85.9%, or Won 31 billion, from Won 37 billion in 2019 to Won 5 billion in 2020 primarily due to a reversal of other provisions relating to a lawsuit involving POSCO E&C in 2019, compared to no such reversal in 2020.

Our gain on disposal of investments in subsidiaries, associates and joint ventures increased by 219.1%, or Won 61 billion, from Won 28 billion in 2019 to Won 89 billion in 2020. In 2019, we recognized gain on disposal of investments in subsidiaries, associates and joint ventures primarily related to our disposal of POSPOWER Co., Ltd. In 2020, such gain primarily related to our disposal of investments in Incheon-Gimpo Expressway Co. Ltd.

The following table presents a breakdown of our other operating expenses and changes therein for 2019 and 2020.

       Changes 
   For the Year Ended December 31,   2019 versus 2020 
   2019   2020   Amount  % 
   (In billions of Won) 

Impairment loss on assets held for sale

  38   5   (33  (86.9)% 

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

   7    15    8   123.8 

Loss on disposals of property, plant and equipment

   120    142    22   18.2 

Impairment loss on property, plant and equipment

   443    27    (416  (93.9

Impairment loss on investment property

   33        (33  (100.0

Impairment loss on intangible assets

   191    198    7   3.5 

Loss on valuation of firm commitment

   38    93    55   147.0 

Idle tangible asset expenses

   34    19    (15  (43.6

Increase to provisions

   23    31    7   32.3 

Donations

   52    46    (6  (11.5

Others

   112    70    (42  (37.2
  

 

 

   

 

 

    

Total other operating expenses

      1,090       646    (444  (40.8
  

 

 

   

 

 

    

Our other operating expenses decreased by 40.8%, or Won 444 billion, from Won 1,090 billion in the 2019 to Won 646 billion in 2020, primarily due to a decrease in impairment loss on property, plant and equipment, which was partially offset by an increase in loss on valuation of firm commitment. Such factors were principally attributable to the following:

Our impairment loss on property, plant and equipment decreased by 93.9%, or Won 416 billion, from Won 443 billion in 2019 to Won 27 billion in 2020. In 2019, we recognized impairment loss of Won 205 billion incurred by POSCO 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. In 2020, we recognized impairment loss of Won 17 billion related to a fire at a stainless steel production facility at Pohang Works.

Our loss on valuation of firm commitment increased by 147.0%, or Won 55 billion, from Won 38 billion in 2019 to Won 93 billion in 2020 primarily due to an increase in loss on valuation of derivatives relating to POSCO International.

We also recognized impairment loss on intangible assets of Won 191 billion in 2019 and Won 198 billion in 2020 that primarily related to POSCO International. In 2019, we recognized write-offs of intangible assets of Won 118 billion related to the termination of the Block AD-7 exploration project in Myanmar by POSCO International. In 2020, we recognized impairment loss on goodwill of Won 189 billion related to the recoverable amount of POSCO International, which are determined based on its value in use.

Operating Profit

Due to the factors described above, our operating profit decreased by 36.3%, or Won 1,168 billion, from Won 3,223 billion in 2019 to Won 2,054 billion in 2020. Our operating margin decreased from 5.0% in 2019 to 3.6% in 2020.

Share of Profit of Equity-Accounted Investees

Our share of profit of equity-accounted investees decreased by 51.3%, or Won 140 billion, from Won 274 billion in 2019 to Won 133 billion in 2020.

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., the impact of which was partially offset by our share of loss of Won 58 billion of CSP – Compania Siderurgica do Pecem. See Note 11 to the Consolidated Financial Statements.

In 2020, we recognized a net gain for our proportionate share of equity-accounted investees of Won 133 billion primarily due to our share of gains of Won 235 billion of Roy Hill Holdings Pty Ltd., Won 46 billion of South-East Asia Gas Pipeline Company Ltd. and Won 37 billion of AES-VCM Mong Duong Power Company Limited, the impact of which was partially offset by our share of loss of Won 61 billion of CSP – Compania Siderurgica do Pecem and Won 40 billion of Eureka Loly LLC. See Note 11 to the Consolidated Financial Statements.

Finance Income and Finance Costs

The following table presents a breakdown of our finance income and costs and changes therein for 2019 and 2020.

       Changes 
   For the Year Ended December 31,   2019 versus 2020 
   2019   2020   Amount  % 
   (In billions of Won) 

Interest income

  352   372   20   5.6

Dividend income

   75    38    (37  (49.2

Gain on foreign currency transactions

   825    1,148    323   39.2 

Gain on foreign currency translations

   206    574    368   178.8 

Gain on derivatives transactions

   196    352    156   79.7 

Gain on valuations of derivatives

   163    116    (48  (29.3

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

   9    16    7   82.4 

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

   42    52    9   21.9 

Others

   3    10    7   189.1 
  

 

 

   

 

 

    

Total finance income

      1,872       2,677    805   43.0 
  

 

 

   

 

 

    

Interest expenses

  756   639    (117  (15.5

Loss on foreign currency transactions

   747    1,068    321   43.0 

Loss on foreign currency translations

   319    425    106   33.2 

Loss on derivatives transactions

   228    410    182   79.7 

Loss on valuations of derivatives

   47    230    182   383.7 

Loss on disposal of trade accounts and notes receivable

   37    16    (21  (57.2

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

   3    6    3   87.6 

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

   66    67    2   2.5 

Others

   39    32    (7  (18.2
  

 

 

   

 

 

    

Total finance costs

  2,242   2,892    650   29.0 
  

 

 

   

 

 

    

Our interest expense decreased by 15.5%, or Won 117 billion, from Won 756 billion in 2019 to Won 639 billion in 2020 primarily due to a general decrease in interest rates in Korea and abroad.

Our interest income increased by 5.6%, or Won 20 billion, from Won 352 billion in 2019 to Won 372 billion in 2020 primarily due to an increase in the average balance of interest-earning financial assets in 2020, which was partially offset by a general decrease in interest rates in Korea and abroad in 2020.

We recognized net loss on foreign currency translations of Won 113 billion in 2019 compared to a net gain on foreign currency translations of Won 149 billion in 2020 and our net gain on foreign

currency transactions increased by 2.3%, or Won 2 billion, from Won 78 billion in 2019 to Won 80 billion in 2020, as the Won depreciated against the Dollar in 2019 but appreciated in 2020. In terms of the market average exchange rates announced by Seoul Money Brokerage Services, Ltd., the Won depreciated from Won 1,118.1 to US$1.00 as of December 31, 2018 to Won 1,157.8 to US$1.00 as of December 31, 2019, but appreciated to Won 1,088.0 to US$1.00 as of December 31, 2020. Against such fluctuations, we recognized a net gain on valuations of derivatives of Won 116 billion in 2019 compared to a net loss on valuations of derivatives of Won 114 billion in 2020, and our net loss on transactions of derivatives increased by 80.1%, or Won 26 billion, from Won 32 billion in 2019 to Won 58 billion in 2020.

Our dividend income decreased by 49.2%, or Won 37 billion, from Won 75 billion in 2019 to Won 38 billion in 2020 primarily due to a decrease in profitability of some of our equity-accounted investees that pay dividends.

Profit before Income Taxes

Due to the factors described above, our profit before income taxes decreased by 36.9%, or Won 1,154 billion, from Won 3,127 billion in 2019 to Won 1,973 billion in 2020.

The following table presents our profit and loss by segment, prior to adjusting for goodwill and corporate fair value adjustments, elimination of inter-segment profits, income tax expense and basis difference, and changes therein for 2019 and 2020.

      Changes 
   For the Year Ended December 31,  2019 versus 2020 
           2019                  2020              Amount      % 
   (In billions of Won) 

Steel Segment

  586  712  126   21.5

Trading Segment

   165   157   (8  (5.0

Construction Segment

   28   150   122   439.9 

Others Segment

   545   294   (251  (46.1

Goodwill and corporate fair value adjustments

   (80  (75  6   (6.9

Elimination of inter-segment profits

   739   550   (189  (25.5

Income tax expense

   1,071   237   (834  (77.9

Basis difference adjustments (1)

   73   (52  (126  N.A. (2) 
  

 

 

  

 

 

   

Profit before income taxes

      3,127      1,973   (1,154  (36.9
  

 

 

  

 

 

   

(1)

Basis difference adjustments are related to the difference in recognizing revenue and expenses of the Construction Segment in connection with the 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 to the Consolidated Financial Statements.

(2)

N.A. means not available.

Income Tax Expense

Our income tax expense decreased by 79.4%, or Won 864 billion, from Won 1,088 billion in 2019 to Won 224 billion in 2020, primarily reflecting a decrease in profit before income tax described above. Our effective tax rate decreased from 34.8% in 2019 to 11.4% in 2020. In 2019, our effective tax rate was higher than the statutory rate primarily due to the effect of deductible temporary difference in our investments in subsidiaries, associates and joint ventures, for which no deferred tax assets were recognized. In 2020, our effective tax rate was lower than the statutory rate primarily due to income tax benefit from changes in our estimation on deductibility of temporary difference related to synthetic natural gas facilities and business combination of off-gas power station business. See Note 35 to the Consolidated Financial Statements.

Profit

Due to the factors described above, our profit decreased by 14.2%, or Won 290 billion, from Won 2,038 billion in 2019 to Won 1,748 billion in 2020.

Operating Results – 2018 Compared to 2019

The following table presents our statement of comprehensive income information and changes therein for 2018 and 2019.

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

Revenue

      65,155       64,786  (369  (0.6)% 

Cost of sales

   57,129    58,462   1,333   2.3 
  

 

 

   

 

 

   

Gross profit

   8,026    6,324   (1,702  (21.2

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

   369    368   (1  (0.3

Other operating income and expenses:

      

Impairment loss on other receivables

   63    80   17   27.3 

Other operating income

   524    451   (73  (13.9

Other operating expenses

   2,014    1,090   (924  (45.9
  

 

 

   

 

 

   

Operating profit

   4,042    3,223   (819  (20.3

Share of profit of equity-accounted investees, net

   113    274   161   143.0 

Finance income

   1,706    1,872   166   9.7 

Finance costs

   2,244    2,242   (2  (0.1
  

 

 

   

 

 

   

Profit before income tax

   3,616    3,127   (489  (13.5

Income tax expense

   1,684    1,088   (595  (35.4
  

 

 

   

 

 

   

Profit

   1,932    2,038   106   5.5 

Profit for the period attributable to owners of the controlling company

   1,712    1,864   152   8.9 

Profit for the period attributable to non-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 2018 and 2019.

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

Steel Segment:

     

External revenue

  32,358  32,078  (280  (0.9)% 

Internal revenue

   18,063   17,730   (333  (1.8
  

 

 

  

 

 

   

Total revenue from Steel Segment

   50,421   49,808   (613  (1.2
  

 

 

  

 

 

   

Trading Segment:

     

External revenue

   22,408   22,157   (251  (1.1

Internal revenue

   15,911   15,468   (443  (2.8
  

 

 

  

 

 

   

Total revenue from Trading Segment

   38,319   37,625   (694  (1.8
  

 

 

  

 

 

   

Construction Segment:

     

External revenue

   6,769   6,945   175   2.6 

Internal revenue

   551   743   192   34.8 
  

 

 

  

 

 

   

Total revenue from Construction Segment

   7,321   7,688   367   5.0 
  

 

 

  

 

 

   

Others Segment:

     

External revenue

   3,443   3,187   (256  (7.4

Internal revenue

   2,755   2,796   41   1.5 
  

 

 

  

 

 

   

Total revenue from Others Segment

   6,198   5,983   (215  (3.5
  

 

 

  

 

 

   

Total revenue prior to consolidation adjustments

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

 

 

  

 

 

   

Consolidation adjustments

   (37,281  (36,737  543   (1.5

Basis difference adjustments (1)

   177   419   242   136.8 
  

 

 

  

 

 

   

Revenue

  65,155  64,786   (369  (0.6
  

 

 

  

 

 

   

 

 

(1)

Basis difference adjustments 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 the Consolidated Financial Statements.

(2)

N.A. means not applicable.

Our revenue increaseddecreased by 8.3%0.6%, or Won 4,968369 billion, from Won 60,187 billion in 2017 to Won 65,155 billion in 2018 to Won 64,786 billion in 2019 due to increasesdecreases in external revenues from the Steel Segment, the TradingOthers Segment and the OthersTrading Segment, which were offset in part by a decreasean increase 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, and basis difference adjustments, increaseddecreased by 7.0%0.9%, or Won 2,128280 billion, from Won 30,230 billion in 2017 to Won 32,358 billion in 2018 to Won 32,078 billion in 2019 primarily due to an increasea 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), as well aswhich was partially offset by 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 increaseddecreased by 4.4%3.2% from 30.0 million tons in 2017 to 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 3.3%2.3% from Won 903,897 per ton in 2017 to Won 933,990 per ton in 2018.2018 to Won 955,209 per ton in 2019. Such factors were principally attributable to the following:

 

The sales volume of each of our major product categories, other than wire rodsplates and stainless steel products, increaseddecreased from 20172018 to 2018.2019. The sales volume of cold rolled products, silicon steel sheets, wire rods and hot rolled products silicon steel products and plates 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.

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 other hand, theunit sales volumeprices in Won of wire rodscold rolled products, plates and stainless steel products produced by us and directly sold to external customers decreased by 4.6% and 0.8%, respectively, from 2017 to 2018. For a discussionincreased, while the unit sales prices in Won of changes in sales volume of eachthe remainder of our principal product lines see “Item 4.B. Business Overview — Major Products.”

of steel products decreased. 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, hotcold rolled products, wire rods, cold rolled productsplates and stainless steel products produced by us and directly sold to external customers increased by 14.8%4.4%, 5.2%, 4.9%, 2.8%4.2% and 0.8%, respectively, from 20172018 to 2018.2019. On the other hand, the unit sales priceprices in Won of hot rolled products, wire rods and silicon steel productssheets produced by us and directly sold to external customers decreased by 2.9%3.4%, 1.2% and 0.3% from 20172018 to 2018.2019. 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 5.9%1.2%, or Won 2,810613 billion, from Won 47,611 billion in 2017 to Won 50,421 billion in 2018 to Won 49,808 billion in 2019 as internal revenue frominter-company transactions increaseddecreased by 3.9%1.8%, or Won 682333 billion, from Won 17,381 billion in 2017 to Won 18,063 billion in 2018.2018 to Won 17,730 billion in 2019 primarily due to a decrease in our steel sales activities through trading subsidiaries, particularly POSCO International.

Trading Segment.External revenue from the Trading Segment, which does not include internal revenue frominter-company transactions that are eliminated during consolidation, decreased by 1.1%, or Won 251 billion, from Won 22,408 billion in 2018 to Won 22,157 billion in 2019 primarily due to decreases in POSCO International’s export trading sales of automobiles and machinery parts as well as steel and metal products, which was offset in part by an increase in revenue from the natural resources development activities of POSCO International.

Total revenue from the Trading Segment, which includes internal revenue from inter-company transactions, decreased by 1.8%, or Won 694 billion, from Won 38,319 billion in 2018 to Won 37,625 billion in 2019 as internal revenue from inter-company transactions decreased by 2.8%, or Won 443 billion, from Won 15,911 billion in 2018 to Won 15,468 billion in 2019 primarily due to a decrease in our steel sales activities through trading subsidiaries.

Construction Segment.External revenue from the Construction Segment, which does not include internal revenue from inter-company transactions that are eliminated during consolidation and basis difference adjustments, increased by 7.7%2.6%, or Won 1,606175 billion, from Won 20,8026,769 billion in 20172018 to Won 22,4086,945 billion in 20182019 primarily due to an increase in third-country trades by POSCO International and our other trading subsidiaries from 2017 to 2018, reflecting an increase in trading of agricultural products and steel slabs, as well as the recognition of the 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.

Totalexternal revenue from the Trading Segment, which includes internal revenue frominter-company transactions, increased by 9.9%, or Won 3,441 billion, from Won 34,878 billionconstruction projects in 2017 to Won 38,319 billion in 2018 as internal revenue frominter-company transactions increased by 13.0%, or Won 1,835 billion, from Won 14,076 billion in 2017 to Won 15,911 billion in 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 1.7%, or Won 117 billion, from Won 6,887 billion in 2017 to Won 6,769 billion in 2018 primarily due to a decrease in POSCO E&C’s construction activities in Brazil following the completion of construction ofCSP-Companhia Siderurgia do Pecem steel plant complex in 2017.Korea.

Total revenue from the Construction Segment, which includes internal revenue frominter-company transactions, increased by 0.5%5.0%, or Won 35367 billion, from Won 7,286 billion in 2017 to Won 7,321 billion in 2018 to Won 7,688 billion in 2019 as internal revenue frominter-company transactions increased by 38.2%34.8%, or Won 152192 billion, from Won 399 billion in 2017 to Won 551 billion in 2018.2018 to Won 743 billion in 2019. Such increase in internal revenue reflected an increase in the amount of construction activities for member companies of the POSCO Group in 20182019 compared to 2017, which was partially offset by a decrease in external revenue as discussed above.2018.

Others Segment. The Others Segment primarily includes power generation, LNG logistics, manufacturing of various industrial materials 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, increaseddecreased by 25.8%7.4%, or Won 707256 billion, from Won 2,736 billion in 2017 to Won 3,443 billion in 2018 to Won 3,187 billion in 2019, primarily due to increasesdecreases in revenue of POSCO Energy Corporation and revenue from information technology services, which were offset in part by an increase in revenue of POSCO Chemical Co., Ltd. from an increase in sales volume of anode and cathode materials.

Total revenue from the Others Segment, which includes internal revenue frominter-company transactions, increaseddecreased by 17.3%3.5%, or Won 913215 billion, from Won 5,285 billion in 2017 to Won 6,198 billion in 2018 to Won 5,983 billion in 2019 as external revenue decreased as discussed above. Such decrease was partially offset by an increase in internal revenue frominter-company transactions increased by 8.1%1.5%, or Won 20741 billion, from Won 2,549 billion in 2017 to Won 2,755 billion in 2018. Such increase2018 to Won 2,796 billion in 2019 primarily reflecteddue to an increase ininter-company sales of coal cokingby-products fromrelated to POSCO ChemicalICT Co., Ltd. to POSCO.

Cost of Sales

Our cost of sales increased by 10.0%, or Won 5,213 billion, from Won 51,916 billion in 2017 to Won 57,129 billion in 2018. 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 as 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 we recognized Won 1,230 billion as cost of sales and Won 185 billion as selling expenses.

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 20172018 and 2018.2019.

 

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

Steel Segment

  41,479  44,377  2,898   7.0

Trading Segment

   33,388   37,202   3,814   11.4 

Construction Segment

   6,598   6,651   53   0.8 

Others Segment

   4,636   5,603   967   20.9 

Consolidation adjustments

   (33,802  (36,828  (3,026  9.0 

Basis difference adjustments(1)

   (383  124   507   N.A. (2) 
  

 

 

  

 

 

   

Cost of sales

      51,916      57,129      5,213   10.0
  

 

 

  

 

 

   

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

Steel Segment

   44,377   45,642      1,265   2.9

Trading Segment

   37,202   36,330   (872  (2.3

Construction Segment

   6,651   7,155   504   7.6 

Others Segment

   5,603   5,324   (279  (5.0

Consolidation adjustments

   (36,828  (36,334  494   (1.3

Basis difference adjustments (1)

   124   346   222   179.5 
  

 

 

  

 

 

   

Cost of sales

      57,129      58,462   1,333   2.3 
  

 

 

  

 

 

   

 

 

(1)

Basis difference adjustments 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 the 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:

(2)

N.A. means not applicable.

Steel Segment.The cost of sales of our Steel Segment, prior to consolidation, and basis difference adjustments, increased by 7.0%2.9%, or Won 2,8981,265 billion, from Won 41,479 billion in 2017 to Won 44,377 billion in 2018 to Won 45,642 billion in 2019 primarily due to increasesan increase in the average prices in Won terms of certain raw materials used to manufacture our steel products, which was 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 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.customers.

Trading Segment.The cost of sales of our Trading Segment, prior to consolidation, and basis difference adjustments, increaseddecreased by 11.4%2.3%, or Won 3,814872 billion, from Won 33,388 billion in 2017 to Won 37,202 billion in 2018 to Won 36,330 billion in 2019 primarily due to decreases in export and domestic trading activities of POSCO International, which were offset in part by an increase in the volume of export and import products sold, as well as our classification of Won 307 billion of freight and custody expenses of the Trading Segment as cost of sales (instead of selling expenses) following our adoption of IFRS 15 starting in 2018.its natural resources development activities.

Construction Segment.The cost of sales of our Construction Segment, prior to consolidation and basis difference adjustments, increased by 0.8%7.6%, or Won 53504 billion, from Won 6,598 billion in 2017 to Won 6,651 billion in 2018 to Won 7,155 billion in line with an increase2019, reflecting the progress of large-scale construction projects in the amount of construction activities described above.Korea.

Others Segment.The cost of sales of our Others Segment, prior to consolidation, and basis difference adjustments, increaseddecreased by 20.9%5.0%, or Won 967279 billion, from Won 4,636 billion in 2017 to Won 5,603 billion in 2018 to Won 5,324 billion in 2019 primarily due to increasesa decrease in the average price in Won termscost of key raw materials used bysales of POSCO Energy Corporation.

Gross Profit

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.

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 20172018 and 2018.2019.

 

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

Steel Segment

  6,132  6,044  (88)   (1.4)%   6,044  4,166  (1,878)   (31.1)% 

Trading Segment

   1,490   1,117   (374  (25.1   1,117   1,295           178   16.0 

Construction Segment

   688   669   (18  (2.6   669   533   (136  (20.4

Others Segment

   649   595   (54  (8.3   595   659   64   10.7 

Consolidation adjustments

   (603  (453  150   (24.8   (453  (403  50   (11.1

Basis difference adjustments(1)

   (85  53       138   N.A. (2)    53   73   20   37.7 
  

 

  

 

     

 

  

 

   

Gross profit

      8,271      8,026  (246  (3.0      8,026      6,324   (1,702  (21.2
  

 

  

 

     

 

  

 

   

 

 

(1)

Basis difference adjustments 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. The gross profit of our Steel Segment, prior to consolidation and basis difference adjustments, decreased by 1.4%, or Won 88 billion, from Won 6,132 billion in 2017 to Won 6,044 billion in 2018 primarily due to 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, which was largely offset by the impact from our external revenue from the Steel Segment increasing at a greater rate than its cost of sales (excluding freight and custody expenses), prior to consolidation and basis difference adjustments, as discussed above. Due 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, decreased from 12.9% in 2017 to 12.0% in 2018.

Trading Segment. The gross profit of our Trading Segment, prior to consolidation and basis difference adjustments, decreased by 25.1%, or Won 374 billion, from Won 1,490 billion in 2017 to Won 1,117 billion in 2018 primarily due to a decrease in trading margins resulting from our classification of Won 307 billion of freight and custody expenses of the 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 4.3% in 2017 to 2.9% in 2018.

Construction Segment. The gross profit of our Construction Segment, prior to consolidation and basis difference adjustments, decreased by 2.6%, or Won 18 billion, from Won 688 billion in 2017 to Won 669 billion in 2018 primarily due to a decrease in POSCO E&C’s construction activities overseas as well as a decrease in its participation of construction projects with higher margins in 2018.The gross margin of our Construction Segment, prior to consolidation and basis difference adjustments, decreased from 9.4% in 2017 to 9.1% in 2018.

Others Segment.The gross profit of our Others Segment, prior to consolidation and basis difference adjustments, decreased by 8.3%, or Won 54 billion, from Won 649 billion in 2017 to Won 595 billion in 2018 primarily due to a decrease in gross profit of POSCO Energy Corporation.The gross margin of our Others Segment, prior to consolidation and basis difference adjustments, decreased from 12.3% in 2017 to 9.6% in 2018.

Selling and Administrative Expenses

The following table presents a breakdown of our selling and administrative expenses 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 trade accounts and notes receivable

  174   75   (99)   (56.9)% 

Freight and custody expenses

  1,337   185   (1,152  (86.2)% 

Sales commissions

   116    79    (37  (31.8

Sales promotion

   12    14    1   11.1 

Sales insurance premium

   37    37    1   1.9 

Contract cost

   23    17    (6  (26.3

Others

   32    37    5   15.7 
  

 

 

   

 

 

    

Total selling expenses

  1,557   369    (1,188  (76.3
  

 

 

   

 

 

    

Wages and salaries

  775   813           39   5.0

Expenses related topost-employment benefits

   79    73    (5  (6.8

Other employee benefits

   160    176    16   10.2 

Depreciation

   97    101    4   4.1 

Amortization

   146    112    (34  (23.2

Taxes and public dues

   73    72    (1  (9.6

Rental

   70    70    (0  (0.7

Advertising

   120    107    (13  (10.7

Research and development

   126    108    (17  (13.9

Service fees

   193    166    (27  (14.2

Others

   164    186    22   13.4 
  

 

 

   

 

 

    

Total other administrative expenses

  2,003   1,986    (17  (0.9
  

 

 

   

 

 

    

Total selling and administrative expenses

      3,734       2,430    (1,304  (34.9
  

 

 

   

 

 

    

Our selling and administrative expenses decreased by 34.9%, or Won 1,304 billion, from Won 3,734 billion in 2017 to Won 2,430 billion in 2018 primarily due to our classification of a substantial majority of our freight and custody expenses as 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 notes receivable, sales commissions, amortization expenses and service fees, which were partially offset by an increase in wages and salaries. Such factors were principally attributable to the following:

Our freight and custody expenses decreased by 86.2%, or Won 1,152 billion, from Won 1,337 billion in 2017 to Won 185 billion in 2018 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 impairment 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 2017 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 information technology infrastructure.

Our wages and salaries increased by 5.0%, or Won 39 billion, From Won 775 billion in 2017 to Won 813 billion in 2018 primarily due to an increase in 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 2017 and 2018.

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

Gain on disposal of assets held for sale

  1   27   26   2,202.6

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

   82    45    (37  (44.7

Gain on disposal of property, plant and equipment

   32    53    21   65.3 

Gain on disposal of intangible assets

   23    117    94   400.8 

Gain on valuation of firm commitment

   56    39    (17  (30.7

Gain on insurance proceeds

   6    14    8   138.8 

Others

   248    228    (20  (8.1
  

 

 

   

 

 

    

Total other operating income

  448   524    75   16.7 
  

 

 

   

 

 

    

Our other operating income increased by 16.7%, or Won 75 billion, from Won 448 billion in 2017 to Won 524 billion in 2018 primarily due to increases 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 increased significantly, by Won 26 billion, from Won 1 billion in 2017 to Won 27 billion in 2018 primarily due to the disposal of assets of POSPower Co., Ltd. in 2018, compared to no such gain from our disposal of assets held for sale in 2017.

Our gain on disposal of property, 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 sales of corporate housing units to employees.

Our gain on disposal of investments in subsidiaries, associates and joint ventures decreased by 44.7%, or Won 37 billion, from Won 82 billion in 2017 to Won 45 billion in 2018 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 2017 and 2018.

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

Impairment losses on assets held for sale

      51    51   N.A. (1)

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

   20    5    (15  (73.9

Loss on disposal of property, plant and equipment

   151    118    (34  (22.3

Impairment losses on property, plant and equipment

   117    1,005    887   757.0 

Loss on disposals of investment property

   2    9    7   365.6 

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

   10    9    (1  (11.8

Others

   94    176    82   87.3 
  

 

 

   

 

 

    

Total other operating expenses

      691       2,014    1,323   191.4 
  

 

 

   

 

 

    

(1)

N.A. means not applicable.

Our other operating expenses increased by 191.4%, or Won 1,323 billion, from Won 691 billion in 2017 to Won 2,014 billion in 2018 primarily due to increases in impairment losses on property, plant and equipment, impairment losses on intangible assets and increase to provisions, which were partially offset by a decrease in loss on disposal of property, plant and equipment. Such factors were principally attributable to the following:

Our impairment losses on property, plant and equipment increased significantly, by Won 887 billion, from Won 117 billion in 2017 to Won 1,005 billion in 2018. 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. In 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 impairment losses on intangible assets increased significantly, by Won 170 billion, from Won 168 billion in 2017 to Won 338 billion in 2018. In 2017, our impairment losses on intangible 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 158 billion incurred by POSCO International and Won 66 billion incurred by POSCO E&C in connection with a decrease in value-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.

Our increase 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 decreased by 22.3%, or Won 34 billion, from Won 151 billion in 2017 to Won 118 billion in 2018. In 2017, our loss on disposal of property, plant and equipment related primarily to our blast furnace upgrading

project at Pohang Works. In 2018, our loss on disposal of property, plant and equipment related primarily to rationalization of the LNG plants at Gwangyang Works.

Operating Profit

Due to the factors described above, our operating profit decreased by 3.7%, or Won 154 billion, from Won 4,196 billion in 2017 to Won 4,042 billion in 2018. Our operating margin decreased from 7.0% in 2017 to 6.2% in 2018.

Share of Profit (Loss) ofEquity-Accounted Investees

Our share of profit of equity-accounted investees increased significantly, by Won 102 billion, from Won 11 billion in 2017 to Won 113 billion in 2018. In 2017, we recognized a net gain for our proportionate share ofequity-accounted investees of Won 11 billion primarily due to our share of gains of KOBRASCO (Won 56 billion), Roy Hill Holdings Pty Ltd. (Won 46 billion), South-East Asia Gas Pipeline Company Ltd. (Won 43 billion) and POSCO Mitsubishi Carbon Technology Ltd. (Won 28 billion), which were partially offset by our share of loss ofCSP-Compania Siderurgica do Pecem (Won 148 billion). In 2018, we recognized a net gain for our proportionate share ofequity-accounted investees of Won 113 billion primarily due to our share of gains of KOBRASCO (Won 75 billion), POSCO Mitsubishi Carbon Technology Ltd. (Won 70 billion), Roy Hill Holdings Pty Ltd. (Won 59 billion) andAES-VCM Mong Duong Power Company Limited (Won 30 billion), which were partially offset by our share of loss ofCSP-Compania Siderurgica do Pecem (Won 110 billion). See Note 11 of Notes to Consolidated Financial Statements.

Finance Income and Finance Costs

The following table presents a breakdown of our finance income and costs and changes therein for 2017 and 2018.

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

Interest income

  212   337   125   58.7

Dividend income

   93    63    (30  (31.9

Gain on foreign currency transactions

   786    716    (70  (8.9

Gain on foreign currency translations

   564    212    (352  (62.3

Gain on derivatives transactions

   211    248    37   17.5 

Gain on valuation of derivatives

   65    97    32   49.8 

Gain on disposals ofavailable-for-sale financial assets

   426        (426  (100.0

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

       16    16   N.A. (1) 

Others

   16    16    (0  (1.6
  

 

 

   

 

 

    

Total finance income

  2,373   1,706    (667  (28.1
  

 

 

   

 

 

    

Interest expenses

  653   741    88   13.5

Loss on foreign currency transactions

   757    811    54   7.2 

Loss on foreign currency translations

   423    322    (101  (23.9

Loss on derivatives transactions

   236    209    (28  (11.6

Loss on valuation of derivatives

   226    41    (186  (82.0

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

   66    62    (4  (6.1
  

 

 

   

 

 

    

Total finance costs

  2,484   2,244    (240  (9.7
  

 

 

   

 

 

    

(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 of Won 109 billion in 2018, and we recorded a net gain on foreign currency transactions of Won 29 billion in 2017 compared to a net loss on foreign currency transactions of Won 95 billion in 2018, as the Won appreciated against the Dollar in 2017 but depreciated in 2018. In terms of the market average exchange rates announced by Seoul Money Brokerage Services, Ltd., the Won appreciated from Won 1,208.5 to US$1.00 as of December 31, 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 loss on valuations of derivatives of Won 162 billion in 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 39 billion in 2018.

We recognized a gain on disposals ofavailable-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 58.7%, or Won 125 billion, from Won 212 billion in 2017 to Won 337 billion in 2018 primarily due to an increase in interest-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 Congonhas Minèrios S.A. below cost, compared to no such impairment loss in 2018.

Profit before Income Taxes

Due to the factors described above, our profit before income taxes decreased by 11.7%, or Won 479 billion, from Won 4,095 billion in 2017 to Won 3,616 billion in 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 2017 and 2018.

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

Steel Segment

          2,791          1,268  (1,523  (54.6)% 

Trading Segment

   113   49   (63  (56.3

Construction Segment

   25   0   (24  (99.0

Others Segment

   233   14   (219  (94.2

Goodwill and corporate fair value adjustments

   (84  (78  7   (7.8

Elimination ofinter-segment profits

   (103  638   741   N.A. (1) 

Income tax expense

   1,206   1,671   465   38.5 

Basis difference adjustments(2)

   (85  53   137   N.A. (1) 
  

 

 

  

 

 

   

Profit before income taxes

  4,095  3,616   (479  (11.7
  

 

 

  

 

 

   

(1)

N.A. means not applicable.

(2)

Basis difference adjustments 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 the 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.

Steel Segment. The gross profit of our Steel Segment, prior to consolidation, decreased by 31.1%, or Won 1,878 billion, from Won 6,044 billion in 2018 to Won 4,166 billion in 2019 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 during 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 2018 and US$93 in 2019. The gross margin of our Steel Segment decreased from 12.0% in 2018 to 8.4% in 2019.

Trading Segment. The gross profit of our Trading Segment, prior to consolidation, increased by 16.0%, or Won 178 billion, from Won 1,117 billion in 2018 to Won 1,295 billion in 2019 primarily due to an increase in gross profit from POSCO International’s natural resources development activities. The gross margin of our Trading Segment increased from 2.9% in 2018 to 3.4% in 2019.

Construction Segment. The gross profit of our Construction Segment, prior to consolidation and basis difference adjustments, decreased by 20.4%, or Won 136 billion, from Won 669 billion in 2018 to Won 533 billion in 2019 primarily reflecting 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 6.9% in 2019.

Others Segment. The gross profit of our Others Segment, prior to consolidation, increased by 10.7%, or Won 64 billion, from Won 595 billion in 2018 to Won 659 billion in 2019 primarily due to an increase in the gross profit of POSCO Chemical Co., Ltd. The gross margin of our Others Segment improved from 9.6% in 2018 to 11.0% in 2019.

Income Tax ExpenseSelling and Administrative Expenses

Our income tax expense increased by 42.0%, or Won 498 billion, from Won 1,186 billion in 2017 to Won 1,684 billion in 2018. Our effective tax rate increased from 29.0% in 2017 to 46.6% in 2018 primarily due to the following:

an increase in income tax expenses from Won 28 billion in 2017 to Won 272 billion in 2018 (that resulted in an increase in effective tax rate of 6.8%) in connection withnon-deductible impairment losses on property, plant and equipment we recognized on our synthetic natural gas production facility in Gwangyang in 2018.

a tax effect of Won 130 billion in 2018 in connection 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 3.6%) compared to no such effect in 2017.

See Note 35 of Notes to Consolidated Financial Statements.

Profit

Due to the factors described above, our profit decreased by 33.6%, or Won 977 billion, from Won 2,909 billion in 2017 to Won 1,932 billion in 2018.

Operating Results — 2016 Compared to 2017

The following table presents a breakdown of our statement of comprehensive income informationselling and administrative 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) 

Revenue

  52,940  60,187   7,247   13.7

Cost of sales

   46,271   51,916    5,645   12.2 
  

 

 

  

 

 

    

Gross profit

   6,668   8,271    1,603   24.0 

Administrative expenses

   2,292   2,177    (115  (5.0

Selling expenses

   1,554   1,557    3   0.2 

Other operating income

   215   451    236   109.7 

Other operating expenses

   756   792    36   4.8 
  

 

 

  

 

 

    

Operating profit

   2,282   4,196    1,914   83.8 

Share of gain (loss) ofequity-accounted investees

   (89  11    100   N.A. (1) 

Finance income

   2,232   2,373    141   6.3 

Finance costs

   3,014   2,484    (530  (17.6
  

 

 

  

 

 

    

Profit before income tax

   1,412   4,096    2,683   190.1 

Income tax expense

   380   1,186    806   212.4 
  

 

 

  

 

 

    

Profit (loss)

   1,032   2,909    1,877   181.9 

Profit for the period attributable to owners of the controlling company

   1,355   2,756    1,401   103.4 

Loss for the period attributable tonon-controlling interests

   (323  153    476   N.A. (1) 
          Changes 
   For the Year Ended December 31,  2018 versus 2019 
   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) 
  

 

 

   

 

 

   

Freight and custody expenses

  185   180  (4  (2.3)% 

Sales commissions

   79    74   (5  (6.5

Sales promotion

   14    10   (4  (27.6

Sales insurance premium

   37    33   (5  (12.4

Contract cost

   17    38   21   124.1 

Others

   37    33   (4  (11.0
  

 

 

   

 

 

   

Total selling expenses

  369   368   (1  (0.3
  

 

 

   

 

 

   

Wages and salaries

  813   841          27   3.3

Expenses related to post-employment benefits

   73    89   16   21.3 

Other employee benefits

   176    178   2   0.9 

Depreciation

   101    131   30   29.7 

Amortization

   112    112   (0  (0.2

Taxes and public dues

   72    79   7   9.7 

Rental

   70    40   (30  (42.6

Advertising

   107    83   (24  (22.7

Research and development

   108    110   2   1.8 

Service fees

   166    193   28   16.6 

Others

   186    185   (1  (0.7
  

 

 

   

 

 

   

Total other administrative expenses

  1,986   2,041   56   2.8 
  

 

 

   

 

 

   

Total selling and administrative expenses

      2,430       2,381   (48  (2.0
  

 

 

   

 

 

   

 

 

(1)

N.A. means not applicable.

Our selling and administrative expenses decreased by 2.0%, or Won 48 billion, from Won 2,430 billion in 2018 to Won 2,381 billion in 2019, 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 rental and advertising expenses, which were offset in part by increases in depreciation expenses and wages and salaries. Such factors were principally attributable to the following:

We recognized impairment loss on trade accounts and notes receivable of Won 75 billion in 2018 primarily related to impairment loss on trade accounts and notes receivables of POSCO E&C and its subsidiary in Vietnam. However, we recognized reversal of such impairment loss of Won 28 billion in 2019 primarily due to a reversal of impairment loss on trade accounts and notes receivables of POSCO E&C.

Our rental expenses decreased by 42.6%, or Won 30 billion, from Won 70 billion in 2018 to Won 40 billion in 2019 primarily due to the adoption of IFRS No. 16 in 2019 which has impacted rental expenses of POSCO E&C and POSCO International. See Note 3 to the Consolidated Financial Statements.

Our advertising expenses decreased by 22.7%, or Won 24 billion, from Won 107 billion in 2018 to Won 83 billion in 2019 primarily reflecting our advertising activities in 2018 related to our sponsorship of the 2018 PyeongChang Olympic 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 our right-of-use assets. See Note 3 to the Consolidated Financial Statements.

Our wages and salaries increased by 3.3%, or Won 27 billion, from Won 813 billion in 2018 to Won 841 billion in 2019 primarily due to increases in base salaries at our domestic subsidiaries.

RevenueOther Operating Income and Expenses

The following table presents our revenue by segmentimpairment loss on other receivables 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) 

Steel Segment:

     

External revenue

   26,844   30,230   3,386   12.6

Internal revenue

   16,062   17,381   1,319   8.2 
  

 

 

  

 

 

   

Total revenue from Steel Segment

   42,906   47,611   4,705   11.0 
  

 

 

  

 

 

   

Trading Segment:

     

External revenue

   16,774   20,802   4,028   24.0 

Internal revenue

   9,646   14,076   4,430   45.9 
  

 

 

  

 

 

   

Total revenue from Trading Segment

   26,420   34,878   8,458   32.0 
  

 

 

  

 

 

   

Construction Segment:

     

External revenue

   6,768   6,887   119   1.7 

Internal revenue

   714   399   (315  (44.1
  

 

 

  

 

 

   

Total revenue from Construction Segment

   7,482   7,286   (196  (2.6
  

 

 

  

 

 

   

Others Segment:

     

External revenue

   2,697   2,736   39   1.4 

Internal revenue

   2,380   2,549   169   7.1 
  

 

 

  

 

 

   

Total revenue from Others Segment

   5,077   5,285   208   4.1 
  

 

 

  

 

 

   

Total revenue prior to consolidation adjustments and basis difference

   81,885   95,060   13,175   16.1 
  

 

 

  

 

 

   

Consolidation adjustments

   (28,802  (34,405  (5,603  19.5 

Basis difference (1)

   (144  (468  (324  225.7 
  

 

 

  

 

 

   

Revenue

  52,940  60,187   7,247   13.7
  

 

 

  

 

 

   
       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 2018 and 2019.

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

Gain on disposal of assets held for sale

  27   37           10   37.9

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

   45    28    (17  (38.5

Gain on disposal of property, plant and equipment

   53    49    (4  (7.1

Gain on disposal of intangible assets

   117    2    (115  (98.4

Gain on valuation of firm commitment

   39    60    21   54.3 

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

   238    201    (37  (15.6
  

 

 

   

 

 

    

Total other operating income

      524       451    (73  (13.9
  

 

 

   

 

 

    

(1)

N.A. means not applicable.

Our other operating income decreased by 13.9%, or Won 73 billion, from Won 524 billion in 2018 to Won 451 billion in 2019, primarily due to decreases in gain on disposal of intangible assets and the recognition of a tax refund in 2018, which were partially offset by increases in reversal of other provisions and gain on valuation of 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 2018, we recognized a tax refund of Won 55 billion relating to a correction of the results of a tax investigation (which is included in “others”), compared to no such refund in 2019.

Our reversal of other provisions increased by 926.8%, or Won 33 billion, from Won 4 billion in 2018 to Won 37 billion in 2019 primarily due to a reversal of other provisions related to a lawsuit involving POSCO E&C.

We recognized gain on valuation of emission rights of Won 25 billion in 2019 compared to no such gain in 2018.

The following table presents a breakdown of our other operating expenses 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 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 decreased by 45.9%, or Won 924 billion, from Won 2,014 billion in the 2018 to Won 1,090 billion in 2019, primarily due to decreases in impairment loss on property, plant and equipment and impairment loss on intangible assets. Such factors were principally attributable to the following:

Our impairment loss on property, plant and equipment decreased by 55.9%, or Won 562 billion, from Won 1,005 billion in 2018 to Won 443 billion in 2019. In 2018, we recognized impairment loss of Won 810 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 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 in value-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 Block AD-7 exploration project in Myanmar by POSCO International.

Operating Profit

Due to the factors described above, our operating profit decreased by 20.3%, or Won 819 billion, from Won 4,042 billion in 2018 to Won 3,223 billion in 2019. Our operating margin decreased from 6.2% in 2018 to 5.0% in 2019.

Share of Profit of Equity-Accounted Investees

Our share of profit of equity-accounted investees increased by 143.0%, or Won 161 billion, from Won 113 billion in 2018 to Won 274 billion in 2019.

In 2018, we recognized a net gain for our proportionate share of equity-accounted investees of Won 113 billion primarily due to our share of gains of Won 75 billion of KOBRASCO, Won 70 billion of POSCO Mitsubishi Carbon Technology Ltd., Won 59 billion of Roy Hill Holdings Pty Ltd. and Won 30 billion of AES-VCM Mong Duong Power Company Limited, which were partially offset by our share of loss of Won 110 billion of CSP-Compania Siderurgica do 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 Pecem. See Note 11 to the Consolidated Financial Statements.

Finance Income and Finance Costs

The following table presents a breakdown of our finance income and costs and changes therein for 2018 and 2019.

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

Interest income

  337   352   15   4.5

Dividend income

   63    75    12   19.1 

Gain on foreign currency transactions

   716    825    109   15.2 

Gain on foreign currency translations

   212    206    (6  (3.0

Gain on derivatives transactions

   248    196    (52  (20.8

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

   7    3    (4  (53.5
  

 

 

   

 

 

    

Total finance income

      1,706       1,872    166   9.7 
  

 

 

   

 

 

    

Interest expenses

  741   756    14   1.9

Loss on foreign currency transactions

   811    747    (64  (7.9

Loss on foreign currency translations

   322    319    (2  (0.7

Loss on derivatives transactions

   209    228    19   9.3 

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

   20    39    19   92.9 
  

 

 

   

 

 

    

Total finance costs

  2,244   2,242    (2  (0.1
  

 

 

   

 

 

    

We recognized net loss on foreign currency transactions of Won 95 billion in 2018 compared to a net gain on foreign currency transactions of Won 78 billion in 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 2018 and further depreciated in 2019. In terms of the market average exchange rates announced by Seoul Money Brokerage Services, Ltd., the Won depreciated from Won 1,071.4 to US$1.00 as of December 31, 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 gain on valuations of derivatives increased by 106.1%, or Won 60 billion, from Won 56 billion in 2018 to Won 116 billion in 2019, and we recognized a net gain on transactions of derivatives of Won 39 billion in 2018 compared to a net loss on transactions of derivatives of Won 32 billion in 2019.

Profit before Income Taxes

Due to the factors described above, our profit before income taxes decreased by 13.5%, or Won 489 billion, from Won 3,616 billion in 2018 to Won 3,127 billion in 2019.

The following table presents our profit and loss by segment, prior to adjusting for goodwill and corporate fair value adjustments, elimination of inter-segment profits, income tax expense and basis difference, and changes therein for 2018 and 2019.

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

Steel Segment

  1,268  586      (682  (53.8)% 

Trading Segment

   49   165   116   235.6 

Construction Segment

   0   28   28   N.M.(2)  

Others Segment

   14   545   531   3,904.7 

Goodwill and corporate fair value adjustments

   (78  (80  (2  3.2 

Elimination of inter-segment profit or loss

   638   739   100   15.7 

Income tax expense

   1,671   1,071   (600  (35.9

Basis difference adjustments (1)

   53   73   20   37.7 
  

 

 

  

 

 

   

Profit before income taxes

      3,616      3,127   (489  (13.5
  

 

 

  

 

 

   

 

 

(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 increased by 13.7%, or Won 7,247 billion, from Won 52,940 billion in 2016 to Won 60,187 billion in 2017 due to increases in external revenues from each of our four segments. Specifically:

Steel Segment.External revenue from the Steel Segment, which does not include internal revenue frominter-company transactions that are eliminated during consolidation, increased by 12.6%, or Won 3,386 billion, from Won 26,844 billion in 2016 to Won 30,230 billion in 2017 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). 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% from Won 745,476 per ton in 2016 to Won 903,897 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. 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, decreased from 2016 to 2017, primarily due to the recognition of the sales volume of POSCO P&S, our former subsidiary that primarily engaged in sales of steel products produced by us, under the Trading Segment commencing March 2017 following the transfer of such business to POSCO International and, to a lesser extent, a reduction in our production due to facility revamping and rationalization of certain production facilities of Pohang Works and Gwangyang Works. The sales volume of silicon steel sheets, wire rods, cold rolled products, hot rolled products and stainless steel products produced by us and directly sold to external customers decreased 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. For a discussion of changes in sales volume of each of our principal product lines, see “Item 4.B. Business Overview — Major Products.”

Total revenue from the Steel Segment, which includes internal revenue frominter-company transactions, increased by 11.0%, or Won 4,705 billion, from Won 42,906 billion in 2016 to Won 47,611 billion in 2017 as internal revenue frominter-company transactions increased by 8.2%, or Won 1,319 billion, from Won 16,062 billion in 2016 to Won 17,381 billion in 2017. Such increase primarily reflected, in addition to factors discussed above, an increase in the average unit sales price of the steel products sold to POSCO International.

Trading Segment.External revenue from the Trading Segment, which does not include internal revenue frominter-company transactions that are eliminated during consolidation, increased by 24.0%, or Won 4,028 billion, from Won 16,774 billion in 2016 to Won 20,802 billion in 2017 primarily due to the recognition of the 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, as well as an increase inthird-country trades by POSCO International and our other trading subsidiaries from 2016 to 2017, reflecting an increase in sales of slabs produced by CSP (Compania Siderurgica do Pecem) and PT. Krakatau POSCO as well as an increase in trading of petrochemical products.

Total revenue from the Trading Segment, which includes internal revenue frominter-company transactions, increased by 32.0%, or Won 8,458 billion, from Won 26,420 billion in 2016 to Won 34,878 billion in 2017 as internal revenue frominter-company transactions increased by 45.9%, or Won 4,430 billion, from Won 9,646 billion in 2016 to Won 14,076��billion in 2017 primarily due to an increase in our steel sales activities through trading subsidiaries.

Construction Segment.External revenue from the Construction Segment, which does not include internal revenue frominter-company transactions that are eliminated during consolidation, increased by 1.7%, or Won 119 billion, from Won 6,768 billion in 2016 to Won 6,887 billion in 2017 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 EPC projects in Korea and abroad.

Total revenue from the Construction Segment, which includes internal revenue frominter-company transactions, decreased by 2.6%, or Won 196 billion, from Won 7,482 billion in 2016 to Won 7,286 billion in 2017 as internal revenue frominter-company transactions decreased by 44.1%, or Won 315 billion, from Won 714 billion in 2016 to Won 399 billion in 2017. Such decrease in internal revenue reflected a decrease in the amount of construction activities for member companies of the POSCO Group in 2017 compared to 2016.

Others Segment. The Others Segment primarily includes power generation, coal chemistry and carbon materials production and information technology service. External revenue from the Others

Segment, which does not include internal revenue frominter-company transactions that are eliminated during consolidation, increased by 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 and sales volume of coal chemistry products of POSCO Chemical Co., Ltd.

Total revenue from the Others Segment, which includes internal revenue frominter-company transactions, increased by 4.1%, or Won 208 billion, from Won 5,077 billion in 2016 to Won 5,285 billion in 2017 as internal revenue frominter-company transactions increased by 7.1% or Won 169 billion, from Won 2,380 billion in 2016 to Won 2,549 billion in 2017. Such increase primarily reflected an increase ininter-company sales related to replacement of control systems at Pohang Works by POSCO ICT Co., Ltd.

Cost of Sales

Our cost of sales 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 2016 and 2017.

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

Steel Segment

  37,437  41,479  4,042   10.8

Trading Segment

   25,090   33,388   8,298   33.1 

Construction Segment

   7,564   6,598   (966  (12.8

Others Segment

   4,507   4,636   129   2.9 

Consolidation adjustments

   (28,204  (33,802  (5,598  19.8 

Basis difference(1)

   (123  (383  (261  211.4 
  

 

 

  

 

 

   

Cost of sales

      46,271      51,916      5,644   12.2
  

 

 

  

 

 

   

(1)

Basis difference is related to the difference in recognizing revenue and expenses of the Construction Segment in connection with development and sale of certain residential real estate between the report reviewed by the chief executive officer and the consolidated financial statements. See Notes 3 and 40 of Notes to Consolidated Financial Statements.

Steel Segment. The cost of sales of our Steel Segment, prior to consolidation adjustments, increased by 10.8%, or Won 4,042 billion, from Won 37,437 billion in 2016 to Won 41,479 billion in 2017 primarily due to increases in the average price in Won terms of key raw materials that were used to manufacture our finished goods sold, the impact of which was partially offset by a 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 adjustments, increased by 33.1%, or Won 8,298 billion, from Won 25,090 billion in 2016 to Won 33,388 billion in 2017 primarily due to the recognition of the cost of 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 as well as an increase in cost of export and import products sold.

Construction Segment. The cost of sales of our Construction Segment, prior to consolidation adjustments, decreased by 12.8%, or Won 966 billion, from Won 7,564 billion in 2016 to Won 6,598 billion in 2017, reflecting the recognition of additional costs related to certain EPC projects abroad in 2016 compared to no such costs in 2017.

Others Segment.The cost of sales of our Others Segment, prior to consolidation adjustments, increased by 2.9%, or Won 129 billion, from Won 4,507 billion in 2016 to Won 4,636 billion in 2017 primarily due to increases in the average price in Won terms of key raw materials used by POSCO Chemical Co., Ltd. to produce coal chemistry products.

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 2016 and 2017.

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

Steel Segment

  5,469  6,132  663   12.1

Trading Segment

   1,330   1,490   160   12.0 

Construction Segment

   (82  688   770   N.A. (2) 

Others Segment

   570   649   79   13.9 

Consolidation adjustments

   (598  (603  (5  0.9 

Basis difference (1)

   (21  (85  (64  298.4 
  

 

 

  

 

 

   

Gross profit

      6,668      8,271      1,603   24.0
  

 

 

  

 

 

   

(1)

Basis difference is related to the difference in recognizing revenue and expenses of the Construction Segment in connection with development and sale of certain residential real estate between the report reviewed by the chief executive officer and the consolidated financial statements. See Notes 3 and 40 of Notes to Consolidated Financial Statements.

 

(2)

N.A.N.M. means not applicable.

Steel Segment. The gross profit of our Steel Segment, prior to consolidation adjustments, increased by 12.1%, or Won 663 billion, from Won 5,469 billion in 2016 to Won 6,132 billion in 2017 primarily due to 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 in the average price in Won terms of coal and other key raw materials that were used to manufacture our finished steel products sold as well as a decrease in the overall sales volume of our principal steel products, as discussed above. The gross margin of our Steel Segment, which is gross profit as a percentage of total revenue prior to consolidation adjustments, increased from 12.7% 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.

Trading Segment. The gross profit of our Trading Segment, prior to consolidation adjustments, increased by 12.0%, or Won 160 billion, from Won 1,330 billion in 2016 to Won 1,490 billion in 2017, primarily due to the recognition of the cost of 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 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. The gross margin of our Trading Segment, prior to consolidation adjustments, decreased from 5.0% in 2016 to 4.3% in 2017.

Construction Segment. Our Construction Segment recorded gross loss of Won 82 billion in 2016 compared to gross profit of Won 688 billion in 2017, and the gross margin, prior to consolidation

adjustments, improved from (1.1)% in 2016 to 9.4% in 2017, primarily due to our engagement in higher-margin construction activities in 2017 reflecting more favorable market conditions in the domestic residential construction industry as well as an increase in demand for EPC projects in Korea and abroad. In comparison, we recognized losses incurred in connection with overseas construction projects in 2016, in particular a loss of Won 157 billion related to delay in construction of theCSP-Companhia Siderurgia do Pecem steel plant complex in Brazil, as well as a decrease in the amount of relatively high-margin construction projects for member companies of the POSCO Group.

Others Segment.The gross profit of our Others Segment, prior to consolidation adjustments, increased by 13.9%, or Won 79 billion, from Won 570 billion in 2016 to Won 649 billion in 2017 primarily due to an increase in gross profits of POSCO Chemical Co., Ltd. and POSCO Energy Corporation. The gross margin of our Others Segment increased from 11.2% in 2016 to 12.3% in 2017.

Selling and Administrative Expenses

The following table presents a breakdown of our selling and administrative expenses and changes therein for 2016 and 2017.

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

Freight and custody expenses

  1,342   1,337   (5  (0.4)% 

Sales commissions

   94    116    22   22.8 

Sales promotion

   11    12    1   16.3 

Sales insurance premium

   31    37    6   16.5 

Contract cost

   49    23    (26  (53.4

Others

   26    32    6   25.6 
  

 

 

   

 

 

    

Total selling expenses

      1,554       1,557    3   0.2 
  

 

 

   

 

 

    

Wages and salaries

  770   775           5   0.7

Expenses related topost-employment benefits

   201    79    (122  (60.9

Other employee benefits

   177    160    (17  (9.5

Depreciation

   103    97    (6  (6.0

Amortization

   140    146    6   4.8 

Taxes and public dues

   79    73    (6  (7.7

Rental

   82    70    (12  (14.7

Advertising

   86    120    34   39.0 

Research and development

   121    126    5   4.3 

Service fees

   201    193    (8  (3.8

Bad debt expenses

   165    174    9   5.2 

Others

   167    164    (3  (1.7
  

 

 

   

 

 

    

Total administrative expenses

  2,292   2,177    (115  (5.0
  

 

 

   

 

 

    

Total selling and administrative expenses

  3,845   3,734    (111  (2.9
  

 

 

   

 

 

    

Our selling and administrative expenses decreased by 2.9%, or Won 111 billion, from Won 3,845 billion in 2016 to Won 3,734 billion in 2017 primarily due to decreases in expenses related to post-employment benefits, contract cost, other employment benefits and rental expenses, which were partially offset by increases in advertising expenses and sales commissions. Such factors were principally attributable to the following:

Our expenses 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 programs of POSCO E&C and POSCO Engineering Co., Ltd. in 2016 compared to no such programs in 2017.

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

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

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

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

Our sales commissions increased by 22.8%, or Won 22 billion, from Won 94 billion in 2016 to Won 116 billion in 2017 primarily reflecting a general increase in commissions related to increased sales revenue.

Other Operating Income and Expenses

The following table presents a breakdown of our other operating income and changes therein for 2016 and 2017.

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

Gain on disposal of assets held for sale

  23   1   (22  (94.9)% 

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

   23    82    59   251.0 

Gain on disposal of property, plant and equipment

   24    32    8   34.9 

Gain on disposal of intangible assets

   1    23    22   3,386.0 

Recovery of allowance for other doubtful accounts

   13    3    (10  (78.3

Gain on valuation of firm commitment

       56    56   N.A.(1) 

Gain on insurance proceeds

   22    6    (16  (73.8

Others

   109    248        138   127.0 
  

 

 

   

 

 

    

Total other operating income

      215       451    236   109.7 
  

 

 

   

 

 

    

(1)

N.A. means not applicable.

Our other operating income increased by 109.7%, or Won 236 billion, from Won 215 billion in 2016 to Won 451 billion in 2017 primarily due to our recognition of a tax refund of Won 133 billion in 2017 as well as increases in gain on disposal of investments in subsidiaries, associates and joint ventures and gain on valuation of firm commitment, which were partially offset by a decrease in gain on disposal of assets held for sale. Such factors were principally attributable to the following:

In 2017, we recognized a tax refund of Won 133 billion, which we categorized in “others,” related to a successful appeal of a tax audit, compared to no such refund in 2016.

Our gain on disposal of investments in subsidiaries, associates and joint ventures increased by 251.0%, or Won 59 billion, from Won 23 billion in 2016 to Won 82 billion in 2017 primarily due to an increase in disposition of our interests in some of our subsidiaries and associates as part of our reorganization efforts.

We recognized gain on valuation of firm commitment of Won 56 billion in 2017 compared to no such gain in 2016, reflecting our decision to adopt hedge accounting starting in 2017, pursuant to which gain on valuation of firm commitment contracts is recognized.

Our gain on disposal of assets held for sale decreased by 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 2016 and 2017.

       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.

Our other operating expenses increased by 4.8%, or Won 36 billion, from Won 756 billion in 2016 to Won 792 billion in 2017, 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 decrease in impairment losses on property, plant and equipment and impairment losses on assets held for sale. 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 losses on property, plant and equipment decreased by 40.5%, or Won 80 billion, from Won 197 billion in 2016 to Won 117 billion in 2017. In 2016, we

recognized impairment losses on property, plant and equipment of Won 62 billion related to continuing operating loss of the fuel cell business of POSCO Energy. In addition, we recorded Won 58 billion of impairment losses in 2016 related to disposal plans of certain assets. 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 increased by 83.8%, or Won 1,914 billion, from Won 2,282 billion in 2016 to Won 4,196 billion in 2017. Our operating margin increased from 4.3% in 2016 to 7.0% in 2017.

Share of Profit (Loss) ofEquity-Accounted Investees

We recorded a net loss for our proportionate share ofequity-accounted investees of Won 89 billion in 2016 compared to a net gain for our proportionate share ofequity-accounted investees of Won 11 billion in 2017. 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, we recognized a net gain for our proportionate share ofequity-accounted investees of Won 11 billion primarily due to our share of gains of KOBRASCO (Won 56 billion), Roy Hill Holdings Pty Ltd. (Won 46 billion), South-East Asia Gas Pipeline Company Ltd. (Won 43 billion) and POSCO Mitsubishi Carbon Technology Ltd. (Won 28 billion), which were partially offset by our share of loss ofCSP-Compania Siderurgica do Pecem (Won 148 billion). See Note 11 of Notes to Consolidated Financial Statements.

Finance Income and Finance Costs

The following table presents a breakdown of our finance income and costs and changes therein for 2016 and 2017.

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

Interest income

  182   212   30   16.4

Dividend income

   41    93    52   126.7 

Gain on foreign currency transactions

   1,033    786    (247  (23.9

Gain on foreign currency translations

   378    564    186   49.3 

Gain on derivatives transactions

   317    211    (106  (33.4

Gain on valuation of derivatives

   147    65    (82  (56.0

Gain on disposals ofavailable-for-sale financial assets

   131    426    295   225.4 

Others

   4    16    13   337.6 
  

 

 

   

 

 

    

Total finance income

      2,232       2,373    141   6.3 
  

 

 

   

 

 

    

Interest expenses

  659   653    (6  (0.9)% 

Loss on foreign currency transactions

   1,147    757    (391  (34.0

Loss on foreign currency translations

   405    423    17   4.3 

Loss on derivatives transactions

   338    236    (102  (30.2

Loss on valuation of derivatives

   163    226    64   39.2 

Impairment losses onavailable-for-sale financial assets

   248    123    (125  (50.4

Others

   53    66    12   22.7 
  

 

 

   

 

 

    

Total finance costs

  3,014   2,484    (530  (17.6
  

 

 

   

 

 

    

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 115 billion in 2016 compared to a net gain on foreign currency transactions of Won 29 billion in 2017, as the Won depreciated against the Dollar in 2016 but appreciated in 2017. 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. Against such fluctuations, our net loss on valuation of derivatives increased by 939.2%, or Won 146 billion, from Won 16 billion in 2016 to Won 162 billion in 2017, and our net loss on transactions of derivatives increased by 17.2%, or Won 4 billion, from Won 22 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.

Profit before Income Taxes

Due to the factors described above, our profit before income taxes increased by 190.1%, or Won 2,683 billion, from Won 1,412 billion in 2016 to Won 4,095 billion in 2017.

The following table presents our profit and loss by segment, prior to adjusting for goodwill and corporatefair-value adjustments, elimination of inter-segment profits, income tax expense and basis difference, and changes therein for 2016 and 2017.

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

Steel Segment

  1,511  2,791  1,279   84.7

Trading Segment

   53   113   59   111.6 

Construction Segment

   (1,404  25   1,428   N.A. (1) 

Others Segment

   (26  233   259   N.A. (1) 

Goodwill and corporate fair value adjustments

   (123  (84  39   N.A. (1) 

Elimination ofinter-segment profits

   1,036   (103  (1,139  N.A. (1) 

Income tax expense

   385   1,206   822   213.6 

Basis difference(2)

   (21  (85  (63  298.4 
  

 

 

  

 

 

   

Profit before income taxes

  1,412  4,095   2,683   190.1 
  

 

 

  

 

 

   

(1)

N.A. means not applicable.

(2)

Basis difference is related to the difference in recognizing revenue and expenses of the Construction Segment in connection with development and sale of certain residential real estate between the report reviewed by the chief executive officer and the consolidated financial statements. See Notes 3 and 40 of Notes to Consolidated Financial Statements.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 the 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.

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, 
   2016  2017  2018 
   (In billions of Won) 

Net cash provided by operating activities

      5,269      5,607      5,870 

Net cash used in investing activities

   (3,755  (3,818  (2,648

Net cash used in financing activities

   (3,951  (1,566  (3,195

Effect of exchange rate fluctuations on cash held

   13   (59  5 

Cash and cash equivalents at beginning of period

   4,871   2,448   2,613 

Cash and cash equivalents at end of period

   2,448   2,613   2,644 

Net increase (decrease) in cash and cash equivalents

   (2,424  165   31 
   For the Year Ended December 31, 
   2018  2019  2020 
   (In billions of Won) 

Net cash provided by operating activities

      5,870      6,005      8,686 

Net cash used in investing activities

   (2,648  (3,683  (6,259

Net cash used in financing activities

   (3,195  (1,512  (1,091

Effect of exchange rate fluctuation on cash held

   5   62   (95

Cash and cash equivalents at beginning of the period

   2,613   2,644   3,515 

Cash and cash equivalents at end of the period

   2,644   3,515   4,756 

Net increase in cash and cash equivalents

   31   871   1,240 

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 3,755 billion in 2016, Won 3,818 billion in 2017 and Won 2,648 billion in 2018. These amounts included2018, Won 3,683 billion in 2019 and Won 6,259 billion in 2020. Our cash outflows for acquisition of property, plant and equipment of Won 2,324 billion in 2016, Won 2,288 billion in 2017 andwere Won 2,136 billion in 2018.2018, Won 2,519 billion in 2019 and Won 3,154 billion in 2020. We plancurrently expect our cash outflows for acquisition of property, plant and equipment in 2021 to spend approximately Won 6.1 trillionbe comparable to those in capital expenditures in 2019,2020, 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 1,401 billion in 2016, Won 1,697 billion in 2017 and Won 1,068 billion in 2018. We also had net acquisition ofavailable-for-sale investments of2018, Won 48647 billion in 2016, net disposals ofavailable-for-sale investments of2019 and Won 9412,807 billion in 2017 and net acquisitions of securities of Won 100 billion in 2018.2020.

In our financing activities, we used cash of Won 4,275 billion in 2016, Won 3,136 billion in 2017 and Won 3,136 billion in 2018, Won 3,747 billion in 2019 and Won 3,644 billion in 2020 for repayments of borrowings. We paid dividends on common stock in the amount of Won 709 billion in 2016, Won 863 billion in 2017 and Won 724 billion in 2018.2018, Won 946 billion in 2019 and Won 659 billion in 2020. 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, and we used cash of Won 883 billion in 2020 for acquisition of treasury shares. The trust contract was terminated in April 2021, and we used cash of Won 117 billion in the first quarter of 2021 for acquisition of treasury shares prior to such termination.

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 the Consolidated Financial Statements. The following table sets forth the amount oflong-term debt capital lease and operating lease obligations as of December 31, 2018.2020.

 

   Payments Due by Period 
   Total   Less than
1 Year
   1 to 3 Years   4 to 5 Years   More than
5 Years
 
   (In billions of Won) 

Long-term debt obligations(a)

  13,118   2,842   6,519   2,858   899 

Interest payments onlong-term debt(b)

   1,787    656    838    237    56 

Capital lease obligations

   101    10    43    42    6 

Operating lease obligations

   8,561    1,437    2,365    1,520    3,239 

Purchase obligations(c)

   21,660    9,501    6,342    3,436    2,381 

Long-term shipping service contract

   18,930    2,479    4,443    3,804    8,204 

Accrued severance benefits(d)

   2,968    110    327    408    2,123 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

      67,125       17,035       20,877       12,305       16,908 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   Payments Due by Period 
   Total   Less than
1 Year
   1 to 3 Years   4 to 5 Years   More than
5 Years
 
   (In billions of Won) 

Long-term debt obligations (a)

  15,329   3,472   7,302   3,372   1,183 

Interest payments on long-term debt (b)

   1,020    410    424    124    62 

Lease obligations

   739    244    223    101    171 

Purchase obligations (c)

   23,602    10,707    8,233    3,136    1,526 

Long-term shipping service contract

   17,191    1,907    3,637    3,458    8,189 

Accrued severance benefits (d)

   2,958    245    465    396    1,852 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

      60,839       16,985       20,284       10,587       12,983 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

(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, 2018,2020, a portion of ourlong-term debt carried variable interest rates. We used the interest rate in effect as of December 31, 20182020 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, 2018, 1002020, 57 million tons of iron ore and 1410 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, 20182020 in calculating the iron ore, coal and LNG purchase obligations described above for the periods indicated.

 

(d)

Represents, as of December 31, 2018,2020, 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 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 increaseddecreased 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.

Our net cash provided by operating activities increased by 4.7%44.7%, or Won 2632,681 billion, from Won 5,6076,005 billion in 20172019 to Won 5,8708,686 billion in 2018.2020. Our gross cash flow from our sales activities

increased decreased as discussed above. In addition,However, we recorded cash outflow related to our outstandingmanagement of trade accounts and notes payable increased in 2018, as we lengthened payment terms2019 compared to cash inflow related to more efficient management of some of our key suppliers,trade accounts and notes payable in 2020, which further enhancedin turn positively impacted our net cash provided by operating activities. However,In addition, cash outflows related to income taxes paid decreased from Won 1,513 billion in 2019 to Won 651 billion in 2020. Our cash inflow related to trade accounts and notes receivable also increased from 2019 to 2020 due to our inventorymore efficient management of raw materialstrade accounts andmaterials-in-transit increased in 2018, notes receivable, which in turn negativelypositively impacted our net cash provided by operating activities.

We had net repayments of borrowings, after adjusting for proceeds from borrowings, of Won 2,286 billion in 2016, Won 1,410 billion in 2017 and Won 374 billion in 2018. We had2018 and net repayment ofshort-termproceeds from borrowings, after deductingadjusting for proceedsrepayments ofshort-term borrowings, of Won 8861,900 billion in 2016, net proceeds of short-term borrowings, after deducting for repayment of short-term borrowings, of2019 and Won 558766 billion in 2017, and2020.We had net repayment of short-term borrowings, after deducting for proceeds of short-term borrowings, of Won 855 billion in 2018.2018 and Won 2,195 billion in 2019 and net proceeds from short-term borrowings, after adjusting for repayment of short-term borrowings, of Won 36 billion in 2020.Long-term borrowings, excluding current installments, were Won 12,510 billion as of December 31, 2016, Won 9,789 billion as of December 31, 2017 and Won 9,920 billion as of December 31, 2018.2018, Won 11,893 billion as of December 31, 2019 and Won 11,820 billion as of December 31, 2020. Totalshort-term borrowings and current installments oflong-term borrowings were Won 10,195 billion as of December 31, 2016, Won 11,275 billion as of December 31, 2017 and Won 10,290 billion as of December 31, 2018. Outstanding hybrid bonds were2018, Won 9978,548 billion as of December 31, 20162019 and 2017 andWon 8,678 billion as of December 31, 2020. Outstanding hybrid bonds were Won 199 billion as of December 31, 2018.2018, 2019 and 2020. 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 44.26% as of December 31, 2016, 38.99% as of December 31, 2017 and 37.64% as of December 31, 2018.2018, 35.42% as of December 31, 2019 and 33.02% as of December 31, 2020.

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 10,711 billion as of December 31, 2016, Won 12,354 billion as of December 31, 2017 and Won 14,721 billion as of December 31, 2018.2018, Won 18,593 billion as of December 31, 2019 and Won 19,193 billion as of December 31, 2020. Our holdings of cash and cash equivalents (which do not include cash and cash equivalents categorized under “assets held for sale”) were Won 2,448 billion as of December 31, 2016, Won 2,613 billion as of December 31, 2017 and Won 2,644 billion as of December 31, 2018.2018, Won 3,515 billion as of December 31, 2019 and Won 4,755 billion as of December 31, 2020. See Notes 5 and 10 of Notes to the Consolidated Financial Statements. Our holding of other receivables and othershort-term financial assets were Won 6,765 billion as of December 31, 2016, Won 8,682 billion as of December 31, 2017 and Won 9,467 billion as of December 31, 2018.2018, Won 10,578 billion as of December 31, 2019 and Won 13,203 billion as of December 31, 2020. As of December 31, 2018,2020, approximately 18%12% 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 1,3752,088 billion as of December 31, 2018,2020, Won 3001,029 billion of which was used as of such date.We have not had, and do not believe that we will have, difficulty gaining access toshort-term financing sufficient to meet our current requirements.

Our liquidity is affected by exchange rate fluctuations. See “— Overview — Exchange Rate Fluctuations.”

Capital Expenditures and Capacity Expansion

Cash used for acquisitions of property, plant and equipment was Won 2,324 billion in 2016, Won 2,288 billion in 2017 and Won 2,136 billion in 2018.2018, Won 2,519 billion in 2019 and Won 3,154 billion in 2020. We plancurrently expect our cash outflows for acquisition of property, plant and equipment in 2021 to spend approximately Won 6.1 trillionbe comparable to those in capital expenditures in 2019,2020, 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.

Our current plan for capital investment in production facilities emphasizes capacity rationalization, increased production of highervalue-added products, improvements in the efficiency of older facilities in order to reduce operating 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, 2018:2020:

 

Project

  Expected
Completion Date
   Total Cost of
Project
   Estimated
Remaining Cost of
Completion as of
December 31,
2018
 
       (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       2,155       1,683 

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

   November 2021    506    400 

Construction of anode materials production facilities

   May 2019    135    67 

Additional major capital expenditure projects that we plan to start in 2019 include the following:

Project

  Expected
Spending in
2019
   Expected
Spending in
2020
   Expected
Spending in
2021
   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

      146       950       823       1,919 

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

   48    54    462    564 

Construction and expansion of cathode materials production facilities

   21    122        143 

Project

  Expected
Completion Date
   Total Cost of
Project
   Estimated
Remaining Cost of
Completion as of
December 31,
2020
 
       (In billions of Won) 

Construction of by-product gas plant and no. 6 cokes plant at Pohang Works

   December 2023   1,479   1,023 

Repair of furnace no. 4 at Gwangyang Works and rationalization of furnace no. 3 and no. 4 at Pohang Works

   May 2024    1,195    674 

Construction of cathode materials production facilities at Gwangyang Works

   November 2021    290    282 

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, 2018,2020, POSCO Technical Research Laboratories employed 950912 personnel, including 516509 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.

Our research and development program has filed approximately 44,00045,200 industrial rights applications relating tosteel-making technology, approximately 15,00012,500 of which were registered as of December 31, 2018,2020, and has successfully applied many of these to the improvement of our manufacturing process.

Item 5.D. Trend Information

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

Item 5.E. Off-balance Sheet Arrangements

As of December 31, 20172019 and 2018,2020, 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: special committees:

the Environmental, Social and Governance (“ESG”) Committee;

 

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

As of March 31, 2019,2021, our Inside Directors are:are as follows:

 

Name

  

Position

  

Responsibilities and
Division

  Years
as
Director
   Age   Expiration
of Term of
Office

Choi,Jeong-Woo

  Chief Executive Officer and Representative Director  —                       1    61   March
2021

Chang,In-Hwa

  President and Representative Director  Head of Steel Business Unit   2    63   March
2020

Chon,Jung-Son

  Senior Executive Vice President  Head of Corporate Strategy & Planning Division   1    56   March
2020

Kim,Hag-Dong

  Senior Executive Vice President  Head of Production Division   0    59   March
2020

Jeong, Tak

  Senior Executive Vice President  Head of Marketing Division   0    59   March
2020

Name

  

Position

  

Responsibilities and
Division

  Years
as
Director
   Age   Expiration
of Term of
Office

Choi, Jeong-Woo

  Chief Executive Officer and Representative Director  —                       2    63   March
2024

Kim, Hag-Dong

  President and Representative Director  Head of Steel Business Unit   2    61   March
2022

Chon, Jung-Son

  Senior Executive Vice President and Representative Director  Head of Global & Infra Business Unit and Head of Corporate Strategy & Planning Division   3    58   March
2022

Jeong, Tak

  Senior Executive Vice President  Head of Marketing Division   2    61   March
2022

Chung, Chang-Hwa

  Senior Executive Vice President  Head of Management Support Division       59   March
2022

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 FSCMA.

 

Name

  Position  

Principal Occupation

  Years
as
Director
   Age   Expiration
of Term of
Office
 

Kim,Shin-Bae

  Chairman  Former Vice Chairman, SK Group   2    64    March 2022 

Kim,Joo-Hyun

  Director  President, the Financial News   4    66    March 2021 

Bahk,Byong-Won

  Director  Former Chairman, Korea Employers Federation   4    66    March 2021 

Chung,Moon-Ki

  Director  Professor of Accounting, Sungkyunkwan University   2    59    March 2022 

Chang,Seung-Wha

  Director  Professor of Law, Seoul National University   1    55    March 2020 

Kim,Sung-Jin

  Director  Former Minister, Ministry of Oceans and Fisheries   1    69    March 2021 

Pahk,Hee-Jae

  Director  Professor of Mechanical Engineering, Seoul National University   0    57    March 2022 

Name

  Position  

Principal Occupation

  Years
as
Director
   Age   Expiration
of Term of
Office
 

Chang, Seung-Wha

  Chairman  Professor of Law, Seoul National University   4    57    March 2023 

Kim, Shin-Bae

  Director  Former Vice Chairman, SK Group   4    66    March 2022 

Chung, Moon-Ki

  Director  Professor of Accounting, Sungkyunkwan University   4    61    March 2022 

Kim, Sung-Jin

  Director  Former Minister, Ministry of Oceans and Fisheries   3    71    March 2024 

Pahk, Heui-Jae

  Director  Professor of Mechanical & Aerospace Engineering, Seoul National University   2    59    March 2022 

Yoo, Young-Sook

  Director  Principal Research Scientist, Korea Institute of Science and Technology (KIST)       65    March 2024 

Kwon, Tae-Kyun

  Director  Former Ambassador, Korea to the United Arab Emirates       65    March 2024 

The term of office of the DirectorsDirector elected in March 20192021 is up to three 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 as of March 31, 2019:19, 2021:

 

Name

  

Position

  

Responsibility and Division

  Age 

Oh,Gyu-Seok

  Senior Executive Vice PresidentOfficer  Head of New Growth Business Unit   5558 

Oh,Yoo, Hyoung-SooByeong-Og

  Senior Executive Vice PresidentOfficer  Head of Pohang WorksIndustrial Gasses & Hydrogen Business Unit   58 

Kim,Jhi-YongKwang-Soo

  Senior Executive Vice PresidentOfficer  President, PT Krakatau POSCO Co., Ltd.Head of Logistics Business Unit   5661 

Han,Lee, Sung-HeeSi-Woo

  Senior Executive Vice PresidentOfficer  Head of Management SupportSafety & Environmental Division60

Lee, Ju-Tae

Executive OfficerHead of Purchasing and Investment Division   57

Nam, Soo-Hi

Executive OfficerHead of Pohang Works61

Kim, Jhi-Yong

Executive OfficerHead of Gwangyang Works59

Lee, Duk-Lak

Executive OfficerHead of Technical Research Laboratories60

Yang, Weon-Jun

Executive OfficerHead of Corporate Citizenship Office55

Kim, Sung-Jin

Executive OfficerHead of Corporate Audit Office55

Kim, Yong-Soo

Executive OfficerHead of Human Resources Management Office55

Cho, Ju-Ik

Executive OfficerHead of Hydrogen Business Office55

Kang, Sung-Wook

Executive OfficerHead of Logistics Business Office II55

Jeong, Dae-Hyung

Executive OfficerHead of Corporate Strategy Office52

Kim, Seung-Jun

Executive OfficerHead of Investment Strategy Office53

Lee, Kyung-Sub

Executive OfficerHead of Business Innovation Office55

Chung, Kyung-Jin

Executive OfficerHead of Finance Office55

Kim, Won-Hee

Executive OfficerHead of Global Infra Business Management Office55

Eom, Gi-Chen

Executive OfficerHead of Steel Business Planning & Coordination Office55 

Name

  

Position

  

Responsibility and Division

  Age 

Choi, JooKim, Kyeong-Chan

  Senior Executive Vice PresidentOfficer  Head of Technical Research LaboratoriesSteel Business Planning & Coordination Group   5951 

Yoo,Kim, Byeong-OgSoon-Ki

  Senior Executive Vice PresidentOfficer  Head of PurchasingLabor and Investment DivisionCooperation Office   56 

Lee,Kim, Si-WooDong-Hee

  Senior Executive Vice PresidentOfficer  Head of Gwangyang WorksLabor Planning Group   5854 

Lee,Kim, Duk-LakSang-Baeg

  Executive Vice PresidentOfficer  Head of TechnologySafety & Health Planning Office55

Park, Hyeon

Executive OfficerHead of Environmental Planning Office54

Kim, Young-Joong

Executive OfficerHead of Marketing Strategy Office56

Kim, Kyung-Han

Executive OfficerHead of International Trade Affairs Office55

Park, Nam-Sik

Executive OfficerHead of Sales and Production Coordination Office53

Yang, Keun-Sik

Executive OfficerHead of Global Quality and Service Management Office57

Kim, Dae-Up

Executive OfficerHead of Hot Rolled & Wire Rod Marketing Office56

Kim, Sang-Gyun

Executive OfficerHead of Construction Steel Materials Marketing Office57

Kim, Sang-Chul

Executive OfficerHead of Energy and Shipbuilding Materials Marketing Office53

Song, Yong-Sam

Executive OfficerHead of Automotive Materials Marketing Office   58 

Kim,Yoon, Gyo-SungChang-Woo

  Executive Vice PresidentOfficer  Head of Automotive Steel Research Lab57

Lee, Sung-Wook

Executive Vice PresidentHead of Legal Affairs Office54

Yang,Weon-Jun

Executive Vice PresidentHead of Corporate Citizenship Office53

Bae,Jae-Tak

Executive Vice PresidentHead of Stainless SteelElectrical and Electronic Materials Marketing Office54

Lim,Seung-Kyu

Executive Vice PresidentHead of Finance Office55

Choo,Se-Don

Executive Vice PresidentHead of Steel Solution Research Lab57

Jung,Duk-Kyoon

Executive Vice PresidentHead of Information Planning Office   56 

Choi,In-SukKyu-Seo

  Executive Vice PresidentOfficerHead of Stainless Steel Marketing Office56

Choun, Si-Youl

Executive OfficerHead of Steel Production & Technology Strategy Office55

Kim, Hee

Executive OfficerHead of Steel Production & Technology Planning Group53

Lee, Baek

Executive OfficerHead of Iron & Steelmaking Production and Technology Group56

Youn, Young-Hee

Executive OfficerDeputy Head of Pohang Works (Safety and Environment)58

Han, Hyung-Chul

Executive Officer  Deputy Head of Pohang Works (Administration)57

Choi, Yong-Jun

Executive OfficerDeputy Head of Pohang Works (Process & Quality)56

Hur, Chun-Yeol

Executive OfficerHead of Pohang Works Quality Technology Department55

Kim, Jin-Bo

Executive OfficerDeputy Head of Pohang Works (Iron and Steel Making)55

Hwang, Guy-Sam

Executive OfficerDeputy Head of Pohang Works (Hot and Cold Rolling)56

Lee, Ju-Hyeob

Executive OfficerDeputy Head of Pohang Works (Stainless Steel Production)56

Lee, Chan-Gi

Executive OfficerDeputy Head of Pohang Works (Maintenance)57

Cho, Yeong-Bong

Executive OfficerDeputy Head of Gwangyang Works (Safety and Environment)   55 

Lee,Ju-TaeCheol-Ho

  Executive Vice PresidentHead of Corporate Strategy Office54

Yun,Yang-Su

Executive Vice PresidentHead of Automotive Materials Marketing Office55

Kim,Soon-Ki

Executive Vice PresidentHead of Labor and Cooperation Office54

Lee, Jeon-Hyeok

Executive Vice PresidentHead of Global Infra Business Management Office55

Kim,Bok-Tae

Executive Vice PresidentHead of Sales and Production Coordination Office56

Chun,Sung-Lae

Executive Vice PresidentHead of Hot Rolled Steel & Wire Rod Marketing Office55

Kim,Jeoung-Su

Executive Vice PresidentOfficer  Deputy Head of Gwangyang Works (Administration)   55 

Kim,Kwang-MooSeoung-Jun

  Executive Vice PresidentOfficer  Deputy Head of Steel Business PlanningGwangyang Works (Process & Coordination Office54

Kim,Kyung-Han

Executive Vice PresidentHead of International Trade Office53

Jung,Hae-Seong

Senior Vice PresidentHead of Raw Materials Office II54

Park, Hyeon

Senior Vice PresidentHead of LiB Materials Business Office51

Kim,Min-Chul

Senior Vice PresidentHead of Investment Planning & Engineering Office56

Lee,Jae-Yeol

Senior Vice PresidentHead of Administration Support & External Relations Office57

Lee,Jean-Su

Senior Vice PresidentHead of Surface Treatment Department, Gwangyang WorksQuality)   55 

Kim, Young-JoongLee, Dong-Ryeol

  Senior Vice PresidentHead of Marketing Strategy Office53

Choi,Hyeon-Soo

Senior Vice PresidentHead of Europe Office59

Kim,Ki-Soo

Senior Vice PresidentHead of Process and Engineering Research Lab53

Choi,Yong-Jun

Senior Vice PresidentExecutive Officer  Deputy Head of Pohang Works (Hot and Cold Rolling)54

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 Office51

Lee,Hee-Geun

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

Lee,Ju-HyeobJean-Su

  Senior Vice PresidentExecutive Officer  Deputy Head of PohangGwangyang Works (Stainless Steel Production)(Hot and Cold Rolling)   5458 

An,Jung, Geun-SikBum-Su

  Senior Vice PresidentExecutive OfficerDeputy Head of Gwangyang Works (Maintenance)56

Kim, Ki-Soo

Executive Officer  Head of Global QualityProcess and Engineering Research Lab55

Ahn, Sang-Bog

Executive OfficerHead of Steel Product Research Lab59

Kim, Gyo-Sung

Executive OfficerHead of Automotive Steel Research Lab59

Choo, Se-Don

Executive OfficerHead of Steel Solution Research Lab59

Choi, Jong-Kyo

Executive OfficerLeader of High Manganese Steel Solutions TF Team60

Suh, Ji-Won

Executive OfficerHead of Raw Materials Office I53

Yoon, Sung-Won

Executive OfficerHead of Raw Materials Office II55

Kim, Tae-Eok

Executive OfficerHead of Plant, Equipment and Materials Procurement Office55

Lee, Cheol-Mu

Executive OfficerHead of Investment Planning & Service ManagementEngineering Office   57 

Lee,Chung, Kyung-SubSeok-Mo

  Senior Vice PresidentExecutive Officer  Head of Investment Strategy Office53

Jung,Bum-Su

Senior Vice PresidentDeputy Head of Gwangyang Works (Maintenance)54

Nam,Jae-Bok

Senior Vice PresidentGiga Steel Commercialization TF Team Leader, Gwangyang Works57

Hong,Sam-Young

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

Lee,Sang-Ho

Senior Vice PresidentHead of Production Division, PT Krakatau POSCO Co., Ltd.54

Kim, Sang-Gyun

Senior Vice PresidentHead of Construction SteelLiB Materials MarketingBusiness Office   54 

Lee,Park, Baik-HeeSung-Jin

  Senior Vice PresidentExecutive Officer  Deputy Head of Gwangyang Works (IronIndustry-Academy-Research Cooperation Office52

Yang, Byeong-Ho

Executive OfficerHead of Human Resources and Steel Making)Corporate Culture Office   54 

Name

  

Position

  

Responsibility and Division

  Age 

Ahn,Park, Sang-BogJin-Woo

  Senior Vice PresidentExecutive Officer  Head of Steel Product Research LabCommunication Office54

Jung, Duk-Kyoon

Executive OfficerHead of Information Planning Office57

Lee, Sung-Wook

Executive OfficerHead of Legal Affairs Office   56 

Han,Song, Soo-HoWon-Gun

  Senior Vice PresidentPT KP Downstream Construction Cooperation TF Team Leader57

Choi, Young

Senior Vice PresidentHead of Communication Office50

Lee,Cheol-Ho

Senior Vice PresidentHead of Labor and Management Development Group53

Yoon,Chang-Woo

Senior Vice PresidentHead of Marketing Division, PT Krakatau POSCO Co., Ltd.54

Jeong,Dae-Hyung

Senior Vice PresidentExecutive Officer  Head of Business Assessment& Administration Support Office50

Yang,Byeong-Ho

Senior Vice PresidentHead of Human Resources and Corporate Culture Office52

Kim, Sang-Chul

Senior Vice PresidentHead of Energy and Shipbuilding Materials Marketing Office51

Cho,Ju-Ik

Senior Vice PresidentHead of New Growth Planning Office53

Kim,Yong-Soo

Senior Vice PresidentHead of Human Resources Management Office53

Oh, Kyung-Shik

Senior Vice PresidentPosMC Technology Development TF Team Leader, Pohang Works60

Kim, Kyeong-Chan

Senior Vice PresidentHead of Steel Business Planning & Coordination Group49

Choi,Jong-Kyo

Senior Vice PresidentHigh Manganese Steel Solutions TF Team Leader57

Chung,Kyung-Jin

Senior Vice PresidentHead of Corporate Audit Office53

Song,Chi-Young

Senior Vice PresidentDeputy Head of Pohang Works (Safety and Environment)54

Choun,Si-Youl

Senior Vice PresidentHead of Steel Production Strategy Office53

Kang, Sung-Wook

Senior Vice PresidentHead of Raw Materials Office I53

Lee,Chan-Gi

Senior Vice PresidentDeputy Head of Pohang Works (Maintenance)   55 

Lee, Chang-HyunKim, Kwang-Moo

  Senior Vice PresidentExecutive Officer  Deputy Head of Gwangyang Works (Safety and Environment)President, PT Krakatau POSCO Co., Ltd.   5756 

Park,Lee, Sung-JinSang-Ho

  Senior Vice PresidentExecutive Officer  Head of Industry-Academy-Research Cooperation OfficeProduction Division, PT Krakatau POSCO Co., Ltd.   5156

Ha, Dae-Ryong

Executive OfficerHead of POSCO-Europe (Europe Office)57 

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 2018,2020, the aggregate compensation paid and accrued to all Directors and executive officers was approximately Won 48 billion and the aggregate amount set aside or accrued by us to provide pension and retirement benefits to such persons was Won 128 billion.

Among those who received total annual compensation exceeding Won 500 million in 2018,2020, the highest-paid five individuals were as follows:

 

Name

 

Position

 Total
Compensation in
2018
  Long-term Incentive Compensation for
Payment Subsequent to 2018
 
    (In millions of Won) 

Kwon,Oh-Joon

 Former Chief Executive Officer and Representative Director 5,068  436 

Choi,Jeong-Woo

 Chief Executive Officer and Representative Director  1,822   284 

Ahn,Dong-Il

 Former Senior Executive Vice President  1,581   302 

Oh,In-Hwan

 President and Representative Director  1,252   266 

Kim,Jung-Sik

 Former Executive Vice President  1,207   247 

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.

Name

  

Position

  Total
Compensation
in 2020
   Long-term Incentive
Compensation for Payment
Subsequent to 2020
 
      (In millions of Won) 

Choi, Jeong-Woo

  Chief Executive Officer and Representative Director   1,927    333 

Chang, In-Hwa

  President and Representative Director   1,469    435 

Choi, Joo

  Former Senior Executive Vice President   1,160    259 

Chon, Jung-Son

  Senior Executive Vice President   1,129    265 

Han, Sung-Hee

  Former Senior Executive Vice President   1,087    273 

 

Item 6.C.Board

Board Practices

Director Candidate Recommendation and ManagementESG Committee

The Director Candidate Recommendation and ManagementESG Committee is composed of three Outside Directors, Bahk,Kim, Byong-Won,Shin-Bae, Kim,Chang, Joo-HyunSeung-Wha, Yoo, Young-Sook, and Pahk,one Inside Director, Kim, Hee-Jae,Hag-Dong. The ESG Committee oversees decisions with respect to our ESG policies, including policies related to environment, climate change, low carbon and governance. It also reviews operational matters of our board of directors and special committees, reviews plans related to safety and health, and manages and monitors ESG activities.

Director Candidate Recommendation Committee

The Director Candidate Recommendation Committee is composed of three Outside Directors, Chung, Moon-Ki, Kim, Sung-Jin, Kwon, Tae-Kyun, and one Inside Director, Chon,Jung-Son.Jeong, Tak. 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, Chang,Pahk, Seung-Wha, Kim,Shin-Bae,Heui-Jae, Chung,Moon-Ki, and Kim,Sung-Jin. Sung-Jin, Yoo, Young-Sook. 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, Kim,Kwon, Joo-Hyun,Tae-Kyun, Chang, Seung-Wha, Kim,Sung-Jin and Pahk,Hee-Jae Shin-Bae and one Inside Director, Chang,Chon, In-Hwa.Jung-Son. 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, Choi,Jeong-Woo, Chang,In-Hwa, Chon,Jung-Son, Kim,Hag-Dong, Chon, Jung-Son, Jeong, Tak and Jeong, Tak.Chung, Chang-Hwa. 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 Kim, Sung-Jin, Chung,Moon-Ki Bahk,Byong-Won and Chang,Pahk, Seung-Wha.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

As of December 31, 2018,2020, we had 33,78435,393 employees, including 16,63417,530 persons employed by our subsidiaries. Of the total number of employees, approximately 80%85% are technicians and skilled laborers and 20%15% are administrative staff. We use subcontractors for maintenance, cleaning and transport activities. We had 32,28735,261 employees, including 15,23217,758 persons employed by our subsidiaries, as of December 31, 2017,2019, and 31,76833,784 employees, including 15,18416,634 persons employed by our subsidiaries, as of December 31, 2016.2018.

We consider our relations with our work force to be 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 negotiations between the management and the majority labor union. A limited number of our employees are members of the 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 the 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, 2018,2020, our employees owned, through our employee stock ownership association, approximately 1.69%1.68% of our common stock in their employee accounts.

Item 6.E.  Share

Item 6.E.Share Ownership

The persons who are currently our Directors or executive officers held, as a group, 16,56529,236 common shares as of MarchDecember 31, 2019,2020, 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
 

Choi, Jeong-Woo

1,526

Kim,Hag-Dong

   960

Choi,Jeong-Woo

9111,460 

Chang,In-Hwa

   889

Choi, Joo

7961,389 

Kim,Soon-Ki

   7071,332 

Jeong, Tak

   6991,299

Chon, Jung-Son

1,262

Yoo, Byeong-Og

1,149 

Kim,Jhi-Yong

1,091

Kim, Gyo-Sung

   6851,041 

Yoo,Nam, Byeong-OgSoo-Hi

   649987 

Lee,Si-Woo

   566905

Name

Number of
Common Shares
 

Song,Lee, Chi-YoungDuk-Lak

   500774 

Jung,Lee, Bum-SuChan-Gi

 ��737

Chung, Chang-Hwa

   483650

Lee, Jean-Su

648

Lee, Ju-Tae

623 

Yang, Weon Jun

   476

Lee,Duk-Lak

474

Jung,Hae-Seong

450

Choo,Se-Don

405576 

Park, Hyeon

   403523 

Lim,Jung, Seung-KyuBum-Su

   392511 

Kim,Jhi-YongDong-Hee

   385510

Choo, Se-Don

505

Oh, Gyu-Seok

500

Lee, Ju-Hyeob

500 

Kim,Min-ChulDae-Up

455

Kim-Hee

433

Ahn, Sang-Bog

420

Kim, Sung-Jin

400

Kim, Ki-Soo

400

Kim, Sang-Gyun

   380 

Lee,Cheol-HoCheol-Mu

   379378 

Lee,Kim, Yu-KyungTae-Eok

   377373

Kim, Young-Joong

350 

Han,Choi, Soo-HoYong-Jun

   359344 

Lee,Choi, Ju-TaeJong-Kyo

   323324 

Lee,Ha, Jae-YeolDae-Ryong

   298300 

Oh,Chung, Hyoung-SooKyung-Jin

294

Kim, Kwang-Moo

   273 

Choi,Choun, In-SukSi-Youl

   269264 

Chon,Song, Jung-SonYoung-Sam

   262260 

Kim,Park, Jeoung-SuNam-Sik

   243244 

Kim,Yang, Bok-TaeKeun-Sik

   238208 

Chun,Cho, Sung-LaeJu-Ik

   227200 

Choi,Lee, Jong-KyoKyung-Sub

   224200 

Lee,Kim, Baik-Hee

214

Choi, Young

205

An,Geun-SikKyung-Han

   200 

Kim, Sang-GyunSang-Chul

   180200 

Han,Chung, Sung-HeeSeok-Mo

   174200 

Bae,Pakr, Jae-TakSung-Jin

   126200

Lee, Sung-Wook

200 

Yun,Hwang, Yang-SuGuy-Sam

   112173 

Lee, Jeon-HyeokEom, Gi-Chen

   89170

Jeong, Dae-Hyung

130

Yang, Byeong-Ho

122

Kim, Won-Hee

120 

Kang, Sung-Wook

   83104 

Kim,Ki-SooKwang-Soo

   79103 

Kim,Yoon, Kwang-MooChang-Woo

   73100

Lee, Dong-Ryeol

100 

Lee,Yoon, Chan-GiSung-Won

   73

Song,Yong-Sam

60

Lee,Jean-Su

53

Lee,Kyung-Sub

31

Choun,Si-Youl

31

Choi,Yong-Jun

27

Choi,Hyeon-Soo

2550 

Kim,Yong-Soo

   1242 

Jung,Duk-KyoonHan, Hyung-Chul

   10

Nam,Jae-Bok

10

Hong,Sam-Young

1018 

Lee,Sang-Ho

   4 

Oh, Kyung-ShikKim, Jin-Bo

   2 
  

 

 

 

Total

   16,56529,236 
  

 

 

 

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, 2018.2020.

 

Shareholders

  Number of Shares
Owned
   Percentage 

National Pension Service

   9,342,192    10.72

BlackRock Fund Advisors and subsidiaries (1)

   4,549,553    5.22 

Nippon Steel & Sumitomo Metal Corporation (1)

   2,894,712    3.32 

GIC Private Limited

   2,016,887    2.31 

KB Financial Group Inc. and subsidiaries

   2,001,820    2.30 

Directors and executive officers as a group

   16,565    0.02 

Public (1)

   59,179,403    67.88 

POSCO (held in the form of treasury stock)

   7,185,703    8.24 
  

 

 

   

 

 

 

Total issued shares of common stock

   87,186,835    100.00
  

 

 

   

 

 

 

Shareholders

  Number of Shares
Owned
   Percentage 

National Pension Service

   10,247,183    11.75 

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

   4,555,963    5.23 

Nippon Steel Corporation(1)

   2,894,712    3.32 

Samsung Group and subsidiaries(2)

   1,817,635    2.08 

GIC Private Limited

   1,718,369    1.97 

Others

   65,952,973    75.65 
  

 

 

   

 

 

 

Total issued shares of common stock

   87,186,835    100.00
  

 

 

   

 

 

 

 

 

(1)

Includes ADRs.

(2)

Includes 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.

As of December 31, 2018,2020, there were 9,215,0726,463,452 shares of common stock outstanding in the form of ADRs, representing 10.57%7.41% of the total issued shares of common stock.

Item 7.B.  Related

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 the Consolidated Financial Statements.

As of December 31, 2016, 20172018, 2019 and 2018,2020, we had no loans outstanding to our executive officers and Directors.

Item 7.C.  Interests

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-130.F-137.

Legal Proceedings

Trade Remedy 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.”

Antitrust Proceedings

In 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 the Won 89.3 billion fine imposed on us, which was subsequently appealed by the Korea Fair Trade Commission to the Supreme Court of Korea. In NovemberOctober 2016, the Supreme Court of Korea vacated the Seoul High Court’s ruling and remanded the proceeding in NovemberOctober 2016. In February 2019, the Seoul High Court revoked the fine and one of the two corrective orders initially imposed on us, which was 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 imposed the recalculated fine of Won 74.4 billion on us. We filed for judicial review of such recalculated fine in the Seoul High Court in September 2020 and 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.

Loans to Daewoo Motors India Guaranteed by Predecessor of POSCO International

In May 2002, Industrial Development Bank of India brought a suit against Daewoo International Corporation (currently, POSCO 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 International). The total claim amount is 4.46 billion Indian Rupees, and POSCO International recorded provision of Won 2122 billion relating to its portion of the guarantee alleged by Industrial Development Bank of India. Daewoo International Corporation challenged the jurisdiction of the court in 2003. The outcome of such lawsuits remains uncertain and POSCO International’s provision is classified as anon-current liability as of December 31, 2018.2019.

In January 2019,Legal Proceedings Related to the Financial Supervisory Service initiated a review and investigation of POSCO E&C’s annual report and related financial statements for the year ended December 31, 2015, which is currently ongoing. We cannot predict the outcome of this review and investigation, and there can be no assurance that such review and investigation will not result in imposition of penalties or corrective actions on POSCO E&C or us by the Financial Supervisory Service.Songdo Project

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 (“ICA”) 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. While the claim in the United States District Court for the Southern District of New York was dismissed in November 2020, 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 involvedclaimants 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.ICA proceeding.

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, 2018.2020. Of these shares and as of such date, 80,001,13276,015,472 shares were outstanding and 7,185,70311,171,363 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) 

2014

  6,000  2,000   8,000 

2015

  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   5,000  5,000   10,000 

2019

  4,000  6,000   10,000 

2020

  3,500  4,500   8,000 

Owners of the ADSs are entitled to receive any dividends payable in respect of the underlying shares of common stock.

Historically, we have paid to holders of record of our common stock an annual dividend. However, we can give no assurance that we will continue to declare and pay any dividends in the future.

Item 8.B.Significant Changes

Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our Consolidated Financial Statements included in this annual report.

Item 9.The Offer and Listing

Item 9.A.Offer and Listing Details

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.

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, 2018, 36,860,2882020, 25,853,808 ADSs representing 9,215,0726,463,452 common shares were outstanding, representing 10.6%7.41% of total issued shares of common stock.

Item 9.B.Plan of Distribution

Not applicable

Item 9.C.Markets

See “Item 9.A. Offering and Listing Details.”

Item 9.D.Selling Shareholders

Not applicable

Item 9.E.  Dilution

Not applicable

Item 9.F.  Expenses of the Issuer

Item 9.F.  Expenses

of the Issuer

Not applicable

Item 10.  Additional

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, 2018,2020, 87,186,835 Common Shares were issued, of which 7,185,70311,171,363 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

Under 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. In addition, we may declare quarterly dividends pursuant to a board resolution each 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 dividend unclaimed for five years from the payment date.

Under the Commercial Code, we may pay dividends 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 dividends, and (iv) unrealized profits determined in the Presidential Decree to the Commercial Code. We may not pay dividends unless we have set aside as earned surplus reserve an amount equal to at least 10% of the cash portion of dividends 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 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 and other applicable regulations;

 

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

 

represented by depositary receipts pursuant to the FSCMA and other applicable regulations 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 entities pursuant to a joint venture agreement, strategic coalition or technology license 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, 2018,2020, our employees owned, through our employee stock ownership association, approximately 1.69%1.68% 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, 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.

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 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 board of directors.

In general, holders ofNon-Voting Preferred Shares are not entitled to vote on any resolution or receive notice of any general meeting of shareholders. However, in the case of amendments to our articles of incorporation, or any merger or consolidation of us, or in some other cases that affect the rights or interests of theNon-Voting Preferred Shares, approval of the holders ofNon-Voting Preferred Shares is required. We may obtain the approval by a resolution of holders of at leasttwo-thirds of theNon-Voting Preferred Shares present or represented at a class meeting of the holders ofNon-Voting Preferred Shares, where the affirmative votes also represent at leastone-third of our total issued and outstandingNon-Voting Preferred Shares.

Shareholders may exercise their voting rights by proxy. When a shareholder is a corporate entity, such shareholder may give proxies to its officers or directors.

Holders of ADRs exercise their voting rights through the ADR depositary, an agent of which is the record holder of the underlying Common Shares. Subject to the provisions of the deposit agreement, ADR holders are entitled to instruct the ADR depositary how to vote the Common Shares underlying their ADSs.

Rights of Dissenting Shareholders

In some limited circumstances, including the transfer of the whole or any significant part of our business and our merger or consolidation with another company, dissenting shareholders have the right to require us to purchase their Shares. Only the shareholders who have executed a share purchase agreement evidencing their acquisition of the relevant Shares on or prior to the day immediately following the public disclosure of the board resolutions approving any of the aforementioned transactions have the rights to require us to purchase their Shares. To exercise this right, shareholders, including holders ofNon-Voting Preferred Shares, must submit to us a written notice of their intention to dissent before the general meeting of shareholders. Within 20 days after the relevant resolution is passed at a meeting, the dissenting shareholders must request us in writing to purchase their Shares. We are obligated to purchase the Shares of dissenting shareholders within one month after the expiration of the20-day period. The purchase price for the Shares is required to be determined through negotiation between the dissenting shareholders and us. If we cannot agree on a price through negotiation, the purchase price will be the average of (1) the weighted average of the daily Share prices on the Korea Exchange for thetwo-month period before the date of the adoption of the relevant board resolution, (2) the weighted average of the daily Share price on the Korea Exchange for the one month period before the date of the adoption of the relevant resolution and (3) the weighted average of the daily Share price on the Korea Exchange for the one week period before such date of the adoption of the relevant resolution. However, the court may determine this price if we or dissenting shareholders do not accept the purchase price. Holders of ADSs will not be able to exercise dissenter’s rights unless they have withdrawn the underlying common stock and become our direct shareholders.

Register of Shareholders and Record Dates

We maintain the register of our shareholders electronically through Kookmin Bank, our transfer agent. Kookmin Bank performs electronic registration of our Shares, manages the electronic register of our shareholders 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 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 electronic registration of 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,Gukjegeumyung-ro 8-gil, Yeongdeungpo-gu, Seoul, Korea.

Acquisition of Shares by Us

We may acquire our own Shares, subject to the approval by the general meeting of shareholders. In addition, we may acquire Shares through purchases on the Korea Exchange or through a tender offer or by acquiring the interests in a trust account holding our own Shares through agreements with trust companies and asset management companies. The aggregate purchase price for the Shares may not exceed the total amount available for distribution of dividends available at the end of the preceding fiscal year less the amount of dividends and mandatory reserves required to be set aside for that fiscal year, subject to certain procedural requirements.

In accordance with the Commercial Code, we may resell or transfer any Shares acquired by us to a third party, subject to the approval by the board of directors. In general, corporate entities in which we own more than 50% equity interest may not acquire our Shares. Under the FSCMA, we are subject to certain selling restrictions for the Shares acquired by us.

Liquidation Rights

In the event of our liquidation, after payment of all debts, liquidation expenses and taxes, our remaining assets will be distributed among shareholders in proportion to their shareholdings. Holders ofNon-Voting Preferred Shares have no preference in liquidation.

Item 10.C.Material Contracts

None.

Item 10.D.Exchange Controls

Shares and ADSs

The Foreign Exchange Transaction Act and the Presidential Decree and regulations under that Act and Decree (collectively, “Foreign Exchange Transaction Laws”) and the Foreign Investment

Promotion Law regulate investment in Korean securities bynon-residents and issuance of securities outside Korea by Korean companies. Under the Foreign Exchange Transaction Laws,non-residents may invest in Korean securities subject to procedural requirements in accordance with these laws. The Financial Services Commission has also adopted, pursuant to its authority under the FSCMA, regulations that restrict investment by foreigners in Korean securities.

Subject to certain limitations, the Ministry of Economy 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 Economy 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), (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 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 its currency policies, exchange rate policies or other macroeconomic policies, the Ministry of Economy 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 Economy 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 specifiedprovided by Presidential Decrees under 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 of Equity 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 voting stock accounts for 10% or more of the total issued and outstanding voting stock (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 his 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 Presidential 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 the month immediately following the quarter of such change in 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 public 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 by direct investment as defined in the Foreign Investment Promotion 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 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 shares of certain 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 foreign investor according to its articles of incorporation. Furthermore, an investment by a foreign investor of not less than 10% of the outstanding shares with voting rights orand in the amount of not less than Won 10010 million of a Korean company is defined as a foreign direct investment under the Foreign Investment Promotion Law, which is, in general, subject to 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 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%0.43% of the sales price.price (or 0.45% of the sales price if such shares were sold before January 1, 2021). 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%0.23% of the sales price of such shares (0.25% of the sales price if such shares were sold before January 1, 2021) (including agricultural and fishery special surtax thereon) if traded on the KRX KOSPI Market or (ii) subject to certain exceptions, 0.5%0.43% of the sales price of such shares (or 0.45% of the sales price if such shares were sold before January 1, 2021) 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%9.125% 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.

Passive Foreign Investment Company Rules

Special U.S. tax rules apply to companies that are considered to be PFICs. We will be classified as a PFIC in a particular taxable year if either

75 percent or more of our gross income for the taxable year is passive income; or

at least 50 percent of the quarterly average value of our assets is attributable to assets that produce or are held for the production of passive income.

For this purpose, passive income generally includes dividends, interest, gains from certain commodities transactions, rents, royalties and the excess of gains over losses from the disposition of assets that produce passive income.

Based on our 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 2020 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 2021 taxable year or in the foreseeable future. However, the determination of whether we are a PFIC must be made annually based on the facts and circumstances at that time, some of which may be beyond our control, including the valuation of our assets as implied by the market price for our common stock or ADSs. Accordingly, it is possible that we could become a PFIC in the current or a future year.

If we are classified as a PFIC in any taxable year during which you hold our common stock or ADSs, you could be subject to a special tax at ordinary income rates on “excess distributions,”

including certain distributions by us and gain that you recognize on the sale of your common stock or ADSs. The amount of income tax on any excess distributions will be increased by an interest charge to compensate for tax deferral, calculated as if the excess distributions were earned ratably over the period you held the common stock or ADSs. Classification as a PFIC may also have other adverse consequences, including, in the case of individuals, the denial of a step-up in the basis of your common stock or ADSs at death. Except where otherwise noted, the remainder of this summary assumes that we were not a PFIC for our 2020 taxable year and that we will not become a PFIC in the current or any future year.

You should consult your own tax advisers as to our status as a PFIC and the tax consequences to you of such status.

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 20172019 or 20182020 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 20192021 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. 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 website 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 loss on derivatives transactions of Won 22 billion and net loss on valuation of derivatives of Won 16 billion in 2016, net loss on valuation of derivatives of Won 162 billion and net loss on derivatives transactions of Won 26 billion in 2017 and net gain on valuation of derivatives of Won 56 billion and net gain on derivatives transactions of Won 39 billion in 2018.2018 and net gain on valuation of derivatives of Won 116 billion and net loss on derivatives transactions of Won 32 billion in 2019 and net loss on valuation of derivatives of Won 114 billion and net loss on derivatives transactions of Won 58 billion in 2020.

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 International’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 International’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 International and POSCO E&C, also periodically enter into derivative contracts, primarily foreign currency swaps and forward exchange contracts, to further hedge some of our foreign exchange risks.

Our foreign currency exposure and changes in gain or loss resulting from a 10% foreign exchange rate change against the Korean Won are as follows:

 

  For the Years Ended December 31,   For the Years Ended December 31, 
  2016   2017 2018   2018 2019 2020 
  Increase Decrease   Increase Decrease Increase Decrease   Increase Decrease Increase Decrease Increase Decrease 
  (In billions of Won)   (In billions of Won) 

US Dollars

      (163)      163       (173)      173      (204)      204   (204 204  (174 174  (244 244 

Japanese Yen

   (78  78    (54  54   (29  29    (29  29   (17  17   (53  53 

Euro

   (9  9    10   (10  15   (15   15   (15  41   (41  (48  48 

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, 
           2016                   2017                   2018         
   (In billions of Won) 

Increase or decrease in annual profit and net equity

      120       100       85 
   For the Years Ended December 31, 
   2018   2019   2020 
   (In billions of Won) 

Increase or decrease in annual profit and net equity

  85   79   66 

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, 20182020 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,
2018
 December 31,
2017
              December 31,
2020
 December 31,
2019
 
 2019 2020 2021�� 2022 2023 Thereafter Total Fair
Value
 Total Fair
Value
  2021 2022 2023 2024 2025 Thereafter Total Fair
Value
 Total Fair
Value
 
 (In billions of Won except rates)  (In billions of Won except rates) 
Local currency:                               

Fixed rate

  2,426   736   1,871   254   150   270   5,707   5,620   5,983   5,882   1,512   1,991   1,347   768   329   741   6,688   6,679   6,562   6,475 

Average weighted rate(1)

  2.78  2.87  3.15  2.68  2.79  2.98  2.92   3.12   3.05  1.87  2.35  1.86  2.06  2.00  2.25   1.55 

Variable rate

  333   32   68   11   60   8   512   511   1,062   1,062   282   163   183   0   0   43   671   671   370   369 

Average weighted rate(1)

  2.82  2.53  2.22  3.26  3.49  1.83  2.80   2.98   2.66  1.43  2.07  0.00  0.00  1.64  2.14   2.93 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Sub-total

  2,759   768   1,939   265   210   278   6,219   6,131   7,045   6,944   1,794   2,154   1,530   768   329   784   7,359   7,350   6,932   6,844 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Foreign currency, principally Dollars and Yen:

                    

Fixed rate

  3,052   1,011   1,180   1   658   124   6,026   5,944   5,157   5,016   3,511   656   1,427   1,223   474   222   7,513   7,472   6,070   5,990 

Average weighted rate(1)

  2.87  3.86  3.92  1.34  3.98  2.51  3.33   3.05   2.68  2.17  2.84  1.53  2.52  4.00  2.49   3.41 

Variable rate

  3,748   525   852   4   475   2,360   7,964   7,966   8,861   8,871   3,355   422   593   0   959   294   5,623   5,622   7,441   7,439 

Average weighted rate(1)

  2.54  4.19  4.53  5.11  3.09  8.98  4.80   4.33   1.40  1.60  1.66  0.00  2.97  2.10  1.75   4.03 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Sub-total

  6,800   1,536   2,032   5   1,133   2,484   13,990   13,910   14,018   13,887   6,866   1,078   2,020   1,223   1,433   516   13,136   13,094   13,511   13,429 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total

  9,559   2,304   3,971   270   1,343   2,762   20,209   20,041   21,063   20,831   8,660   3,232   3,550   1,991   1,762   1,300   20,495   20,444   20,443   20,273 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

 

 

(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 2018,2020, we received approximately $1.5$1.3 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 officer and chief financial officer, the effectiveness of our disclosure controls and procedures, as such term is defined in Rules13a-15(e) and15d-15(e) under the Exchange Act, as of December 31, 2018.2020. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and that it is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

b.    Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed by, and under the supervision of, our principal executive, principal operating and principal financial officers, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Our internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable

assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management has completed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 20182020 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, 2018.2020.

c.    Report of the Independent Registered Public Accounting Firm

The report of our independent registered public accounting firm, KPMG Samjong Accounting Corp. (“KPMG”), on the effectiveness of our internal control over financial reporting as of December 31, 20182020 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 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 Ethics, applies to our chief executive officer and chief financial officer, as well as to our directors, other officers and employees. Our Code of Ethics is available on our website athttp://www.posco.com. If we amend the provisions of our Code of Ethics 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 website 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 registered public accounting firm, KPMG, in 20172019 and 2018:2020:

 

  For the Year Ended
December 31,
   For the Year Ended
December 31,
 
  2017   2018   2019   2020 
  (In millions of Won)   (In millions of Won) 

Audit fees

  5,480   6,019   7,448   7,712 

Audit-related fees

       167    422     

Tax fees

   805    841    1,002    1,037 

Other fees

   684    989    971    1,236 
  

 

   

 

   

 

   

 

 

Total fees

  6,969   8,016     9,843     9,985 
  

 

   

 

   

 

   

 

 

Audit fees in 20172019 and 20182020 as set forth in the above table are the aggregate fees billed or expected to be 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 20182019 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 20172019 and 20182020 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 20172019 and 20182020 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

Under our Audit Committee’spre-approval policies and procedures, all audit andnon-audit services to be provided to us by an independent registered public accounting firm must bepre-approved by our 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, 2018:2020:

 

Period

Total Number
of Shares
Purchased
Average Price Paid
Per Share (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

Period

  Total Number
of Shares
Purchased
   Average Price Paid
Per Share (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

   165,048    172,587    190,000    24,952 

June 1 to June 30

   193,905    187,401    220,000    26,095 

July 1 to July 31

   323,472    189,963    440,000    116,528 

August 1 to August 31

   314,443    198,005    400,000    85,557 

September 1 to September 30

   743,013    189,963    770,000    26,987 

October 1 to October 31

   843,076    208,834    930,000    86,924 

November 1 to November 30

   927,508    235,369    1,100,000    172,492 

December 1 to December 31

   589,704    269,921    1,120,000    530,296 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   4,100,169    215,410    5,170,000    1,069,831 
  

 

 

   

 

 

   

 

 

   

 

 

 

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. 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.

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. 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 Ethics for all directors, officers and employees. A copy of our Code of Ethics 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-3

Consolidated Financial Statements

Consolidated Statements of Financial Position

   F-5 

Consolidated Statements of Comprehensive IncomeFinancial Position as of December 31, 2019 and 2020

   F-7 

Consolidated Statements of Changes in EquityComprehensive Income for the Years Ended December 31, 2018, 2019 and 2020

   F-8F-9

Consolidated Statements of Changes in Equity for the Years Ended December 31, 2018, 2019 and 2020

F-10 

Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2019 and 2020

   F-11F-13 

Notes to the 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
 101.INS101       XBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase DocumentInteractive 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-3F-5 

Consolidated Financial Statements

  

Consolidated Statements of Financial Position

   F-5F-7 

Consolidated Statements of Comprehensive Income

   F-7F-9 

Consolidated Statements of Changes in Equity

   F-8F-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, 20172019 and 2018 and2020, the related consolidated statements of comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended December 31, 20182020, 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, 20172019 and 20182020 and the results of theirits operations and theirits cash flows for each of the years in the three-year period ended December 31, 2018,2020, 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, 2018,2020, 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 30, 201929, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change inAdoption of New Accounting PoliciesStandards

As discussed in Note 23 to the consolidated financial statements, effective January 1, 2019, the Company has changed its methods of accounting for revenue recognition and financial instruments in 2018lease due to the adoption of IFRS No. 15 “Revenue from Contracts with Customers” and IFRS No. 9 “Financial Instruments”.16, Leases.

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(c) to the consolidated financial statements, goodwill amounted to 903,893 million as of December 31, 2020, of which 762,816 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. A high degree of challenging, subjective and complex auditor judgment was involved in evaluating the Company’s estimate of the recoverable amount of POSCO INTERNATIONAL Corporation CGU. Specifically, estimated sales, discount rate and terminal growth rate were challenging to test as minor changes in those assumptions would have a significant effect on the Company’s assessment of the carrying value of the goodwill.

The following are the primary procedures we performed to address this critical matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s goodwill impairment analysis. This included controls related to 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 compared the terminal growth rate with available public data from external economic research institutions. We performed sensitivity analysis over estimated sales, discount rate and terminal growth rate to assess the impact of changes in these assumptions on the Company’s goodwill impairment assessment. We involved valuation professionals with specialized skill and knowledge, who assisted in evaluating the discount rate by comparing it against a discount rate that was independently developed using available market data for comparable entities.

(b)

Estimated total contract costs at completion for construction contract revenue recognition related to POSCO ENGINEERING & CONSTRUCTION CO., LTD.

As discussed in Notes 3, 28 and 29 to the consolidated financial statements, the Company reported revenue of 6,108,136 million from construction contracts for the year ended December 31, 2020, for which revenue is recognized over time. Such revenue amount included revenue related to POSCO ENGINEERING & CONSTRUCTION CO., LTD, a subsidiary of the Company. 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, to the estimated total contract costs at completion.

We identified the 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. Changes in these assumptions may have a significant impact on the amount of revenue recognized during a specific period.

The following are the primary procedures we performed to address this critical matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the estimation of total contract costs at completion for construction contracts, including controls related to the assumptions used to develop the estimated total contract costs at completion. We evaluated the estimated total contract costs at completion by:

inspecting the supporting 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 for a selection of projects;

questioning the person in charge of construction field, and inspecting supporting documentation to test estimated material costs, labor costs and outsourcing costs for a selection of projects commenced in 2020;

questioning the Company’s finance manager and the person in charge of construction field, and inspecting documents as to the cause of any changes in estimated total contract costs at completion made during 2020 for a selection of projects; and

assessing the Company’s ability to accurately forecast estimated total contract costs at completion by comparing the actual total contract costs for construction contracts completed during 2020 against the estimated total contract costs at completion in prior year.

/s/ KPMG Samjong Accounting Corp.

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

Seoul, Korea

April 30, 201929, 2021

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 subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2018,2020, 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, 2018,2020, 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, 20172019 and 2018,2020, the related consolidated statements of comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended December 31, 20182020, and the related notes (collectively, the consolidated financial statements), and our report dated April 30, 201929, 2021 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

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 30, 201929, 2021

POSCO and Subsidiaries

Consolidated Statements of Financial Position

As of December 31, 20172019 and 20182020

 

 

 

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

Assets

      

Cash and cash equivalents

   4,5,23   2,612,530    2,643,865 

Trade accounts and notes receivable, net

   6,17,23,29,37    8,824,563    9,130,204 

Other receivables, net

   7,23,37    1,636,006    1,385,629 

Other short-term financial assets

   8,23    7,045,880    8,081,096 

Inventories

   9    10,793,781    12,153,303 

Current income tax assets

   35    38,489    51,557 

Assets held for sale

   10    71,768    21,854 

Other current assets

   16    821,242    684,464 
    

 

 

   

 

 

 

Total current assets

     31,844,259    34,151,972 
    

 

 

   

 

 

 

Long-term trade accounts and notes receivable, net

   6,23    731,570    427,125 

Other receivables, net

   7,23,37    879,176    863,240 

Other long-term financial assets

   8,23    1,911,684    1,647,898 

Investments in associates and joint ventures

   11    3,557,932    3,650,003 

Investment property, net

   13    1,064,914    928,615 

Property, plant and equipment, net

   14,32    31,883,535    30,018,273 

Intangible assets, net

   15,32    5,952,269    5,170,825 

Defined benefit assets, net

   21    8,224    1,489 

Deferred tax assets

   35    1,463,055    1,408,787 

Othernon-current assets

   16    489,011    508,764 
    

 

 

   

 

 

 

Totalnon-current assets

     47,941,370    44,625,019 
    

 

 

   

 

 

 

Total assets

    79,785,629    78,776,991 
    

 

 

   

 

 

 

(in millions of Won)  Notes   December 31,
2019
   December 31,
2020
 

Assets

      

Cash and cash equivalents

   4,5,23   3,514,872    4,754,644 

Trade accounts and notes receivable, net

   6,17,23,29,37    9,070,031    8,110,239 

Other receivables, net

   7,23,37    1,581,517    1,494,239 

Other short-term financial assets

   8,23    8,996,049    11,709,209 

Inventories

   9    11,230,759    9,636,183 

Current income tax assets

   35    45,930    49,481 

Assets held for sale

   10    74,158    34,210 

Other current assets

   16    631,177    616,623 
    

 

 

   

 

 

 

Total current assets

     35,144,493    36,404,828 
    

 

 

   

 

 

 

Long-term trade accounts and notes receivable, net

   6,23    198,785    86,423 

Other receivables, net

   7,23,37    1,140,879    1,195,962 

Other long-term financial assets

   8,23    1,669,389    1,561,807 

Investments in associates and joint ventures

   11    3,927,755    3,876,249 

Investment property, net

   13    878,227    994,781 

Property, plant and equipment, net

   14    29,925,973    29,400,141 

Intangible assets, net

   15    4,908,473    4,449,432 

Defined benefit assets, net

   21    4,280    86,149 

Deferred tax assets

   35    1,247,313    1,357,844 

Other non-current assets

   16    325,241    270,060 
    

 

 

   

 

 

 

Total non-current assets

     44,226,315    43,278,848 
    

 

 

   

 

 

 

Total assets

    79,370,808    79,683,676 
    

 

 

   

 

 

 

See accompanying notes to the consolidated financial statements.

POSCO and Subsidiaries

Consolidated Statements of Financial Position, Continued

As of December 31, 20172019 and 20182020

 

 

 

  Notes   December 31,
2017
 December 31,
2018
 
  (in millions of Won) 
(in millions of Won)  Notes   December 31,
2019
 December 31,
2020
 

Liabilities

          

Trade accounts and notes payable

   23,37   3,465,146  4,006,135    23,37   3,422,922  3,755,513 

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

   4,17,23    11,274,516  10,289,619    4,17,23    8,548,212  8,677,529 

Other payables

   18,23    1,753,461  1,720,097    18,23    1,879,508  1,845,266 

Other short-term financial liabilities

   19,23,37    129,812  77,800    19,23,37    77,827  141,404 

Current income tax liabilities

   35    515,538  948,166    35    396,616  366,476 

Liabilities directly associated with the assets held for sale

   10    8  25 

Provisions

   20    110,946  298,453    20    360,337  443,273 

Other current liabilities

   22,29    2,240,919  2,090,307    22,29    1,865,638  1,981,977 
    

 

  

 

     

 

  

 

 

Total current liabilities

     19,490,338  19,430,577      16,551,068  17,211,463 
    

 

  

 

     

 

  

 

 

Long-term trade accounts and notes payable

   23,37    12,532  29,825    23,37    20,067  22,323 

Long-term borrowings, excluding current installments

   4,17,23    9,789,141  9,919,651    4,17,23    11,893,401  11,820,078 

Other payables

   18,23    147,750  148,868    18,23    585,129  558,924 

Other long-term financial liabilities

   19,23    114,105  64,162    19,23    31,494  133,588 

Defined benefit liabilities, net

   21    137,193  140,933    21    181,011  141,785 

Deferred tax liabilities

   35    1,904,242  1,688,893    35    1,691,498  1,320,726 

Long-term provisions

   20    477,172  431,036    20    458,154  522,969 

Othernon-current liabilities

   22    386,431  250,432    22    195,688  348,297 
    

 

  

 

     

 

  

 

 

Totalnon-current liabilities

     12,968,566  12,673,800      15,056,442  14,868,690 
    

 

  

 

     

 

  

 

 

Total liabilities

     32,458,904  32,104,377      31,607,510  32,080,153 
    

 

  

 

     

 

  

 

 

Equity

          

Share capital

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

Capital surplus

   24    1,422,021  1,420,007    24    1,385,707  1,320,003 

Hybrid bonds

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

Reserves

   26    (682,556 (1,404,368   26    (1,157,980 (1,380,918

Treasury shares

   27    (1,533,054 (1,532,728   27    (1,508,303 (2,391,523

Retained earnings

     42,974,658  44,160,659      45,054,077  46,064,477 
    

 

  

 

     

 

  

 

 

Equity attributable to owners of the controlling company

     43,660,391  43,325,357      44,455,288  44,293,826 

Non-controlling interests

   25    3,666,334  3,347,257    25    3,308,010  3,309,697 
    

 

  

 

     

 

  

 

 

Total equity

     47,326,725  46,672,614      47,763,298  47,603,523 
    

 

  

 

     

 

  

 

 

Total liabilities and equity

        79,785,629  78,776,991     79,370,808  79,683,676 
    

 

  

 

     

 

  

 

 

See accompanying notes to the consolidated financial statements.

POSCO and Subsidiaries

Consolidated Statements of Comprehensive Income

For the years ended December 31, 2016, 20172018, 2019 and 20182020

 

 

 

  Notes   2016 2017 2018 
  (in millions of Won, except per share information) 
(in millions of Won, except per share information) Notes 2018 2019 2020 

Revenue

   28,29,37   52,939,771  60,186,867  65,154,636  28,29,37  65,154,636  64,785,709  57,466,678 

Cost of sales

   29,31,34,37    (46,271,465 (51,915,597 (57,129,060 29,31,34,37  (57,129,060 (58,462,100 (52,798,594
    

 

  

 

  

 

   

 

  

 

  

 

 

Gross profit

     6,668,306  8,271,270  8,025,576   8,025,576  6,323,609  4,668,084 

Selling and administrative expenses

   30,34      30,34    

Impairment loss on trade accounts and notes receivable

   23    (165,150 (173,694 (74,781

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

  (74,781 28,105  (829

Other administrative expenses

   31    (2,126,390 (2,003,106 (1,985,755 31  (1,985,755 (2,041,286 (1,939,602

Selling expenses

     (1,553,686 (1,557,277 (369,245  (369,245 (368,318 (376,940

Other operating income and expenses

   32,37      32,37    

Impairment loss on other receivables

   23    (37,567 (98,177 (63,092  (63,092 (80,323 (53,105

Other operating income

     202,478  448,481  523,586   523,586  450,891  402,336 

Other operating expenses

   34    (705,495 (691,376 (2,014,462 34  (2,014,462 (1,089,965 (645,574
    

 

  

 

  

 

   

 

  

 

  

 

 

Operating profit

     2,282,496  4,196,121  4,041,827   4,041,827  3,222,713  2,054,370 

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

   11    (88,677 10,540  112,635 

Share of profit of equity-accounted investees, net

 11  112,635  273,741  133,297 

Finance income and costs

   23,33      23,33    

Finance income

     2,231,980  2,372,667  1,705,970   1,705,970  1,872,143  2,677,499 

Finance costs

     (3,014,190 (2,484,277 (2,244,416  (2,244,416 (2,242,063 (2,892,402
    

 

  

 

  

 

   

��

 

  

 

  

 

 

Profit before income taxes

     1,411,609  4,095,051  3,616,016   3,616,016  3,126,534  1,972,764 

Income tax expense

   35    (379,544 (1,185,740 (1,683,630 35  (1,683,630 (1,088,369 (224,272
    

 

  

 

  

 

   

 

  

 

  

 

 

Profit

        1,932,386  2,038,165  1,748,492 

Other comprehensive income (loss)

     1,032,065  2,909,311  1,932,386     

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

      

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

    

Remeasurements of defined benefit plans

   21    20,540  (47,543 (173,489 21  (173,489 (117,152 36,575 

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

          (149,188 23  (149,188 (10,541 (77,627

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

          

Capital adjustment arising from investments inequity-method investees

     134,590  (217,388 (62,732

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

   23    310,608  (31,389   

Capital adjustment arising from investments in equity-accounted investees

  (62,732 66,134  (28,609

Foreign currency translation differences

     (11,491 (264,695 (42,908  (42,908 208,117  (147,956

Gain or losses on valuation of derivatives

   23      (143 (212

Losses on valuation of derivatives

 23  (212 (90 (331
    

 

  

 

  

 

   

 

  

 

  

 

 

Other comprehensive income (loss), net of tax

     454,247  (561,158 (428,529  (428,529 146,468  (217,948
    

 

  

 

  

 

   

 

  

 

  

 

 

Total comprehensive income

    1,486,312  2,348,153  1,503,857   1,503,857  2,184,633  1,530,544 
    

 

  

 

  

 

   

 

  

 

  

 

 

Profit attributable to :

          

Owners of the controlling company

    1,354,807  2,756,230  1,711,902   1,711,902  1,864,405  1,581,208 

Non-controlling interests

     (322,742 153,081  220,484   220,484  173,760  167,284 
    

 

  

 

  

 

   

 

  

 

  

 

 

Profit

    1,032,065  2,909,311  1,932,386   1,932,386  2,038,165  1,748,492 
    

 

  

 

  

 

   

 

  

 

  

 

 

Total comprehensive income attributable to :

          

Owners of the controlling company

    1,814,030  2,184,402  1,292,785   1,292,785  2,027,049  1,394,192 

Non-controlling interests

     (327,718 163,751  211,072   211,072  157,584  136,352 
    

 

  

 

  

 

   

 

  

 

  

 

 

Total comprehensive income

    1,486,312  2,348,153  1,503,857   1,503,857  2,184,633  1,530,544 
    

 

  

 

  

 

   

 

  

 

  

 

 

Basic and diluted earnings per share (in Won)

   36    16,521  34,040  21,177  36  21,177  23,189  19,900 

See accompanying notes to the consolidated financial statements.

POSCO and Subsidiaries

Consolidated Statements of Changes in Equity

For the years ended December 31, 2016, 20172018, 2019 and 20182020

 

 

 

 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, 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 
(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, 2018

 482,403  1,422,021  996,919  (1,181,073 (1,533,054 43,350,818  43,538,034 

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   —     —     —    (76,587  —     —    (76,587 13,855  (62,732

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

          314,428        314,428  (3,820 310,608 

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, 2016, 20172018, 2019 and 20182020

 

 

 

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

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 

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 Changes in Equity, Continued

For the years ended December 31, 2016, 20172018, 2019 and 20182020

 

 

 

  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, 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

                  (70,906 (70,906 (58,977 (129,883

Adjustment on initial application of IFRS No. 9, net of tax

            (498,517    447,067  (51,450 (34,754 (86,204
  

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Adjusted balance as of January 1, 2018

   482,403    1,422,021  996,919  (1,181,073 (1,533,054 43,350,819  43,538,035  3,572,603  47,110,638 
(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, 2020

 482,403  1,385,707  199,384  (1,157,980 (1,508,303 45,054,077  44,455,288 

Comprehensive income:

                    

Profit

                  1,711,902  1,711,902  220,484  1,932,386   —     —     —     —     —    1,581,208  1,581,208  167,284  1,748,492 

Other comprehensive income (loss)

                    

Remeasurements of defined benefit plans, net of tax

                  (145,488 (145,488 (28,001 (173,489  —     —     —     —     —    44,703  44,703  (8,128 36,575 

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

            (76,587       (76,587 13,855  (62,732  —     —     —    (16,760  —     —    (16,760 (11,849 (28,609

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  —     —     —    (74,210  —    (3,417 (77,627  —    (77,627

Foreign currency translation differences, net of tax

            (45,650       (45,650 2,742  (42,908  —     —     —    (137,071  —     —    (137,071 (10,885 (147,956

Gain or losses on valuation of derivatives, net of tax

            (216       (216 4  (212  —     —     —    (261  —     —    (261 (70 (331
  

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total comprehensive income

            (226,746    1,519,531  1,292,785  211,072  1,503,857   —     —     —    (228,302  —    1,622,494  1,394,192  136,352  1,530,544 
  

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Transactions with owners of the controlling company, recognized directly in equity:

                    

Year-end dividends

                  (279,999 (279,999 (54,240 (334,239  —     —     —     —     —    (320,462 (320,462 (60,517 (380,979

Interim dividends

                  (400,003 (400,003    (400,003  —     —     —     —     —    (277,723 (277,723  —    (277,723

Changes in subsidiaries

                        (2,092 (2,092  —     —     —     —     —     —     —    22,303  22,303 

Changes in ownership interests in subsidiaries

       (1,497             (1,497 (654 (2,151  —    (27,716  —     —     —     —    (27,716 162,674  134,958 

Repayment of hybrid bonds

       (2,769 (797,535          (800,304 (359,018 (1,159,322

Repayment of redeemable convertible preferred shares

  (33,581  —     —     —     —    (33,581 (245,000 (278,581

Interest of hybrid bonds

                  (24,443 (24,443 (18,448 (42,891  —     —     —     —     —    (9,225 (9,225 (7,354 (16,579

Disposal of treasury shares

       133        326     459     459 

Acquisition of treasury shares

  —     —     —     —    (883,220  —    (883,220  —    (883,220

Others

       2,119     3,451     (5,246 324  (1,966 (1,642  —    (4,407  —    5,364   —    (4,684 (3,727 (6,771 (10,498
  

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total transactions with owners of the controlling company

       (2,014 (797,535 3,451  326  (709,691 (1,505,463 (436,418 (1,941,881  —    (65,704  —    5,364  (883,220 (612,094 (1,555,654 (134,665 (1,690,319
  

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Balance as of December 31, 2018

  482,403    1,420,007  199,384  (1,404,368 (1,532,728 44,160,659  43,325,357  3,347,257  46,672,614 

Balance as of December 31, 2020

 482,403  1,320,003  199,384  (1,380,918 (2,391,523 46,064,477  44,293,826  3,309,697  47,603,523 
  

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

See accompanying notes to the consolidated financial statements.

POSCO and Subsidiaries

Consolidated Statements of Cash Flows

For the years ended December 31, 2016, 20172018, 2019 and 20182020

 

 

 

   Notes   2016  2017  2018 
       (in millions of Won) 

Cash flows from operating activities

      

Profit

    1,032,065   2,909,311   1,932,386 

Adjustments for:

      

Depreciation

     2,835,843   2,887,646   2,911,048 

Amortization

     378,004   409,774   356,581 

Finance income

     (882,905  (1,376,324  (737,745

Finance costs

     1,501,953   1,440,282   1,168,225 

Income tax expense

     379,544   1,185,740   1,683,630 

Gain on disposal of property, plant and equipment

     (23,826  (32,145  (53,139

Loss on disposal of property, plant and equipment

     86,622   151,343   117,614 

Impairment losses on property, plant and equipment

     196,882   117,231   1,004,704 

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

     (23,305  (81,794  (45,241

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

     22,499   19,985   5,226 

Share of loss (profit) of equity-accounted investees

     88,677   (10,540  (112,635

Expenses related to post-employment benefits

     333,139   199,926   216,489 

Increase to provisions

     189,914   215,383   240,146 

Impairment loss on trade and other receivables

     202,717   271,871   137,873 

Loss on valuation of inventories

     152,249   78,560   141,799 

Gain on disposal of intangible assets

     (671  (22,391  (117,139

Impairment losses on goodwill and intangible assets

     127,875   167,995   337,519 

Gain on disposal of assets held for sale

     (23,112  (1,180  (27,171

Impairment losses on assets held for sale

     24,890      50,829 

Others, net

     8,804   (10,093  77,945 
    

 

 

  

 

 

  

 

 

 
     5,575,793   5,611,269   7,356,558 
    

 

 

  

 

 

  

 

 

 

Changes in operating assets and liabilities

   39    (404,570  (1,841,633  (2,105,726

Interest received

     206,839   244,980   352,337 

Interest paid

     (691,264  (735,735  (750,410

Dividends received

     152,559   225,514   224,410 

Income taxes paid

     (602,004  (806,396  (1,139,830
    

 

 

  

 

 

  

 

 

 

Net cash provided by operating activities

    5,269,418   5,607,310   5,869,725 
    

 

 

  

 

 

  

 

 

 

(in millions of Won)  Notes   2018  2019  2020 

Cash flows from operating activities

      

Profit

    1,932,386   2,038,165   1,748,492 

Adjustments for:

      

Depreciation

     2,911,048   3,029,868   3,156,181 

Amortization

     356,581   431,247   465,558 

Finance income

     (737,745  (855,382  (1,185,934

Finance costs

     1,168,225   1,197,705   1,390,983 

Income tax expense

     1,683,630   1,088,369   224,272 

Gain on disposal of property, plant and equipment

     (53,139  (49,367  (15,548

Loss on disposal of property, plant and equipment

     117,614   120,227   142,126 

Impairment losses on property, plant and equipment

     1,004,704   442,700   27,040 

Gain on disposal of intangible assets

     (117,139  (1,896  (815

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

     (45,241  (27,836  (88,836

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

     5,226   6,539   14,632 

Share of profit of equity-accounted investees

     (112,635  (273,741  (133,297

Expenses related to post-employment benefits

     216,489   240,425   248,324 

Increase to provisions

     240,146   76,538   184,984 

Impairment loss on trade and other receivables

     137,873   52,218   53,934 

Loss on valuation of inventories

     141,799   96,201   54,014 

Impairment losses on goodwill and intangible assets

     337,519   191,021   197,776 

Gain on disposal of assets held for sale

     (27,171  (37,461  (841

Impairment losses on assets held for sale

     50,829   38,328   5,030 

Others, net

     77,945   894   (19,420
    

 

 

  

 

 

  

 

 

 
     7,356,558   5,766,597   4,720,163 
    

 

 

  

 

 

  

 

 

 

Changes in operating assets and liabilities

   39    (2,105,726  (114,045  2,855,908 

Interest received

     352,337   320,336   368,539 

Interest paid

     (750,410  (760,175  (624,399

Dividends received

     224,410   266,774   267,923 

Income taxes paid

     (1,139,830  (1,512,997  (650,889
    

 

 

  

 

 

  

 

 

 

Net cash provided by operating activities

    5,869,725   6,004,655   8,685,737 
    

 

 

  

 

 

  

 

 

 

 

See accompanying notes to the consolidated financial statements.

POSCO and Subsidiaries

Consolidated Statements of Cash Flows, Continued

For the years ended December 31, 2016, 20172018, 2019 and 20182020

 

 

 

  Notes   2016 2017 2018 
      (in millions of Won) 
(in millions of Won)  Notes   2018 2019 2020 

Cash flows from investing activities

            

Acquisitions of short-term financial instruments

    (18,578,809 (20,843,530 (32,173,134    (32,173,134 (36,063,406 (43,307,727

Proceeds from disposal of short-term financial instruments

     17,177,409  19,146,634  31,105,544      31,105,544  35,415,822  40,500,759 

Increase in loans

     (603,332 (1,055,895 (627,783     (627,783 (450,638 (329,236

Collection of loans

     557,064  667,045  941,962      941,962  398,838  138,270 

Acquisitions of securities

          (321,916     (321,916 (296,827 (338,063

Acquisitions ofavailable-for-sale investments

     (328,151 (66,278   

Proceeds from disposal of securities

          221,646      221,646  62,492  448,125 

Proceeds from disposal ofavailable-for-sale investments

     280,066  1,006,856    

Acquisitions of investments in associates and joint ventures

     (173,769 (60,277 (47,355     (47,355 (160,404 (141,785

Proceeds from disposal of investments in associates and joint ventures

     7,914  74,881  88,852      88,852  16,458  18,401 

Acquisitions of property, plant and equipment

     (2,324,112 (2,287,580 (2,135,550     (2,135,550 (2,519,219 (3,154,412

Proceeds from disposal of property, plant and equipment

     44,330  39,183  90,412 

Proceeds from (payment for) disposal of property, plant and equipment

     90,412  51,800  (42,530

Acquisitions of investment property

     (45,735 (69,169 (44,106     (44,106 (19,344 (976

Proceeds from disposal of investment property

     11,624  5,771  70,817      70,817  12,057  250 

Acquisitions of intangible assets

     (138,181 (343,423 (447,616     (447,616 (299,587 (300,645

Proceeds from disposal of intangible assets

     8,672  28,502  77,654      77,654  24,161  79,011 

Proceeds from disposal of assets held for sale

     305,813  203,958  93,338      93,338  67,246  37,680 

Increase in cash from (payment for) acquisition of business, net of cash acquired

     4,503  (174,165        —    (37,345  —   

Cash received (decrease in cash) from disposal of business, net of cash transferred

     21,223  (53,008 447,917 

Cash received from disposal of business, net of cash transferred

     447,917  45,360  77,488 

Collection of lease receivables

     —    56,889  61,567 

Others, net

     18,844  (37,379 11,348      11,348  12,788  (5,442
    

 

  

 

  

 

     

 

  

 

  

 

 

Net cash used in investing activities

     (3,754,627 (3,817,874 (2,647,970     (2,647,970 (3,682,859 (6,259,265
    

 

  

 

  

 

     

 

  

 

  

 

 

Cash flows from financing activities

            

Proceeds from borrowings

     1,988,665  1,725,983  2,762,446      2,762,446  5,646,977  4,410,387 

Repayment of borrowings

     (4,274,895 (3,136,016 (3,136,308     (3,136,308 (3,746,845 (3,644,057

Proceeds from (repayment of) short-term borrowings, net

     (885,861 558,083  (854,554     (854,554 (2,194,727 35,525 

Payment of cash dividends

     (708,970 (863,450 (723,934     (723,934 (946,218 (659,145

Repayment of hybrid bonds

     (1,160,000  —     —   

Payment of interest of hybrid bonds

     (68,097 (67,783 (46,166     (46,166 (16,494 (16,539

Repayment of hybrid bonds

          (1,160,000

Capital contribution fromnon-controlling interests and proceeds from disposal of subsidiary while maintaining control

     24,704  266,219  5,808      5,808  29,475  176,062 

Capital deduction fromnon-controlling interests and additional acquisition of interests in subsidiaries

     (11,301 (26,288 (3,823     (3,823 (123,304 (11,473

Repayment of lease liabilities

     (30,481 (167,427 (217,312

Acquisition of treasury shares

     —     —    (883,219

Repayment of redeemable convertible preferred shares

     —     —    (278,581

Others, net

     (15,212 (22,276 (38,517     (8,036 6,384  (2,516
    

 

  

 

  

 

     

 

  

 

  

 

 

Net cash used in financing activities

   39    (3,950,967 (1,565,528 (3,195,048   39    (3,195,048 (1,512,179 (1,090,868
    

 

  

 

  

 

     

 

  

 

  

 

 

Effect of exchange rate fluctuation on cash held

     12,611  (58,997 4,628      4,628  61,764  (95,272
    

 

  

 

  

 

     

 

  

 

  

 

 

Net increase (decrease) in cash and cash equivalents

     (2,423,565 164,911  31,335 

Net increase in cash and cash equivalents

     31,335  871,381  1,240,332 

Cash and cash equivalents at beginning of the period

   5    4,871,184  2,447,619  2,612,530    5    2,612,530  2,643,865  3,515,246 
    

 

  

 

  

 

     

 

  

 

  

 

 

Cash and cash equivalents at end of the period

   5   2,447,619  2,612,530  2,643,865    5,10   2,643,865  3,515,246  4,755,578 
    

 

  

 

  

 

     

 

  

 

  

 

 

See accompanying notes to the consolidated financial statements.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2016, 20172019 and 20182020

 

 

 

1.

General Information

General information about POSCO, its 3634 domestic subsidiaries including POSCO ENGINEERING & CONSTRUCTION CO., LTD., 136132 foreign subsidiaries including POSCO America Corporation (collectively “the Company”) and its 126132 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 since June 10, 1988. POSCO owns and operates two steel plants (Pohang and Gwangyang) and one office in Korea and it also operates internationally through sixfive of its overseas liaison offices.

As of December 31, 2018,2020, POSCO’s shareholders are as follows:

 

Shareholder’s name

  Number of shares   Ownership (%) 

National Pension Service

   9,342,192    10.72 

BlackRock Fund Advisors(*1,2,3)

   4,549,553    5.22 

Nippon Steel & Sumitomo Metal Corporation(*1)

   2,894,712    3.32 

GIC Private Limited

   2,016,887    2.31 

KB Financial Group Inc. and subsidiaries(*2)

   2,001,820    2.30 

Others

   66,381,671    76.13 
  

 

 

   

 

 

 
   87,186,835    100.00 
  

 

 

   

 

 

 

Shareholder’s name

  Number of
shares
   Ownership
(%)
 

National Pension Service

   10,247,183    11.75 

BlackRock Fund Advisors(*1,2,3)

   4,555,963    5.23 

Nippon Steel Corporation(*1)

   2,894,712    3.32 

KB Financial Group Inc. and subsidaries(*2)

   1,817,635    2.08 

GIC Private Limited

   1,718,369    1.97 

Others

   65,952,973    75.65 
  

 

 

   

 

 

 
   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 and others.

(*3)

The number of shares held by the shareholder based on the information in the status report of large-scale shareholders filed with Korea Exchange on October 4, 2018.June 1, 2020.

As of December 31, 2018,2020, 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, 2016, 20172019 and 20182020

 

 

 

(b)

(b) Consolidated subsidiaries

Details of consolidated subsidiaries as of December 31, 20172019 and 20182020 are as follows:

 

 

Principal operations

 Ownership (%)   

Principal operations

 Ownership (%)  
 December 31, 2017 December 31, 2018  December 31, 2019 December 31, 2020 
 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 Engineering and construction 52.80   —    52.80  52.80   —    52.80  Pohang

POSCO Processing & Service

 Steel sales and trading 93.95  0.45  94.40  93.95  0.45  94.40  Seoul

POSCO COATED & COLOR STEEL Co., Ltd.

 Coated steel manufacturing 56.87     56.87  56.87     56.87  Pohang 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 83.83  16.17  100.00  59.80  40.20  100.00  Seoul

POSCO O&M CO.,Ltd.

 Business facility maintenance 47.17  52.83  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 45.66  54.34  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  59.94  67.44  Seoul

POSCO CHEMTECH

 Refractories manufacturing and sales 60.00     60.00  60.00     60.00  Pohang

POSCO CHEMICAL CO., LTD.

 Refractories manufacturing and sales 61.26   —    61.26  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 100.00   —    100.00  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 by product 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

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

HOTEL LAONZENA

 Hotel business    100.00  100.00     100.00  100.00  Daegu

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

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 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  90.00     90.00  Gumi

POSCO Research & Technology

 Intellectual Property Services and consulting 100.00   —    100.00  100.00   —    100.00  Seoul

TANCHEON E&E

 Refuse derived fuel and power generation  —    100.00  100.00   —    100.00  100.00  Seoul

POSCO Humans

 Construction 75.49  24.51  100.00  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, 2016, 20172019 and 20182020

 

 

 

 

Principal operations

 Ownership (%)   

Principal operations

 Ownership (%)  
 December 31, 2017 December 31, 2018  December 31, 2019 December 31, 2020 
 POSCO Subsidiaries Total POSCO Subsidiaries Total Region POSCO Subsidiaries Total POSCO Subsidiaries Total Region
[Domestic]                          

POSCO Research & Technology

 Intellectual Property Services and consulting 100.00     100.00  100.00     100.00  Seoul

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    71.00  71.00     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 Refuse derived fuel and power generation 70.00   —    70.00  70.00   —    70.00  Busan

POSCO INTERNATIONAL Corporation

 Trading, energy & resource development
and others
 62.91  0.03  62.94  62.91  0.03  62.94  Incheon

Pohang Scrap Recycling Distribution Center Co., Ltd.

 Steel processing and sales  —    51.00  51.00   —    51.00  51.00  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   —    100.00  100.00  Pohang

POSCO GEM fund no1

 Investment in venture companies 98.81  1.19  100.00  98.81  1.19  100.00  Pohang

POSCO SPS CORPORATION

 STC, TMC, Plate manufacturing and sales  —     —     —     —    100.00  100.00  Cheonan

P&O Chemical Co., Ltd.

 Chemical production  —     —     —     —    51.00  51.00  Gwangyang

Posco New Growth

 Investment in venture companies  —     —     —    88.89  11.11  100.00  Seoul

IMP Fund I

 Investment in venture companies  —     —     —    98.04   —    98.04  Pohang

POSCO Family Strategy Fund

 Investment in venture companies 69.91  30.09  100.00  69.91  30.09  100.00  Pohang Investment in venture companies 69.91  30.09  100.00   —     —     —    Pohang

POSCO DAEWOO Corporation

 

Trading, energy & resource development

and others

 62.90  0.04  62.94  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 Investment in energy industry  —    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  Incheon

POSPower Co., Ltd.(*1)

 Generation of electricity    100.00  100.00           Samcheok

POCA STEM Co., Ltd.

 Stem cell medicine development    100.00  100.00           Seoul

Kyobo Securities Bond Plus 6M Professional Private Equity TrustW-2

 Private equity trust 97.47     97.47           Seoul

Mirae Asset Smart Q Sigma 2.0 Professional Private Equity Trust

 Private equity trust 99.01     99.01           Seoul

Kyobo Securities Bond Plus 6M Professional Private Equity TrustW-5

 Private equity trust    99.67  99.67           Seoul
[Foreign]                          

POSCO America Corporation

 Steel trading 99.45  0.55  100.00  99.45  0.55  100.00  USA 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 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 Coal sales 100.00  —   100.00 100.00  —   100.00 Canada

POSCAN Elkview

 Coal sales    100.00  100.00     100.00  100.00  Canada 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 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  61.91  38.09  100.00  China Steel manufacturing and sales 100.00  —   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 Steel structure manufacturing and sales  —   100.00 100.00  —   100.00 100.00 Vietnam

POSCO (ZHANGJIAGANG) 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 100.00  —   100.00 100.00  —   100.00 Thailand

POSCO-MKPC SDN BHD

 Steel manufacturing and sales 70.00  —   70.00 70.00  —   70.00 Malaysia

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

 

Principal operations

 Ownership (%)   

Principal operations

 Ownership (%)  
 December 31, 2017 December 31, 2018  December 31, 2019 December 31, 2020 
 POSCO Subsidiaries Total POSCO Subsidiaries Total Region POSCO Subsidiaries Total POSCO Subsidiaries Total Region
[Foreign]                          

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 88.58  11.42  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

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

POSCO Japan PC CO.,LTD

 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 21.02  75.29  96.31  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  83.28  14.88  98.16  Mexico Automotive steel sheet
manufacturing and sales
 83.28 14.88 98.16 83.28 14.88 98.16 Mexico

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 DAEWOO WAIGAIQIAO SHANGHAI CO., LTD

 Intermediary trade & bonded warehouse operation    100.00  100.00     100.00  100.00  China

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 Forest resources development  —   85.00 85.00  —   85.00 85.00 Indonesia

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

 

Principal operations

 Ownership (%)   

Principal operations

 Ownership (%)  
 December 31, 2017 December 31, 2018  December 31, 2019 December 31, 2020 
 POSCO Subsidiaries Total POSCO Subsidiaries Total Region POSCO Subsidiaries Total POSCO Subsidiaries Total Region
[Foreign]                          

POSCO ENGINEERING AND CONSTRUCTION AUSTRALIA
(POSCO E&C AUSTRALIA) PTY LTD

 Iron ore development and sales    100.00  100.00     100.00  100.00  Australia 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 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 84.88     84.88  84.66     84.66  Thailand STS cold-rolled steel manufacturing and sales 84.39  —   84.39 74.56  —   74.56 Thailand

Hunchun Posco Hyundai Logistics

 Logistics    80.00  80.00     80.00  80.00  China 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 INTERNATIONAL 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 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 Component manufacturing and sales 84.85 15.15 100.00 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

PT.KRAKATAU POSCO CHEMICAL CALCINATION
(Formely, 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
 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 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 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 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 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 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 Wastewater treamtment facilities operation and maintenance  —   67.00 67.00  —   67.00 67.00 Indonesia

POSCO DAEWOO MYANMAR CORPORATION LIMITED

 Trading business    100.00  100.00     100.00  100.00  Myanmar

POSCO-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 and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

  

Principal operations

 Ownership (%)   
  December 31, 2017  December 31, 2018 
  POSCO  Subsidiaries  Total  POSCO  Subsidiaries  Total  Region
[Foreign]                      

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  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     85.00   85.00      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 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

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     97.76   97.76      65.72   65.72  United Arab
Emirates
  

Principal operations

 Ownership (%)   
  December 31, 2019  December 31, 2020 
  POSCO  Subsidiaries  Total  POSCO  Subsidiaries  Total  Region
[Foreign]                      

POSCO INTERNATIONAL MYANMAR CO.,LTD.

 Trading business  —    100.00  100.00  —    100.00  100.00 Myanmar

POSCO-Italy Processing Center

 Stainless steel sheet
manufacturing and sales
  88.89  11.11  100.00  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

POSCO INTERNATIONAL GLOBAL DEVELOPMENT
PTE.LTD.
(Formely, Daewoo Global Development, Pte.,Ltd)

 Real estate development  —    81.51  81.51  —    75.00  75.00 Singapore

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

POSCO INTERNATIONAL AMARA Co., Ltd.

 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 Villagran Wire-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 and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

  

Principal operations

 Ownership (%)   
  December 31, 2017  December 31, 2018 
  POSCO  Subsidiaries  Total  POSCO  Subsidiaries  Total  Region
[Foreign]                      

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

Golden Lace DAEWOO Company Limited

 Rice processing     60.00   60.00      60.00   60.00  Myanmar

POSCO ICT- China

 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 DAEWOO 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 HOLDINGS 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 HOLDINGS 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-AAPC

 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  80.00   10.00   90.00   79.52   11.70   91.22  China

POSCO-South Asia Company Limited

 Steel sales  100.00      100.00   100.00      100.00  Thailand
  

Principal operations

 Ownership (%)   
  December 31, 2019  December 31, 2020 
  POSCO  Subsidiaries  Total  POSCO  Subsidiaries  Total  Region
[Foreign]                      

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

GOLDEN LACE POSCO
INTERNATIONAL CO., LTD.

 Rice processing  —    60.00  60.00  —    60.00  60.00 Myanmar

POSCO ICT-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 and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

  

Principal operations

 Ownership (%)   
  December 31, 2017  December 31, 2018 
  POSCO  Subsidiaries  Total  POSCO  Subsidiaries  Total  Region
[Foreign]                      

POSCO SS 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 AUSTRALIA GP PTY LIMITED

 Resource development     100.00   100.00      100.00   100.00  Australia

POSCO DAEWOO POWER (PNGPOM) LTD.

 Electricity production     100.00   100.00      100.00   100.00  Papua

New
Guinea

PT. KRAKATAU POSCO ENERGY

 Electricity production construction and operation     90.00   90.00      90.00   90.00  Indonesia

POSCO DAEWOO AMERICA CORP.

 Trading business     100.00   100.00      100.00   100.00  USA

POSCO DAEWOO DEUTSCHLAND GMBH

 Trading business     100.00   100.00      100.00   100.00  Germany

POSCO DAEWOO JAPAN Corp

 Trading business     100.00   100.00      100.00   100.00  Japan

POSCO DAEWOO SINGAPORE PTE LTD.

 Trading business     100.00   100.00      100.00   100.00  Singapore

POSCO DAEWOO ITALIA S.R.L.

 Trading business     100.00   100.00      100.00   100.00  Italy

POSCO DAEWOO CHINA CO., LTD

 Trading business     100.00   100.00      100.00   100.00  China

Daewoo Textile LLC

 Textile manufacturing     100.00   100.00      100.00   100.00  Uzbekistan

POSCO DAEWOO AUSTRALIA HOLDINGS PTY. LTD.

 Resource development     100.00   100.00      100.00   100.00  Australia

POSCO MAURITIUS LIMITED

 Coal development and sales     100.00   100.00      100.00   100.00  Mauritius

PT. KRAKATAU POSCO

 Steel manufacturing and sales  70.00      70.00   70.00      70.00  Indonesia

POSCO DAEWOO MEXICO S.A. de C.V.

 Trading business     100.00   100.00      100.00   100.00  Mexico

Daewoo International Guangzhou Corp.

 Trading business     100.00   100.00      100.00   100.00  China

POSCO 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
  

Principal operations

 Ownership (%)   
  December 31, 2019  December 31, 2020 
  POSCO  Subsidiaries  Total  POSCO  Subsidiaries  Total  Region
[Foreign]                      

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  70.51  21.69  92.20 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 YAMATO VINA STEEL JOINT STOCK
COMPANY
(Formerly, POSCO SS VINA JOINT STOCK
COMPANY)

 Steel manufacturing and sales  100.00  —    100.00  51.00  —    51.00 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 and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

  

Principal operations

 Ownership (%)   
  December 31, 2017  December 31, 2018 
  POSCO  Subsidiaries  Total  POSCO  Subsidiaries  Total  Region
[Foreign]                      

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

POS-LT Pty Ltd

 Lithium mining investment              100.00   100.00  Australia

POSCO SINGAPORE LNG TRADING PTE. LTD.

 LNG trading           50.00   50.00   100.00  Singapore

ZHEJIANGPOSCO-HUAYOU ESM CO., LTD

 Anode material manufacturing           100.00      100.00  China

POSCO Argentina S.A.U.

 Mineral exploration/manufacturing/sales           100.00      100.00  Argentina

POSCO RUS LLC

 Trading and business development  90.00   10.00   100.00           Russia

POSCO-CDSFC

 Steel structure manufacturing  50.20   49.80   100.00           China

POSCO MESDC S.A. DE C.V.

 Logistics & Steel sales     56.80   56.80           Mexico

KIS Devonian Canada Corporation

 Petroleum gas extraction     100.00   100.00           Canada

POSCO E&C VENEZUELA C.A.

 Civil engineering and construction     100.00   100.00           Venezuela

PT PEN INDONESIA

 Construction     100.00   100.00           Indonesia

POSCO Engineering and Construction — UZ

 Civil engineering and construction     100.00   100.00           Uzbekistan
  

Principal operations

 Ownership (%)   
  December 31, 2019  December 31, 2020 
  POSCO  Subsidiaries  Total  POSCO  Subsidiaries  Total  Region
[Foreign]                      

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 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

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2019 and 2020

 

 

(*1)

Reclassified to associate from subsidiary during the year ended December 31, 2018.

  

Principal operations

 Ownership (%)   
  December 31, 2019  December 31, 2020 
  POSCO  Subsidiaries  Total  POSCO  Subsidiaries  Total  Region
[Foreign]                      

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

 Apartment construction  —    70.00  70.00  —    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  60.00  —    60.00  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  —    75.00  75.00 Singapore

Mykolaiv Milling Works PJSC.

 Grain trading  —    100.00  100.00  —    100.00  100.00 Ukraine

Yuzhnaya Stevedoring Company Limited LLC.

 Cargo handling  —    100.00  100.00  —    100.00  100.00 Ukraine

Posco International (Thailand) Co., Ltd.

 Trade  —    —    —    —    100.00  100.00 Thailand

PT POSCO INTERNATIONAL INDONESIA

 Trade  —    —    —    —    100.00  100.00 Indonesia

PEC POWERCON SDN. BHD.

 Construction and engineering service  —    —    —    —    100.00  100.00 South
Africa

POSCO CHEMICAL Free Zone Enterprise

 Refractory Construction  —    —    —    —    100.00  100.00 Myanmar

Myanmar POSCO Steel Co., Ltd

 Steel manufacturing and sales  —    70.00  70.00  —    —    —   Myanmar

LA-SRDC

 Scrap manufacturing  —    100.00  100.00  —    —    —   USA

POSCO China Dalian Plate
Processing Center Co., Ltd.

 Plate manufacturing and sales  79.52  11.70  91.22  —    —    —   China

The equity of controlling company increasedcompany’s investment in the subsidiaries decreased by16,28848,538 million (POSCO DAEWOO Corporation, POSMATECHEMICAL CO., LTD. and others) and decreased by1,49727,716 million (POSCO Gulf SFC LLCThainox Public Company Limited and others) in 20172019 and 2018,2020, respectively, as a result of changes in the Company’s ownership interests in subsidiaries that did not result in a loss of control.

CashThe controlling company received dividends paid to POSCO by subsidiaries in 2016, 2017 and 2018 amounted to75,830 million,70,087 million andof 100,862 million respectively.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued100,582 million and 93,674 million from its subsidiaries in aggregate in 2018, 2019 and 2020, respectively.

As of December 31, 2016, 2017 and 2018

As of December 31, 2018,2020, 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, 2016, 2017 and 2018 are as follows:

1) December 31, 2016

  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

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

2) December 31, 2017
(c)

Details of non-controlling interest as of and for the years ended December 31, 2018, 2019 and 2020 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

 4,483,544   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 
1)

December 31, 2018

(in millions of Won) POSCO
INTERNATIONAL
Corporation
  PT.
KRAKATAU
POSCO
  POSCO
CHEMICAL
CO., LTD
  POSCO
ENGINEERING &
CONSTRUCTION
CO., LTD.
  POSCO
ICT
  Others  Total 

Current assets

 5,311,596   615,491   416,284   4,100,967   825,241   9,137,798   20,407,377 

Non-current assets

  4,363,490   2,730,865   460,905   1,911,844   2,767,203   5,493,324   17,727,631 

Current liabilities

  (4,724,056  (1,368,498  (140,268  (3,007,029  (1,197,845  (8,026,474  (18,464,170

Non-current liabilities

  (1,563,107  (1,754,797  (10,767  (608,089  (1,445,288  (1,925,084  (7,307,132

Equity

  3,387,923   223,061   726,154   2,397,693   949,311   4,679,564   12,363,706 

Non-controlling interests

  1,255,728   66,918   290,461   1,131,733   335,203   929,506   4,009,549 

Sales

  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

  113,196   54,257   142,918   290,131   (73,948  (56,151  470,403 

Profit (loss) attributable
to non-controlling interests

  41,956   16,277   57,167   136,944   (8,116  (101,156  143,072 

Cash flows from operating activities

  (61,173  89,131   29,865   207,729   16,211   14,869   296,632 

Cash flows from investing activities

  (12,780  (6,432  (15,801  272,230   35,460   (13,199  259,478 

Cash flows from financing activities
(before dividends to non-controlling interest)

  99,496   (82,295  —     (400,499  (71,378  (16,094  (470,770

Dividends to non-controlling interest

  (22,862  —     (8,270  —     (19,813  (6,906  (57,851

Effect of exchange rate fluctuation
on cash held

  807   21   (17  1,257   —     1,682   3,750 

Net increase (decrease)
in cash and cash equivalents

  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, 2016, 20172019 and 20182020

 

 

 

3) December 31, 2018
2)

December 31, 2019

 

 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
CO., LTD
 POSCO
ENGINEERING &
CONSTRUCTION
CO., LTD.
 POSCO
ICT
 Others Total 

Current assets

 5,311,596  615,491  416,284  4,100,967  825,241  9,137,798  20,407,377  4,396,683  520,057  624,017  3,940,835  441,208  8,062,428  18,287,347 

Non-current assets

 4,363,490  2,730,865  460,905  1,911,844  2,767,203  5,493,324  17,727,631  4,186,197  2,723,254  1,050,406  1,798,891  210,037  4,740,887  14,719,700 

Current liabilities

 (4,724,056 (1,368,498 (140,268 (3,007,029 (1,197,845 (8,026,474 (18,464,170 (3,013,269 (1,570,204 (236,968 (2,506,927 (262,265 (7,672,691 (15,489,702

Non-current liabilities

 (1,563,107 (1,754,797 (10,767 (608,089 (1,445,288 (1,925,084 (7,307,132 (2,087,769 (1,590,810 (462,361 (670,013 (38,836 (2,095,797 (7,061,764

Equity

 3,387,923  223,061  726,154  2,397,693  949,311  4,679,564  12,363,706  3,481,842  82,297  975,094  2,562,786  350,144  3,034,827  10,455,581 

Non-controlling interests

 1,255,728  66,918  290,461  1,131,733  335,203  929,506  4,009,549  1,290,600  24,689  377,770  1,209,658  121,213  1,124,381  4,133,486 

Sales

 23,314,595  1,871,634  1,340,984  6,799,292  1,841,187  24,721,939  59,889,631  22,745,239  1,906,302  1,434,507  7,206,528  925,551  22,975,605  57,612,593 

Profit (loss) for the period

 113,196  54,257  142,918  290,131  (73,948 (56,151 470,403  199,721  (146,975 94,481  274,770  32,954  (587,146 (76,667

Profit (loss) attributable tonon-controlling interests

 41,956  16,277  57,167  136,944  (8,116 (101,156 143,072  74,030  (44,093 36,604  129,694  11,408  (89,676 144,177 

Cash flows from operating activities

 (61,173 89,131  29,865  207,729  16,211  14,869  296,632  580,372  61,398  22,794  24,636  21,571  (16,324 694,447 

Cash flows from investing activities

 (12,780 (6,432 (15,801 272,230  35,460  (13,199 259,478  (40,264 (7,173 (111,996 (6,620 (2,129 31,057  (137,125

Cash flows from financing activities (before dividends tonon-controlling interest)

 99,496  (82,295    (400,499 (71,378 (16,094 (470,770 (502,801 (53,890 134,609  

 

(25,448

 (336 (4,295 (452,161

Dividend tonon-controlling interest

 (22,862    (8,270    (19,813 (6,906 (57,851

Dividends to non-controlling interest

 (27,432  —    (9,451 (9,867 (2,628 (11,079 (60,457

Effect of exchange rate fluctuation on cash held

 807  21  (17 1,257     1,682  3,750  1,736  25  (7 1,401  (47 3,931  7,039 

Net increase (decrease) in cash and cash equivalents

 3,488  425  5,777  80,717  (39,520 (19,648 31,239  11,611  360  35,949  (15,898 16,431  3,290  51,743 

3)

December 31, 2020

(in millions of Won) POSCO
INTERNATIONAL
Corporation
  PT.
KRAKATAU
POSCO
  POSCO
CHEMICAL
CO., LTD
  POSCO
ENGINEERING &
CONSTRUCTION
CO., LTD.
  POSCO
ICT
  Others  Total 

Current assets

  3,992,996   503,633   774,817   4,614,483   465,158   7,207,141   17,558,228 

Non-current assets

  3,410,528   2,366,359   1,229,349   1,823,229   187,415   4,789,484   13,806,364 

Current liabilities

  (2,649,187  (1,722,805  (203,443  (27,432,089  (278,335  (6,354,111  (14,141,548

Non-current liabilities

  (1,816,160  (1,235,948  (833,857  (1,169,131  (24,132  (1,727,139  (6,615,908

Equity

  2,938,177   (88,761  966,866   2,525,372   350,106   3,915,375   10,607,135 

Non-controlling interests

  1,089,082   (26,628  374,582   1,191,998   121,200   1,330,280   4,080,514 

Sales

  19,230,652   1,691,310   1,524,146   6,943,725   935,958   21,059,978   51,385,769 

Profit (loss) for the period

  173,155   (179,403  29,720   315,139   8,961   (44,660  302,912 

Profit (loss) attributable
to non-controlling interests

  64,183   (53,821  11,514   148,748   3,102   (19,899  153,827 

Cash flows from operating activities

  324,822   62,276   11,021   451,803   21,403   123,108   994,433 

Cash flows from investing activities

  (38,535  212   (162,861  (398,937  (4,841  (93,565  (698,527

Cash flows from financing activities (before dividends to non-controlling interest)

  (99,765  (45,207  122,736   9,475   (302  (192,311  (205,374

Dividends to non-controlling interest

  (32,004  —     (9,451  (9,867  (2,628  (6,102  (60,052

Effect of exchange rate fluctuation on cash held

  (2,425  (1,421  (398  (2,220  (74  702   (5,836

Net increase (decrease) in cash and cash equivalents

  152,093   15,860   (38,953  50,254   13,558   (168,168  24,644 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

(d)

Details of associates and joint ventures

(d) Details of associates and joint ventures

1)

1) Associates

Details of associates as of December 31, 20172019 and 20182020 are as follows:

 

 Ownership (%)      Ownership (%)   Region

Investee

 

Category of business

   2017     2018   Region  

Category of business

  2019   2020 
[Domestic]                   

New Songdo International City Development, LLC

 Real estate rental 29.90  29.90  Seoul  Real estate rental   29.90   29.90  Seoul

Gale International Korea, LLC

 Real estate rental 29.90  29.90  Seoul  Real estate rental   29.90   29.90  Seoul

SNNC

 Raw material manufacturing and sales 49.00  49.00  Gwangyang  Raw material manufacturing and sales   49.00   49.00  Gwangyang

KONES, Corp.

 Technical service 41.67  41.67  Gyeongju  Technical service   41.67   26.72  Gyeongju

CHUNGJU ENTERPRISE CITY DEVELOPMENT Co., Ltd

 Real estate development 29.53  29.53  Chungju

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  Investment advisory service   35.82   35.82  Pohang

Mokpo Deayang Industrial Corporation

 Real estate development and rental 27.40  27.40  Mokpo  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

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 31.14  31.27  Seoul  Investment in new technologies   33.41   36.34  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

KC Chemicals CORP.(*1)

  Machinery manufacturing   19.00   19.00  Hwaseong

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  45.67  Chuncheon  Electricity generation   49.10   49.10  Chuncheon

Keystone NO. 1 Private Equity Fund

 Private equity financial 40.45  40.45  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

Keystone NO.1 Private Equity Fund

  Private equity financial   52.58   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  Investment in waste energy   30.00   30.00  Pohang

POSCO Energy Valley Fund

 Investment in new technologies 20.00  20.00  Pohang  Investment in new technologies   20.00   20.00  Pohang

2016 PoscoPlutus New technology Fund

 Investment in new technologies 25.17  25.17  Seoul

Hyundai Invest Guggenheim CLO Qualified Private Special Asset Trust No.2

 Investment in new technologies 38.47  38.47  Seoul  Investment in new technologies   35.44   38.45  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  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  Investment in new technologies   31.67   31.67  Seoul

PCC_Centroid 1st Fund

 Investment in new technologies 24.10  24.10  Seoul  Investment in new technologies   24.10   24.10  Seoul

PCC Amberstone Private Equity Fund 1(*1)

 Investment in new technologies 9.71  8.80  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  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 20.00  19.05  Seoul

Clean Gimpo Co., Ltd.

 Construction 29.58  29.58  Gimpo

Incheon-Gimpo Expressway Co., Ltd.(*1)

 Construction 18.26  18.26  Anyang

POSCO Advanced Technical Staff Fund(*1)

  Investment in new technologies   15.87   15.87  Seoul

POSCO 4th Industrial Revolution Fund

  Investment in new technologies   19.05   20.00  Seoul

Pureun Tongyeong Enviro Co., Ltd.

 Sewerage treatment 20.40  20.40  Tongyeong  Sewerage treatment   20.40   20.40  Tongyeong

Pure Gimpo Co., Ltd.

 Construction 28.79  28.79  Seoul  Construction   28.79   28.79  Gimpo

POSCO PLANTEC Co., Ltd.(*2)

 Construction of industrial plant 73.94  73.94  Ulsan

Postech Early Stage Fund(*1)

 Investment in new technologies 10.00  10.00  Pohang

Posgreen Co., Ltd.(*1)

 Lime and plaster manufacturing 19.00  19.00  Gwangyang

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

BLUE OCEAN Private Equity Fund

  Private equity financial   27.52   27.52  Seoul

Western Inland highway CO.,LTD.

  Construction   30.00   29.82  Incheon

Metropolitan Outer Ring Expressway co., ltd.

  Investment in Expressway   21.27   21.27  Incheon

INNOPOLIS Job Creation Fund II(*1)

  Investment in new technologies   6.21   6.13  Seoul

Samcheok Blue Power Co.,Ltd.
(Formely, POSPOWER CO., Ltd.)(*2)

  Generation of electricity   34.00   34.00  Samcheok

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

    Ownership (%)   

Investee

 

Category of business

   2017      2018    Region
[Domestic]          

Clean Iksan Co., Ltd.

 Construction  23.50   23.50  Iksan

Innovalley Co., Ltd.

 Real estate development  28.77   28.77  Yongin

Applied Science Corp.

 Machinery manufacturing  23.87   22.89  Paju

Pohang Techno Valley PFV Corporation(*3)

 Real estate development, supply and rental  57.39   57.39  Pohang

BLUE OCEAN Private Equity Fund

 Private equity financial  27.52   27.52  Seoul

Western Inland highway CO., LTD.(*4)

 Construction     27.50  Incheon

Metropolitan Outer Ring Expressway co., ltd.(*4)

 Investment in Expressway     47.58  Incheon

IT ENGINEERING CO., LTD.(*1,4)

 Vehicle engineering     10.84  Seoul

PCC Bio 1ST Fund(*1,4)

 Investment in new technologies     13.46  Seoul

INNOPOLIS Job Creation Fund II(*1,4)

 Investment in new technologies     6.43  Seoul

POSPower Co., Ltd.(*5)

 Generation of electricity     34.00  Samcheok

INKOTECH, INC.(*1,4)

 Electricity generation and sales     10.00  Seoul

PCC Social Enterprise Fund II(*1,4)

 Investment in venture companies     16.67  Seoul

PCC Amberstone Private Equity Fund II(*1,4)

 Private equity trust     19.70  Seoul

Synapse Fund(*1,4)

 Investment in new technologies     16.26  Seoul

NEXTRAIN Co., Ltd(*4)

 Service maintenance and management     32.00  Incheon

TK CHEMICAL CORPORATION(*1,4)

 Chemical     8.80  Daegu

Hanil-Daewoo Cement Co., Ltd. (*1,4)

 Cement     15.00  Incheon

Pohang Techno Valley AMC(*6)

 Construction  29.50     Pohang
[Foreign]          

VSC POSCO Steel Corporation

 Steel processing and sales  50.00   50.00  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

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   36.83  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

7623704 Canada Inc.(*1)

 Investments management  10.40   10.40  Canada

Hamparan Mulya

 Resource development  45.00   45.00  Indonesia

POS-SEAH STEEL WIRE (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  17.06   6.93  Australia

SAMHWAN VINA CO., LTD(*1)

 Steel manufacturing and sales  19.00   19.00  Vietnam

JB CLARK HILLS

 Construction  25.00   25.00  Philippines

Saudi-Korean Company for Maintenance Properties Management LLC(*1)

 Building management  19.00   19.00  Saudi
Arabia

Sebang Steel

 Scrap sales  49.00   49.00  Japan
      Ownership (%)   Region

Investee

  

Category of business

  2019   2020 
[Domestic]              

INKOTECH, INC.(*1)

  Electricity generation and sales   10.00   10.00  Seoul

PCC Social Enterprise Fund II(*1)

  Investment in new technologies business   16.67   16.67  Seoul

PCC Amberstone Private Equity Fund II(*1)

  Private equity trust   19.91   19.91  Seoul

NEXTRAIN Co.,Ltd

  Service maintenance and management   32.00   21.26  Incheon

TK CHEMICAL CORPORATION(*1)

  Chemical   5.01   5.01  Daegu

PCC-Conar No.1 Fund(*1)

  Investment in new technologies business   13.64   13.64  Pohang

HYOCHUN Co., Ltd(*1)

  Screen door operation and other   18.00   18.00  Seoul

RPSD Project Co., Ltd

  Real estate development   29.00   29.00  Incheon

PCC EV Fund(*1)

  Investment in new technologies business   18.18   18.18  Pohang

IBKC-PCC 1st Fund(*1)

  Investment in new technologies business   18.18   18.18  Pohang

2019 PCC Materials and Parts Fund(*1)

  Investment in new technologies business   8.70   8.70  Pohang

Shinahn wind Power generation(*1)

  Electric, gas, steam   19.00   19.00  Suwon

2019 PCC New technology Fund(*1)

  Investment in new technologies business   4.76   4.76  Pohang

PCC-Woori LP secondary Fund(*1)

  Investment in new technologies business   18.85   18.85  Pohang

KPGE Inc.(*3)

  Wholesales and retail, generator material, trade   —     25.00  Busan

CURO CO.,LTD.(*1,3)

  Manufacturing, construction   —     0.54  Ulsan

The Blue Gimpo Co., Ltd.(*3)

  Construction and engineering service   —     33.33  Incheon

Link City PFV Inc.(*3)

  Contruction, housing construction and sales   —     44.00  Uijeongbu

BNH-POSCO Bio Healthcare Fund(*1,3)

  Investment in new technologies business   —     18.14  Pohang

PCC-BM Project Fund(*1,3)

  Investment in new technologies business   —     8.77  Pohang

Energy Innovation Fund I(*1,3)

  Investment in new technologies business   —     10.11  Pohang

ConsusPSdevelopment Professional
Private Real Estate Fund(*3)

  Real estate development   —     50.00  Seoul

POSTECH Holdings 4th Fund(*3)

  Private Investment Association   —     40.00  Pohang

SNU STH IP Fund(*3)

  Private Investment Association   —     33.33  Seoul

PCC-BM Project Fund 2(*1,3)

  Investment in new technologies business   —     13.70  Pohang

G&G Technology Innovation Fund No.1(*1,3)

  Investment in new technologies business   —     13.97  Seongnam

NPX-PCC Edutech Fund(*1,3)

  Investment in new technologies business   —     19.96  Pohang

C&-PCC I Fund(*1,3)

  Investment in new technologies business   —     0.68  Pohang

2020 POSCO-MOORIM Bio New Technology Fund(*1,3)

  Investment in new technologies business   —     5.00  Pohang

PCC-KAI Secondary I Fund(*1,3)

  Investment in new technologies business   —     19.12  Seoul

Garolim Tidal Power Plant Co.,Ltd(*4)

  Tidal power plant construction and management   32.13   —    Seosan

PoscoPlutus Bio Fund(*4)

  Investment in new technologies   11.97   —    Seoul

PoscoPlutus Project Fund(*4)

  Investment in new technologies   11.91   —    Seoul

PoscoPlutus Project 2nd Project Fund(*4)

  Investment in new technologies   0.61   —    Seoul

Incheon-Gimpo Expressway Co., Ltd.(*5)

  Road construction   18.26   —    Anyang

POSCO PLANTEC Co., Ltd.(*5)

  Construction of industrial plant   73.94   —    Ulsan

Pohang Techno Valley PFV Corporation(*4)

  Real estate development, supply and rental   57.39   —    Pohang

IT ENGINEERING CO., LTD.(*5)

  Vehicle engineering   4.99   —    Seoul

PCC Bio 1ST Fund(*4)

  Investment in new technologies   13.46   —    Seoul

Synapse Fund(*4)

  Investment in new technologies   16.26   —    Seoul

Hanil-Daewoo Cement Co., Ltd.(*5)

  Cement, slag distribution   15.00   —    Incheon

PCC S/W 2nd Fund(*4)

  Investment in new technologies business   12.81   —    Pohang
[Foreign]              

VSC POSCO Steel Corporation

  Steel processing and sales   50.00    50.00   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

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

    Ownership (%)   

Investee

 

Category of business

   2017      2018    Region
[Foreign]          

NCR LLC

 Coal sales  29.41   29.41  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(*4)

 Exhaust meter manufacturing     40.00  China

SHINPOONG DAEWOO PHARMA VIETNAM CO., LTD (*1,4)

 Medicine production     3.42  Vietnam

ERAE Automotive Systems Mexico, S. DE R.L. DE C.V(*1,4)

 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)

Considering the composition of board of directors, the Company does not have control and classified its shares as investment in an associate, even though the Company’s percentage of ownership is over 50%.

(*4)

These associates were newly established or acquired in 2018.

(*5)

Reclassified to associate from subsidiary during the year ended December 31, 2018.

(*6)

Excluded from associates due to liquidation during the year ended December 31, 2018.

      Ownership (%)   Region

Investee

  

Category of business

  2019   2020 
[Foreign]              

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   Thailand

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   35.30    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

KRAKATAU POS-CHEM DONG-SUH CHEMICAL(*1)

  Chemical by-product
manufacturing and sales
   19.00    19.00   Indonesia

9404-5515 Quebec Inc.
(Formerly, 7623704 Canada Inc.)(*1,6)

  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    6.89   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   29.40    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

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 CO., LTD

  Cathode material Production   40.00    40.00   China

MONG DUONG FINANCE HOLDINGS B.V.(*3)

  Financial Holdings   —      30.00   Netherlands

KG Power(M) SDN. BHD(*5)

  Resource development   20.00    —     Malaysia

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

(*1)

The Company has less than 20% of the voting rights; however, the Company has determined that it has significant influence because it has meaningful representation on the board of the investee.

(*2)

During the year ended December 31, 2020, POSPOWER CO., Ltd. changed its name to Samcheok Blue Power Co.,Ltd.

(*3)

During the year ended December 31, 2020, the entity was newly classified to associates.

(*4)

During the year ended December 31, 2020, the entity was excluded from associates due to liquidation.

(*5)

During the year ended December 31, 2020, the entity was excluded from associates due to sale of interest, etc.

(*6)

During the year ended December 31, 2020, 7623704 Canada Inc. changed its name to 9404-5515 Quebec Inc.

2)

2)

Joint ventures

Details of joint ventures as of December 31, 20172019 and 20182020 are as follows:

 

    Ownership (%)    

Investee

 

Category of business

   2017      2018    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(*1)

 Investment in new technologies     19.72   Seoul 

PCC Material 3rd Fund(*1)

 Investment in new technologies     2.38   Seoul 

PCC L&K IST FUND(*2)

 Investment in new technologies  10.00      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 

VNS-DAEWOO Co., Ltd.

 Steel scrap processing and sales  40.00   50.00   Vietnam 

YULCHON MEXICO S.A. DE C.V.

 Tube for automobile manufacturing  19.00   19.00   Mexico 

Hyunson Engineering & Construction HYENCO

 Construction  4.90   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 

Korea Siberia Wood CJSC(*3)

 Forest resource development  50.00      Russia 

(*1)

These joint ventures were newly established in 2018.

(*2)

Excluded from joint ventures due to liquidation during the year ended December 31, 2018.

(*3)

Excluded from joint ventures due to the disposal of shares during the year ended December 31, 2018.

      Ownership (%)     

Investee

  

Category of business

  2019   2020   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   25.00   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

  Investment in new technologies   14.12   14.12   Seoul 

PCC S/W FUND(*1)

  Investment in new technologies   0.46    —     Pohang 

[Foreign]

        

KOBRASCO

  Steel materials manufacturing and sales   50.00   50.00   Brazil 

PT. POSMI Steel Indonesia

  Steel processing and sales   36.69   36.69   Indonesia 

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   11.85   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   7.43   China 

Kwanika Copper Corporation

  Energy & resource development   35.00   34.04   Canada 

DMSA/AMSA

  Energy & resource development   4.00   4.27   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 

USS-POSCO Industries(*2)

  Cold-rolled steel manufacturing and sales   50.00    —     USA 

United Spiral Pipe, LLC(*1)

  Material manufacturing and sales   35.00    —     USA 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

(*1)

Excluded from joint ventures due to liquidation during the year ended December 31, 2020.

(*2)

Excluded from joint ventures due to disposal of the investments during the year ended December 31, 2020.

(e)

(e)

Newly included subsidiaries

Consolidated subsidiaries acquired or newly established during the year ended December 31, 20182020 are as follows:

 

Company

  Date of addition  Ownership (%)   Reason

POS-LT PTY LTDPosco International (Thailand) Co., Ltd.

  March 2018January 2020100.00New establishment

PT POSCO INTERNATIONAL INDONESIA

January 2020   100.00   New establishment

POSCO SINGAPORE LNG TRADING PTE. LTD.SPS CORPORATION

  June 2018April 2020100.00Spun-off from POSCO
INTERNATIONAL Corporation

P&O Chemical Co., Ltd.

July 202051.00New establishment

Posco New Growth

August 2020   100.00   New establishment

ZHEJIANG POSCO-HUAYOU ESM CO., LTDIMP Fund I

  June 2018August 202098.04New establishment

PEC POWERCON SDN. BHD.

August 2020   100.00   New establishment

POSCO Argentina S.A.U.CHEMICAL Free Zone Enterprise

  October 2018100.00New establishment

Songdo Development PMC (Project Management Company) LLC.

October 20182020   100.00   New establishment

(f) Excluded subsidiaries

(f)

Loss of controls

Subsidiaries that were excluded from consolidationfor which the Company has lost control during the year ended December 31, 20182020 are as follows:

 

Company

  

    Date of exclusion    

  

Reason

KIS Devonian Canada CorporationLA-SRDC

  February 2018April 2020  Merged into POSCO DAEWOO E&P CANADA CORPORATIONLiquidation

POSCO-CDSFC

February 2018Merged into POSCO China Dalian Plate Processing Center Co., Ltd.

June 2020Disposal

POCA STEMPSC Energy Global Co., Ltd.

  March 2018August 2020Merged into POSCO ENERGY CO.,Ltd.

POSCO Family Strategy Fund

September 2020  Liquidation

Myanmar POSCO E&C VENEZUELA C.A.Steel Co., Ltd

  March 2018Liquidation

PT PEN INDONESIA

March 2018Merged into PT. POSCO E&C INDONESIA

Kyobo Securities Bond Plus 6M Professional Private Equity Trust W-2

April 2018Disposal

Mirae Asset Smart Q Sigma 2.0 Professional Private Equity Trust

May 2018Disposal

Kyobo Securities Bond Plus 6M Professional Private Equity Trust W-5

May 2018Disposal

POSCO RUS LLC

May 2018Liquidation

POSPower Co., Ltd.

July 2018Reclassification to an associate upon loss of control due to a decline in ownership

POSCO MESDC S.A. DE C.V.

August 2018Merged into POSCO MEXICO S.A. DE C.V.

POSCO Engineering and Construction — UZ

November 2018December 2020  Liquidation

 

2.

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 directorsmanagement on March 7, 2019.

In 2018, the Company adopted IFRS No. 15 “Revenue from Contracts with Customers” and IFRS No. 9 “Financial Instruments” 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, 2016, 2017 and 2018

April 29, 2021.

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 measured at fair value

 

(b)

Financial instruments measured at fair value through profit or loss

 

(c)

Financial instruments measured at fair value through other comprehensive income

 

(d)

Financial instruments at fair value through profit or loss

(e)

Available-for-sale financial assets measured at fair value

(f)

Defined benefit liabilities measured at the present value of the defined benefit obligation less the fair value of the plan assets

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2019 and 2020

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.

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 11 - Investments in associates and joint ventures

 

Note 12 - Joint operations

 

Note 25 - Hybrid bonds

 

(b)

Assumptions and estimation uncertainties

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next 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 23 - Financial instruments

Note 29 - Revenue – contract balances

Note 35 - Income taxes

Note 38 - Commitments and contingencies

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

Note 15 — Goodwill and other intangible assets, net

Note 20 — Provisions

Note 21 — Employee benefits

Note 23 — Financial instruments

Note 29 — 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.

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.

Information about the assumptions made in measuring fair values is included in the following note:

 

Note 23 - Financial instruments

Changes in Accounting Policies

(a)

The Company has initially adopted IFRS No.16 “Leases” from January 1, 2019. 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 2018, has not been restated. The details of the accounting policies are disclosed in Note 3.

(b)

Except for the standards and amendments applied for the first time for the reporting period commenced on January 1, 2020 described below, the accounting policies applied by the Company in these consolidated financial statements are the same as those applied by the Company in its consolidated financial statements in the comparative periods.

1)

IAS No. 1 “Presentation of Financial Statements” and IAS No. 8 “Accounting Policies, Changes in Accounting Estimates and Errors”

The Companydefinition of materiality has initially adopted IFRSbeen clarified, and IAS No. 15 “Revenue from Contracts with Customers”1 “Presentation of Financial Statements” and IFRSIAS No. 9 “Financial Instruments” from January 1, 2018. The other accounting standards adopted from January 1, 2018 had no significant effect on8 “Accounting Policies, Changes in Accounting Estimates and Errors” have been amended according to the Company’s consolidated financial statements.clarified definition. In determining the materiality,

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

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 effect of initially applying IFRS No. 15 and IFRS No. 9 is mainly attributableamendments to the following:

identify the shipping services included in certain sales contracts as a separate performance obligation

determine separate construction contracts such as design, purchase and construction services which are highly dependent or correlated as a single performance obligation

estimate variable consideration such as sales discount and price adjustments based on performance

change in the method of revenue recognition from service contracts without enforceable rightthese standards apply to payment for performance completed

change in percentage of completion due to excessive use of materials

recognize as an expense immediately of prepaid contract cost unless those costs are explicitly chargeable to the customers regardless of whether the contract is obtained

change in classification and subsequent measurement of financial assets

change in timing of recognition of impairment loss on financial assets

(a)

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 replaced previous 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 applied the modified retrospective approach by recognizing the cumulative impact of initially applying the revenue standard as oftransactions that have occurred since 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, the Company did not restate the financial statements for comparative periods.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

The following table summarizes the impact, net of tax, of transition to IFRS No. 15 on retained earnings andnon-controlling interests as of January 1, 2018.

   Retained earnings  Non-controlling
interests
 
   (in millions of Won) 

Shipping services included in the sales contract

  (949  (156

Separate construction contract determined to be a single performance obligation

   452   628 

Variable consideration for sales discounts and price adjustments based on performance

   (2,613  172 

Change in revenue recognition method for contracts without enforceable right to payment

   (1,189  (1,115

Change in percentage of completion due to excessive use of materials

   (2,855  (1,512

Recognize prepaid contract cost as an expense

   (63,753  (56,993
  

 

 

  

 

 

 
  (70,907  (58,976
  

 

 

  

 

 

 

The details of new significant accounting policies and impacts of the adoption of IFRS No. 15 are as follows:

1)

Identification of performance obligations

The Company holds certain contracts for sales of manufactured product and merchandise which include transport 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 is 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. This change in relevant accounting policy resulted in decreases in revenue and cost of sales, increases in other current assets and contract liabilities and decrease in other payables as of and for the year ended December 31, 2018.

In addition, the Company presented costs incurred in the shipping services in cost of sales from January 1, 2018, which were previously presented in selling and administrative expenses.

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 Company should identify them as a single performance obligation regardless of the number of contracts made.

The Company considered these service contracts as a combined single obligation and identified as a single performance obligation. This change in accounting policy resulted

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

in decreases in revenue and contract assets as of and for the year ended December 31, 2018.2020.

 

 2)

Variable considerationIFRS No. 3 “Business Combinations”

Under IFRS No. 15,The amendment clarifies the Company estimatesdefinition 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 amountfair value of variable consideration by using the expected value whichgross assets is concentrated in a single identifiable asset or a group of similar identifiable assets. The amendments to this standard applies to business combinations or asset acquisition transactions with 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 issues 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.

The Company changed its accounting treatment regarding variable consideration in accordance with IFRS No. 15. This change in relevant accounting policy resulted in decrease in revenue and increase in contract liabilities as of and for the year ended December 31, 2018.acquisition date on or after January 1, 2020.

 

 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 has determined that it has no enforceable right to payment for performance completed to date for certain service contracts. This change in relevant accounting policy resulted in increases in revenue and cost of sales and increases in inventories, contract assets and contract liabilities as of and for the year ended December 31, 2018.

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. This change in relevant accounting policy resulted in increase in revenue and decreases in contract assets and liabilities as of and for the year ended December 31, 2018.

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 is

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

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. This change in relevant accounting policy resulted in decrease in cost of sales, increases in revenue, selling and administrative expenses and finance costs, decreases in contract assets, other current assets and contract liabilities and increase in provisions as of and for the year ended December 31, 2018.

5)

Impact of changes in accounting policies

The effects of adoption of IFRS No. 15 to the Company’s consolidated statements of financial position and consolidated statements of comprehensive income as of and for the year ended December 31, 2018 are as follows. There is no material impact on the Company’s consolidated statement of cash flows for the year ended December 31, 2018.

   As reported  Adjustments of
IFRS No. 15
  Amounts without
IFRS No. 15
 
   (in millions of Won) 

Consolidated financial statements of financial position

    

Current assets

  34,151,972   193,400   34,345,372 

Trade accounts and notes receivable

   9,130,204   86,293   9,216,497 

Inventories

   12,153,303   6,584   12,159,887 

Other current assets

   684,464   100,523   784,987 

Non-current assets

   44,625,019   (41,589  44,583,430 

Deferred tax assets

   1,408,787   (41,589  1,367,198 

Current liabilities

   19,430,577   21,605   19,452,182 

Others payables

   1,720,097   17,809   1,737,906 

Current income tax liabilities

   948,166   (640  947,526 

Provisions

   298,453   (28,748  269,705 

Other current liabilities

   2,090,307   33,184   2,123,491 

Retained earnings

   44,160,659   68,182   44,228,841 

Non-controlling interests

   3,347,257   62,024   3,409,281 

Consolidated statements of comprehensive income

    

Revenue

  65,154,636   135   65,154,771 

Cost of sales

   (57,129,060  1,206,973   (55,922,087

Selling and administrative expenses

   (2,429,781  (1,204,764  (3,634,545

Finance costs

   (2,244,416  178   (2,244,238

Profit before income taxes

   3,616,016   2,522   3,618,538 

Income tax expense

   (1,683,630  (2,198  (1,685,828

Profit

   1,932,386   324   1,932,710 

(b)

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 or nonfinancial items. It replaced existing guidance in, IAS No. 39 “Financial Instruments: Recognition and Measurement”.

The Company applied retrospectively the standard with exemptions where an entity is not required to restate the comparative information for prior periods in relation to classification and measurement (including impairment) changes. The Company recognized the cumulative 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.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

The following table summarizes the impact, net of tax, of transition to IFRS No. 9 on reserves, retained earnings andnon-controlling interests as of January 1, 2018.

   Reserves  Retained
earnings
  Non-controlling
interests
 
   (in millions of Won) 

Classification to fair value through profit or loss in securities and select to fair value through other comprehensive income in equity securities (*1)

  (498,517  498,517    

Recognition of expected credit losses

      (51,450  (34,754
  

 

 

  

 

 

  

 

 

 
  (498,517  447,067   (34,754
  

 

 

  

 

 

  

 

 

 

(*1)

Includes a decrease in reserve (capital adjustment arising from investments in equity-accounted investees) of76,992 million and an increase in retained earnings of76,992 million related to selection to fair value through other comprehensive income in equity securities of associatesmeasurement” and joint ventures.IFRS No. 7 “Financial Instruments: Disclosure”

The details of new significant accounting policies and the nature and effect of the changes to previous accounting policies are set out below.

1)

Classification and measurement of financial assets and financial liabilities

IFRS No. 9 contains three principal classification categories for financial assets: measured at amortized cost, at fair value through other comprehensive income and at fair value through profit or loss. The classification of financial assets under IFRS No. 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. Under IFRS No. 9, derivatives embedded in contracts where the host is a financial asset in the scope of the standard are never separated. Instead, the hybrid financial instrument as a whole is assessed for classification.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

As of January 1, 2018, the date of initial application, measurement categories and carrying amounts of financial assets in accordance with IAS No. 39 “Financial Instruments: Recognition and Measurement” and IFRS No. 9 “Financial Instruments” are as follows:

  

Original

classification under

IAS No. 39

 Original
carrying

amounts
under

IAS No. 39
  

New classification

under

IFRS No. 9

 New carrying
amounts
under

IFRS No. 9
 
  (in millions of Won) 

Derivative assets

 

Financial assets at fair value through
profit or loss

 65,051  

Fair value through
profit or loss

 65,051 
 

Hedging instrument

  3,239  

Hedging instrument

  3,239 

Cash and cash equivalents

 

Loans and receivables

  2,612,530  

Amortized cost

  2,612,530 

Trade accounts and notes receivable (*1)

 

Loans and receivables

  8,901,867  

Amortized cost

  8,799,161 

Other receivables (*1)

 

Loans and receivables

  2,195,466  

Fair value through
profit or loss

  1,898 
   

Amortized cost

  2,188,820 

Equity securities (*2)

 

Available-for-sale financial assets

  1,421,295  

Fair value through
profit or loss

  17,812 
   

Fair value through
other comprehensive income

  1,403,483 

Debt securities (*2)

 

Available-for-sale financial assets

  190,579  

Fair value through
profit or loss

  188,276 
 

Held-to-maturity financial assets

  

Fair value through
other comprehensive income

  2,303 
  5,211  

Amortized cost

  5,211 

Other Securities (*2)

 

Available-for-sale financial assets

  366,241  

Fair value through
profit or loss

  366,241 

Deposit instruments

 

Loans and receivables

  1,358,311  

Amortized cost

  1,358,311 

Short-term financial instruments

 

Financial assets at
fair value through profit or loss

  1,970  

Fair value through
profit or loss

 

 

5,547,637

 

 

Loans and receivables

  5,545,667 

(*1)

As a result of the adoption of IFRS No. 9, as of January 1, 2018, the date of initial application, loss allowance was increased by107,454 million, retained earnings andnon-controlling interests were decreased by51,450 million and34,754 million, respectively.

(*2)

As a result of the adoption of IFRS No. 9, as of January 1, 2018, the date of initial application, with respect to securities classified as fair value through profit or loss and equity securities determined fair value through other comprehensive income, reserves were decreased by421,525 million and retained earnings were increased by421,525 million.

IFRS No. 9 “Financial Instruments” retains most of the requirements of IAS No. 39 “Financial Instruments: Recognition and Measurement” for the classification and measurement of financial liabilities. Accordingly,amendments require the application of IFRS No. 9

POSCO and Subsidiaries

Notesexceptions to the Consolidated Financial Statements, Continued

Asanalysis of December 31, 2016, 2017 and 2018

“Financial Instruments” has no significant effect on the Company’s accounting policies related to financial liabilities.

2)

Impairment of financial assets

IFRS No. 9 replaces the incurred loss modelfuture prospects in IAS No. 39 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 is measured either12-month or lifetime expected credit loss based on the extent of increase in credit risk.

As of January 1, 2018, the date of initial application, the Company recognized an increase in loss allowances of107,454 million and decreases in retained earnings andnon-controlling interests of51,450 million and34,754 million, respectively.

In additionrelation to the application of IFRS No. 9,hedge accounting while uncertainty exists due to the interest rate benchmark reform. The exception assumes that when assessing whether the expected cash flows based on existing interest rate indicators are highly probable, whether there is an economic relationship between the hedged item and the hedging instrument, or whether the hedge relationship between the hedged item and the hedging instrument is highly probable, the interest rate benchmark that the hedged item and the hedging instrument comply with does not change as a result of the interest rate benchmark reform.

The Company applieddoes not expect the effect of the amendments to IAS No. 1 “Presentation of Financial Statements”, which requires the recognition of impairment ofconsolidated financial assetsstatements to be separated in the consolidated statements of comprehensive income. Impairment loss on trade accounts and notes receivable and Impairment loss on other receivables are presented as separate items.

3)

Hedge Accounting

Regarding the initial application of IFRS No. 9, the Company determined to consistently apply hedge accounting requirements of IAS No. 39.significant.

 

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 the acquired set of activities and assets meets the definition of a business and control is transferred to the Company. In determining whether a particular set of activities and assets is a business, the Company assesses whether the set of assets and activities acquired includes, at a minimum, an input and substantive process and whether the acquired set has the ability to produce outputs.

The Company has an option to apply a ‘concentration test’ that permits a simplified assessment of whether an acquired set of activities and assets is not a business. The optional concentration test is met if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2019 and 2020

The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on bargain purchase is recognized in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities. The consideration transferred does not include amounts related to the settlement ofpre-existing relationships. Such amounts are generally recognized in profit or loss.

Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognized in profit or loss.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

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.

 

(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.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2019 and 2020

Interests in associates and joint ventures are accounted for using the equity method. They are recognized initially at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Company’s share of the profit or loss and other comprehensive income of equity-accounted investees, until the date on which significant influence or joint control ceases.

 

(f)

Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated. Unrealized gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Company’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

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 inat previous financial statementsperiod end are recognized in profit or 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

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2019 and 2020

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.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, demand deposits, and short-term investments in highly liquid securities that are readily convertible to known amounts of cash with maturities of three months or less from the acquisition date and which are subject to an insignificant risk of changes in value. Equity investments are excluded from cash and cash equivalents.

Non-derivative financial assets

Trade receivables and debt securities issued are initially recognized when they are originated. All other financial assets are initially recognized when the Company becomes a party to the contractual provisions of the instrument.instruments.

A financial asset(unlessasset (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.

(a) Classification and subsequent measurement — Policies applicable from January 1, 2018

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 first day of the first 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.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2019 and 2020

(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.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

Debt instruments measured at fair value through other comprehensive income are subsequently measured at fair value. Interest income which is calculated using the effective interest 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 aninvestment-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 not classified as measured at amortized cost ofor fair value through other comprehensive income as described above are measured at fair value through profit or loss. This includes all derivative financial assets. On initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or at fair value through other comprehensive income as at fair value through profit or loss if doing so eliminates or 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. Net gains and losses, including any interest or dividend income, are recognized in profit or loss.

(b) Classification and subsequent measurement — Policies applied before January 1, 2018

The Company recognizes and measures non-derivative
(e)

Derecognition of financial assets by the following four categories: financial assets at fair value through profit or loss, held-to-maturity financial assets, loans and receivables and available-for-sale financial assets.

Financial assets at fair value through profit or loss

Financial assets are classified at fair value through profitderecognized when the rights to receive cash flows from the financial assets have expired or loss if they are held for trading or designated as such upon initial recognition. Upon initial recognition, transaction costs are recognized in profit or loss when incurred. Financial assets at fair value through profit or loss are measured at fair value,have been transferred and changes therein are recognized in profit or loss.

Held-to-maturity financial assets

A non-derivative financial asset with a fixed or determinable payment and fixed maturity, for which the Company has transferred substantially all the positive intentionrisks and abilityrewards of ownership. If a transfer does not result in derecognition because the Company has retained substantially all the risks and rewards of ownership of the transferred asset, the Company continues to hold to maturity, is classified as held-to-maturity. Subsequent to initial recognition, held-to-maturityrecognize the transferred asset in its entirety and recognizes a financial assets are measured at amortized cost usingliability for the effective interest rate method.

Loans and receivables

Loans and receivables are non-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.consideration received.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

(f)

Available-for-sale financial assets

Available-for-sale financial assets are those non-derivative financial assets that are designated as available-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 an available-for-sale equity instrument are recognized in profit or loss when the Company’s right to receive payment is established.

(c) 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.

(d) 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 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 anywrite-down of inventories to net realizable value and all losses of inventories are recognized as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories arising from an increase in net realizable value is recognized as a reduction in the amount of inventories recognized as a cost of goods sold in the period in which the reversal occurs.

The carrying amount of those inventories sold is recognized as cost of goods sold in the period in which the related revenue is recognized.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

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

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2019 and 2020

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.

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

(b) the cost can be measured reliably.

POSCO
(a)

it is probable that future economic benefits associated with the item will flow to the Company, and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

 

(b)

the cost can be measured reliably.

The carrying amount of the replaced part is derecognized at the time the replacement part is recognized. The costs of theday-to-day servicing of the item are recognized in profit or loss as incurred.

Items of property, plant and equipment are depreciated from the date they are available for use or, in respect of self-constructed assets, from the date that the asset is completed and ready for use. Other than land, the costs of an asset less its estimated residual value are depreciated. Depreciation of property, plant and equipment is recognized in profit or loss on a straight-line basis, which most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset, over the estimated useful lives of each component of an item of property, plant and equipment. Land is not depreciated.

Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately.

The gain or loss arising from the derecognition of an item of property, plant and equipment is included in profit or loss when the item is derecognized.

The estimated useful lives for the current and comparative periods are as follows:

 

Buildings

  5-50 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

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2019 and 2020

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.

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 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.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

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 expense

  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

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2019 and 2020

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.

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.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

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.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2019 and 2020

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”.

A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for considerations.

1)

As a lessee: policy applicable from January 1, 2019

At inception or reassessment of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease and non-lease component on the basis of their relative stand-alone prices.

The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-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 of to restore the underlying asset or the site on which it is located.

The right-of-use asset is subsequently depreciated on a straight-line basis 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 the right-of-use asset reflects that the Company will exercise a purchase option. In that case the right-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 and equipment. In addition, the right-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.

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 the

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2019 and 2020

right-of-use asset, or is recorded in profit of loss if the carrying amount of the right-of-use asset has been reduced to zero. The lease liability is remeasured when there is:

a revised in-substance fixed lease payment,

a change in future lease payments arising from a change in an index or rate,

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 presents right-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 recognize right-of-use assets and lease liabilities for leases of low-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.

MinimumThe minimum lease payments are apportioned betweenpayment is recognized by dividing 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 containsAs a leaselessor

Determining whether an arrangement is,At inception or the effective date of a modification that contains a lease is basedcomponent, the Company allocates the consideration in the contract to each lease component on the substancebasis of the arrangement and requires an assessment of whether fulfillment of the arrangement istheir relative stand-alone prices.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

dependent onWhen the useCompany acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease. To classify each lease, the Company makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a specific asset or assets (the asset) andfinance lease; if not, then it is an operating lease. As part of this assessment, the arrangement conveys a right to useCompany considers certain indicators such as whether the lease is for the major part of the economic life of the asset.

At inception or reassessment of the arrangement, management of theThe Company separates paymentsleases out its investment properties. The Company classified these leases as operating leases.

The Company subleases certain leased vessels and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If management of the Company concludes for a financial lease that it is impracticable to separate the payments reliably, the Company recognizes an asset and a liability at an amount equal to the fair value of the underlying asset that was identified as the subject of the lease. Subsequently, the liability shall be reduced as payments are made and an imputed finance charge on the liability recognized using the purchaser’s incremental borrowing rate of interest.others.

Impairment forof financial assets — Policies applicable from January 1, 2018

The Company recognizes loss allowances for expected credit losses on:

 

financial assets measured at amortized costcost;

 

debt instruments measured at fair value through other comprehensive incomeincome; 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 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 requiredmeasured for contract assets or trade receivables that do not contain a significant financing component.

 

(a)

Judgments on credit risk

When 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 and 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 portion of lifetime expected credit losses that result from default that are

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

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 as the present value of all cash shortfalls such as the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Company expects to receive.

Expected credit losses for financial assets measured at amortized cost are 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

 

it 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 for financial assets — Policies applied before January 1, 2018

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. However, losses expected as a result of future events, regardless of likelihood, are not recognized.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

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;

(e)

the disappearance of an active market for that financial asset because of financial difficulties; or

(f)

observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group.

In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

If there is objective evidence that financial assets are impaired, impairment losses are measured and recognized.

(a)

Financial assets measured at amortized cost

An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of its estimated future cash flows discounted at the asset’s original effective interest rate. If it is not practicable to obtain the instrument’s estimated future cash flows, impairment losses would be measured by using prices from any observable current market transactions. The Company can recognize impairment losses directly or establish a provision to cover impairment losses. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss shall be reversed either directly or by adjusting an allowance account.

(b)

Financial assets carried at cost

If there is objective evidence that an impairment loss has occurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the impairment loss is measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses are not reversed.

(c)

Available-for-sale financial assets

When a decline in the fair value of an available-for-sale financial asset has been recognized in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had been recognized in other comprehensive income shall be reclassified from equity to profit or loss as a reclassification adjustment even though the financial asset has not been derecognized. Impairment losses recognized in profit or loss

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

for an investment in an equity instrument classified as available-for-sale are not reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available-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.

Impairment forof non-financial assets

The carrying amounts of the Company’snon-financial assets, other than assets arising from contract assets, contract assets recognized in accordance with revenue from contracts with customers, employee benefits, inventories, deferred tax assets andnon-current assets held 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, 2019 and 2020

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-taxpost-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 post-tax basis, 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, including hedge accounting

Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are recognized 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

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

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

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2019 and 2020

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)

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 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, 2016, 2017 and 2018

 

(a)

Financial liabilities measured at fair value through profit or loss

A financial liability is classified as at fair value through profit or loss if it is classified asheld-for-trading, it is a derivative or it is designated as such on initial recognition. Subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value, and chargeschanges 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)

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 financial liabilities measured at amortized cost. At the date of initial

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2019 and 2020

recognition, financial liabilities measured at amortized cost are measured at fair value after deducting transaction costs that are directly attributable to the acquisition. Financial liabilities measured at amortized cost are measured at amortized cost using the effective interest method subsequently to initial recognition.

 

(c)

Derecognition of financial liabilities

The Company derecognizes a financial liability when its contractual obligations are discharged or canceled, or expire.expired. 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 profits multiply cumulativepercentage-of-completion exceed progress billings. If progress billings exceed profits 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 accounts for the remaining rights and performance obligation on the contract with the customerseach customer on a net basis. Due from customers for contract work and due to customers for contract work for samea 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.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

 

(b)

Other long-term employee benefits

Other long-term employee benefits include employee benefits that are settled beyond twelve 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, 2019 and 2020

 

(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.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

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, 2019 and 2020

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 or services are sold. The provision issold and estimated based on historical warranty.warranty data and weighting of possible outcomes against their associated probabilities.

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 estimatedexpected excess of contract cost exceedingover the contract revenue is recognized as a provision for construction losses in the remaining contract for whichincomplete construction has not proceeded.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 gasesgasses 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 gassesGasses Emission Right

Greenhouse gassesGasses 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, 2016, 2017 and 2018

The Company derecognizes an emission right asset when the emission allowance is unusable, disposed or submitted to government when the future economic benefits are no longer expected to be probable.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2019 and 2020

 

(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 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. The emission liability is derecognized when submitted to the government.

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 cancelation 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. Revenue is measured based on the consideration promised in the contract with the customer. The Company recognizes revenue when the control over a good or service is transferred to the customer. The following are the revenue recognition policies for performance obligations in the contracts with customers.customers in accordance with IFRS No. 15.

 

(a)

Sale of good

The goods sold by the Company consist mainly of steel 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 in timepoint-in-time 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.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

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 expire.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 in which the services are provided and the revenue is measured by reference to examining the degree to which the service has been completed so far.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. This is because underUnder those contracts, the Company is able to performperforms 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 excluding contract cost incurredthe costs that do not reflectcontribute to the stageprogress of completionthe construction project, incurred to date bearas a percentage of total estimated cost required to complete the estimated total contract costs.construction.

If the outcome of the contract cannot be reliably estimated, the revenue is recognized only to the extent of the contract costs that are probable to be recovered. If the total contract cost is likely to exceed the total contract revenue, expected losses are immediately recognized as a cost.

The Company issues an invoice when the customer has completed a progress confirmation and generally the payment is made within 45 days from the invoice date.

 

(d)

Certain construction contracts for apartmentscondominiums

For certain construction service contracts for apartmentscondominiums where the criterion of an enforceable right to payment for performance is met under IFRS No. 15,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 the relevant law and

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

contracts such as the guarantee for sale policy, government approval on business plan, payment and termination terms. For certain construction contracts for apartmentscondominiums and shopping centers where the criterion of an

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2019 and 2020

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 apartmentscondominiums 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 terms of the contracts.

Finance income and finance costs

The Company’s finance income and finance costs include:

 

interest income;

 

interest expense;

 

dividend income;

 

the foreign currency gain or loss on financial assets and financial liabilities;

 

the net gain or loss on financial assets measured at fair value through profit or loss;

 

hedge ineffectiveness recognized in profit or loss; and

 

the net gain or loss on the disposal of investments in debt securities measured at fair value through other comprehensive income.

Interest income or expense is recognized using the effective interest method. Dividend income is recognized in profit or loss on the date on 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:

 

the gross carrying amount of the financial asset; or

 

the amortized cost of the financial liability.

In calculating interest income and expense, the effective interest rate 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.

The Companycompany recognizes interest and penalties related to corporate tax as if it is applicable to the income taxes the Company appliesin accordance with IAS No. 12 “Income Taxes”, if it is. If interest and penalties do not applicable tomeet the definition on income taxes, the Company applies IAS No. 37 “Provisions, Contingent Liabilities and Contingent Assets”.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

If there is uncertainty about an income tax treatment such as dispute of a particular tax treatment by a tax authority, the Company considers whether it is probable that the tax authority will accept the Company’s 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 tax authority will accept the Company’s 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 filing. If not, the Company reflects the effect of uncertainty for each uncertain tax treatment by using either of the most likely amount or the expected value method whichever 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 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 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.

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.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2019 and 2020

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

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

period. 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.

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 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

With regard to construction segment, segment profit and loss is determined in accordance with IFRS except that revenues and expenses from the total cost incurred duringdevelopment and sale of certain residential real estates are determined by reference to the periodstage of completion, while in the consolidated financial statements, they are recognized when the title to acquirethe real estates is transferred to the buyer.

For the other segments, segment profit and loss is determined in accordance with IFRS without any allocation of corporate expenses.

The accounting policies used in reporting segment information are consistent with the accounting policies used in the preparation of the consolidated financial statements except the assets and liabilities related to certain real estate contract revenue of the construction segment explained above which are determined by reference to the stage of completion of the contract activity at the end of each period. Corporate expenses are not allocated to segments in determining segment profit and loss. In addition, segment assets and liabilities, are not allocated to segments either. The assets and liabilities of each segment presented in Note 40 are based on the separate financial statements of the entities belong to each segment.

In addition, there are a variety of transactions amongst the reportable segments. These transactions include sales and purchase of products, materials and property, plant and equipment, and intangible assets other than goodwill.rendering of construction service and so on.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

New standards and interpretations not yet adopted

The followingA number of new standard has been published but is not mandatory for the Companystandards are effective for annual periodperiods beginning onafter January 1, 2018,2020 and earlier application is permitted but the Company has not early adopted them.the new or amended standards in preparing these consolidated financial statements.

 

(a)

IFRS No. 16 “Leases”“Lease”—COVID-19 Related Rent Concessions

The amendment introduces an optional practical expedient that simplifies how a lessee accounts for rent concessions that are a direct consequence of COVID-19. A lessee that applies the practical expedient is not required to assess whether eligible rent concessions are lease modifications. The Company is required to disclose the amount recognized in profit or loss for the reporting period arising from application of the practical expedient. The amendment is effective for annual periods beginning on or after June 1, 2020. Early application is permitted. The Company does not expect the effect of the amendments to the consolidated financial statements to be significant.

(b)

IAS No. 1 “Presentation of Financial Statements”—Classification of Liabilities as Current or Non-current

The amendment clarifies that liabilities are classified as either current or non-current, depending on the substantive rights that exist at the end of the reporting period. Classification is unaffected by the likelihood that an entity will exercise right to defer settlement of the liability or the expectations of management. The amendment is effective for annual periods beginning on or after January 1, 2023. Early application is permitted. The Company does not expect the effect of the amendments to the consolidated financial statements to be significant.

(c)

IAS No. 16 “Property, Plant and Equipment”—Proceeds Before Intended Use

The amendments prohibit an entity from deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while the entity is preparing the asset for its intended use. Instead, the entity will recognize the proceeds from selling such items, and the costs of producing those items, in profit or loss. The amendment is effective for annual periods beginning on or after January 1, 2022. Early application is permitted. The Company does not expect the effect of the amendments to the consolidated financial statements to be significant.

(d)

IAS No. 37 “Provisions, Contingent Liabilities and Contingent Assets”—Onerous Contracts : Cost of Fulfilling a Contact

The amendments clarify that the direct costs of fulfilling a contract include both the incremental costs of fulfilling the contract and an allocation of other costs directly related to fulfilling contracts when assessing whether the contract is onerous. The amendment is effective for annual periods beginning on or after January 1, 2022. Early application is permitted. The Company does not expect the effect of the amendments to the consolidated financial statements to be significant.

4.

Financial risk management

The Company will apply IFRS No. 16 “Leases” for the year beginning on January 1, 2019. The Company is evaluating analysis of financial impact resulting from adoption of new standards and the estimated effect on the consolidated financial statements at the date of initial application based on current situation as of December 31, 2018. However, a reasonable estimation of financial impact is not determined since the analysis of financial impact is not completed.

IFRS No. 16 “Leases” replaces existing leases guidance, including IAS No. 17 “Leases”, IFRIC No. 4 “Determining whether an Arrangement contains a Lease”, SIC No. 15 “Operating Leases-Incentives” and SIC No. 27 “Evaluating the Substance of Transactions Involving the Legal Form of a Lease”.

IFRS No. 16 introduces a single accounting model that requires a lessee to recognize lease related asset and liability in the financial statements. A lessee is required to recognize a right-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 with a term of 12 months or less at the commencement date or low value assets. Accounting treatment for lessor is similarhas exposure to the existing standard which classifies lease into finance and operating lease.following risks in relation to its financial instruments:

 

1)

Leases in which the Company is a lessee

Upon adoption of IFRS No. 16, the Company will recognize new assets and liabilities for its operating leases. The nature of expenses related to those leases will change because the Company will recognize a deprecation charge for right-of-use assets and interest expense on lease liabilities. Previously, the Company recognized operating lease expense on a straight-line basis over the term of the lease term. It is expected that there will be no significant impact on finance leases.credit risk

As of the authorization date for issuance of these consolidated financial statements, the Company is still evaluating whether certain arrangements related to the use of vessels, land, warehouses and factory facilities contain leases that shall be accounted for in accordance with IFRS No. 16. The outcome of such evaluations may have significant impact on the Company’s consolidated financial statements upon adoption of IFRS No. 16.

As a lessee, the Company shall apply IFRS No. 16 using one of the following two transition methods; (a) retrospectively to each prior reporting period presented in accordance with IAS No. 8 “Accounting Policies, Changes in Accounting Estimates and Errors”; or (b) retrospectively with the cumulative effect of initially applying this standard recognized at the date of initial application.

The Company intends to apply the modified retrospective approach when initially applying IFRS No. 16 as of January 1, 2019, the date of initial application. Accordingly, the Company will recognize the accumulated effect resulting from initial application of IFRS No. 16 as retained earnings of the Company at the date of initial application and not restate the financial statements for comparative periods.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

The Company plans to apply the practical expedient to grandfather the definition of a lease on transition. This means that it will apply IFRS No. 16 to all contracts entered into before January 1, 2019 and identified as leases in accordance with IAS No. 17 and IFRIC No. 4.

2)

Leases in which the Company is a lessor

As a lessor, the Company expects to have no significant impact on its financial statements since the present lease accounting treatment is not significantly different from applying IFRS No. 16.

(b)

IFRIC No. 23 “Uncertainty over Tax Treatments”

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.

The application of IFRIC No. 23 “Uncertainty over Tax Treatments” is mandatory for the year beginning on January 1, 2019. The Company expects the adoption of the standard will not have significant impact on consolidated financial statements.

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

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

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 expected 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 assets in respect of losses that have been incurred.risk characteristics.

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.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2019 and 2020

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.

 

 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.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

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 hedging is not permitted.transactions. 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 subjectedat maturities related to investment in overseas when its maturities come.the entities have excessive foreign currency. In addition, the entities in steel segment are using forward exchange contract for hedging foreign currency risks relating to foreign currency borrowings. The entities in the engineering and construction segment have hedged foreign currency risks by using forward exchange contracts. Entities in the trading segment have hedged foreign currency risks byfrom net exposure of foreign currency receivables and payables using forward exchange contracts when the foreign currencies received and paid are different.contracts.

 

 

Interest rate risk

The Company manages the exposure to interest rate risk by adjusting of borrowing structure ratio between borrowings at fixed interest raterates and variable interest rate.rates. The Company monitors interest rate risks regularly in order to avoidmanage exposure to interest rate risk on borrowings at variable interest rate.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2019 and 2020

 

 

Other market price risk

Equity price risk arises from fluctuation of market price of listed 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 flow 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 management of the Company.Company’s management.

 

(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). The Company’s strategy is to maintain a strong capital base so as to maintain investor, creditor and current financial instruments from borrowings. Themarket confidence and to sustain future development of its businesses.

Net borrowing-to-equity ratio as of December 31, 2019 and 2020 is as follows:

(in millions of Won)  2019  2020 

Total borrowings

    20,441,613   20,497,607 

Less: Cash and cash equivalents

   3,514,872   4,754,644 
  

 

 

  

 

 

 

Net borrowings

   16,926,741   15,742,963 

Total equity

   47,794,707   47,674,592 

Net borrowings-to-equity ratio

   35.42  33.02

5.

Cash and Cash Equivalents

Cash and cash equivalents as of December 31, 2019 and 2020 are as follows:

(in millions of Won)  2019   2020 

Cash

  2,081    3,100 

Demand deposits and checking accounts

   1,581,428    2,344,259 

Time deposits

   701,865    1,108,111 

Other cash equivalents

   1,229,498    1,299,174 
  

 

 

   

 

 

 
  3,514,872    4,754,644 
  

 

 

   

 

 

 

In connection with the jointly held accounts of joint operations and others, as of December 31, 2020, cash and cash equivalents amounting to 40,319 million of subsidiaries of the Company, applied the same capital risk management strategy that was appliedsuch as POSCO ENGINEERING & CONSTRUCTION CO., LTD., are restricted in the previous period.use.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

Netborrowing-to-equity ratio as of December 31, 2017 and 2018 is as follows:

   2017  2018 
   (in millions of Won) 

Total borrowings

      21,063,657   20,209,270 

Less: Cash and cash equivalents

   2,612,530   2,643,865 
  

 

 

  

 

 

 

Net borrowings

   18,451,127   17,565,405 

Total equity

   47,326,725   46,672,614 

Netborrowings-to-equity ratio

   38.99  37.64

5.

Cash and Cash Equivalents

Cash and cash equivalents as of December 31, 2017 and 2018 are as follows:

   2017   2018 
   (in millions of Won) 

Cash

  1,896    1,668 

Demand deposits and checking accounts

   1,259,813    1,471,891 

Time deposits

   360,985    538,130 

Other cash equivalents

   989,836    632,176 
  

 

 

   

 

 

 
      2,612,530    2,643,865 
  

 

 

   

 

 

 

As of December 31, 2018, cash equivalents amounting to42,147 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.

 

6.

Trade Accounts and Notes Receivable

(a) Trade accounts and notes receivable as of December 31, 2017 and 2018

(a)

Trade accounts and notes receivable as of December 31, 2019 and 2020 are as follows:

 

  2017 2018 
  (in millions of Won) 
(in millions of Won)  2019   2020 

Current

       

Trade accounts and notes receivable

      8,579,620  8,648,250   8,352,968    7,468,622 

Finance lease receivables

   10,469  57,487    221    41,841 

Unbilled due from customers for contract work

   728,007  810,655    1,128,116    941,793 

Less: Allowance for doubtful accounts

   (493,533 (386,188   (411,274   (342,017
  

 

  

 

   

 

   

 

 
  8,824,563  9,130,204   9,070,031    8,110,239 
  

 

  

 

   

 

   

 

 

Non-current

       

Trade accounts and notes receivable

  871,432  583,797   209,310    131,010 

Finance lease receivables

   734  45,873    43,725    46 

Less: Allowance for doubtful accounts

   (140,596 (202,545   (54,250   (44,633
  

 

  

 

   

 

   

 

 
  731,570  427,125   198,785    86,423 
  

 

  

 

   

 

   

 

 

Trade accounts and notes receivable sold to financial institutions, for which the derecognition conditions were not met, amounted to309,964 million and468,706 million as of December 31, 2017 and 2018, respectively. The fair value ofcompany sold trade accounts and notes receivable approximates the carrying amounts andwith recourse to financial institutions. These trade accounts and notes receivable have not been derecognized from the statement of financial position, because the Company retains substantially all of the risks and rewards associated with the transferred assets. The amounts received on transfer have been recognized as secured borrowings. As of December 31, 2019 and December 31, 2020, the carrying amounts of such secured borrowings are included244,305 million and 328,807 million, respectively, which are presented in the statements of financial position as the short-term borrowings from financial institutions (Note 17).borrowings.

(b)

Finance lease receivables are as follows:

(in millions of Won)           

Customer

  

Contents

  2019   2020 

Officers and employees

  

Songdo apartment rental

  43,445    41,624 

ZHAOHUUI PROSPERITY INT’L LTD

  

Office Rental

   501    263 
    

 

 

   

 

 

 
    43,946    41,887 
    

 

 

   

 

 

 

(c)

As of December 31, 2019 and 2020, the Company’s total and net lease investments in the leases are as follows:

(in millions of Won)  2019   2020 

Less than 1 year

  237    41,847 

1 year - 3 years

   46,161    47 
  

 

 

   

 

 

 

Undiscounted lease payments

   46,398    41,894 

Unrealized interest income

   (2,452   (7
  

 

 

   

 

 

 

Present value of minimum lease payment

  43,946    41,887 
  

 

 

   

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

(b) Finance lease receivables are as follows:

Customer

  

Contents

  2017   2018 
   (in millions of Won) 

Rental contractor (executives and employees)

  Songdo rental apartment contract      103,360 

Korea Electric Power Corporation

  Combined thermal power plant #3~4   10,469     

Hystech.Co. Ltd.

  Machinery and equipment   734     
    

 

 

   

 

 

 
        11,203    103,360 
    

 

 

   

 

 

 

(c) The gross amount and present value of minimum lease payments as of December 31, 2017 and 2018 are as follows:

   2017  2018 
   (in millions of Won) 

Less than 1 year

  11,771   57,820 

1 year – 5 years

   828   49,678 

Unrealized interest income

   (1,396  (4,138
  

 

 

  

 

 

 

Present value of minimum lease payment

  11,203   103,360 
  

 

 

  

 

 

 

 

7.

Other Receivables

Other receivables as of December 31, 2017 and 2018

(a)

The details of other receivables as of December 31, 2019 and 2020, are as follows:

 

  2017 2018 
  (in millions of Won) 
(in millions of Won)  2019   2020 

Current

       

Loans

  617,696  236,782   367,580    258,735 

Other accounts receivable

   960,543  954,030    971,845    835,791 

Accrued income

   179,971  220,066    272,528    298,157 

Deposits

   107,137  108,640    86,519    82,884 

Lease receivables

   48,744    18,015 

Others

   18,925  16,201    14,510    68,198 

Less: Allowance for doubtful accounts

   (248,266 (150,090   (180,209   (67,541
  

 

  

 

   

 

   

 

 
  1,636,006  1,385,629   1,581,517    1,494,239 
  

 

  

 

   

 

   

 

 

Non-current

       

Loans

  874,158  731,344   701,529    798,287 

Other accounts receivable

   92,939  155,936    209,039    197,304 

Accrued income

   1,663  1,855    65,275    86,920 

Deposits

   122,485  152,072    238,261    284,588 

Lease receivables

   179,315    128,366 

Less: Allowance for doubtful accounts

   (212,069 (177,967   (252,540   (299,503
  

 

  

 

   

 

   

 

 
  879,176  863,240   1,140,879    1,195,962 
  

 

  

 

   

 

   

 

 

(b)

The details of lease receivables are as follows:

(in millions of Won)           

Customer

  

Leased items

  2019   2020 

HEUNG-A SHIPPING CO., LTD., MSC, HEUNG-A LINE CO., LTD.

  

6 Container Ships, 4 Tankers

  212,933    166,077 

KOGAS, ONGC Videsh Limited, GAIL(India) Limited, Myanma Oil and Gas Enterprise

  

Helicopter, Ship, Office, Jetty

   15,126    30,487 
    

 

 

   

 

 

 
    228,059    196,564 
    

 

 

   

 

 

 

(c)

As of December 31, 2020, total and net lease investments in the leases are as follows:

(in millions of Won)  2019   2020 

Less than 1 year

  56,796    70,378 

1 year - 3 years

   107,955    101,049 

3 years - 5 years

   70,742    28,922 

Over 5 years

   16,089    9,969 
  

 

 

   

 

 

 

Undiscounted lease payments

   251,582    210,318 

Unrealized interest income

   (23,523   (13,754
  

 

 

   

 

 

 

Present value of minimum lease payment

  228,059    196,564 
  

 

 

   

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

8.

Other Financial Assets

Other financial assets as of December 31, 20172019 and 20182020 are as follows:

 

   2017   2018 
   (in millions of Won) 

Current

    

Derivatives assets held for trading

  63,912    47,288 

Debt securities

       2,987 

Financial assets held for trading

   1,970     

Available-for-sale securities (bonds)

   136,141     

Current portion ofheld-to-maturity securities

   421     

Deposit instruments(*1,2)

   1,297,769    1,931,518 

Short-term financial instruments(*2)

   5,545,667    6,099,303 
  

 

 

   

 

 

 
  7,045,880    8,081,096 
  

 

 

   

 

 

 

Non-current

    

Derivatives assets held for trading

  4,378    1,795 

Equity securities(*3)

       1,238,630 

Debt securities

       34,327 

Other securities(*3)

       338,106 

Available-for-sale securities (equity instruments)(*3)

   1,730,753     

Available-for-sale securities (bonds)

   54,439     

Available-for-sale securities (others)

   56,782     

Held-to-maturity securities

   4,790     

Deposit instruments(*2)

   60,542    35,040 
  

 

 

   

 

 

 
  1,911,684    1,647,898 
  

 

 

   

 

 

 

(in millions of Won)  2019   2020 

Current

    

Derivatives assets

  47,541    99,324 

Debt securities

   342,371    154,154 

Deposit instruments(*1,2)

   1,744,895    2,322,327 

Short-term financial instruments(*2)

   6,861,242    9,133,404 
  

 

 

   

 

 

 
  8,996,049    11,709,209 
  

 

 

   

 

 

 

Non-current

    

Derivatives assets

  64,737    18,551 

Equity securities(*3)

   1,204,902    1,120,968 

Debt securities

   25,555    20,260 

Other securities(*3)

   340,008    364,404 

Deposit instruments(*2)

   34,187    37,624 
  

 

 

   

 

 

 
  1,669,389    1,561,807 
  

 

 

   

 

 

 

 

(*1)

As of December 31, 20172019 and 2018,2020, 10,0804,524 million and5,7154,881 million, respectively, are restricted for thein use infor a government project.

(*2)

As of December 31, 20172019 and 2018,2020, financial instruments amounting to78,47773,525 million and73,93546,855 million, respectively, are restricted forin use infor financial arrangements, pledge and others.

(*3)

As of December 31, 20172019 and 2018,2020, 136,099109,395 million and115,431113,674 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, 2017 and 2018

(a)

Inventories as of December 31, 2019 and 2020 are as follows:

 

  2017 2018 
  (in millions of Won) 
(in millions of Won)  2019   2020 

Finished goods

  1,526,628  1,886,040   1,655,228    1,285,552 

Merchandise

   930,558  1,131,416    1,058,874    751,245 

Semi-finished goods

   1,721,130  1,945,567    2,097,289    1,626,855 

Raw materials

   2,329,268  2,821,972    2,656,341    1,980,518 

Fuel and materials

   808,016  888,941    1,026,133    876,593 

Construction inventories

   1,692,092  1,372,259    1,045,088    1,521,206 

Materials-in-transit

   1,818,576  2,245,740    1,824,044    1,664,770 

Others

   103,144  68,150    83,905    61,086 
  

 

  

 

   

 

   

 

 
   10,929,412  12,360,085    11,446,902    9,767,825 
  

 

  

 

   

 

   

 

 

Less: Allowance for inventories valuation

   (135,631 (206,782   (216,143   (131,642
  

 

  

 

   

 

   

 

 
  10,793,781  12,153,303   11,230,759    9,636,183 
  

 

  

 

   

 

   

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

(b) The changes of
(b)

The changes in allowance for inventories valuation for the years ended December 31, 2016, 2017 and 2018, 2019 and 2020 were as follows:

 

  2016 2017 2018 
  (in millions of Won) 
(in millions of Won)  2018   2019   2020 

Beginning

  231,378  203,164  135,631   135,631    206,782    216,143 

Loss on valuation of inventories

   152,249  78,560  141,799    141,799    96,201    54,014 

Realization on disposal of inventories

   (161,458 (138,967 (69,426

Realization on sale of inventories

   (69,426   (79,419   (132,707

Others

   (19,005 (7,126 (1,222   (1,222   (7,421   (5,808
  

 

  

 

  

 

   

 

   

 

   

 

 

Ending

  203,164  135,631  206,782   206,782    216,143    131,642 
  

 

  

 

  

 

   

 

   

 

   

 

 

 

10.

Assets Held for Sale

Details of assets held for sale as of December 31, 20172019 and 20182020 are as follows:

 

   2017   2018 
   Controlling
company
   Subsidiaries (*1)   Total   Subsidiaries (*2) 
   (in millions of Won) 

Assets

        

Other financial assets

              778 

Property, plant and equipment

   392    71,340    71,732    21,076 

Others

       36    36     
  

 

 

   

 

 

   

 

 

   

 

 

 
  392    71,376    71,768    21,854 
  

 

 

   

 

 

   

 

 

   

 

 

 

(in millions of Won)  2019   2020 
   Subsidiaries   Controlling
company(*1)
   Subsidiaries   Total 

Assets

        

Cash and cash equivalents(*2)

  374    —      934    934 

Other financial assets

   185    —      273    273 

Property, plant and equipment

   32,972    32,244    40    32,284 

Others

   4,306    —      719    719 
  

 

 

   

 

 

   

 

 

   

 

 

 
   37,837    32,244    1,966    34,210 
  

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities

        

Others

  8    —      25    25 

 

(*1)

During the year ended December 2017, POSCO ENGINEERING & CONSTRUCTION CO., LTD., a subsidiary of31, 2019, the Company determineddecided to dispose of the office building, Seomyeon Fiesta, in Busanindividual assets for which use was discontinued, such as CEM plants, and classified the related property, plant and equipment amounting to71,340 millionassets as assets held for sale. During the year ended December 31, 2018, disposal2020 the Company recognized 5,030 million of impairment loss for the difference between the fair value less costs to sell and the carrying amount of the accompanyingassets.

(*2)

Cash and cash equivalents in the statement of cash flows include cash and cash equivalents that are classified as assets held for sale was completed.

(*2)

During the year endedas of December 31, 2018, DAESAN (CAMBODIA) Co., Ltd., a subsidiary of the Company, determined to dispose of the land2019 and classified the related property, plant and equipment amounting to21,076 million as assets held for sale.2020.

 

11.

Investments in Associates and Joint ventures

(a) Investments in associates and joint ventures as of December 31, 2017 and 2018

(a)

Investments in associates and joint ventures as of December 31, 2019 and 2020 are as follows:

 

  2017   2018 
  (in millions of Won) 
(in millions of Won)  2019   2020 

Investments in associates

  1,520,441    1,738,692   1,864,509    1,732,833 

Investments in joint ventures

   2,037,491    1,911,311    2,063,246    2,143,416 
  

 

   

 

   

 

   

 

 
  3,557,932    3,650,003   3,927,755    3,876,249 
  

 

   

 

   

 

   

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

(b) Details of investments in associates as of December 31, 2017 and 2018
(b)

Details of investments in associates as of December 31, 2019 and 2020 are as follows:

 

   Number
of shares
   Ownership
(%)
   Acquisition
cost
   Book value 

Company

  2017   2018 
   (in millions of Won) 

[Domestic]

          

EQP POSCO Global NO1 Natural Resources Private Equity Fund

   178,713,975,892    31.27   178,787   175,553    174,123 

POSPower Co., Ltd(*1,2)

   4,507,138    34.00    164,757        161,477 

SNNC

   18,130,000    49.00    90,650    110,424    116,922 

QSONE Co., Ltd.

   200,000    50.00    84,395    85,049    85,550 

Chun-cheon Energy Co., Ltd(*2)

   16,098,143    45.67    80,491    74,378    62,478 

CHUNGJU ENTERPRISE CITY DEVELOPMENT Co., Ltd

   2,008,000    29.53    10,040    17,252    17,382 

Daesung Steel(*4)

   108,038    17.54    14,000    15,500    15,644 

Incheon-Gimpo Expressway Co., Ltd.(*2,4)

   9,032,539    18.26    45,163    31,660    13,329 

Keystone NO. 1. Private Equity Fund

   13,800,000    40.45    13,800    12,379    11,183 

KoFC POSCO HANWHA KB Shared Growth NO. 2. Private Equity Fund(*4)

   6,485    12.50    6,485    6,828    5,739 

KONES, Corp.

   3,250,000    41.67    6,893    2,827    2,849 

BLUE OCEAN Private Equity Fund

   333    27.52    33,300    19,620     

UITrans LRT Co., Ltd.(*2)

   7,714,380    38.19    38,572    15,841     

Others (46 companies)(*2)

         67,325    123,734 
        

 

 

   

 

 

 
         634,636    790,410 
        

 

 

   

 

 

 

[Foreign]

          

AES-VCM Mong Duong Power Company Limited (*3)

       30.00    164,303    142,348    209,936 

South-East Asia Gas Pipeline Company Ltd.

   135,219,000    25.04    135,899    197,069    179,459 

7623704 Canada Inc.(*4)

   114,452,000    10.40    124,341    121,702    126,885 

Eureka Moly LLC

       20.00    240,123    79,398    82,447 

AMCI (WA) PTY LTD

   49    49.00    209,664    63,378    71,086 

KOREA LNG LTD.

   2,400    20.00    135,205    33,422    43,554 

Nickel Mining Company SAS

   3,234,698    49.00    157,585    45,905    41,712 

NCR LLC

       29.41    40,139    33,738    37,602 

PT. Batutua Tembaga Raya

   128,285    22.00    21,824    21,823    20,479 

Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd

   10,200,000    34.00    9,517    15,617    14,796 

PT. Wampu Electric Power(*2)

   8,708,400    20.00    10,054    13,391    14,120 

POSCO SeAH Steel Wire (Nantong) Co., Ltd.

   50    25.00    4,723    6,517    6,478 

Others (29 companies)(*2)

         111,497    99,728 
        

 

 

   

 

 

 
         885,805    948,282 
        

 

 

   

 

 

 
        1,520,441    1,738,692 
        

 

 

   

 

 

 

(in millions of Won)  Number
of shares
   Ownership
(%)
   Acquisition
cost
   Book value 

Company

  2019   2020 

[Domestic]

          

EQP POSCO Global NO1 Natural Resources
Private Equity Fund

   178,691,901,565    36.34   178,787   175,907    175,939 

Samcheok Blue Power Co.,Ltd.
(Formerly, POSPower Co., Ltd)(*1)

   4,507,138    34.00    179,410    161,280    145,092 

SNNC

   18,130,000    49.00    90,650    142,602    160,332 

QSONE Co.,Ltd.

   200,000    50.00    84,395    85,887    86,004 

Chun-cheon Energy Co., Ltd(*1)

   17,308,143    49.10    86,541    56,679    23,913 

Western Inland highway CO.,LTD.

   9,533,364    29.82    47,667    5,115    45,070 

Nextrain Co., Ltd.(*1)

   9,904,000    21.26    49,520    41,447    47,364 

Keystone NO. 1. Private Equity Fund

   22,523,123    52.58    22,523    19,438    —   

CHUNGJU ENTERPRISE CITY
DEVELOPMENT Co.,Ltd

   2,008,000    29.53    10,040    17,824    17,137 

Daesung Steel

   108,038    17.54    14,000    15,375    16,990 

PCC Amberstone Private Equity Fund 1

   8,657,610,240    8.80    8,540    9,570    9,230 

Others (58 companies)(*1)

         114,490    117,193 
        

 

 

   

 

 

 
         845,614    844,264 
        

 

 

   

 

 

 

[Foreign]

          

South-East Asia Gas Pipeline Company Ltd.

   135,219,000    25.04    132,907    225,933    199,342 

AES-VCM Mong Duong Power
Company Limited(*1)

   —      30.00    164,303    178,892    158,777 

9404-5515 Quebec Inc.
(Formerly, 7623704 Canada Inc.)

   114,452,000    10.40    124,341    131,529    123,296 

Eureka Moly LLC

   —      20.00    240,123    85,349    43,520 

AMCI (WA) PTY LTD

   49    49.00    209,664    72,937    71,732 

NCR LLC

   —      29.40    53,940    46,391    46,608 

KOREA LNG LTD.

   2,400    20.00    135,205    46,557    42,229 

Nickel Mining Company SAS

   3,234,698    49.00    157,585    37,940    40,890 

ZHEJIANG HUAYOU-POSCO ESM CO., LTD

   134,400,000    40.00    22,423    22,356    22,147 

Zhongyue POSCO (Qinhuangdao) Tinplate
Industrial Co., Ltd

   10,200,000    34.00    9,517    15,128    15,181 

PT. Wampu Electric Power(*1)

   8,708,400    20.00    10,054    13,363    12,716 

PT. Batutua Tembaga Raya

   128,285    22.00    21,824    14,717    15 

POSCO SeAH Steel Wire(Nantong) Co., Ltd.

   50    25.00    4,723    6,755    7,110 

Others (26 companies)(*1)

         121,048    105,006 
        

 

 

   

 

 

 
         1,018,895    888,569 
        

 

 

   

 

 

 
        1,864,509    1,732,833 
        

 

 

   

 

 

 

 

(*1)

During the year ended December 31, 2018, the Company disposed of 63.53% of shares in POSPower Co., Ltd, which resulted in the Company’s loss of control, and the Company classified the remaining investment as investment in an associate.

(*2)

As of December 31, 20172019 and 2018,2020, investments in associates amounting to158,370437,646 million and285,066410,573 million, respectively, are provided as collateral in relation to the associates’ borrowings.

(*3)

As of December 31, 2017 and 2018, shares of PSC Energy Global Co., Ltd., a subsidiary of the Company, are provided as collateral in relation to the associates’ borrowings.

(*4)

As of December 31, 2018, 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 Board of Directors and others.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

(c) Details of investments in joint ventures as of December 31, 2017 and 2018 are as follows:

   Number
of shares
   Ownership
(%)
   Acquisition
cost
   Book value 

Company

  2017   2018 
   (in millions of Won) 

[Domestic]

          

POSCO MITSUBISHI CARBON TECHNOLOGY

   11,568,000    60.00   115,680   110,760    180,192 

Others (6 companies)

         6,094    9,124 
        

 

 

   

 

 

 
         116,854    189,316 
        

 

 

   

 

 

 

[Foreign]

          

Roy Hill Holdings Pty Ltd(*1)

   13,117,972    12.50    1,528,672    1,125,133    1,041,600 

POSCO-NPS Niobium LLC

   325,050,000    50.00    364,609    348,836    363,506 

KOBRASCO

   2,010,719,185    50.00    32,950    108,485    133,449 

BX STEEL POSCO Cold Rolled Sheet Co., Ltd.

       25.00    61,961    88,305    88,391 

DMSA/AMSA(*1)

       4.00    322,596    56,735    26,709 

CSP — Compania Siderurgica do Pecem

   1,108,696,532    20.00    558,821    146,427    24,832 

Others (13 companies)

         46,716    43,508 
        

 

 

   

 

 

 
         1,920,637    1,721,995 
        

 

 

   

 

 

 
        2,037,491    1,911,311 
        

 

 

   

 

 

 

(*1)

As of December 31, 2017 and 2018, 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, 2016, 20172019 and 20182020

 

 

 

(c)

Details of investments in joint ventures as of December 31, 2019 and 2020 are as follows:

(d) The movements of investments in associates

(in millions of Won) Number
of shares
  Ownership
(%)
  Acquisition
cost
  Book value 

Company

 2019  2020 

[Domestic]

     

POSCO MITSUBISHI CARBON TECHNOLOGY

  11,568,000   60.00  115,680  182,648   153,457 

Others (7 companies)

     10,305   14,014 
    

 

 

  

 

 

 
     192,953   167,471 
    

 

 

  

 

 

 

[Foreign]

     

Roy Hill Holdings Pty Ltd(*1)

  13,117,972   12.50   1,528,672   1,235,682   1,418,056 

POSCO-NPS Niobium LLC

  325,050,000   50.00   364,609   376,410   353,725 

KOBRASCO

  2,010,719,185   50.00   32,950   115,641   54,400 

BX STEEL POSCO Cold Rolled Sheet Co., Ltd.

  —     25.00   61,961   88,935   91,270 

DMSA/AMSA(*1,2)

  —     4.27   406,556   12,189   31,104 

CSP - Compania Siderurgica do Pecem

  1,483,752,032   20.00   656,884   —     —   

Others (10 companies)

     41,436   27,390 
    

 

 

  

 

 

 
     1,870,293   1,975,945 
    

 

 

  

 

 

 
    2,063,246   2,143,416 
    

 

 

  

 

 

 

(*1)

As of December 31, 2019 and 2020, the investments in joint ventures are provided as collateral in relation to the joint ventures’ borrowings.

(*2)

All of the shareholders of the joint venture entered into financial support agreement with lenders on behalf of the joint venture to extend the maturity of the loans granted to the joint venture by the lenders. However, the Company believes the shareholders’ financial support agreement is invalid and is currently in arbitration process for annulment. The Company’s obligation to provide financial support is currently on hold and may change depending on the result of the arbitration.

POSCO and joint ventures forSubsidiaries

Notes to the years endedConsolidated Financial Statements, Continued

As of December 31, 20172019 and 2018 were as follows:

1) For the year ended December 31, 20172020

 

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 Private Equity Fund

 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 

CHUNGJU ENTERPRISE CITY DEVELOPMENT Co., Ltd

  12,551         4,701      17,252 

BLUE OCEAN Private Equity Fund

  35,752         (8,154  (7,978  19,620 

Daesung Steel

  12,302         3,198      15,500 

Incheon-Gimpo Expressway Co., Ltd.

  37,372         (6,463  751   31,660 

Keystone NO. 1. Private Equity Fund

  13,314         (886  (49  12,379 

UITrans LRT Co., Ltd.

  17,851         (2,010     15,841 

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]

      

AES-VCM Mong Duong Power Company Limited

  167,141      (30,798  19,644   (13,639  142,348 

South-East Asia Gas Pipeline Company Ltd.

  215,996      (37,016  42,896   (24,807  197,069 

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 

KOREA LNG LTD.

  63,058      (6,466  (70,180  47,010   33,422 

NCR LLC

  36,738   276      (60  (3,216  33,738 

PT. Batutua Tembaga Raya

  22,723         260   (1,160  21,823 

PT. Wampu Electric Power

  8,706         5,927   (1,242  13,391 

Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd

  18,008         (1,268  (1,123  15,617 

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 

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 

CSP - Compania Siderurgica do Pecem

  330,463         (147,847  (36,189  146,427 

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 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

(d)

The changes of investments in associates and joint ventures for the years ended December 31, 2019 and 2020 were as follows:

1)

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 

Samcheok Blue Power Co.,Ltd. (Formerly, 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 

Western Inland highway CO.,LTD.

  1,494   3,752   —     (167  36   5,115 

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 

PCC Amberstone Private Equity Fund 1

  9,693   —     (723  1,079   (479  9,570 

POSCO MITSUBISHI CARBON TECHNOLOGY

  180,192   —     (16,369  19,377   (552  182,648 

Others (62 companies)

  143,578   27,221   (669  (24,448  (20,887  124,795 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  979,726   87,346   (20,161  6,882   (15,226  1,038,567 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

[Foreign]

      

South-East Asia Gas Pipeline Company Ltd.

  179,459   —     (24,267  63,749   6,992   225,933 

AES-VCM Mong Duong Power Company Limited

  209,936   —     (18,099  24,126   (37,071  178,892 

9404-5515 Quebec Inc. (Formerly, 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 

NCR LLC

  37,602   9,605   —     (822  6   46,391 

KOREA LNG LTD.

  43,554   —     (13,404  13,501   2,906   46,557 

Nickel Mining Company SAS

  41,712   —     —     (4,250  478   37,940 

ZHEJIANG HUAYOU-POSCO ESM CO., LTD

  —     22,423   —     61   (128  22,356 

Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd

  14,796   —     —     10   322   15,128 

PT. Wampu Electric Power

  14,120   —     —     (1,247  490   13,363 

PT. Batutua Tembaga Raya

  20,479   —     —     (6,209  447   14,717 

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 effectdue from translations of financial statements of foreign investees and others.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

2) For the year ended December 31, 2018
2)

For the year ended December 31, 2020

 

Company

 December 31,
2017
Book value
  Acquisition  Dividends  Share of
profits
(losses)
  Other
increase
(decrease) (*1)
  December 31,
2018
Book value
 
        (in millions of Won)       

[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 

KOREA LNG LTD.

  33,422      (10,544  10,542   10,134   43,554 

Nickel Mining Company SAS

  45,905         (4,268  75   41,712 

NCR LLC

  33,738   2,505      (5,909  7,268   37,602 

PT. Batutua Tembaga Raya

  21,823         (1,817  473   20,479 

Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd

  15,617         (735  (86  14,796 

PT. Wampu Electric Power

  13,391         177   552   14,120 

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 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

(in millions of Won)                  

Company

 December 31,
2019

Book value
  Acquisition  Dividends  Share of
profits
(losses)
  Other
increase

(decrease)(*1)
  December 31,
2020

Book value
 

[Domestic]

      

EQP POSCO Global NO1 Natural Resources Private Equity Fund

 175,907   —     —     34   (2  175,939 

Samcheok Blue Power Co.,Ltd. (Formerly, POSPower Co., Ltd)

  161,280   —     —     (5,262  (10,926  145,092 

SNNC

  142,602   —     (2,901  18,701   1,930   160,332 

QSONE Co.,Ltd.

  85,887   —     (1,140  1,257   —     86,004 

Chun-cheon Energy Co., Ltd

  56,679   —     —     (33,173  407   23,913 

Western Inland highway CO.,LTD.

  5,115   42,246   —     (2,294  3   45,070 

Nextrain Co., Ltd.

  41,447   7,910   —     (2,786  793   47,364 

Keystone NO. 1. Private Equity Fund

  19,438   —     —     (19,438  —     —   

CHUNGJU ENTERPRISE CITY DEVELOPMENT Co.,Ltd

  17,824   —     —     (687  —     17,137 

Daesung Steel

  15,375   —     —     (514  2,129   16,990 

PCC Amberstone Private Equity Fund 1

  9,570   —     (715  589   (214  9,230 

POSCO MITSUBISHI CARBON TECHNOLOGY

  182,648   —     (19,401  (9,794  4   153,457 

Others (65 companies)

  124,795   27,718   (1,328  (8,885  (11,093  131,207 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  1,038,567   77,874   (25,485  (62,252  (16,969  1,011,735 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

[Foreign]

      

South-East Asia Gas Pipeline Company Ltd.

  225,933   —     (56,760  45,941   (15,772  199,342 

AES-VCM Mong Duong Power Company Limited

  178,892   —     (16,053  37,092   (41,154  158,777 

9404-5515 Quebec Inc. (Formerly, 7623704 Canada Inc.)

  131,529   —     (11,672  10,963   (7,524  123,296 

Eureka Moly LLC

  85,349   —     —     (39,801  (2,028  43,520 

AMCI (WA) PTY LTD

  72,937   —     —     (6,561  5,356   71,732 

NCR LLC

  46,391   4,196   —     (1,452  (2,527  46,608 

KOREA LNG LTD.

  46,557   —     (7,755  7,681   (4,254  42,229 

Nickel Mining Company SAS

  37,940   —     —     1,473   1,477   40,890 

ZHEJIANG HUAYOU-POSCO ESM CO., LTD

  22,356   —     —     (384  175   22,147 

Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd

  15,128   —     —     (80  133   15,181 

PT. Wampu Electric Power

  13,363   —     (559  1,411   (1,499  12,716 

PT. Batutua Tembaga Raya

  14,717   —     —     (14,883  181   15 

POSCO SeAH Steel Wire(Nantong) Co., Ltd.

  6,755   —     —     279   76   7,110 

Roy Hill Holdings Pty Ltd

  1,235,682   —     (113,985  234,693   61,666   1,418,056 

POSCO-NPS Niobium LLC

  376,410   —     (11,244  11,449   (22,890  353,725 

KOBRASCO

  115,641   —     (37,922  8,443   (31,762  54,400 

BX STEEL POSCO Cold Rolled Sheet Co., Ltd.

  88,935   —     —     1,790   545   91,270 

DMSA/AMSA

  12,189   60,278   —     (33,305  (8,058  31,104 

CSP - Compania Siderurgica do Pecem

  —     62,711   —     (60,708  (2,003  —   

Others (36 companies)

  162,484   —     (12,114  (8,492  (9,482  132,396 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  2,889,188   127,185   (268,064  195,549   (79,344  2,864,514 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
 3,927,755   205,059   (293,549  133,297   (96,313  3,876,249 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

(*1)

Other increase or decrease represents the changes in investments in associates and joint ventures due to disposals, change in capital adjustments effectdue from translations of financial statements of foreign investees and others.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

(e) Summarized financial information of associates and joint ventures as of and for the years ended December 31, 2017 and 2018
(e)

Summarized financial information of associates and joint ventures as of and for the years ended December 31, 2019 and 2020 are as follows:

1) December 31, 2017

 

Company

  Assets   Liabilities   Equity   Sales   Net
income
(loss)
 
   (in millions of Won) 

[Domestic]

          

EQP POSCO Global NO1 Natural Resources Private Equity Fund

  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

Daesung Steel

   169,774    112,795    56,979    70,434    18,230 

Incheon-Gimpo Expressway Co., Ltd.

   1,132,233    922,338    209,895        (23,221

CHUNGJU ENTERPRISE CITY DEVELOPMENT Co., Ltd

   76,184    48,072    28,112    77,093    15,921 

BLUE OCEAN Private Equity Fund

   311,129    188,512    122,617    445,238    (3,345

Keystone NO. 1. Private Equity Fund

   170,155    133,033    37,122    5,391    (2,070

UITrans LRT Co., Ltd.

   464,074    384,202    79,872    3,689    (13,263

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 

KOREA LNG LTD.

   179,269    86    179,183    34,640    32,446 

Nickel Mining Company SAS

   465,700    324,687    141,013    179,683    (4,450

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 

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

CSP - Compania Siderurgica do Pecem

   4,805,353    4,223,392    581,961    1,290,767    (740,591
1)

December 31, 2019

(in millions of Won)                   

Company

  Assets   Liabilities   Equity
(deficit)
  Sales   Net income
(loss)
 

[Domestic]

         

EQP POSCO Global NO1 Natural Resources Private Equity Fund

  516,659    786    515,873   —      7,479 

Samcheok Blue Power Co.,Ltd. (Formerly, POSPower Co., Ltd)

   707,051    199,846    507,205   —      (5,294

SNNC

   677,508    357,843    319,665   738,977    63,269 

QSONE Co.,Ltd.

   250,364    78,589    171,775   17,591    2,576 

Chun-cheon Energy Co., Ltd

   610,089    492,620    117,469   313,438    (24,677

Western Inland highway CO.,LTD.

   21,980    5,165    16,815   —      (528

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

PCC Amberstone Private Equity Fund 1

   108,797    5    108,792   14,787    12,280 

POSCO MITSUBISHI CARBON TECHNOLOGY

   474,387    170,678    303,709   216,648    32,334 

[Foreign]

         

South-East Asia Gas Pipeline Company Ltd.

   1,808,529    906,254    902,275   555,075    254,582 

9404-5515 Quebec Inc. (Formerly, 7623704 Canada Inc.)

   1,276,857    1    1,276,856   —      95,306 

KOREA LNG LTD.

   232,935    147    232,788   69,577    67,507 

Nickel Mining Company SAS

   471,377    331,194    140,183   245,509    2,432 

ZHEJIANG HUAYOU-POSCO ESM CO., LTD

   73,604    17,765    55,839   641    153 

Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd

   65,413    15,232    50,181   101,101    28 

PT. Wampu Electric Power

   222,266    158,451    63,815   18,163    (6,233

PT. Batutua Tembaga Raya

   423,608    392,226    31,382   112,568    (28,360

POSCO SeAH Steel Wire(Nantong) Co., Ltd.

   61,847    33,989    27,858   77,371    327 

Roy Hill Holdings Pty Ltd

   11,143,705    5,718,152    5,425,553   5,037,471    1,660,577 

POSCO-NPS Niobium LLC

   752,617    —      752,617   —      47,521 

KOBRASCO

   268,139    36,857    231,282   167,022    112,949 

BX STEEL POSCO Cold Rolled Sheet Co., Ltd.

   969,280    637,478    331,802   1,145,794    1,704 

DMSA/AMSA

   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, 2016, 20172019 and 20182020

 

 

 

2) December 31, 2018
2)

December 31, 2020

 

(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 Private Equity Fund

  552,760    783    551,977       10,249   473,415    575    472,840   —      8,534 

POSPower Co., Ltd

   425,632    35,761    389,871       (4,536

Samcheok Blue Power Co.,Ltd. (Formerly, POSPower Co., Ltd)

   1,169,343    700,266    469,077   —      (5,994

SNNC

   645,013    384,586    260,427  656,320    14,229    592,568    238,971    353,597  698,712    39,826 

QSONE Co., Ltd.

   249,384    78,285    171,099  16,597    2,101 

QSONE Co.,Ltd.

   251,190    79,182    172,008  17,075    2,513 

Chun-cheon Energy Co., Ltd

   667,454    525,308    142,146  320,950    (18,796   609,815    516,963    92,852  222,066    (24,617

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

Western Inland highway CO.,LTD.

   158,679    2,534    156,145   —      (1,714

Nextrain Co., Ltd.

   303,359    74,738    228,621   —      (2,636

Keystone NO. 1. Private Equity Fund

   178,848    132,123    46,725  16,586    (1,971

CHUNGJU ENTERPRISE CITY DEVELOPMENT Co.,Ltd

   54,832    27,111    27,721  6,672    (2,326

Daesung Steel

   169,305    111,502    57,803  75,474    824    172,088    106,611    65,477  85,158    (2,930

Incheon-Gimpo Expressway Co., Ltd.

   1,049,629    931,937    117,692       (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 

PCC Amberstone Private Equity Fund 1

   104,933    5    104,928  12,280    6,694 

POSCO MITSUBISHI CARBON TECHNOLOGY

   537,138    237,563    299,575  300,986    116,049    446,067    190,289    255,778  112,173    (15,603

[Foreign]

                  

South-East Asia Gas Pipeline Company Ltd.

   1,726,410    1,009,731    716,679  343,471    70,717    1,515,828    719,745    796,083  458,806    183,465 

7623704 Canada Inc.

   1,232,208    1    1,232,207       44,320 

AES-VCM Mong Duong Power Company Limited

   1,599,095    1,086,440    512,655  336,174    121,644 

9404-5515 Quebec Inc. (Formerly, 7623704 Canada Inc.)

   1,197,702    3    1,197,699   —      105,411 

KOREA LNG LTD.

   217,883    110    217,773  54,357    52,720    211,497    353    211,144  40,086    38,370 

Nickel Mining Company SAS

   465,463    329,084    136,379  207,956    (4,569   445,140    308,885    136,255  223,427    (8,353

PT. Batutua Tembaga Raya

   332,305    274,580    57,725  128,609    (8,451

ZHEJIANG HUAYOU-POSCO ESM CO., LTD

   72,001    16,812    55,189  3,236    (1,086

Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd

   73,515    24,264    49,251  121,104    (2,231   71,805    21,486    50,319  104,537    (237

PT. Wampu Electric Power

   223,009    155,407    67,602  13,461    887    199,841    139,264    60,577  20,272    7,057 

POSCO SeAH Steel Wire (Nantong) Co., Ltd.

   61,782    34,740    27,042  85,619    78 

PT. Batutua Tembaga Raya

   389,973    387,870    2,103  36,587    (29,714

POSCO SeAH Steel Wire(Nantong) Co., Ltd.

   68,036    38,843    29,193  78,954    1,156 

Roy Hill Holdings Pty Ltd

   9,666,619    6,043,492    3,623,127  3,259,256    497,469    9,271,788    2,161,353    7,110,435  5,993,950    2,299,529 

POSCO-NPS Niobium LLC

   726,810        726,810       41,812    707,247    —      707,247   —      25,406 

KOBRASCO

   317,842    50,945    266,897  229,340    150,550    118,676    9,875    108,801  32,854    16,887 

BX STEEL POSCO Cold Rolled Sheet Co., Ltd.

   710,518    384,572    325,946  1,341,849    2,159    873,174    534,961    338,213  1,252,189    7,856 

DMSA/AMSA

   5,562,877    4,171,896    1,390,981  731,127    (529,844   4,924,371    2,294,881    2,629,490  204,820    (772,396

CSP - Compania Siderurgica do Pecem

   4,194,242    4,192,867    1,375  1,860,198    (542,865   2,800,437    3,650,509    (850,072 1,403,457    (1,009,296

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

(f)

Changes in accumulated losses of equity-accounted investees that were not recognized since the Company discontinues the use of the equity method for the year ended December 31, 2020 were as follows:

(in millions of Won)           

Company

  Beginning
balance
   Increase
(decrease)
  Ending
balance
 

New Songdo International City Development, LLC

  279,435    (20,094  259,341 

Mokpo Deayang industrial Corporation

   —      84   84 

UITrans LRT Co., Ltd.

   14,429    17,905   32,334 

Clean Iksan Co., Ltd.

   784    (70  714 

HYOCHUN Co.,Ltd.

   2,727    778   3,505 

Shinhan wind power generation

   —      843   843 

CSP - Compania Siderurgica do Pecem

   27,478    141,259   168,737 

KIRIN VIETNAM CO.,Ltd.

   96    (29  67 

INKOTECH, INC.

   —      341   341 

POSTO-Poggenamp Electrical Steel Pvt, Ltd.

   —      96   96 

 

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, 20182020 are as follows:

 

Joint operations

  

Operation

  Ownership
(%)
  Location

MyanmarA-1/A-3 mine

  MineralMine development and gas production  51.00  Myanmar

Offshore midstreamMidstream

  Gas transportation facility  51.00  Myanmar

Greenhills mineMine

  Mine development  20.00  Canada

Arctos Anthracite coal projectCoal 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  7.70  Korea

Hanam-Gamil district B6, C2, C3 block PublicBlock public housing lot development project

  Construction  27.00Korea

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 complex land multi-purpose building development project

  Construction  33.30  Korea

Sejong4-1 P3 Block public housing project

  Construction  60.00  Korea

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2019 and 2020

 

13.

Investment Property, Net

(a) Investment property as of December 31, 2017 and 2018

(a)

Investment property as of December 31, 2019 and 2020 are as follows:

 

  2017   2018 
  Acquisition
cost
   Accumulated
depreciation
and
impairment
loss
 Book
value
   Acquisition
cost
   Accumulated
depreciation
and
impairment
loss
 Book
value
 
(in millions of Won) 2019 2020 
  (in millions of Won)  Acquisition cost Accumulated
depreciation
and
impairment
loss
 Book value Acquisition cost Accumulated
depreciation
and
impairment
loss
 Book value 

Land

  360,402      360,402    295,328    (16,743 278,585  295,183  (16,718 278,465  296,115  (16,718 279,397 

Buildings

   727,022    (92,982 634,040    681,518    (110,183 571,335  778,816  (180,657 598,159  746,698  (187,114 559,584 

Structures

   7,717    (1,436 6,281    3,327    (1,919 1,408  3,455  (2,277 1,178  4,268  (3,069 1,199 

Construction-in-progress

   64,191      64,191    101,665    (24,378 77,287 

Right of use assets

 434  (9 425  175,026  (20,425 154,601 
  

 

   

 

  

 

   

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
      1,159,332    (94,418 1,064,914    1,081,838    (153,223 928,615  1,077,888  (199,661 878,227  1,222,107  (227,326 994,781 
  

 

   

 

  

 

   

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

As of December 31, 2018,2020, the fair value of investment property is1,498,1362,136,187 million.

(b) Changes in the carrying amount of investment property for the years ended December 31, 2017 and 2018 were as follows:

1) For the year ended December 31, 2017

 

   Beginning   Acquisitions   Disposals  Depreciation  Others (*1)  Ending 
   (in millions of Won) 

Land

  392,723    20,941    (37,725     (15,537  360,402 

Buildings

   671,539    38,831    (9,506  (23,450  (43,374  634,040 

Structures

   2,147           (591  4,725   6,281 

Construction-in-progress

   51,311    17,648          (4,768  64,191 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 
      1,117,720    77,420    (47,231  (24,041  (58,954  1,064,914 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 
(b)

Changes in the carrying amount of investment property for the years ended December 31, 2019 and 2020 were as follows:

 

1)

For the year ended December 31, 2019

(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 to 32,642 million.

(*2)

Includes reclassification resulting from changing purpose of use, adjustment of foreign currency translation difference and others.

2)

For the year ended December 31, 2020

(in millions of Won)  Beginning   Acquisitions   Disposals  Depreciation(*1)  Others(*2)  Ending 

Land

  278,465    2,814    (183  —     (1,699  279,397 

Buildings

   598,159    385    —     (9,681  (29,279  559,584 

Structures

   1,178    —      —     (610  631   1,199 

Right of use assets

   425    —      (56  (3,206  157,438   154,601 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 
  878,227    3,199    (239  (13,497  127,091   994,781 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

(*1)

Includes reversal of impairment loss on investment property recognized by POSCO(Dalian) IT Center Development Co., Ltd., a subsidiary, in relation to its office lease amounting to 14,953 million.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

2) For the year ended December 31, 2018

   Beginning   Acquisitions   Disposals  Depreciation (*1)  Others (*2)  Ending 
   (in millions of Won) 

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)

Includes impairment loss on investment property recognized by each of the consolidated subsidiaries, including the office for rent of POSCO(Dalian) IT Center Development Co., Ltd. amounting to51,461 million.

 

(*2)

Includes reclassification resulting from changing purpose of use, adjustment of foreign currency translation difference and others.

 

14.

Property, Plant and Equipment, Net

(a) Property, plant and equipment as of December 31, 2017 and 2018

(a)

Property, plant and equipment as of December 31, 2019 and 2020 are as follows:

 

  2017  2018 
  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

 2,534,102   (6,452     2,527,650   2,553,957   (5,955     2,548,002 

Buildings

  9,311,426   (4,433,996  (412  4,877,018   9,146,294   (4,743,449  (393  4,402,452 

Structures

  5,452,713   (2,686,802  (59  2,765,852   5,884,277   (2,966,304  (49  2,917,924 

Machinery and equipment

  46,669,612   (27,301,410  (245  19,367,957   47,610,225   (29,091,754  (342  18,518,129 

Vehicles

  296,815   (263,884  (70  32,861   302,767   (271,381  (45  31,341 

Tools

  380,144   (315,446  (1,058  63,640   399,638   (333,387  (87  66,164 

Furniture and fixtures

  643,779   (498,192  (148  145,439   638,553   (502,215  (51  136,287 

Finance lease assets

  243,160   (97,903     145,257   213,873   (76,309     137,564 

Bearer plants

  70,031   (4,516     65,515   88,773   (8,002     80,771 

Construction-in-
progress

  1,897,885      (5,539  1,892,346   1,964,267   (778,373  (6,255  1,179,639 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
     67,499,667   (35,608,601  (7,531  31,883,535   68,802,624   (38,777,129  (7,222  30,018,273 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

(in millions of Won) 2019  2020 
  Acquisition
cost
  Accumulated
depreciation
and
impairment
loss
  Government
grants
  Book value  Acquisition
cost
  Accumulated
depreciation
and
impairment
loss
  Government
grants
  Book value 

Land

 2,527,972   (1,913  —     2,526,059   2,592,705   (2,618  —     2,590,087 

Buildings

  9,227,064   (5,010,770  (840  4,215,454   9,417,295   (5,250,281  (5,614  4,161,400 

Structures

  6,066,000   (3,161,453  (41  2,904,506   6,363,370   (3,338,075  (69  3,025,226 

Machinery and equipment

  47,548,589   (30,326,324  (4,001  17,218,264   48,435,445   (31,570,233  (7,905  16,857,307 

Vehicles

  305,275   (272,977  (13  32,285   310,078   (272,705  (217  37,156 

Tools

  418,829   (348,032  (46  70,751   423,927   (363,360  (266  60,301 

Furniture and fixtures

  658,467   (528,066  (269  130,132   670,079   (542,217  (403  127,459 

Lease assets

  970,891   (196,309  —     774,582   1,093,817   (320,117  —     773,700 

Bearer plants

  138,818   (14,625  —     124,193   171,160   (21,195  —     149,965 

Construction-in-
progress

  2,800,412   (856,548  (14,117  1,929,747   2,474,766   (850,839  (6,387  1,617,540 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
 70,662,317   (40,717,017  (19,327  29,925,973   71,952,642   (42,531,640  (20,861  29,400,141 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

(b) Changes in the carrying amount of property, plant and equipment for the years ended December 31, 2017 and 2018
(b)

Changes in the carrying amount of property, plant and equipment for the years ended December 31, 2019 and 2020 were as follows:

1) For the year ended December 31, 2017

  Beginning  Acquisitions  Disposals  Depreciation  Impairment
loss (*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  (347,419  (14,112  194,739   4,877,018 

Structures

  2,908,480   18,943   (2,558  (212,643  (33,586  87,216   2,765,852 

Machinery and equipment

  20,318,390   194,653   (93,210  (2,189,624  (27,811  1,165,559   19,367,957 

Vehicles

  46,699   9,982   (1,623  (17,363  (4,977  143   32,861 

Tools

  71,380   16,424   (976  (28,516  (23  5,351   63,640 

Furniture and fixtures

  132,406   61,597   (1,296  (48,400  (16  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  (2,863,605  (117,231  (1,038,891  31,883,535 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

(*1)

As of December 31, 2017, due to the existence of indicators for impairment such as continuous 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 since the recoverable amount is less than its carrying amount. 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)1)

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.For the year ended December 31, 2019

2) For the year ended December 31, 2018

  Beginning  Acquisitions  Disposals  Depreciation  Impairment
loss(*1,2)
  Others (*3)  Ending 
  (in millions of Won) 

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 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

(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 2018,the year ended December 31, 2019, the Controlling Company evaluated future economic performanceestimated recoverable amount of its Synthetic Natural Gas (SNG) facilityindividual assets in CEM and Fe-Si factories that was still in trial run stage. Consideringceased operations due to 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 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 recoverabledisposal

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

 amount of each individual assets. For the assets which are determined to be technically obsoleteplan and therefore sale is unlikely,others. The Company measured recoverable amount represents expected scrap value less cost of disposal.

For the assets for which sale is probable, the recoverable amount is determinedamounts based on fairappraisal value less cost of disposal. Fair value was measured using cost approach, which is based on an estimated 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 estimates and deducts depreciation for physical deterioration. Depreciation factors are applied primarily based on estimated useful life of the asset and declining balance depreciation method.scrap value. 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 losslosses 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 to61,787205,396 million since recoverable amounts on Strip Casting facilities and others isare less than their carrying amount for the period ended December 31, 2018.

amounts.

(*2)

As of December 31, 2018,2019, POSCO ENERGY CO.YAMATO VINA STEEL JOINT STOCK COMPANY (formerly, POSCO SS VINA JOINT STOCK COMPANY), LTD., as a subsidiary, performed an impairment test due to the consecutivecontinued operating loss of the fuel cell business,losses and recognized impairment losses amounting to54,250 million.204,546 million, since recoverable amount based on value-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 with investment property resulting from changing purpose of use, adjustments of foreign currency translation differences and others.

(c) Borrowing costs capitalized and the capitalized interest rate for the years ended December 31, 2017 and 2018 were as follows:
(*4)

On the date of initial application of IFRS No. 16 “Leases” (January 1, 2019), recognition of 704,458 million of right-of-use assets is included in others.

 

   2017   2018 
   (in millions of Won) 

Weighted average expenditure

  1,180,563    628,595 

Borrowing costs capitalized

   37,261    22,619 

Capitalization rate (%)

   1.74 ~ 3.45    2.51 ~ 3.90 

(d) Property, plant and equipment and investment property pledged as collateral as of December 31, 2017 and 2018 are as follows:
2)

For the year ended December 31, 2020

 

      Book value 
   

Collateral right holder

  2017   2018(*2) 
      (in millions of Won) 

Land(*1)

  Korean Development Bank and others  822,057    769,843 

Buildings and structures(*1)

  Korean Development Bank and others   1,678,403    1,522,129 

Machinery and equipment

  Korean Development Bank and others   3,527,420    3,419,528 

Construction-in-progress

  Korean Development Bank and others   15,389     
    

 

 

   

 

 

 
    6,043,269    5,711,500 
    

 

 

   

 

 

 

(in millions of Won) Beginning  Acquisitions  Disposals  Depreciation  Impairment
loss(*1)
  Others(*2)  Ending 

Land

 2,526,059   29,639   (2,633  —     3,490   33,532   2,590,087 

Buildings

  4,215,454   13,825   (6,296  (319,774  (3,778  261,969   4,161,400 

Structures

  2,904,506   85,958   (6,661  (231,737  (883  274,043   3,025,226 

Machinery and equipment

  17,218,264   138,533   (27,966  (2,298,951  (8,080  1,835,507   16,857,307 

Vehicles

  32,285   6,475   (546  (14,599  —     13,541   37,156 

Tools

  70,751   20,230   (211  (38,838  —     8,369   60,301 

Furniture and fixtures

  130,132   23,352   (2,908  (43,832  (519  21,234   127,459 

Lease assets

  774,582   204,699   (9,300  (172,029  —     (24,252  773,700 

Bearer plants

  124,193   118   (155  (7,971  —     33,780   149,965 

Construction-in-progress

  1,929,747   2,835,921   (7,001  —     (17,270  (3,123,857  1,617,540 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
 29,925,973   3,358,750   (63,677  (3,127,731  (27,040  (666,134  29,400,141 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

(*1)

Investment propertyThe Company estimated the recoverable amount of individual assets that it ceased their use due to the disposal plan and others at fair value less costs to sell based on sale price or scrap value and recognized an impairment loss since recoverable amounts are less than their carrying amounts for the year ended December 31, 2020. During the year ended December 31, 2020, the Company recognized impairment losses on damaged assets caused by a fire accident.

(*2)

Represents assets transferred from construction-in-progress to intangible assets and other assets(land-use right) are included.property, plant and equipment, reclassifications with investment property resulting from changing purpose of use, adjustments of foreign currency translation differences and others.

 

(*2)(c)

As ofBorrowing costs capitalized and the capitalized interest rate for the years ended December 31, 2018, the pledged amount is5,323,071 million.2019 and 2020 were as follows:

(in millions of Won)  2019   2020 

Weighted average expenditure

  587,628    932,298 

Borrowing costs capitalized

   22,775    29,653 

Capitalization rate (%)

   3.57 ~ 5.46    3.14 ~ 3.18 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

(d)

Property, plant and equipment and investment property pledged as collateral as of December 31, 2019 and 2020 are as follows:

15. Goodwill and Other Intangible Assets, Net

(in millions of Won)   Book value 
  

Collateral right holder

 2019  2020 

Land

 

Korean Development Bank and others

 765,307   867,820 

Buildings and structures

 

Korean Development Bank and others

  1,363,709   1,464,551 

Machinery and equipment

 

Korean Development Bank and others

  2,440,777   2,263,383 
  

 

 

  

 

 

 
  4,569,793   4,595,754 
  

 

 

  

 

 

 

(a) Goodwill and other intangible assets asAs of December 31, 20172020, assets pledged as collateral related to the Company’s borrowings and 2018 are as follows:

  2017  2018 
  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) 

Goodwill

 1,604,288   (254,450     1,349,838   1,603,308   (478,159     1,125,149 

Intellectual property rights

  3,140,159   (690,966     2,449,193   3,300,638   (901,113     2,399,525 

Premium in rental

  139,873   (21,563     118,310   158,338   (23,545     134,793 

Development expense

  397,129   (316,892  (19  80,218   445,752   (346,589     99,163 

Port facilities usage rights

  705,692   (396,319     309,373   724,375   (419,294     305,081 

Exploration and evaluation assets

  296,320   (90,376     205,944   285,845   (93,715     192,130 

Customer relationships

  857,624   (390,679     466,945   860,951   (439,178     421,773 

Power generation permit

  539,405         539,405             

Other intangible assets

  1,006,219   (573,152  (24  433,043   1,115,742   (622,417  (114  493,211 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
     8,686,709   (2,734,397  (43  5,952,269   8,494,949   (3,324,010  (114  5,170,825 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

(b) The changes in carrying amount of goodwillothers amounting to 4,874,423 million include investment properties and other intangible assets for the years ended December 31, 2017 and 2018 weresuch as follows:

1) 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 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

right to use land.

 

(*(e)

Changes in the carrying amount of right-of-use assets presented as investment property and property, plant and equipment for the years ended December 31, 2019 and 2020 were as follows:

1)

Premium in rental includes memberships with indefinite useful lives.For the year ended December 31, 2019

(in millions of Won)  The date of initial
application
(January 1, 2019)
   Acquisitions   Depreciation  Others  Ending 

Land

  340,107    22,850    (11,461  (9,729  341,767 

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 

Ships

   26,499    —      (2,417  —     24,082 

others

   25,529    3,430    (34,373  13,527   8,113 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 
  842,022    72,640    (130,905  (8,750  775,007 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

2)

For the year ended December 31, 2020

(in millions of Won)  Beginning   Acquisitions   Depreciation  Others  Ending 

Land

  341,767    18,962    (16,397  27,387   371,719 

Buildings and structures

   171,112    47,374    (57,593  10,867   171,760 

Machinery and equipment

   215,828    86,373    (38,909  (24,111  239,181 

Vehicles

   14,105    6,186    (9,486  651   11,456 

Ships

   24,082    111,537    (29,064  —     106,555 

others

   8,113    45,803    (23,786  (2,500  27,630 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 
  775,007    316,235    (175,235  12,294   928,301 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

(f)

The amount recognized in profit or loss related to leases for the years ended December 31, 2019 and 2020 were as follows:

(in millions of Won)  2019   2020 

Interest on lease liabilities

  35,483    36,373 

Expenses related to short-term leases

   41,974    18,809 

Expenses related to leases of low-value assets

   14,150    14,375 
  

 

 

   

 

 

 
  91,607    69,557 
  

 

 

   

 

 

 

15. Goodwill and Other Intangible Assets, Net

(a) Goodwill and other intangible assets as of December 31, 2019 and 2020 are as follows:

  2019  2020 
(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

 1,631,413   (533,604  —     1,097,809   1,626,876   (722,983  —     903,893 

Intellectual property rights

  3,449,796   (1,170,586  —     2,279,210   3,628,121   (1,457,383  —     2,170,738 

Membership

  170,247   (22,169  —     148,078   143,403   (4,700  —     138,703 

Development expense

  483,539   (389,200  —     94,339   652,492   (425,381  —     227,111 

Port facilities usage rights

  686,525   (405,127  —     281,398   685,210   (448,938  —     236,272 

Exploration and evaluation assets

  294,874   (217,603  —     77,271   274,691   (217,551  —     57,140 

Customer relationships

  865,821   (490,946  —     374,875   865,671   (535,424  —     330,247 

Other intangible assets

  1,220,641   (665,026  (122  555,493   1,101,595   (716,190  (77  385,328 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
 8,802,856   (3,894,261  (122  4,908,473   8,978,059   (4,528,550  (77  4,449,432 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2019 and 2020

(b)

The changes in carrying amount of goodwill and other intangible assets for the years ended December 31, 2019 and 2020 were as follows:

1)

For the year ended December 31, 2019

(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 

Membership(*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 

Exploratation 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)

Economic useful life of membership is indefinite.

(*2)

From exploration and evaluation of natural gas in the AD-7 block in Myanmar, POSCO INTERNATIONAL Corporation failed to find economic natural gas. The Company recognized impairment loss of 118,140 million for excess of the carrying amounts of related assets over the special energy loan which may be forgiven in the case of project failure.

(*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.

2) For the year ended December 31, 2018

2)

For the year ended December 31, 2020

 

  Beginning  Acquisitions  Disposals  Amortization  Impairment
loss
  Others (*3)  Ending 
  (in millions of Won) 

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

  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 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

(in millions of Won) Beginning  Acquisitions  Disposals  Amortization  Impairment
loss
  Others(*2)  Ending 

Goodwill

 1,097,809   —     —     —     (189,379  (4,537  903,893 

Intellectual property rights

  2,279,210   136,195   (3,617  (282,594  (7,727  49,271   2,170,738 

Membership(*1)

  148,078   3,416   (12,340  (107  244   (588  138,703 

Development expense

  94,339   1,315   (16  (56,329  (206  188,008   227,111 

Port facilities usage rights

  281,398   —     —     (44,893  —     (233  236,272 

Exploratation and evaluation assets

  77,271   14,886   —     —     —     (35,017  57,140 

Customer relationships

  374,875   —     —     (44,478  —     (150  330,247 

Other intangible assets

  555,493   159,590   (61,692  (37,157  —     (230,906  385,328 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
 4,908,473   315,402   (77,665  (465,558  (197,068  (34,152  4,449,432 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

(*1)

Premium in rental includes memberships with indefiniteEconomic useful lives.life of membership is indefinite.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2019 and 2020

 

(*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.

(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, 2017 and 2018

(c)

For the purpose of impairment testing, goodwill is allocated to individually operating entities where each is determined to be a CGU. The goodwill amounts as of December 31, 2019 and 2020 are as follows:

 

Reportable segments

  Total number of CGUs            
  2017   2018   

CGUs

  2017   2018 
              (in millions of Won) 

Steel

   7    7   POSCO VST CO., LTD.  36,955    36,955 
      Others   12,494    12,484 

Trading

   2    2   POSCO DAEWOO Corporation(*1)   1,165,030    1,006,879 
      PT. Bio Inti Agrindo   7,099    6,902 
      Others       16 

E&C

   2    2   POSCO ENGINEERING
& CONSTRUCTION CO., LTD.(*2)
   90,426    24,868 
      POSCO Center Beijing   157    155 
      POSCO ENERGY CO., LTD.   26,471    26,471 

Others

   5    5   Others   11,206    10,419 
  

 

 

   

 

 

     

 

 

   

 

 

 
   16    16         1,349,838    1,125,149 
  

 

 

   

 

 

     

 

 

   

 

 

 

(in millions of Won)

Reportable
segments

  Total number of
CGUs
            
  2019   2020   

CGUs

  2019   2020 

Steel

   7    7   POSCO VST CO., LTD.  36,955    36,955 
      Others   13,721    12,498 

Trading

   3    3   POSCO INTERNATIONAL Corporation(*1)   951,434    762,816 
      GRAIN TERMINAL HOLDING   26,256    23,726 
      PT. Bio Inti Agrindo   7,468    6,955 

E&C

   2    2   POSCO ENGINEERING & CONSTRUCTION CO., LTD.   24,868    24,868 
      POSCO Center Beijing   158    159 
      POSCO ENERGY CO., LTD.   26,471    26,471 

Others

   5    4   Others   10,478    9,445 
  

 

 

   

 

 

     

 

 

   

 

 

 
   17    16     1,097,809    903,893 
  

 

 

   

 

 

     

 

 

   

 

 

 

 

(*1)

Recoverable amountsThe recoverable amount of POSCO DAEWOOINTERNATIONAL Corporation, area subsidiary included in trading segment, is determined based on its value in use. Asvalue-in-use, and amounts to 3,223,759 million, as of December 31, 2018, value in use2020. The value-in-use is estimated by applying a 7.84%6.92% (2019: 6.84%) discount rate to the future cash flows estimated from management’s 5-year business plan and a 2.0% terminal growth rate after 5 years, based on management’s business plan.of 1.9% (2019: 1.9%) thereafter. The terminal growth rate does not exceed long-term average growth rate of its industry. ImpairmentDuring the year ended December 31, 2020, impairment loss on goodwill of158,151188,619 million was recognized as of December 31, 2018 as the recoverable amount is less than the carrying amount of the CGU.

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 by126,343 million or 3.71% and when the terminal growth rate decreases by50,928 million or 0.25%, value in use will be decreased by 1.49%The rate of the CGU is sensitive to the assumptions such as discount rate, terminal growth rate and estimated revenue used in discount cash flow model. If the discount rate increases by 0.5%, the value-in-use would have decreased by 239,316 million or 7.42% and if the terminal growth rate decreases by 0.5%, the value-in-use would have decreased by 128,922 million or 4.00%.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

(*2)

Recoverable amounts of POSCO ENGINEERING & CONSTRUCTION CO., LTD are determined based on its value in use. As of December 31, 2018, value in use is estimated by applying a 9.1% discount rate within 5 years, the period for the estimated future cash flows, based on management’s business plan and by no applying a terminal growth rate. Impairment loss on goodwill of65,558 million was recognized as of December 31, 2018 as the recoverable amount is less than the carrying amount of the CGU.

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 2.72% and when the terminal growth rate decreases by 0.25%, value in use will be decreased by 1.76%.

 

16.

Other Assets

Other current assets and othernon-current assets as of December 31, 20172019 and 20182020 are as follows:

 

   2017   2018 
   (in millions of Won) 

Current

    

Advance payment

  661,779    539,894 

Prepaid expenses

   143,032    123,770 

Firm commitment asset

   15,115    11,246 

Others

   1,316    9,554 
  

 

 

   

 

 

 
   821,242    684,464 
  

 

 

   

 

 

 

Non-current

    

Long-term advance payment

   24,201    24,280 

Long-term prepaid expenses

   333,153    334,918 

Others (*1)

   131,657    149,566 
  

 

 

   

 

 

 
  489,011    508,764 
  

 

 

   

 

 

 

(in millions of Won)  2019   2020 

Current

    

Advance payment

  453,538    348,753 

Prepaid expenses

   145,834    181,985 

Firm commitment asset

   17,490    23,506 

Others

   14,315    62,379 
  

 

 

   

 

 

 
  631,177    616,623 
  

 

 

   

 

 

 

Non-current

    

Long-term advance payment

  21,950    21,587 

Long-term prepaid expenses

   41,256    92,774 

Others(*1)

   262,036    155,699 
  

 

 

   

 

 

 
  325,242    270,060 
  

 

 

   

 

 

 

 

(*1)

As of December 31, 20172019 and 2018,2020, the Company recognized tax assets amounting to88,633213,071 million and116,693121,225 million, respectively, based on the Company’s best estimate 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 and claim for rectification are finalized.

17.

Borrowings

(a)

Short-term borrowings and current portion of long-term borrowings as of December 31, 2019 and 2020 are as follows:

(in millions of Won) 

Bank

 

Issuance date

 

Maturity date

 Interest
rate (%)
  2019  2020 

Short-term borrowings

      

Bank overdrafts

 JP Morgan and others January, 2020~
December, 2020
 January, 2021~
December, 2021
  0.52~6.50  159,075   146,762 

Short-term borrowings

 HSBC and others January, 2020~
December, 2020
 January, 2021~
December, 2021
  0.17~9.50   5,327,258   5,047,633 
     

 

 

  

 

 

 
      5,486,333   5,194,395 
     

 

 

  

 

 

 

Current portion of long-term liabilities

      

Current portion of long-term borrowings

 Export-Import Bank of
Korea and others
 November, 2004~
December, 2020
 January, 2021~
December, 2021
  0.20~8.50   1,491,934   1,067,338 

Current portion of debentures

 Korea Development Bank and others April, 2011~
May, 2019
 February, 2021~
December, 2021
  1.73~5.25   1,571,194   2,417,339 

Less: Current portion of discount on debentures issued

      (1,249  (1,543
     

 

 

  

 

 

 
      3,061,879   3,483,134 
     

 

 

  

 

 

 
     8,548,212   8,677,529 
     

 

 

  

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

17.(b)

BorrowingsLong-term borrowings, excluding current portion as of December 31, 2019 and 2020 are as follows:

(a) Short-term borrowings and current portion of long-term borrowings as of December 31, 2017 and 2018 are as follows:

  

Bank

 

Issuance date

 

Maturity date

 Interest
rate (%)
  2017  2018 
  (in millions of Won) 

Short-term borrowings

      

Bank overdrafts

 

JP Morgan and
others

 January, 2017~
December, 2018
 

January, 2019~
December, 2019

  2.7~8.9  217,879   294,364 

Short-term borrowings

 

HSBC and others

 January, 2018~
December, 2018
 

January, 2019~
December, 2019

  0.3~10.1   7,956,939   7,193,416 
     

 

 

  

 

 

 
      8,174,818   7,487,780 
     

 

 

  

 

 

 

Current portion of long-term liabilities

      

Current portion of long-term borrowings

 

Export-Import bank of Korea and others

 September, 2011~
December, 2018
 

February, 2019~
December, 2019

  0.5~8.8   1,407,123   1,234,915 

Current portion of debentures

 

Korea Development
Bank and others

 August, 2009~
March, 2018
 

February, 2019~
December, 2019

  1.8~6.3   1,693,974   1,568,108 

Less: Current portion of discount on debentures issued

      (1,399  (1,184
     

 

 

  

 

 

 
      3,099,698   2,801,839 
     

 

 

  

 

 

 
     11,274,516   10,289,619 
     

 

 

  

 

 

 

(b) Long-term borrowings, excluding current portion as of December 31, 2017 and 2018 are as follows:

  

Bank

 

Issuance date

 

Maturity date

 Interest
rate (%)
  2017  2018 
  (in millions of Won) 

Long-term borrowings

 

Export-Import bank of Korea and others

 September, 2001~
December, 2018
 March, 2020~
March, 2037
  0.2~8.8  4,839,199   4,499,199 

Less: Present value discount

      (36,459  (30,526

Bonds

 

KB Securities and others

 

October, 2010~
November, 2018

 

April, 2020~
July, 2025

  1.9~5.3   4,999,575   5,469,580 

Less: Discount on debentures issued

      (13,174  (18,602
     

 

 

  

 

 

 
     9,789,141   9,919,651 
     

 

 

  

 

 

 

(c) Assets pledged as collateral in regards to the borrowings as of December 31, 2018 are as follows:

   

Bank

  Book value   Pledged
amount
 
   (in millions of Won) 

Cash and cash equivalents

  

Shinhan Bank

  8,296    8,296 

Property, plant and equipment and Investment property (*1)

  

Korea Development Bank and others

   5,592,627    5,304,861 

Trade accounts and notes receivable

  

Korea Development Bank and others

   157,617    157,617 

Inventories

  

Export-Import Bank of Korea and others

   205,433    163,233 

Financial instruments

  Kookmin Bank and others   40,664    40,664 
    

 

 

   

 

 

 
      6,004,637   5,674,671 
    

 

 

   

 

 

 

(in millions of Won) 

Bank

 

Issuance date

 

Maturity date

 Interest
rate (%)
  2019  2020 

Long-term borrowings

 Export-Import Bank of
Korea and others
 September, 2001~
December, 2020
 January, 2022~
March, 2037
  0.19~5.28  3,827,152   3,366,400 

Less: Present value discount

      (24,374  (16,058

Bonds

 KB Securities co.,Ltd. and others October, 2013~
October, 2020
 March, 2022~
October, 2029
  0.50~4.00   8,124,194   8,505,485 

Less: Discount on debentures issued

      (33,571  (35,749
     

 

 

  

 

 

 
     11,893,401   11,820,078 
     

 

 

  

 

 

 

 

(*1)(c)

Includes other assets suchAssets pledged as rightcollateral with regard to use land.the borrowings as of December 31, 2020 are as follows:

(in millions of Won)  

Bank

  Book value   Pledged
amount
 

Cash and cash equivalents

  Sinhan Bank and others   24,489    24,758 

Property, plant and equipment
and Investment property

  Korea Development Bank and others   4,424,923    4,811,751 

Trade accounts and notes receivable

  Korea Development Bank and others   371,326    373,016 

Inventories

  Export-Import Bank of Korea and others   81,859    12,650 

Financial instruments

  KB Kookmin Bank and others   25,624    25,624 
    

 

 

   

 

 

 
    4,928,221    5,247,799 
    

 

 

   

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

18.

Other Payables

Other payables as of December 31, 20172019 and 20182020 are as follows:

 

  2017   2018 
  (in millions of Won) 
(in millions of Won)  2019   2020 

Current

        

Accounts payable

  800,374    783,562   832,845    800,439 

Accrued expenses

   653,923    720,773    742,370    697,087 

Dividend payable

   7,213    8,673    3,106    2,703 

Finance lease liabilities

   17,763    10,152 

Lease liabilities

   149,176    244,548 

Withholdings

   274,188    196,937    152,011    100,489 
  

 

   

 

   

 

   

 

 
  1,753,461    1,720,097   1,879,508    1,845,266 
  

 

   

 

   

 

   

 

 

Non-current

        

Accounts payable

  4,632    1,624   2,718    5,572 

Accrued expenses

   14,234    19,021    4,805    4,953 

Finance lease liabilities

   75,255    84,602 

Lease liabilities

   526,294    495,127 

Long-term withholdings

   53,629    43,621    51,312    53,272 
  

 

   

 

   

 

   

 

 
  147,750    148,868   585,129    558,924 
  

 

   

 

   

 

   

 

 

 

19.

Other Financial Liabilities

Other financial liabilities as of December 31, 20172019 and 20182020 are as follows:

 

  2017   2018 
  (in millions of Won) 
(in millions of Won)  2019   2020 

Current

        

Derivatives liabilities

  69,872    27,328   28,021    82,859 

Financial guarantee liabilities

   59,940    50,472    49,806    58,545 
  

 

   

 

   

 

   

 

 
      129,812    77,800   77,827    141,404 
  

 

   

 

   

 

   

 

 

Non-current

        

Derivatives liabilities

  85,638    46,429   17,033    129,505 

Financial guarantee liabilities

   28,467    17,733    14,461    4,083 
  

 

   

 

   

 

   

 

 
  114,105    64,162   31,494    133,588 
  

 

   

 

   

 

   

 

 

20. Provisions

(a)

(a)

Provisions as of December 31, 2019 and 2020 are as follows:

(in millions of Won)  2019   2020 
   Current   Non-current   Current   Non-current 

Provision for bonus payments

  76,432    47,237    73,441    48,510 

Provision for construction warranties

   7,655    162,773    9,662    217,435 

Provision for legal contingencies and claims(*1)

   6,996    77,488    24,275    63,175 

Provision for the restoration(*2)

   6,783    80,520    5,307    134,438 

Others(*3,*4)

   262,471    90,136    330,588    59,411 
  

 

 

   

 

 

   

 

 

   

 

 

 
  360,337    458,154    443,273    522,969 
  

 

 

   

 

 

   

 

 

   

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 20172019 and 2018 are as follows:2020

 

   2017   2018 
   Current   Non-current   Current   Non-current 
   (in millions of Won) 

Provision for bonus payments

       49,171        46,514    26,964 

Provision for construction warranties

   11,804    106,232    11,842    130,391 

Provision for legal contingencies and claims(*1)

   495    36,269    16,981    55,716 

Provision for the restoration(*2)

   12,273    121,917    9,379    79,789 

Others(*3,4)

   37,203    212,754    213,737    138,176 
  

 

 

   

 

 

   

 

 

   

 

 

 
       110,946    477,172    298,453    431,036 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

(*1)

The Company recognized probable outflow of resources amounting to27,96354,228 million and50,88859,211 million as provisions for legal contingencies and asserted claim in relation to lawsuits against the Company as of December 31, 20172019 and 2018,2020, respectively.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

(*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 amounting to 29,70317,561 million as provisions for restoration as of December 31, 2018.2020. In order to determine the estimated costs, the Company has assumed that it would use all of technologies and materials available for now to recover the land. In addition, the Company has applied a discount rate of 2.28%1.23%~2.37%1.43% to measure present value of these costs.

(*3)

As of December 31, 20172019 and 2018,2020, POSCO ENERGY CO., LTD., a subsidiary of the Company,and Korea Fuel Cell, recognized157,461178,959 million and200,40780,842 million of provisions for warranties, respectively, for the service contract on fuel cell based on its estimate of probable outflow of resources.

(*4)

As of December 31, 20172019 and 2018,2020, the amount includes a provision ofCompany has recognized emission liabilities amounting to 23,60050,965 million and17,59578,646 million, respectively, for expected outflowgreenhouse gas emissions exceeding the quantity of resources in connection with the performance guarantee for the Hwaseong-Dongtan complexes development project of POSCO ENGINEERING & CONSTRUCTION CO., LTD.free quota emission rights.

(b)

(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 working service providedrendered

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, 2017 and 2018 were as follows:

1) For the year ended December 31, 2017

   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 

Provision 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 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

(c)

Changes in provisions for the years ended December 31, 2019 and 2020 were as follows:

 

(*1)

Includes adjustments of foreign currency translation differences and others.For the year ended December 31, 2019

2) For the year ended December 31, 2018

   Beginning   Increase   Utilization  Reversal  Others (*1)  Ending 
   (in millions of Won) 

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    45,789    (6,066  (3,399  (391  72,697 

Provision for the restoration

   134,190    14,912    (9,212  (47,682  (3,040  89,168 

Others

   249,957    367,332    (118,388  (216,668  69,680   351,913 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 
      588,118    573,472    (218,997  (279,265  66,161   729,489 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

(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, 2016, 20172019 and 20182020

 

 

2)

For the year ended December 31, 2020

(in millions of Won)  Beginning   Increase   Utilization  Reversal  Others(*1)  Ending 

Provision for bonus payments

  123,669    106,855    (109,835  (6,334  7,596   121,951 

Provision for construction warranties

   170,428    86,691    (23,916  (5,311  (795  227,097 

Provision for legal contingencies and claims

   84,484    30,894    (16,444  (9,087  (2,397  87,450 

Provision for the restoration

   87,303    67,501    (6,525  (15,811  7,277   139,745 

Others

   352,607    349,639    (142,440  (133,294  (36,513  389,999 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 
   818,491   641,580   (299,160)  (169,837)  (24,832)  966,242 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

(*1)

Includes adjustments of foreign currency translation differences and others.

 

21.

Employee Benefits

(a)

(a)

Defined contribution plans

The expenses related to post-employment benefit plans under defined contribution plans for the years ended December 31, 2016, 20172018, 2019 and 20182020 were as follows:

 

   2016   2017   2018 
   (in millions of Won) 

Expense related to post-employment benefit plans under defined contribution plans

      30,344    35,538    42,825 

(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, 2017 and 2018 are as follows:

(in millions of Won)  2018   2019   2020 

Expense related to post-employment benefit plans under defined contribution plans

  42,825    46,846    50,694 

 

   2017  2018 
   (in millions of Won) 

Present value of funded obligations

      1,826,907   2,117,829 

Fair value of plan assets (*1)

   (1,714,166  (1,997,717

Present value ofnon-funded obligations

   16,228   19,332 
  

 

 

  

 

 

 

Net defined benefit liabilities

  128,969   139,444 
  

 

 

  

 

 

 
(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, 2019 and 2020 are as follows:

(in millions of Won)  2019   2020 

Present value of funded obligations

  2,416,203    2,439,938 

Fair value of plan assets(*1)

   (2,255,149   (2,397,717

Present value of non-funded obligations

   15,677    13,415 
  

 

 

   

 

 

 

Net defined benefit liabilities

  176,731    55,636 
  

 

 

   

 

 

 

 

(*1)

As of December 31, 20172019 and 2018,2020, the Company recognized net defined benefit assets amounting to8,2244,280 million and1,48986,149 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, 2017 and 2018 were as follows:

   2017  2018 
   (in millions of Won) 

Defined benefit obligations at the beginning of period

  1,733,020   1,843,135 

Current service costs

   209,612   212,323 

Interest costs

   35,830   54,950 

Remeasurements :

   51,994   212,678 

— Gain from change in financial assumptions

   (50,218  173,084 

— Loss (gain) from change in demographic assumptions

   15,952   526 

— Others

   86,260   39,068 

Benefits paid

   (185,220  (189,165

Others

   (2,101  3,240 
  

 

 

  

 

 

 

Defined benefit obligations at the end of period

      1,843,135   2,137,161 
  

 

 

  

 

 

 

3) Changes in fair value of plan assets for the years ended December 31, 2017 and 2018 were as follows:

   2017  2018 
   (in millions of Won) 

Fair value of plan assets at the beginning of period

  1,693,118   1,714,166 

Interest on plan assets

   45,516   50,784 

Remeasurement of plan assets

   (17,190  (19,761

Contributions to plan assets

   164,828   408,326 

Benefits paid

   (168,643  (163,112

Others

   (3,463  7,314 
  

 

 

  

 

 

 

Fair value of plan assets at the end of period

      1,714,166   1,997,717 
  

 

 

  

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

2)

Changes in present value of defined benefit obligations for the years ended December 31, 2019 and 2020 were as follows:

(in millions of Won)  2019   2020 

Defined benefit obligations at the beginning of year

  2,137,161    2,431,880 

Current service costs

   236,735    245,047 

Interest costs

   51,900    47,485 

Remeasurements :

   152,713    (52,732

- Loss (gain) from change in financial assumptions

   103,850    (76,744

- Loss (gain) from change in demographic assumptions

   (492   27,399 

- Loss (gain) from change in others

   49,355    (3,387

Benefits paid

   (152,275   (225,293

Others

   5,646    6,966 
  

 

 

   

 

 

 

Defined benefit obligations at the end of year

  2,431,880    2,453,353 
  

 

 

   

 

 

 

3)

Changes in fair value of plan assets for the years ended December 31, 2019 and 2020 were as follows:

(in millions of Won)  2019   2020 

Fair value of plan assets at the beginning of year

  1,997,717    2,255,149 

Interest on plan assets

   48,210    44,208 

Remeasurement of plan assets

   (8,692   (600

Contributions to plan assets

   342,915    307,367 

Benefits paid

   (124,962   (213,246

Others

   (39   4,839 
  

 

 

   

 

 

 

Fair value of plan assets at the end of year

  2,255,149    2,397,717 
  

 

 

   

 

 

 

The Company expects to make an estimated contribution of408,887179,367 million to the defined benefit plan assets in 2019.2021.

4)

4)

The fair value of plan assets as of December 31, 2019 and 2020 are as follows:

(in millions of Won)  2019   2020 

Equity instruments

  10,386    17,886 

Debt instruments

   1,013,716    696,583 

Deposits

   1,159,455    1,614,796 

Others

   71,592    68,452 
  

 

 

   

 

 

 
  2,255,149    2,397,717 
  

 

 

   

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 20172019 and 2018 are as follows:2020

 

   2017   2018 
   (in millions of Won) 

Equity instruments

  41,218    3,151 

Debt instruments

   367,027    692,825 

Deposits

   1,254,571    1,244,802 

Others

   51,350    56,939 
  

 

 

   

 

 

 
      1,714,166    1,997,717 
  

 

 

   

 

 

 

5) The amounts recognized in consolidated statements of comprehensive income for the years ended December 31, 2016, 2017 and 2018 were as follows:

 

   2016   2017  2018 
   (in millions of Won) 

Current service costs

  285,706    209,612   212,323 

Net interest costs (*1)

   1,901    (9,686  4,166 
  

 

 

   

 

 

  

 

 

 
      287,607    199,926   216,489 
  

 

 

   

 

 

  

 

 

 
5)

The amounts recognized in consolidated statement of comprehensive income for the years ended December 31, 2018, 2019 and 2020 were as follows:

 

(in millions of Won)  2018   2019   2020 

Current service costs

  212,323    236,735    245,047 

Net interest costs(*1)

   4,166    3,690    3,277 
  

 

 

   

 

 

   

 

 

 
  216,489    240,425    248,324 
  

 

 

   

 

 

   

 

 

 

 

(*1)

The actual return on plan assets amounted to30,422 million,28,326 million and31,023 million, 39,518 million and 43,608 million for the years ended December 31, 2016, 20172018, 2019 and 2018,2020, respectively.

The above expenses by function were as follows:

 

   2016   2017   2018 
   (in millions of Won) 

Cost of sales

  161,810    131,724    150,822 

Selling and administrative expenses

   124,994    67,424    64,505 

Others

   803    778    1,162 
  

 

 

   

 

 

   

 

 

 
      287,607    199,926    216,489 
  

 

 

   

 

 

   

 

 

 

6) Accumulated actuarial gains (losses), net of tax recognized in other comprehensive income for the years ended December 31, 2016, 2017 and 2018 were as follows:

(in millions of Won)  2018   2019   2020 

Cost of sales

  150,822    169,206    177,223 

Selling and administrative expenses

   64,505    70,060    69,256 

Others

   1,162    1,159    1,845 
  

 

 

   

 

 

   

 

 

 
  216,489    240,425    248,324 
  

 

 

   

 

 

   

 

 

 

 

   2016  2017  2018 
   (in millions of Won) 

Beginning

  (272,152  (251,612  (299,155

Current actuarial gains (losses)

   20,540   (47,543  (173,489
  

 

 

  

 

 

  

 

 

 

Ending

      (251,612)   (299,155  (472,644
  

 

 

  

 

 

  

 

 

 

7) The principal actuarial assumptions as of December 31, 2017 and 2018 are
6)

Accumulated actuarial gains (losses), net of tax recognized in other comprehensive income for the years ended December 31, 2018, 2019 and 2020 were as follows:

 

   2017   2018 
   (%) 

Discount rate

   2.70~7.75    2.24~10.03 

Expected future increase in salaries(*1)

   1.04~10.00    2.54~10.00 
(in millions of Won)  2018   2019   2020 

Beginning

  (299,155   (472,644   (589,796

Current actuarial gains (losses)

   (173,489   (117,152   36,576 
  

 

 

   

 

 

   

 

 

 

Ending

  (472,644   (589,796   (553,220
  

 

 

   

 

 

   

 

 

 

 

7)

The principal actuarial assumptions as of December 31, 2019 and 2020 are as follows:

(%)  2019  2020

Discount rate

  1.72 ~ 13.00  0.53 ~ 13.00

Expected future increase in salaries(*1)

  2.00 ~ 11.00  1.92 ~ 11.00

 

(*1)

The expected future increase in salaries is based on the average salary increase rate for the past 3~5 years.

All assumptions are reviewed at the end of the reporting period. Additionally, the total estimated defined benefit obligation includes actuarial assumptions associated with the long-term characteristics of the defined benefit plan.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

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

      (143,793  (6.7  166,225   7.8 

Expected future increase in salaries

   167,278   7.8   (147,232  (6.9

9) As of December 31, 2018 the maturity of the expected benefit payments are as follows:

(in millions of Won)  1% Increase   1% Decrease 
   Amount   Percentage(%)   Amount   Percentage(%) 

Discount rate

  (178,233   (7.3   205,950    8.4 

Expected future increase in salaries

   206,013    8.4    (181,444   (7.4

 

   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

      110,168    735,172    836,318    795,347    491,384    2,968,389 
9)

As of December 31, 2020, 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 to be paid

  245,294    861,968    561,987    890,845    399,429    2,959,523 

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.

22.

22. Other Liabilities

Other liabilities as of December 31, 20172019 and 20182020 are as follows:

 

  2017   2018 
  (in millions of Won) 
(in millions of Won)  2019   2020 

Current

        

Due to customers for contract work

  782,968    641,064   644,947    629,399 

Advances received

   1,183,108    1,130,910    746,169    951,521 

Unearned revenue

   7,121    49,805    61,795    24,433 

Withholdings

   221,940    233,981    388,486    332,327 

Firm commitment liability

   12,192    24,373    15,637    35,993 

Others

   33,590    10,174    8,604    8,304 
  

 

   

 

   

 

   

 

 
       2,240,919    2,090,307   1,865,638    1,981,977 
  

 

   

 

   

 

   

 

 

Non-current

        

Advances received

   357,981    148,081    116,178    311,277 

Unearned revenue

   18,440    42,992    27,161    17,953 

Others

   10,010    59,359    52,349    19,067 
  

 

   

 

   

 

   

 

 
  386,431    250,432   195,688    348,297 
  

 

   

 

   

 

   

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

23.

Financial Instruments

(a) Classification and fair value of financial instruments

1) The carrying amount and the fair values of financial assets and financial liabilities by fair value hierarchy as of December 31, 2017 and 2018 are as follows:
(a)

Classification and fair value of financial instruments

 

 1)

The carrying amount and the fair values of financial assets and financial liabilities by fair value hierarchy as of December 31, 20172019 and 2020 are as follows:

December 31, 2019

       Fair value 
   Book value   Level 1   Level 2   Level 3   Total 
   (in millions of Won) 

Financial assets

          

Financial assets at fair value through profit or loss

          

Financial assets held for trading

  1,970        1,970        1,970 

Derivatives assets held for trading

   65,051        65,051        65,051 

Derivative hedging instruments

   3,239        3,239        3,239 

Available-for-sale financial assets

   1,978,115    1,080,291    17,812    880,012    1,978,115 

Held-to-maturity investments

   5,211                 

Loans and receivables(*1)

          

Cash and cash equivalents

   2,612,530                 

Trade accounts and notes receivable

   8,898,176                 

Loans and other receivables

   9,099,444                 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   22,663,736    1,080,291    88,072    880,012    2,048,375 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financial liabilities

          

Financial liabilities at fair value through profit or loss

          

Derivative liabilities held for trading

      142,280        142,280        142,280 

Derivative hedging instruments

   13,230        13,230        13,230 

Financial liabilities measured at amortized cost(*1)

          

Trade accounts and notes payable

   3,477,678                 

Borrowings

   21,063,657        21,217,415        21,217,415 

Financial guarantee liabilities

   88,407                 

Others

   1,865,683                 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      26,650,935        21,372,925        21,372,925 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(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

   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

   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 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(*1)

Fair value of financial assets and liabilities measured at amortized cost except borrowings approximates their carrying amounts.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

December 31, 2018

December 31, 2020

 

       Fair value 
   Book value   Level 1   Level 2   Level 3   Total 
   (in millions of Won) 

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 
  

 

 

   

 

 

   

 

 

   

 

 

��  

 

 

 

(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

  79,995    —      79,995    —      79,995 

Short-term financial instruments

   9,133,404    —      9,133,404    —      9,133,404 

Debt securities

   20,797    —      —      20,797    20,797 

Other securities

   364,404    47,321    2,242    314,841    364,404 

Other receivables

   2,000    —      —      2,000    2,000 

Derivative hedging instruments(*2)

   37,880    —      37,880    —      37,880 

Fair value through other comprehensive income

          

Equity securities

   1,120,968    729,342    —      391,626    1,120,968 

Debt securities

   2,471    —      —      2,471    2,471 

Financial assets measured at amortized cost(*1)

          

Cash and cash Equivalents

   4,754,644    —      —      —      —   

Trade accounts and notes receivable

   7,329,596    —      —      —      —   

Other receivables

   2,300,515    —      —      —      —   

Debt securities

   151,146    —      —      —      —   

Deposit instruments

   2,359,951    —      —      —      —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  27,657,771    776,663    9,253,521    731,735    10,761,919 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financial liabilities

          

Fair value through profit or loss

          

Derivative liabilities

  180,773    —      180,773    —      180,773 

Derivative hedging instruments(*2)

   31,591    —      31,591    —      31,591 

Financial liabilities measured at amortized cost(*1)

          

Trade accounts and notes payable

   3,777,836    —      —      —      —   

Borrowings

   20,497,607    —      20,821,353    —      20,821,353 

Financial guarantee liabilities

   62,629    —      —      —      —   

Others

   2,347,244    —      —      —      —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  26,897,680    —      21,033,717    —      21,033,717 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(*1)

Fair value of financial assets and liabilities measured at amortized cost except borrowings approximates their carrying amounts.

(*2)

The Company applies hedge accounting which uses forward contracts as hedging instrument in order to hedge the risk of changes in fair value of product prices regarding firm commitments or purchase commitments. Also, the Company applies cash flow hedge accounting which uses currency swap as hedging instrument in order to hedge the risk of interest rate and foreign exchange rate changes in foreign currency which influences cash flow from borrowings.

2) 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.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

2)

Financial assets and financial liabilities classified as fair value hierarchy Level 2

3) Fair values of derivatives are measured using the derivatives instrument valuation models such as discounted cash flow method. Inputs of the derivatives instrument valuation model include forward rate, interest rate and others. They differ 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

 

 

ValueFair value measurement method and significant but not observable inputs for the financial assets classified as fair value hierarchy Level 3 as of December 31, 20182020 are as follows:

 

(in millions of Won) Fair value  

Valuation technique

 Inputs 

Range of inputs

 

Effect on fair value
assessment
with
unobservable input

(in millions of Won)

Financial assets at fair value

   303,377331,780  Discounted cash flows Growth rate 0% ~ 0.5% As growth rate increases, fair value increases
   Discount rate 6.4%7.8% ~ 13.8%17.4% As discount rate increases, fair value decreases
  23,7472,967  Proxy firm valuation method Price multiples 1.0850.728 ~ 5.2452.742 As price multiples increases, fair value increases
  382,536396,988  Asset 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, 20182020 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) 

Financial assets at fair value

  Fluctuation 0.5% of growth rate  1,563    958 
  Fluctuation 0.5% of discount rate     17,332    15,715 
(in millions of Won)  

Input variable

  Favorable
changes
   Unfavorable
changes
 

Financial assets at fair value

  Fluctuation 0.5% of growth rate  212    206 
  Fluctuation 0.5% of discount rate   19,040    17,350 

 

 

Changes in fair value of financial assets and financial liabilities classified as Level 3 for the years ended December 31, 20172019 and 20182020 were as follows:

 

   2017  2018 
   (in millions of Won) 

Beginning

  349,090   880,012 

Acquisition and others

   658,359   134,325 

Gain (loss) on valuations of derivatives

   (10,346  (34,555

Other comprehensive income (loss)

   35,126   26,771 

Impairment

   (107,934   

Disposal and others

   (44,283  (296,893
  

 

 

  

 

 

 

Ending

      880,012   709,660 
  

 

 

  

 

 

 
(in millions of Won)  2019   2020 

Beginning

  709,660    793,950 

Acquisition

   68,461    78,241 

Loss on valuation of financial assets

   (9,412   (41,537

Other comprehensive income(loss)

   106,586    (44,469

Disposal and others

   (81,345   (54,450
  

 

 

   

 

 

 

Ending

  793,950    731,735 
  

 

 

   

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

4)

4) Finance income and costs by category of financial instrument for the years ended December 31, 2016, 2017 and 2018, 2019 and 2020 were as follows:

 

 

For the year ended December 31, 20162018

 

  Finance income and costs  Other
comprehensive
income
 
  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

    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 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

For the year ended December 31, 2017

  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
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  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
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

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
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

For the year ended December 31, 2020

  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

 165,160   (15,883  —     9,979   329   159,585   —   

Derivative assets

  —     56,273   —     318,820   —     375,093   —   

Financial assets at fair value through other comprehensive income

  —     —     —     —     38,019   38,019   (77,627

Financial assets measured at amortized cost

  207,014   —     (222,215  (15,779  (5,821  (36,801  —   

Derivative liabilities

  —     (170,155  —     (376,823  —     (546,978  (331

Financial liabilities measured at amortized cost

  (638,797  —     450,984   —     (16,010  (203,823  —   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
 (266,623  (129,765  228,769   (63,803  16,517   (214,905  (77,958
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 20182019 and 2020

 

  Finance income and costs    
  Interest
income
(expense)
  Gain and
loss on
valuation
  Gain and
loss on
foreign
currency
  Gain and
loss on
disposal
  Others  Total  Other
comprehensive
income (loss)
 
  (in millions of Won) 

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
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

(b) Credit risk

1)

(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, 20172019 and 20182020 are as follows:

 

  2017   2018 
  (in millions of Won) 
(in millions of Won)  2019   2020 

Cash and cash equivalents

  2,612,530    2,643,865   3,514,872    4,754,644 

Derivative assets

   68,290    49,083    112,278    117,875 

Short-term financial instrument

   5,545,667    6,099,303    6,861,242    9,133,404 

Debt securities

       37,314    367,926    174,414 

Other securities

       338,106    340,008    364,404 

Financial assets held for trading

   1,970     

Available-for-sale financial assets

   192,866     

Held-to-maturity investments

   5,211     

Other receivables

   2,195,466    1,845,381    2,195,700    2,302,515 

Trade accounts and notes receivable

   8,898,176    8,819,617    8,214,459    7,329,596 

Deposit instruments

   1,358,311    1,966,558    1,779,082    2,359,951 
  

 

   

 

   

 

   

 

 
      20,878,487    21,799,227   23,385,567    26,536,803 
  

 

   

 

   

 

   

 

 

The Company provided financial guarantee for the repayment of loans of associates, joint ventures and third parties. As of December 31, 20172019 and 2018,2020, the maximum exposure to credit risk related to the financial guarantee amounted to3,135,0844,959,011 million and3,147,2804,069,562 million, respectively.

2)

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, 2019 and 2020 are as follows:

(in millions of Won)  2019   2020 

Trade accounts and notes receivable

  465,524    386,650 

Other accounts receivable

   210,313    177,037 

Loans

   195,339    184,610 

Other assets

   27,098    5,396 
  

 

 

   

 

 

 
  898,274    753,693 
  

 

 

   

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

Allowance for doubtful accounts as of December 31, 2017 and 2018 are

Impairment losses on financial assets for the years ended December 31, 2019 and 2020 were as follows:

 

   2017   2018 
   (in millions of Won) 

Trade accounts and notes receivable

  634,129    588,733 

Other accounts receivable

   187,706    160,729 

Loans

   258,957    147,980 

Other assets

   13,672    19,348 
  

 

 

   

 

 

 
      1,094,464    916,790 
  

 

 

   

 

 

 

Impairment losses on financial assets for the years ended December 31, 2017 and 2018 were as follows:

   2017  2018 
   (in millions of Won) 

Bad debt expenses

  173,694   74,781 

Other bad debt expenses(*1)

   100,920   81,353 

Impairment loss onavailable-for-sale financial assets

   123,214    

Less: Recovery of allowance for other bad debt accounts

   (2,743  (18,261

Less: Recovery of impairment loss onheld-to-maturity financial assets

   (20   
  

 

 

  

 

 

 
      395,065   137,873 
  

 

 

  

 

 

 

(in millions of Won)  2019   2020 

Bad debt expenses (reversal)

  (28,105   829 

Other bad debt expenses(*1)

   88,787    71,092 

Less: Recovery of allowance for other bad debt accounts

   (8,464   (17,987
  

 

 

   

 

 

 
  52,218    53,934 
  

 

 

   

 

 

 

 

(*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, 2017 and 2018

The aging and allowance for doubtful accounts of trade accounts and notes receivable as of December 31, 2019 and 2020 are as follows:

 

   2017   2018 
   Trade accounts
and notes
receivable
   Allowance for
doubtful
accounts
   Trade accounts
and notes
receivable
   Allowance for
doubtful
accounts
 
   (in millions of Won) 

Not due

  7,736,092    65,314    8,021,110    70,418 

Overdue less than 1 month

   445,390    12,546    632,082    14,434 

1 month – 3 months

   170,682    742    226,082    4,116 

3 months – 12 months

   384,313    21,030    118,094    11,774 

Over 12 months

   1,453,785    534,497    1,148,694    487,991 
  

 

 

   

 

 

   

 

 

   

 

 

 
      10,190,262    634,129    10,146,062    588,733 
  

 

 

   

 

 

   

 

 

   

 

 

 

The aging and allowance for doubtful accounts of other receivables as of December 31, 2017 and 2018 are as follows:

   2019   2020 
(in millions of Won)  Trade accounts and
notes receivable
   Impairment   Trade accounts and
notes receivable
   Impairment 

current (not past due)

  7,528,607    75,324    7,042,308    82,836 

Over due less than 1 month

   876,753    9,395    279,548    4,238 

1 month - 3 months

   228,115    6,647    198,807    4,775 

3 months - 12 months

   134,888    7,954    286,274    21,042 

Over 12 months

   965,977    366,204    776,375    273,759 
  

 

 

   

 

 

   

 

 

   

 

 

 
  9,734,340    465,524    8,583,312    386,650 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

   2017   2018 
   Loans and
other account
receivable
   Allowance for
doubtful
accounts
   Loans and
other account
receivable
   Allowance for
doubtful
accounts
 
   (in millions of Won) 

Not due

  1,888,726    9,672    1,754,293    140,072 

Overdue less than 1 month

   235,559    35,539    100,102    4,307 

1 month – 3 months

   69,372    54,335    28,351    851 

3 months – 12 months

   96,942    64,467    59,946    12,411 

Over 12 months

   365,202    296,322    230,746    170,416 
  

 

 

   

 

 

   

 

 

   

 

 

 
      2,655,801    460,335    2,173,438    328,057 
  

 

 

   

 

 

   

 

 

   

 

 

 

The aging and allowance for doubtful accounts of other receivables as of December 31, 2019 and 2020 are as follows:

   2019   2020 
(in millions of Won)  Loans and other
account receivable
   Impairment   Loans and other
account receivable
   Impairment 

current (not past due)

  1,220,756    56,354    1,836,372    132,209 

Over due less than 1 month

   432,220    1,546    50,858    199 

1 month - 3 months

   91,521    239    39,053    100 

3 months - 12 months

   271,814    10,846    47,978    10,033 

Over 12 months

   612,139    363,765    695,297    224,502 
  

 

 

   

 

 

   

 

 

   

 

 

 
  2,628,450    432,750    2,669,558    367,043 
  

 

 

   

 

 

   

 

 

   

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

Changes in the allowance for doubtful accounts for the years ended December 31, 2016, 2017 and 2018, 2019 and 2020 were as follows:

 

   2016  2017  2018 
   (in millions of Won) 

Beginning

  999,678   977,771   1,094,464 

Initial application of IFRS No. 9

         107,454 

Bad debt expenses

   165,150   173,694   74,781 

Other bad debt expenses

   37,567   98,177   63,092 

Others(*1)

   (224,624  (155,178  (423,001
  

 

 

  

 

 

  

 

 

 

Ending

      977,771   1,094,464   916,790 
  

 

 

  

 

 

  

 

 

 

(in millions of Won)  2018   2019   2020 

Beginning

  1,094,464    916,790    898,274 

Initial application of IFRS No.9

   107,454    —      —   

Bad debt expenses(reversal)

   74,781    (28,105   829 

Other bad debt expenses

   63,092    80,323    53,105 

Others(*1)

   (423,001   (70,735   (198,515
  

 

 

   

 

 

   

 

 

 

Ending

  916,790    898,273    753,693 
  

 

 

   

 

 

   

 

 

 

 

(*1)

Others for the yearyears ended December 31, 2016, 20172018, 2019 and 2018,2020, included decreases mainly due towrite-off amounting to216,657 million,119,964 million and383,714 million, 78,505 million and 150,417 million, respectively.

(c) Liquidity risk

1) Contractual maturities fornon-derivative financial liabilities 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

  4,035,960    4,037,863    4,006,942    30,921     

Borrowings

   20,209,270    24,319,619    12,912,399    10,452,389    954,831 

Financial guarantee liabilities(*1)

   68,205    3,147,280    3,147,280         

Other financial liabilities

   1,803,353    1,817,014    1,668,937    148,077     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      26,116,788    33,321,776    21,735,558    10,631,387    954,831 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
1)

Contractual maturities of non-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

  3,777,836    3,779,718    3,756,208    23,510    —   

Borrowings

   20,497,607    21,760,887    9,006,218    11,508,890    1,245,779 

Financial guarantee liabilities(*1)

   62,629    4,069,562    4,069,562    —      —   

Lease liabilities

   739,675    1,085,102    277,438    433,629    374,035 

Other financial liabilities

   1,607,569    1,619,326    1,543,779    75,547    —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  26,685,316    32,314,595    18,653,205    12,041,576    1,619,814 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(*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) Contractual maturities for

2)

Contractual maturities of derivative financial liabilities are as follows:

 

  Within 1 year   1 year -
5 years
   After
5 years
   Total 
  (in millions of Won) 
(in millions of Won)  Within
1 year
   1 year
- 5 years
   After
5 years
   Total 

Currency forward

  11,364    34,743        46,107   26,664    66    —      26,730 

Currency swap

   1,707    5,849    4,369    11,925    14,622    127,347    1,509    143,478 

Interest swap

       1,467        1,467 

Interest rate swap

   8,430    565    18    9,013 

Others

   14,258            14,258    33,143    ���      —      33,143 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 
      27,329    42,059    4,369    73,757   82,859    127,978    1,527    212,364 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

(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, 2017 and 2018 are as follows:

 

   2017   2018 
   Assets   Liabilities   Assets   Liabilities 
   (in millions of Won) 

USD

      4,215,151    5,940,380    4,346,481    6,389,276 

EUR

   552,630    454,072    657,690    509,437 

JPY

   165,356    709,318    97,722    389,625 

Others

   220,723    117,632    259,949    142,868 

2) As of December 31, 2017 and 2018, 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, 2017 and 2018 were
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, 2019 and 2020 is as follows:

 

   2017  2018 
   10% increase  10% decrease  10% increase  10% decrease 
   (in millions of Won) 

USD

  (172,523  172,523   (204,280  204,280 

EUR

   9,856   (9,856  14,825   (14,825

JPY

   (54,396  54,396   (29,190  29,190 

(e) Interest rate risk

1) The carrying amount of interest-bearing financial instruments as of December 31, 2017 and 2018 are as follows:

(in millions of Won)  2019   2020 
   Assets   Liabilities   Assets   Liabilities 

USD

      4,423,107    6,166,765    4,331,058    6,768,169 

EUR

   592,381    180,816    459,423    939,160 

JPY

   79,664    253,542    110,569    644,675 

Others

   481,455    319,046    714,324    461,162 

 

   2017  2018 
   (in millions of Won) 

Fixed rate

   

Financial assets

  10,943,300   11,565,519 

Financial liabilities

   (11,179,635  (11,781,701
  

 

 

  

 

 

 
   (236,335  (216,182
  

 

 

  

 

 

 

Variable rate

   

Financial liabilities

      (9,977,040)   (8,522,323
2)

As of December 31, 2019 and 2020, 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, 2019 and 2020 were as follows:

2)

(in millions of Won)  2019   2020 
   10% increase   10% decrease   10% increase   10% decrease 

USD

      (174,366)    174,366    (243,711   243,711 

EUR

   41,156    (41,156   (47,974   47,974 

JPY

   (17,388   17,388    (53,411   53,411 

(e)

Interest rate risk

1)

The carrying amount of interest-bearing financial instruments as of December 31, 2019 and 2020 are as follows:

(in millions of Won)  2019   2020 

Fixed rate

    

Financial assets

  13,391,637    17,291,726 

Financial liabilities

   (13,264,607   (14,601,638
  

 

 

   

 

 

 
   127,030    2,690,088 
  

 

 

   

 

 

 

Variable rate

    

Financial liabilities

  (7,852,476   (6,635,644

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, 20172019 and 2018,2020, 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, 20172019 and 20182020 were as follows:

 

   2017   2018 
   1% increase   1% decrease   1% increase  1% decrease 
   (in millions of Won) 

Variable rate financial instruments

      (99,770)    99,770    (85,223  85,223 
(in millions of Won)  2019   2020 
   1% increase   1% decrease   1% increase   1% decrease 

Variable rate financial instruments

      (78,525)    78,525    (66,356   66,356 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

24.

Share Capital and Capital Surplus

(a) Share capital as of December 31, 2017 and 2018

(a)

Share capital as of December 31, 2019 and 2020 are as follows:

 

   2017   2018 
   (Share, in Won) 

Authorized shares

   200,000,000    200,000,000 

Par value

  5,000    5,000 

Issued shares(*1)

   87,186,835    87,186,835 

Shared capital(*2)

      482,403,125,000    482,403,125,000 

(Share, in Won)  2019   2020 

Authorized shares

   200,000,000    200,000,000 

Par value

  5,000    5,000 

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, 2018,2020, total sharesnumber of ADRs of 36,860,28825,853,808 outstanding in overseas stock market are equivalent to 9,215,0726,463,452 shares of common stock.

(*2)

As of December 31, 2018,2020, the difference between the ending balance of common stock and the aggregate par value of issued common stock is46,469 W46,469 million due to retirement of 9,293,790 treasury stocks.

(b) The changes in issued common stock for the years ended December 31, 2017 and 2018

(b)

The changes in issued common stock for the years ended December 31, 2019 and 2020 were as follows:

   2017   2018 
   Issued
shares
   Treasury
shares
  Number of
outstanding
shares
   Issued
shares
   Treasury
shares
  Number of
outstanding
shares
 
   (share) 

Beginning

   87,186,835    (7,189,170  79,997,665    87,186,835    (7,187,231  79,999,604 

Disposal of treasury shares

       1,939   1,939        1,528   1,528 

Ending

   87,186,835    (7,187,231  79,999,604    87,186,835    (7,185,703  80,001,132 

(c) Capital surplus as of December 31, 2017 and 2018 are as follows:

   2017   2018 
   (in millions of Won) 

Share premium

  463,825    463,825 

Gain on disposal of treasury shares

   783,914    784,047 

Other capital deficit

   174,282    172,135 
  

 

 

   

 

 

 
      1,422,021    1,420,007 
  

 

 

   

 

 

 

(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, 2018 are as follows:

(share)  2019   2020 
   Issued
shares
   Treasury
shares
  Number of
outstanding
shares
   Issued
shares
   Treasury
shares
  Number of
outstanding
shares
 

Beginning

   87,186,835    (7,185,703  80,001,132    87,186,835    (7,071,194  80,115,641 

Acquisition of treasury shares

   —      —     —      —      (4,100,169  (4,100,169

Disposal of treasury shares

   —      114,509   114,509    —      —     —   
  

 

 

   

 

 

  

 

 

   

 

 

   

 

 

  

 

 

 

Ending

   87,186,835    (7,071,194  80,115,641    87,186,835    (11,171,363  76,015,472 
  

 

 

   

 

 

  

 

 

   

 

 

   

 

 

  

 

 

 

 

(c)

Redeemable Convertible Preferred SharesCapital surplus as of December 31, 2019 and 2020 are as follows:

(in millions of Won)  2019   2020 

Share premium

  463,825    463,825 

Gain on disposal of treasury shares

   796,623    796,623 

Other capital deficit

   125,259    59,555 
  

 

 

   

 

 

 
  1,385,707    1,320,003 
  

 

 

   

 

 

 

(d)(Share, in Won)

Issue date

On February 25, 2017,

Number POSCO ENERGY CO., LTD., a subsidiary of the Company, issued redeemable convertible preferred shares issued

8,643,193 shares

Price per share

amounting to 28,346

Voting rights245,000 million (8,643,193 shares) which were classified as non-controlling interests in the consolidated statement of financial position. Repayments of the redeemable convertible preferred shares were made on February 25, 2020 (4,477,246 shares) and March 30, 2020 (4,165,947 shares).

No voting rights for 3 years from issue date

Dividend rights

Comparative,Non-participating
· Minimum dividend rate for 1~3 years : 3.98%
· Minimum dividend rate after 4 years : Comparative rate + Issuance spread + 2%

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

Redeemable Convertible Preferred Shares

(Share, in Won)

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 per share, which could be adjusted according to anti-dilution clause.

Redeemable convertible preferred stocks are classified asnon-controlling interests in the consolidated financial statements since the issuer has a redemption right and can control the circumstances in which the entity can settle with a variable quantity of equity instruments.

 

25.

Hybrid Bonds

(a) Hybrid bonds classified as equity as of December 31, 2017 and 2018

(a)

Hybrid bonds classified as equity as of December 31, 2019 and 2020 are as follows:

 

   Date of
issue
   Date of maturity   Interest rate (%)   2017  2018 
   (in millions of Won) 

Hybrid bond1-1(*1)

              800,000    

Hybrid bond1-2(*2)

   2013-06-13    2043-06-13    4.60    200,000   200,000 

Issuance cost

         (3,081  (616
        

 

 

  

 

 

 
            996,919   199,384 
        

 

 

  

 

 

 
(in millions of Won)  Date of issue   Date of
maturity
   Interest
rate (%)
   2019  2020 

Hybrid bond 1-2(*1)

   2013-06-13    2043-06-13    4.60   200,000   200,000 

Issuance cost

         (616  (616
        

 

 

  

 

 

 
            199,384   199,384 
        

 

 

  

 

 

 

 

(*1)

During the year ended December 31, 2018, the Company exercised the call option of the Hybrid bond.

(*2)

Details of issuance of hybrid bonds as of December 31, 20182020 are as follows:

 

   

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 1010th anniversary of issuance and interest payment date afterwards

The hybrid bond holder’s preference in the event of liquidation is higher thansenior to the common stock holders,stockholders, but lower thansubordinate to other creditors. The interest accumulated but not paid on the hybrid bonds as of December 31, 20182020 amounts to479 million.

(b)

POSCO ENERGY CO., LTD., a subsidiary of the Company, issued hybrid bonds, which are classified as non-controlling interests in the consolidated financial statements. Hybrid bonds as of December 31, 2019 and 2020 are as follows:

(in millions of Won)  Date of issue   Date of maturity   Interest rate (%)   2019  2020 

Hybrid bond 1-4(*1)

   2013-08-29    2043-08-29    5.21   140,000   140,000 

Issuance cost

         (429  (429
        

 

 

  

 

 

 
        139,571   139,571 
        

 

 

  

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

(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, 2017 and 2018 are as follows:

   Date of issue   Date of maturity   Interest rate (%)   2017  2018 
   (in millions of Won) 

Hybrid bond1-1(*1)

              165,000    

Hybrid bond1-2(*1)

               165,000    

Hybrid bond1-3(*1)

               30,000    

Hybrid bond1-4(*2)

   2013-08-29    2043-08-29    5.21    140,000   140,000 

Issuance cost

         (1,532  (429
        

 

 

  

 

 

 
            498,468   139,571 
        

 

 

  

 

 

 

 

(*1)

During the year ended December 31, 2018, the Company exercised the call option for the Hybrid bond.

(*2)

Details of issuance of hybrid bonds of POSCO ENERGY Co.CO., LtdLTD .as of December 31, 20182020 are as follows:

 

   

Hybrid bond1-4

Maturity date

  30 years (The Companyissuer 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 condition

  Quarterly (Optional deferral of interest payment is available to the issuer)Company)

Others

  The issuer can call the hybrid bond at year 1010th anniversary of issuance and interest payment date afterwards

The hybrid bond holders’ preference in the event of liquidation is higher thansenior to the common stock holders,stockholders, but lower thansubordinate to other creditors. The interest accumulated but not paid on the hybrid bonds as of December 31, 20182020 amounts to639679 million.

 

26.

Reserves

(a) Reserves as of December 31, 2017 and 2018

(a)

Reserves as of December 31, 2019 and 2020 are as follows:

 

  2017 2018 
  (in millions of Won) 
(in millions of Won)  2019   2020 

Accumulated comprehensive loss of investments in associates and joint ventures

  (516,528 (670,435  (648,712   (693,176

Changes in fair value of equity investments at fair value through other comprehensive income

     (295,300   (285,073   (359,283

Changes in the unrealized fair value ofavailable-for-sale investments

   230,190    

Foreign currency translation differences

   (372,166 (417,817   (202,636   (339,707

Gain or losses on valuation of derivatives

   (136 (352   (438   (699

Others

   (23,916 (20,464   (21,121   11,947 
  

 

  

 

   

 

   

 

 
  (682,556 (1,404,368  (1,157,980   (1,380,918
  

 

  

 

   

 

   

 

 

(b)

Changes in fair value of equity investments at fair value through other comprehensive income for the years ended December 31, 2019 and 2020 were as follows:

(in millions of Won)  2019   2020 

Beginning balance

  (295,300   (285,073

Changes in unrealized fair value of equity investments

   (9,422   (72,808

Reclassification upon disposal

   21,902    2,726 

Others

   (2,253   (4,128
  

 

 

   

 

 

 

Ending balance

  (285,073   (359,283
  

 

 

   

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

(b) Changes in 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, 2017 and 2018 were as follows:

   2017  2018 
   (in millions of Won) 

Beginning balance

  276,143   230,190 

Initial application of IFRS No. 9

      (421,525

Changes in unrealized fair value of equity investments

   183,761   (139,226

Reclassification upon disposal

   (299,862  45,737 

Impairment ofavailable-for-sale investments

   96,083    

Others

   (25,935  (10,476
  

 

 

  

 

 

 

Ending balance

  230,190   (295,300
  

 

 

  

 

 

 

 

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, 20172019 and 20182020 were as follows:

 

  2017 2018 
  Number of shares Amount Number of shares Amount 
(shares, in millions of Won)  2019   2020 
  (shares, in millions of Won)   Number of shares   Amount   Number of shares   Amount 

Beginning

   7,189,170  1,533,468  7,187,231  1,533,054    7,185,703   1,532,728    7,071,194   1,508,303 

Acquisition of treasury shares

   —      —      4,100,169    883,220 

Disposal of treasury shares

   (1,939 (414 (1,528 (326   (114,509   (24,425   —      —   
  

 

  

 

  

 

  

 

   

 

   

 

   

 

   

 

 

Ending

   7,187,231  1,533,054  7,185,703  1,532,728    7,071,194   1,508,303    11,171,363   2,391,523 
  

 

  

 

  

 

  

 

   

 

   

 

   

 

   

 

 

During the year ended December 31, 2020, the Company entered into a trust contract of acquiring treasury shares following approval of the Board of Directors. The amount committed to purchase treasury shares by this trust contract is 1,000 billion, and the contract period is from April 13, 2020 to April 12, 2021.

 

28.

Revenue

 

(a)

Disaggregation of revenue

 

 1)

Details of revenue disaggregated by types of revenue and timing of revenue recognition for the years ended December 31, 2016, 20172018, 2019 and 20182020 were as follows:

 

 

For the year ended December 31, 20162018

 

  Steel   Trading   Construction   Others   Total 
  (in millions of Won) 
(in millions of Won)  Steel   Trading   Construction   Others   Total 

Types of revenue

                    

Revenue from sales of goods

      26,687,899    16,602,482    11,496    243,149    43,545,026   31,733,609    21,632,183    3,568    605,206    53,974,566 

Revenue from services

   102,657    24,703    50,189    2,237,129    2,414,678    583,359    611,752    63,922    2,274,606    3,533,639 

Revenue from construction contract

           6,474,192    23,087    6,497,279    —      —      6,860,995    272,778    7,133,773 

Others

   53,599    146,893    88,728    193,568    482,788    41,041    163,782    17,784    290,051    512,658 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 
  26,844,155    16,774,078    6,624,605    2,696,933    52,939,771   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

  26,741,498    16,749,375    100,224    446,667    44,037,764   31,774,650    21,795,965    743,448    906,120    55,220,183 

Revenue recognized over time

   102,657    24,703    6,524,381    2,250,266    8,902,007    583,359    611,752    6,202,821    2,536,521    9,934,453 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 
  26,844,155    16,774,078    6,624,605    2,696,933    52,939,771   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, 2016, 20172019 and 20182020

 

 

 

 

For the year ended December 31, 20172019

 

  Steel   Trading   Construction   Others   Total 
  (in millions of Won) 
(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   31,456,714    21,629,838    —      712,196    53,798,748 

Revenue from services

   111,494    28,793    48,408    1,876,179    2,064,874    573,463    369,730    49,696    2,217,862    3,210,751 

Revenue from construction contract

           6,262,038    37,154    6,299,192    —      —      7,308,401    30,998    7,339,399 

Others

   54,194    118,147    87,559    205,192    465,092    48,276    157,564    5,393    225,578    436,811 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 
  30,230,368    20,802,207    6,418,373    2,735,919    60,186,867   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

  30,118,874    20,773,414    107,927    832,369    51,832,584   31,504,990    21,787,402    747,917    943,037    54,983,346 

Revenue recognized over time

   111,494    28,793    6,310,446    1,903,550    8,354,283    573,463    369,730    6,615,573    2,243,597    9,802,363 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 
  30,230,368    20,802,207    6,418,373    2,735,919    60,186,867   32,078,453    22,157,132    7,363,490    3,186,634    64,785,709 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

 

 

For the year ended December 31, 20182020

 

   Steel   Trading   Construction   Others   Total 
   (in millions of Won) 

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    127,182    906,120    54,603,917 

Revenue recognized over time

   583,359    611,752    6,819,087    2,536,521    10,550,719 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  32,358,009    22,407,717    6,946,269    3,442,641    65,154,636 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(b)

Details of contract assets and liabilities from contracts with customers as of December 31, 2018 and January 1, 2018, the initial application date of IFRS No. 15 “Revenue from Contracts with Customers” and IFRS No. 9 “Financial Instruments”, are as follows;

   The date of initial
application
(January 1, 2018)
   2018 
   (in millions of Won) 

Receivables

    

Account receivables

      8,795,470    8,819,617 

Contract assets

    

Due from customers for contract work

   647,385    737,712 

Contract liabilities

    

Advance received

   1,547,247    1,278,731 

Due to customers for contract work

   751,933    641,064 

Unearned revenue

   77,657    91,872 
(in millions of Won)  Steel   Trading   Construction   Others   Total 

Types of revenue

          

Revenue from sales of goods

  28,394,790    18,796,522    —      917,307    48,108,619 

Revenue from services

   462,489    388,222    45,359    1,811,380    2,707,450 

Revenue from construction contract

   —      —      6,197,497    27,949    6,225,446 

Others

   35,599    160,478    7,196    221,891    425,164 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  28,892,878    19,345,222    6,250,052    2,978,527    57,466,679 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Timing of revenue recognition

          

Revenue recognized at a point in time

  28,430,389    18,957,000    141,916    1,139,197    48,668,502 

Revenue recognized over time

   462,489    388,222    6,108,136    1,839,330    8,798,177 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  28,892,878    19,345,222    6,250,052    2,978,527    57,466,679 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

(b)

Details of contract assets and liabilities from contracts with customers as of December 31, 2019 and 2020, are as follows.

(in millions of Won)  2019   2020 

Receivables

    

Account receivables

  8,214,459    7,329,596 

Contract assets

    

Due from customers for contract work

   1,054,357    867,066 

Contract liabilities

    

Advance received

   864,480    1,264,615 

Due to customers for contract work

   644,947    629,399 

Unearned revenue

   88,733    42,040 

 

29.

Revenue – Contract Balances

(a) Details ofin-progress contracts as of December 31, 2017 and 2018

(a)

Details of outstanding contracts as of December 31, 2019 and 2020 are as follows:

 

   2017  2018 
   (in millions of Won) 

Accumulated cost

  21,404,321   26,153,452 

Accumulated contract profit

   1,524,208   1,848,718 

Accumulated contract loss

   (718,593  (804,538

Accumulated contract revenue

   22,209,936   27,197,632 

(b) Details of due from customers for contract work and due to customers for contract work as of December 31, 2017 and 2018 are as follows:

(in millions of Won)  2019   2020 

Accumulated cost

  27,281,031    29,168,745 

Accumulated contract profit

   2,462,008    2,262,854 

Accumulated contract loss

   (1,185,200   (1,262,933

Accumulated contract revenue

   28,557,839    30,168,666 

 

   2017  2018 
   (in millions of Won) 

Unbilled due from customers for contract work

  728,007   810,655 

Due to customers for contract work

   (782,968  (641,064
  

 

 

  

 

 

 
  (54,961  169,591 
  

 

 

  

 

 

 

(c) Due to the factors causing the variation of costs for the years ended December 31, 2017 and 2018, 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, 2017, 2018 and future periods
(b)

Details of due from customers for contract work and due to customers for contract work as of December 31, 2019 and 2020 are as follows:

 

   2017  2018 
   (in millions of Won) 

Changes in estimated total contract costs

  164,812   427,812 

Changes in profit before income taxes of construction contract :

   

- Current period

   (69,656  (38,720

- Future periods

   (6,041  69,428 
(in millions of Won)  2019   2020 

Unbilled due from customers for contract

  1,128,116    941,793 

Due to customers for contract work

   (644,947   (629,399
  

 

 

   

 

 

 
  483,169    312,394 
  

 

 

   

 

 

 

(c)

Due to the factors causing the cost variation for the years ended December 31, 2019 and 2020, 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, 2019 and 2020 and future periods are as follows:

(in millions of Won)  2019   2020 

Changes in estimated total contract costs

  533,639    180,065 

Changes in profit before income taxes of construction contract :

    

- Current period

   (166,077   40,743 

- Future periods

   (43,584   105,137 

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 reporting period. The estimation is evaluated for the total contract costs and expected total contract revenue as of the end of the reporting period. Also, it may change during future periods.

(d)

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2019 and 2020

(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, 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

Contract 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 contract costs due to various internal and external factors such as fluctuation of market, the risk of business

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

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.

 

30.(e)

Selling and Administrative ExpensesAs of December 31, 2020, revenue expected to be recognized in the future in relation to performance obligations that have not been fulfilled (or partially fulfilled) is as follows:

(a) Other administrative expenses

Other administrative expenses for the years ended December 31, 2016, 2017 and 2018 were as follows:

   2016   2017   2018 
   (in millions of Won) 

Wages and salaries

  769,589    774,900    813,467 

Expenses related to post-employment benefits

   200,956    78,654    73,290 

Other employee benefits

   176,794    159,920    176,240 

Travel

   40,828    39,790    40,929 

Depreciation

   103,442    97,261    101,274 

Amortization

   139,569    146,314    112,418 

Communication

   11,186    11,740    10,616 

Electricity expenses

   7,527    7,050    8,309 

Taxes and public dues

   78,895    72,826    71,973 

Rental

   82,005    69,976    69,516 

Repairs

   11,316    9,859    15,291 

Entertainment

   13,157    11,582    11,816 

Advertising

   86,141    119,724    106,875 

Research & development

   120,608    125,795    108,352 

Service fees

   201,129    193,387    165,938 

Vehicles maintenance

   10,090    8,211    8,942 

Industry association fee

   13,468    10,140    9,571 

Conference

   13,108    14,494    14,510 

Increase to provisions

   6,532    10,990    14,433 

Others

   40,050    40,493    51,995 
  

 

 

   

 

 

   

 

 

 
      2,126,390    2,003,106    1,985,755 
  

 

 

   

 

 

   

 

 

 
(in millions of Won)  2021   2022   2023   After 2024   Total 

Expected Revenue

  5,823,397    4,541,484    2,701,438    1,747,264    14,813,583 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

30.

Selling and Administrative Expenses

(b)

(a)

Other administrative expenses

Other administrative expenses for the years ended December 31, 2018, 2019 and 2020 were as follows:

(in millions of Won)  2018   2019   2020 

Wages and salaries

  813,467    840,599    828,667 

Expenses related to post-employment benefits

   73,290    88,880    83,037 

Other employee benefits

   176,240    177,908    187,075 

Travel

   40,929    42,692    17,513 

Depreciation

   101,274    131,337    146,483 

Amortization

   112,418    112,171    115,254 

Communication

   10,616    11,150    10,390 

Electricity

   8,309    8,799    7,968 

Taxes and public dues

   71,973    78,932    59,274 

Rental

   69,516    39,886    34,966 

Repairs

   15,291    13,454    8,952 

Entertainment

   11,816    11,123    8,328 

Advertising

   106,875    82,574    71,743 

Research & development

   108,352    110,315    116,273 

Service fees

   165,938    193,486    156,530 

Vehicles maintenance

   8,942    7,660    4,880 

Industry association fee

   9,571    9,609    9,586 

Conference

   14,510    15,104    11,576 

Increase to provisions

   14,433    18,071    12,285 

Others

   51,995    47,536    48,822 
  

 

 

   

 

 

   

 

 

 
  1,985,755    2,041,286    1,939,602 
  

 

 

   

 

 

   

 

 

 

(b)

Selling expenses

Selling expenses for the years ended December 31, 2016, 20172018, 2019 and 20182020 were as follows:

 

  2016   2017   2018 
  (in millions of Won) 

Freight and custody expenses(*1)

  1,342,009    1,336,969    184,675 
(in millions of Won)  2018   2019   2020 

Freight and custody

  184,675    180,341    180,503 

Operating expenses for distribution center

   10,315    10,503    10,614    10,614    9,222    6,977 

Sales commissions

   94,377    115,925    79,080    79,080    73,941    86,851 

Sales advertising

   5,117    3,800    4,821    4,821    1,552    1,284 

Sales promotion

   10,670    12,414    13,792    13,792    9,989    7,086 

Sample

   2,335    1,989    2,716    2,716    2,287    1,650 

Sales insurance premium

   31,379    36,546    37,251    37,251    32,632    30,364 

Contract cost

   49,480    23,061    16,992    16,992    38,081    46,247 

Others

   8,004    16,070    19,304    19,304    20,273    15,978 
  

 

   

 

   

 

   

 

   

 

   

 

 
      1,553,686    1,557,277    369,245   369,245    368,318    376,940 
  

 

   

 

   

 

   

 

   

 

   

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2019 and 2020

 

 

(*1)

During the year ended December 31, 2018, 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.

 

31.

Research and Development Expenditures Recognized as Expenses

Research and development expenditures recognized as expenses for the years ended December 31, 2016, 20172018, 2019 and 20182020 were as follows:

 

  2016   2017   2018 
  (in millions of Won) 
(in millions of Won)  2018   2019   2020 

Administrative expenses

  120,608    125,795    108,352   108,352    110,315    116,273 

Cost of sales

   324,190    361,093    418,250    418,250    389,460    351,861 
  

 

   

 

   

 

   

 

   

 

   

 

 
      444,798    486,888    526,602   526,602    499,775    468,134 
  

 

   

 

   

 

   

 

   

 

   

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

32.

Other Operating Income and Expenses

Details of other operating income and expenses for the years ended December 31, 2016, 20172018, 2019 and 20182020 were as follows:

 

   2016  2017  2018 
   (in millions of Won) 

Other operating income

    

Gain on disposals of assets held for sale

        23,112   1,180   27,171 

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

   23,305   81,794   45,241 

Gain on disposals of property, plant and equipment

   23,826   32,145   53,139 

Gain on disposals of intangible assets

   671   23,391   117,139 

Gain on valuation of firm commitment

      56,301   39,028 

Gain on insurance proceeds

   22,400   5,878   14,034 

Others(*1,2)

   109,164   247,792   227,834 
  

 

 

  

 

 

  

 

 

 
  202,478   448,481   523,586 
  

 

 

  

 

 

  

 

 

 

Other operating expenses

    

Impairment loss on assets held for sale

  (24,890     (50,829

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

   (22,499  (19,985  (5,226

Loss on disposals of property, plant and equipment

   (86,622  (151,343  (117,614

Impairment loss on property, plant and equipment

   (196,882  (117,231  (1,004,704

Impairment loss on investment property

   (318     (51,461

Loss on disposals of investment property

   (21  (1,966  (9,154

Impairment loss on intangible assets

   (127,875  (167,995  (337,519

Increase to provisions

   (53,058  (33,964  (134,632

Loss on valuation of firm commitment

      (43,164  (66,281

Donations

   (43,810  (51,424  (52,074

Idle tangible asset expenses

   (6,437  (10,490  (9,257

Others(*3)

   (143,083  (93,814  (175,711
  

 

 

  

 

 

  

 

 

 
  (705,495  (691,376  (2,014,462
  

 

 

  

 

 

  

 

 

 

(*1)

During the year ended December 31, 2018, the Controlling Company recognized55,306 million of tax refund upon successful appeal to tax tribunal against tax investigation as other operating income.

(*2)

The Company has recognized the refund of VAT and others amounting to160,501 million as other operating income in 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 was finalized.

(*3)

During the year ended December 31, 2018, the Controlling Company recognized52,997 million of additional taxes imposed for value added tax related to imported LNG as other operating expense.

(in millions of Won)  2018  2019  2020 

Other operating income

    

Gain on disposals of assets held for sale

  27,171   37,461   841 

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

   45,241   27,836   88,836 

Gain on disposals of property, plant and equipment

   53,139   49,367   15,548 

Gain on disposals of investment property

   12,232   1,087   10 

Gain on disposals of intangible assets

   117,139   1,896   815 

Subsidies income

   1,932   4,042   4,095 

Gain on valuation of firm commitment

   39,028   60,201   107,511 

Gain on valuation of emission rights

   —     25,440   —   

Gain on disposals of emission rights

   —     11,141   24,851 

Reversal of other provisions

   3,557   36,522   5,154 

Premium income

   14,034   3,326   25,253 

Miscellaneous Income(*1,3)

   200,793   189,610   111,701 

Others

   9,320   2,962   17,721 
  

 

 

  

 

 

  

 

 

 
  523,586   450,891   402,336 
  

 

 

  

 

 

  

 

 

 

Other operating expenses

    

Impairment loss on assets held for sale

  (50,829)   (38,328  (5,030

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

   (5,226  (6,539  (14,632

Loss on disposals of property, plant and equipment

   (117,614  (120,227  (142,126

Loss on disposals of intangible assets

   (2,472  (6,119  (4,595

Impairment loss on property, plant and equipment

   (1,004,704  (442,700  (27,040

Impairment loss on investment property

   (51,461  (32,642  —   

Impairment loss on intangible assets

   (337,519  (191,021  (197,776

Loss on valuation of firm commitment

   (66,281  (37,685  (93,098

Idle tangible asset expenses

   (9,257  (34,152  (19,276

Increase to provisions

   (134,632  (23,074  (30,536

Donations

   (52,074  (51,567  (45,652

Miscellaneous losses(*2)

   (161,955  (95,878  (63,525

Others

   (20,438  (10,032  (2,288
  

 

 

  

 

 

  

 

 

 
  (2,014,462  (1,089,964  (645,574
  

 

 

  

 

 

  

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

(*1)

During the year ended December 31, 2019, the Company recognized other operating income for the refunded amount of 74,044 million as a result of request for judgment on value added tax related to imported LNG.

(*2)

During the year ended December 31, 2018, the Company recognized other operating expenses of 52,997 million in fines for additional value tax related to imported LNG.

(*3)

During the year ended December 31, 2018, the Company recognized other operating income of 55,306 million as a result of request for judgment and correction tax investigation.

 

33.

Finance Income and Costs

Details of finance income and costs for the years ended December 31, 2016, 20172018, 2019 and 20182020 were as follows:

 

  2016 2017 2018 
  (in millions of Won) 
(in millions of Won)  2018 2019 2020 

Finance income

        

Interest income(*1)

  182,475  212,451  337,258 

Interest income(*1)

  337,258  352,384  372,174 

Dividend income

   41,000  92,962  63,345    63,345  75,455  38,348 

Gain on foreign currency transactions

   1,032,552  785,616  716,060    716,060  824,565  1,147,692 

Gain on foreign currency translations

   377,723  564,016  212,443    212,443  206,019  574,463 

Gain on derivatives transactions

   316,524  210,727  247,513    247,513  195,933  352,005 

Gain on valuations of derivatives

   147,111  64,735  96,986    96,986  163,491  115,642 

Gain on disposals ofavailable-for-sale financial assets

   130,830  425,684    

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

   8,742  8,525  15,550 

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

        16,149    16,149  42,297  51,581 

Others

   3,765  16,476  16,216    7,474  3,474  10,044 
  

 

  

 

  

 

   

 

  

 

  

 

 
      2,231,980  2,372,667  1,705,970   1,705,970  1,872,143  2,677,499 
  

 

  

 

  

 

   

 

  

 

  

 

 

Finance costs

        

Interest expenses

  (658,726 (653,115 (741,296  (741,296)  (755,711 (638,797

Loss on foreign currency transactions

   (1,147,192 (756,654 (810,857   (810,857 (746,603 (1,067,907

Loss on foreign currency translations

   (405,391 (422,880 (321,748   (321,748 (319,470 (425,479

Loss on derivatives transactions

   (338,314 (236,273 (208,772   (208,772 (228,144 (410,008

Loss on valuation of derivatives

   (162,676 (226,487 (40,674

Impairment loss onavailable-for-sale financial assets

   (248,404 (123,214   

Loss on valuations of derivatives

   (40,674 (47,447 (229,524

Loss on disposals of trade accounts and notes receivable

   (39,970 (36,935 (15,816

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

   (1,474 (2,969 (5,571

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

        (59,442   (59,442 (65,848 (67,464

Others

   (53,487 (65,654 (61,627   (20,183 (38,936 (31,836
  

 

  

 

  

 

   

 

  

 

  

 

 
  (3,014,190 (2,484,277 (2,244,416  (2,244,416 (2,242,063 (2,892,402
  

 

  

 

  

 

   

 

  

 

  

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2019 and 2020

 

 

(*1)

Interest income calculated using the effective interest method for the years ended December 31, 2016, 2017,2018, 2019 and 20182020 were106,828 million,130,710 million, and197,142 million, 209,511 million and 207,014 million, respectively.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

 

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, 2016, 20172018, 2019 and 20182020 were as follows (excluding finance costs and income tax expense):

 

   2016   2017   2018 
   (in millions of Won) 

Raw material used, changes in inventories and others

  30,177,732    35,584,184    38,884,690 

Employee benefits expenses (*2)

   3,444,276    3,357,861    3,639,192 

Outsourced processing cost

   7,678,055    7,074,948    7,462,656 

Electricity expenses

   1,018,429    933,045    949,435 

Depreciation (*1)

   2,835,843    2,887,646    2,911,048 

Amortization

   378,004    409,774    356,581 

Freight and custody expenses

   1,342,009    1,336,969    1,414,940 

Sales commissions

   94,377    115,925    79,080 

Loss on disposal of property, plant and equipment

   86,622    151,343    117,614 

Impairment loss on property, plant and equipment

   196,882    117,231    1,004,704 

Impairment loss on goodwill and intangible assets

   127,875    167,995    337,519 

Donations

   43,810    51,424    52,074 

Other expenses

   3,448,497    4,253,625    4,445,124 
  

 

 

   

 

 

   

 

 

 
      50,872,411    56,441,970    61,654,657 
  

 

 

   

 

 

   

 

 

 

(in millions of Won)  2018   2019   2020 

Raw material used, changes in inventories and others

  38,884,690    39,279,866    34,555,624 

Employee benefits(*2)

   3,639,192    3,623,611    3,624,953 

Outsourced processing cost

   7,462,656    8,250,372    7,808,343 

Electricity

   949,435    912,832    656,121 

Depreciation(*1)

   2,911,048    3,029,868    3,156,181 

Amortization

   356,581    431,247    465,558 

Freight and custody

   1,414,940    1,446,628    1,428,012 

Sales commissions

   79,080    73,941    86,851 

Loss on disposal of property, plant and equipment

   117,614    120,227    142,126 

Impairment loss on property, plant and equipment

   1,004,704    442,700    27,040 

Impairment loss on goodwill and intangible assets

   337,519    191,021    197,776 

Donations

   52,074    51,567    45,652 

Other

   4,445,124    4,168,470    3,638,393 
  

 

 

   

 

 

   

 

 

 
  61,654,657    62,022,350    55,832,630 
  

 

 

   

 

 

   

 

 

 

 

(*1)

Includes depreciation expense of investment property.

(*2)

The details of employee benefits expenses for the years ended December 31, 2016, 20172018, 2019 and 20182020 were as follows:

 

  2016   2017   2018 
  (in millions of Won) 
(in millions of Won)  2018   2019   2020 

Wages and salaries

  3,016,488    3,105,364    3,372,831   3,372,831    3,313,642    3,316,364 

Expenses related to post-employment benefits

   427,788    252,497    266,361    266,361    309,969    308,589 
  

 

   

 

   

 

   

 

   

 

   

 

 
      3,444,276    3,357,861    3,639,192   3,639,192    3,623,611    3,624,953 
  

 

   

 

   

 

   

 

   

 

   

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2019 and 2020

 

35.

Income Taxes

(a)

(a)

Income tax expense for the years ended December 31, 2016, 2017 and 2018, 2019 and 2020 was as follows:

 

  2016 2017   2018 
  (in millions of Won) 

Current income taxes(*1)

  699,269  864,143    1,577,581 
(in millions of Won)  2018   2019   2020 

Current income taxes(*1)

  1,577,581    913,286    692,870 

Deferred income tax due to temporary differences

   (209,706 300,037    (38,851   (38,851   164,078    (481,303

Items recorded directly in equity

   (110,019 21,560    144,900    144,900    11,005    12,705 
  

 

  

 

   

 

   

 

   

 

   

 

 

Income tax expense

      379,544  1,185,740    1,683,630   1,683,630    1,088,369    224,272 
  

 

  

 

   

 

   

 

   

 

   

 

 

 

(*1)

Refund (additional payment) of income taxes when filing a final corporation tax return is credited (charged) directly to current income taxes.

(b)

The income taxes credited (charged) directly to equity for the years ended December 31, 2018, 2019 and 2020 were as follows:

(in millions of Won)  2018   2019   2020 

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

  47,423    (26,744   26,850 

Gain on disposal of treasury shares

   (50   —      —   

Others

   97,527    37,749    (14,145
  

 

 

   

 

 

   

 

 

 
  144,900    11,005    12,705 
  

 

 

   

 

 

   

 

 

 

(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, 2018, 2019 and 2020.

(in millions of Won)  2018  2019  2020 

Profit before income tax expense

  3,616,016   3,126,534   1,972,763 

Income tax expense computed at statutory rate

   982,287   847,017   533,875 

Adjustments:

    

Tax credits

   (32,103  (39,709  (90,093

Additional income tax expense for prior years (over provisions from prior years)

   44,336   (35,389  (14,362

Tax effect from tax audit

   130,196   14,775   11,796 

Investment in subsidiaries, associates and joint ventures

   114,856   317,977   147,874 

Tax effects due to permanent differences

   64,708   (5,588  2,591 

Others(*1,2)

   379,350   (10,714  (367,409
  

 

 

  

 

 

  

 

 

 
   701,343   241,352   (309,603
  

 

 

  

 

 

  

 

 

 

Income tax expense

  1,683,630   1,088,369   224,272 
  

 

 

  

 

 

  

 

 

 

Effective tax rate (%)

   46.56  34.81  11.37

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2019 and 2020

(*1)

Includes the effect of non-deductible impairment loss related to Synthetic Natural Gas (SNG) facility for the year ended December 31, 2018.

(*2)

In connection with the impairment loss on SNG facility recognized in 2018 and business combination of Off-gas Power Station Business Sector in 2019, whether the amounts can be deductible for tax purpose depend on the occurrence of certain events within a specified number of years after the recognition of impairment or the communication of business combination. During 2020, due to the change in estimate regarding the probability of the occurrence of events pursuant to the tax regulations, 328,543 million of income tax benefit was recognized.

(d)

The movements in deferred tax assets (liabilities) for the years ended December 31, 2019 and 2020 were as follows:

(in millions of Won)  2019  2020 
   Beginning  Inc.
(Dec.)
  Ending  Beginning  Inc.
(Dec.)
  Ending 

Deferred income tax due to temporary differences

       

Allowance for doubtful accounts

  181,143   (28,007  153,136   153,136   (5,912  147,224 

PP&E - Depreciation

   9,837   12,374   22,211   22,211   10,025   32,236 

Share of profit or loss of equity-accounted investees

   227,594   (108,480  119,114   119,114   100,317   219,431 

Allowance for inventories valuation

   10,676   (1,231  9,445   9,445   2,097   11,542 

PP&E - Revaluation

   (1,789,748  (28,713  (1,818,461  (1,818,461  84,462   (1,733,999

Prepaid expenses

   17,259   (2,047  15,212   15,212   4,619   19,831 

PP&E - Impairment loss

   4,613   132,713   137,326   137,326   246,177   383,503 

Gain or loss on foreign currency translation

   (38,010  45,046   7,036   7,036   (58,681  (51,645

Defined benefit liabilities

   (73,589  (22,094  (95,683  (95,683  (26,137  (121,820

Provision for construction losses

   7,405   (102  7,303   7,303   10,302   17,605 

Provision for construction warranty

   70,318   (8,517  61,801   61,801   1,714   63,515 

Accrued income

   (13,094  (17,722  (30,816  (30,816  (10,360  (41,176

Impairment loss on AFS

   75,919   36,636   112,555   112,555   (3,957  108,598 

Difference in acquisition costs of treasury shares

   70,532   (1,124  69,408   69,408   —     69,408 

Others

   352,355   (91,492  260,863   260,863   128,862   389,725 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
   (886,790  (82,760  (969,550  (969,550  483,528   (486,022
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Deferred income taxes recognized directly to equity

       

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

   156,885   (26,744  130,141   130,141   26,850   156,991 

Others

   130,272   37,749   168,021   168,021   (14,145  153,876 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
   287,157   11,005   298,162   298,162   12,705   310,867 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Deferred tax from tax credit

       

Tax credit carry-forward and others

   115,589   (23,750  91,839   91,839   (19,433  72,406 

Investments in subsidiaries, associates and joint ventures

       

Investments in subsidiaries, associates and joint ventures

   203,938   (68,574  135,364   135,364   4,503   139,867 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  (280,106  (164,079  (444,185  (444,185  481,303   37,118 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2019 and 2020

(e)

Deferred tax assets and liabilities as of December 31, 2019 and 2020 are as follows:

(in millions of Won)  2019  2020 
   Assets   Liabilities  Net  Assets   Liabilities  Net 

Deferred income tax due to temporary differences

         

Allowance for doubtful accounts

  153,136    —     153,136   147,243    (19  147,224 

PP&E - Depreciation

   68,649    (46,438  22,211   84,890    (52,654  32,236 

Share of profit or loss of equity-accounted investees

   177,467    (58,353  119,114   281,049    (61,618  219,431 

Allowance for inventories valuation

   9,445    —     9,445   11,542    —     11,542 

PP&E - Revaluation

   —      (1,818,461  (1,818,461  —      (1,733,999  (1,733,999

Prepaid expenses

   15,212    —     15,212   19,859    (28  19,831 

PP&E - Impairment loss

   137,326    —     137,326   383,503    —     383,503 

Gain or loss on foreign currency translation

   136,360    (129,324  7,036   101,244    (152,889  (51,645

Defined benefit liabilities

   426,930    (522,613  (95,683  478,144    (599,964  (121,820

Provision for construction losses

   7,303    —     7,303   17,605    —     17,605 

Provision for construction warranty

   61,801    —     61,801   63,515    —     63,515 

Accrued income

   —      (30,816  (30,816  —      (41,176  (41,176

Impairment loss on AFS

   112,555    —     112,555   108,598    —     108,598 

Difference in acquisition costs of treasury shares

   69,408    —     69,408   69,408    —     69,408 

Others

   338,700    (77,836  260,863   571,199    (181,474  389,725 
  

 

 

   

 

 

  

 

 

  

 

 

   

 

 

  

 

 

 
   1,714,292    (2,683,841  (969,550  2,337,799    (2,823,821  (486,022
  

 

 

   

 

 

  

 

 

  

 

 

   

 

 

  

 

 

 

Deferred income taxes recognized directly to equity

         

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

   220,276    (90,135  130,141   167,070    (10,079  156,991 

Others

   193,384    (25,363  168,021   177,938    (24,062  153,876 
  

 

 

   

 

 

  

 

 

  

 

 

   

 

 

  

 

 

 
   413,660    (115,498  298,162   345,008    (34,141  310,867 
  

 

 

   

 

 

  

 

 

  

 

 

   

 

 

  

 

 

 

Deferred tax from tax credit

         

Tax credit carry-forward and others

   91,839    —     91,839   72,406    —     72,406 

Investments in subsidiaries, associates and joint ventures

         

Investments in subsidiaries, associates and joint ventures

   441,172    (305,808  135,364   422,338    (282,471  139,867 
  

 

 

   

 

 

  

 

 

  

 

 

   

 

 

  

 

 

 
   2,660,963    (3,105,147  (444,185  3,177,551    (3,140,433  37,118 
  

 

 

   

 

 

  

 

 

  

 

 

   

 

 

  

 

 

 

(f)

As of December 31, 2020, deductible temporary differences of 7,928,964 million and taxable temporary differences of 7,041,140 million (deferred tax liabilities of 1,885,211 million) related to investments in subsidiaries and associates were not recognized as deferred tax assets or liabilities, because it is not probable they will reverse in the foreseeable future.

(g)

The Company recognized current tax payable or receivable at the 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, 2016, 20172019 and 2018

(b) The income taxes credited (charged) directly to equity for the years ended December 31, 2016, 2017 and 2018 were as follows:

   2016  2017  2018 
   (in millions of Won) 

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

  (100,550  1,271   47,423 

Remeasurements of defined benefit plans

   (11,722  22,208   56,289 

Gain on sale of treasury shares

   (10  (40  (50

Others

   2,263   (1,879  41,238 
  

 

 

  

 

 

  

 

 

 
      (110,019  21,560   144,900 
  

 

 

  

 

 

  

 

 

 

(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, 2016, 2017 and 2018.

   2016  2017  2018 
   (in millions of Won) 

Profit before income tax expense

      1,411,609   4,095,051   3,616,016 

Income tax expense computed at statutory rate

   341,148   990,540   982,287 

Adjustments:

    

Tax credits

   (30,124  (40,757  (32,103

Additional Income tax expense for prior years (Over provisions from prior years)

   (11,829  (20,912  44,336 

Tax effect from tax audit

         130,196 

Investment in subsidiaries, associates and joint ventures

   76,751   55,113   114,856 

Tax effects due to permanent differences

   (9,962  4,798   64,708 

Effect of tax rate change (*1)

      175,647    

Others (*2)

   13,560   21,311   379,350 
  

 

 

  

 

 

  

 

 

 
   38,396   195,200   701,343 
  

 

 

  

 

 

  

 

 

 

Income tax expense

  379,544   1,185,740   1,683,630 
  

 

 

  

 

 

  

 

 

 

Effective tax rate (%)

   26.89  28.96  46.56

(*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, 2016, 2017 and 2018

(d) The movements in deferred tax assets (liabilities) for the years ended December 31, 2017 and 2018 were as follows:

  2017  2018 
  Beginning  Inc. (Dec.)  Ending  Beginning  Inc. (Dec.)  Ending 
  (in millions of Won) 

Deferred income tax due to temporary differences

      

Allowance for doubtful accounts (*1)

 213,119   60,875   273,994   273,994   (92,851  181,143 

Reserve for technology developments

  (91,960  53,973   (37,987  (37,987  37,987    

PP&E — Depreciation

  (11,639  26,280   14,641   14,641   (4,804  9,837 

Share of profit or loss of equity-accounted investees

  70,259   125,783   196,042   196,042   31,552   227,594 

Allowance for inventories valuation

  15,651   (4,871  10,780   10,780   (104  10,676 

PP&E — Revaluation

  (1,524,149  (304,015  (1,828,164  (1,828,164  (33,548  (1,861,712

Prepaid expenses

  19,665   335   20,000   20,000   (2,741  17,259 

PP&E — Impairment loss

  5,295   245   5,540   5,540   (927  4,613 

Gain or loss on foreign currency translation

  (5,957  (42,515  (48,472  (48,472  10,462   (38,010

Defined benefit obligations

  361,838   68,279   430,117   430,117   70,334   500,451 

Plan assets

  (355,661  (41,960  (397,621  (397,621  (66,940  (464,561

Provision for construction losses

  997   (556  441   441   6,964   7,405 

Provision for construction warranty

  24,322   4,395   28,717   28,717   41,601   70,318 

Accrued income

  (9,441  (3,474  (12,915  (12,915  (179  (13,094

Others (*1)

  750,151   (55,834  694,317   694,317   (233,026  461,291 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  (537,510  (113,060  (650,570  (650,570  (236,220  (886,790
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Deferred income taxes recognized directly to equity

      

Net changes in fair value of equity investments at fair value through other comprehensive income (*1)

  (50,507  1,271   (49,236  (49,236  206,121   156,885 

Others

  51,832   20,329   72,161   72,161   58,111   130,272 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  1,325   21,600   22,925   22,925   264,232   287,157 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Deferred tax from tax credit

      

Tax credit carry-forward and others

  307,335   (189,303  118,032   118,032   (2,443  115,589 

Investments in subsidiaries, associates and joint ventures

      

Investments in subsidiaries, associates and joint ventures

  86,130   (17,704  68,426   68,426   135,512   203,938 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
 (142,720  (298,467  (441,187  (441,187  161,081   (280,106
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

(*1)

These changes includes the cumulative impact of initial application of IFRS No. 15 and IFRS No. 9.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

(e) Deferred tax assets and liabilities for the years ended December 31, 2017 and 2018 are as follows:

  2017  2018 
  Assets  Liabilities  Net  Assets  Liabilities  Net 
  (in millions of Won) 

Deferred income tax due to temporary differences

      

Allowance for doubtful accounts

 273,994      273,994   181,143      181,143 

Reserve for technology developments

     (37,987  (37,987         

PP&E — Depreciation

  59,912   (45,271  14,641   55,354   (45,517  9,837 

Share of profit or loss of equity-accounted investees

  236,637   (40,595  196,042   278,466   (50,872  227,594 

Allowance for inventories valuation

  10,780      10,780   10,676      10,676 

PP&E — Revaluation

     (1,828,164  (1,828,164     (1,861,712  (1,861,712

Prepaid expenses

  20,000      20,000   17,259      17,259 

PP&E — Impairment loss

  5,639   (99  5,540   5,240   (627  4,613 

Gain or loss on foreign currency translation

  113,760   (162,232  (48,472  121,797   (159,807  (38,010

Defined benefit obligations

  430,117      430,117   500,451      500,451 

Plan assets

     (397,621  (397,621     (464,561  (464,561

Provision for construction losses

  441      441   7,405      7,405 

Provision for construction warranty

  28,717      28,717   70,318      70,318 

Accrued income

     (12,915  (12,915     (13,094  (13,094

Others

  746,367   (52,050  694,317   857,583   (396,292  461,291 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  1,926,364   (2,576,934  (650,570  2,105,692   (2,992,482  (886,790
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Deferred income taxes recognized directly to equity

      

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

  110,865   (160,101  (49,236  247,921   (91,036  156,885 

Others

  92,981   (20,820  72,161   153,609   (23,337  130,272 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  203,846   (180,921  22,925   401,530   (114,373  287,157 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Deferred tax from tax credit

      

Tax credit carry-forward and others

  118,032      118,032   115,589      115,589 

Investments in subsidiaries, associates and joint ventures

      

Investments in subsidiaries, associates and joint ventures

  563,406   (494,980  68,426   547,662   (343,724  203,938 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
     2,811,648   (3,252,835  (441,187  3,170,473   (3,450,579  (280,106
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

(f) As of December 31, 2018, the Company did not recognize income tax effects associated with deductible temporary differences of5,590,698 million mainly relating to loss of subsidiaries and affiliates because realization is not considered probable. As of December 31, 2018, the Company did not recognize income tax effects associated with taxable temporary differences of4,873,232 million mainly relating to increase in retained earnings of subsidiaries since it is probable that the temporary difference will not reverse in the foreseeable future.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 20182020

 

 

 

36.

Earnings per Share

Basic and diluted earnings per share for the years ended December 31, 2016, 20172018, 2019 and 20182020 were as follows:

 

   2016  2017  2018 
   (in Won, except per share information) 

Profit attribute to controlling interest

  1,354,806,734,940   2,756,230,487,872   1,711,901,875,666 

Interests of hybrid bonds

   (33,225,163,081  (33,048,799,997  (17,720,986,299

Weighted-average number of common shares outstanding(*1)

   79,996,389   79,998,600   80,000,606 
  

 

 

  

 

 

  

 

 

 

Basic and diluted earnings per share

  16,521   34,040   21,177 
  

 

 

  

 

 

  

 

 

 

(in Won, except share
information)
 2018  2019  2020 

Profit attribute to controlling interest

 1,711,901,875,666   1,864,405,092,477   1,581,207,551,926 

Interests of hybrid bonds

  (17,720,986,299  (6,669,999,999  (6,688,273,972

Weighted-average number of common shares outstanding(*1)

  80,000,606   80,113,759   79,120,963 
 

 

 

  

 

 

  

 

 

 

Basic earnings per share

 21,177   23,189   19,900 
 

 

 

  

 

 

  

 

 

 

 

(*1)

The weighted-average number of common shares used to calculate basic and diluted earnings per share are as follows:

 

  2016 2017 2018 
  (shares) 
(shares)  2018   2019   2020 

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

   (7,190,446 (7,188,235 (7,186,229   (7,186,229   (7,073,076   (8,065,872
  

 

  

 

  

 

   

 

   

 

   

 

 

Weighted-average number of common shares outstanding

   79,996,389  79,998,600  80,000,606    80,000,606    80,113,759    79,120,963 
  

 

  

 

  

 

   

 

   

 

   

 

 

Since there were no potential shares of common stock which had dilutive effects as of December 31, 2016, 20172018, 2019 and 2018,2020, 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, 2016, 20172019 and 20182020

 

 

 

37.

Related Party Transactions

(a) Significant transactions between the controlling company and related companies for the years ended December 31, 2016, 2017 and 2018 were as follows:

1) For the year ended December 31, 2016
(a)

Significant transactions between the controlling company and related companies for the years ended December 31, 2018, 2019 and 2020 were as follows:

 

   Sales and others(*1)   Purchase and others(*2) 
   Sales   Others   Purchase of
material
   Purchase of
fixed assets
   Outsourced
processing cost
   Others 
   (in millions of Won) 

Subsidiaries

  

POSCO ENGINEERING & CONSTRUCTION CO., LTD.

  29,511    16,661    8    183,768        24,511 

POSCO Processing & Service

   1,212,220    5,778    549,803    2,896    22,704    2,445 

POSCO COATED & COLOR STEEL Co., Ltd.

   326,078    2,560            12,232    126 

POSCO ICT(*3)

   1,224    727        219,301    32,456    171,107 

eNtoB Corporation

       5    278,016    9,836    212    19,436 

POSCO CHEMTECH

   319,164    33,784    502,448    14,847    290,427    5,139 

POSCO ENERGY CO., LTD.

   187,311    1,382                7 

POSCO TMC Co., Ltd.(*4)

   219,489        2        863    1,177 

POSCO AST(*4)

   152,098    1            19,695    922 

POSCO DAEWOO Corporation

   3,227,716    34,341    92,203        343     

POSCO Thainox Public Company Limited

   237,471    2,915    9,593        19    548 

POSCO America Corporation

   469,543        284            1,103 

POSCO Canada Ltd.

   275        148,528             

POSCO Asia Co., Ltd.

   1,758,080    1,373    403,174    247    939    3,602 

Qingdao Pohang Stainless Steel Co., Ltd.

   135,405                    525 

POSCO JAPAN Co., Ltd.

   1,112,489    128    23,217    3,744    345    3,841 

POSCO-VIETNAM Co., Ltd.

   226,063    445                 

POSCO MEXICO S.A. DE C.V.

   274,210    462                 

POSCO Maharashtra Steel Private Limited

   355,829    2,613                93 

POSCO(Suzhou) Automotive Processing Center Co., Ltd.

   149,911                     

Others

   766,263    22,717    207,601    62,202    212,344    145,562 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   11,160,350    125,892    2,214,877    496,841    592,579    380,144 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Associates and joint ventures

            

SeAH Changwon Integrated Special Steel

   28        1,095        627     

POSCO PLANTEC Co., Ltd.

   2,245    48    3,533    244,898    16,812    8,146 

SNNC

   6,004    1,042    487,395            2 

POSCO-SAMSUNG-Slovakia Processing center

   44,686                     

KOBRASCO

       29,297                 

Others

   26,625    13,122    175,246             
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   79,588    43,509    667,269    244,898    17,439    8,148 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      11,239,938    169,401    2,882,146    741,739    610,018    388,292 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
1)

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

  417,957   35,762   531,452   21,730   319,868   2,802 

POSCO ENERGY CO., LTD.

  206,638   1,445   —     —     —     —   

POSCO INTERNATIONAL 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, 2016, 20172019 and 20182020

 

 

2) For the year ended December 31, 2017

   Sales and others(*1)   Purchase and others(*2) 
   Sales   Others   Purchase of
material
   Purchase of
fixed assets
   Outsourced
processing
cost
   Others 
   (in millions of Won) 

Subsidiaries

            

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(*3)

   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

            

POSCO PLANTEC Co., Ltd.

   2,947    112    5,487    300,041    20,718    19,763 

SNNC

   6,734    712    554,151            4 

POSCO-SAMSUNG-Slovakia Processing Center

   52,779                     

Roy Hill Holdings Pty Ltd

           697,096             

CSP — Compania Siderurgica do Pecem

   7,384        159,501             

Others

   14,943    52,583    79,103            3 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   84,787    53,407    1,495,338    300,041    20,718    19,770 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      12,751,894    153,870    3,913,323    829,730    650,170    428,940 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(*1)

Sales and others mainly consist of sales of steel products to subsidiaries, associates and joint ventures.

(*2)

Purchases and others mainly consist of subsidiaries’ purchases of construction services and purchases of raw materials to manufacture steel products.

(*3)

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, 2016, 2017 and 2018

3) For the year ended December 31, 2018

   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.

  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 CHEMTECH

   417,957    35,762    531,452    21,730    319,868    2,802 

POSCO ENERGY CO., LTD.

   206,638    1,445                 

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 are mainly consist of sales of steel products to subsidiaries, associates and joint ventures.

(*2)

Purchases and others are 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.

 

(*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.

2)

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

  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

  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, 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.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

(b) The related account balances of significant transactions between the controlling company and related companies as of December 31, 2017 and 2018 are as follows:

1) December 31, 2017
3)

For the year ended December 31, 2020

 

(in millions of Won) Sales and others(*1) Purchase and others(*2) 
 Receivables Payables  Sales Others Purchase of
material
 Purchase of
fixed assets
 Outsourced
processing
cost
 Others 
 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 

Subsidiaries(*3)

      

POSCO ENGINEERING & CONSTRUCTION CO.,LTD.

 6,790  11,123  15  772,846  220  63,467 

POSCO COATED & COLOR STEEL Co., Ltd.

 58,184    324  58,508       5    504    509  418,619  1,820   —     —    28,523  639 

POSCO ICT

 55    217  272  1,458    72,586    27,009    101,053 

POSCO ICT(*4)

 2,747  4,996   —    374,914  41,384  181,554 

eNtoB Corporation

           12,252    31,899    20    44,171  15  60  214,750  34,217  76  25,870 

POSCO CHEMTECH

 61,810    3,589  65,399  51,774    20,313    17,568    89,655 

POSCO CHEMICAL CO., LTD

 258,154  34,944  456,780  23,003  304,135  4,816 

POSCO ENERGY CO., LTD.

 33,239    1,673  34,912           1,425    1,425  1,262  2,396  14,011  3   —    23,336 

POSCO DAEWOO Corporation

 483,915    12,739  496,654  10,213    2,145    5,794    18,152 

POSCO INTERNATIONAL Corporation

 5,644,017  56,322  342,520   —    11,371  4,375 

POSCO Thainox Public Company Limited

 57,826      57,826  1,204            1,204  311,924  137  2,538   —     —     —   

POSCO America Corporation

 5,365      5,365                 121,377   —     —     —     —    1,249 

POSCO Canada Ltd.

  —    1,325  162,385   —     —     —   

POSCO Asia Co., Ltd.

 404,857    541  405,398  9,811    24        9,835  1,514,154  1,060  151,373  4,331  1,508  3,915 

Qingdao Pohang Stainless Steel Co., Ltd.

 31,693      31,693                 145,006  66   —     —     —    305 

POSCO JAPAN Co., Ltd.

 1,076,987   —    37,210  5,277   —    6,225 

POSCO-VIETNAM Co., Ltd.

 253,060  605   —     —     —    96 

POSCO MEXICO S.A. DE C.V.

 55,695    530  56,225                 168,188  403   —     —     —    2,000 

POSCO Maharashtra Steel Private Limited

 392,630    5,733  398,363                 328,943  2,507   —     —     —    479 

POSCO(Suzhou) Automotive Processing Center Co., Ltd.

 112,925   —     —     —     —     —   

POSCO VST CO., LTD.

 208,464  218   —     —     —    156 

POSCO INTERNATIONAL SINGAPORE PTE LTD.

  —     —    600,580   —     —     —   

Others

 384,385    49,403  433,788  15,038    59,575    31,118    105,731  1,331,672  23,017  73,575  45,695  270,821  135,698 
 

 

   

 

  

 

  

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

 
 1,969,656    77,657  2,047,313  101,750    208,512    84,112    394,374  11,904,304  140,999  2,055,737  1,260,286  658,038  454,180 
 

 

   

 

  

 

  

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Associates and joint ventures

           

POSCO PLANTEC Co., Ltd.

 1,946    9  1,955  3,842    15,723        19,565 

Associates and joint ventures(*3)

      

POSCO PLANTEC Co., Ltd.(*5)

 65  41  916  84,839  4,086  12,431 

SNNC

 648    61  709  49,506    3        49,509  5,651  4,739  545,001   —     —     —   

POSCO-SAMSUNG-Slovakia Processing Center

 40,512   —     —     —     —     —   

Roy Hill Holdings Pty Ltd

  —    91,188  1,300,296   —     —     —   

Others

 8,350    904  9,254  824            824  34,555  69,110  63,945   —     —   31,637 
 

 

   

 

  

 

  

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

 
 10,944    974  11,918  54,172    15,726        69,898  80,783  165,078  1,910,158  84,839  4,086  44,068 
 

 

   

 

  

 

  

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

 
     1,980,600    78,631  2,059,231  155,922    224,238    84,112    464,272  11,985,087  306,077  3,965,895  1,345,125  662,124  498,248 
 

 

   

 

  

 

  

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

 

(*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, 2020, 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.

(*5)

During the year ended December 31, 2020, the Company has lost significant influence over the investee.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

2) December 31, 2018
(b)

The related account balances of receivables and payables resulting from significant transactions between the controlling company and related companies as of December 31, 2019 and 2020 are as follows:

 

  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.

 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 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 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 
 

 

 

   

 

 

  

 

 

  

 

 

   

 

 

   

 

 

   

 

 

 
1)

December 31, 2019

(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

  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

  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 amounting to 2,950 million to Suncheon Eco Trans Co., Ltd., a subsidiary of the Company. As of December 31, 2019, corresponding amounts of those loans were recorded as allowance for doubtful accounts.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

(c) Significant transactions between the Company, excluding the controlling company, and related companies for the years ended December 31, 2016, 2017 and 2018 were as follows:

1) December 31, 2016
2)

December 31, 2020

 

   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-SEAH STEEL WIRE (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 
  

 

 

   

 

 

   

 

 

   

 

 

 

2) December 31, 2017

(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.

 6,010   11   6,021   —     81,608   394   82,002 

POSCO COATED & COLOR STEEL Co., Ltd.

  63,520   —     63,520   —     180   3,709   3,889 

POSCO ICT

  245   1   246   2,820   118,720   31,411   152,951 

eNtoB Corporation

  —     —     —     1,361   35,846   18   37,225 

POSCO CHEMICAL CO., LTD

  19,406   3,434   22,840   13,066   55,515   18,531   87,112 

POSCO ENERGY CO., LTD.

  261   122   383   —     2,995   12,508   15,503 

POSCO INTERNATIONAL Corporation

  534,531   —     534,531   2,713   —     —     2,713 

POSCO Thainox Public Company Limited

  39,920   —     39,920   —     —     —     —   

POSCO America Corporation

  19   —     19   —     —     —     —   

POSCO Asia Co., Ltd.

  239,847   898   240,745   3,958   258   —     4,216 

Qingdao Pohang Stainless Steel Co., Ltd.

  25,838   —     25,838   —     —     —     —   

POSCO MEXICO S.A. DE C.V.

  71,307   397   71,704   —     —     —     —   

POSCO Maharashtra Steel Private Limited

  173,285   2,006   175,291   —     —     —     —   

Others(*1)

  557,841   29,962   587,803   41,564   32,785   86,891   161,240 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  1,732,030   36,831   1,768,861   65,482   327,907   153,462   546,851 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Associates and joint ventures

       

SNNC

  106   228   334   33,380   —     —     33,380 

Roy Hill Holdings Pty Ltd

  —     52,076   52,076   201,924   —     —     201,924 

Others

  818   17,882   18,700   6,704   —     —     6,704 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  924   70,186   71,110   242,008   —     —     242,008 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
 1,732,954   107,017   1,839,971   307,490   327,907   153,462   788,859 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

   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-SEAH STEEL WIRE (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 
  

 

 

   

 

 

   

 

 

   

 

 

 
(*1)

As of December 31, 2020, the Company has loans amounting to 2,950 million granted to Suncheon Eco Trans Co., Ltd., a subsidiary of the Company, which has been fully impaired.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

3)
(c)

Significant transactions between the Company, excluding the controlling company, and related companies for the years ended December 31, 2018, 2019 and 2020 were as follows:

 

   Sales and others   Purchase and others 
   Sales   Others   Purchase of
material
   Others 
   (in millions of Won) 

Associates and joint ventures

        

POSCO PLANTEC Co., Ltd.

  19,394        83    24,103 

New Songdo International City Development, LLC

   30,997    53,316        97 

SNNC

   66,075    128    2,395    71,421 

Chun-cheon Energy Co., Ltd

   25,693             

Noeul Green Energy

   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     

LLP POSUK Titanium

           944     

BX STEEL POSCO Cold Rolled Sheet Co., Ltd.

           10,572     

POS-SEAH STEEL WIRE (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    19,192    50,918 
  

 

 

   

 

 

   

 

 

   

 

 

 
      849,352    176,454    523,324    173,450 
  

 

 

   

 

 

   

 

 

   

 

 

 
1)

For the year ended December 31, 2018

(d) The related account balances of significant transactions between

(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 Company, excluding the controlling company, and related companies asConsolidated Financial Statements, Continued

As of December 31, 20172019 and 2020

2)

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 

Samcheok BluePower Co.,Ltd (Formerly, 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 
  

 

 

   

 

 

   

 

 

   

 

 

 

3)

For the year ended December 31, 2020

(in millions of Won)  Sales and others   Purchase and others 
   Sales   Others   Purchase of
material
   Others 

Associates and joint ventures

        

POSCO PLANTEC Co., Ltd.

  2,558    —      5    —   

New Songdo International City Development, LLC

   125,909    26,451    —      137 

SNNC

   61,332    30    48,764    126,060 

Chuncheon Energy Co., Ltd.

   213    211    —      —   

Noeul Green Energy Co., Ltd.

   6,059    —      —      829 

CSP—Compania Siderurgica do Pecem

   47,243    11,432    165,269    14,399 

Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd

   42,189    —      37,509    151 

BX STEEL POSCO Cold Rolled Sheet Co., Ltd.

   —      —      5,780    —   

POS-SEAHSTEELWIRE(TIANJIN)CO.,Ltd

   8,757    —      —      —   

PT. Batutua Tembaga Raya

   —      1,061    28,174    —   

POSCO SeAH Steel Wire(Nantong) Co., Ltd.

   29,964    —      384    —   

DMSA/AMSA

   —      —      29,189    —   

South-East Asia Gas Pipeline Company Ltd.

   7    71,299    —      —   

POSCO MITSUBISHI CARBON TECHNOLOGY

   31,068    19,530    3,608    701 

Samcheok BluePower Co.,Ltd (Formerly, POSPower Co., Ltd.)

   220,372    —      —      —   

TK CHEMICAL CORPORATION

   104,749    —      26,863    —   

Others

   182,151    71,955    49,315    37,582 
  

 

 

   

 

 

   

 

 

   

 

 

 
  862,571    201,969    394,860    179,859 
  

 

 

   

 

 

   

 

 

   

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2018 are as follows:

1) December 31, 20172019 and 2020

 

  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 

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 

DMSA/AMSA

     69,713   4,443   74,156          

South-East Asia Gas Pipeline Company Ltd.

     229,880      229,880          

Others

  135,128   134,506   6,889   276,523   1,873   2,531   4,404 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
 1,011,832   816,304   26,653   1,854,789   7,871   54,589   62,460 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

(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, 2019 and December 31, 2020 are as follows:

1)

December 31, 2019

(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 

Samcheok BluePower Co., Ltd. (Formerly, 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)

As of December 31, 2017,2019, the Company recognizesbad-debt bad debt allowance for receivables amounting to4,217132,554 million.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

2) December 31, 2018
2)

December 31, 2020

 

  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.

 3,593      6   3,599   6,160   217   6,377 

New Songdo International City Development, LLC

  233,157         233,157          

Chun-cheon 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   13,071   224,570   7,768   5,363   13,131 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
 707,135   489,639   23,062   1,219,836   78,673   74,194   152,867 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

(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

       

New Songdo International City Development, LLC

  23,866   —     20,592   44,458   —     3   3 

Chuncheon Energy Co., Ltd.

  —     —     —     —     444   —     444 

Samcheok BluePower Co., Ltd. (Formerly, POSPower Co., Ltd.)

  92,715   —     —     92,715   —     40,536   40,536 

Nickel Mining Company SAS

  —     62,420   143   62,563   —     —     —   

CSP—Compania Siderurgica do Pecem

  19,704   —     —     19,704   —     —     —   

Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd

  6,534   —     —     6,534   1,023   150   1,173 

PT. Batutua Tembaga Raya

  —     35,355   —     35,355   —     —     —   

POSCO SeAH Steel Wire(Nantong) Co., Ltd.

  13,889   —     —     13,889   193   —     193 

South-East Asia Gas Pipeline Company Ltd.

  —     91,003   —     91,003   —     —     —   

POSCO MITSUBISHI CARBON TECHNOLOGY

  2,799   —     —     2,799   783   —     783 

TK CHEMICAL CORPORATION

  21,916   —     —     21,916   429   —     429 

Others

  78,752   166,572   111,083   356,407   7,035   11,446   18,481 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
 260,175   355,350   131,818   747,343   9,907   52,135   62,042 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

(*1)

As of December 31, 2018,2020, the Company recognizesbad-debt bad debt allowance for receivables amounting to102,694133,997 million.

(e) Significant financial transactions between the Company, excluding the controlling company, and related companies for the years ended December 31, 2017 and 2018 were as follows:

1) 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-SEAH STEEL WIRE (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 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

(*1)

During the year ended December 31, 2017, it was excluded from associates.

(*2)

During the year ended December 31, 2017, loans amounting to13,712 million have been converted to shares of DMSA/AMSA, and its amount is included in others.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

(e)

Significant financial transactions between the Company, excluding the controlling company, and related companies for the years ended December 31, 2019 and 2020 were as follows:

1)

December 31, 2019

(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 

KRAKATAU POS-CHEM DONG-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 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

(*3)1)

During the year ended December 31, 2017, it was newly classified2019, loans amounting to associates and joint ventures.23,682 million have been converted to shares of DMSA/AMSA, which is presented in others.

(*4)2)

Includes adjustments of foreign currency translation differences and others.

(*3)

During the year ended December 31, 2019, it was newly classified to associates.

2)

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 20182019 and 2020

   Beginning   Lend   Collect  Others(*2)  Ending 
   (in millions of Won) 

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 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

 

 

2)

December 31, 2020

(in millions of Won)  Beginning   Lend   Collect  Others(*2)  Ending 

Associates and joint ventures

        

UITrans LRT Co., Ltd.

  10,579    12,873    —     —     23,452 

DMSA/AMSA(*1)

   57,999    —      —     (57,999  —   

South-East Asia Gas Pipeline Company Ltd.

   147,367    —      (47,539  (8,825  91,003 

PT. Batutua Tembaga Raya

   36,291    —      —     (936  35,355 

PT. Tanggamus Electric Power

   4,580    —      —     (276  4,304 

PT. Wampu Electric Power

   5,519    —      —     (333  5,186 

PT. POSMI Steel Indonesia

   2,316    —      —     (140  2,176 

Nickel Mining Company SAS

   60,516    —      —     1,904   62,420 

KRAKATAU POS-CHEM DONG-SUH CHEMICAL

   6,947    —      (1,239  (268  5,440 

POS-SeaAH Steel Wire (Thailand) Co., Ltd.

   6,947    —      —     (419  6,528 

AMCI (WA) PTY LTD

   78,553    5,550    —     (812  83,291 

POS-AUSTEM YANTAI AUTOMOTIVE CO.,LTD

   5,789    —      —     (349  5,440 

POS-AUSTEM WUHAN AUTOMOTIVE CO.,LTD

   9,262    —      —     (558  8,704 

Hyo-chun Co., Ltd.

   2,382    —      —     —     2,382 

Chun-cheon Energy Co., Ltd.

   8,234    —      (8,234  —     —   

POS-AUSTEM Suzhou Automotive Co., Ltd

   5,789    11,805    —     (1,274  16,320 

CAML RESOURCES PTY LTD

   —      3,219    —     93   3,312 

Shinahn wind power generation

   —      37    —     —     37 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 
  449,070    33,484    (57,012  (70,192  355,350 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

��

(*1)

During the year ended December 31, 2018,2020, loans amounting to17,55960,278 million have been converted to shares of DMSA/AMSA, and its amountwhich is includedpresented in others.

(*2)

Includes adjustments of foreign currency translation differences and others.

(f)

(f)

For the years ended December 31, 2016, 2017 and 2018, 2019 and 2020, details of compensation to key management officers were as follows:

 

  2016   2017   2018 
  (in millions of Won) 
(in millions of Won)  2018   2019   2020 

Short-term benefits

  90,916    112,688    115,618   115,618    119,658    109,546 

Long-term benefits

   17,905    8,632    13,400    13,400    13,562    15,288 

Retirement benefits

   17,870    20,422    21,658    21,658    21,231    16,238 
  

 

   

 

   

 

   

 

   

 

   

 

 
  126,691    141,742    150,676   150,676    154,451    141,072 
  

 

   

 

   

 

   

 

   

 

   

 

 

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, 2019 and 2020

 

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).

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

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.

(b)

(b)

Details of guarantees

Contingent liabilities on outstanding guarantees and others provided by the Company as of December 31, 20182020 are as follows.

 

 

Guarantee limit

 Guarantee amount 
(in millions of Won) Guarantee limit Guarantee amount 

Guarantor

 

Guarantee

beneficiary

 

Financial institution

 

Foreign currency

 Won
equivalent
 Foreign
currency
 Won
equivalent
  

Guarantee beneficiary

 

Financial institution

 Foreign currency Won
equivalent
 Foreign
currency
 Won
equivalent
 
 (in millions of Won) 

[The Company]

             

POSCO

 POSCO Asia Co., Ltd. BOC and others USD  100,000,000   111,810   100,000,000   111,810  POSCO Asia Co., Ltd. Credit Agricole and others USD100,000,000   108,800   100,000,000   108,800 
 POSCO ASSAN TST STEEL INDUSTRY SMBC and others USD  146,527,500   163,832   131,874,750   147,449  POSCO-VIETNAM Co., Ltd. SMBC and others USD156,000,000   169,728   156,000,000   169,728 
 POSCO COATED STEEL (THAILAND) CO., LTD. The Great & CO Co., Ltd. (SPC) THB  5,501,000,000   188,959   5,501,000,000   188,959  POSCO MEXICO S.A. DE C.V. BOA and others USD120,000,000   130,560   120,000,000   130,560 
 POSCO Maharashtra Steel Private Limited Export-Import Bank of Korea and others USD  506,853,000   566,712   168,397,800   188,285  POSCO COATED STEEL (THAILAND) CO., LTD. SMBC and others THB5,501,000,000   199,908   5,501,000,000   199,908 
 POSCO MEXICO S.A. DE C.V. BOA and others USD  160,000,000   178,896   160,000,000   178,896  POSCO Maharashtra Steel Private Limited SMBC and others USD139,784,000   152,085   139,784,000   152,085 
 POSCO SS VINA Co., Ltd. Export-Import Bank of Korea and others USD  354,351,050   396,200   274,570,077   306,996  PT. KRAKATAU POSCO Export-Import Bank of Korea and others USD1,350,300,000   1,469,126   783,740,291   852,710 
 POSCO-VIETNAM Co., Ltd. SMBC and others USD  156,000,000   174,424   156,000,000   174,424  POSCO ASSAN TST STEEL INDUSTRY SOCIETE GENERALE and others USD146,527,500   159,422   131,874,750   143,479 
 PT. KRAKATAU POSCO Export-Import Bank of Korea and others USD  1,350,300,000   1,509,770   1,097,236,405   1,226,821 

POSCO DAEWOO Corporation

 Daewoo Global Development. Pte., Ltd Export-Import Bank of Korea and others USD  196,017,000   219,167   196,017,000   219,167 
 Daewoo Power PNG Ltd. Export-Import Bank of Korea USD  47,600,000   53,222   47,600,000   53,222 
POSCO ASSAN TST STEEL INDUSTRY ING and others USD  14,652,750   16,383   14,652,750   16,383 
POSCO DAEWOO INDIA PVT., LTD. Shinhan Bank and others USD  149,400,000   167,044   77,990,903   87,203 
PT. Bio Inti Agrindo Export-Import Bank of Korea and others USD  125,125,000   139,902   125,125,000   139,902 
  KEB Hana Bank IDR  150,000,000,000   11,520   150,000,000,000   11,520 

POSCO INTERNATIONAL Corporation

 POSCO INTERNATIONAL GLOBAL DEVELOPMENT PTE. LTD. (Formerly, Daewoo Global Development Pte., Ltd.) Export-Import Bank of Korea and others USD186,625,000   203,048   178,750,000   194,480 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

(in millions of Won) Guarantee limit Guarantee amount 

Guarantor

 

Guarantee beneficiary

 

Financial institution

 Foreign currency Won
equivalent
 Foreign
currency
 Won
equivalent
 
 POSCO INTERNATIONAL POWER (PNGLAE) LIMITED KDB bank USD43,117,404   46,912   33,167,234   36,086 
 

Guarantee limit

 Guarantee amount  GOLDEN LACE POSCO INTERNATIONAL CO., LTD. Shinhan Bank and others USD11,000,000   11,968   11,000,000   11,968 

Guarantor

 

Guarantee

beneficiary

 

Financial institution

 

Foreign currency

 Won
equivalent
 Foreign
currency
 Won
equivalent
 
 PT. Bio Inti Agrindo Export-Import Bank of Korea and others USD148,476,103   161,542   146,341,912   159,220 
 POSCO ASSAN TST STEEL INDUSTRY ING USD14,652,750   15,942   14,652,750   15,942 
 POSCO INTERNATIONAL AMERICA Corp.     
 POSCO INTERNATIONAL SINGAPORE Pte. Ltd..     
 POSCO INTERNATIONAL MEXICO S.A. de C.V.     
 POSCO INTERNATIONAL Japan Corp. Bank Mendes Gans USD50,000,000   54,400   29,545,000   32,145 
 (in millions of Won)  POSCO INTERNATIONAL Malaysia SDN BHD     
 Golden Lace DAEWOO Company Limited Shinhan Bank USD  9,000,000   10,063   6,000,000   6,708  POSCO INTERNATIONAL Deutschland GmbH     
POSCO DAEWOO CHINA CO., LTD Mizuho USD  8,000,000   8,945   7,290,000   8,151  POSCO INTERNATIONAL Italia S.R.L.     
Songdo Posco family Housing SHINYOUNG SECURITIES CO., LTD. KRW  10,000   10,000        GRAIN TERMINAL HOLDING PTE. LTD. Export-Import Bank of Korea and others USD27,000,000   29,376   27,000,000   29,376 

POSCO ENGINEERING & CONSTRUCTION CO., LTD.

 POSCO E&C Vietnam Co., Ltd. Export-Import Bank of Korea and others USD  47,000,000   52,551   47,000,000   52,551  POSCO E&C Vietnam Co., Ltd. POSCO Asia Co., Ltd. and others USD42,000,000   45,696   42,000,000   45,696 
 HONG KONG POSCO E&C (CHINA) INVESTMENT Co., Ltd. Woori bank and others USD  148,000,000   165,479   142,000,000   158,770  Songdo Posco family Housing Shinyoung securities KRW20,000   20,000   20,000   20,000 
 POSCO Engineering and Construction India Private Limited Woori bank USD  2,100,000   2,348   2,100,000   2,348  JB CLARK HILLS 

KOREA INVESTMENT&

SECURITIES Co., Ltd.

 KRW60,000   60,000   60,000   60,000 
  KEB Hana Bank INR  104,000,000   1,663   9,000,000   144  PT.POSCO E&C INDONESIA POSCO Asia Co., Ltd. and others USD25,900,000   28,179   25,900,000   28,179 
 PT. POSCO E&C INDONESIA POSCO Asia Co., Ltd. and others USD  10,900,000   12,187   10,900,000   12,187 
Daewoo Global Development. Pte., Ltd SMBC and others USD  163,633,000   182,958   163,633,000   182,958 
Songdo Posco family Housing SHINYOUNG SECURITIES CO., LTD. KRW  10,000   10,000       

POSCO ICT

 PT.POSCO ICT INDONESIA POSCO Asia Co., Ltd. USD  1,500,000   1,677   1,500,000   1,677  PT.POSCO ICT INDONESIA POSCO Asia Co., Ltd. and others USD1,500,000   1,632   900,000   979 

POSCO CHEMTECH

 PT.Krakatau Posco Chemtech Calcination POSCO Asia Co., Ltd. USD  15,200,000   16,995   14,400,000   16,101 

POSCO CHEMICAL CO., LTD

 PT.Krakatau Posco Chemical Calcination
(formerly, PT.Krakatau Posco Chemtech Calcination)
 POSCO Asia Co., Ltd. and others USD15,200,000   16,538   10,000,000   10,880 

POSCO COATED & COLOR STEEL Co., Ltd.

 Myanmar POSCO C&C Company, Limited. POSCO Asia Co., Ltd. USD  13,986,947   15,639   13,986,947   15,639  Myanmar POSCO C&C Company, Limited. POSCO Asia Co., Ltd. USD13,986,947   15,218   13,986,947   15,218 

POSCO ENERGY CO., LTD.

 PT. KRAKATAU POSCO ENERGY Export-Import Bank of Korea and others USD  193,900,000   216,800   121,231,918   135,549 

POSCO ENERGY CO., LTD

 PT. KRAKATAU POSCO ENERGY POSCO Asia Co., Ltd. and others USD88,903,407   96,727   88,903,407   96,727 

POSCO Asia Co., Ltd.

 POSCO SINGAPORE LNG TRADING PTE. LTD. SMBC USD  40,000,000   44,724   40,000,000   44,724  POSCO America Corporation SMBC USD70,000,000   76,160   70,000,000   76,160 

[Associates and joint ventures]

       

POSCO

 CSP — Compania Siderurgica do Pecem Export-Import Bank of Korea and others USD  420,000,000   469,602   392,956,955   439,365 
  BNDES BRL  464,060,000   133,686   462,554,370   133,253 

POSCO America Corporation

 POSCO AMERICA COMERCIALIZADORA
S DE RL DE CV
 Bank of America N.A. USD37,400,000   40,691   37,400,000   40,691 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

 

Guarantee limit

 Guarantee amount 
(in millions of Won) Guarantee limit Guarantee amount 

Guarantor

 

Guarantee

beneficiary

 

Financial institution

 

Foreign currency

 Won
equivalent
 Foreign
currency
 Won
equivalent
  

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 USD420,000,000   456,961   370,715,701   403,340 
 (in millions of Won)   BNDES BRL464,060,000   97,207   464,060,000   97,207 
 LLP POSUK Titanium SMBC USD  15,000,000   16,772   15,000,000   16,772  LLP POSUK Titanium SMBC USD13,500,000   14,688   13,500,000   14,688 
 Nickel Mining Company SAS SMBC EUR  46,000,000   58,841   46,000,000   58,841  Nickel Mining Company SAS SMBC EUR46,000,000   61,559   46,000,000   61,559 

POSCO DAEWOO Corporation

 GLOBAL KOMSCO Daewoo LLC ICBC USD  8,225,000   9,196   8,225,000   9,196 

POSCO INTERNATIONAL Corporation

 GLOBAL KOMSCO Daewoo LLC Hana Bank USD8,225,000   8,949   7,700,000   8,378 

POSCO ENGINEERING & CONSTRUCTION CO., LTD.

 New Songdo International City Development, LLC Others KRW  440,000   440,000   432,000   432,000  New Songdo International City Development, LLC Others KRW686,000   686,000   637,200   637,200 
 POHANG E&E Coi., LTD Heungkuk Life Insurance Co., Ltd. KRW71,930   71,930   59,425   59,425 
 UITrans LRT Co., Ltd. Kookmin Bank and others KRW125,845   125,845   98,284   98,284 
 RPSD Plan-up Sinsajeilcha Co., Ltd KRW45,000   45,000   37,000   37,000 
 Metropolitan Outer Ring Expressway Co., ltd Woori Bank and others KRW275,989   275,989   14,486   14,486 
 Pureun Tongyeong Enviro Co., Ltd. KDB Bank and others KRW22,714   22,714   15,062   15,062 
 UITrans LRT Co., Ltd. Kookmin Bank and others KRW  20,740   20,740   3,766   3,766  Pure Gimpo.Co.,Ltd KDB Bank and others KRW44,740   44,740   31,036   31,036 
 Chun-cheon Energy Co., Ltd Kookmin Bank and others KRW  11,600   11,600   941   941  Clean Iksan Co.,Ltd SAMSUNG FIRE & MARINE
INSURANCE CO.,LTD and others
 KRW44,054   44,054   29,730   29,730 
 Pohang E&E Co., Ltd Heungkuk Life Insurance Co., Ltd. KRW  6,500   6,500        NEXTRAIN Co., Ltd Kookmin Bank and others KRW634,752   634,752   9,600   9,600 
 JB CLARK HILLS Korea Investment & Securities Co., Ltd. KRW  40,000   40,000   30,000   30,000  Chun-cheon Energy Co., Ltd. Kookmin Bank and others KRW149,200   149,200   145,300   145,300 

POSCO ICT

 Incheon-Gimpo Expressway Co, Ltd. KDB Bank KRW  100,000   100,000   100,000   100,000  UITrans LRT Co., Ltd. Kookmin Bank KRW50,249   50,249   39,820   39,820 
 UITrans LRT Co., Ltd. Kookmin Bank KRW  76,000   76,000   76,000   76,000  Hyochun Co., Ltd. Kyobo Securities KRW10,325   10,325   10,325   10,325 

POSCO CHEMTECH

 KRAKATAUPOS-CHEMDONG-SUH CHEMICAL KEB Hana Bank USD  1,140,000   1,274   791,667   885 

POSCO(Suzhou) Automotive Processing Center Co., Ltd.

 POS-InfraAuto (Suzhou) Co., Ltd KDB Bank USD  780,000   872   780,000   872 
 Shinahn wind power generation NH INVESTMENT & SECURITIES
CO.,LTD. and others
 KRW17,860   17,860   17,124   17,124 
 Metropolitan Outer Ring Expressway Co., Ltd Woori Bank KRW24,920   24,920   1,308   1,308 
 Western Inland highway CO.,LTD. Kookmin Bank KRW47,348   47,348   —     —   

POSCO CHEMICAL CO., LTD

 KRAKATAU POS-CHEM DONG-SUH CHEMICAL Hana Bank USD1,140,000   1,240   31,667   34 

[Others]

             

POSCO DAEWOO Corporation

 Ambatovy Project Investments Ltd. and others Export-Import Bank of Korea USD  87,272,727   97,580   12,030,434   13,451 

POSCO INTERNATIONAL Corporation

 SHERRITT INTERNATIONAL CORP. Export-Import Bank of Korea USD21,818,182   23,738   3,019,552   3,285 

POSCO ENGINEERING & CONSTRUCTION CO., LTD.

 Ecocity CO., LTD and others Others KRW  1,524,314   1,524,314   545,893   545,893  Ecocity CO.,LTD and others Kookmin Bank and others KRW4,236,319   4,236,319   2,284,596   2,284,596 

POSCO ICT

 SMS Energy and others KEB Hana Bank and others KRW  78,791   78,791   60,519   60,519  BLT Enterprise and others Hana Bank and others KRW192,847   192,847   116,106   116,106 

POSCO AUSTRALIA PTY LTD

 Department of Trade and Investment (NSW Government) and others Woori Bank and others AUD11,637,271   9,735   11,637,271   9,735 

PT. Bio lnti Agrindo

 KSU Mandob Bank Muamalat IDR80,000,000,000   6,192   80,000,000,000   6,192 

POSCO Maharashtra Steel Private Limited

 MAHARASHTRA STATE ELECTRICITY and others HSBC and others INR188,156,806   2,796   188,156,806   2,796 
 Hyochun CO., LTD KYOBO SECURITIES CO., LTD. KRW  39,575   39,575   39,575   39,575    

 

  

 

  

 

  

 

 
 BTL Enterprise and others Kyobo Life Insurance Co., Ltd and others KRW  1,165,352   1,165,352   1,165,352   1,165,352    USD3,253,056,293  3,539,326  2,555,913,211  2,780,834 

POSCO AUSTRALIA PTY LTD

 Department of Trade and Investment (NSW Government) and others Woori bank and others AUD  26,147,711   20,599   26,147,711   20,599 
   

 

 

 

  

 

  

 

  

 

    KRW6,760,092  6,760,092  3,626,402  3,626,402 
   IDR 80,000,000,000  6,192  80,000,000,000  6,192 
   INR188,156,806  2,796  188,156,806  2,796 
   THB5,501,000,000  199,908  5,501,000,000  199,908 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

      

Guarantee limit

  Guarantee amount 

Guarantor

 

Guarantee

beneficiary

 

Financial institution

 

Foreign currency

  Won
equivalent
  Foreign
currency
  Won
equivalent
 
  (in millions of Won) 
   USD  4,492,463,974   5,023,024   3,549,290,606   3,968,462 
   KRW  3,522,872   3,522,872   2,454,046   2,454,046 
   IDR  150,000,000,000   11,520   150,000,000,000   11,520 
   INR  104,000,000   1,663   9,000,000   144 
   THB  5,501,000,000   188,959   5,501,000,000   188,959 
   EUR  46,000,000   58,841   46,000,000   58,841 
   AUD  26,147,711   20,599   26,147,711   20,599 
   BRL  464,060,000   133,686   462,554,370   133,253 
   

 

 

 

 

  

 

 

  

 

 

  

 

 

 
(in millions of Won)     Guarantee limit  Guarantee amount 

Guarantor

 

Guarantee beneficiary

 

Financial institution

 Foreign currency  Won
equivalent
  Foreign
currency
  Won
equivalent
 
   EUR46,000,000   61,559   46,000,000   61,559 
   AUD11,637,271   9,735   11,637,271   9,735 
   BRL464,060,000   97,207   464,060,000   97,207 
   

 

 

  

 

 

  

 

 

  

 

 

 

(c) POSCO ENGINEERING & CONSTRUCTION CO., LTD. has provided the completion guarantees for Samsung C&T Corporation amounting to395,162 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 to179,619 million as of December 31, 2018.

(c)

(d) Other commitments

Details of other commitments of the Company as of December 31, 20182020 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, 2018, 1002020, 57 million tons of iron ore and 1410 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 entered into consecutive voyage charter (CVC) contracthas long-term service contracts for the transportation of raw materials. As of December 31, 2018,2020, there are 38 vessels under contractcontracts, and the average remaining contract period is about 109 years. During the year ended December 31, 2018, the freight expenses related to the CVC contract is USD 668 million.

 

As of December 31, 2018,2020, POSCO entered into a commitment with KOREA ENERGY AGENCY for long- termlong-term foreign currency borrowings, which are limited up to the amount of USD 6.494.12 million. The borrowing is related to the exploration of gas hydrates in Western Fergana-Chinabad. The repayment of the borrowings depends on the success of the projects. POSCO is not liable for the repayment ofin full or in part of the amount borrowed if the respective projects fail. POSCO has agreed to pay a certain portion of its profits under certain conditions, as defined by the borrowing agreements. As of December 31, 2018,2020, the ending balance of the borrowing amounts to USD 1.02 million.

 

POSCO has provided a supplemental funding agreement, as the largest shareholder, as requested from the creditors, including Norddeutsche Landesbank, for seamless funding to POSCO ENERGY Co., Ltd.LTD., a subsidiary of the Company, under construction of new power plant.

 

POSCO provides a 9.8 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 INTERNATIONAL CorporationPOSCO INTERNATIONAL Corporation operates a ship-to-ship business in which ships are chartered from ship’s owners and leased out to shippers. The Company has entered into a ship purchase agreement with the ship owners and the shippers, which obliges the shippers to pay the agreed amount either at the end of the contract terms or at the agreed termination and to take over the ownership of

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2019 and 2020

Description

the vessel from the ship owners. Only if the shipper fails to fulfill its obligation including payment obligation for the purchase of the vessel, the Company is obliged to take over the ship based on the condition that the shipper’s contractual obligations and rights are transferred to the Company. As of December 30, 2021, the amount which is exposed to the ship purchase agreements entered into is USD 208 million.

The Company invested in the Ambatovy Nickel Project (DMSA/AMSA) in Madagascar through the Korea Ambatovy Consortium (KAC) formed with Korea Mineral Resources Corporation (KORES) and STX Corporation. SHERRITT INTERNATIONAL CORP., the operator, transferred a portion of the project’s interests to Sumitomo and AHL (Ambatovy Holdings Limited) in November 2017, and transferred the remaining interests of the project to Sumitomo and AHL2 (Ambatovy Holdins II Limited) in August 2020. KAC has the rights and obligations to the 15.5% stake held by AHL and AHL2.

POSCO ENGINEERING & CONSTRUCTION CO., LTD.

As of December 31, 2020, POSCO ENGINEERING & CONSTRUCTION CO., LTD. has foreign currency guarantee of up to USD 2,495 million and uses USD 830 million with Woori Bank and others.

As of December 31, 2020, the out standing balance of loans related to major liability compliance agreements is 165 billion from development of Pangyo the First Park Project. If the responsibility is not fulfilled, the obligation is to compensate for damages of principal and interest. In addition, according to the project agreements related to redevelopment and reconstruction projects, the Company has an agreement to compensate the Korea Housing and Urban Guarantee Corporation for damages of principal and interest amounting to 1,249,107 million(limited to 2,396,320 million). Futhermore, the Company provides agreements of construction completion (compensation for non-performance) in connection with a number of implementation and union business projects.

POSCO ICT

As of December 31, 2020, the company is provided with a guarantee of 134,170 million and 8,324 million and 305 million, respectively, from the Software credit union and the Seoul guarantee insurance company and Engineering credit union.

In connection with 5 projects, including the construction of the Hanam Smart Building, the company is responsible for fulfilling its obligations. If the responsibility is not fulfilled, the Company is liable for damages of principal and interest of lenders (financial institutions that lend to the developer). Outstanding loans related to the liability compliance agreement are worth 298.4 billion (loan ceiling 352.9 billion) as of December 31, 2020. The company has the right to request the trustee to sell the trust property in the event of a certain reason in the trust contract, such as repaying the liability to the lenders.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

Company

(d)

Description

POSCO 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.

POSCO provides a 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. On November 2018, creditors sued the company for subrogation based on a supplemental funding agreement. POSCO recognized the provision based on the estimate of the amount and the possibility of any outflows of resources due to the litigation.

POSCO ENGINEERING & CONSTRUCTION CO., LTD.

As of December 31, 2018, POSCO ENGINEERING & CONSTRUCTION CO., LTD. has foreign currency guarantee of up to USD 2,517 million and uses USD 763 million with Woori Bank and others.

POSCO ICT

As of December 31, 2018, in relation to contract enforcement, POSCO ICT was provided with131,117 million,8,939 million and305 million guaranties from Korea Software Financial Cooperative, Seoul Guarantee Insurance and Engineering Guarantee Insurance, respectively.

(e) Litigation in progress

1)

Request for Arbitration of NSC Investment and TGC

In March 2019, NSC Investment and TGC(“Applicant”), a former joint venture partner of POSCO ENGINEERING & CONSTRUCTION CO., LTD., in connection with the Songdo International City Development Project in Incheon, filed an arbitration (mediation price: approximately USD 2 billion) for alleged violations of contract by POSCO ENGINEERING & CONSTRUCTION CO., LTD. As of December 31, 2020, the Company has determined that the applicant’s claim is without merit, and did not recognize a provision.

2)

Other litigations

As of December 31, 2018,2020, 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

 Won
equivalent
 

Description

 Legal
actions
 Claim amount Won
equivalent
 

Descrioption

 (in millions of Won, in thousands of foreign currencies)

POSCO

  27  KRW  75,218   75,218  Lawsuit on claim for employee right and others(*1)  30   KRW   48,719   48,719  Lawsuit on claim for employee right and others(*1)

POSCO DAEWOO Corporation

  1  CAD  79,000   64,808  Lawsuit on claim for damages
  3  INR  4,518,694   72,254  Lawsuit on claim for payment on guarantees and others(*1) 1  BRL  72,774  15,244  Lawsuit on claim for payment for goods
  10  KRW  20,049   20,049  Litigation for confirmation of deposit bond and others 1  CAD  79,000  67,411  Lawsuit on claim for damages
  5  USD  28,763   32,160  Lawsuit on claim for damages and others 2  INR  4,469,396  66,415  Lawsuit on claim for payment on guarantees and others(*1)
  1  PKR  124,775   1,003  Lawsuit on claim for damages 5  KRW  25,092  25,092  Litigation for confirmation of deposit bond and others

POSCO ENGINEERING & CONSTRUCTION., LTD.

 120  KRW 442,812  442,812  Lawsuit on claim for damages and others(*1)
 4  USD  22,966  24,987  Lawsuit on claim for damages and others
 1  PKR  124,775  846  Lawsuit on claim for damages

POSCO ENGINEERING & CONSTRUCTION CO., LTD.

 105  KRW  470,021  470,021  Lawsuit on claim for damages and others(*1)

POSCO ICT

  1  BRL  10,182   2,933  Lawsuit on revocation of claim for damage 2  BRL  7,965  1,668  Lawsuit on claim for damage(*1)
  11  KRW  6,452   6,452  Lawsuit on claim for damages and others
  1  USD  1,881   2,103  Lawsuit on claim for damages 7  KRW  4,938  4,938  Lawsuit on claim for damages and others(*1)

POSCO A&C

  8  KRW  2,752   2,752  Lawsuit on claim for payment on construction and others 8  KRW  8,668  8,668  Lawsuit on claim for payment on construction and others(*1)

POSCO ENERGY CO., LTD.

  3  KRW  3,039   3,039  Lawsuit on claim for damages and others 4  KRW  11,940  11,940  Lawsuit on claim for damages and others
 2  USD  400,000  435,200  Lawsuit on claim for damages

POSCO E&C CHINA CO., LTD.

  3  CNY  44,446   7,234  Lawsuit over contract dispute and others 4  CNY  43,163  7,206  Lawsuit over contract dispute and others(*1)

POSCO COATED & COLOR STEEL Co., Ltd.

 1  KRW 1,400  1,400  Lawsuit on claim for payment

POSCO O&M Co., Ltd.

 2  KRW  1,080  1,080  Lawsuit on claim for damages

POSCO ENGINEERING (THAILAND) CO., LTD.

 2  THB 509,191  17,491  Lawsuit on claim for payment on construction and others 2  THB  187,648  6,819  Lawsuit on claim for payment on construction and others

PT. KRAKATAU POSCO

  1  IDR  211,407,872   16,236  Lawsuit on claim for payment on construction

POSCO E&C Vietnam Co., Ltd.

  1  USD  3,894   4,354  Lawsuit on claim for payment on construction

POSCO-China Qingdao Processing Center Co., Ltd.

 2  CNY 6,774  1,103  Lawsuit over contract dispute and others

POSCO-Malaysia SDN. BHD.

  1  MYR       Lawsuit on claim for infringement of right
 1  USD  221  241  Lawsuit on claim for payment on construction

eNtoB Corporation

 2  KRW  31  31  Lawsuit on claim for damages

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

(in millions of Won, in thousands of
foreign currencies)
         

Company

 Legal
actions
 

Claim amount

 Won
equivalent
 

Description

 Legal
actions
 Claim amount Won
equivalent
 

Descrioption

POSCO E&C Vietnam Co., Ltd.

 1  USD  211  229  Lawsuit on claim for payment on construction
 (in millions of Won, in thousands of foreign currencies) 1  VND  90,158,406  4,246  Lawsuit on claim for payment on construction

Pos-Sea Pte Ltd

 1  USD 12,051  13,474  Lawsuit over contract dispute 2  USD  15,900  17,299  Lawsuit over contract dispute

POSCO INDIA HOLDINGS PRIVATE LIMITED

 1  INR 220,000  3,518  Lawsuit over contract dispute

POSCO TNPC Otomotiv Celik San. Ve Tic. A.S

 8  TRY 102  22  Lawsuit over industrial accidents and others 6  TRY  307  45  Lawsuit over industrial accidents and others(*1)

POSCO India Steel Distribution Center Private Ltd.

 1  INR 223,795  3,578  Lawsuit on claim for tax restitution 1  INR  223,795  3,326  Lawsuit on claim for tax restitution

POSCO(Dalian) IT Center Development Co., Ltd.

 1  CNY 4,240  690  Lawsuit over contract dispute

Brazil Sao Paulo Steel Processing Center

 3  BRL 4,671  1,346  Lawsuit on claim for labor and others 4  BRL  3,844  805  Lawsuit on claim for labor and others

POSCO ENGINEERING & CONSTRUCTION DO BRAZIL LTDA.

 148  BRL 156,011  44,944  Lawsuit on claim for payment on construction and others 85  BRL  147,667  30,932  Lawsuit on claim for payment on construction and others(*1)

POSCO ASSAN TST STEEL INDUSTRY

 1  TRY 4,870  1,027  Lawsuit on compensation 1  USD  325  353  Lawsuit on compensation(*1)

POSCO TMC INDIA PRIVATE LIMITED

 2  INR   —     —    Lawsuit on claim for employee laid-off

POSCO America Corporation

 1  USD   —     —    Lawsuit on claim for labor

POSCO Center Beijing

 1  CNY  741  124  Lawsuit on claim for Deposit Return

POSCO INDIA PROCESSING

 1  INR  54,420  809  Lawsuit on claim for damages

POSCO-India Pune Processing

 1  INR  2,197,800  32,659  Lawsuit over contract dispute

POSCO CHEMCAL CO., LTD

 1  KRW  15,383  15,383  Calculation of stock purchase value

POSCO M-TECH

 2  KRW  101  101  Lawsuit on claim for damages

POSCO Engineering and Construction India Private Limited

 2  INR  522,800  7,769  Lawsuit on claim for payment

POSCO INTERNATIONAL AMERICA Corp.

 2  USD  12,106  13,171  Lawsuit on claim for damages

HONG KONG POSCO E&C (CHINA) INVESTMENT Co., Ltd.

 1  KRW 3,305  3,305  Lawsuit on claim for payment 1  KRW  3,305  3,305  Lawsuit on claim for payment

POSCO Thainox Public Company Limited

 1  KRW  3,506  127  Lawsuit on invalidation of a check

POSCO SPS CORPORATION

 1  KRW  3,229  3,229  Lawsuit on claim for damages

 

(*1)

The Company made a reliable estimate in 12285 lawsuits by considering the possibility and amount of expected outflow of resources and recognized50,88859,211 million as provision for legal contingencies and claims.

For all the other lawsuits and claims, management does not believe the Company has any present obligations and therefore, the Company has not recognized any provisions as of December 31, 20182020 for the matters.

39.

Additional Information of Cash Flow Statements

(a) Changes in operating assets and liabilities for the years ended December 31, 2016, 2017 and 2018 were as follows:

   IFRS 
   2016  2017  2018 
   (in millions of Won) 

Trade accounts and notes receivable

   273,419   63,075   17,806 

Other receivables

   191,591   113,740   (20,786

Inventories

   (889,998  (1,435,170  (1,451,009

Other current assets

   (287,377  110,688   1,118 

Othernon-current assets

   33,584   12,455   5,974 

Trade accounts and notes payable

   769,337   (607,999  379,742 

Other payables

   (179,174  (26,922  (111,893

Other current liabilities

   2,490   338,273   (199,981

Provisions

   (124,884  (145,763  (116,790

Payments of severance benefits

   (278,278  (185,220  (189,165

Plan assets

   (138,854  3,815   (245,214

Othernon-current liabilities

   223,574   (82,605  (175,528
  

 

 

  

 

 

  

 

 

 
   (404,570)   (1,841,633  (2,105,726
  

 

 

  

 

 

  

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

(b) Changes in liabilities arising from financial activities for the year ended December 31, 2017 and 2018 were as follows:

1) December 31, 2017

   Liabilities  Derivatives
that 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 interest

         67,096       

Amortization of discount on debentures issued

      5,472          
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Ending

   8,174,818   12,888,839   7,213   93,018   119,320 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

2) December 31, 2018

   Liabilities  Derivatives
that hedge
borrowings
 
   Short-term
borrowings
  Long-term
borrowings
  Dividend
payable
  Finance
lease
liabilities
 
   (in millions of Won) 

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 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

40.

Operating Segments and Geographic Information

(a) The Company’s operating businesses are organized based on the nature of markets and customers. The Company has four reportable operating segments—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, 2016, 20172019 and 20182020

 

 

 

(e)

Other contingent circumstances

(b) Information about reportable segmentsOther major contingencies for the Company as of and for the years ended December 31, 2016, 2017 and 2018 were2020 are as follows:

1) As of and for the year ended December 31, 2016

Company

Description

POSCO

POSCO has provided 3 blank checks to Korea Energy Agency as collateral for long-term foreign currency borrowings.

POSCO INTERNATIONAL Corporation

As of December 31, 2020, POSCO INTERNATIONAL Corporation has provided 30 blank promissory notes and 17 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, 2020, POSCO ENGINEERING & CONSTRUCTION CO., LTD. has provided 32 blank checks and 4 blank promissory notes as collateral for agreements and outstanding loans, and has provided joint guarantee of 6,066,568 million for guarantee that partners had issued from Korea Housing & Urban Guarantee Corporation and others.

POSCO ICT

As of December 31, 2020, POSCO ICT has provided 6 blank checks to financial institutions as collateral for the guarantee on performance for contracts and others.

 

   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 joint ventures

   (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 subsidiaries, associates and joint ventures

   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 

2) As of and for the year ended December 31, 2017
39.

Additional Information of Statement of Cash Flows

 

   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 joint ventures

   8,352      (8,555  (1,518  (1,721

Income tax expense

   (977,853  (109,710  (109,961  (77,172  (1,274,696

Segment profit

   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 subsidiaries, associates and joint ventures

   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 
(a)

Changes in operating assets and liabilities for the years ended December 31, 2018, 2019 and 2020 were as follows:

(in millions of Won)  2018  2019  2020 

Trade accounts and notes receivable

  17,806   286,121   818,857 

Other receivables

   (20,786  (163,234  210,630 

Inventories

   (1,451,009  1,136,819   1,443,931 

Other current assets

   1,118   42,337   51,750 

Other non-current assets

   5,974   (30,010  (92,068

Trade accounts and notes payable

   379,742   (732,741  594,414 

Other payables

   (111,893  2,762   (78,997

Other current liabilities

   (197,154  (173,762  101,027 

Provisions

   (119,617  (75,514  (81,988

Payments of severance benefits

   (189,165  (152,275  (225,293

Plan assets

   (245,214  (217,953  (94,121

Other non-current liabilities

   (175,528  (36,595  207,766 
  

 

 

  

 

 

  

 

 

 
  (2,105,726  (114,045)   2,855,908 
  

 

 

  

 

 

  

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

3) As of and for the year ended December 31, 2018
(b)

Changes in liabilities arising from financial activities for the years ended December 31, 2019 and 2020 were as follows:

 

   Steel  Trading  Construction  Others  Total 
   (in millions of Won) 

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

Share of profit or loss of investment in associates and joint ventures

   (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

   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 

(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)

December 31, 2019

 

   2016  2017  2018 
   (in millions of Won) 

Total revenue for reportable segments

  81,885,203   95,059,704   102,258,628 

Elimination of inter-segment revenue

   (28,801,690  (34,404,604  (37,280,851

Basis difference(*2)

   (143,742  (468,233  176,859 
  

 

 

  

 

 

  

 

 

 
  52,939,771   60,186,867   65,154,636 
  

 

 

  

 

 

  

 

 

 

2) Profit

(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   83,523 

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

  —     —     —     —     (75,656

Other changes:

     

Decrease in retained earnings

  —     —     889,900   —     —   

Decrease in non-controlling interest

  —     —     67,569   —     —   

Interest expenses

  —     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   15,524 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

   2016  2017  2018 
   (in millions of Won) 

Total profit (loss) for reportable segments

  135,026   3,160,761   1,331,419 

Goodwill and corporate FV adjustments

   (123,110  (84,370  (77,756

Elimination of inter-segment profits

   1,036,253   (102,922  638,401 

Income tax expense

   384,685   1,206,223   1,670,757 

Basis difference(*2)

   (21,245  (84,641  53,195 
  

 

 

  

 

 

  

 

 

 

Profit before income tax expense

  1,411,609   4,095,051   3,616,016 
  

 

 

  

 

 

  

 

 

 

3) Assets
2)

December 31, 2020

 

   2017  2018 
   (in millions of Won) 

Total assets for reportable segments(*1)

  101,542,757   101,878,001 

Equity-accounted investees

   (15,555,972  (15,272,243

Goodwill and corporate FV adjustments

   3,368,333   2,722,115 

Elimination of inter-segment assets

   (10,330,159  (11,079,608

Basis difference(*2)

   760,670   528,726 
  

 

 

  

 

 

 
  79,785,629   78,776,991 
  

 

 

  

 

 

 
(in millions of Won) Liabilities  Derivatives
that hedge
borrowings
 
  Short-term
borrowings
  Long-term
borrowings
  Dividend
payable
  Lease
liabilities
 

Beginning

 5,486,333   14,955,280   3,105   675,470   15,524 

Changes from financing cash flows

  35,525   766,330   (675,684  (217,312  4,096 

Changes arising from obtaining or losing control of subsidiaries or other business

  —     —     —     —     —   

The effect of changes in foreign exchange rates

  (327,463  (432,082  —     (29,728  —   

Changes in fair values

  —     —     —     —     159,368 

Other changes:

     

Decrease in retained earnings

  —     —     607,411   —     —   

Decrease in non-controlling interest

  —     —     67,871   —     —   

Interest expenses

  —     13,684   —     10   —   

Increase in lease assets

  —     —     —     311,235   —   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Ending

 5,194,395   15,303,212   2,703   739,675   178,988 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

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

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

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.

(b)

Information about reportable segments as of and for the years ended December 31, 2018, 2019 and 2020 were as follows:

1)

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

Share of loss of equity-accounted investees, net

   (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 of non-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, 2019 and 2020

2)

As of and for the year ended December 31, 2019

(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 of non-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 

3)

As of and for the year ended December 31, 2020

(in millions of Won)  Steel  Trading  Construction  Others  Total 

External revenues

  28,892,877   19,345,222   6,576,170   2,978,527   57,792,796 

Internal revenues

   15,365,443   12,946,803   1,033,821   2,609,941   31,956,008 

Including inter segment revenue

   10,545,577   6,413,835   965,409   2,442,961   20,367,782 

Total revenues

   44,258,320   32,292,025   7,609,991   5,588,468   89,748,804 

Interest income

   233,833   44,528   103,974   22,607   404,942 

Interest expenses

   (467,767  (127,800  (60,768  (69,152  (725,487

Depreciation and amortization

   (3,040,316  (313,134  (71,144  (236,763  (3,661,357

Impairment loss on property, plant and equipment and others

   (37,623  (8,226  (32,184  (224  (78,257

Share of loss of equity-accounted investees, net

   (409,889  (116,074  (65,409  (17,631  (609,003

Income tax expense

   (77,682  (92,589  (57,178  (72,929  (300,378

Segment profit

   711,883   157,152   150,021   293,513   1,312,569 

Segment assets

   71,105,618   13,152,462   7,658,130   9,356,528   101,272,738 

Investment in subsidiaries, associates and joint ventures

   15,425,607   1,958,333   603,752   907,645   18,895,337 

Acquisition of non-current assets

   2,819,217   180,005   36,385   451,158   3,486,765 

Segment liabilities

   20,976,864   8,804,555   4,260,003   4,896,040   38,937,462 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2019 and 2020

(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)  2018  2019  2020 

Total revenue for reportable segments

  102,258,628   101,104,207   89,748,804 

Elimination of inter-segment revenue

   (37,280,851  (36,737,359  (31,956,008

Basis difference(*2)

   176,859   418,861   (326,118
  

 

 

  

 

 

  

 

 

 
  65,154,636   64,785,709   57,466,678 
  

 

 

  

 

 

  

 

 

 

2)

Profit

(in millions of Won)  2018  2019  2020 

Total profit (loss) for reportable segments

  1,331,419   1,324,046   1,312,569 

Goodwill and corporate FV adjustments

   (77,756  (80,218  (74,685

Elimination of inter-segment profits

   638,401   738,809   550,268 

Income tax expense

   1,670,757   1,070,641   236,934 

Basis difference(*2)

   53,195   73,256   (52,322
  

 

 

  

 

 

  

 

 

 

Profit before income tax expense

  3,616,016   3,126,534   1,972,764 
  

 

 

  

 

 

  

 

 

 

3)

Assets

(in millions of Won)  2019  2020 

Total assets for reportable segments(*1)

  102,502,209   101,272,738 

Equity-accounted investees

   (14,400,831  (14,697,612

Goodwill and corporate FV adjustments

   2,622,409   2,518,590 

Elimination of inter-segment assets

   (11,665,126  (10,006,743

Basis difference(*2)

   312,147   596,703 
  

 

 

  

 

 

 
  79,370,808   79,683,676 
  

 

 

  

 

 

 

 

(*1)

As segment assets and liabilities are determined based on separate financial statements, forthe carrying amount of assets of subsidiaries, which are in a different segment from that of itstheir immediate parent company, their carrying amount in the separate financial statements the immediate parent company is eliminated upon consolidation. In addition, adjustments are made to adjust the amount of investment in associates and joint ventures are adjusted from the amount reflected in segment assets to that determined using equity method in consolidated financial statements.

4) Liabilities

   2017  2018 
   (in millions of Won) 

Total liabilities for reportable segments

  39,809,138   40,264,320 

Corporate FV adjustments

   483,693   321,320 

Elimination of inter-segment liabilities

   (8,731,880  (9,096,926

Basis difference(*2)

   897,953   615,663 
  

 

 

  

 

 

 
      32,458,904   32,104,377 
  

 

 

  

 

 

 

5) Other significant items

a) December 31, 2016

   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
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

b) December 31, 2017

   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
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 20172019 and 20182020

 

 

 

4)

Liabilities

c)

(in millions of Won)  2019  2020 

Total liabilities for reportable segments

  40,324,920   38,937,462 

Corporate FV adjustments

   292,124   263,490 

Elimination of inter-segment liabilities

   (9,353,090  (7,788,571

Basis difference(*2)

   343,556   667,772 
  

 

 

  

 

 

 
  31,607,510   32,080,153 
  

 

 

  

 

 

 

5)

Other significant items

a)

December 31, 2018

(in millions of Won) Total segment  Goodwill and
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 of equity-accounted investees, net

  (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

b)

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

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 20182019 and 2020

 

   Total
segment
  Corporate FV
adjustments
  Elimination of
inter-segment
transactions
  Basis
difference(*2)
  Consolidated 
   (in millions of Won) 

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
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

c)

December 31, 2020

(in millions of Won) Total segment  Goodwill and
corporate FV
adjustments
  Elimination of
inter-segment
transactions
  Basis
difference(*2)
  Consolidated 

Interest income

 404,942   —   �� (32,768  —     372,174 

Interest expenses

  (725,487  806   85,884   —     (638,797

Depreciation and amortization

  (3,661,357  (102,385  142,002   —     (3,621,740

Share of profit of equity-accounted investees, net

  (609,003  —     742,300   —     133,297 

Income tax expense

  (300,378  27,655   35,789   12,662   (224,272

Impairment loss on property, plant and equipment and others

  (78,257  (761  (150,828  —     (229,846

 

(*2)

Basis difference is related to the difference in recognizingrecorded revenue and expenses in connection withfor development and sale of certain residential real estate between the report reviewed by the CEOmanagement and the consolidated financial statements.

(d)

(d)

Revenue by geographic area for the years ended December 31, 2016, 2017 and 2018, 2019 and 2020 was as follows:

 

  2016 2017 2018 
  (in millions of Won) 
(in millions of Won)  2018   2019   2020 

Domestic

  34,883,941  38,882,220  41,671,930   41,671,930    40,890,972    36,806,651 

Japan

   1,892,022  2,200,405  2,084,061    2,084,061    2,202,075    1,788,839 

China

   5,908,046  6,731,214  6,945,266    6,945,266    7,165,271    7,238,063 

Indonesia

   908,361  1,266,572  1,592,046 

Asia-other

   4,741,482  6,483,981  7,312,486    8,904,532    8,976,593    7,897,041 

North America

   1,899,291  1,725,120  1,834,534    1,834,534    1,711,859    1,308,943 

Others

   2,850,370  3,365,588  3,537,454    3,537,454    3,420,078    2,753,259 
  

 

  

 

  

 

   

 

   

 

   

 

 
   53,083,513  60,655,100  64,977,777    64,977,777    64,366,848    57,792,796 

Basis difference

   (143,742 (468,233 176,859    176,859    418,861    (326,118
  

 

  

 

  

 

   

 

   

 

   

 

 
  52,939,771  60,186,867  65,154,636   65,154,636    64,785,709    57,466,678 
  

 

  

 

  

 

   

 

   

 

   

 

 

In presentingThe information on the basis of geography, segment revenue is presented based on the geographical location of customers.

(e)

Non-current assets by geographic area as of December 31, 2019 and 2020 are as follows:

(in millions of Won)  2019   2020 

Domestic

  27,742,370    27,652,233 

Japan

   175,719    168,269 

China

   1,307,847    1,245,181 

Asia-other

   4,916,775    4,284,480 

North America

   221,565    275,245 

Others

   1,348,397    1,218,946 
  

 

 

   

 

 

 
  35,712,673    34,844,354 
  

 

 

   

 

 

 

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 20172019 and 2018 are as follows:2020

 

   2017   2018 
   (in millions of Won) 

Domestic

  30,790,462    28,298,293 

Japan

   162,328    146,490 

China

   1,284,561    1,185,828 

Indonesia

   2,750,084    2,711,032 

Asia-other

   2,516,715    2,356,904 

North America

   277,249    173,914 

Others

   1,119,319    1,245,252 
  

 

 

   

 

 

 
  38,900,718    36,117,713 
  

 

 

   

 

 

 

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)

POSCO CHEMICAL CO., LTD, a subsidiary of the Company, carried out capital increase after the reporting period, and received 1,273.5 billion from the increase (including POSCO 688.1 billion) on January 21, 2021. The capital increase is part of the Company’s mid- to long-term strategy to expand the production facilities of anode materials in response to the demand of lithium-ion battery market.

(b)

POSCO INTERNATIONAL Corporation holds interests in several gas field projects in Myanmar and the related revenue for 2020 was 605 billion. In February 2021, Myanmar’s military declared state of emergency for a year with detention of Myanmar’s national adviser Aung San Suu Kyi and senior members of the ruling party’s National League for Democracy. As of the authorization date of issuance for the accompanying consolidated financial statements, the Company has not experienced business suspension or delay in delivery of gas due to the political instability in Myanmar. However, and the Company cannot estimate the future impact on POSCO INTERNATIONAL Corporation’s business in Myanmar due to the uncertainty of the duration of the matter and the ultimate outcome thereof.

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
101.INS101      XBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase DocumentInteractive 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/ Choi,Jeong-Woo

Name:

 Choi,Jeong-Woo

Title:

 Chief Executive Officer and Representative Director

Date:

 April 30, 201929, 2021