POSCO (PKX) 20-F 2018 FY Annual report (foreign)

As filed with the Securities and Exchange Commission on April 30, 2019

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, 2018

OR

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

OR

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

Date of event requiring this shell company report            

For the transition period from             to            

Commission file number1-13368

POSCO

(Exact name of Registrant as specified in its charter)

POSCO	The Republic of Korea
(Translation of Registrant’s name into English)	(Jurisdiction of incorporation or organization)

POSCO Center, 440Teheran-ro,Gangnam-gu

Seoul, Korea 06194

(Address of principal executive offices)

Lim,Sung-Su

POSCO Center, 440Teheran-ro,Gangnam-gu

Seoul, Korea 06194

Telephone:+82-2-3457-1098;E-mail: s2blue@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	Name of Each Exchange on Which Registered
American Depositary Shares, each representing one-fourth of one share of common stock	New York Stock Exchange, Inc.
Common Stock, par value Won 5,000 per share *	New York Stock Exchange, Inc. *

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

None

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

None

As of December 31, 2018, there were 80,001,132 shares of common stock, par value Won 5,000 per share, outstanding

(not including 7,185,703 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 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		21
	Item 4.A.	History and Development of the Company	21
	Item 4.B.	Business Overview	21
	Item 4.C.	Organizational Structure	35
	Item 4.D.	Property, Plants and Equipment	35
ITEM 4A.	UNRESOLVED STAFF COMMENTS		38
ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS		38
	Item 5.A.	Operating Results	38
	Item 5.B.	Liquidity and Capital Resources	73
	Item 5.C.	Research and Development, Patents and Licenses, Etc.	76
	Item 5.D.	Trend Information	76
	Item 5.E.	Off-balance Sheet Arrangements	77
	Item 5.F.	Tabular Disclosure of Contractual Obligations	77
	Item 5.G.	Safe Harbor	77
ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES		77
	Item 6.A.	Directors and Senior Management	77
	Item 6.B.	Compensation	80
	Item 6.C.	Board Practices	81
	Item 6.D.	Employees	82
	Item 6.E.	Share Ownership	83
ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS		84
	Item 7.A.	Major Shareholders	84
	Item 7.B.	Related Party Transactions	84
	Item 7.C.	Interests of Experts and Counsel	84
ITEM 8.	FINANCIAL INFORMATION		84
	Item 8.A.	Consolidated Statements and Other Financial Information	84
	Item 8.B.	Significant Changes	86
ITEM 9.	THE OFFER AND LISTING		86
	Item 9.A.	Offer and Listing Details	86

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	Item 9.B.	Plan of Distribution	87
	Item 9.C.	Markets	87
	Item 9.D.	Selling Shareholders	87
	Item 9.E.	Dilution	87
	Item 9.F.	Expenses of the Issuer	87
ITEM 10.	ADDITIONAL INFORMATION		87
	Item 10.A.	Share Capital	87
	Item 10.B.	Memorandum and Articles of Association	87
	Item 10.C.	Material Contracts	92
	Item 10.D.	Exchange Controls	92
	Item 10.E.	Taxation	97
	Item 10.F.	Dividends and Paying Agents	102
	Item 10.G.	Statements by Experts	102
	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	111
PART III			112
ITEM 17.	FINANCIAL STATEMENTS		112
ITEM 18.	FINANCIAL STATEMENTS		112
ITEM 19.	EXHIBITS		112

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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.

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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 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, 2017 and 2018 and for each of the years in thethree-year period ended December 31, 2018 were derived from our Consolidated Financial Statements included elsewhere in this annual report. Our Consolidated Financial Statements are prepared in accordance with IFRS as issued by the IASB.

In addition to preparing financial statements in accordance with IFRS as issued by the IASB included in this annual report, we prepare financial statements in accordance with Korean International Financial Reporting Standards(“K-IFRS”) as adopted by the Korean Accounting Standards Board (the “KASB”), which we are required to file with the Financial Services Commission and the Korea Exchange under the FSCMA. English translations of such financial statements are furnished to the SEC under Form6-K.K-IFRS differs in certain respects from IFRS as issued by the IASB in the presentation of operating profit. Additionally, underK-IFRS, revenue from the development and sale of certain real estate is recognized using the percentage of completion method. However, under IFRS as issued by the IASB, revenue from the development and sale of real estate is recognized when an individual unit of residential real estate is delivered to the buyer. 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.”

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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,
	2014			2015			2016			2017		2018
	(In billions of Won, except per share data)
Revenue	￦	64,759		￦	58,522		￦	52,940		￦	60,187	￦	65,155
Cost of sales		57,465			52,018			46,271			51,916		57,129
Gross profit		7,293			6,504			6,668			8,271		8,026
Impairment loss on trade accounts and notes receivable		109			190			165			174		75
Other administrative expenses		2,201			2,206			2,126			2,003		1,986
Selling expenses		1,760			1,729			1,554			1,557		369
Impairment loss on other receivables		96			158			38			98		63
Other operating income		269			549			215			448		524
Other operating expenses		884			1,285			718			691		2,014
Operating profit		2,513			1,486			2,282			4,196		4,042
Share of profit (loss) ofequity-accounted investees, net		(300	)		(506	)		(89	)		11		113
Finance income		2,397			2,557			2,232			2,373		1,706
Finance costs		3,222			3,387			3,014			2,484		2,244
Profit before income tax		1,388			150			1,412			4,095		3,616
Income tax expense		824			267			380			1,186		1,684
Profit (loss)		564			(116	)		1,032			2,909		1,932
Total comprehensive income (loss)		108			(278	)		1,486			2,348		1,504
Profit (loss) for the period attributable to:
Owners of the controlling company		633			171			1,355			2,756		1,712
Non-controlling interests		(69	)		(288	)		(323	)		153		220
Total comprehensive income (loss) attributable to:
Owners of the controlling company		182			24			1,814			2,184		1,293
Non-controlling interests		(73	)		(302	)		(328	)		164		211
Basic and diluted earnings per share(1)		7,514			1,731			16,521			34,040		21,177
Dividends per share of common stock		8,000			8,000			8,000			8,000		10,000

Selected consolidated statements of financial position data

	As of December 31,
	2014		2015		2016		2017		2018
	(In billions of Won)
Working capital(2)	￦	10,833	￦	9,148	￦	10,711	￦	12,354	￦	14,721
Total current assets		33,208		29,502		29,655		31,844		34,152
Property, plant and equipment, net		35,241		34,523		33,770		31,884		30,018
Totalnon-current assets		52,636		51,246		50,483		47,941		44,625
Total assets		85,844		80,748		80,138		79,786		78,777
Short-term borrowings and current installments oflong-term borrowings		12,195		12,371		10,195		11,275		10,290
Long-term borrowings, excluding current installments		15,233		12,849		12,510		9,789		9,920
Total liabilities		40,586		35,735		34,372		32,459		32,104
Share capital		482		482		482		482		482
Total equity		45,257		45,013		45,765		47,327		46,673

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Selected consolidated statements of cash flows data

	For the Year Ended December 31,
	2014			2015			2016			2017			2018
	(In billions of Won)
Net cash provided by operating activities	￦	3,412		￦	7,602		￦	5,269		￦	5,607		￦	5,870
Net cash used in investing activities		(3,745	)		(4,535	)		(3,755	)		(3,818	)		(2,648	)
Net cash provided by (used in) financing activities		135			(2,242	)		(3,951	)		(1,566	)		(3,195	)
Net increase (decrease) in cash and cash equivalents		(186	)		849			(2,424	)		165			31
Cash and cash equivalents at beginning of the year		4,209			4,022			4,871			2,448			2,613
Cash and cash equivalents at end of the year		4,022			4,871			2,448			2,613			2,644

(1) See Note 36 of Notes to Consolidated Financial Statements for method of calculation. The weighted average number of common shares outstanding used to calculate basic and diluted earnings per share was 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.

(2) “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. Such developments have 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.

An actual or anticipated further deterioration of global economic conditions may result in a decline in demand for our products that could have a negative impact on the prices at which they can be sold. In such a case, we will likely face pressure to reduce prices and we may need to rationalize our production capacity and reduce fixed costs. In the past, we have adjusted our crude steel production levels and sales prices in response to sluggish demand from our customers in industries adversely impacted by the deteriorating economic conditions. We produced 42.2 million tons of crude

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steel and stainless steel in 2016, 42.2 million tons in 2017 and 42.9 million tons in 2018. The average unit sales prices for oursemi-finished and finished steel products were Won 745 thousand per ton in 2016, Won 904 thousand per ton in 2017 and Won 934 thousand per ton in 2018.

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

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% of our total revenue from steel products produced and sold by us in 2018. 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, adverse conditions and volatility in the worldwide financial markets, fluctuations in oil and commodity prices and the general weakness of the global economy have contributed to the uncertainty of global economic prospects in general and have adversely affected, and may continue to adversely affect, the Korean economy. The value of the Won relative to major foreign currencies has also fluctuated significantly and, as a result of changing global and Korean economic conditions, there has been volatility in the stock prices of Korean companies in recent years. Future declines in the Korea Composite Stock Price Index (the “KOSPI”) and large amounts of sales of Korean securities by foreign investors and subsequent repatriation of the proceeds of such sales may adversely affect the value of the Won, the foreign currency reserves held by financial institutions in Korea and the ability of Korean companies to raise capital. Any future deterioration of the Korean or global economy could adversely affect our business, financial condition and results of operations.

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

• declines in consumer confidence and a slowdown in consumer spending;

• 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 in

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

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

• 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 and North Africa and any material disruption in the global supply of oil or sudden increase in the price of oil;

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

• the 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);

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• 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% of our total revenue from steel products produced and sold by us in 2018. Our export sales volume to customers in Asia, including China, Japan, Indonesia, Thailand and Malaysia, accounted for 62.6% of our total export sales revenue from steel products produced and exported by us in 2018, and we expect our sales to these countries to remain important in the future. In particular, our export volume to China has increased in recent years and accounted for 28.9% of our total export sales revenue from steel products produced and exported by us in 2018. 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), 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% 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

7

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 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 54 million dry metric tons of iron ore and 29 million wet metric tons of coal in 2018. 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

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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. 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.

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, 100 million tons of iron ore and 14 million tons of coal remained to be purchased underlong-term supply contracts. Future increases in prices of our key raw materials and our inability to pass along such increases to our customers could adversely affect our margins and profits. Increased prices may also cause potential customers to defer purchase of steel products, while rapidly falling prices may increase loss on valuation of raw material inventory purchased when prices were higher, either of which could have an adverse effect on our business, financial condition and results of operations.

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

Steel. The markets for our steel products are highly competitive and we face intense global competition. China is the largest steel producing country in the world by a significant margin, with the balance between its domestic production and demand being an important factor in the determination of global steel prices. In recent years, a slowdown in domestic demand for steel products in China resulting from slowed economic growth, combined with an expansion in steel production capacity, has led to production over-capacity in the Chinese steel industry, which in turn has led the Chinese government to pursue aggressive consolidation in the Chinese steel industry, such as the consolidation of Baosteel Group and Wuhan Iron and Steel in 2016, that has resulted in fewer but larger steel manufacturers that are able to compete more effectively in the global steel industry. In addition, the global steel industry has experienced consolidation in the past, including through the mergers of Mittal and Arcelor in 2006 and Nippon Steel and Sumitomo Metal in 2012. 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, increased production capacity, combined with decreased demand resulting from a slowdown of the global economy, has from time to time resulted in productionover-capacity in the global steel industry which in turn resulted in downward pressure on global steel prices. For example, 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. Productionover-capacity in global steel industry may intensify if global economic growth slows or demand from developing countries, particularly from China, continues to lag behind the growth in production capacity. Productionover-capacity in the global steel industry is likely to:

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

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

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

• affect our ability to increase steel production in general.

Steel also competes with other natural and synthetic materials that may be used as steel substitutes, such as aluminum, cement, composites, glass, plastic and wood. Government regulatory initiatives mandating the use of such materials instead of steel, whether for environmental or other reasons, as well as the development of attractive alternative substitutes for steel products, may reduce demand for steel products and increase competition in the global steel industry.

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

Trading. POSCO 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, we recognized impairment of goodwill of Won 158 billion 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

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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 few years to regulate housing prices in Korea, as well as increasing popularity oflow-bid contracts in civil works project mandates, have contributed to increased competition in the Korean construction industry in recent years.

Competition for new project awards in overseas markets is also intense. In these markets, POSCO E&C faces competition from local construction companies 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. 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, 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”). The realization of the anticipated benefits depends on numerous factors, some of which are outside our control, including the availability of qualified personnel, establishment of new relationships and expansion of existing relationships with various customers and suppliers, procurement of necessary technology andknow-how to engage in such businesses and 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.

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

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

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

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

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

• challenges caused by distance, language and cultural differences;

• higher costs associated with doing business internationally;

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

• longer payment cycles in some countries;

• credit risk and higher levels of payment fraud;

• currency exchange risks;

• potentially adverse tax consequences;

• political and economic instability; and

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

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

The normal operation of our manufacturing facilities may be interrupted by accidents caused by operating hazards, power supply disruptions and equipment failures, as well as natural disasters. As

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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 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 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. 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

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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, we recognized impairment of industrial property rights of Won 78 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 gas project in Canada.We have limited experience in this business, and we cannot assure you that our overseas natural resources exploration, development and production projects will be profitable, that we will be able to meet the financing requirements for such projects, or that we can recoup the costs related to such investments, which in turn could materially and adversely affect our business, financial condition and results of operations.

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

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

In addition, our consortium partners may:

• have economic or business interests or goals that are inconsistent with 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

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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 the overall prospects for Korean construction companies in 2019 and beyond remain uncertain. A prolonged general downturn in the construction market resulting in weaker demand may adversely affect our business, results of operations or financial condition.

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

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

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

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

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

• delivery delays and corrective measures for poor workmanship; and

• errors in estimates and bidding.

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

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

We are subject to national and local environmental laws and regulations, including increasing pressure to reduce emission of carbon dioxide relating to our manufacturing process, and our steel manufacturing and construction operations could expose us to risk of substantial liability relating to environmental or health and safety issues, such as those resulting from discharge of pollutants and carbon dioxide into the environment, the handling, storage and disposal of solid or hazardous materials or wastes and the investigation and remediation of contaminated sites. We may be responsible for the investigation and remediation of environmental conditions at currently and formerly operated manufacturing or construction sites. For example, we incurred expenses in recent years relating to contamination of land near our magnesium smelting plant located in Gangneung, Korea and gas treatment plant located in our Pohang Works. We may also be subject to associated liabilities, including liabilities for natural resource damage, third party property damage or personal injury resulting from lawsuits brought by the Government or private litigants. In the course of our operations,

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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 significant legal and financial exposure, damage to our reputation and a loss of confidence of our customers.

Our business involves the storage and transmission of confidential information relating to us as well as our customers and suppliers, and any breach in our cybersecurity could expose us to a risk of loss, the improper use or disclosure of such information, ensuing potential liability or litigation, any of which could harm our reputation and adversely affect our business. Although there has been no material instance where an unauthorized party was able to obtain access to our data or our customers’ data, there can be no assurance that we will not be vulnerable to cyber-attacks in the future.

Our cybersecurity measures may also fail due to employee error, malfeasance or otherwise. Instituting appropriate access controls and safeguards across our information technology infrastructure is challenging. Furthermore, outside parties may attempt to fraudulently induce employees to disclose sensitive information in order to gain access to our data or our customers’ data or accounts or may otherwise obtain access to such data or accounts. Because the techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. If an actual or perceived breach of our cybersecurity occurs or the market perception of the effectiveness of our cybersecurity measures is adversely affected, we may incur significant legal and financial exposure, including legal claims and regulatory fines and penalties, damage to our reputation and a loss of confidence of our customers, which could have an adverse effect on our business, financial condition and results of operations.

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

We believe that developing new steel manufacturing technologies that can be differentiated from those of our competitors, such as FINEX, automotive steel manufacturing technology andhigh-manganese steel manufacturing technology, is critical to the success of our business.We take active measures to obtain protection of our intellectual property by obtaining patents and undertaking monitoring activities in our major markets. However, we cannot assure you that the measures we 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.

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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.

On December 18, 2013, the Supreme Court of Korea ruled that regularly paid bonuses, including those that are paid other than on a monthly basis, 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 on 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

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employees by under-calculating their ordinary wages over the past three years or in the future, we may be liable for additional payments reflecting the expanded scope of employees’ ordinary wages. Any such additional payments may have an adverse effect on our financial condition and results of operations.

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

Relations between Korea and North Korea have been tense throughout Korea’s modern history. The level of tension between the two Koreas has fluctuated and may increase abruptly as a result of current and future events. In particular, there have been heightened security concerns in recent years stemming from North Korea’s nuclear weapon and ballistic missile programs as well as its hostile military actions against Korea. Some of the significant incidents in recent years include the following:

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

• In 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 and February 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

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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.

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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 International engages in the trading of steel, raw materials and other items with entities in countries that are deemed Sanctions Targets, including Iran and Cuba.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% of our consolidated revenues in 2016, 0.6% in 2017 and 0.3% in 2018.

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.

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

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incorrect. The uncertainties in this regard include, but are not limited to, those identified in the risk factors discussed above. In light of these and other uncertainties, you should not conclude that we will necessarily achieve any plans and objectives or projected financial results referred to in any of theforward-looking statements. We do not undertake to release the results of any revisions of theseforward-looking statements to reflect future events or circumstances.

Item 4.  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. 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 42.9 million tons of crude steel and stainless steel in 2018, a substantial portion of which was produced at Pohang Works and Gwangyang Works. As of December 31, 2018, we had approximately 47.6 million tons of annual crude steel and stainless steel production capacity, including 17.6 million tons of production capacity of Pohang Works and 24.8 million tons of production capacity of Gwangyang Works.We believe Pohang Works and Gwangyang Works are two of the most technologically advanced integrated steel facilities in the world. We manufacture and sell a diversified line of steel products, including cold rolled and hot rolled products, stainless steel products, plates, wire rods and silicon steel sheets, and we are able to meet a broad range of customer needs from manufacturing industries that consume steel, including automotive, shipbuilding, home appliance, engineering and machinery industries.

Korea is our most important market. Domestic sales accounted for 38.4% of our total revenue from steel products produced and sold by us in 2018 and 39.0% in 2017. On anon-consolidated basis, we believe that our steel products constituted approximately 50% of the total sales volume of such steel products sold in Korea in 2018 and approximately 44% in 2017. Our export sales and overseas sales to customers abroad accounted for 61.6% of our total revenue from steel products produced and sold by us in 2018 and 61.0% in 2017. Our major export market is Asia, with China accounting for 28.9%, Asia other than China and Japan accounting for 23.4%, and Japan accounting for 10.3% of our total steel export revenue from steel products produced and exported by us in 2018 and China accounting for 28.5%, Asia other than China and Japan accounting for 23.3%, and Japan accounting for 11.3% of our total steel export revenue from steel products produced and exported by us in 2017.

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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 65,155 billion and profit of Won 1,932 billion in 2018, compared to revenue of Won 60,187 billion and profit of Won 2,909 billion in 2017. We had total assets of Won 78,777 billion and total equity of Won 46,673 billion as of December 31, 2018, compared to total assets of Won 79,786 billion and total equity of Won 47,327 billion as of December 31, 2017.

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.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,
	2016					2017					2018
Steel Products	Billions of Won		%			Billions of Won		%			Billions of Won		%
Cold rolled products	￦	8,467		31.5	%	￦	9,441		31.2	%	￦	10,585		32.7	%
Hot rolled products		4,377		16.3			5,101		16.9			5,620		17.4
Stainless steel products		6,064		22.6			6,624		21.9			6,624		20.5	��
Plates		2,762		10.3			3,087		10.2			3,587		11.1
Wire rods		1,747		6.5			1,880		6.2			1,882		5.8
Silicon steel sheets		1,100		4.1			1,025		3.4			1,012		3.1
Sub-total		24,517		91.3			27,159		89.8			29,309		90.6
Others		2,327		8.7			3,072		10.2			3,049		9.4
Total	￦	26,844		100.0	%	￦	30,230		100.0	%	￦	32,358		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

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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,
	2016					2017					2018
Steel Products	Thousands of Tons		%			Thousands of Tons		%			Thousands of Tons		%
Cold rolled products		12,713		38.7	%		11,279		37.5	%		12,300		39.2	%
Hot rolled products		8,632		26.2			7,786		25.9			8,153		26.0
Stainless steel products		3,027		9.2			2,874		9.6			2,853		9.1
Plates		4,748		14.4			4,896		16.3			4,957		15.8
Wire rods		2,737		8.3			2,333		7.8			2,227		7.1
Silicon steel sheets		1,032		3.1			877		2.9			892		2.8
Total(1)		32,888		100.0	%		30,046		100.0	%		31,381		100	%

(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. 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 12.3 million tons in 2018, representing 39.2% 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, our sales volume of cold rolled products produced by us and directly sold to external customers increased by 9.1% compared to our sales volume in 2017 primarily due to an increase in sales of cold rolled products manufactured and sold by our Chinese subsidiaries.

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% on anon-consolidated basis in 2018.

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

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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, representing 26.0% of our total sales volume of principal steel products produced by us and directly sold to external customers. The largest customers of our hot rolled products are downstream steelmakers in Korea which use the products to manufacture pipes and cold rolled products.

Hot rolled products constitute our second largest product category in terms of sales volume and third largest product category in terms of revenue from steel products produced by us and directly sold to external customers. In 2018, our sales volume of hot rolled products produced by us and directly sold to external customers increased by 4.7% compared to our sales volume in 2017 primarily due to completion of rationalization of furnace no. 3 at Pohang Works, which in turn led to increases in our production and sales volume of hot rolled products.

Including sales of hot rolled products produced by us and sold through our consolidated sales subsidiaries in addition to hot rolled products produced by us and directly sold to external customers, we believe we had a domestic market share for hot rolled products of approximately 52% on anon-consolidated basis in 2018.

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 2.9 million tons in 2018, representing 9.1% 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% of total sales volume of the principal steel products produced by us and directly sold to external customers in 2018, they represented 20.5% of our total revenue from steel products in 2018. In 2018, our sales volume of stainless steel products produced by us and directly sold to external customers decreased by 0.8% compared to our sales volume in 2017, in part due to a decrease in demand from the automotive industry.

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% on anon-consolidated basis in 2018.

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

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In 2018, our sales volume of plates produced by us and directly sold to external customers increased by 1.2% compared to our sales volume in 2017 primarily due to an increase in demand from the shipbuilding industry.

Including sales of plates produced by us and sold through our consolidated sales subsidiaries in addition to plates produced by us and directly sold to external customers, we believe we had a domestic market share for plates of approximately 49% on anon-consolidated basis in 2018.

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 2.2 million tons in 2018, representing 7.1% 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, our sales volume of wire rods produced by us and directly sold to external customers decreased by 4.6% compared to 2017 primarily due to decreases in sales of our wire rods in Vietnam and Japan.

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% on anon-consolidated basis in 2018.

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, representing 2.8% of our total sales volume of principal steel products produced by us and directly sold to external customers.

In 2018, our sales volume of silicon steel sheets produced by us and directly sold to external customers increased by 1.7% compared to 2017 primarily due to an increase in demand for silicon steel sheets in India.

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.

Others

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

Markets

Korea is our most important market. Domestic sales represented 38.4% of our total revenue from steel products produced and sold by us in 2018. Our export sales and overseas sales to

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customers abroad represented 61.6% of our total revenue from steel products in 2018. 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,
Source	2016			2017			2018
POSCO’s sales(1)		40.6	%		43.4	%		49.5	%
Other domestic steel companies’ sales		27.6			28.2			28.0
Imports		31.8			28.4			22.5
Total		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% of our total revenue from steel products produced and sold by us in 2018, 62.6% of which was generated from exports sales and overseas sales to customers in Asian countries. Our export sales and overseas sales to customers abroad in terms of revenue from such products increased by 6.9% from Won 22,963 billion in 2017 to Won 24,551 billion in 2018.

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%

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	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 2018 was China, which accounted for 28.9% 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% from Won 6,542 billion in 2017 to Won 7,097 billion in 2018 primarily due to increases in sales of cold rolled products to steel processing companies in China.

Our second largest export market in 2018 was Asia (other than China and Japan), which accounted for 23.4% 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.Our exports to Asia (other than China and Japan) increased by 7.4% from Won 5,354 billion in 2017 to Won 5,749 billion in 2018 primarily due to increases 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 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 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. 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

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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, POSCO imported approximately 54 million dry metric tons of iron ore and 29 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, we purchased approximately 36% of our iron ore imports and 18% 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. 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. 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

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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.

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 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 are loaded to such amount. These dedicated vessels transported approximately 73% of the total requirements in 2018, and the remaining approximately 27% 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% on anon-consolidated basis in 2018, we face

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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% and 40%, respectively, on anon-consolidated basis in 2018, 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., 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 Steel had an annual production capacity of 1,100 thousand tons of stainless steel products and it produced 1,158 thousand tons of stainless steel products in 2018.See “— Production Facilities Abroad — Zhangjiagang Pohang Stainless Steel.”

Indonesia. We entered into an agreement with PT. Krakatau Steel (Persero) Tbk. to establish PT. Krakatau POSCO Co., Ltd. (“PT. Krakatau POSCO”), a joint venture company in Indonesia for the

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manufacture and sale of plates and slabs. We hold a 70.0% interest in the joint venture.We completed the construction of a steel manufacturing plant in December 2013. As of December 31, 2018, PT. Krakatau POSCO had an annual production capacity of 3,000 thousand tons of plates and slabs and it produced 3,009 thousand tons of plates and slabs in 2018. See “— Production Facilities Abroad — PT. Krakatau POSCO.”

Vietnam. We established POSCO SS VINA Co., Ltd., 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, POSCO SS VINA Co., Ltd. had an annual production capacity of 1,100 thousand tons of shape steel and steel reinforcement products and it produced 965 thousand tons of shape steel and steel reinforcement products in 2018. See “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.

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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.

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

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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 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

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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 our 38.0% interest in POSCO E&C to PIF, the sovereign wealth fund of Saudi Arabia, for US$1.05 billion. In connection with the sale, POSCO E&C and PIF agreed to jointly explore additional business opportunities in Saudi Arabia, including participating in various infrastructure projects sponsored by the Saudi Arabian government.

POSCO E&C also has substantial experience in the energy field obtained from the construction of various power plants for member companies of the POSCO Group, specializing primarily in engineering and construction of 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 4,570 megawatts as of December 31, 2018. POSCO Energy

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Corporation is also selectively seeking opportunities to expand into solar, wind and other renewable energy businesses in order to become an integrated provider of energy solutions.

LNG Logistics. We operate an LNG receiving terminal with an aggregate capacity to process up to 2.4 million tons of LNG annually in Gwangyang. In order to achieve maximum operational efficiency of our LNG terminal, we participate in the LNG trading and LNG ship gas trial businesses. 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. (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. 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:

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		89.0	%
PT. Krakatau POSCO	Indonesia		70.0	%
POSCO Asia Co., Ltd.	Hong Kong		100.0	%
POSCO Maharashtra Steel Private Limited	India		100.0	%
Zhangjiagang Pohang Stainless Steel Co., Ltd.	China		82.5	% (1)
POSCO Chemical Co., Ltd.	Korea		60.0	%
POSCO SS VINA Co., Ltd.	Vietnam		100.0	%

(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 Steel in China, PT. Krakatau POSCO in Indonesia and POSCO SS Vina in Vietnam. We may increase our production capacity in the future when we increase our capacity as part of our facilities expansion or as a result of continued modernization and rationalization of our existing facilities. For a discussion of major items of our capital expenditures currently in progress, see “Item 5. Operating and Financial Review and Prospects — Item 5.B. Liquidity and Capital Resources — Liquidity — Capital Expenditures and Capital Expansion.”

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

Production Facilities in Korea

Pohang Works

Construction of Pohang Works began in 1970 and ended in 1983. Pohang Works currently has an annual crude steel and stainless steel production capacity of 17.6 million tons. Pohang Works produces a wide variety of steel products. Products produced at Pohang Works include hot rolled sheets, plates, wire rods and cold rolled sheets, as well as specialty steel products such as stainless steel sheets and silicon steel sheets. These products can also be customized to meet the specifications of our customers.

Situated on a site of 8.9 million square meters at Youngil Bay on the southeastern coast of Korea, Pohang Works consists ofiron-making, crude steelmaking and continuous casting and other rolling facilities. Pohang Works also has docking facilities capable of accommodating large ships for unloading raw materials, storage areas for raw materials and separate docking facilities for ships carrying products for export. Pohang Works is equipped with a highly advanced computerizedproduction-management system allowing constant monitoring and control of the production process.

Gwangyang Works

Construction of Gwangyang Works began in 1985 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.

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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,
	2016			2017			2018
Crude steel and stainless steel production capacity as of end of the year (million tons per year)		42.39			42.39			42.39
Actual crude steel and stainless steel output (million tons)		37.50			37.21			37.74
Capacity utilization rate (%) (1)		88.5	%		87.8	%		89.0	%

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

Production Facilities Abroad

Our various subsidiaries and joint ventures around the world, including Zhangjiagang Pohang Stainless Steel Co., Ltd. in China, PT. Krakatau POSCO in Indonesia and POSCO SS Vina Co., Ltd. in Vietnam, engage in steel production activities. For a discussion of such operations, see “Item 4. Information on the Company — Item 4.B. Business Overview — Subsidiaries and Joint Ventures.”

Zhangjiagang Pohang Stainless Steel

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

	As of or for the Year Ended December 31,
	2016			2017			2018
Crude steel and stainless steel production capacity as of end of the year (million tons per year)		1.10			1.10			1.10
Actual crude steel and stainless steel output (million tons)		1.16			1.16			1.16
Capacity utilization rate (%) (1)		105.2	%		105.4	%		105.3	%

(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.

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.

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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	%

(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 Staff Comments

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

Item 5.  Operating and Financial Review and Prospects

Item 5.A.  Operating Results

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

Overview

We are the largest fully integrated steel producer in Korea. We have four reportable operating segments — a steel segment, a trading segment, 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 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.

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

The unit sales price of hot rolled products, which accounted for 25.9% of total sales volume of the principal steel products produced by us and directly sold to external customers, increased by 29.2% in 2017. The unit sales price of wire rods, which accounted for 7.8% of total sales volume of such products, increased by 26.2% 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. The unit sales price of stainless steel products, which accounted for 9.6% of total sales volume of such products, increased by 15.0% in 2017. The unit sales price of silicon steel products, which accounted for 2.9% of total sales volume of such products, increased by 9.7% 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.

In 2018, unit sales prices in Won for each of our principal product lines of steel products produced by us and directly sold to external customers, other than silicon steel products, increased. The weighted average unit price for such products increased by 3.3% from 2017 to 2018, despite an appreciation in the average value of the Won against the Dollar in 2018 that decreased our export prices in Won terms. The average exchange rate of the Won against the Dollar, as announced by Seoul Money Brokerage Services, Ltd., appreciated from Won 1,130.8 to US$1.00 in 2017 to Won 1,100.3 to US$1.00 in 2018.

The unit sales price of plates, which accounted for 15.8% of total sales volume of the principal steel products produced by us and directly sold to external customers, increased by 14.8% in 2018. The unit sales price of hot rolled products, which accounted for 26.0% of total sales volume of such products, increased by 5.2% in 2018. The unit sales price of wire rods, which accounted for 7.1% 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. The unit sales price of stainless steel products, which accounted for 9.1% of total sales volume of such products, increased by 0.8% in 2018. On the other hand, the unit sales price of silicon steel products, which accounted for 2.8% of total sales volume of such products, decreased by 2.9% in 2018.

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

	For the Year Ended December 31,
Products	2016		2017		2018
	(In thousands of Won per ton)
Cold rolled products	￦	666	￦	837	￦	861
Hot rolled products		507		655		689
Stainless steel products		2,003		2,304		2,322
Plates		582		631		724
Wire rods		638		806		845
Silicon steel sheets		1,065		1,169		1,135
Average(1)	￦	745	￦	904	￦	934

(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,
	2016			2017			2018
	(Percentage of net sales)
Cost of sales		87.4	%		86.3	%		87.7	%
Selling and administrative expenses		7.3			6.2			3.7
Gross margin		12.6			13.7			12.3
Operating profit margin		4.3			7.0			6.2

Our operating profit margin increased from 4.3% in 2016 to 7.0% in 2017, but decreased to 6.2% in 2018 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.

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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,
	2016			2017			2018
Crude steel and stainless steel production capacity (million tons per year)		47.6			47.6			47.6
POSCO		42.4			42.4			42.4
Zhangjiagang Pohang Stainless Steel Co., Ltd.		1.1			1.1			1.1
PT. Krakatau POSCO		3.0			3.0			3.0
POSCO SS VINA Co., Ltd.		1.1			1.1			1.1
Actual crude steel and stainless steel output (million tons)		42.2			42.2			42.9
POSCO		37.5			37.2			37.7
Zhangjiagang Pohang Stainless Steel Co., Ltd.		1.2			1.2			1.2
PT. Krakatau POSCO		2.9			2.9			3.0
POSCO SS VINA Co., Ltd.		0.6			0.9			1.0
Capacity utilization rate (%)		88.7	%		88.7	%		90.1	%
POSCO		88.5	%		87.8	%		89.0	%
Zhangjiagang Pohang Stainless Steel Co., Ltd.		105.2	%		105.4	%		105.3	%
PT. Krakatau POSCO		97.0	%		97.4	%		100.3	%
POSCO SS VINA Co., Ltd.		58.0	%		82.3	%		87.7	%

Exchange Rate Fluctuations

Our consolidated financial statements are prepared from our local currency denominated financial results, assets and liabilities and our subsidiaries around the world, which are then translated into Won. A substantial proportion of our consolidated financial results is accounted for in currencies other than the Won. Accordingly, our consolidated financial results and assets and liabilities may be materially affected by changes in the exchange rates of foreign currencies. In 2018, 61.6% 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

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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, 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 account receivables are analyzed on a regular basis and, upon our becoming aware of a customer’s inability to meet its financial commitments to us, the value of the receivable is reduced through a charge to the allowance for doubtful accounts. In addition, we record a charge to the allowance for doubtful accounts upon receipt of customer claims in connection with sales that management estimates are unlikely to be collected in full. As of December 31, 2018, the percentage of allowance for doubtful accounts to trade accounts and notes receivable and other receivables was 7.12%. Our allowance for doubtful accounts decreased by 16.2%, or Won 178 billion, from Won 1,094 billion as of December 31, 2017 to Won 917 billion as of December 31, 2018. See Note 23 of Notes to 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

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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, 2018 was 1.14%. These historical results, as well as current known conditions impacting the collectability of our accounts receivable balances, are significant factors for us when we estimate the amount of the necessary allowance for doubtful accounts.Historically, losses from uncollectible accounts receivables have been within expectations and in line with the allowances established. However, unforeseen circumstances such as adverse market conditions that deviate significantly from our estimates may require us to change the timing of, and make additional allowances to, our receivable balances. In this case, our results of operations, financial condition and net worth could be materially and adversely affected.

Valuation of Financial Instruments including Debt and Equity Securities and Derivatives

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

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

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

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were decreased by 1% in the cash flow models, then the estimated fair values would have decreased by approximately 13% 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 impairment 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 impairment of investments. We base our fair value estimates on assumptions we believe to be reasonable, but which are unpredictable and inherently uncertain. The use of alternative estimates and assumptions could increase or decrease the estimated fair values of our investments and potentially result in different impacts on our results of operations.

Long-lived Assets

At each reporting date, we review the carrying amounts of our tangible and intangible assets (excluding goodwill) to determine whether there is any indication that the carrying amount of those assets may not be recoverable through continuing use. If any such indication exists, the recoverable amount of the asset (or cash generating unit) is reviewed in order to determine the amount of the impairment, if any. The recoverable amount is the higher of the asset’s net selling price (fair value 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, we recognized impairment loss on property, plant and equipment amounting to Won 810 billion in 2018, which related primarily to our synthetic natural gas 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.

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

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estimated growth rate. This estimated growth rate does not exceed the long-term average growth rate of our industry. As of December 31, 2018, for the applicable cash generating units, we estimated a discount rate of 4.6% to 10.4% and a revenue growth rate of 0.6% to 2.0%. 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% to 4.9% in total. If the estimated revenue growth rate were decreased by 1%, then the estimated recoverable amount would have decreased by 1.9% to 8.5% in total.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, growth rates and expected changes to selling prices and direct costs during the period.

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

In validating the value in use determined for the cash generating units, the sensitivity of key assumptions used in the discountedcash-flow model such as discount rates and the terminal growth rate was evaluated. If the estimated average discount rates used in these valuations were increased by 0.25%, the estimatedvalue-in-use for the respective cash generating units would have decreased by 2.72% to 3.71% in total. If the estimated terminal growth rates were decreased by 0.25%, the estimatedvalue-in-use for the respective cash generating units would have decreased by 1.49% to 1.76% in total. Based on an impairment test as of December 31, 2018, we recognized impairment loss on goodwill of Won 158 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. We believe that determining the existence and impairment of goodwill is a critical accounting estimate because significant management judgment is involved in the evaluation of the value of the cash-generating groups, and any reasonably possible changes in the key assumptions on which the recoverable amount is based would cause a change in impairment loss on goodwill. See Note 15 of Notes to Consolidated Financial Statements.

Inventories

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

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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.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, 2017 and 2018. 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.

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, the book value of our investments in associates and joint ventures was Won 3,650 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

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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, the estimated total contract costs were changed. Details of changes in estimated total contract costs and the impact on profit before income taxes for 2018 and future periods are as follows:

	Amount
	(In millions of Won)
Changes in estimated total contract costs	￦	427,812
Changes in profit before income taxes of construction contracts:
Current period		(38,720	)
Future periods		69,428

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. The estimation is evaluated for total contract costs and expected total contract revenue as of the end of the period. Such estimate may change in future periods.

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

Deferred Income Taxes

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

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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 144 billion, or 6.7% in total, as of December 31, 2018. If the estimated future pay inflation rates were decreased by 1%, then the estimated provision for severance benefits would have decreased by Won 147 billion, or 6.9% in total, as of December 31, 2018.

Recent Accounting Changes

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

IFRS No. 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.

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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.

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K-IFRS differs in certain respects from IFRS as issued by the IASB in the presentation of operating profit. Additionally, underK-IFRS, revenue from the development and sale of real estate is recognized using the percentage of completion method. However, under IFRS as issued by the IASB, revenue from the development and sale of certain real estate is recognized when an individual unit of residential real estate is delivered to the buyer. As a result, our consolidated statements of comprehensive income and our consolidated statements of financial position prepared in accordance with IFRS as issued by the IASB included in this annual report differ from our consolidated statements of comprehensive income and consolidated statements of financial position prepared in accordance withK-IFRS. The table below sets forth a reconciliation of our operating profit and net income or loss as presented in our consolidated statements of comprehensive income prepared in accordance with IFRS as issued by the IASB for each of the years ended December 31, 2016, 2017 and 2018 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,
	2016			2017			2018
	(In millions of Won)
Operating profit under IFRS as issued by the IASB	￦	2,282,496		￦	4,196,121		￦	4,041,827
Additions:
Impairment loss on other receivables		37,567			98,177			63,092
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		143,083			93,814			175,711
		743,062			789,553			2,077,554
Deductions:
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		(109,164	)		(247,792	)		(227,834	)
		(202,478	)		(448,481	)		(523,586	)
Revenue recognition related to development and sale of real estate		143,742			468,233			(176,859	)
Cost of sales recognition related to development and sale of real estate		(122,497	)		(383,592	)		123,664
Operating profit underK-IFRS	￦	2,844,325		￦	4,621,834		￦	5,542,600
Net income (loss) under IFRS as issued by the IASB	￦	1,032,065		￦	2,909,311		￦	1,932,386
Adjustments related to development and sale of real estate:
Revenue		143,742			468,233			(176,859	)
Cost of sales		(122,497	)		(383,592	)		123,664
Income tax		(5,141	)		(20,483	)		12,873
Net income (loss) underK-IFRS	￦	1,048,169		￦	2,973,469		￦	1,892,064

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Operating Results — 2017 Compared to 2018

The following table presents our statement of comprehensive income information and changes therein for 2017 and 2018.

					Changes
	For the Year Ended December 31,				2017 versus 2018
	2017		2018		Amount			%
	(In billions of Won)
Revenue	￦	60,187	￦	65,155	￦	4,968			8.3	%
Cost of sales		51,916		57,129		5,123			10.0
Gross profit		8,271		8,026		(246	)		(3.0	)
Selling and administrative expenses:
Impairment loss on trade accounts and notes receivable		174		75		(99	)		(56.9	)
Other administrative expenses		2,003		1,986		(17	)		(0.9	)
Selling expenses		1,557		369		(1,188	)		(76.3	)
Other operating income and expenses:
Impairment loss on other receivables		98		63		(35	)		(35.7	)
Other operating income		448		524		75			16.7
Other operating expenses		691		2,014		1,323			191.4
Operating profit		4,196		4,042		(154	)		(3.7	)
Share of profit ofequity-accounted investees, net		11		113		102			968.6
Finance income		2,373		1,706		(667	)		(28.1	)
Finance costs		2,484		2,244		(240	)		(9.7	)
Profit before income tax		4,095		3,616		(479	)		(11.7	)
Income tax expense		1,186		1,684		498			42.0
Profit		2,909		1,932		(977	)		(33.6	)
Profit for the period attributable to owners of the controlling company		2,756		1,712		(1,044	)		(37.9	)
Profit for the period attributable tonon-controlling interests		153		220		67			44.0

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Revenue

The following table presents our revenue by segment 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:
External revenue	￦	30,230		￦	32,358		￦	2,128			7.0	%
Internal revenue		17,381			18,063			682			3.9
Total revenue from Steel Segment		47,611			50,421			2,810			5.9
Trading Segment:
External revenue		20,802			22,408			1,606			7.7	%
Internal revenue		14,076			15,911			1,835			13.0
Total revenue from Trading Segment		34,878			38,319			3,441			9.9
Construction Segment:
External revenue		6,887			6,769			(117	)		(1.7	)
Internal revenue		399			551			152			38.2
Total revenue from Construction Segment		7,286			7,321			35			0.5
Others Segment:
External revenue		2,736			3,443			707			25.8
Internal revenue		2,549			2,755			207			8.1
Total revenue from Others Segment		5,285			6,198			913			17.3
Total revenue prior to consolidation adjustments and basis difference		95,060			102,259			7,199			7.6
Consolidation adjustments		(34,405	)		(37,281	)		(2,876	)		8.4
Basis difference adjustments(1)		(468	)		177			645			N.A.	(2)
Revenue	￦	60,187		￦	65,155			4,968			8.3	%

(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 Consolidated Financial Statements.

(2) N.A. means not applicable.

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Our revenue increased by 8.3%, or Won 4,968 billion, from Won 60,187 billion in 2017 to Won 65,155 billion in 2018 due to increases in external revenues from the Steel Segment, the Trading Segment and the Others Segment, which were offset in part by a decrease in external revenue from the Construction Segment. Specifically:

Steel Segment.External revenue from the Steel Segment, which does not include internal revenue frominter-company transactions that are eliminated during consolidation and basis difference adjustments, increased by 7.0%, or Won 2,128 billion, from Won 30,230 billion in 2017 to Won 32,358 billion in 2018 due to an increase in our sales volume of the steel products produced by us and directly sold to external customers (including miscellaneous steel products not included in any of our major product categories), as well as an increase in the average unit sales price per ton of the principal steel products produced by us and directly sold to external customers. The overall sales volume of the principal steel products produced by us and directly sold to external customers increased by 4.4% from 30.0 million tons in 2017 to 31.4 million tons in 2018, while the weighted average unit sales price per ton of the principal steel products produced by us and directly sold to external customers increased by 3.3% from Won 903,897 per ton in 2017 to Won 933,990 per ton in 2018. Such factors were principally attributable to the following:

• The sales volume of each of our major product categories, other than wire rods and stainless steel products, increased from 2017 to 2018. The sales volume of cold rolled products, 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. On the other hand, the sales volume of wire rods 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 discussion of changes in sales volume of each of our principal product lines, see “Item 4.B. Business Overview — Major Products.”

• The unit sales prices in Won of each of our major product categories, other than silicon steel products, increased from 2017 to 2018. The unit sales prices in Won of plates, hot rolled products, wire rods, cold rolled products and stainless steel products produced by us and directly sold to external customers increased by 14.8%, 5.2%, 4.9%, 2.8% and 0.8%, respectively, from 2017 to 2018. On the other hand, the unit sales price in Won of silicon steel products produced by us and directly sold to external customers decreased by 2.9% from 2017 to 2018. For a discussion of changes in the unit sales prices of each of our principal product lines, see “— Overview — Sales Volume, Prices and Product Mix” above.

Total revenue from the Steel Segment, which includes internal revenue frominter-company transactions, increased by 5.9%, or Won 2,810 billion, from Won 47,611 billion in 2017 to Won 50,421 billion in 2018 as internal revenue frominter-company transactions increased by 3.9%, or Won 682 billion, from Won 17,381 billion in 2017 to Won 18,063 billion in 2018.

Trading Segment.External revenue from the Trading Segment, which does not include internal revenue frominter-company transactions that are eliminated during consolidation and basis difference adjustments, increased by 7.7%, or Won 1,606 billion, from Won 20,802 billion in 2017 to Won 22,408 billion in 2018 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.

Total 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 billion 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.

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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.

Total revenue from the Construction Segment, which includes internal revenue frominter-company transactions, increased by 0.5%, or Won 35 billion, from Won 7,286 billion in 2017 to Won 7,321 billion in 2018 as internal revenue frominter-company transactions increased by 38.2%, or Won 152 billion, from Won 399 billion in 2017 to Won 551 billion in 2018. Such increase in internal revenue reflected an increase in the amount of construction activities for member companies of the POSCO Group in 2018 compared to 2017, which was partially offset by a decrease in external revenue as discussed above.

Others Segment. The Others Segment primarily includes power generation, LNG logistics, manufacturing of various industrial materials and information technology service. External revenue from the Others Segment, which does not include internal revenue frominter-company transactions that are eliminated during consolidation and basis difference adjustments, increased by 25.8%, or Won 707 billion, from Won 2,736 billion in 2017 to Won 3,443 billion in 2018 primarily due to increases in revenue of POSCO Energy Corporation and POSCO Chemical Co., Ltd.

Total revenue from the Others Segment, which includes internal revenue frominter-company transactions, increased by 17.3%, or Won 913 billion, from Won 5,285 billion in 2017 to Won 6,198 billion in 2018 as internal revenue frominter-company transactions increased by 8.1% or Won 207 billion, from Won 2,549 billion in 2017 to Won 2,755 billion in 2018. Such increase primarily reflected an increase ininter-company sales of coal cokingby-products from POSCO Chemical 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 2017 and 2018.

							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	%

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(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 cost of sales of our Steel Segment, prior to consolidation and basis difference adjustments, increased by 7.0%, or Won 2,898 billion, from Won 41,479 billion in 2017 to Won 44,377 billion in 2018 primarily due to increases in our sales volume of the principal steel products produced by us and sold to external and internal customers and in the average price in Won terms of key raw materials that were used to manufacture our finished goods sold, as well as our classification of Won 919 billion of freight and custody expenses of the Steel Segment as cost of sales (instead of selling expenses) following our adoption of IFRS 15 starting in 2018.

Trading Segment. The cost of sales of our Trading Segment, prior to consolidation and basis difference adjustments, increased by 11.4%, or Won 3,814 billion, from Won 33,388 billion in 2017 to Won 37,202 billion in 2018 primarily due to 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.

Construction Segment. The cost of sales of our Construction Segment, prior to consolidation and basis difference adjustments, increased by 0.8%, or Won 53 billion, from Won 6,598 billion in 2017 to Won 6,651 billion in 2018 in line with an increase in the amount of construction activities described above.

Others Segment.The cost of sales of our Others Segment, prior to consolidation and basis difference adjustments, increased by 20.9%, or Won 967 billion, from Won 4,636 billion in 2017 to Won 5,603 billion in 2018 primarily due to increases in the average price in Won terms of key raw materials used by 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 2017 and 2018.

							Changes
	For the Year Ended December 31,						2017 versus 2018
	2017			2018			Amount			%
	(In billions of Won)
Steel Segment	￦	6,132		￦	6,044		￦	(88)			(1.4	)%
Trading Segment		1,490			1,117			(374	)		(25.1	)
Construction Segment		688			669			(18	)		(2.6	)
Others Segment		649			595			(54	)		(8.3	)
Consolidation adjustments		(603	)		(453	)		150			(24.8	)
Basis difference adjustments(1)		(85	)		53			138			N.A.	(2)
Gross profit	￦	8,271		￦	8,026		￦	(246	)		(3.0	)

(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

55

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.

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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.

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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.

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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

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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.

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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 Consolidated Financial Statements.

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Income Tax Expense

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 our statement of comprehensive income information and changes therein for 2016 and 2017.

						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)

(1) N.A. means not applicable.

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Revenue

The following table presents our revenue by segment 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:
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	%

(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.

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

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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

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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.

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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. 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

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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.

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• 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

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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

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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.

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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.

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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.

Income Tax Expense

Our income tax expense increased by 212.4%, or Won 806 billion, from Won 380 billion in 2016 to Won 1,186 billion in 2017. Our effective tax rate increased from 26.9% in 2016 to 29.0% in 2017 primarily due to the effect of tax rate change of Won 176 billion in 2017 (that resulted in an increase in effective tax rate of 4.3%). In 2017, the 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 to 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 effective tax rate of 4.1%). See Note 35 of Notes to Consolidated Financial Statements.

Profit

Due to the factors described above, our profit increased by 181.9%, or Won 1,877 billion, from Won 1,032 billion in 2016 to Won 2,909 billion in 2017.

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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

Capital Requirements

Historically, uses of cash consisted principally of purchases of property, plant and equipment and other assets and repayments of outstanding debt and payments of dividends.

Net cash used in investing activities was Won 3,755 billion in 2016, Won 3,818 billion in 2017 and Won 2,648 billion in 2018. These amounts included acquisition of property, plant and equipment of Won 2,324 billion in 2016, Won 2,288 billion in 2017 and Won 2,136 billion in 2018. We plan to spend approximately Won 6.1 trillion in capital expenditures in 2019, 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 of Won 48 billion in 2016, net disposals ofavailable-for-sale investments of Won 941 billion in 2017 and net acquisitions of securities of Won 100 billion in 2018.

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 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.

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.

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Payments of contractual obligations and commitments will also require considerable resources. In our ordinary course of business, we routinely enter into commercial commitments for various aspects of our operations, as well as issue guarantees for indebtedness of our related parties and others. For our contingent liabilities on outstanding guarantees provided by us, see Note 38(b) of Notes to Consolidated Financial Statements. The following table sets forth the amount oflong-term debt, capital lease and operating lease obligations as of December 31, 2018.

	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

(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, a portion of ourlong-term debt carried variable interest rates. We used the interest rate in effect as of December 31, 2018 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, 100 million tons of iron ore and 14 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, 2018 in calculating the iron ore, coal and LNG purchase obligations described above for the periods indicated.

(d) Represents, as of December 31, 2018, 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%, or Won 338 billion, from Won 5,269 billion in 2016 to Won 5,607 billion in 2017. Our gross cash flow from our sales activities increased as discussed above. In addition, our cost of sales decreased as a percentage of sales revenue from 87.4% in 2016 to 86.2% in 2017, further enhancing our net cash provided by operating activities. However, our outstanding notes payable and our subsidiaries’ outstanding notes payable decreased in 2017, which in turn negatively impacted our net cash provided by operating activities.

Our net cash provided by operating activities increased by 4.7%, or Won 263 billion, from Won 5,607 billion in 2017 to Won 5,870 billion in 2018. Our gross cash flow from our sales activities

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increased as discussed above. In addition, our outstanding trade accounts and notes payable increased in 2018, as we lengthened payment terms of some of our key suppliers, which further enhanced our net cash provided by operating activities. However, our inventory of raw materials andmaterials-in-transit increased in 2018, which in turn negatively impacted our 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 had net repayment ofshort-term borrowings, after deducting for proceeds ofshort-term borrowings, of Won 886 billion in 2016, net proceeds of short-term borrowings, after deducting for repayment of short-term borrowings, of Won 558 billion in 2017, and net repayment of short-term borrowings, after deducting for proceeds of short-term borrowings, of Won 855 billion in 2018.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. 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 were Won 997 billion as of December 31, 2016 and 2017 and Won 199 billion as of December 31, 2018. 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.

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. 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. See Notes 5 and 10 of Notes to 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. As of December 31, 2018, approximately 18% of our cash and cash equivalents, other receivables and othershort-term financial assets were held outside of Korea, which we expect to use in our operations abroad, including capital expenditure activities. In the event that such assets are needed for our operations in Korea, such amounts are typically not restricted under local laws from being used in Korea. In addition, we believe that there are no material tax implications in the event our foreign subsidiaries elect to grant cash dividends to us. POSCO had total available credit lines of Won 1,375 billion as of December 31, 2018, Won 300 billion of which was used as of such date. We have not had, and do not believe that we will have, difficulty gaining access toshort-term financing sufficient to meet our current requirements.

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

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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. We plan to spend approximately Won 6.1 trillion in capital expenditures in 2019, 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:

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

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, POSCO Technical Research Laboratories employed 950 personnel, including 516 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 44,000 industrial rights applications relating tosteel-making technology, approximately 15,000 of which were registered as of December 31, 2018, 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.

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Item 5.E.  Off-balance Sheet Arrangements

As of December 31, 2017 and 2018, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which have been established for the purpose of facilitatingoff-balance sheet arrangements or other contractually narrow or limited purposes.

Item 5.F.  Tabular Disclosure of Contractual Obligations

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

Item 5.G.  Safe Harbor

See “Item 3. Key Information — Item 3.D. Risk Factors — This annual report contains“forward-looking statements” that are subject to various risks and uncertainties.”

Item 6.  Directors, Senior Management and Employees

Item 6.A.  Directors and Senior Management

Board of Directors

Our board of directors has the ultimate responsibility for the management of our business affairs. Our board consists of five directors who are our executive officers (“Inside Directors”) and seven directors who are outside directors (“Outside Directors”). Our shareholders elect both the Inside Directors and Outside Directors at a general meeting of shareholders. Candidates for Inside Directors are recommended to shareholders by the board of directors after the board reviews such candidates’ qualifications, and candidates for Outside Directors are recommended to the shareholders by a separate board committee consisting of three Outside Directors and one Inside Director (“Director Candidate Recommendation and Management Committee”) after the committee reviews such candidates’ qualifications. Pursuant to the Korean Commercial Act and our articles of incorporation, any shareholder holding our outstanding shares with voting rights may suggest candidates for Outside Directors to the Director Candidate Recommendation and Management Committee.

Our board of directors maintains the following fivesub-committees:

• the Director Candidate Recommendation and Management Committee;

• the Evaluation and Compensation Committee;

• the Finance and Related Party Transactions Committee;

• the Executive Management Committee; and

• the Audit Committee.

Our board committees are described in greater detail below under “— Item 6.C. Board Practices.”

Under the Commercial Code and our articles of incorporation, one Chairman should be elected among the Outside Directors and several Representative Directors may be elected among the Inside Directors by our board of directors’ resolution.

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Inside Directors

As of March 31, 2019, our Inside Directors are:

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

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

The term of office of the Directors elected in March 2019 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:

Name	Position	Responsibility and Division	Age
Oh,Gyu-Seok	Senior Executive Vice President	Head of New Growth Business Unit		55
Oh,Hyoung-Soo	Senior Executive Vice President	Head of Pohang Works		58
Kim,Jhi-Yong	Senior Executive Vice President	President, PT Krakatau POSCO Co., Ltd.		56
Han,Sung-Hee	Senior Executive Vice President	Head of Management Support Division		57

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Name	Position	Responsibility and Division	Age
Choi, Joo	Senior Executive Vice President	Head of Technical Research Laboratories		59
Yoo,Byeong-Og	Senior Executive Vice President	Head of Purchasing and Investment Division		56
Lee,Si-Woo	Senior Executive Vice President	Head of Gwangyang Works		58
Lee,Duk-Lak	Executive Vice President	Head of Technology Strategy Office		58
Kim,Gyo-Sung	Executive Vice President	Head of Automotive Steel Research Lab		57
Lee, Sung-Wook	Executive Vice President	Head of Legal Affairs Office		54
Yang,Weon-Jun	Executive Vice President	Head of Corporate Citizenship Office		53
Bae,Jae-Tak	Executive Vice President	Head of Stainless Steel Marketing Office		54
Lim,Seung-Kyu	Executive Vice President	Head of Finance Office		55
Choo,Se-Don	Executive Vice President	Head of Steel Solution Research Lab		57
Jung,Duk-Kyoon	Executive Vice President	Head of Information Planning Office		56
Choi,In-Suk	Executive Vice President	Deputy Head of Pohang Works (Administration)		55
Lee,Ju-Tae	Executive Vice President	Head of Corporate Strategy Office		54
Yun,Yang-Su	Executive Vice President	Head of Automotive Materials Marketing Office		55
Kim,Soon-Ki	Executive Vice President	Head of Labor and Cooperation Office		54
Lee, Jeon-Hyeok	Executive Vice President	Head of Global Infra Business Management Office		55
Kim,Bok-Tae	Executive Vice President	Head of Sales and Production Coordination Office		56
Chun,Sung-Lae	Executive Vice President	Head of Hot Rolled Steel & Wire Rod Marketing Office		55
Kim,Jeoung-Su	Executive Vice President	Deputy Head of Gwangyang Works (Administration)		55
Kim,Kwang-Moo	Executive Vice President	Head of Steel Business Planning & Coordination Office		54
Kim,Kyung-Han	Executive Vice President	Head of International Trade Office		53
Jung,Hae-Seong	Senior Vice President	Head of Raw Materials Office II		54
Park, Hyeon	Senior Vice President	Head of LiB Materials Business Office		51
Kim,Min-Chul	Senior Vice President	Head of Investment Planning & Engineering Office		56
Lee,Jae-Yeol	Senior Vice President	Head of Administration Support & External Relations Office		57
Lee,Jean-Su	Senior Vice President	Head of Surface Treatment Department, Gwangyang Works		55
Kim, Young-Joong	Senior Vice President	Head of Marketing Strategy Office		53
Choi,Hyeon-Soo	Senior Vice President	Head of Europe Office		59
Kim,Ki-Soo	Senior Vice President	Head of Process and Engineering Research Lab		53
Choi,Yong-Jun	Senior Vice President	Deputy Head of Pohang Works (Hot and Cold Rolling)		54
Song,Yong-Sam	Senior Vice President	Head of Electrical and Electronic Materials Marketing Office		55
Lee,Yu-Kyung	Senior Vice President	Head of Plant, Equipment and Materials Procurement Office		51
Lee,Hee-Geun	Senior Vice President	Deputy Head of Pohang Works (Iron and Steel Making)		56
Lee,Ju-Hyeob	Senior Vice President	Deputy Head of Pohang Works (Stainless Steel Production)		54
An,Geun-Sik	Senior Vice President	Head of Global Quality & Service Management Office		57
Lee,Kyung-Sub	Senior Vice President	Head of Investment Strategy Office		53
Jung,Bum-Su	Senior Vice President	Deputy Head of Gwangyang Works (Maintenance)		54
Nam,Jae-Bok	Senior Vice President	Giga Steel Commercialization TF Team Leader, Gwangyang Works		57
Hong,Sam-Young	Senior Vice President	Deputy Head of Gwangyang Works (Hot and Cold Rolling)		57
Lee,Sang-Ho	Senior Vice President	Head of Production Division, PT Krakatau POSCO Co., Ltd.		54
Kim, Sang-Gyun	Senior Vice President	Head of Construction Steel Materials Marketing Office		54
Lee,Baik-Hee	Senior Vice President	Deputy Head of Gwangyang Works (Iron and Steel Making)		54

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Name	Position	Responsibility and Division	Age
Ahn,Sang-Bog	Senior Vice President	Head of Steel Product Research Lab		56
Han,Soo-Ho	Senior Vice President	PT KP Downstream Construction Cooperation TF Team Leader		57
Choi, Young	Senior Vice President	Head of Communication Office		50
Lee,Cheol-Ho	Senior Vice President	Head of Labor and Management Development Group		53
Yoon,Chang-Woo	Senior Vice President	Head of Marketing Division, PT Krakatau POSCO Co., Ltd.		54
Jeong,Dae-Hyung	Senior Vice President	Head of Business Assessment Office		50
Yang,Byeong-Ho	Senior Vice President	Head of Human Resources and Corporate Culture Office		52
Kim, Sang-Chul	Senior Vice President	Head of Energy and Shipbuilding Materials Marketing Office		51
Cho,Ju-Ik	Senior Vice President	Head of New Growth Planning Office		53
Kim,Yong-Soo	Senior Vice President	Head of Human Resources Management Office		53
Oh, Kyung-Shik	Senior Vice President	PosMC Technology Development TF Team Leader, Pohang Works		60
Kim, Kyeong-Chan	Senior Vice President	Head of Steel Business Planning & Coordination Group		49
Choi,Jong-Kyo	Senior Vice President	High Manganese Steel Solutions TF Team Leader		57
Chung,Kyung-Jin	Senior Vice President	Head of Corporate Audit Office		53
Song,Chi-Young	Senior Vice President	Deputy Head of Pohang Works (Safety and Environment)		54
Choun,Si-Youl	Senior Vice President	Head of Steel Production Strategy Office		53
Kang, Sung-Wook	Senior Vice President	Head of Raw Materials Office I		53
Lee,Chan-Gi	Senior Vice President	Deputy Head of Pohang Works (Maintenance)		55
Lee, Chang-Hyun	Senior Vice President	Deputy Head of Gwangyang Works (Safety and Environment)		57
Park,Sung-Jin	Senior Vice President	Head of Industry-Academy-Research Cooperation Office		51

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, 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 12 billion.

Among those who received total annual compensation exceeding Won 500 million in 2018, 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

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We have also granted stock options to some of our Directors and executive officers. See “— Item 6.E. Share Ownership” for a list of stock options granted to our Directors and executive officers. At the annual shareholders’ meeting held in February 2006 our shareholders elected to terminate the stock option program. Stock options granted prior to this meeting remain valid and outstanding pursuant to the articles of incorporation in effect at the time of the issuance of the stock option.

Item 6.C. Board Practices

Director Candidate Recommendation and Management Committee

The Director Candidate Recommendation and Management Committee is composed of three Outside Directors, Bahk,Byong-Won, Kim,Joo-Hyun and Pahk,Hee-Jae, and one Inside Director, Chon,Jung-Son. The Director Candidate Recommendation and Management Committee reviews the qualifications of potential candidates and proposes nominees to serve on our board of directors as an Outside Director. It also reviews operational matters of our board of directors. Any shareholder holding our outstanding shares with voting rights may suggest candidates for Outside Directors to the Director Candidate Recommendation and Management Committee.

Evaluation and Compensation Committee

The Evaluation and Compensation Committee is composed of four Outside Directors, Chang,Seung-Wha, Kim,Shin-Bae, Chung,Moon-Ki and Kim,Sung-Jin. The Evaluation and Compensation Committee’s primary responsibilities include establishing evaluation procedures and compensation plans for executive officers and taking necessary measures to execute such plans.

Finance and Related Party Transactions Committee

The Finance and Related Party Transactions Committee is composed of three Outside Directors, Kim,Joo-Hyun, Kim,Sung-Jin and Pahk,Hee-Jae and one Inside Director, Chang,In-Hwa. This committee is an operational committee that oversees decisions with respect to finance and operational matters, including making assessments with respect to potential capital investments and evaluating prospectivecapital-raising activities. It also reviews related party and other internal transactions and ensures compliance with the Monopoly Regulation and Fair Trade Act.

Executive Management Committee

The Executive Management Committee is composed of five Inside Directors, Choi,Jeong-Woo, Chang,In-Hwa, Chon,Jung-Son, Kim,Hag-Dong and Jeong, Tak. This committee oversees decisions with respect to our operational and management matters, including review of management’s proposals of new strategic initiatives, as well as deliberation over critical internal matters related to organization structure and development of personnel.

Audit Committee

Under Korean law and our articles of incorporation, we are required to have an Audit Committee. The Audit Committee may be composed of three or more directors; all members of the Audit Committee must be Outside Directors. Audit Committee members must also meet the applicable independence criteria set forth under the rules and regulations of theSarbanes-Oxley Act of 2002. Members of the Audit Committee are elected by the shareholders at the ordinary general meeting of shareholders. We currently have an Audit Committee composed of three Outside Directors. Members of our Audit Committee are Chung,Moon-Ki, Bahk,Byong-Won and Chang,Seung-Wha.

The duties of the Audit Committee include:

• engaging independent auditors;

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• 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, we had 33,784 employees, including 16,634 persons employed by our subsidiaries. Of the total number of employees, approximately 80% are technicians and skilled laborers and 20% are administrative staff. We use subcontractors for maintenance, cleaning and transport activities. We had 32,287 employees, including 15,232 persons employed by our subsidiaries, as of December 31, 2017, and 31,768 employees, including 15,184 persons employed by our subsidiaries, as of December 31, 2016.

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 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, our employees owned, through our employee stock ownership association, approximately 1.69% of our common stock in their employee accounts.

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Item 6.E.Share Ownership

The persons who are currently our Directors or executive officers held, as a group, 16,565 common shares as of March 31, 2019, 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
Kim,Hag-Dong		960
Choi,Jeong-Woo		911
Chang,In-Hwa		889
Choi, Joo		796
Kim,Soon-Ki		707
Jeong, Tak		699
Kim,Gyo-Sung		685
Yoo,Byeong-Og		649
Lee,Si-Woo		566
Song,Chi-Young		500
Jung,Bum-Su		483
Yang, Weon Jun		476
Lee,Duk-Lak		474
Jung,Hae-Seong		450
Choo,Se-Don		405
Park, Hyeon		403
Lim,Seung-Kyu		392
Kim,Jhi-Yong		385
Kim,Min-Chul		380
Lee,Cheol-Ho		379
Lee,Yu-Kyung		377
Han,Soo-Ho		359
Lee,Ju-Tae		323
Lee,Jae-Yeol		298
Oh,Hyoung-Soo		273
Choi,In-Suk		269
Chon,Jung-Son		262
Kim,Jeoung-Su		243
Kim,Bok-Tae		238
Chun,Sung-Lae		227
Choi,Jong-Kyo		224
Lee,Baik-Hee		214
Choi, Young		205
An,Geun-Sik		200
Kim, Sang-Gyun		180
Han,Sung-Hee		174
Bae,Jae-Tak		126
Yun,Yang-Su		112
Lee, Jeon-Hyeok		89
Kang, Sung-Wook		83
Kim,Ki-Soo		79
Kim,Kwang-Moo		73
Lee,Chan-Gi		73
Song,Yong-Sam		60
Lee,Jean-Su		53
Lee,Kyung-Sub		31
Choun,Si-Youl		31
Choi,Yong-Jun		27
Choi,Hyeon-Soo		25
Kim,Yong-Soo		12
Jung,Duk-Kyoon		10
Nam,Jae-Bok		10
Hong,Sam-Young		10
Lee,Sang-Ho		4
Oh, Kyung-Shik		2
Total		16,565

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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.

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	%

(1) Includes ADRs.

As of December 31, 2018, there were 9,215,072 shares of common stock outstanding in the form of ADRs, representing 10.57% of the total issued shares of common stock.

Item 7.B.  Related Party Transactions

We have issued guarantees in favor of affiliated and related companies, and we have also engaged in various transactions with our subsidiaries and affiliated companies. See Notes 37 and 38 of Notes to Consolidated Financial Statements.

As of December 31, 2016, 2017 and 2018, we had no loans outstanding to our executive officers and Directors.

Item 7.C.  Interests of Experts and Counsel

Not applicable

Item 8.  Financial Information

Item 8.A.  Consolidated Statements and Other Financial Information

See “Item 18. Financial Statements” and pages F-1 through F-130.

Legal Proceedings

As a steel producer with global sales and operations, we are involved in trade remedy proceedings in markets worldwide, including in the United States. We proactively participate in and plan for such proceedings to minimize any adverse effects and associated risks. While there has been an increase in the number of trade cases in recent years, and an increased focus on trade issues by government officials, all such cases have been product andmarket-specific, and thus have been limited in scope relative to our global sales and operations. We continue to carefully monitor developments with respect to trade remedy policy in all markets in which we participate and, where necessary, vigorously defend our rights through litigation before tribunals such as the U.S. Court of International Trade. Our products that are subject toanti-dumping, safeguard or countervailing duty proceedings in the aggregate currently do not account for a material portion of our total sales, and such proceedings have not had a material adverse impact on our business and operations in recent years. However, there can be no assurance that increases in, or new impositions of,anti-dumping duties, safeguard duties, countervailing duties, quotas or tariffs on our exports of products abroad may not

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have a material adverse impact on our exports in the future. See “Item 4. Information on the Company — Item 4.B. Business Overview — Markets — Exports.”

In 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 November 2016, the Supreme Court of Korea vacated the Seoul High Court’s ruling and remanded the proceeding in November 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. We intend to continue to vigorously defend against such administrative action. In January 2016, the Seoul High Court ruled against POSCO Coated & Color Steel with respect to the fine of Won 19.3 billion imposed against it. POSCO Coated & Color Steel appealed with respect to Won 3.0 billion of such fine, which it lost in November 2016.

In May 2002, Industrial Development Bank of India brought a suit against Daewoo International Corporation (currently, POSCO 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 21 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.

In January 2019, 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.

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

Except as described above, we are not involved in any pending or threatened legal or arbitration proceedings that may have, or have had during the last 12 months, a material adverse effect on our results of operations or financial position.

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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. Of these shares and as of such date, 80,001,132 shares were outstanding and 7,185,703 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
	(In Won)
2014	6,000	2,000		8,000
2015	6,000	2,000		8,000
2016	5,750	2,250		8,000
2017	3,500	4,500		8,000
2018	5,000	5,000		10,000

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

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

Item 8.B.Significant Changes

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

Item 9.The Offer and Listing

Item 9.A.Offer and Listing Details

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

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Exchange under the symbol “PKX.” One ADS representsone-fourth of one share of common stock. As of December 31, 2018, 36,860,288 ADSs representing 9,215,072 common shares were outstanding, representing 10.6% 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

Not applicable

Item 10.  Additional Information

Item 10.A.  Share Capital

Currently, our authorized share capital is 200,000,000 shares, which consists of shares of common stock, par value Won 5,000 per share (“Common Shares”) and shares ofnon-voting stock, par value Won 5,000 per share(“Non-Voting Preferred Shares”). OurNon-Voting Preferred Shares have a preferential right to dividend payments. Common Shares andNon-Voting Preferred Shares together are referred to as “Shares.” Under our articles of incorporation, we are authorized to issueNon-Voting Preferred Shares up to the limit prescribed by applicable law, the aggregate of which currently isone-quarter of our total issued and outstanding capital stock. As of December 31, 2018, 87,186,835 Common Shares were issued, of which 7,185,703 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.

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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

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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, our employees owned, through our employee stock ownership association, approximately 1.69% 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.

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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.

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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.

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

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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,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

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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

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reaching the 5% ownership interest. In addition, any change in the purpose of holding such ownership interest or a change in the ownership interest subsequent to the report which equals or exceeds 1% of the total outstanding Equity Securities is required to be reported to the Financial Services Commission and the Korea Exchange within five business days from the date of the change. However, the reporting deadline of such reporting requirement is extended to the tenth day of the month immediately following the month of such change in their shareholding for (1) certain professional investors, as specified by Presidential Decrees under the FSCMA, or (2) persons who hold shares for purposes other than management control. Those who report the purpose of shareholding as management control of the issuer are prohibited from exercising their voting rights and acquiring additional shares for five days subsequent to their report under the FSCMA.

Violation of these reporting requirements may subject a person to criminal sanctions such as fines or imprisonment and may result in a loss of voting rights with respect to the ownership of Equity Securities exceeding 5%. Furthermore, the Financial Services Commission may issue an order to dispose 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. 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.

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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

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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, or in the amount of not less than Won 100 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.

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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

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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% of the sales price. In the case of the transfer of shares listed on the KRX KOSPI Market (such as the common shares), the securities transaction tax is imposed generally at the rate of (i) 0.3% of the sales price of such shares (including agricultural and fishery special surtax thereon) if traded on the KRX KOSPI Market or (ii) subject to certain exceptions, 0.5% of the sales price of such shares if traded outside the KRX KOSPI Market.

Securities transaction tax or the agricultural and fishery special surtax is not applicable if (i) the shares or rights to subscribe for shares are listed on a designated foreign stock exchange and (ii) the sale of the shares takes place on such exchange.

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Securities transaction tax, if applicable, must be paid by the transferor of the shares or rights, in principle. When the transfer is effected through a securities settlement company, such settlement company is generally required to withhold and pay (to the tax authority) the tax, and when such transfer is made through a financial investment company with a brokerage license only, such company is required to withhold and pay the tax. Where the transfer is effected by aNon-resident Holder without a permanent establishment in Korea, other than through a securities settlement company or a financial investment company with a brokerage license, the transferee is required to withhold the securities transaction tax. Failure to do so will result in the imposition of penalties equal to the sum of (i) between 10% to 40% of the tax amount due, depending on the nature of the improper reporting, and (ii) 10.95% per annum on the tax amount due for the default period.

Tax Treaties

Currently, Korea has income tax treaties with a number of countries, including, inter alia, Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, Luxembourg, Ireland, the Netherlands, New Zealand, Norway, Singapore, Sweden, Switzerland, the United Kingdom and the United States of America, under which the rate of withholding tax on dividend and interest is reduced, generally to between 5% and 16.5% (including local income tax), and the tax on capital gains derived by anon-resident from the transfer of securities issued by a Korean company is often eliminated.

EachNon-resident Holder of common shares should inquire for itself whether it is entitled to the benefits of a tax treaty with Korea. It is the responsibility of the party claiming the benefits of a tax treaty in respect of interest, dividend, capital gains or “other income” to submit to us (or our agent), the purchaser or the financial investment company with a brokerage license, as the case may be, prior to or at the time of payment, such evidence of tax residence of the party claiming the treaty benefit as the Korean tax authorities may require in support of its claim for treaty protection. In the absence of sufficient proof, we (or our agent), the purchaser or the financial investment company with a brokerage license, as the case may be, must withhold tax at the normal rates.

For anon-resident of Korea to obtain the benefits oftreaty-reduced tax rates on certain Korean source income (e.g., capital gains and interest) under an applicable tax treaty, Korean tax law requires suchnon-resident (or its agents) to submit to the payer of such Korean source income an application fortreaty-reduced tax rates prior to receipt of such Korean source income; provided, however, that an owner of ADSs who is anon-resident of Korea is not required to submit such application, if the Korean source income on the ADSs is paid through an account opened at the Korea Securities Depository by a foreign depository. The payer of such Korean source income, in turn, is required to submit such application to the relevant district tax office by the ninth day of the month following the date of the first payment of such income.

If Korean source income is paid to anon-resident through an overseas investment vehicle, such investment vehicle must obtain an application for tax exemption or reduced tax rates from eachnon-resident, who is the beneficial owner of such investment vehicle and submit to the payer of such Korean source incomes an overseas investment vehicle report, together with the applications for tax exemptions or reduced tax rates prepared by thenon-resident beneficial owner. An overseas investment vehicle means an organization established outside of Korea that manages funds collected through investment solicitation by way of acquiring, disposing, or otherwise investing in investment targets and then distributes the outcome of such management to investors. An application for tax exemption or reduced tax rates submitted by thenon-resident remains effective for three years from submission, and if any material changes occur with respect to information provided in the application, an application reflecting such change must be newly submitted.

At present, Korea has not entered into any tax treaty relating to inheritance or gift tax.

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United States Taxation

This summary describes the material U.S. federal income tax consequences for a U.S. holder (as defined below) of owning our shares of common stock or ADSs. This summary applies to you only if you hold shares of common stock or ADSs as capital assets for tax purposes. This summary does not apply to you if you are a member of a class of holders subject to special rules, such as:

• a dealer in securities or currencies;

• a trader in securities that elects to use amark-to-market method of accounting for your securities holdings;

• a bank;

• a life insurance company;

• atax-exempt organization;

• a person that holds shares of common stock or ADSs that are a hedge or that are hedged against interest rate or currency risks;

• a person that holds shares of common stock or ADSs as part of a straddle or conversion transaction for tax purposes;

• a person whose functional currency for tax purposes is not the Dollar;

• a person that owns or is deemed to own 10% or more of any class of our stock or 10% or more of the combined voting power or value of all of our classes of stock; or

• an entity treated as a partnership for U.S. federal income tax purposes that holds shares of common stock or ADSs, or an investor therein.

This summary is based on laws, treaties and regulatory interpretations in effect on the date hereof, all of which are subject to change, possibly on a retroactive basis.

Please consult your own tax advisers concerning the U.S. federal, state, local and other foreign tax consequences of purchasing, owning and disposing of shares of common stock or ADSs in your particular circumstances.

For purposes of this summary, you are a “U.S. holder” if you are a beneficial owner of a share of common stock or ADS that is:

• a citizen or resident of the United States;

• a U.S. domestic corporation; or

• otherwise subject to U.S. federal income tax on a net income basis with respect to income from the shares of common stock or ADS.

Shares of Common Stock and ADSs

In general, if you are the beneficial owner of ADSs, you will be treated as the beneficial owner of the shares of common stock represented by those ADSs for U.S. federal income tax purposes, and no gain or loss will be recognized if you exchange an ADS for the shares of common stock represented by that ADS.

Dividends

The gross amount of cash dividends that you receive (prior to deduction of Korean taxes) generally will be subject to U.S. federal income taxation as foreign source dividend income. Dividends

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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 2017 or 2018 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 2019 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

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generally applicable limitations under U.S. tax law. Foreign tax credits will not be allowed for withholding taxes imposed in respect of certainshort-term or hedged positions in securities and may not be allowed in respect of arrangements in which your expected economic profit is insubstantial. You may not be able to use the foreign tax credit associated with any Korean withholding tax imposed on a distribution of additional shares that is not subject to U.S. federal income tax unless you can use the credit against U.S. federal income tax due on otherforeign-source income.

Any Korean securities transaction tax or agriculture and fishery special tax that you pay will not be creditable for foreign tax credit purposes.

The calculation of foreign tax credits and, in the case of a U.S. holder that elects to deduct foreign taxes, the availability of deductions, involves the application of complex rules that depend on a U.S. holder’s particular circumstances. You should consult your own tax advisers regarding the creditability or deductibility of such taxes.

Specified Foreign Financial Assets

Certain U.S. holders that own “specified foreign financial assets” with an aggregate value in excess of US$50,000 are generally required to file an information statement along with their tax returns, currently on Form 8938, with respect to such assets. “Specified foreign financial assets” include any financial accounts held at anon-U.S. financial institution, as well as securities issued by anon-U.S. issuer (which would include the common stock or ADSs) that are not held in accounts maintained by financial institutions. Higher reporting thresholds apply to certain individuals living abroad and to certain married individuals. Regulations extend this reporting requirement to certain entities that are treated as formed or availed of to hold direct or indirect interests in specified foreign financial assets based on certain objective criteria. U.S. holders who fail to report the required information could be subject to substantial penalties. In addition, the statute of limitations for assessment of tax would be suspended, in whole or part. Prospective investors should consult their own tax advisors concerning the application of these rules to their investment in the common stock or ADSs, including the application of the rules to their particular circumstances.

U.S. Information Reporting and Backup Withholding Rules

Payments in respect of shares of common stock or ADSs that are made within the United States or through certainU.S.-related financial intermediaries are subject to information reporting and may be subject to backup withholding unless the holder (1) is a corporation or other exempt recipient and demonstrates this when required or (2) provides a taxpayer identification number and certifies that no loss of exemption from backup withholding has occurred. Holders that are not U.S. persons generally are not subject to information reporting or backup withholding. However, such a holder may be required to provide a certification of itsnon-U.S. status in connection with payments received within the United States or through aU.S.-related financial intermediary.

Item 10.F.Dividends and Paying Agents

See “Item 8.A. Consolidated Statements and Other Financial Information — Dividends” above for information concerning our dividend policies and our payment of dividends. See “Item 10.B. Memorandum and Articles of Association — Dividends” for a discussion of the process by which dividends are paid on shares of our common stock. The paying agent for payment of our dividends on ADSs in the United States is the Citibank, N.A.

Item 10.G.Statements by Experts

Not applicable

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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. 

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,

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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,
	2016					2017						2018
	Increase			Decrease		Increase			Decrease			Increase			Decrease
	(In billions of Won)
US Dollars	￦	(163)		￦	163	￦	(173)		￦	173		￦	(204)		￦	204
Japanese Yen		(78	)		78		(54	)		54			(29	)		29
Euro		(9	)		9		10			(10	)		15			(15	)

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

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.

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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, 2018 which are sensitive to exchange rates and/or interest rates. The information is presented in Won, which is our reporting currency.

	Maturities
																			December 31, 2018					December 31, 2017
	2019			2020			2021		��	2022			2023			Thereafter			Total			Fair Value		Total			Fair Value
	(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
Average weighted rate(1)		2.78	%		2.87	%		3.15	%		2.68	%		2.79	%		2.98	%		2.92	%				3.12	%
Variable rate		333			32			68			11			60			8			512			511		1,062			1,062
Average weighted rate(1)		2.82	%		2.53	%		2.22	%		3.26	%		3.49	%		1.83	%		2.80	%				2.98	%
Sub-total		2,759			768			1,939			265			210			278			6,219			6,131		7,045			6,944
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
Average weighted rate(1)		2.87	%		3.86	%		3.92	%		1.34	%		3.98	%		2.51	%		3.33	%				3.05	%
Variable rate		3,748			525			852			4			475			2,360			7,964			7,966		8,861			8,871
Average weighted rate(1)		2.54	%		4.19	%		4.53	%		5.11	%		3.09	%		8.98	%		4.80	%				4.33	%
Sub-total		6,800			1,536			2,032			5			1,133			2,484			13,990			13,910		14,018			13,887
Total		9,559			2,304			3,971			270			1,343			2,762			20,209			20,041		21,063			20,831

(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

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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.

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Fees and Payments from the Depositary to Us

In 2018, we received approximately $1.5 million from the depositary for reimbursement of various costs, including preparation of SEC filing and submission, listing fees, proxy process expenses (printing, postage and distribution), legal fees and contributions for our investor relations activities.

In addition, as part of its service to us, the depositary waives its fees for the standard costs associated with the administration of the ADS facility, associated operating expenses, investor relations advice and access to aninternet-based tool used in our investor relations activities.

PART II

Item 13.Defaults, Dividend Arrearages and Delinquencies

Not applicable

Item 14.Material Modifications to the Rights of Security Holders and Use of Proceeds

Not applicable

Item 15.Controls and Procedures

a.    Disclosure Controls and Procedures

Our management has evaluated, with the participation of our chief executive 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. 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

107

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, 2018 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.

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, 2018 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.

108

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 2017 and 2018:

	For the Year Ended December 31,
	2017		2018
	(In millions of Won)
Audit fees	￦	5,480	￦	6,019
Audit-related fees		—		167
Tax fees		805		841
Other fees		684		989
Total fees	￦	6,969	￦	8,016

Audit fees in 2017 and 2018 as set forth in the above table are the aggregate fees billed by KPMG in connection with the audit of our annual financial statements and the annual financial statements of other related companies and review of interim financial statements.

Audit-related fees in 2018 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 2017 and 2018 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 2017 and 2018 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

109

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:

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		—		—		—		—

Item 16.F.Change in Registrant’s 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.

110

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

111

PART III

Item 17.Financial Statements

Not applicable

Item 18.Financial Statements

	Page
Report of Independent Registered Public Accounting Firm		F-2
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting		F-3
Consolidated Financial Statements
Consolidated Statements of Financial Position		F-5
Consolidated Statements of Comprehensive Income		F-7
Consolidated Statements of Changes in Equity		F-8
Consolidated Statements of Cash Flows		F-11
Notes to the Consolidated Financial Statements		F-13

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)*
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.INS	—	XBRL Instance Document
101.SCH	—	XBRL Taxonomy Extension Schema Document
101.CAL	—	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	—	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	—	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	—	XBRL Taxonomy Extension Presentation Linkbase Document

* Filed previously

(P) Paper filing

112

Table of Contents

	Page
Report of Independent Registered Public Accounting Firm		F-2
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting		F-3
Consolidated Financial Statements
Consolidated Statements of Financial Position		F-5
Consolidated Statements of Comprehensive Income		F-7
Consolidated Statements of Changes in Equity		F-8
Consolidated Statements of Cash Flows		F-11
Notes to the Consolidated Financial Statements		F-13

F-1

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, 2017 and 2018 and the related consolidated statements of comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2018 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, 2017 and 2018 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2018, 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 Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated April 30, 2019 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Policies

As discussed in Note 2 to the consolidated financial statements, the Company has changed its methods of accounting for revenue recognition and financial instruments in 2018 due to the adoption of IFRS No. 15 “Revenue from Contracts with Customers” and IFRS No. 9 “Financial Instruments”.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ KPMG Samjong Accounting Corp.

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

Seoul, Korea

April 30, 2019

F-2

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, 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, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Company as of December 31, 2017 and 2018, 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, 2018 and the related notes (collectively, the consolidated financial statements), and our report dated April 30, 2019 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

F-3

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, 2019

F-4

POSCO and Subsidiaries

Consolidated Statements of Financial Position

As of December 31, 2017 and 2018

	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

See accompanying notes to the consolidated financial statements.

F-5

POSCO and Subsidiaries

Consolidated Statements of Financial Position, Continued

As of December 31, 2017 and 2018

	Notes		December 31, 2017			December 31, 2018
	(in millions of Won)
Liabilities
Trade accounts and notes payable		23,37	￦	3,465,146			4,006,135
Short-term borrowings and current installments of long-term borrowings		4,17,23		11,274,516			10,289,619
Other payables		18,23		1,753,461			1,720,097
Other short-term financial liabilities		19,23,37		129,812			77,800
Current income tax liabilities		35		515,538			948,166
Provisions		20		110,946			298,453
Other current liabilities		22,29		2,240,919			2,090,307
Total current liabilities				19,490,338			19,430,577
Long-term trade accounts and notes payable		23,37		12,532			29,825
Long-term borrowings, excluding current installments		4,17,23		9,789,141			9,919,651
Other payables		18,23		147,750			148,868
Other long-term financial liabilities		19,23		114,105			64,162
Defined benefit liabilities, net		21		137,193			140,933
Deferred tax liabilities		35		1,904,242			1,688,893
Long-term provisions		20		477,172			431,036
Othernon-current liabilities		22		386,431			250,432
Totalnon-current liabilities				12,968,566			12,673,800
Total liabilities				32,458,904			32,104,377
Equity
Share capital		24		482,403			482,403
Capital surplus		24		1,422,021			1,420,007
Hybrid bonds		25		996,919			199,384
Reserves		26		(682,556	)		(1,404,368	)
Treasury shares		27		(1,533,054	)		(1,532,728	)
Retained earnings				42,974,658			44,160,659
Equity attributable to owners of the controlling company				43,660,391			43,325,357
Non-controlling interests		25		3,666,334			3,347,257
Total equity				47,326,725			46,672,614
Total liabilities and equity			￦	79,785,629			78,776,991

See accompanying notes to the consolidated financial statements.

F-6

POSCO and Subsidiaries

Consolidated Statements of Comprehensive Income

For the years ended December 31, 2016, 2017 and 2018

	Notes		2016			2017			2018
	(in millions of Won, except per share information)
Revenue		28,29,37	￦	52,939,771			60,186,867			65,154,636
Cost of sales		29,31,34,37		(46,271,465	)		(51,915,597	)		(57,129,060	)
Gross profit				6,668,306			8,271,270			8,025,576
Selling and administrative expenses		30,34
Impairment loss on trade accounts and notes receivable		23		(165,150	)		(173,694	)		(74,781	)
Other administrative expenses		31		(2,126,390	)		(2,003,106	)		(1,985,755	)
Selling expenses				(1,553,686	)		(1,557,277	)		(369,245	)
Other operating income and expenses		32,37
Impairment loss on other receivables		23		(37,567	)		(98,177	)		(63,092	)
Other operating income				202,478			448,481			523,586
Other operating expenses		34		(705,495	)		(691,376	)		(2,014,462	)
Operating profit				2,282,496			4,196,121			4,041,827
Share of profit (loss) of equity-accounted investees, net		11		(88,677	)		10,540			112,635
Finance income and costs		23,33
Finance income				2,231,980			2,372,667			1,705,970
Finance costs				(3,014,190	)		(2,484,277	)		(2,244,416	)
Profit before income taxes				1,411,609			4,095,051			3,616,016
Income tax expense		35		(379,544	)		(1,185,740	)		(1,683,630	)
Profit
Other comprehensive income (loss)				1,032,065			2,909,311			1,932,386
Items that will not be reclassified subsequently to profit or loss:
Remeasurements of defined benefit plans		21		20,540			(47,543	)		(173,489	)
Net changes in fair value of equity investments at fair value through other comprehensive income				—			—			(149,188	)
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	)		—
Foreign currency translation differences				(11,491	)		(264,695	)		(42,908	)
Gain or losses on valuation of derivatives		23		—			(143	)		(212	)
Other comprehensive income (loss), net of tax				454,247			(561,158	)		(428,529	)
Total comprehensive income			￦	1,486,312			2,348,153			1,503,857
Profit attributable to :
Owners of the controlling company			￦	1,354,807			2,756,230			1,711,902
Non-controlling interests				(322,742	)		153,081			220,484
Profit			￦	1,032,065			2,909,311			1,932,386
Total comprehensive income attributable to :
Owners of the controlling company			￦	1,814,030			2,184,402			1,292,785
Non-controlling interests				(327,718	)		163,751			211,072
Total comprehensive income			￦	1,486,312			2,348,153			1,503,857
Basic and diluted earnings per share (in Won)		36		16,521			34,040			21,177

See accompanying notes to the consolidated financial statements.

F-7

POSCO and Subsidiaries

Consolidated Statements of Changes in Equity

For the years ended December 31, 2016, 2017 and 2018

	Attributable to owners of the controlling company																		Non-controlling interests			Total
	Share capital		Capital surplus		Hybrid bonds		Reserves			Treasury shares			Retained earnings			Subtotal
	(in millions of Won)
Balance as of January 1, 2016	￦	482,403		1,393,079		996,919		(594,756	)		(1,533,898	)		40,461,496			41,205,243			3,807,958			45,013,201
Comprehensive income (loss):
Profit (loss)		—		—		—		—			—			1,354,807			1,354,807			(322,742	)		1,032,065
Other comprehensive income (loss)
Remeasurements of defined benefit plans, net of tax		—		—		—		—			—			9,787			9,787			10,753			20,540
Capital adjustment arising from investments in equity-accounted investees, net of tax		—		—		—		124,626			—			—			124,626			9,964			134,590
Net changes in the unrealized fair value ofavailable-for-sale investments, net of tax		—		—		—		314,428			—			—			314,428			(3,820	)		310,608
Foreign currency translation differences, net of tax		—		—		—		10,382			—			—			10,382			(21,873	)		(11,491	)
Total comprehensive income (loss)		—		—		—		449,436			—			1,364,594			1,814,030			(327,718	)		1,486,312
Transactions with owners of the controlling company, recognized directly in equity:
Year-end dividends		—		—		—		—			—			(479,974	)		(479,974	)		(50,333	)		(530,307	)
Interim dividends		—		—		—		—			—			(179,992	)		(179,992	)		—			(179,992	)
Changes in subsidiaries		—		—		—		—			—			—			—			49,250			49,250
Changes in ownership interests in subsidiaries		—		8,650		—		—			—			—			8,650			(16,544	)		(7,894	)
Interest of hybrid bonds		—		—		—		—			—			(43,832	)		(43,832	)		(24,253	)		(68,085	)
Disposal of treasury shares		—		32		—		—			430			—			462			—			462
Others		—		5,486		—		1,335			—			3,420			10,241			(7,919	)		2,322
Total transactions with owners of the controlling company		—		14,168		—		1,335			430			(700,378	)		(684,445	)		(49,799	)		(734,244	)
Balance as of December 31, 2016	￦	482,403		1,407,247		996,919		(143,985	)		(1,533,468	)		41,125,712			42,334,828			3,430,441			45,765,269

See accompanying notes to the consolidated financial statements.

F-8

POSCO and Subsidiaries

Consolidated Statements of Changes in Equity, Continued

For the years ended December 31, 2016, 2017 and 2018

	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
Comprehensive income:
Profit		—		—			—		—			—			2,756,230			2,756,230			153,081			2,909,311
Other comprehensive income (loss)
Remeasurements of defined benefit plans, net of tax		—		—			—		—			—			(38,043	)		(38,043	)		(9,500	)		(47,543	)
Capital adjustment arising from investments in equity-accounted investees, net of tax		—		—			—		(214,794	)		—			—			(214,794	)		(2,594	)		(217,388	)
Net changes in the unrealized fair value ofavailable-for-sale investments, net of tax		—		—			—		(45,953	)		—			—			(45,953	)		14,564			(31,389	)
Foreign currency translation differences, net of tax		—		—			—		(272,902	)		—			—			(272,902	)		8,207			(264,695	)
Gain or losses on valuation of derivatives, net of tax		—		—			—		(136	)		—			—			(136	)		(7	)		(143	)
Total comprehensive income		—		—			—		(533,785	)		—			2,718,187			2,184,402			163,751			2,348,153
Transactions with owners of the controlling company, recognized directly in equity:
Year-end dividends		—		—			—		—			—			(459,987	)		(459,987	)		(42,909	)		(502,896	)
Interim dividends		—		—			—		—			—			(359,993	)		(359,993	)		—			(359,993	)
Changes in subsidiaries		—		—			—		—			—			—			—			(7,151	)		(7,151	)
Changes in ownership interests in subsidiaries		—		16,287			—		—			—			—			16,287			147,420			163,707
Interest of hybrid bonds		—		—			—		—			—			(43,600	)		(43,600	)		(24,187	)		(67,787	)
Disposal of treasury shares		—		126			—		—			414			—			540			—			540
Others		—		(1,639	)		—		(4,786	)		—			(5,661	)		(12,086	)		(1,031	)		(13,117	)
Total transactions with owners of the controlling company		—		14,774			—		(4,786	)		414			(869,241	)		(858,839	)		72,142			(786,697	)
Balance as of December 31, 2017	￦	482,403		1,422,021			996,919		(682,556	)		(1,533,054	)		42,974,658			43,660,391			3,666,334			47,326,725

See accompanying notes to the consolidated financial statements.

F-9

POSCO and Subsidiaries

Consolidated Statements of Changes in Equity, Continued

For the years ended December 31, 2016, 2017 and 2018

	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
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		—		—			—			—			—			(145,488	)		(145,488	)		(28,001	)		(173,489	)
Capital adjustment arising from investments in equity-accounted investees, net of tax		—		—			—			(76,587	)		—			—			(76,587	)		13,855			(62,732	)
Net changes in fair value of equity investments at fair value through other comprehensive income, net of tax		—		—			—			(104,293	)		—			(46,883	)		(151,176	)		1,988			(149,188	)
Foreign currency translation differences, net of tax		—		—			—			(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		—		—			—			(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		—		—			—			—			—			(279,999	)		(279,999	)		(54,240	)		(334,239	)
Interim dividends		—		—			—			—			—			(400,003	)		(400,003	)		—			(400,003	)
Changes in subsidiaries		—		—			—			—			—			—			—			(2,092	)		(2,092	)
Changes in ownership interests in subsidiaries		—		(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		—		—			—			—			—			(24,443	)		(24,443	)		(18,448	)		(42,891	)
Disposal of treasury shares		—		133			—			—			326			—			459			—			459
Others		—		2,119			—			3,451			—			(5,246	)		324			(1,966	)		(1,642	)
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	)
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

See accompanying notes to the consolidated financial statements.

F-10

POSCO and Subsidiaries

Consolidated Statements of Cash Flows

For the years ended December 31, 2016, 2017 and 2018

	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

See accompanying notes to the consolidated financial statements.

F-11

POSCO and Subsidiaries

Consolidated Statements of Cash Flows, Continued

For the years ended December 31, 2016, 2017 and 2018

	Notes		2016			2017			2018
			(in millions of Won)
Cash flows from investing activities
Acquisitions of short-term financial instruments			￦	(18,578,809	)		(20,843,530	)		(32,173,134	)
Proceeds from disposal of short-term financial instruments				17,177,409			19,146,634			31,105,544
Increase in loans				(603,332	)		(1,055,895	)		(627,783	)
Collection of loans				557,064			667,045			941,962
Acquisitions of securities				—			—			(321,916	)
Acquisitions ofavailable-for-sale investments				(328,151	)		(66,278	)		—
Proceeds from disposal of securities				—			—			221,646
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	)
Proceeds from disposal of investments in associates and joint ventures				7,914			74,881			88,852
Acquisitions of property, plant and equipment				(2,324,112	)		(2,287,580	)		(2,135,550	)
Proceeds from disposal of property, plant and equipment				44,330			39,183			90,412
Acquisitions of investment property				(45,735	)		(69,169	)		(44,106	)
Proceeds from disposal of investment property				11,624			5,771			70,817
Acquisitions of intangible assets				(138,181	)		(343,423	)		(447,616	)
Proceeds from disposal of intangible assets				8,672			28,502			77,654
Proceeds from disposal of assets held for sale				305,813			203,958			93,338
Increase in cash from (payment for) acquisition of business, net of cash acquired				4,503			(174,165	)		—
Cash received (decrease in cash) from disposal of business, net of cash transferred				21,223			(53,008	)		447,917
Others, net				18,844			(37,379	)		11,348
Net cash used in investing activities				(3,754,627	)		(3,817,874	)		(2,647,970	)
Cash flows from financing activities
Proceeds from borrowings				1,988,665			1,725,983			2,762,446
Repayment of borrowings				(4,274,895	)		(3,136,016	)		(3,136,308	)
Proceeds from (repayment of) short-term borrowings, net				(885,861	)		558,083			(854,554	)
Payment of cash dividends				(708,970	)		(863,450	)		(723,934	)
Payment of interest of hybrid bonds				(68,097	)		(67,783	)		(46,166	)
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
Capital deduction fromnon-controlling interests and additional acquisition of interests in subsidiaries				(11,301	)		(26,288	)		(3,823	)
Others, net				(15,212	)		(22,276	)		(38,517	)
Net cash used in financing activities		39		(3,950,967	)		(1,565,528	)		(3,195,048	)
Effect of exchange rate fluctuation on cash held				12,611			(58,997	)		4,628
Net increase (decrease) in cash and cash equivalents				(2,423,565	)		164,911			31,335
Cash and cash equivalents at beginning of the period		5		4,871,184			2,447,619			2,612,530
Cash and cash equivalents at end of the period		5	￦	2,447,619			2,612,530			2,643,865

See accompanying notes to the consolidated financial statements.

F-12

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2016, 2017 and 2018

1. General Information

General information about POSCO, its 36 domestic subsidiaries including POSCO ENGINEERING & CONSTRUCTION CO., LTD., 136 foreign subsidiaries including POSCO America Corporation (collectively “the Company”) and its 126 associates and joint ventures are as follows:

(a) The controlling company

POSCO, the controlling company, was incorporated on April 1, 1968, under the Commercial Code of the Republic of Korea to manufacture and sell steel rolled products and plates in the domestic and foreign markets.

The shares of POSCO have been listed on the Korea Exchange 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 six of its overseas liaison offices.

As of December 31, 2018, 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

(*1) Includes American Depository Receipts (ADRs) of POSCO, each of which represents 0.25 share of POSCO’s common share which has par value of￦5,000 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.

As of December 31, 2018, the shares of POSCO are listed on the Korea Exchange, while its ADRs are listed on the New York Stock Exchange.

F-13

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

(b) Consolidated subsidiaries

Details of consolidated subsidiaries as of December 31, 2017 and 2018 are as follows:

	Principal operations	Ownership (%)
		December 31, 2017						December 31, 2018
		POSCO		Subsidiaries		Total		POSCO		Subsidiaries		Total		Region
[Domestic]
POSCO ENGINEERING & CONSTRUCTION., CO., LTD.	Engineering and construction		52.80		—		52.80		52.80		—		52.80	Pohang
POSCO Processing & Service	Steel sales and trading		93.95		0.45		94.40		93.95		0.45		94.40	Seoul
POSCO COATED & COLOR STEEL Co., Ltd.	Coated steel manufacturing		56.87		—		56.87		56.87		—		56.87	Pohang
POSCO ICT	Computer hardware and software distribution		65.38		—		65.38		65.38		—		65.38	Pohang
POSCO Research Institute	Economic research and consulting		100.00		—		100.00		100.00		—		100.00	Seoul
POSMATE	Business facility maintenance		83.83		16.17		100.00		59.80		40.20		100.00	Seoul
POSCO A&C	Architecture and consulting		100.00		—		100.00		100.00		—		100.00	Seoul
POSCO Venture Capital Co., Ltd.	Investment in venture companies		95.00		—		95.00		95.00		—		95.00	Pohang
eNtoB Corporation	Electronic commerce		7.50		53.63		61.13		7.50		53.63		61.13	Seoul
POSCO CHEMTECH	Refractories manufacturing and sales		60.00		—		60.00		60.00		—		60.00	Pohang
POSCO-Terminal Co., Ltd.	Transporting and warehousing		51.00		—		51.00		51.00		—		51.00	Gwangyang
POSCOM-TECH	Packing materials manufacturing and sales		48.85		—		48.85		48.85		—		48.85	Pohang
POSCO ENERGY CO., LTD.	Generation of electricity		89.02		—		89.02		89.02		—		89.02	Seoul
POSCO NIPPON STEEL RHF JOINT VENTURE.CO., Ltd.	Steel byproduct manufacturing and sales		70.00		—		70.00		70.00		—		70.00	Pohang
MegaAsset Co., Ltd.	Real estate rental and sales		—		100.00		100.00		—		100.00		100.00	Incheon
Future Creation Fund Postech Early Stage account	Investment in venture companies		—		40.00		40.00		—		40.00		40.00	Seoul
POSCO WOMAN’S FUND	Investment in venture companies		—		40.00		40.00		—		40.00		40.00	Seoul
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
Growth Ladder POSCOK-Growth Global Fund	Investment in venture companies		—		50.00		50.00		—		50.00		50.00	Pohang
2015 POSCO New technology II Fund	Investment in venture companies		—		25.00		25.00		—		25.00		25.00	Pohang
Posco 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

F-14

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

	Principal operations	Ownership (%)
		December 31, 2017						December 31, 2018
		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
POSCO Family Strategy Fund	Investment in venture companies		69.91		30.09		100.00		69.91		30.09		100.00	Pohang
POSCO DAEWOO Corporation	Trading, energy & resource development and others		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
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
POSCO AUSTRALIA PTY LTD	Raw material sales & mine development		100.00		—		100.00		100.00		—		100.00	Australia
POSCO Canada Ltd.	Coal sales		—		100.00		100.00		—		100.00		100.00	Canada
POSCAN Elkview	Coal sales		—		100.00		100.00		—		100.00		100.00	Canada
POSCO Asia Co., Ltd.	Steel and raw material trading		100.00		—		100.00		100.00		—		100.00	China
POSCO-CTPC Co., Ltd.	Steel manufacturing and sales		56.60		43.40		100.00		61.91		38.09		100.00	China
POSCO E&C Vietnam Co., Ltd.	Steel structure manufacturing and sales		—		100.00		100.00		—		100.00		100.00	Vietnam

F-15

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

	Principal operations	Ownership (%)
		December 31, 2017						December 31, 2018
		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
POSCO(Suzhou) Automotive Processing Center Co., Ltd.	Steel manufacturing and sales		90.00		10.00		100.00		90.00		10.00		100.00	China
POSCO-China Qingdao Processing Center Co., Ltd.	Steel manufacturing 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
POSCO-China Holding Corp.	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
POS-CD PTY LTD	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
POSCO-India Private Limited	Steel manufacturing and sales		99.99		—		99.99		99.99		—		99.99	India
POSCO-India Pune Processing Center. Pvt. Ltd.	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-CFPC Co., Ltd.	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
POSCO MPPC S.A. de C.V.	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
POSCO-VIETNAM Co., Ltd.	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
POSCO-Poland Wroclaw Processing Center Sp. z o. o.	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
POSCO DAEWOO WAIGAIQIAO SHANGHAI CO., LTD	Intermediary trade & bonded warehouse operation		—		100.00		100.00		—		100.00		100.00	China
PT. Bio Inti Agrindo	Forest resources development		—		85.00		85.00		—		85.00		85.00	Indonesia

F-16

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

	Principal operations	Ownership (%)
		December 31, 2017						December 31, 2018
		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
POSCO-TISCO (JILIN) PROCESSING CENTER Co., Ltd.	Steel manufacturing and sales		50.00		10.00		60.00		50.00		10.00		60.00	China
POSCO Thainox Public Company Limited	STS cold-rolled steel manufacturing and sales		84.88		—		84.88		84.66		—		84.66	Thailand
Hunchun Posco Hyundai Logistics	Logistics		—		80.00		80.00		—		80.00		80.00	China
POSCO DAEWOO VIETNAM CO., LTD	Trading business		—		100.00		100.00		—		100.00		100.00	Vietnam
POSCO(Chongqing) Automotive Processing Center Co., Ltd.	Steel manufacturing and sales		90.00		10.00		100.00		90.00		10.00		100.00	China
SUZHOU POSCO-CORE TECHNOLOGY CO., LTD.	Component manufacturing and sales		—		100.00		100.00		—		100.00		100.00	China
PT.Krakatau Posco Chemtech Calcination	Quicklime manufacturing and sales		—		80.00		80.00		—		80.00		80.00	Indonesia
POSCO AFRICA (PROPRIETARY) LIMITED	Mine development		100.00		—		100.00		100.00		—		100.00	South Africa
POSCO ICT BRASIL	IT service and engineering		—		100.00		100.00		—		100.00		100.00	Brazil
LA-SRDC	Scrap manufacturing		—		100.00		100.00		—		100.00		100.00	USA
POSCO Center Beijing	Real estate development, rental and management		—		100.00		100.00		—		100.00		100.00	China
POSCO AMERICA COMERCIALIZADORA S DE RL DE CV	Human resource service		—		100.00		100.00		—		100.00		100.00	Mexico
POSCO(Guangdong) Automotive Steel Co., Ltd.	Steel manufacturing and sales		83.64		10.00		93.64		83.64		10.00		93.64	China
POSCO-Malaysia SDN. BHD.	Steel manufacturing and sales		81.79		13.63		95.42		81.79		13.63		95.42	Malaysia
PT KRAKATAU BLUE WATER	Wastewater treatment facilities operation and maintenance		—		67.00		67.00		—		67.00		67.00	Indonesia
POSCO DAEWOO MYANMAR CORPORATION LIMITED	Trading business		—		100.00		100.00		—		100.00		100.00	Myanmar
POSCO-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

F-17

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

	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

F-18

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

	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

F-19

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

	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

F-20

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

	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

(*1) Reclassified to associate from subsidiary during the year ended December 31, 2018.

The equity of controlling company increased by￦16,288 million (POSCO DAEWOO Corporation, POSMATE and others) and decreased by￦1,497 million (POSCO Gulf SFC LLC and others) in 2017 and 2018, respectively, as a result of changes in the Company’s ownership interests in subsidiaries that did not result in a loss of control.

Cash dividends paid to POSCO by subsidiaries in 2016, 2017 and 2018 amounted to￦75,830 million,￦70,087 million and￦100,862 million, respectively.

F-21

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

As of December 31, 2018, 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	)

F-22

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

2) December 31, 2017

	POSCO DAEWOO Corporation			PT. KRAKATAU POSCO			POSCO CHEMTECH			POSCO ENGINEERING & CONSTRUCTION CO., LTD.			POSCO ENERGY CO., LTD.			Others			Total
	(in millions of Won)
Current assets	￦	4,483,544			557,041			441,325			4,878,251			1,054,538			8,579,813			19,994,512
Non-current assets		4,590,394			2,771,504			316,724			2,444,616			2,859,824			6,676,559			19,659,621
Current liabilities		(4,221,443	)		(1,237,255	)		(145,649	)		(3,896,680	)		(785,462	)		(8,313,902	)		(18,600,391	)
Non-current liabilities		(1,549,013	)		(1,933,247	)		(970	)		(833,403	)		(2,200,065	)		(2,048,454	)		(8,565,152	)
Equity		3,303,482			158,043			611,430			2,592,784			928,835			4,894,016			12,488,590
Non-controlling interests		1,224,303			47,413			244,572			1,223,816			762,390			974,941			4,477,435
Sales		20,891,526			1,635,837			1,163,918			5,794,532			1,578,026			23,547,072			54,610,911
Profit (loss) for the period		115,321			(117,729	)		101,019			169,011			70,795			258,053			596,470
Profit (loss) attributable tonon-controlling interests		42,739			(35,318	)		40,408			79,775			7,770			39,605			174,979
Cash flows from operating activities		128,875			(27,817	)		20,042			(84,840	)		30,295			140,418			206,973
Cash flows from investing activities		(86,365	)		(5,502	)		(18,699	)		(171,924	)		(2,792	)		(63,621	)		(348,903	)
Cash flows from financing activities (before dividends tonon-controlling interest)		(19,295	)		31,782			8			150,801			220,317			(38,090	)		345,523
Dividend tonon-controlling interest		(22,597	)		—			(7,088	)		—			(24,183	)		(12,777	)		(66,645	)
Effect of exchange rate fluctuation on cash held		(459	)		(147	)		(6	)		(3,541	)		—			(15,532	)		(19,685	)
Net increase (decrease) in cash and cash equivalents		159			(1,684	)		(5,743	)		(109,504	)		223,637			10,398			117,263

F-23

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

3) December 31, 2018

	POSCO DAEWOO Corporation			PT. KRAKATAU POSCO			POSCO CHEMTECH			POSCO ENGINEERING & CONSTRUCTION CO., LTD.			POSCO ENERGY CO., LTD.			Others			Total
	(in millions of Won)
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 tonon-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 tonon-controlling interest)		99,496			(82,295	)		—			(400,499	)		(71,378	)		(16,094	)		(470,770	)
Dividend tonon-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

F-24

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

(d) Details of associates and joint ventures

1) Associates

Details of associates as of December 31, 2017 and 2018 are as follows:

		Ownership (%)
Investee	Category of business	2017		2018		Region
[Domestic]
New Songdo International City Development, LLC	Real estate rental		29.90		29.90	Seoul
Gale International Korea, LLC	Real estate rental		29.90		29.90	Seoul
SNNC	Raw material manufacturing and sales		49.00		49.00	Gwangyang
KONES, Corp.	Technical service		41.67		41.67	Gyeongju
CHUNGJU ENTERPRISE CITY DEVELOPMENT Co., Ltd	Real estate development		29.53		29.53	Chungju
DAEHO GLOBAL MANAGEMENT CO., LTD.	Investment advisory service		35.82		35.82	Pohang
Mokpo Deayang Industrial Corporation	Real estate development and rental		27.40		27.40	Mokpo
Gunggi Green Energy(*1)	Electricity generation		19.00		19.00	Hwaseong
Pohang Special Welding Co., Ltd.	Welding material and tools manufacturing and sales		50.00		50.00	Pohang
KoFC POSCO HANWHA KB Shared Growth NO. 2. Private Equity Fund(*1)	Investment in new technologies		12.50		12.50	Seoul
EQP POSCO Global NO1 Natural Resources Private Equity Fund	Investment in new technologies		31.14		31.27	Seoul
KC Chemicals CORP.(*1)	Machinery manufacturing		19.00		19.00	Hwaseong
Garolim Tidal Power Plant Co., Ltd	Tidal power plant construction and management		32.13		32.13	Seosan
POSTECH Social Enterprise Fund(*1)	Investment in new technologies		9.17		9.17	Seoul
QSONE Co., Ltd.	Real estate rental and facility management		50.00		50.00	Seoul
Chun-cheon Energy Co., Ltd	Electricity generation		45.67		45.67	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
Pohang E&E Co., LTD	Investment in waste energy		30.00		30.00	Pohang
POSCO Energy Valley Fund	Investment in new technologies		20.00		20.00	Pohang
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
PoscoPlutus Bio Fund(*1)	Investment in new technologies		11.97		11.97	Seoul
PoscoPlutus Project Fund(*1)	Investment in new technologies		11.91		11.91	Seoul
Posco Agri-Food Export Fund	Investment in new technologies		30.00		30.00	Seoul
PoscoPlutus Project 2nd Project Fund(*1)	Investment in new technologies		0.61		0.61	Seoul
Posco Culture Contents Fund	Investment in new technologies		31.67		31.67	Seoul
PCC_Centroid 1st Fund	Investment in new technologies		24.10		24.10	Seoul
PCC Amberstone Private Equity Fund 1(*1)	Investment in new technologies		9.71		8.80	Seoul
UITrans LRT Co., Ltd.	Transporting		38.19		38.19	Seoul
POSCO Advanced Technical Staff Fund(*1)	Investment in new technologies		15.87		15.87	Seoul
POSCO 4th Industrial Revolution Fund(*1)	Investment in new technologies		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
Pureun Tongyeong Enviro Co., Ltd.	Sewerage treatment		20.40		20.40	Tongyeong
Pure Gimpo Co., Ltd.	Construction		28.79		28.79	Seoul
POSCO PLANTEC Co., Ltd.(*2)	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

F-25

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

		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

F-26

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

		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.

F-27

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

2) Joint ventures

Details of joint ventures as of December 31, 2017 and 2018 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.

F-28

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

(e) Newly included subsidiaries

Consolidated subsidiaries acquired or newly established during the year ended December 31, 2018 are as follows:

Company	Date of addition	Ownership (%)		Reason
POS-LT PTY LTD	March 2018		100.00	New establishment
POSCO SINGAPORE LNG TRADING PTE. LTD.	June 2018		100.00	New establishment
ZHEJIANG POSCO-HUAYOU ESM CO., LTD	June 2018		100.00	New establishment
POSCO Argentina S.A.U.	October 2018		100.00	New establishment
Songdo Development PMC (Project Management Company) LLC.	October 2018		100.00	New establishment

(f) Excluded subsidiaries

Subsidiaries that were excluded from consolidation during the year ended December 31, 2018 are as follows:

Company	Date of exclusion	Reason
KIS Devonian Canada Corporation	February 2018	Merged into POSCO DAEWOO E&P CANADA CORPORATION
POSCO-CDSFC	February 2018	Merged into POSCO China Dalian Plate Processing Center Co., Ltd.
POCA STEM Co., Ltd.	March 2018	Liquidation
POSCO E&C VENEZUELA C.A.	March 2018	Liquidation
PT PEN INDONESIA	March 2018	Merged into PT. POSCO E&C INDONESIA
Kyobo Securities Bond Plus 6M Professional Private Equity Trust W-2	April 2018	Disposal
Mirae Asset Smart Q Sigma 2.0 Professional Private Equity Trust	May 2018	Disposal
Kyobo Securities Bond Plus 6M Professional Private Equity Trust W-5	May 2018	Disposal
POSCO RUS LLC	May 2018	Liquidation
POSPower Co., Ltd.	July 2018	Reclassification to an associate upon loss of control due to a decline in ownership
POSCO MESDC S.A. DE C.V.	August 2018	Merged into POSCO MEXICO S.A. DE C.V.
POSCO Engineering and Construction — UZ	November 2018	Liquidation

2. Statement of Compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”), as issued by the International Accounting Standards Board.

The consolidated financial statements were authorized for issue by the authorized directors on 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”.

F-29

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis, except for the following material items in the statement of financial position, as described in the accounting policy below.

(a) Derivatives instruments 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

Functional and presentation currency

The financial statements of POSCO and subsidiaries are prepared in functional currency of the respective operation. These consolidated financial statements are presented in Korean Won, which is 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 11 — Investments in associates and joint ventures

• Note 14 — Property, plant and equipment, net

F-30

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

• 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

The Company has initially adopted IFRS No. 15 “Revenue from Contracts with Customers” and IFRS No. 9 “Financial Instruments” from January 1, 2018. The other accounting standards adopted from January 1, 2018 had no significant effect on the Company’s consolidated financial statements.

F-31

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

The effect of initially applying IFRS No. 15 and IFRS No. 9 is mainly attributable 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 right 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 of January 1, 2018, the date of initial application, and the Company also decided to apply the practical expedients as allowed by IFRS No. 15 by applying the new standard only to those contracts that are not considered as completed contracts at the date of initial application. Accordingly, the Company did not restate the financial statements for comparative periods.

F-32

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

F-33

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.

2) Variable consideration

Under IFRS No. 15, the Company estimates the amount of variable consideration by using the expected value which the Company expects to better predict the amount of consideration. The Company recognizes revenue with transaction price including variable consideration only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the refund period has lapsed.

In certain sales arrangements, unit price is subject to adjustment due to quality 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.

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

F-34

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.

F-35

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) of￦76,992 million and an increase in retained earnings of￦76,992 million related to selection to fair value through other comprehensive income in equity securities of associates and joint ventures.

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.

F-36

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 by￦107,454 million, retained earnings andnon-controlling interests were decreased by￦51,450 million and￦34,754 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 by￦421,525 million and retained earnings were increased by￦421,525 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, the application of IFRS No. 9

F-37

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As 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 model 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 of￦107,454 million and decreases in retained earnings andnon-controlling interests of￦51,450 million and￦34,754 million, respectively.

In addition to the application of IFRS No. 9, the Company applied the amendments to IAS No. 1 “Presentation of Financial Statements”, which requires the recognition of impairment of financial assets 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.

3. Summary of Significant Accounting Policies

The significant accounting policies applied by the Company in preparation of its consolidated financial statements are included below. The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, except for those as disclosed in note 2.

Basis of consolidation

(a) Business combinations

The Company accounts for business combinations using the acquisition method when control is transferred to the Company.

The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on bargain purchase is recognized in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities. The consideration transferred does not include amounts related to the settlement ofpre-existing relationships. Such amounts are generally recognized in profit or loss.

Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognized in profit or loss.

F-38

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-control investees comprise interests in associates and joint ventures. Associates are those entities in which the Company has significant influence, but not control or joint control, over the financial and operating policies. A joint venture is an arrangement in which the Company has joint control, whereby the Company has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities.

Interests in associates and joint ventures are accounted for using the equity method. They are recognized initially at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Company’s share of the profit or loss and other comprehensive income of equity-accounted investees, until the date on which significant influence or joint control ceases.

(f) Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated. Unrealized gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Company’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.

F-39

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 in previous financial statements 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 at exchange rates at the reporting date. The income and expenses of foreign operations are translated to functional currency at exchange rates at the dates of the transactions. Foreign currency differences are recognized in other comprehensive income.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation are treated as assets and liabilities of the foreign operation. Thus, they are expressed in the functional currency of the foreign operation and translated at the closing rate.

When a foreign operation is disposed of, the relevant amount in the translation is transferred to profit or loss as part of the profit or loss on disposal. On the partial disposal of a subsidiary that includes a foreign operation, the relevant proportion of such cumulative amount is reattributed tonon-controlling interest. In any other partial disposal of a foreign operation, the relevant proportion is reclassified to profit or loss.

Foreign exchange gains or losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely to occur in the foreseeable future and which in substance is considered to form part of the net investment in the foreign operation, are recognized in other comprehensive income in the translation reserve.

F-40

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.

A financial asset(unless it is a trade receivable without a significant financing component) is initially measured at fair value plus, for an item not at financial assets measured at fair value through profit or loss, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.

(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.

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.

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.

F-41

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.

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.

Financial assets measured at fair value through profit or loss

All financial assets not classified as measured at amortized cost of 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 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 profit or loss if they are held for trading or designated as such upon initial recognition. Upon initial recognition, transaction costs are recognized in profit or loss when incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss.

Held-to-maturity financial assets

A non-derivative financial asset with a fixed or determinable payment and fixed maturity, for which the Company has the positive intention and ability to hold to maturity, is classified as held-to-maturity. Subsequent to initial recognition, held-to-maturity financial assets are measured at amortized cost using 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.

F-42

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

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 is recognized as cost of goods sold in the period in which the related revenue is recognized.

F-43

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”.

Anon-current asset that is classified as held for sale or part of a disposal group classified as held for sale is not depreciated (or amortized).

Investment property

Property held to earn rentals or for capital appreciation or both is classified as investment property. Investment property is measured initially at its cost. Transaction costs are included in the initial measurement. Subsequently, investment property is carried at depreciated cost less any accumulated impairment losses.

Subsequent costs are recognized in the carrying amount of investment property at cost or, if appropriate, as separate items if it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of theday-to-day servicing are recognized in profit or loss as incurred.

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.

F-44

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

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	3-30 years
Bearer plants	20 years

The estimated residual value, useful lives and the depreciation method are reviewed at least at the end of each reporting period and, if expectations differ from previous estimates, the changes are accounted for as changes in accounting estimates.

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 determine the amount of borrowing costs eligible for capitalization by applying a capitalization rate to the expenditures on that asset. The capitalization rate shall be the weighted average of the borrowing costs applicable to the borrowings of the Company that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs that the Company capitalizes during a period shall not exceed the amount of borrowing costs incurred during that period.

F-45

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 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.

F-46

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

The respective property, plant and equipment and intellectual property (mining rights) are each depreciated and amortized based on proved reserves on a unit of production basis.

Government grants

Government grants are not recognized unless there is reasonable assurance that the Company will comply with the grant’s conditions and that the grant will be received.

(a) Grants related to assets

Government grants whose primary condition is that the Company purchase, construct or otherwise acquire long-term assets are deducted from the carrying amount of the assets and recognized in profit or loss on a systematic and rational basis over the life of the depreciable assets.

(b) Grants related to income

Government grants which are intended to compensate the Company for expenses incurred are deducted from the related expenses.

Leases

The Company classifies and accounts for leases as either a finance or operating lease, depending on the terms. Leases where the Company assumes substantially all of the risks and rewards of ownership are classified as finance leases. All other leases are classified as operating leases.

(a) Finance leases

At the commencement of the lease term, the Company recognizes as finance assets and finance liabilities the lower amount of the fair value of the leased property and the present value of the minimum lease payments, each determined at the inception of the lease. Any initial direct costs are added to the amount recognized as an asset.

Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent rents are charged as expenses in the periods in which they are incurred.

The depreciable amount of a leased asset is allocated to each accounting period during the period of expected use on a systematic basis consistent with the depreciation policy the Company adopts for similar depreciable assets that are owned. If there is no reasonable certainty that the Company will obtain ownership by the end of the lease term, the asset is fully depreciated over the shorter of the lease term and its useful life.

(b) Operating leases

Lease obligations under operating leases are recognized as an expense on a straight-line basis over the lease term. Contingent rents are charged as expenses in the periods in which they are incurred.

(c) Determining whether an arrangement contains a lease

Determining whether an arrangement is, or contains, a lease is based on the substance of the arrangement and requires an assessment of whether fulfillment of the arrangement is

F-47

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

dependent on the use of a specific asset or assets (the asset) and the arrangement conveys a right to use the asset.

At inception or reassessment of the arrangement, management of the Company separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If management of the Company concludes for a financial lease that it is impracticable to separate the payments reliably, the Company recognizes an asset and a liability at an amount equal to the fair value of the underlying asset that was identified as the subject of the lease. Subsequently, the liability shall be reduced as payments are made and an imputed finance charge on the liability recognized using the purchaser’s incremental borrowing rate of interest.

Impairment for financial assets — Policies applicable from January 1, 2018

The Company recognizes loss allowances for expected credit losses on:

• financial assets measured at amortized cost

• debt instruments measured at fair value through other comprehensive income

• 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 required 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

F-48

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

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.

F-49

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

F-50

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 fornon-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 indefinite useful lives or that are not yet available for use, irrespective of whether there is any indication of impairment, are tested for impairment annually by comparing their recoverable amount to their carrying amount.

Management estimates the recoverable amount of an individual asset. If it is impossible to measure the individual recoverable amount of an asset, then management estimates the recoverable amount of cash-generating unit (“CGU”). A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The Company determined that individual operating entities are CGUs.

The recoverable amount of an asset or CGU is the greater of itsvalue-in-use and its fair value less costs to sell. Thevalue-in-use is estimated by applying apre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU for which estimated future cash flows have not been adjusted, to the estimated future cash flows expected to be generated by the asset or CGU.

An impairment loss is recognized if the carrying amount of an asset or a CGU exceeds its recoverable amount. Impairment losses are recognized in profit or loss.

Goodwill acquired in a business combination is allocated to each CGU that is expected to benefit from the synergies arising from the goodwill acquired. Any impairment identified at the CGU level will first reduce the carrying amount of goodwill and then be used to reduce the carrying amount of the other assets in the CGU on a pro rata basis. Except for impairment losses in respect of goodwill which are never reversed, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

Derivative financial instruments, 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

F-51

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.

① Fair value hedge

Changes in the fair value of a derivative hedging instrument designated as a fair value hedge are recognized in profit or loss. The gain or loss from remeasuring the hedging instrument at fair value for a derivative hedging instrument and the gain or loss on the 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.

② 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.

F-52

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 charges 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 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 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. 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 customers on a net basis. Due from customers for contract work and due to customers for contract work for same 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.

F-53

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.

(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.

F-54

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.

The risks and uncertainties that inevitably surround many events and circumstances are taken into account in reaching the best estimate of a provision. Where the effect of the time value of money is material, provisions are determined at the present value of the expected future cash flows.

Where some or all of the expenditures required to settle a provision are expected to be reimbursed by another party, the reimbursement shall be recognized when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement shall be treated as a separate asset.

Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimates. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.

A provision for warranties is recognized when the underlying products are sold. The provision is based on historical warranty.

Regarding provision for construction warranties, warranty period starts from the completion of construction in accordance with construction contracts. If the Company has an obligation for warranties, provision for warranties which are estimated based on historical warranty data are recorded as cost of construction and provision for warranties during the construction period.

If the estimated total contract cost of the construction contract exceeds the total contract revenue, the estimated contract cost exceeding the contract revenue is recognized as a provision for construction losses in the remaining contract for which construction has not proceeded.

A provision for restoration regarding contamination of land is recognized in accordance with the Company’s announced Environment Policy and legal requirement as needed.

A provision is used only for expenditures for which the provision was originally recognized.

Emission Rights

The Company accounts for greenhouse gases emission right and the relevant liability as follows pursuant tothe Act on Allocation and Trading of Greenhouse Gas Emission which became effective in Korea in 2015.

(a) Greenhouse gasses Emission Right

Greenhouse gasses 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.

F-55

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.

(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.

Equity instruments

(a) Share capital

Common stock is classified as equity and the incremental costs arising directly attributable to the issuance of common stock less their tax effects are deducted from equity.

If the Company reacquires its own equity instruments, the amount of those instruments (“treasury shares”) are presented as a contra equity account. No gain or loss is recognized in profit or loss on the purchase, sale, issuance or 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. When the Company has an unconditional right to avoid delivering cash or another financial asset to settle a contractual obligation, the instruments are classified as equity instruments.

Revenue 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.

(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 time revenue is recognized. Invoices are generally payable within 10 to 90 days. When a customer makes payment

F-56

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

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.

(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. 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 under those contracts, the Company is able to perform 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 incurred that do not reflect the stage of completion to date bear to the estimated total contract costs.

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 apartments

For certain construction service contracts for apartments where the criterion of an enforceable right to payment for performance is met under IFRS No. 15, even if the legal ownership or physical occupancy of the incomplete construction is not transferred to the customer during the construction period, revenue is recognized based on percentage of completion by considering the terms and conditions described in the relevant law and

F-57

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 apartments and shopping centers where the criterion of an enforceable right to payment for performance is not met during the construction period, the Company recognizes revenue upon completion of construction when the control of the apartments 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 Company recognizes interest and penalties related to corporate tax as if it is applicable to the income taxes, the Company applies IAS No. 12 “Income Taxes”, if it is not applicable to the income taxes, the Company applies IAS No. 37 “Provisions Contingent Liabilities and Contingent Assets”.

F-58

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

(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 liability for all taxable temporary differences associated with investments in subsidiaries, associates, and joint ventures, except to the extent that the Company is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The Company recognizes a deferred income tax asset for deductible temporary differences arising from investments in subsidiaries, associates and joint ventures, to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized. However, deferred 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.

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

F-59

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 is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets other than goodwill.

F-60

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

New standards and interpretations not yet adopted

The following new standard has been published but is not mandatory for the Company for annual period beginning on January 1, 2018, and the Company has not early adopted them.

(a) IFRS No. 16 “Leases”

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 similar to the existing standard which classifies lease into finance and operating lease.

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.

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.

F-61

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

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

F-62

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 investment securities. In addition, credit risk arises from finance guarantees.

The Company implements a credit risk management policy under which the Company only transacts business with counterparties that have a certain level of credit rate evaluated based on financial condition, historical experience, and other factors. The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The default risk of a nation or an industry in which a customer operates its business does not have a significant influence on credit risk. The Company has established a credit policy under which each new customer is analyzed individually for creditworthiness.

The Company establishes an allowance for impairment that represents its estimate of 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 companies of similar assets in respect of losses that have been incurred.

Credit risk also arises from transactions with financial institutions, and such transactions include transactions of cash and cash equivalents, various deposits, and financial instruments such as derivative contracts. The Company manages its exposure to this credit risk by only entering into transactions with banks that have high international credit ratings. The Company’s treasury department authorizes, manages, and overseas new transactions with financial institutions with whom the Company has no previous relationship.

Furthermore, the Company limits its exposure to credit risk of financial guarantee contracts by strictly evaluating their necessity based on internal decision making processes, such as the approval of the 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 another financial asset. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

F-63

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, 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.

① 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. Based on this policy, the Company has performed currency risk management specific to various characteristics of different segments. The entities in the steel segment reduces the foreign currency exposure by repayment of foreign currency borrowings subjected to investment in overseas when its maturities come. 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 by using forward exchange contracts when the foreign currencies received and paid are different.

② Interest rate risk

The Company manages the exposure to interest rate risk by adjusting of borrowing structure ratio between borrowings at fixed interest rate and variable interest rate. The Company monitors interest rate risks regularly in order to avoid exposure to interest rate risk on borrowings at variable interest rate.

③ Other market price risk

Equity price risk arises from fluctuation of market price of listed equity securities. Management of the Company measures regularly the fair value of listed equity securities and the risk of variance in future cash flow caused by market price fluctuations. Significant investments are managed separately and all buy and sell decisions are approved by management of the Company.

(b) Management of capital

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 cash and cash equivalents) and current financial instruments from borrowings. The Company applied the same capital risk management strategy that was applied in the previous period.

F-64

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

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 to￦42,147 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 are as follows:

	2017			2018
	(in millions of Won)
Current
Trade accounts and notes receivable	￦	8,579,620			8,648,250
Finance lease receivables		10,469			57,487
Unbilled due from customers for contract work		728,007			810,655
Less: Allowance for doubtful accounts		(493,533	)		(386,188	)
	￦	8,824,563			9,130,204
Non-current
Trade accounts and notes receivable	￦	871,432			583,797
Finance lease receivables		734			45,873
Less: Allowance for doubtful accounts		(140,596	)		(202,545	)
	￦	731,570			427,125

Trade accounts and notes receivable sold to financial institutions, for which the derecognition conditions were not met, amounted to￦309,964 million and￦468,706 million as of December 31, 2017 and 2018, respectively. The fair value of trade accounts and notes receivable approximates the carrying amounts and trade accounts and notes receivable are included in short-term borrowings from financial institutions (Note 17).

F-65

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

(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 are as follows:

	2017			2018
	(in millions of Won)
Current
Loans	￦	617,696			236,782
Other accounts receivable		960,543			954,030
Accrued income		179,971			220,066
Deposits		107,137			108,640
Others		18,925			16,201
Less: Allowance for doubtful accounts		(248,266	)		(150,090	)
	￦	1,636,006			1,385,629
Non-current
Loans	￦	874,158			731,344
Other accounts receivable		92,939			155,936
Accrued income		1,663			1,855
Deposits		122,485			152,072
Less: Allowance for doubtful accounts		(212,069	)		(177,967	)
	￦	879,176			863,240

F-66

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

8. Other Financial Assets

Other financial assets as of December 31, 2017 and 2018 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

(*1) As of December 31, 2017 and 2018,￦10,080 million and￦5,715 million, respectively, are restricted for the use in a government project.

(*2) As of December 31, 2017 and 2018, financial instruments amounting to￦78,477 million and￦73,935 million, respectively, are restricted for use in financial arrangements, pledge and others.

(*3) As of December 31, 2017 and 2018,￦136,099 million and￦115,431 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 are as follows:

	2017			2018
	(in millions of Won)
Finished goods	￦	1,526,628			1,886,040
Merchandise		930,558			1,131,416
Semi-finished goods		1,721,130			1,945,567
Raw materials		2,329,268			2,821,972
Fuel and materials		808,016			888,941
Construction inventories		1,692,092			1,372,259
Materials-in-transit		1,818,576			2,245,740
Others		103,144			68,150
		10,929,412			12,360,085
Less: Allowance for inventories valuation		(135,631	)		(206,782	)
	￦	10,793,781			12,153,303

F-67

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

(b) The changes of allowance for inventories valuation for the years ended December 31, 2016, 2017 and 2018 were as follows:

	2016			2017			2018
	(in millions of Won)
Beginning	￦	231,378			203,164			135,631
Loss on valuation of inventories		152,249			78,560			141,799
Realization on disposal of inventories		(161,458	)		(138,967	)		(69,426	)
Others		(19,005	)		(7,126	)		(1,222	)
Ending	￦	203,164			135,631			206,782

10. Assets Held for Sale

Details of assets held for sale as of December 31, 2017 and 2018 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

(*1) During the year ended December 2017, POSCO ENGINEERING & CONSTRUCTION CO., LTD., a subsidiary of the Company, determined to dispose of the office building, Seomyeon Fiesta, in Busan and classified the related property, plant and equipment amounting to￦71,340 million as assets held for sale. During the year ended December 31, 2018, disposal of the accompanying assets held for sale was completed.

(*2) During the year ended December 31, 2018, DAESAN (CAMBODIA) Co., Ltd., a subsidiary of the Company, determined to dispose of the land and classified the related property, plant and equipment amounting to￦21,076 million as assets held for sale.

11. Investments in Associates and Joint ventures

(a) Investments in associates and joint ventures as of December 31, 2017 and 2018 are as follows:

	2017		2018
	(in millions of Won)
Investments in associates	￦	1,520,441		1,738,692
Investments in joint ventures		2,037,491		1,911,311
	￦	3,557,932		3,650,003

F-68

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

(b) Details of investments in associates 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]
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

(*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, 2017 and 2018, investments in associates amounting to￦158,370 million and￦285,066 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.

F-69

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.

F-70

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

(d) The movements of investments in associates and joint ventures for the years ended December 31, 2017 and 2018 were as follows:

1) For the year ended December 31, 2017

Company	December 31, 2016 Book value		Acquisition		Dividends			Share of profits (losses)			Other increase (decrease) (*1)			December 31, 2017 Book value
					(in millions of Won)
[Domestic]
EQP POSCO Global NO1 Natural Resources 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

(*1) Other increase or decrease represents the changes in investments in associates and joint ventures due to disposals, change in capital adjustments effect from translations of financial statements of foreign investees and others.

F-71

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

2) For the year ended December 31, 2018

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

(*1) Other increase or decrease represents the changes in investments in associates and joint ventures due to disposals, change in capital adjustments effect from translations of financial statements of foreign investees and others.

F-72

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

(e) Summarized financial information of associates and joint ventures as of and for the years ended December 31, 2017 and 2018 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	)

F-73

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

2) December 31, 2018

Company	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
POSPower Co., Ltd		425,632		35,761		389,871			—		(4,536	)
SNNC		645,013		384,586		260,427			656,320		14,229
QSONE Co., Ltd.		249,384		78,285		171,099			16,597		2,101
Chun-cheon Energy Co., Ltd		667,454		525,308		142,146			320,950		(18,796	)
CHUNGJU ENTERPRISE CITY DEVELOPMENT Co., Ltd		63,554		35,003		28,551			16,237		439
BLUE OCEAN Private Equity Fund		305,876		174,640		131,236			459,491		(5,294	)
Daesung Steel		169,305		111,502		57,803			75,474		824
Incheon-Gimpo Expressway Co., Ltd.		1,049,629		931,937		117,692			—		(92,202	)
Keystone NO. 1. Private Equity Fund		177,024		144,186		32,838			15,507		(3,962	)
UITrans LRT Co., Ltd.		430,227		435,699		(5,472	)		12,929		(85,344	)
KoFC POSCO HANWHA KB Shared Growth NO. 2. Private Equity Fund		59,464		1,061		58,403			2,401		(12,313	)
KONES, Corp.		2,618		1,414		1,204			5,167		70
POSCO MITSUBISHI CARBON TECHNOLOGY		537,138		237,563		299,575			300,986		116,049
[Foreign]
South-East Asia Gas Pipeline Company Ltd.		1,726,410		1,009,731		716,679			343,471		70,717
7623704 Canada Inc.		1,232,208		1		1,232,207			—		44,320
KOREA LNG LTD.		217,883		110		217,773			54,357		52,720
Nickel Mining Company SAS		465,463		329,084		136,379			207,956		(4,569	)
PT. Batutua Tembaga Raya		332,305		274,580		57,725			128,609		(8,451	)
Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd		73,515		24,264		49,251			121,104		(2,231	)
PT. Wampu Electric Power		223,009		155,407		67,602			13,461		887
POSCO SeAH Steel Wire (Nantong) Co., Ltd.		61,782		34,740		27,042			85,619		78
Roy Hill Holdings Pty Ltd		9,666,619		6,043,492		3,623,127			3,259,256		497,469
POSCO-NPS Niobium LLC		726,810		—		726,810			—		41,812
KOBRASCO		317,842		50,945		266,897			229,340		150,550
BX STEEL POSCO Cold Rolled Sheet Co., Ltd.		710,518		384,572		325,946			1,341,849		2,159
DMSA/AMSA		5,562,877		4,171,896		1,390,981			731,127		(529,844	)
CSP - Compania Siderurgica do Pecem		4,194,242		4,192,867		1,375			1,860,198		(542,865	)

F-74

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

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, 2018 are as follows:

Joint operations	Operation	Ownership (%)	Location
MyanmarA-1/A-3 mine	Mineral development and gas production	51.00	Myanmar
Offshore midstream	Gas transportation facility	51.00	Myanmar
Greenhills mine	Mine development	20.00	Canada
Arctos Anthracite coal project	Mine development	50.00	Canada
Mt. Thorley J/V	Mine development	20.00	Australia
POSMAC J/V	Mine development	20.00	Australia
RUM J/V	Mine development	10.00	Australia
Hanam-Gamil package public housing project	Construction	7.70	Korea
Hanam-Gamil district B6, C2, C3 block Public housing lot development project	Construction	27.00	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

13. Investment Property, Net

(a) Investment property as of December 31, 2017 and 2018 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)
Land	￦	360,402		—			360,402		295,328		(16,743	)		278,585
Buildings		727,022		(92,982	)		634,040		681,518		(110,183	)		571,335
Structures		7,717		(1,436	)		6,281		3,327		(1,919	)		1,408
Construction-in-progress		64,191		—			64,191		101,665		(24,378	)		77,287
	￦	1,159,332		(94,418	)		1,064,914		1,081,838		(153,223	)		928,615

As of December 31, 2018, the fair value of investment property is￦1,498,136 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

(*1) Includes reclassification resulting from changing purpose of use, adjustment of foreign currency translation difference and others.

F-75

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

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 to￦51,461 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 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

F-76

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

(b) Changes in the carrying amount of property, plant and equipment for the years ended December 31, 2017 and 2018 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 of￦48,070 million since the recoverable amount is less than its carrying amount. The impairment recorded in 2017 also included￦17,651 million related to POSCO for individual assets due to a decline in economic result and others.

(*2) Represents assets transferred fromconstruction-in-progress to intangible assets and other property, plant and equipment, reclassifications resulting from changing purpose of use, adjustments of foreign currency translation differences and others.

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

(*1) During 2018, the Controlling Company evaluated future economic performance of its Synthetic Natural Gas (SNG) facility that was still in trial run stage. Considering the continuous decline in LNG price, increase in coal prices and the need for additional capital investment in the SNG facility, the Controlling Company concluded that the profitability for the SNG facility is unlikely to be sustainable and decided to terminate the operation of SNG facility as of December 31, 2018. The property, plant and equipment in the SNG facility are primarily comprised of machinery and equipment, among which assets with a carrying value of￦167,054 million are expected to bere-used in other facilities of the Controlling Company therefore no impairment test was conducted. For the remaining assets impairment test was performed by estimating the recoverable

F-77

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

amount of each individual assets. For the assets which are determined to be technically obsolete and therefore sale is unlikely, recoverable amount represents expected scrap value less cost of disposal.

For the assets for which sale is probable, the recoverable amount is determined based on fair value less cost of disposal. Fair value was measured using cost approach, which is based on an 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. The fair value measurement of assets in SNG facility is considered to be level 3 because significant inputs used in the estimate, such as asset specific inflation factors and estimated useful lives, are unobservable.

As a result of the impairment test, the Company recognized an impairment loss of￦809,737 million in connection with the property, plant and equipment in the SNG facility.

The Controlling Company also has recognized an impairment loss amounting to￦61,787 million since recoverable amounts on Strip Casting facilities and others is less than their carrying amount for the period ended December 31, 2018.

(*2) As of December 31, 2018, POSCO ENERGY CO., LTD., as a subsidiary, performed an impairment test due to the consecutive operating loss of the fuel cell business, and recognized impairment losses amounting to￦54,250 million.

(*3) 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.

(c) Borrowing costs capitalized and the capitalized interest rate for the years ended December 31, 2017 and 2018 were as follows:

	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:

		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

(*1) Investment property and other assets(land-use right) are included.

(*2) As of December 31, 2018, the pledged amount is￦5,323,071 million.

F-78

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

15. Goodwill and Other Intangible Assets, Net

(a) Goodwill and other intangible assets as of December 31, 2017 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 goodwill and other intangible assets for the years ended December 31, 2017 and 2018 were 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

(*1) Premium in rental includes memberships with indefinite useful lives.

F-79

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

(*2) 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

	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

(*1) Premium in rental includes memberships with indefinite useful lives.

(*2) During the year ended December 31, 2018, the Company disposed of a portion of shares of its subsidiary, POSPower Co., Ltd, which resulted in the Company’s loss of control, and derecognition of corresponding intangible assets.

(*3) Represents assets transferred fromconstruction-in-progress to intangible assets and assets transferred from property, plant and equipment, adjustments of foreign currency translation difference and others.

(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 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

(*1) Recoverable amounts of POSCO DAEWOO Corporation are determined based on its value in use. As of December 31, 2018, value in use is estimated by applying a 7.84% discount rate and a 2.0% terminal growth rate after 5 years, based on management’s business plan. The terminal growth rate does not exceed long-term average growth rate of its industry. Impairment loss on goodwill of￦158,151 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￦126,343 million or 3.71% and when the terminal growth rate decreases by￦50,928 million or 0.25%, value in use will be decreased by 1.49%.

F-80

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

(*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 of￦65,558 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, 2017 and 2018 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

(*1) As of December 31, 2017 and 2018, the Company recognized tax assets amounting to￦88,633 million and￦116,693 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.

F-81

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

17. Borrowings

(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

(*1) Includes other assets such as right to use land.

F-82

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

18. Other Payables

Other payables as of December 31, 2017 and 2018 are as follows:

	2017		2018
	(in millions of Won)
Current
Accounts payable	￦	800,374		783,562
Accrued expenses		653,923		720,773
Dividend payable		7,213		8,673
Finance lease liabilities		17,763		10,152
Withholdings		274,188		196,937
	￦	1,753,461		1,720,097
Non-current
Accounts payable	￦	4,632		1,624
Accrued expenses		14,234		19,021
Finance lease liabilities		75,255		84,602
Long-term withholdings		53,629		43,621
	￦	147,750		148,868

19. Other Financial Liabilities

Other financial liabilities as of December 31, 2017 and 2018 are as follows:

	2017		2018
	(in millions of Won)
Current
Derivatives liabilities	￦	69,872		27,328
Financial guarantee liabilities		59,940		50,472
	￦	129,812		77,800
Non-current
Derivatives liabilities	￦	85,638		46,429
Financial guarantee liabilities		28,467		17,733
	￦	114,105		64,162

20. Provisions

(a) Provisions as of December 31, 2017 and 2018 are as follows:

	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 to￦27,963 million and￦50,888 million as provisions for legal contingencies and asserted claim in relation to lawsuits against the Company as of December 31, 2017 and 2018, respectively.

F-83

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,￦29,703 million as provisions for restoration as of December 31, 2018. 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%~2.37% to measure present value of these costs.

(*3) As of December 31, 2017 and 2018, POSCO ENERGY CO., LTD., a subsidiary of the Company, recognized￦157,461 million and￦200,407 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, 2017 and 2018, the amount includes a provision of￦23,600 million and￦17,595 million, respectively, for expected outflow of resources in connection with the performance guarantee for the Hwaseong-Dongtan complexes development project of POSCO ENGINEERING & CONSTRUCTION CO., LTD.

(b) The following are the key assumptions concerning the future and other key sources of estimation uncertainties at the end of the reporting period.

	Key assumptions for the estimation
Provision for bonus payments	Estimations based on financial performance and service provided
Provision for construction warranties	Estimations based on historical warranty data
Provision for legal contingencies and claims	Estimations based on the degree of probability of an unfavorable outcome and the ability to make a sufficient reliable estimate of the amount of loss

(c) Changes in provisions for the years ended December 31, 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

(*1) Includes adjustments of foreign currency translation differences and others.

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

(*1) Includes adjustments of foreign currency translation differences and others.

F-84

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

21. Employee Benefits

(a) Defined contribution plans

The expenses related to post-employment benefit plans under defined contribution plans for the years ended December 31, 2016, 2017 and 2018 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:

	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

(*1) As of December 31, 2017 and 2018, the Company recognized net defined benefit assets amounting to￦8,224 million and￦1,489 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

F-85

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

The Company expects to make an estimated contribution of￦408,887 million to the defined benefit plan assets in 2019.

4) The fair value of plan assets as of December 31, 2017 and 2018 are as follows:

	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

(*1) The actual return on plan assets amounted to￦30,422 million,￦28,326 million and￦31,023 million for the years ended December 31, 2016, 2017 and 2018, 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:

	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 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

(*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.

F-86

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

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:

	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

The maturity analysis of the defined benefit obligation was nominal amounts of defined benefit obligations using expected remaining period of service of employees.

22. Other Liabilities

Other liabilities as of December 31, 2017 and 2018 are as follows:

	2017		2018
	(in millions of Won)
Current
Due to customers for contract work	￦	782,968		641,064
Advances received		1,183,108		1,130,910
Unearned revenue		7,121		49,805
Withholdings		221,940		233,981
Firm commitment liability		12,192		24,373
Others		33,590		10,174
	￦	2,240,919		2,090,307
Non-current
Advances received		357,981		148,081
Unearned revenue		18,440		42,992
Others		10,010		59,359
	￦	386,431		250,432

F-87

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

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:

① December 31, 2017

			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

(*1) Fair value of financial assets and liabilities measured at amortized cost except borrowings approximates carrying amounts.

F-88

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

② December 31, 2018

			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
									��

(*1) Fair value of financial assets and liabilities measured at amortized cost except borrowings approximates 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 accounting which uses currency swap as hedging instrument in order to hedge the risk of 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.

F-89

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

3) Financial assets and financial liabilities classified as fair value hierarchy Level 3

① Value measurement method and significant but not observable inputs for the financial assets classified as fair value hierarchy Level 3 as of December 31, 2018 are as follows:

	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	￦	303,377	Discounted cash flows	Growth rate	0% ~ 0.5%	As growth rate increases, fair value increases
				Discount rate	6.4% ~ 13.8%	As discount rate increases, fair value decreases
		23,747	Proxy firm valuation method	Price multiples	1.085 ~ 5.245	As price multiples increases, fair value increases
		382,536	Asset value approach	—	—	—

② 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, 2018 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

③ Changes in fair value of financial assets and financial liabilities classified as Level 3 for the years ended December 31, 2017 and 2018 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

F-90

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

4) Finance income and costs by category of financial instrument for the years ended December 31, 2016, 2017 and 2018 were as follows:

① For the year ended December 31, 2016

	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

② 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	)

F-91

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

	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) 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, 2017 and 2018 are as follows:

	2017		2018
	(in millions of Won)
Cash and cash equivalents	￦	2,612,530		2,643,865
Derivative assets		68,290		49,083
Short-term financial instrument		5,545,667		6,099,303
Debt securities		—		37,314
Other securities		—		338,106
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
Trade accounts and notes receivable		8,898,176		8,819,617
Deposit instruments		1,358,311		1,966,558
	￦	20,878,487		21,799,227

The Company provided financial guarantee for the repayment of loans of associates, joint ventures and third parties. As of December 31, 2017 and 2018, the maximum exposure to credit risk related to the financial guarantee amounted to￦3,135,084 million and￦3,147,280 million, respectively.

2) Impairment losses on financial assets

The Company assesses expected credit losses by estimating the default rate based on the credit loss experience of prior periods and 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.

F-92

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

① Allowance for doubtful accounts as of December 31, 2017 and 2018 are 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

② 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

(*1) Other bad debt expenses are mainly related to loans and other accounts receivable.

③ The aging and allowance for doubtful accounts of trade accounts and notes receivable as of December 31, 2017 and 2018 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

④ The aging and allowance for doubtful accounts of other receivables as of December 31, 2017 and 2018 are as follows:

	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

F-93

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

⑤ Changes in the allowance for doubtful accounts for the years ended December 31, 2016, 2017 and 2018 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

(*1) Others for the year ended December 31, 2016, 2017 and 2018, included decreases mainly due towrite-off amounting to￦216,657 million,￦119,964 million and￦383,714 million, respectively.

(c) Liquidity risk

1) Contractual maturities fornon-derivative financial liabilities are as follows:

	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) 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 derivative financial liabilities are as follows:

	Within 1 year		1 year - 5 years		After 5 years		Total
	(in millions of Won)
Currency forward	￦	11,364		34,743		—		46,107
Currency swap		1,707		5,849		4,369		11,925
Interest swap		—		1,467		—		1,467
Others		14,258		—		—		14,258
	￦	27,329		42,059		4,369		73,757

F-94

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

(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 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:

	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) 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, 2017 and 2018, 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, 2017 and 2018 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

F-95

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

24. Share Capital and Capital Surplus

(a) Share capital as of December 31, 2017 and 2018 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

(*1) As of December 31, 2018, total shares of ADRs of 36,860,288 outstanding in overseas stock market are equivalent to 9,215,072 of common stock.

(*2) As of December 31, 2018, the difference between the ending balance of common stock and the par value of issued common stock is￦46,469 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 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:

	Redeemable Convertible Preferred Shares
	(Share, in Won)
Issue date	February 25, 2017
Number of shares issued	8,643,193 shares
Price per share	￦28,346
Voting rights	No voting rights for 3 years from issue date
Dividend rights	Comparative,Non-participating · Minimum dividend rate for 1~3 years : 3.98% · Minimum dividend rate after 4 years : Comparative rate + Issuance spread + 2%

F-96

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

	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 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

(*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, 2018 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 10 and interest payment date afterwards

The hybrid bond holder’s preference in the event of liquidation is higher than the common stock holders, but lower than other creditors. The interest accumulated but not paid on the hybrid bonds as of December 31, 2018 amounts to￦479 million.

F-97

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

(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., Ltd .as of December 31, 2018 are as follows:

	Hybrid bond1-4
Maturity date	30 years (The Company has a right to extend the maturity date)
Interest rate	Issue date ~2023-08-29 : 5.21% Reset every 10 years as follows; · After 10 years : return on government bond (10 years) + 1.55% · After 10 years : additionally +0.25% according toStep-up clauses · After 30 years : additionally +0.75%
Interest payments condition	Quarterly (Optional deferral of interest payment is available to the issuer)
Others	The issuer can call the hybrid bond at year 10 and interest payment date afterwards

The hybrid bond holders’ preference in the event of liquidation is higher than the common stock holders, but lower than other creditors. The interest accumulated but not paid on the hybrid bonds as of December 31, 2018 amounts to￦639 million.

26. Reserves

(a) Reserves as of December 31, 2017 and 2018 are as follows:

	2017			2018
	(in millions of Won)
Accumulated comprehensive loss of investments in associates and joint ventures	￦	(516,528	)		(670,435	)
Changes in fair value of equity investments at fair value through other comprehensive income		—			(295,300	)
Changes in the unrealized fair value ofavailable-for-sale investments		230,190			—
Foreign currency translation differences		(372,166	)		(417,817	)
Gain or losses on valuation of derivatives		(136	)		(352	)
Others		(23,916	)		(20,464	)
	￦	(682,556	)		(1,404,368	)

F-98

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

(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 price stabilization. The changes in treasury shares for the years ended December 31, 2017 and 2018 were as follows:

	2017						2018
	Number of shares			Amount			Number of shares			Amount
	(shares, in millions of Won)
Beginning		7,189,170		￦	1,533,468			7,187,231		￦	1,533,054
Disposal of treasury shares		(1,939	)		(414	)		(1,528	)		(326	)
Ending		7,187,231		￦	1,533,054			7,185,703		￦	1,532,728

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, 2017 and 2018 were as follows:

① For the year ended December 31, 2016

	Steel		Trading		Construction		Others		Total
	(in millions of Won)
Types of revenue
Revenue from sales of goods	￦	26,687,899		16,602,482		11,496		243,149		43,545,026
Revenue from services		102,657		24,703		50,189		2,237,129		2,414,678
Revenue from construction contract		—		—		6,474,192		23,087		6,497,279
Others		53,599		146,893		88,728		193,568		482,788
	￦	26,844,155		16,774,078		6,624,605		2,696,933		52,939,771
Timing of revenue recognition
Revenue recognized at a point in time	￦	26,741,498		16,749,375		100,224		446,667		44,037,764
Revenue recognized over time		102,657		24,703		6,524,381		2,250,266		8,902,007
	￦	26,844,155		16,774,078		6,624,605		2,696,933		52,939,771

F-99

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

② For the year ended December 31, 2017

	Steel		Trading		Construction		Others		Total
	(in millions of Won)
Types of revenue
Revenue from sales of goods	￦	30,064,680		20,655,267		20,368		617,394		51,357,709
Revenue from services		111,494		28,793		48,408		1,876,179		2,064,874
Revenue from construction contract		—		—		6,262,038		37,154		6,299,192
Others		54,194		118,147		87,559		205,192		465,092
	￦	30,230,368		20,802,207		6,418,373		2,735,919		60,186,867
Timing of revenue recognition
Revenue recognized at a point in time	￦	30,118,874		20,773,414		107,927		832,369		51,832,584
Revenue recognized over time		111,494		28,793		6,310,446		1,903,550		8,354,283
	￦	30,230,368		20,802,207		6,418,373		2,735,919		60,186,867

③ For the year ended December 31, 2018

	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

F-100

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

29. Revenue – Contract Balances

(a) Details ofin-progress contracts as of December 31, 2017 and 2018 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:

	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 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

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

(d) 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, this 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

F-101

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. Selling and Administrative Expenses

(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

F-102

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

(b) Selling expenses

Selling expenses for the years ended December 31, 2016, 2017 and 2018 were as follows:

	2016		2017		2018
	(in millions of Won)
Freight and custody expenses(*1)	￦	1,342,009		1,336,969		184,675
Operating expenses for distribution center		10,315		10,503		10,614
Sales commissions		94,377		115,925		79,080
Sales advertising		5,117		3,800		4,821
Sales promotion		10,670		12,414		13,792
Sample		2,335		1,989		2,716
Sales insurance premium		31,379		36,546		37,251
Contract cost		49,480		23,061		16,992
Others		8,004		16,070		19,304
	￦	1,553,686		1,557,277		369,245

(*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, 2017 and 2018 were as follows:

	2016		2017		2018
	(in millions of Won)
Administrative expenses	￦	120,608		125,795		108,352
Cost of sales		324,190		361,093		418,250
	￦	444,798		486,888		526,602

F-103

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

32. Other Operating Income and Expenses

Details of other operating income and expenses for the years ended December 31, 2016, 2017 and 2018 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 recognized￦55,306 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 to￦160,501 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 recognized￦52,997 million of additional taxes imposed for value added tax related to imported LNG as other operating expense.

F-104

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

33. Finance Income and Costs

Details of finance income and costs for the years ended December 31, 2016, 2017 and 2018 were as follows:

	2016			2017			2018
	(in millions of Won)
Finance income
Interest income(*1)	￦	182,475			212,451			337,258
Dividend income		41,000			92,962			63,345
Gain on foreign currency transactions		1,032,552			785,616			716,060
Gain on foreign currency translations		377,723			564,016			212,443
Gain on derivatives transactions		316,524			210,727			247,513
Gain on valuations of derivatives		147,111			64,735			96,986
Gain on disposals ofavailable-for-sale financial assets		130,830			425,684			—
Gain on valuations of financial assets at fair value through profit or loss		—			—			16,149
Others		3,765			16,476			16,216
	￦	2,231,980			2,372,667			1,705,970
Finance costs
Interest expenses	￦	(658,726	)		(653,115	)		(741,296	)
Loss on foreign currency transactions		(1,147,192	)		(756,654	)		(810,857	)
Loss on foreign currency translations		(405,391	)		(422,880	)		(321,748	)
Loss on derivatives transactions		(338,314	)		(236,273	)		(208,772	)
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 financial assets at fair value through profit or loss		—			—			(59,442	)
Others		(53,487	)		(65,654	)		(61,627	)
	￦	(3,014,190	)		(2,484,277	)		(2,244,416	)

(*1) Interest income calculated using the effective interest method for the years ended December 31, 2016, 2017, and 2018 were￦106,828 million,￦130,710 million, and￦197,142 million, respectively.

F-105

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, 2017 and 2018 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

(*1) Includes depreciation expense of investment property.

(*2) The details of employee benefits expenses for the years ended December 31, 2016, 2017 and 2018 were as follows:

	2016		2017		2018
	(in millions of Won)
Wages and salaries	￦	3,016,488		3,105,364		3,372,831
Expenses related to post-employment benefits		427,788		252,497		266,361
	￦	3,444,276		3,357,861		3,639,192

35. Income Taxes

(a) Income tax expense for the years ended December 31, 2016, 2017 and 2018 was as follows:

	2016			2017		2018
	(in millions of Won)
Current income taxes(*1)	￦	699,269			864,143		1,577,581
Deferred income tax due to temporary differences		(209,706	)		300,037		(38,851	)
Items recorded directly in equity		(110,019	)		21,560		144,900
Income tax expense	￦	379,544			1,185,740		1,683,630

(*1) Refund (additional payment) of income taxes when filing a final corporation tax return credited (charged) directly to current income taxes.

F-106

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 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 of￦300,000 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.

F-107

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.

F-108

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 of￦5,590,698 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 of￦4,873,232 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.

F-109

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

36. Earnings per Share

Basic and diluted earnings per share for the years ended December 31, 2016, 2017 and 2018 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

(*1) The weighted-average number of common shares used to calculate basic and diluted earnings per share are as follows:

	2016			2017			2018
	(shares)
Total number of common shares issued		87,186,835			87,186,835			87,186,835
Weighted-average number of treasury shares		(7,190,446	)		(7,188,235	)		(7,186,229	)
Weighted-average number of common shares outstanding		79,996,389			79,998,600			80,000,606

Since there were no potential shares of common stock which had dilutive effects as of December 31, 2016, 2017 and 2018, diluted earnings per share is equal to basic earnings per share.

F-110

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

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

	Sales and others(*1)				Purchase and others(*2)
	Sales		Others		Purchase of material		Purchase of fixed assets		Outsourced processing cost		Others
	(in millions of Won)
Subsidiaries
POSCO ENGINEERING & CONSTRUCTION CO., LTD.	￦	29,511		16,661		8		183,768		—		24,511
POSCO Processing & Service		1,212,220		5,778		549,803		2,896		22,704		2,445
POSCO COATED & COLOR STEEL Co., Ltd.		326,078		2,560		—		—		12,232		126
POSCO ICT(*3)		1,224		727		—		219,301		32,456		171,107
eNtoB Corporation		—		5		278,016		9,836		212		19,436
POSCO CHEMTECH		319,164		33,784		502,448		14,847		290,427		5,139
POSCO ENERGY CO., LTD.		187,311		1,382		—		—		—		7
POSCO TMC Co., Ltd.(*4)		219,489		—		2		—		863		1,177
POSCO AST(*4)		152,098		1		—		—		19,695		922
POSCO DAEWOO Corporation		3,227,716		34,341		92,203		—		343		—
POSCO Thainox Public Company Limited		237,471		2,915		9,593		—		19		548
POSCO America Corporation		469,543		—		284		—		—		1,103
POSCO Canada Ltd.		275		—		148,528		—		—		—
POSCO Asia Co., Ltd.		1,758,080		1,373		403,174		247		939		3,602
Qingdao Pohang Stainless Steel Co., Ltd.		135,405		—		—		—		—		525
POSCO JAPAN Co., Ltd.		1,112,489		128		23,217		3,744		345		3,841
POSCO-VIETNAM Co., Ltd.		226,063		445		—		—		—		—
POSCO MEXICO S.A. DE C.V.		274,210		462		—		—		—		—
POSCO Maharashtra Steel Private Limited		355,829		2,613		—		—		—		93
POSCO(Suzhou) Automotive Processing Center Co., Ltd.		149,911		—		—		—		—		—
Others		766,263		22,717		207,601		62,202		212,344		145,562
		11,160,350		125,892		2,214,877		496,841		592,579		380,144
Associates and joint ventures
SeAH Changwon Integrated Special Steel		28		—		1,095		—		627		—
POSCO PLANTEC Co., Ltd.		2,245		48		3,533		244,898		16,812		8,146
SNNC		6,004		1,042		487,395		—		—		2
POSCO-SAMSUNG-Slovakia Processing center		44,686		—		—		—		—		—
KOBRASCO		—		29,297		—		—		—		—
Others		26,625		13,122		175,246		—		—		—
		79,588		43,509		667,269		244,898		17,439		8,148
	￦	11,239,938		169,401		2,882,146		741,739		610,018		388,292

(*1) Sales and others mainly consist of sales of steel products to subsidiaries, associates and joint ventures.

(*2) Purchases and others mainly consist of subsidiaries’ purchases of construction services and purchases of raw materials to manufacture steel products.

(*3) Others (purchase) mainly consist of service fees related to maintenance and repair of ERP System.

(*4) During the year ended December 31, 2016, it was merged into POSCO Processing & Service.

F-111

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

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

F-112

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 of￦2,950 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.

F-113

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

(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

	Receivables						Payables
	Trade accounts and notes receivable		Others		Total		Trade accounts and notes payable		Accounts payable		Others		Total
	(in millions of Won)
Subsidiaries
POSCO ENGINEERING & CONSTRUCTION CO., LTD.	￦	2		2,908		2,910		—		21,965		674		22,639
POSCO COATED & COLOR STEEL Co., Ltd.		58,184		324		58,508		—		5		504		509
POSCO ICT		55		217		272		1,458		72,586		27,009		101,053
eNtoB Corporation		—		—		—		12,252		31,899		20		44,171
POSCO CHEMTECH		61,810		3,589		65,399		51,774		20,313		17,568		89,655
POSCO ENERGY CO., LTD.		33,239		1,673		34,912		—		—		1,425		1,425
POSCO DAEWOO Corporation		483,915		12,739		496,654		10,213		2,145		5,794		18,152
POSCO Thainox Public Company Limited		57,826		—		57,826		1,204		—		—		1,204
POSCO America Corporation		5,365		—		5,365		—		—		—		—
POSCO Asia Co., Ltd.		404,857		541		405,398		9,811		24		—		9,835
Qingdao Pohang Stainless Steel Co., Ltd.		31,693		—		31,693		—		—		—		—
POSCO MEXICO S.A. DE C.V.		55,695		530		56,225		—		—		—		—
POSCO Maharashtra Steel Private Limited		392,630		5,733		398,363		—		—		—		—
Others		384,385		49,403		433,788		15,038		59,575		31,118		105,731
		1,969,656		77,657		2,047,313		101,750		208,512		84,112		394,374
Associates and joint ventures
POSCO PLANTEC Co., Ltd.		1,946		9		1,955		3,842		15,723		—		19,565
SNNC		648		61		709		49,506		3		—		49,509
Others		8,350		904		9,254		824		—		—		824
		10,944		974		11,918		54,172		15,726		—		69,898
	￦	1,980,600		78,631		2,059,231		155,922		224,238		84,112		464,272

F-114

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

2) December 31, 2018

	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

F-115

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

(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

	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

	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

F-116

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

3) December 31, 2018

	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

(d) The related account balances of significant transactions between the Company, excluding the controlling company, and related companies as of December 31, 2017 and December 31, 2018 are as follows:

1) December 31, 2017

	Receivables(*1)								Payables
	Trade accounts and notes receivable		Loan		Others		Total		Trade accounts and notes payable		Others		Total
	(in millions of Won)
Associates and joint ventures
POSCO PLANTEC Co., Ltd.	￦	2,287		—		5		2,292		3,442		5,595		9,037
New Songdo International City Development, LLC		484,038		282,775		1,696		768,509		—		7,146		7,146
Chun-cheon Energy Co., Ltd		—		—		21		21		—		9,617		9,617
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

(*1) As of December 31, 2017, the Company recognizesbad-debt allowance for receivables amounting to￦4,217 million.

F-117

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

2) December 31, 2018

	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

(*1) As of December 31, 2018, the Company recognizesbad-debt allowance for receivables amounting to￦102,694 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 to￦13,712 million have been converted to shares of DMSA/AMSA, and its amount is included in others.

F-118

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

(*3) During the year ended December 31, 2017, it was newly classified to associates and joint ventures.

(*4) Includes adjustments of foreign currency translation differences and others.

2) December 31, 2018

	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

(*1) During the year ended December 31, 2018, loans amounting to￦17,559 million have been converted to shares of DMSA/AMSA, and its amount is included in others.

(*2) Includes adjustments of foreign currency translation differences and others.

(f) For the years ended December 31, 2016, 2017 and 2018, details of compensation to key management officers were as follows:

	2016		2017		2018
	(in millions of Won)
Short-term benefits	￦	90,916		112,688		115,618
Long-term benefits		17,905		8,632		13,400
Retirement benefits		17,870		20,422		21,658
	￦	126,691		141,742		150,676

Key management officers include directors (includingnon-standing directors), executive officials and fellow officials who have significant influences and responsibilities in the Company’s business and operations.

38. Commitments and Contingencies

(a) Contingent liabilities

Contingent liabilities may develop in a way not initially expected. Therefore, management continuously assesses contingent liabilities to determine whether an outflow of resources embodying economic benefits has become probable. If it becomes probable that an outflow of future economic benefits will be required for an item previously dealt with as a contingent liability, a provision is recognized in the consolidated financial statements of the period in which the change in probability occurs (except in the extremely rare circumstances where no reliable estimate can be made).

F-119

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 or cash or other resources embodying economic benefits will be required to settle the obligation and the ability to make a reliable estimate of the amount of the obligation.

(b) Details of guarantees

Contingent liabilities on outstanding guarantees and others provided by the Company as of December 31, 2018 are as follows.

			Guarantee limit				Guarantee amount
Guarantor	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 ASSAN TST STEEL INDUSTRY	SMBC and others	USD	146,527,500		163,832		131,874,750		147,449
	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 Maharashtra Steel Private Limited	Export-Import Bank of Korea and others	USD	506,853,000		566,712		168,397,800		188,285
	POSCO MEXICO S.A. DE C.V.	BOA and others	USD	160,000,000		178,896		160,000,000		178,896
	POSCO SS VINA Co., Ltd.	Export-Import Bank of Korea and others	USD	354,351,050		396,200		274,570,077		306,996
	POSCO-VIETNAM Co., Ltd.	SMBC and others	USD	156,000,000		174,424		156,000,000		174,424
	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

F-120

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

			Guarantee limit				Guarantee amount
Guarantor	Guarantee beneficiary	Financial institution	Foreign currency		Won equivalent		Foreign currency		Won equivalent
	(in millions of Won)
	Golden Lace DAEWOO Company Limited	Shinhan Bank	USD	9,000,000		10,063		6,000,000		6,708
	POSCO DAEWOO CHINA CO., LTD	Mizuho	USD	8,000,000		8,945		7,290,000		8,151
	Songdo Posco family Housing	SHINYOUNG SECURITIES CO., LTD.	KRW	10,000		10,000		—		—
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
	HONG KONG POSCO E&C (CHINA) INVESTMENT Co., Ltd.	Woori bank and others	USD	148,000,000		165,479		142,000,000		158,770
	POSCO Engineering and Construction India Private Limited	Woori bank	USD	2,100,000		2,348		2,100,000		2,348
		KEB Hana Bank	INR	104,000,000		1,663		9,000,000		144
	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
POSCO CHEMTECH	PT.Krakatau Posco Chemtech Calcination	POSCO Asia Co., Ltd.	USD	15,200,000		16,995		14,400,000		16,101
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
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 Asia Co., Ltd.	POSCO SINGAPORE LNG TRADING PTE. LTD.	SMBC	USD	40,000,000		44,724		40,000,000		44,724
[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

F-121

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

			Guarantee limit				Guarantee amount
Guarantor	Guarantee beneficiary	Financial institution	Foreign currency		Won equivalent		Foreign currency		Won equivalent
	(in millions of Won)
	LLP POSUK Titanium	SMBC	USD	15,000,000		16,772		15,000,000		16,772
	Nickel Mining Company SAS	SMBC	EUR	46,000,000		58,841		46,000,000		58,841
POSCO DAEWOO Corporation	GLOBAL KOMSCO Daewoo LLC	ICBC	USD	8,225,000		9,196		8,225,000		9,196
POSCO ENGINEERING & CONSTRUCTION CO., LTD.	New Songdo International City Development, LLC	Others	KRW	440,000		440,000		432,000		432,000
	UITrans LRT Co., Ltd.	Kookmin Bank and others	KRW	20,740		20,740		3,766		3,766
	Chun-cheon Energy Co., Ltd	Kookmin Bank and others	KRW	11,600		11,600		941		941
	Pohang E&E Co., Ltd	Heungkuk Life Insurance Co., Ltd.	KRW	6,500		6,500		—		—
	JB CLARK HILLS	Korea Investment & Securities Co., Ltd.	KRW	40,000		40,000		30,000		30,000
POSCO ICT	Incheon-Gimpo Expressway Co, Ltd.	KDB Bank	KRW	100,000		100,000		100,000		100,000
	UITrans LRT Co., Ltd.	Kookmin Bank	KRW	76,000		76,000		76,000		76,000
POSCO CHEMTECH	KRAKATAUPOS-CHEMDONG-SUH CHEMICAL	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
[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 ENGINEERING & CONSTRUCTION CO., LTD.	Ecocity CO., LTD and others	Others	KRW	1,524,314		1,524,314		545,893		545,893
POSCO ICT	SMS Energy and others	KEB Hana Bank and others	KRW	78,791		78,791		60,519		60,519
	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
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

F-122

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

			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

(c) POSCO ENGINEERING & CONSTRUCTION CO., LTD. has provided the completion guarantees for Samsung C&T Corporation amounting to￦395,162 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 to￦179,619 million as of December 31, 2018.

(d) Other commitments

Details of other commitments of the Company as of December 31, 2018 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, 100 million tons of iron ore and 14 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) contract for the transportation of raw materials. As of December 31, 2018, there are 38 vessels under contract and the average remaining contract period is about 10 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, POSCO entered into a commitment with KOREA ENERGY AGENCY for long- term foreign currency borrowings, which are limited up to the amount of USD 6.49 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 of full or 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, the ending balance of the borrowing amounts to USD 1.02 million.
	POSCO has provided a supplemental funding agreement, as the largest shareholder, as requested from the creditors, including Norddeutsche Landesbank, for seamless funding to POSCO ENERGY Co., Ltd. under construction of new power plant.

F-123

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

Company	Description
	POSCO provides a supplementary fund of up to￦9.8 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 with￦131,117 million,￦8,939 million and￦305 million guaranties from Korea Software Financial Cooperative, Seoul Guarantee Insurance and Engineering Guarantee Insurance, respectively.

(e) Litigation in progress

As of December 31, 2018, litigations in progress that POSCO and certain subsidiaries are defendants in legal actions arising from the normal course of business are as follows:

Company	Legal actions		Claim amount		Won equivalent		Description
	(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)
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)
		10	KRW	20,049		20,049	Litigation for confirmation of deposit bond and others
		5	USD	28,763		32,160	Lawsuit on claim for damages and others
		1	PKR	124,775		1,003	Lawsuit on claim for damages
POSCO ENGINEERING & CONSTRUCTION., LTD.		120	KRW	442,812		442,812	Lawsuit on claim for damages and others(*1)
POSCO ICT		1	BRL	10,182		2,933	Lawsuit on revocation of claim for damage
		11	KRW	6,452		6,452	Lawsuit on claim for damages and others
		1	USD	1,881		2,103	Lawsuit on claim for damages
POSCO A&C		8	KRW	2,752		2,752	Lawsuit on claim for payment on construction and others
POSCO ENERGY CO., LTD.		3	KRW	3,039		3,039	Lawsuit on claim for damages and others
POSCO E&C CHINA CO., LTD.		3	CNY	44,446		7,234	Lawsuit over contract dispute and others
POSCO COATED & COLOR STEEL Co., Ltd.		1	KRW	1,400		1,400	Lawsuit on claim for payment
POSCO ENGINEERING (THAILAND) CO., LTD.		2	THB	509,191		17,491	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

F-124

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

Company	Legal actions		Claim amount		Won equivalent		Description
	(in millions of Won, in thousands of foreign currencies)
Pos-Sea Pte Ltd		1	USD	12,051		13,474	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
POSCO India Steel Distribution Center Private Ltd.		1	INR	223,795		3,578	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
POSCO ENGINEERING & CONSTRUCTION DO BRAZIL LTDA.		148	BRL	156,011		44,944	Lawsuit on claim for payment on construction and others
POSCO ASSAN TST STEEL INDUSTRY		1	TRY	4,870		1,027	Lawsuit on compensation
HONG KONG POSCO E&C (CHINA) INVESTMENT Co., Ltd.		1	KRW	3,305		3,305	Lawsuit on claim for payment

(*1) The Company made a reliable estimate in 122 lawsuits by considering the possibility and amount of outflow of resources and recognized￦50,888 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, 2018 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	)

F-125

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.

F-126

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

(b) Information about reportable segments as of and for the years ended December 31, 2016, 2017 and 2018 were as follows:

1) As of and for the year ended December 31, 2016

	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

	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

F-127

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

3) As of and for the year ended December 31, 2018

	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

	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

	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

	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

F-128

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

(*1) As segment assets and liabilities are determined based on separate financial statements, for subsidiaries which are in a different segment from that of its immediate parent company, their carrying amount in separate financial statements is eliminated upon consolidation. In addition, adjustments are made to adjust the amount of investment in associates and joint ventures from the amount reflected in segment assets to that determined using equity method in consolidated financial statements.

4) Liabilities

	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	)

F-129

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016, 2017 and 2018

c) December 31, 2018

	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	)

(*2) Basis difference is related to the difference in recognizing revenue and expenses in connection with development and sale of certain residential real estate between the report reviewed by the CEO and the consolidated financial statements.

(d) Revenue by geographic area for the years ended December 31, 2016, 2017 and 2018 was as follows:

	2016			2017			2018
	(in millions of Won)
Domestic	￦	34,883,941			38,882,220			41,671,930
Japan		1,892,022			2,200,405			2,084,061
China		5,908,046			6,731,214			6,945,266
Indonesia		908,361			1,266,572			1,592,046
Asia-other		4,741,482			6,483,981			7,312,486
North America		1,899,291			1,725,120			1,834,534
Others		2,850,370			3,365,588			3,537,454
		53,083,513			60,655,100			64,977,777
Basis difference		(143,742	)		(468,233	)		176,859
	￦	52,939,771			60,186,867			65,154,636

In presenting information on the basis of geography, segment revenue is based on the geographical location of customers.

(e)Non-current assets by geographic area as of December 31, 2017 and 2018 are as follows:

	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) There are no customers whose revenue is 10% or more of the consolidated revenue.

F-130

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)*
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.INS	—	XBRL Instance Document
101.SCH	—	XBRL Taxonomy Extension Schema Document
101.CAL	—	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	—	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	—	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	—	XBRL Taxonomy Extension Presentation Linkbase Document

* 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, 2019