20-F

As filed with the Securities and Exchange Commission on May 12, 2014

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 20-F

(Mark One)

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

OR

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

For the fiscal year ended December 31, 2013

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 number 1-13368

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, 440 Teheran-ro, Gangnam-gu

Seoul, Korea 135-777

(Address of principal executive offices)

Kim, Min Da

POSCO Center, 440 Teheran-ro, Gangnam-gu,

Seoul, Korea 135-777

Telephone: +82-2-3457-5724; E-mail: happy7513@posco.com; Facsimile: +82-2-3457-1982

(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, 2013, there were 79,783,624 shares of common stock, par value Won 5,000 per share, outstanding

(not including 7,403,211 shares of common stock held by the company as treasury shares)

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

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

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

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

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

Large accelerated filer x        Accelerated filer ¨        Non-accelerated filer ¨

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

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

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨         No  x

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

TABLE OF CONTENTS

GLOSSARY			1
PART I			2
ITEM 1.	IDENTITY OF DIRECTORS, SENIOR MANAGERS AND ADVISERS		2
	Item 1.A.	Directors and Senior Management	2
	Item 1.B.	Advisers	2
	Item 1.C.	Auditors	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	5
ITEM 4.	INFORMATION ON THE COMPANY		22
	Item 4.A.	History and Development of the Company	22
	Item 4.B.	Business Overview	22
	Item 4.C.	Organizational Structure	40
	Item 4.D.	Property, Plants and Equipment	40
ITEM 4A.	UNRESOLVED STAFF COMMENTS		43
ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS		43
	Item 5.A.	Operating Results	43
	Item 5.B.	Liquidity and Capital Resources	69
	Item 5.C.	Research and Development, Patents and Licenses, Etc.	72
	Item 5.D.	Trend Information	73
	Item 5.E.	Off-balance Sheet Arrangements	73
	Item 5.F.	Tabular Disclosure of Contractual Obligations	73
	Item 5.G.	Safe Harbor	73
ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES		73
	Item 6.A.	Directors and Senior Management	73
	Item 6.B.	Compensation	77
	Item 6.C.	Board Practices	78
	Item 6.D.	Employees	79
	Item 6.E.	Share Ownership	80
ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS		82
	Item 7.A.	Major Shareholders	82
	Item 7.B.	Related Party Transactions	82
	Item 7.C.	Interests of Experts and Counsel	82
ITEM 8.	FINANCIAL INFORMATION		83
	Item 8.A.	Consolidated Statements and Other Financial Information	83
	Item 8.B.	Significant Changes	84

ITEM 9.	THE OFFER AND LISTING		84
	Item 9.A.	Offer and Listing Details	84
	Item 9.B.	Plan of Distribution	86
	Item 9.C.	Markets	86
	Item 9.D.	Selling Shareholders	90
	Item 9.E.	Dilution	91
	Item 9.F.	Expenses of the Issuer	91
ITEM 10.	ADDITIONAL INFORMATION		91
	Item 10.A.	Share Capital	91
	Item 10.B.	Memorandum and Articles of Association	91
	Item 10.C.	Material Contracts	96
	Item 10.D.	Exchange Controls	96
	Item 10.E.	Taxation	100
	Item 10.F.	Dividends and Paying Agents	105
	Item 10.G.	Statements by Experts	105
	Item 10.H.	Documents on Display	105
	Item 10.I.	Subsidiary Information	105
ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		105
ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES		107
	Item 12.A.	Debt Securities	107
	Item 12.B.	Warrants and Rights	107
	Item 12.C.	Other Securities	107
	Item 12.D.	American Depositary Shares	108
PART II			109
ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES		109
ITEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS		109
ITEM 15.	CONTROLS AND PROCEDURES		109
ITEM 16.	[RESERVED]		110
ITEM 16A.	AUDIT COMMITTEE FINANCIAL EXPERT		110
ITEM 16B.	CODE OF ETHICS		110
ITEM 16C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES		111
ITEM 16D.	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES		111
ITEM 16E.	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS		112
ITEM 16F.	CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT		112
ITEM 16G.	CORPORATE GOVERNANCE		112
ITEM 16H.	MINE SAFETY DISCLOSURE		113
PART III			114
ITEM 17.	FINANCIAL STATEMENTS		114
ITEM 18.	FINANCIAL STATEMENTS		114
ITEM 19.	EXHIBITS		114

GLOSSARY

“ADR”	American Depositary Receipt evidencing ADSs.
“ADR depositary”	Citibank, N.A.
“ADS”	American Depositary Share representing one-fourth of one share of Common Stock.
“Australian Dollar” or “A$”	The currency of the Commonwealth of Australia.
“Commercial Code”	Commercial Code of the Republic of Korea.
“common stock”	Common stock, par value Won 5,000 per share, of POSCO.
“deposit agreement”	Deposit Agreement, dated as of July 19, 2013, among POSCO, the ADR Depositary and all holders and beneficial owners from time to time of ADRs issued thereunder.
“Dollars,” “$” or “US$”	The currency of the United States of America.
“FSCMA”	Financial Investment Services and Capital Markets Act of the Republic of Korea.
“Government”	The government of the Republic of Korea.
“IASB”	International Accounting Standards Board.
“IFRS”	International Financial Reporting Standards.
“Yen” or “JPY”	The currency of Japan.
“Korea”	The Republic of Korea.
“Korean GAAP”	Generally accepted accounting principles in the Republic of Korea.
“Gwangyang Works”	Gwangyang Steel Works.
“We”	POSCO and its consolidated subsidiaries.
“Pohang Works”	Pohang Steel Works.
“POSCO Group”	POSCO and its consolidated subsidiaries.
“Renminbi”	The currency of the People’s Republic of China.
“Securities Act”	The United States Securities Act of 1933, as amended.
“Securities Exchange Act”	The United States Securities Exchange Act of 1934, as amended.
“SEC”	The United States Securities and Exchange Commission.
“tons”	Metric tons (1,000 kilograms), equal to 2,204.6 pounds.
“U.S. GAAP”	Generally accepted accounting principles in the United States of America.
“Won” or “￦”	The currency of the Republic of Korea.

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

1

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.  Auditors

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, 2012 and 2013 and for each of the years in the three-year period ended December 31, 2013 were derived from our Consolidated Financial Statements included elsewhere in this annual report. Our Consolidated Financial Statements are prepared in accordance with IFRS as issued by the IASB.

In addition to preparing financial statements in accordance with IFRS as issued by the IASB included in this annual report, we also prepare financial statements in accordance with Korean International Financial Reporting Standards (“K-IFRS”) as adopted by the Korean Accounting Standards Board (the “KASB”), which we are required to file with the Financial Services Commission and the Korea Exchange under the Financial Investment Services and Capital Markets Act of Korea. English translations of such financial statements are furnished to the Securities and Exchange Commission under Form 6-K. Beginning with our financial statements prepared in accordance with K-IFRS as of and for the year ended December 31, 2012, we are required to adopt certain amendments to K-IFRS No. 1001, Presentation of Financial Statements, as adopted by the KASB in 2012, pursuant to which we present operating profit or loss as an amount of revenue less cost of sales and selling and administrative expenses. In our consolidated statements of comprehensive income prepared in accordance with IFRS as issued by the IASB included in this annual report, such changes in presentation were not adopted. See “Item 5.a. Operating Results — Explanatory Note Regarding Presentation of Certain Financial Information under K-IFRS.”

2

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,
	2010		2011			2012			2013			2013
	(In billions of Won and millions of Dollars, except per share data)
Revenue (1)		￦    47,887		￦    68,939			￦    63,604			￦    61,865		US$	58,623
Cost of sales (2)		39,722		59,824			56,143			55,005			52,123
Gross profit		8,165		9,115			7,461			6,860			6,501
Administrative expenses		1,492		2,035			2,129			2,232			2,115
Selling expenses		1,120		1,612			1,679			1,632			1,546
Other operating income		223		307			448			229			217
Other operating expenses		342		367			809			651			617
Operating profit		5,434		5,408			3,292			2,574			2,439
Share of profit (loss) of equity-accounted investees		183		51			(23	)		(180	)		(171	)
Finance income		1,739		3,190			2,897			2,381			2,256
Finance costs		2,088		3,867			2,798			2,829			2,681
Profit before income tax		5,267		4,782			3,368			1,946			1,844
Income tax expense		1,081		1,068			983			591			560
Profit for the period		4,186		3,714			2,386			1,355			1,284
Total comprehensive income for the period		4,765		2,442			1,748			1,369			1,297
Profit (loss) for the period attributable to:
Owners of the controlling company		4,106		3,648			2,462			1,376			1,304
Non-controlling interests		80		66			(76	)		(21	)		(20	)
Total comprehensive income (loss) attributable to:
Owners of the controlling company		4,640		2,530			1,912			1,444			1,368
Non-controlling interests		126		(88	)		(164	)		(75	)		(71	)
Basic and diluted earnings per share (3)		53,297		47,224			31,874			17,409			16,497
Dividends per share of common stock		10,000		10,000			8,000			8,000
Dividends per share of common stock (in Dollars) (4)		US$    8.78		US$    8.67			US$    7.47			US$    7.58

Selected consolidated statements of financial position data

	As of December 31,
	2010		2011		2012		2013		2013
	(In billions of Won and millions of Dollars)
Working capital (5)		￦    9,395		￦    13,952		￦    11,791		￦    11,425	US$	10,826
Total current assets		27,672		33,557		31,566		31,666		30,007
Property, plant and equipment, net		25,438		28,453		32,276		35,760		33,886
Total non-current assets		41,746		44,852		47,700		52,789		50,023
Total assets		69,418		78,409		79,266		84,455		80,029
Short-term borrowings and current installments of long-term borrowings		10,476		10,792		10,509		10,714		10,153
Long-term borrowings, excluding current installments		10,664		16,020		14,412		15,533		14,719
Total liabilities		30,881		37,679		36,836		38,633		36,609
Share capital		482		482		482		482		457
Total equity		38,537		40,730		42,429		45,822		43,421

3

Selected consolidated statements of cash flows data

	For the Year Ended December 31,
	2010			2011			2012			2013			2013
	(In billions of Won and millions of Dollars)
Net cash provided by operating activities		￦    3,582			￦    1,692			￦    7,319			￦    4,858			US$    4,603
Net cash used in investing activities		(6,915	)		(5,517	)		(6,169	)		(8,752	)		(8,293	)
Net cash provided by (used in) financing activities		4,588			4,900			(908	)		3,532			3,347
Net increase (decrease) in cash and cash equivalents		1,248			1,078			82			(472	)		(447	)
Cash and cash equivalents at beginning of the year		2,273			3,521			4,599			4,681			4,436
Cash and cash equivalents at end of the year		3,521			4,599			4,681			4,209			3,988

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

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

(3) See Note 36 of Notes to Consolidated Financial Statements for method of calculation. The weighted average number of common shares outstanding used to calculate basic and diluted earnings per share was 77,032,878 shares as of December 31, 2010, 77,251,818 shares as of December 31, 2011, 77,244,444 shares as of December 31, 2012 and 78,009,654 shares as of December 31, 2013.

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

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

EXCHANGE RATE INFORMATION

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

Period	At End of Period		Average Rate (1)		High		Low
	(Per US$1.00)
2009		1,167.6		1,276.4		1,573.6		1,152.8
2010		1,138.9		1,156.3		1,261.5		1,104.0
2011		1,153.3		1,108.1		1,199.5		1,049.5
2012		1,071.1		1,126.9		1,181.8		1,071.1
2013		1,055.3		1,095.0		1,159.1		1,051.5
October		1,061.4		1,066.8		1,075.7		1,056.5
November		1,062.1		1,062.8		1,072.9		1,055.8
December		1,055.3		1,056.7		1,061.9		1,051.5
2014 (through May 9)		1,023.5		1,061.0		1,086.1		1,023.5
January		1,079.2		1,064.8		1,084.1		1,050.4
February		1,067.7		1,071.3		1,086.1		1,060.5
March		1,068.8		1,070.9		1,080.3		1,062.6
April		1,031.7		1,044.6		1,066.1		1,031.7
May (through May 9)		1,023.5		1,061.0		1,086.1		1,023.5

Source: Seoul Money Brokerage Services, Ltd.

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

Item 3.B.  Capitalization and Indebtedness

Not applicable

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

Not applicable

4

Item 3.D.  Risk Factors

You should carefully consider the risks described below.

The global economic downturn may adversely affect our business and performance. While there have been mixed signs of recovery from the prolonged global economic downturn that began in the second half of 2008, the global economic outlook for the near future continues to remain uncertain.

Our business is affected by highly cyclical market demand for our steel products from a number of industries, including the construction, automotive, shipbuilding and electrical appliances industries as well as downstream steel processors, which are sensitive to general conditions in the global economy. Macroeconomic factors, such as the economic growth rate, employment levels, interest rates, inflation rates, exchange rates, commodity prices, demographic trends and fiscal policies of governments can have a significant effect on such industries. From time to time, these industries have experienced significant and sometimes prolonged downturns, which, in turn, have negatively impacted our steel business. While there have been mixed signs of recovery from the prolonged global economic downturn that began in the second half of 2008, the global economic outlook for the near future continues to remain uncertain, particularly in light of concerns regarding the timing and potential economic impact of a future scale-down by the U.S. Federal Reserve of its “quantitative easing” stimulus program, as well as the recent slowdown of economic growth in China and continuing financial difficulties affecting several European countries, including Cyprus, Greece, Spain, Portugal and Italy.

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 response to sluggish demand from our customers in industries adversely impacted by the deteriorating global economic conditions in the second half of 2008, such as the automotive and construction industries, we reduced our crude steel production and sales prices in December 2008 and the first quarter of 2009. Signs that the pace of deterioration in market conditions had slowed began to appear in the second quarter of 2009, however, and demand from certain segments of our customer base, including the domestic automotive and construction industries, showed signs of recovery starting in the second quarter of 2009. In response, we began to incrementally increase our crude steel production starting in April 2009 and our production level normalized in the second half of 2009. Our crude steel production decreased from 34.7 million tons in 2008 to 31.1 million tons in 2009, but rebounded to 35.4 million tons in 2010, 39.1 million tons in 2011 and 39.7 million tons in 2012. However, in 2013, we reduced our production to 38.3 million tons in response to slowdown in global demand for steel products. Prices of our steel products gradually recovered starting in the third quarter of 2009, but our export prices fell substantially in the second half of 2011 and decreased further in 2012 and the first half of 2013. Our domestic sales prices remained relatively stable in the second half of 2011 but decreased in 2012 and the first half of 2013.

We expect that fluctuation in demand for our steel products and trading services to continue to prevail at least in the near future. We may decide to further adjust our future crude steel production or our sales prices on an on-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.

5

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 48.8% of our total revenue from steel products produced and sold by us in 2013. 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 Daewoo International Corporation (“Daewoo International”), our consolidated subsidiary in which we hold a 60.3% interest, are affected by the general level of trade between Korea and other countries, which in turn tends to fluctuate based on general conditions in the Korean and global economies. As a result, we are subject to political, economic, legal and regulatory risks specific to Korea. The economic indicators in Korea in recent years have shown mixed signs, and future growth of the Korean economy is subject to many factors beyond our control, including developments in the global economy.

Due to recent liquidity and credit concerns and volatility in the global financial markets, the value of the Won relative to the Dollar and other foreign currencies and the stock prices of Korean companies have fluctuated significantly in recent years. In particular, there has been increased volatility in light of concerns regarding the timing and potential economic impact of a future scale-down by the U.S. Federal Reserve of its “quantitative easing” stimulus program, as well as the recent slowdown of economic growth in China and continuing financial difficulties affecting several European countries, including Cyprus, Greece, Spain, Portugal and Italy. In addition, economic and political instability in certain emerging economies, such as Argentina and Ukraine, have resulted in an increase in volatility in the global financial markets. Accordingly, the overall prospects for the Korean and global economies in the remainder of 2014 and beyond remain uncertain. Any future deterioration of the Korean or global economy could adversely affect our business, financial condition and results of operations.

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

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

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

• adverse changes or volatility in foreign currency reserve levels, commodity prices (including oil prices), exchange rates (including fluctuation of the Dollar, the Euro or the Yen exchange rates or revaluation of the Renminbi), interest rates, inflation rates or stock markets;

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

• increasing delinquencies and credit defaults by retail and small- and medium-sized enterprise borrowers;

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

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

• social and labor unrest;

• substantial decreases in the market prices of Korean real estate;

6

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

• financial problems or lack of progress in the restructuring of Korean conglomerates, other large troubled companies, their suppliers or the financial sector;

• loss of investor confidence arising from corporate accounting irregularities and corporate governance issues concerning certain Korean conglomerates;

• 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 and other parts of the world;

• deterioration in economic or diplomatic relations between Korea and its trading partners or allies, including deterioration resulting from trade disputes or disagreements in foreign policy;

• 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 increase in the price of oil;

• the occurrence of severe earthquakes, tsunamis and other natural disasters in Korea and other parts of the world, particularly in trading partners (such as the March 2011 earthquake in Japan, which also resulted in the release of radioactive materials from a nuclear plant that had been damaged by the earthquake); 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 51.2% of our total revenue from steel products produced and sold by us in 2013. Our export sales volume to customers in Asia, including China, Japan, Indonesia, Thailand and Malaysia, accounted for 70.4% of our total export sales revenue from steel products produced and exported by us in 2013, and we expect our sales to these countries, especially to China, to remain important in the future. Accordingly, adverse economic and financial developments in these countries may have an adverse effect on demand for our products. Economic weakness in Asia may also adversely affect our sales to the Korean companies that export to the region, especially companies in the construction, shipbuilding, automotive, electrical appliances and downstream steel processing industries. Weaker demand in these countries, combined with addition of new steel production capacity, particularly in China, may also reduce export prices in Dollar terms of our principal products. 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

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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 2013, 51.2% 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 foreign currency-denominated debt;

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

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

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

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

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

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

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

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

We purchase substantially all of the principal raw materials we use from sources outside Korea, including iron ore and coal. POSCO imported approximately 48.9 million dry metric tons of iron ore and

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26.6 million wet metric tons of coal in 2013. Iron ore is imported primarily from Australia, Brazil and South Africa. Coal is imported primarily from Australia, Canada and the United States. Although we have not experienced significant unanticipated supply disruptions in the past, supply disruptions, which could be caused by political or other events in the countries from which we import these materials, could adversely affect our operations. In addition, we are particularly exposed to increases in the prices of coal, iron ore and nickel, which represent the largest components of our cost of goods sold. The prices of our key raw materials have fluctuated significantly in recent years. For example, the average market price of coal per wet metric ton (benchmark free on board price of Australian premium hard coking coal) was US$289 in 2011, US$209 in 2012 and US$159 in 2013. The average market price of iron ore per dry metric ton (free on board price of Platts Iron Ore index with iron (Fe) 62% content) was US$160 in 2011, US$122 in 2012 and US$126 in 2013.

Our long-term supply contracts generally have terms of three to ten years and provide for periodic price adjustments to the then-market prices. We typically adjust the prices on a quarterly basis and maintain approximately one month of inventory of raw materials. Such price negotiations are driven by various factors, including the global economic outlook, global market prices of raw materials and steel products, supply and demand outlook of raw materials and production costs of raw materials. Typically, globally influenced buyers and sellers of raw materials determine benchmark prices of raw materials, based on which other buyers and sellers negotiate their prices after taking into consideration the quality of raw materials and other factors. In the case of iron ore, if we fail to agree on the quarterly price adjustment within a predetermined deadline, the supplier and we typically agree on the purchase price based on the price formula that reflects the spot market price as well as the quality of iron ore and transportation expense. As of December 31, 2013, 193 million tons of iron ore and 14 million tons of coal remained to be purchased under long-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, which would have an adverse effect on our business, financial condition and results of operations.

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

Steel. The markets for our steel products are highly competitive and we face intense global competition. In recent years, driven in part by strong growth in steel consumption in the developing world, particularly in China, the global steel industry has experienced renewed interest in expansion of steel production capacity. China is the largest steel producing country in the world by a significant margin, with the balance between its domestic production and demand being an important factor in the determination of global steel prices. In addition, the global steel industry has experienced consolidation in the past decade, including through the merger of Mittal and Arcelor in 2006 that created a company with approximately 10% of global steel production capacity. Competition from global steel manufacturers with expanded production capacity such as ArcelorMittal S.A. and new market entrants, especially from China and India, have resulted in significant price competition and may result in declining margins and reductions in revenue. 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.

The increased production capacity, combined with a decrease in demand due to the recent slowdown of the global economy, has resulted in production over-capacity in the global steel industry. Production over-capacity in the global steel industry may intensify if the slowdown of the global economy is prolonged or demand from developing countries, particularly from China, does not meet the recent growth in production capacity. Production over-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 the prolonged slowdown of the global economy or production over-capacity will not have a material adverse effect on our business, results of operations or financial condition.

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

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

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

In Korea, POSCO E&C’s main competition in the construction of residential and non-residential buildings, EPC (or engineering, procurement and construction) projects, urban planning and development projects and civil works projects consists of approximately ten major domestic construction companies, all of which are member companies of other large business groups in Korea

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and are capable of undertaking larger-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 of low-bid contracts in civil works project mandates, have contributed to increased competition in the Korean construction industry in recent years.

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

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

In part to prepare for the eventual maturation of the Korean steel market, our overall strategy includes securing 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, production of comprehensive materials such as lithium, silicon, carbon and magnesium, information and technology consulting services, and automation and system integration engineering services. From time to time, we may selectively acquire or invest in companies to pursue such diversification strategy. For example, on September 20, 2010, we acquired a controlling interest in Daewoo International for Won 3.37 trillion. Daewoo International is a global trading company that primarily engages in trading of steel and raw materials as well as investing in energy and mineral development projects.

The success of the overall diversification strategy will depend, in part, on our ability to realize the growth opportunities and anticipated synergies. The realization of the anticipated benefits depends on numerous factors, some of which are outside our control, including the availability of qualified personnel, establishment of new relationships and expansion of existing relationships with various customers and suppliers, procurement of necessary technology and know-how to engage in such businesses and access to investment capital at reasonable costs. The realization of the anticipated benefits may be impeded, delayed or reduced as a result of numerous factors, some of which are outside our control. These factors include:

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

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

• difficulties in managing a larger business; and

• loss of key management personnel or customers.

Accordingly, 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.

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Expansion of our production operations abroad is important to our long-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 joint ventures with foreign steel producers that would enable us to rely on these businesses to conduct our operations, establish local networks and coordinate our sales and marketing efforts abroad. To the extent that we enter into these arrangements, our success will depend in part on the willingness of our partner companies to dedicate sufficient resources to their partnership with us.

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

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

• challenges caused by distance, language and cultural differences;

• higher costs associated with doing business internationally;

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

• longer payment cycles in some countries;

• credit risk and higher levels of payment fraud;

• currency exchange risks;

• potentially adverse tax consequences;

• political and economic instability; and

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

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

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

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

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

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

In recent years, we have become subject to a number of anti-dumping duties in India, Indonesia, Australia, Thailand, Brazil, Taiwan and Malaysia and a number of anti-dumping and countervailing duty investigations in several other countries, including the U.S., India and Canada. In addition, the Mexican government initiated an anti-dumping investigation in October 2012 relating to our exports of cold rolled steel products, and the investigation was suspended until 2018 on condition that we comply with supply undertakings. Our products that are subject to anti-dumping 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, countervailing duties, quotas or tariffs on our exports of products abroad may not have a material adverse impact on our exports in the future. See “Item 4. Information on the Company — Item 4.B. Business Overview — Markets — Exports.”

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

As part of consortia or through acquisitions of minority interests, we engage in overseas natural resources exploration, development and production projects in various locations, including a gas field exploration project in Myanmar, in which Daewoo International had invested approximately US$ 1,103 million as of December 31, 2013 and plans to make further investments in the future. Daewoo International began recognizing revenue from the Myanmar gas field project starting in November 2013. We may also selectively acquire or invest in companies or businesses that engage in such activities. As part of our efforts to diversify our operations, we intend to continue to expand our operations by carefully seeking out promising exploration, development and production opportunities abroad. To the extent that we enter into these arrangements, our success in these endeavors will depend in part on the willingness of our partner companies to dedicate sufficient resources to their partnership with us.

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. 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.

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

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

In addition, our consortium partners may:

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

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

• be unable or unwilling to fulfill their obligations;

• have financial difficulties; or

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

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

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

In order to complement our steel operations, we engage in engineering and construction activities through POSCO E&C, an 89.5%-owned subsidiary. The construction segment, which accounted for approximately 11.1% of our consolidated sales in 2013 after adjusting for inter-company sales, is highly cyclical and tends to fluctuate based on macroeconomic factors, such as consumer confidence and income, employment levels, interest rates, inflation rates, demographic trends and policies of the Government. Although we believe that POSCO E&C’s strategy of focusing on high-value-added plant construction and urban planning and development projects such as Songdo New City has enabled it to be exposed to a lesser degree to general economic conditions in Korea in comparison to some of its domestic competitors, our construction revenues have fluctuated in the past depending on the level of domestic construction activity including new construction orders. POSCO E&C’s construction operations could suffer in the future in the event of a general downturn in the construction market resulting in weaker demand, which could adversely affect POSCO E&C’s business, results of operations or financial condition.

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Many of POSCO E&C’s domestic and overseas construction projects are on a fixed-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 a fixed-price basis according to a predetermined timetable, pursuant to the terms of a fixed-price contract. Under such fixed-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 of fixed-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 on fixed-price contracts. However, the costs incurred and gross profits realized on a fixed-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. If POSCO E&C experiences significant unforeseen additional expenses with respect to its fixed price projects, it may incur losses on such projects, which could have a material adverse effect on its financial condition and results of operations.

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

The performance of POSCO E&C’s domestic residential property business is highly dependent on the general condition of the real estate market in Korea. The construction industry in Korea is experiencing a downturn due to excessive investment in recent years in residential property development projects, stagnation of real property prices and reduced demand for residential property, especially in areas outside of Seoul. In addition, as liquidity and credit concerns and volatility in the global financial markets increased significantly starting in September 2008, there has been a general decline in the willingness by banks and other financial institutions in Korea to engage in project financing and other lending activities to construction companies, which may adversely impact POSCO E&C’s ability to meet its desired funding needs. The Government has taken measures to support the Korean construction industry, including easing of regulations imposed on redevelopment of apartment buildings and resale restrictions in the metropolitan areas, as well as reductions in property taxes. Although the Korean real estate market temporarily recovered in the second half of 2009 and into 2010, declines in demand and price took place in the Korean real estate market in recent years due to the downturn of the domestic economic cycle and financial risk in Europe, and the overall prospects for the Korean real estate market in 2014 and beyond remain uncertain.

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

We are subject to national and local environmental laws and regulations, including increasing pressure to reduce emission of carbon dioxide relating to our manufacturing process, and our steel manufacturing and construction operations could expose us to risk of substantial liability relating to

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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. We may also be subject to associated liabilities, including liabilities for natural resource damage, third party property damage or personal injury resulting from lawsuits brought by the Government or private litigants. In the course of our operations, hazardous wastes may be generated at third party-owned or operated sites, and hazardous wastes may be disposed of or treated at third party-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.

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

We believe that developing new steel manufacturing technologies that can be differentiated from those of our competitors, such as FINEX, strip casting and silicon steel manufacturing technologies, is critical to the success of our business. We take active measures to obtain protection of our intellectual property by obtaining patents and undertaking monitoring activities in our major markets. However, we cannot assure you that the measures we are taking 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 proprietary know-how to maintain our competitive position, and unauthorized disclosure of our trade secrets or other unpatented proprietary know-how could negatively affect our business.

We rely on trade secrets and unpatented proprietary know-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 other know-how as a result of such a breach could adversely affect our business.

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

Our success depends largely on our ability to develop and use our technology and know-how in a proprietary manner without infringing the intellectual property rights of third parties. The validity and scope of claims relating to technology and patents involve complex scientific, legal and factual questions and analysis and, therefore, may be highly uncertain. In addition, because patent applications in many jurisdictions are kept confidential for an extended period before they are published, we may be unaware of other persons’ pending patent applications that relate to our products or manufacturing processes. Accordingly, we face the risk of litigation proceedings relating to infringement of intellectual property rights of third parties. See “Item 8.A. Consolidated Statements and Other Financial Information — Legal Proceedings.”

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

On December 18, 2013, the Supreme Court of Korea ruled that regularly paid bonuses, including those that are paid other than on a monthly basis, shall be deemed ordinary wages if these bonuses are paid “regularly” and “uniformly” on a “fixed basis” notwithstanding differential amounts based on seniority. Under this decision, any collective bargaining agreement or labor-management agreement that attempts to exclude such regular bonuses from ordinary wage will be deemed void for violation of the mandatory provisions of Korean law. However, the Supreme Court of Korea further ruled that an employee’s claim for underpayments under the expanded scope of ordinary wages for the past three years within the statute of limitations may be denied based on principles of good faith if (i) there is an agreement between the employer and employees that the regular bonus shall be excluded from ordinary wage in determining the total amount of wage, (ii) such claim results in further wage payments that far exceed the level of total amount of wage agreed between the employer and employees, and (iii) such claim would cause an unexpected financial burden to the employer leading to material managerial difficulty or a threat to the employer’s existence. The principles of good faith, however, do not apply to an agreement on wages entered into between the employer and employees after December 18, 2013, the date of the above decision of the Supreme Court of Korea.

The Supreme Court decision may result in additional labor costs to us in the form of additional payments under the expanded scope of ordinary wages applicable in the past three years as well as to be incurred in the future, which 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 future events. In particular, since the death of Kim Jong-il in December 2011, there has been increased uncertainty with respect to the future of North Korea’s political leadership and concern regarding its

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implications for political and economic stability in the region. Although Kim Jong-il’s third son, Kim Jong-eun, has assumed power as his father’s designated successor, the long-term outcome of such leadership transition remains uncertain.

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

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

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

• North Korea renounced its obligations under the Nuclear Non-Proliferation Treaty in January 2003 and conducted three rounds of nuclear tests between October 2006 to February 2013, which increased tensions in the region and elicited strong objections worldwide. In response, the United Nations Security Council unanimously passed resolutions that condemned North Korea for the nuclear tests and expanded sanctions against North Korea, most recently in March 2013.

• In December 2012, North Korea launched a satellite into orbit using a long-range rocket, despite concerns in the international community that such a launch would be in violation of the agreement with the United States as well as the United Nations Security Council resolutions that prohibit North Korea from conducting launches that use ballistic missile technology.

• 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. For example, in November 2009, the North Korean government redenominated its currency at a ratio of 100 to 1 as part of a currency reform undertaken in an attempt to control inflation and reduce income gaps. In tandem with the currency redenomination, the North Korean government banned the use or possession of foreign currency by its residents and closed down privately run markets, which led to severe inflation and food shortages. Such developments may further aggravate social and political tensions within North Korea.

There can be no assurance that the level of tension on the Korean peninsula will not escalate in the future. Any further increase in tensions, which may occur, for example, if North Korea experiences a leadership crisis, high-level contacts between Korea and North Korea break down or military hostilities occur, could have a material adverse effect on the Korean economy and on our business, results of operations and financial condition and the market value of our common shares and ADSs.

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

Under the deposit agreement, holders of shares of our common stock may deposit those shares with the ADR depositary’s custodian in Korea and obtain ADRs, and holders of ADRs may surrender ADRs to the ADR depositary and receive shares of our common stock. However, under current Korean

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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 and non-U.S. experts named in this annual report.

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

We acquired a controlling interest in Sungjin Geotec Co., Ltd. (“Sungjin Geotec”), a manufacturer of specialized equipment used in the power and energy industries in May 2010. Sungjin Geotec merged with POSCO Plantec Co., Ltd. (“POSCO Plantec”) in July 2013, and we currently hold a 36.2% interest in POSCO Plantec. Prior to the merger, Sungjin Geotec entered into contracts with various suppliers to supply equipment for the development of natural gas fields in Iran, including natural gas fields located in South Pars that is led by Pars Oil and Gas Company, a subsidiary of National Iranian Oil Company. Sungjin Geotec recognized revenues of approximately Won 27 billion in 2010, Won 240 billion in 2011 and Won 134 billion in 2012, and net profits of approximately Won 1 billion in 2010, Won 15 billion in 2011 and Won 25 billion in 2012 related to such activities. Sungjin Geotec has completed or terminated all of its remaining outstanding supply contracts to sell equipment for the development of natural gas fields in Iran, and neither Sungjin Geotec nor POSCO Plantec (subsequent to the merger with Sungjin Geotec in July 2013) recognized any revenues nor profits from such activities in 2013. POSCO Plantec does not plan to engage in any sale of equipment in Iran related to the country’s development of petroleum resources.

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

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

There can be no assurance that Sungjin Geotec’s Iran-related business activities did not constitute sanctionable activities or that we will not be subjected to sanctions under the ISA as amended by the CISADA. Our business and reputation could be adversely affected if the U.S. government were to determine that Sungjin Geotec’s Iran-related business activities constituted sanctionable activity attributable to us. Investors in our securities may also be adversely affected if we are sanctioned under the CISADA or if their investment in our securities is restricted under any sanctions regimes with which the investors are required to comply. As noted above, sanctions under the ISA could include the blocking of any property in which we have an interest, which would effectively prohibit all U.S. persons from receiving any payments from us, or otherwise acquiring, holding, withholding, using, transferring, withdrawing, transporting, importing, or exporting any property in which we have any interest.

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

The U.S. Department of the Treasury’s Office of Foreign Assets Control, or “OFAC,” enforces certain laws and regulations (“OFAC Sanctions”) that impose restrictions upon U.S. persons and, in

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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, Syria and Sudan. 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, Daewoo International, a global trading company in which we hold a 60.3% interest, engages in the trading of steel, raw materials and other items with entities in countries that are deemed Sanctions Targets, including Iran and Sudan. We believe that such activities and investments do not involve any U.S. goods or services. Our activities and investments in Iran, Syria and Sudan accounted for approximately 3.4% of our consolidated revenues in 2011, 1.4% in 2012 and 0.2% in 2013.

We expect to continue to engage in business activities and make investments in countries that are deemed Sanctions Targets over the foreseeable future. Although we believe that OFAC Sanctions under their current terms are not applicable to our current activities, our reputation may be adversely affected, some of our U.S. investors may be required to divest their investments in us under the laws of certain U.S. states or under internal investment policies or may decide for reputational reasons to divest such investments. We are aware of initiatives by U.S. governmental entities and U.S. institutional investors, such as pension funds, to adopt or consider adopting laws, regulations, or policies prohibiting transactions with or investment in, or requiring divestment from, entities doing business with countries identified as state sponsors of terrorism. We cannot assure you that the foregoing will not occur or that such occurrence will not have a material adverse effect on the value of our securities.

This annual report contains “forward-looking 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. The forward-looking statements are subject to various risks and uncertainties. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “project,” “should,” and similar expressions. Those statements include, among other things, the discussions of our business strategy and expectations concerning our market position, future operations, margins, profitability, liquidity and capital resources. We caution you that reliance on any forward-looking statement involves risks and uncertainties, and that although we believe that the assumptions on which our forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and, as a result, the forward-looking statements based on those assumptions could be incorrect. The uncertainties in this regard include, but are not limited to, those identified in the risk factors discussed above. In light of these and other uncertainties, you should not conclude that we will necessarily achieve any plans and objectives or projected financial results referred to in any of the forward-looking statements. We do not undertake to release the results of any revisions of these forward-looking statements to reflect future events or circumstances.

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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, 440 Teheran-ro, Gangnam-gu, Seoul, Korea 135-777, and our telephone number is (822) 3457-0114.

Item 4.B.  Business Overview

The Company

We are the largest fully integrated steel producer in Korea, and one of the largest steel producers in the world, based on annual crude steel production. We produced approximately 38.3 million tons of crude steel in 2013 and approximately 39.7 million tons in 2012, a substantial portion of which was produced at Pohang Works and Gwangyang Works. As of December 31, 2013, Pohang Works had 17.3 million tons of annual crude steel and stainless steel production capacity, and Gwangyang Works had an annual crude steel production capacity of 20.8 million tons. We believe Pohang Works and Gwangyang Works are two of the most technologically advanced integrated steel facilities in the world. We manufacture and sell a diversified line of steel products, including cold rolled and hot rolled products, stainless steel products, plates, wire rods and silicon steel sheets, and we are able to meet a broad range of customer needs from manufacturing industries that consume steel, including automotive, shipbuilding, home appliance, engineering and machinery industries.

We sell primarily to the Korean market. Domestic sales accounted for 48.8% of our total revenue from steel products produced and sold by us in 2013 and 52.0% in 2012. On a non-consolidated basis, we believe that we had an overall market share of approximately 43% of the total sales volume of steel products sold in Korea in 2013 and approximately 42% in 2012. Our export sales and overseas sales to customers abroad accounted for 51.2% of our total revenue from steel products produced and sold by us in 2013 and 48.0% in 2012. Our major export market is Asia, with China accounting for 30.2%, Asia other than China and Japan accounting for 27.7%, and Japan accounting for 12.5% of our total steel export revenue from steel products produced and exported by us in 2013 and Asia other than China and Japan accounting for 26.7%, China 28.9% and Japan 14.1% of our total steel export revenue from steel products produced and exported by us in 2012.

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

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We generated revenue of Won 61,865 billion and profit for the period of Won 1,355 billion in 2013, compared to revenue of Won 63,604 billion and profit for the period of Won 2,386 billion in 2012. We had total assets of Won 84,455 billion and total equity of Won 45,822 billion as of December 31, 2013, compared to total assets of Won 79,266 billion and total equity of Won 42,429 billion as of December 31, 2012.

Business Strategy

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

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

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

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

Drawing on our expertise in steel production, we also plan to carefully seek out promising business opportunities abroad to expand our production infrastructure. We seek out promising investment opportunities abroad, primarily in India and Southeast Asia. We believe that India and Southeast Asia continue to offer substantial growth opportunities, and we plan to selectively seek investment opportunities to construct steel production facilities. For example, we entered into a memorandum of understanding with Orissa State Government of India in June 2005 for the construction of an integrated steel mill and the development of iron ore mines in Orissa State. The Government of India reissued clearance for the construction of the steel mill in January 2014 and is currently in the process of preparing the land on which the integrated steel mill will be constructed. With respect to development of iron ore mines in Orissa State, we obtained a final ruling from the Indian Supreme Court in May 2013 with respect to authority of the central government to issue permission, and we are waiting for approval from the Government of India to start our exploration and development activities.

Maintain Technology Leadership in Steel Manufacturing

As part of our strategy, we have identified core products that we plan to further develop, such as premium automotive steel sheets, silicon steel and API-grade steel, and we will continue to invest in developing innovative products that offer the greatest potential returns and enhance the overall quality of our products. In order to increase our competitiveness and the proportion of our sales of higher margin, higher value-added products, we plan to make additional investments in the development of new manufacturing technologies and upgrade our facilities through continued modernization and rationalization.

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

Diversify into Production of Comprehensive Materials, including Lithium, Nickel, Carbon and Magnesium

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

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

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

Pursue Cost-Cutting through Operational and Process Innovations

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

Selectively Seek Opportunities in Growth Industries

We will continue to selectively seek opportunities in growth industries to diversify our business both vertically and horizontally. Through POSCO ICT Co., Ltd., a 65.4%-owned subsidiary, we engage in information and technology consulting services as well as automation and system integration engineering services. POSCO E&C is one of the leading engineering and construction companies in Korea that primarily engages in the planning, design and construction of industrial plants and architectural works and civil engineering. On September 20, 2010, we acquired a controlling interest in Daewoo International Corporation for Won 3.37 trillion. Daewoo International is a global trading

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company that primarily engages in trading of steel and raw materials as well as investing in energy development projects. We will continue to selectively seek opportunities to identify new growth engines and diversify our operations.

Major Products

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

• cold rolled products;

• hot rolled products;

• stainless steel products;

• plates;

• wire rods; and

• silicon steel sheets.

The table below sets out our revenue of steel products produced by us and directly sold to external customers, 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.

	For the Year Ended December 31,
	2011					2012					2013
Steel Products	Billions of Won		%			Billions of Won		%			Billions of Won		%
Cold rolled products	￦	11,583		29.6	%	￦	11,421		32.4	%	￦	9,879		31.1	%
Hot rolled products		7,752		19.8			6,291		17.8			5,134		16.1
Stainless steel products		7,453		19.0			7,305		20.7			7,425		23.4
Plates		4,560		11.6			3,620		10.3			3,266		10.3
Wire rods		2,240		5.7			1,906		5.4			1,867		5.9
Silicon steel sheets		1,782		4.6			1,556		4.4			1,476		4.6
Sub-total		35,369		90.3			32,099		91.0			29,047		91.4
Others		3,782		9.7			3,160		9.0			2,748		8.6
Total	￦	39,152		100.0	%	￦	35,259		100.0	%	￦	31,795		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, 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.

	For the Year Ended December 31,
	2011					2012					2013
Steel Products	Thousands   of Tons		%			Thousands   of Tons		%			Thousands   of Tons		%
Cold rolled products		11,023		37.3	%		11,863		39.6	%		11,915		40.9	%
Hot rolled products		8,902		30.1			8,540		28.5			7,589		26.1
Stainless steel products		2,414		8.2			2,760		9.2			2,883		9.9
Plates		4,373		14.8			4,145		13.8			3,849		13.2
Wire rods		1,686		5.7			1,531		5.1			1,735		6.0
Silicon steel sheets		1,134		3.8			1,143		3.8			1,134		3.9
Total (1)		29,532		100.0	%		29,983		100.0	%		29,104		100.0	%

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

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In addition to steel products produced by us and directly sold to external customers, we engage our consolidated sales subsidiaries (including Daewoo International) to sell our steel products produced by us. Our revenue from steel products produced by us and sold to our consolidated sales subsidiaries that in turn sold them to their external customers amounted to Won 10,415 billion in 2011, Won 10,344 billion in 2012 and Won 8,391 billion in 2013. Sales of such steel products by our consolidated sales subsidiaries to external customers are recognized as external revenue of the Trading Segment.

Cold Rolled Products

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

Our deliveries of cold rolled products produced by us and directly sold to external customers amounted to 11.9 million tons in 2013, representing 40.9% of our total sales volume of principal steel products produced by us and directly sold to external customers.

Cold rolled products constitute our largest product category in terms of sales volume and revenue from steel products produced by us and directly sold to external customers. In 2013, our sales volume of cold rolled products produced by us and directly sold to external customers increased by 0.4% compared to our sales volume in 2012 due to an increase in sales to automotive companies.

Including sales of cold rolled products produced by us and sold through our consolidated sales subsidiaries in addition to cold rolled products produced by us and directly sold to external customers, we had a domestic market share for cold rolled products of approximately 46% on a non-consolidated basis.

Hot Rolled Products

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

Our deliveries of hot rolled products produced by us and directly sold to external customers amounted to 7.6 million tons in 2013, representing 26.1% 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 2013, our sales volume of hot rolled products produced by us and directly sold to external customers decreased by 11.1% compared to 2012 primarily due to a decrease in demand from downstream steelmakers in Korea and abroad.

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

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.

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Our deliveries of stainless steel products produced by us and directly sold to external customers amounted to 2.9 million tons in 2013, representing 9.9% 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 9.9% of total sales volume of the principal steel products produced by us and directly sold to external customers in 2013, they represented 23.4% of our total revenue from such steel products in 2013. Our sales volume of stainless steel products produced by us and directly sold to external customers increased by 4.4% in 2013 compared to 2012 due to an increase in demand from manufacturers of automotive exhaust systems.

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

Plates

Plates are used in shipbuilding, structural steelwork, offshore oil and gas production, power generation, mining, and the manufacture of earth-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 3.8 million tons in 2013, representing 13.2% of our total sales volume of principal steel products produced by us and directly sold to external customers. The Korean shipbuilding industry, which uses plates to manufacture chemical tankers, rigs, bulk carriers and containers, and the construction industry are our largest customers of plates.

In 2013, our sales volume of plates produced by us and directly sold to external customers decreased by 7.1% compared to 2012, reflecting a decrease 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 had a domestic market share for plates of approximately 41% on a non-consolidated basis.

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 1.7 million tons in 2013, representing 6.0% 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 2013, our sales volume of wire rods produced by us and directly sold to external customers increased by 13.3% compared to 2012, primarily reflecting an increase in demand from the domestic automotive industry, which we were able to meet following commencement of commercial operation of our fourth wire rod manufacturing plant.

Including sales of wire rods produced by us and sold through our consolidated sales subsidiaries in addition to wire rods produced by us and directly sold to external customers, we had a domestic market share for wire rods of approximately 50% on a non-consolidated basis.

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Silicon Steel Sheets

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

Our deliveries of silicon steel sheets produced by us and directly sold to external customers amounted to 1.1 million tons in 2013, representing 3.9% of our total sales volume of principal steel products produced by us and directly sold to external customers.

In 2013, our sales volume of silicon steel sheets produced by us and directly sold to external customers decreased by 0.8% compared to 2012 due to a decrease in demand from manufacturers of power transformers and generators.

Including sales of silicon steel sheets produced by us and sold through our consolidated sales subsidiaries in addition to silicon steel sheets produced by us and directly sold to external customers, we had a domestic market share for silicon steel sheets of approximately 87% on a non-consolidated basis.

Others

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

Markets

Korea is our most important market. Domestic sales represented 48.8% of our total revenue from steel products produced and sold by us in 2013. Our export sales and overseas sales to customers abroad represented 51.2% of our total revenue from steel products in 2013. 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 higher value-added and other finished products to end-users and semi-finished products to other steel manufacturers for further processing. Local distribution companies and sales affiliates sell finished steel products to low-volume customers. We provide service technicians for large customers and distributors in each important product area.

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

	For the Year Ended December 31,
Source	2011			2012			2013
POSCO’s sales (1)		41.4	%		41.9	%		43.4	%
Other domestic steel companies’ sales		24.6			23.4			23.6
Imports		34.0			34.8			33.0
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.

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Exports

Our export sales and overseas sales to customers abroad represented 51.2% of our total revenue from steel products produced and sold by us in 2013, 70.4% 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 decreased by 5.9% from Won 21,888 billion in 2012 to Won 20,587 billion in 2013, primarily reflecting a decrease in our export prices resulting from production over-capacity in the global steel industry.

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, by geographical market and by product for the periods indicated.

	For the Year Ended December 31,
	2011					2012					2013
Region	Billions of   Won		%			Billions of   Won		%			Billions of   Won		%
Asia (other than China and Japan)	￦	5,733		23.2	%	￦	5,834		26.7	%	￦	5,707		27.7	%
China		6,984		28.3			6,328		28.9			6,220		30.2
Japan		3,415		13.8			3,084		14.1			2,583		12.5
Europe		1,609		6.5			942		4.3			999		4.9
Middle East		690		2.8			528		2.4			381		1.8
North America		2,387		9.7			1,288		5.9			1,145		5.6
Others		3,846		15.6			3,884		17.7			3,552		17.3
Total	￦	24,665		100.0	%	￦	21,888		100.0	%	￦	20,587		100.0	%

	For the Year Ended December 31,
	2011					2012					2013
Steel Products	Billions of   Won		%			Billions of   Won		%			Billions of   Won		%
Cold rolled products	￦	7,975		32.3	%	￦	7,245		33.1	%	￦	6,653		32.3	%
Hot rolled products		4,210		17.1			3,783		17.3			3,300		16.0
Stainless steel products		6,295		25.5			5,302		24.2			5,125		24.9
Plates		1,487		6.0			1,573		7.2			1,238		6.0
Wire rods		689		2.8			598		2.7			569		2.8
Silicon steel sheets		996		4.0			840		3.8			837		4.1
Others		3,012		12.2			2,546		11.6			2,863		13.9
Total	￦	24,665		100.0	%	￦	21,888		100.0	%	￦	20,587		100.0	%

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

	For the Year Ended December 31,
	2011			2012			2013
Apparent steel use (million metric tons)		1,404			1,430			1,481
Percentage of annual increase		7.8	%		1.9	%		3.6	%

Source: World Steel Association.

Recent difficulties affecting the European Union and global financial sectors, adverse conditions and volatility in the European Union and worldwide credit and financial markets, fluctuations in oil and commodity prices, the general weakness of the global economy and the slowdown in growth of the Chinese economy have increased the uncertainty of global economic prospects in general and have adversely affected the global and Korean economies. The World Steel Association forecasts that global apparent steel use is expected to increase by 3.1% to 1,527 million metric tons in 2014.

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In recent years, driven in part by strong growth in steel consumption in emerging economies, the global steel industry has experienced renewed interest in expansion of steel production capacity. World Steel Dynamics estimated the global crude steel production capacity to be 2,168 million tons in 2013. The increased production capacity, combined with weakening demand due primarily to the recent slowdown of the global economy, has resulted in production over-capacity in the global steel industry. Production over-capacity in the global steel industry may intensify if the slowdown of the global economy continues or demand from developing countries that have experienced significant growth in recent years does not meet the growth in production capacity.

We distribute our export products mostly through Korean trading companies, including Daewoo International, and our overseas sales subsidiaries. Our largest export market in 2013 was China, which accounted for 30.2% of our export revenue from steel products produced and sold by us. The principal products exported to China were cold rolled products and plates. Our exports to China amounted to Won 6,328 billion in 2012 and Won 6,220 billion in 2013. Our exports to China decreased by 1.7% in 2013 primarily due to a decrease in our export prices to China as well as our decision to allocate more products to European countries where we could obtain better export prices. Our export sales in terms of revenue from European countries increased by 6.1% from Won 942 billion in 2012 to Won 999 billion in 2013.

Anti-Dumping and Countervailing Duty Proceedings

From time to time, our exporting activities have become subject to anti-dumping and countervailing duty proceedings. In recent years, we have become subject to a number of anti-dumping duties in India, Indonesia, Australia, Thailand, Brazil, Taiwan and Malaysia and a number of anti-dumping and countervailing duty investigations in several other countries, including the U.S., India and Canada. In addition, the Mexican government initiated an anti-dumping investigation in October 2012 relating to our exports of cold rolled steel products, and the investigation was suspended until 2018 on condition that we comply with supply undertakings. Our products that are subject to anti-dumping 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.

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 higher value-added steel products in the largest markets are determined considering the prices of similar products charged by our competitors.

We gradually increased our export prices in Dollar terms in the first half of 2011. However, our export prices fell substantially in the second half of 2011 and decreased further in 2012 and the first half of 2013. Our domestic sales prices remained relatively stable in the second half of 2011 but decreased in 2012 and the first half of 2013. We may decide to adjust our future sales prices on an on-going basis subject to market demand for our products, prices of raw materials, the production outlook of the global steel industry and global economic conditions in general.

Raw Materials

Steel Production

The principal raw materials used in producing steel through the basic oxygen steelmaking method are iron ore and coal. We require approximately 1.7 tons of iron ore and 0.8 tons of coal to

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produce one ton of steel. We import all of the coal and virtually all of the iron ore that we use. In 2013, POSCO imported approximately 48.9 million dry metric tons of iron ore and 26.6 million wet metric tons of coal. Iron ore is imported primarily from Australia, Brazil and South Africa. Coal is imported primarily from Australia, Canada and the United States. In 2013, we purchased a substantial portion of our iron ore and coal imports pursuant to long-term contracts. The supply contracts have terms of one to ten years and the long-term contracts generally provide for periodic price adjustments to the then-market prices. The long-term contracts to purchase iron ore and coal generally provide for quarterly adjustments to the purchase prices to be determined through negotiation between the supplier and us. Such price negotiations are driven by various factors, including the global economic outlook, global market prices of raw materials and steel products, supply and demand outlook of raw materials and production costs of raw materials. Typically, globally influenced buyers and sellers of raw materials determine benchmark prices of raw materials, based on which other buyers and sellers negotiate their prices after taking into consideration the quality of raw materials and other factors. We or the suppliers may cancel the long-term contracts only if performance under the contracts is prevented by causes beyond our or their control and these causes continue for a specified period.

We also make investments in exploration and production projects abroad to enhance our ability to meet the requirements for high-quality raw materials, either as part of a consortium or through an acquisition of a minority interest. We purchased approximately 23% of our iron ore and coal imports in 2013 from foreign mines in which we have made investments. Our major investments to procure supplies of coal, iron ore and nickel are located in Australia, Brazil, New Caledonia and Canada, and our significant investments are as follows:

• We made an investment of US$500 million in December 2008 to acquire a 6.48% interest in Nacional Minérios S.A., an iron ore mining company in Brazil, in a consortium with Japanese steel manufacturers and trading companies. We secured approximately 3.7 million tons of iron ore in 2013, and we have the right to secure up to 3.7 million tons of iron ore per year.

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

• In July 2010, we acquired a 24.5% interest in the Australian Premium Iron (API) iron ore joint venture in Pilbara, Australia for A$184 million, which expects to supply 7.4 million tons of iron ore per year starting in 2018.

• As part of a consortium including China Steel Corporation and domestic financial investors, we made an investment of US$277 million in March 2013 to acquire a minority interest of 3.78% in an iron ore mining asset of ArcelorMittal Mines Canada Inc. in Quebec. We expect to secure additional iron ore through our investment in the mining company.

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

The average market price of coal per wet metric ton (benchmark free on board price of Australian premium hard coking coal) was US$289 in 2011, US$209 in 2012 and US$159 in 2013. The average market price of iron ore per dry metric ton (free on board price of Platts Iron Ore index with iron (Fe) 62% content) was US$160 in 2011, US$122 in 2012 and US$126 in 2013. We currently do not depend on any single country or supplier for our coal or iron ore.

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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 requirements for ferronickel primarily from suppliers in Korea that procure nickel ore from New Caledonia, and the remainder primarily from leading suppliers in Japan that procure nickel ore from New Caledonia and the Philippines, as well as suppliers in Indonesia. Our primary suppliers of ferrochrome are located in South Africa, India and Kazakhstan. Our stainless steel scraps are primarily supplied by domestic and overseas suppliers in Japan and the European Union. Revert scraps from the Pohang Steelworks are also used for our stainless steel production. The average market price of nickel per ton was US$22,894 in 2011, US$17,537 in 2012 and US$15,022 in 2013.

Transportation

In order to meet our transportation needs for iron ore and coal, we have entered into long-term contracts with shipping companies in Korea to retain a fleet of dedicated vessels. These dedicated vessels transported approximately 84% of the total requirements in 2013, and the remaining approximately 16% was transported by vessels retained through short to medium term contracts, depending on market conditions. Australia and Brazil are the main countries where the vessels are loaded, and they accounted for 66% and 14%, respectively, of our total requirements in 2013. 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 more energy-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 into semi-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 are semi-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 higher value-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 higher value-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.

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Competition

Domestic Market

We are the largest fully integrated steel producer in Korea. In hot rolled products, where we had a market share of approximately 43% on a non-consolidated basis in 2013, we face competition from a Korean steel producer that operates mini-mills and produces hot rolled coil products from slabs and from various foreign producers, primarily from China and Japan. In cold rolled products and stainless steel products, where we had a market share of approximately 46% and 48%, respectively, on a non-consolidated basis in 2013, 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 competitors in Korea are Hyundai Steel Co., Ltd. with an annual crude steel production of approximately 17.2 million tons and Dongbu Steel Co., Ltd. with an annual crude steel production of approximately 2.0 million tons. Hyundai Steel completed construction of an integrated steel mill with an annual capacity of 4 million tons in January 2010 and added a second furnace with the same capacity in November 2010 and a third furnace with the same capacity in April 2011.

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 recent years, there has been a trend toward industry consolidation among our competitors, and smaller competitors in the global steel market today may become larger competitors in the future. For example, Mittal Steel’s takeover of Arcelor in 2006 created a company with approximately 10% of global steel production capacity. Competition from global steel manufacturers with expanded production capacity such as ArcelorMittal S.A., and new market entrants, 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 around the world that engage in steel production activities.

Korea. POSCO Specialty Steel produces high-quality steel products for the automotive, machinery, nuclear power plant, shipbuilding, aeronautics and electronics industries. We currently hold a 72.1% interest in the company. Production facilities operated by POSCO Specialty Steel have an aggregate annual production capacity of 840 thousand tons of wire rods, round bars, steel pipes and semi-finished products. POSCO Specialty Steel Co., Ltd. produced 635 thousand tons of such products in 2013.

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In order to expand our sale of value-added products, we established POSCO Coated and Color Sheet Co., Ltd. by merging a coated steel manufacturer and a color sheet manufacturer in March 1999. POSCO Coated and Color Sheet has an aggregate annual production capacity of 600 thousand tons of galvanized and aluminized steel sheets widely used in the construction, automotive parts and home appliances industries. POSCO Coated and Color Sheet also has an aggregate annual production capacity of 350 thousand tons of color sheets that are mainly used for interior and exterior materials and home appliances. In 2013, POSCO Coated and Color Sheet produced 561 thousand tons of galvanized and aluminized steel sheets and 343 thousand tons of color sheets.

China. We entered into an agreement with Sagang Group Co. to establish Zhangjiagang Pohang Stainless Steel Co., Ltd., a joint venture company in China for the manufacture and sale of stainless cold rolled steel products. We have an 82.5% interest in the joint venture (including 23.9% interest held by POSCO China Holding Corporation). The plant commenced production of stainless cold rolled steel products in December 1998. The joint venture also completed the construction of new mills in July 2006 with additional annual production capacity of approximately 800 thousand tons of stainless hot rolled products. Zhangjiagang Pohang Stainless Steel produced 1,120 thousand tons of stainless steel products in 2013.

We established Qingdao Pohang Stainless Steel Co., Ltd., a wholly owned subsidiary set up to manufacture and sell stainless cold rolled steel products in China. The plant became operational in December 2004, with an annual production capacity of 180 thousand tons of stainless cold rolled steel products. Qingdao Pohang Steel produced 170 thousand tons of such products in 2013.

In August 2003, we entered into a joint venture agreement with Benxi Iron and Steel Group in China to establish Benxi Steel POSCO Cold Rolled Sheet Co., Ltd. The cold rolling mill with an annual production capacity of 1.9 million tons became operational in March 2006 and the company produced 1.9 million tons of such products in 2013. We currently hold a 25% interest in this joint venture.

Vietnam. We entered into an agreement with Nippon Steel & Sumitomo Metal Corporation to establish POSCO Vietnam Co., Ltd., a joint venture company in Vietnam for the manufacture and sale of cold rolled steel products. We have an 85% interest in the joint venture. We completed the construction of a plant in September 2009 with an annual production capacity of 1.2 million tons of cold rolled products and commenced commercial production. POSCO Vietnam produced 906 thousand tons of such products in 2013.

Thailand. In order to secure an alternative sales source for stainless cold rolled steel products and an export base for expanding into the Southeast Asia stainless steel markets, we acquired a controlling interest in Thainox Stainless Public Company Limited, a major stainless steel manufacturer in Thailand, in September 2011. We renamed the company as POSCO Thainox Public Company Limited in October 2011 and currently hold a 84.9% interest in the company. The company produced 160 thousand tons of stainless cold rolled products in 2013.

United States. We entered into a joint venture in March 2007 with US Steel and SeAH to establish United Spiral Pipe LLC to produce American Petroleum Institute-compliant pipes (“API Pipes”) and non-API pipes. We hold a 35% interest in the company. United Spiral Pipe started commercial production in May 2010 and produced 8 thousand tons of pipes in 2013.

We also entered into 50-50 joint venture between U.S. Steel Corporation and us called USS-POSCO Industries Corporation. We sell hot rolled products to USS-POSCO Industries, which uses such products to manufacture cold rolled and galvanized steel products and tin-plate products for sale in the United States. USS-POSCO Industries produced 872 thousand tons of such products in 2013.

Mexico. In Mexico, POSCO Mexico S.A. de C.V. completed the construction of a plant in August 2009 with an annual production capacity of 0.4 million tons of cold rolled products and commenced commercial production to supply automotive manufacturers in Mexico, Southeastern United States and South America. POSCO Mexico expanded its annual production capacity to 0.9 million tons of gavalvanized steel products in December 2013, and produced 323 thousand tons of cold rolled products in 2013.

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Indonesia. We entered into an agreement with PT. Krakatau Steel (Persero) Tbk. to establish PT. Krakatau POSCO Co., Ltd., a joint venture company in Indonesia for the manufacture and sale of plates and slabs. We have a 70% interest in the joint venture. We completed the construction of a plant in December 2013 with an annual production capacity of 3.0 million tons of plates and slabs.

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

We have also established supply chain management centers around the world to provide processing and logistics services such as cutting flat steel products to smaller sizes to meet customers’ needs. In 2013, our 39 supply chain management centers recorded aggregate sales of 5.1 million tons of steel products.

Trading

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

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

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

	For the Year Ended December 31,
Product Category	2011					2012					2013
	(In billions of Won, except percentages)
Export Sales
Trading sales:
Steel and metal	￦	6,070		31.6	%	￦	6,203		35.8	%	￦	5,397		31.5	%
Chemical and commodities		1,654		8.6			1,686		9.7			1,535		9.0
Automobile and machinery parts		1,527		8.0			1,469		8.5			1,625		9.5
Electronics and miscellaneous items		93		0.5			120		0.7			72		0.4
Natural resources development		—		—			2		0.0			—		—
Sub-total		9.344		48.7			9,480		54.7			8,630		50.4
Manufactured product sales		72		0.4			13		0.1			13		0.1
Miscellaneous		70		0.4			25		0.1			14		0.1
Total export sales		9,485		49.5			9,517		54.9			8,657		50.6
Domestic Sales
Trading sales:
Steel and metal	￦	688		3.6	%	￦	609		3.5	%		686		3.9	%
Chemical and commodities		70		0.4			69		0.4			71		0.4
Automobile and machinery parts		8		0.0			3		0.0			34		0.2
Electronics and miscellaneous items		—		—			7		0.1			4		0.0
Other goods		56		0.3			58		0.3			54		0.3
Sub-total		822		4.3			746		4.3			849		5.0
Miscellaneous		7		0.0			8		0.0			12		0.1
Total domestic sales		830		4.3			754		4.3			861		5.1
Third-Country Trades
Trading	￦	12,151		63.3	%	￦	10,220		59.0	%	￦	10,598		61.9
Natural resources development		58		0.3			78		0.5			132		0.8
Manufactured product trading		474		2.5			312		1.8			261		1.5
Total third-country trades		12,682		66.1			10,610		61.3			10,991		64.2
Consolidation adjustments		(3,810	)	(19.9	)		(3,561	)	(20.5	)		(3,399	)	(19.9	)
Total sales	￦	19,188		100.0	%	￦	17,320		100.0	%	￦	17,109		100.0	%

Trading Activities. Daewoo 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. Daewoo International is also engaged in third-country trade that does not involve exports from or imports to Korea. The products are obtained from and supplied to numerous suppliers and purchasers in Korea and overseas, which are procured through a global trading network comprised of overseas trading subsidiaries, branches and representative offices. Such subsidiaries and offices support Daewoo International’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, Daewoo International enters into trading transactions after the underlying sale and purchase contracts have been matched, which mitigates inventory and price risks to Daewoo International. Daewoo International has not experienced material losses related to such risks. Daewoo International typically enters into trading transactions as a principal, and in limited cases as an import or export agent. When acting as a principal or an agent, Daewoo International derives its gross trading profit from the margin between the selling price of the products and the purchase price it pays for such products. In the case of principal transactions, the selling price is recorded as sales and the purchase price is recorded as cost of sales, while only the margin is recorded as sales in the case of agency transactions in which Daewoo International does not assume the risks and rewards of ownership of the

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goods. In the case of principal transactions, it takes an average of approximately 80 days between Daewoo International’s payment of goods and its receipt of payment from its customers. In the instances in which it acts as an arranger for a third country transaction, Daewoo International derives its gross trading profit from, and records as sales, the commission paid to it by the customer. The sizes of margins and commissions for Daewoo International’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, Daewoo International has accounts receivable and payable in a number of currencies, but principally in Dollars. Daewoo 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 Daewoo 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, Daewoo International also periodically enters into derivative contracts, primarily currency forward contracts, to further hedge its foreign exchange risks.

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

Natural Resources Development Activities. Daewoo International also invests in energy and mineral development projects throughout the world. In particular, Daewoo International joined a consortium with Korea Gas Corporation, ONGC Videsh Ltd. and the Gas Authority of India Ltd. in November 2002, which made a successful bid in the gas exploration, development and production project in the Myanmar A-1 gas field. In October 2005, the consortium made a successful bid in the gas exploration, development and production project in the Myanmar A-3 gas field, located adjacent to the Myanmar A-1 gas field. In December 2008, the consortium entered into a sales agreement with China National United Oil Corporation to sell the gas produced from the A-1 and A-3 gas fields for a period of 30 years after the commencement of production. In August 2010, Myanmar Oil & Gas Enterprise, the national oil and gas company of Myanmar, acquired a 15% interest in each of the projects. As of December 31, 2013, Daewoo International had invested approximately US$1,103 million in the A-1 and A-3 gas field projects, approximately US$214 million in a related off-shore pipeline project and approximately US$354 million in a related on-shore pipeline project. Daewoo International plans to make further investments in these gas fields in the future. Daewoo International held a 51% interest in each of the A-1, A-3 and off-shore pipeline projects and a 25% interest in the on-shore pipeline project. Production of gas from these gas fields commenced in July 2013 and Daewoo International recognized revenue from the Myanmar gas field project starting in November 2013.

Such natural resources development projects, while entailing higher risks than the traditional trading business, offer higher potential returns. Daewoo International intends to continue to expand its operations by carefully seeking out promising energy development projects abroad. Daewoo International mitigates the risks associated with such investments through subsidies from the Special Account for Energy Related Funds that is administered, among others, by Korea National Oil Corporation and Korea Resources Corporation, government agencies that promote natural resources development activities of the fund. The fund subsidizes a portion of the investment amount in the event the investor fails to develop viable deposits. If the natural resources development activities are successful, the investor must reimburse the Fund for the subsidy amount, together with accrued interest. In most instances, Daewoo International is required to obtain consent from the Ministry of Trade, Industry & Energy prior to investing in natural resources development projects.

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

Construction

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

• its strong and stable customer base; and

• its cutting-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.

Construction Services Offered. The following table sets forth a breakdown of POSCO E&C’s total sales by product category for the periods indicated:

	For the Year Ended December 31,
Product Category	2011					2012					2013
	(In billions of Won, except percentages)
Plant works	￦	1,797		23.9	%	￦	3,223		37.3	%	￦	3,073		30.3	%
Architectural works		1,728		23.0			2,026		23.5			2,935		28.9
Energy works		1,465		19.5			1,411		16.3			2,128		21.0
Civil works		1,458		19.4			1,220		14.1			999		9.8
Real estate services		94		1.3			40		0.5			108		1.1
Engineering services		1,137		15.1			1,118		12.9			1,219		12.0
Consolidation adjustments		(171	)	(2.3	)		(401	)	(4.6	)		(305	)	(3.0	)
Total sales	￦	7,508		100.0	%	￦	8,637		100.0	%	￦	10,155		100.0	%

The tables below set out POSCO E&C’s total sales for the periods indicated by geographical area of customers that ordered the projects.

	For the Year Ended  December 31,
Region	2012					2013
	(In billions of Won, except percentages)
Korea	￦	7,946		92.0	%	￦	9,148		90.1	%
Southeast Asia		475		5.5			649		6.4
India		56		0.6			77		0.8
China		170		2.0			239		2.4
Central and South America		261		3.0			284		2.8
Others		131		1.5			63		0.6
Consolidation adjustments		(401	)	(4.6	)		(306	)	(3.0	)
Total sales	￦	8,637		100.0	%	￦	10,155		100.0	%

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Leveraging its technical know-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 of high-end apartment complexes and participating in a wider range of architectural works and civil engineering projects, as well as engaging in urban planning and development projects and expanding its operations abroad. One of its landmark urban planning and development projects includes the development of a 5.7 million-square meter area of Songdo International City in Incheon, which POSCO E&C is co-developing with Gale International, a respected real estate developer based in the United States. POSCO E&C also has substantial experience in the energy field obtained from the construction of various power plants for member companies of the POSCO Group, specializing primarily in engineering and construction of liquefied natural gas (“LNG”) and coal-fired thermal power plants. In recent years, POSCO E&C has obtained various orders for such power plants, including LNG-fired power plants in Incheon, Korea and coal-fired thermal power plants in Ventanas and Angamos, Chile. In response to increasing demand from the energy industry, POSCO E&C plans to continue to target opportunities in power plant construction, which it believes offers significant growth potential, and thereby enhance its know-how and profitability.

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 and non-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 undertaking larger-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 of low-bid contracts in civil works project mandates, have contributed to increased competition in the Korean construction industry in recent years. In the overseas markets, POSCO E&C faces competition from local construction companies, as well as international construction companies from other countries, including other major Korean construction companies with overseas operations. Construction companies from developed countries may be more experienced, have greater financial resources and possess more sophisticated technology than POSCO E&C, while construction companies from developing countries often have the advantage of lower wage costs.

Others

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

POSCO Energy 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 renamed it POSCO Energy Corporation. Since our acquisition, POSCO Energy Corporation has expanded its power generation capacity by constructing additional power plants in Korea. As part of its efforts to geographically diversify its power generation facilities, POSCO Energy Corporation is constructing a 1,200 megawatts class coal power plant in Vietnam with Applied Energy Services Corporation. In Indonesia, POSCO Energy Corporation has partnered with PT. Krakatau Daya Listrik to build a 200 megawatts by-product gas power plant, which will be used to power our integrated mill. POSCO Energy Corporation’s total power generation capacity was approximately 3,481 megawatts as of December 31, 2013, and it plans to further increase its power generation capacity with the construction of additional power plants in Korea.

POSCO Energy Corporation is also selectively seeking opportunities to expand into solar, wind and other renewable energy businesses in order to become an integrated provider of energy solutions. In order to meet the increasing demand and regulatory requirements for clean energy, POSCO Energy Corporation signed a strategic partnership agreement in February 2007 with FuelCell Energy, a global

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leader in the field of molten carbonate fuel cell technology, pursuant to which POSCO Energy Corporation is exploring opportunities to expand its business into the stationary fuel cell market. In consultation with FuelCell Energy, POSCO Energy Corporation completed construction of a fuel cell stack manufacturing plant with an annual production capacity of 34 megawatts in 2011 with the objective of enhancing POSCO Energy Corporation’s capability to meet the growing domestic demand for fuel cell energy.

LNG Logistics. In an effort to reduce our dependency on oil, we became the first private company in Korea to import LNG in 2005, and we have steadily increased the use of natural gas for energy generation at our steel production facilities. We operate an LNG receiving terminal that is equipped with two 100,000 kiloliters storage tanks, two 165,000 kiloliters storage tanks and additional facilities with an aggregate capacity to process up to 2.4 million tons of LNG annually in Gwangyang. In order to achieve maximum operational efficiency of our LNG terminal, we participate in the LNG trading and LNG ship gas trial businesses. We are also building a synthetic natural gas production plant with an annual capacity of 500,000 tons in Gwangyang that is scheduled for completion by the end of 2014. We believe that the synthetic natural gas production plant will provide us with a stable supply of LNG substitutes that we can utilize to meet our growing needs for energy generation.

Others. We acquired or established several subsidiaries that address specific services to support the operations of Pohang Works and Gwangyang Works. POSCO ICT Co., Ltd., founded in 1989, provides information and technology consulting and system network integration and outsourcing services. POSCO Plantec, created from the merger of POSCO Machinery & Engineering Co., Ltd. and POSCO Machinery Co., Ltd. in January 2010, provides engineering services related to plant construction and operations. Sungjin Geotec, a manufacturer of specialized equipment used in the power and energy industries, merged with POSCO Plantec in July 2013. POSCO Chemtech Company Ltd., formerly POSCO Refractories and Environment Company, Ltd., specializes in the manufacturing of refractories and lime used in steel manufacturing processes as well as a wide range of chemical products.

Insurance

We maintain property insurance for our property, plant and equipment that we believe to be consistent with market practice in Korea. As of December 31, 2013, our property, plant and equipment are insured against losses up to approximately Won 36,711 billion.

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
Daewoo International Corporation		Korea		60.3	%
POSCO Engineering & Construction Co., Ltd		Korea		89.5	%
POSCO Energy Corporation		Korea		89.0	%
Zhangjiagang Pohang Stainless Steel Co., Ltd.		China		82.5	%
POSCO Specialty Steel Co., Ltd.		Korea		72.1	%
POSCO Processing & Service Co., Ltd.		Korea		95.3	%
POSCO ICT Co., Ltd.		Korea		65.4	%

Item 4.D.  Property, Plants and Equipment

Our principal properties are Pohang Works, which is located at Youngil Bay on the southeastern coast of Korea, and Gwangyang Works, which is located in Gwangyang City in the southwestern region of Korea. We expect to increase our production capacity in the future when we increase our

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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.”

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 16.7 million tons. Pohang Works produces a wide variety of steel products. Products produced at Pohang Works include hot rolled sheets, plates, wire rods and cold rolled sheets, as well as specialty steel products such as stainless steel sheets and silicon steel sheets. These products can also be customized to meet the specifications of our customers.

Situated on a site of 8.9 million square meters at Youngil Bay on the southeastern coast of Korea, Pohang Works consists of 44 plants, including iron-making, crude steelmaking and continuous casting and other rolling facilities. Pohang Works also has docking facilities capable of accommodating ships as large as 200,000 tons for unloading raw materials, storage areas for up to 34 days’ supply of raw materials and separate docking facilities for ships carrying products for export. Pohang Works consumed approximately 352 thousand tons of LNG and approximately 11,336 gigawatt hours of electricity in 2013. Pohang Works is equipped with a highly advanced computerized production-management system allowing constant monitoring and control of the production process.

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

	As of or for the  Year Ended December 31,
	2011		2012		2013
Crude steel and stainless steel production capacity as of end of the year (million tons per year)		16.65		16.65		17.30
Actual crude steel and stainless steel output (million tons)		16.38		16.54		16.18
Capacity utilization rate (%) (1)		98.4		99.3		93.5

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

Gwangyang Works

Construction of Gwangyang Works began in 1985 on a site of 13.7 million square meters reclaimed from the sea in Gwangyang City in the southwestern region of Korea. Gwangyang Works currently has an annual crude steel production capacity of 20.8 million tons. Gwangyang Works specializes in high volume production of a limited number of steel products. Products manufactured at Gwangyang Works include both hot and cold rolled types.

Gwangyang Works is comprised of 46 plants, including iron-making plants, steelmaking plants, continuous casting plants, hot strip mills and thin-slab hot rolling plants. The site also features docking and unloading facilities for raw materials capable of accommodating ships of as large as 300,000 tons for unloading raw materials, storage areas for 38 days’ supply of raw materials and separate docking facilities for ships carrying products for export. Gwangyang Works consumed approximately 252 thousand tons of LNG and approximately 13,524 gigawatt hours of electricity in 2013.

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, from iron-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 computerized production-management system allowing constant monitoring and control of the production process.

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Capacity utilization has kept pace with increases in capacity. The following table sets out Gwangyang Works’ capacity utilization rates for the periods indicated.

	As of or for the  Year Ended December 31,
	2011		2012		2013
Crude steel production capacity as of end of the year (million tons per year)		20.80		20.80		20.80
Actual crude steel output (million tons)		20.94		21.45		20.23
Capacity utilization rate (%) (1)		100.7		103.1		97.3

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

The Environment

We believe we are in compliance with applicable environmental laws and regulations in all material respects. Our levels of pollution control are higher than those mandated by Government standards. We established an on-line environmental monitoring system with real-time feedback on pollutant levels and a forecast system of pollutant concentration in surrounding areas. We also undergo periodic environmental inspection by both internal and external inspectors in accordance with ISO 14001 standards to monitor execution and maintenance of our environmental management plan. As we continue to diversify our production operations abroad and the importance of comprehensive environmental management continues to grow, we announced an integrated environmental management system in December 2010, pursuant to which all of our subsidiaries located in Korea as well as abroad acquired the ISO 14001 certification. We also operate a certification program targeting our suppliers and outsourcing partners, pursuant to which they are encouraged to establish environmental management systems of their own.

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

We plan to continue to invest in developing more environmentally friendly steel manufacturing processes. We commenced research and development for a new steel manufacturing technology called FINEX in 1992 jointly with the Research Institute of Industrial Science and Technology and VOEST Alpine, an Austrian company, and we completed the construction of our first FINEX plant in May 2003 with an annual steel production capacity of 0.6 million tons, a second FINEX plant in May 2007 with an annual steel production capacity of 1.5 million tons, and a third FINEX plant in January 2014 with an annual steel production capacity of 2.0 million tons. The total annual steel production capacity of our FINEX plants is 4.2 million tons. We will continue to refine FINEX, a low cost, environmentally friendly steel manufacturing process that we believe optimizes our production capacity by utilizing non-agglomerated iron ore fines and using non-coking coal as an energy source and a reducing agent. We believe that FINEX offers considerable environmental and economic advantages by eliminating major sources of pollution such as sinter and coke plants, as well as decreasing operating and raw material costs.

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Our climate change response program seeks to minimize the risks from changes in climate as well as to maximize the opportunities available in such environment by enhancing the energy efficiency of our production process. We are also involved in a forestation project in Uruguay, which was registered as the world’s first Clean Development Mechanism project sponsored by a steel producer. Clean Development Mechanism is one of the Kyoto Protocol’s project-based mechanisms designed to promote projects that reduce emissions. We have disclosed our carbon dioxide emission levels and efforts to deal with climate changes through various channels, including participating in the Carbon Disclosure Project. The Carbon Disclosure Project is an organization based in the United Kingdom that works with major corporations around the world to disclose their greenhouse gas emission levels.

POSCO spent Won 493 billion in 2011, Won 634 billion in 2012 and Won 295 billion in 2013 on anti-pollution facilities.

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, an engineering and construction segment and a segment that contains operations of all other entities which fall below the reporting thresholds. The steel segment includes production of steel products and sale of such products. The trading segment consists of global trading activities of Daewoo International, exporting and importing a wide range of steel products that are both obtained from and supplied to POSCO, as well as between other suppliers and purchasers in Korea and overseas. The construction segment includes planning, designing and construction of industrial plants, civil engineering projects and commercial and residential buildings, both in Korea and overseas. The “others” segment includes power generation, LNG logistics, and network and system integration. See Note 41 of Notes to Consolidated Financial Statements.

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

• our sales volume, unit prices and product mix;

• costs and production efficiency; and

• exchange rate fluctuations

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

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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 2012, unit sales prices in Won for all of our principal product lines of steel products produced by us and directly sold to external customers decreased. The weighted average unit price for such products decreased by 10.6% from 2011 to 2012, despite a depreciation in the average value of the Won against the Dollar in 2012 that increased our export prices in Won terms. The average exchange rate of the Won against the Dollar depreciated from Won 1,108.1 to US$1.00 in 2011 to Won 1,126.9 to US$1.00 in 2012.

The unit sales price of plates, which accounted for 13.8% of total sales volume of the principal steel products produced by us and directly sold to external customers, decreased by 16.2% in 2012. The unit sales price of hot rolled products, which accounted for 28.5% of total sales volume of such products, decreased by 15.4% in 2012. The unit sales price of stainless steel products, which accounted for 9.2% of total sales volume of such products, decreased by 14.3% in 2012. The unit sales price of silicon steel sheets, which accounted for 3.8% of total sales volume of such products, decreased by 13.4% in 2012. The unit sales price of cold rolled products, which accounted for 39.6% of total sales volume of such products, decreased by 8.4% in 2012. The unit sales price of wire rods, which accounted for 5.1% of total sales volume of such products, decreased by 6.3% in 2012.

In 2013, unit sales prices in Won for all of our principal product lines of steel products produced by us and directly sold to external customers decreased. The weighted average unit price for such products decreased by 6.8% from 2012 to 2013, in part due to an appreciation in the average value of the Won against the Dollar in 2013 that decreased our export prices in Won terms. The average exchange rate of the Won against the Dollar appreciated from Won 1,126.9 to US$1.00 in 2012 to Won 1,095.0 to US$1.00 in 2013.

The unit sales price of cold rolled products, which accounted for 40.9% of total sales volume of such products, decreased by 13.9% in 2013. The unit sales price of wire rods, which accounted for 6.0% of total sales volume of the principal steel products produced by us and directly sold to external customers, decreased by 13.5% in 2013. The unit sales price of hot rolled products, which accounted for 26.1% of total sales volume of such products, decreased by 8.2% in 2013. The unit sales price of silicon steel sheets, which accounted for 3.9% of total sales volume of such products, decreased by 4.4% in 2013. The unit sales price of plates, which accounted for 13.2% of total sales volume of such products, decreased by 2.8% in 2013. The unit sales price of stainless steel products, which accounted for 9.9% of total sales volume of such products, decreased by 2.7% in 2013.

We gradually increased our export prices in the first half of 2011, but our export prices fell substantially in the second half of 2011 and decreased further in 2012 and the first half of 2013. We may decide to adjust our future export sales prices on an on-going basis subject to market demand for our products, the production outlook of the global steel industry and global economic conditions in general. See “Item 4. Information on the Company — Item 4.B. Business Overview — Markets — Exports.”

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

	For the Year Ended  December 31,
Products	2011		2012		2013
	(In thousands of Won per ton)
Cold rolled products	￦	1,051	￦	963	￦	829
Hot rolled products		871		737		677
Stainless steel products		3,087		2,646		2,576
Plates		1,043		873		849
Wire rods		1,328		1,245		1,076
Silicon steel sheets		1,571		1,362		1,302
Average (1)	￦	1,198	￦	1,071	￦	998

(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,
	2011			2012			2013
	(Percentage of net sales)
Cost of sales		86.8	%		88.3	%		88.9	%
Selling and administrative expenses		5.3			6.0			6.2
Gross margin		13.2			11.7			11.1
Operating profit margin		7.8			5.2			4.2

Our operating profit margin decreased from 7.8% in 2011 to 5.2% in 2012 and further decreased to 4.2% in 2013, reflecting the current challenging business environment as discussed below.

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

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

• focusing on marketing activities to increase our domestic market share and export sales; and

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

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

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	For the Year Ended  December 31,
	2011			2012			2013
Crude steel and stainless steel production capacity (million tons per year) (1)		39.5			39.6			40.4
POSCO		37.5			37.5			38.1
POSCO Specialty Steel Co., Ltd.		1.0			1.1			1.2
Zhangjiagang Pohang Stainless Steel Co., Ltd.		1.0			1.0			1.1
Actual crude steel and stainless steel output (million tons) (1)		39.0			39.7			38.3
POSCO		37.3			38.0			36.4
POSCO Specialty Steel Co., Ltd.		0.8			0.7			0.7
Zhangjiagang Pohang Stainless Steel Co., Ltd.		0.9			1.0			1.1
Capacity utilization rate (%)(1)		98.7	%		100.3	%		94.6	%
POSCO		99.7	%		101.4	%		95.5	%
POSCO Specialty Steel Co., Ltd.		86.4	%		63.3	%		61.8	%
Zhangjiagang Pohang Stainless Steel Co., Ltd.		99.1	%		103.3	%		100.3	%

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

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 2013, 51.2% 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 foreign currency-denominated debt;

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

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

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

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

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

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

46

particularly Daewoo International and POSCO E&C, also periodically enter into derivative contracts, primarily foreign currency swaps and forward exchange contracts, to further hedge our foreign exchange risks. However, our results of operations have historically been affected by exchange rate fluctuations and there can be no assurance that such strategies will be sufficient to reduce or eliminate the adverse impact of such fluctuations in the future. Because of the larger positive effects of the appreciation of the Won (i.e., the reverse of the negative effects caused by the depreciation of the Won, as discussed above), depreciation of the Won generally has a negative impact on our results of operations.

Inflation

Inflation in Korea, which was 4.0% in 2011, 2.2% in 2012 and 1.3% in 2013, has not had a material impact on our results of operations in recent years.

Critical Accounting Estimates

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

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts for exposures in our receivable balances that represent our estimate of probable losses in our short-term and long-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, 2013, the percentage of allowance for doubtful accounts to gross account receivables was 4.43%. Our allowance for doubtful accounts increased by 39.4%, or Won 187 billion, from Won 475 billion as of December 31, 2012 to Won 662 billion as of December 31, 2013 primarily due to recognition of bad debt expense related to project financing incurred by POSCO E&C. See Note 23 of Notes to Consolidated Financial Statements. Assumptions and judgments related to the allowance for doubtful accounts did not change in 2013.

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

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The actual average annual uncollected percentage rate of accounts receivables resulting in write-offs for the three years in the period ended December 31, 2013 was 0.13%. These historical results, as well as current known conditions impacting the collectability of our accounts receivable balances, are significant factors for us when we estimate the amount of the necessary allowance for doubtful accounts. Historically, losses from uncollectible accounts receivables have been within expectations and in line with the allowances established. However, unforeseen circumstances such as adverse market conditions that deviate significantly from our estimates may require us to change the timing of, and make additional allowances to, our receivable balances. In this case, our results of operations, financial condition and net worth could be materially and adversely affected.

Valuation of Financial Instruments including Debt and Equity Securities and Derivatives

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

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

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

We have estimated fair values of material non-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 7% in total. In addition, if the revenue growth rate assumptions were decreased by 1% in the cash flow models, then the estimated fair values would have decreased by 5% in total.

We recognized impairment losses on available-for-sale investments of Won 224 billion in 2012 and Won 280 billion in 2013. Losses on impairment of investments increased in 2013 primarily due to a significant decline in the fair value of shares of KB Financial Group and others for a prolonged period, which was considered as objective evidence of impairment.

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

Long-lived Assets

At each reporting date, we review the carrying amounts of our tangible and intangible assets (excluding goodwill) to determine whether there is any indication that the carrying amount of those assets may not be recoverable through continuing use. If any such indication exists, the recoverable amount of the asset (or cash generating unit) is reviewed in order to determine the amount of the impairment, if any. The recoverable amount is the higher of the asset’s net selling price (fair value reduced by selling costs) and its value in use. When the book value of long-lived asset exceeds the recoverable value 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 value and the resulting impairment loss is charged to current operations. Such recoverable value is based on our estimates of the future use of assets and is subject to changes in market conditions.

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

Our estimates of the useful lives and recoverable values of long-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 value 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 five years. For periods beyond the five year forecast period, we use a terminal value approach to estimate the cash flows for the remaining years based on an expected estimated growth rate. This estimated growth rate is based on actual historical results. As of December 31, 2013, we estimated an average discount rate of 7.0% and an average rate of revenue growth of 1.36%. However, given the current economic environment, it is likely that the estimates and assumptions will be more volatile than they have been in the past. Further impairment charges may be required if triggering events occur, such as adverse market conditions, that suggest deterioration in an asset’s recoverability or fair value. Assessment of the timing of when such declines become other than temporary and the amount of such impairment is a matter of significant judgment. Results in actual transactions could differ from those estimates used to evaluate the impairment of such long-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.

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If the estimated average discount rates used in these valuations were increased by 1%, then the estimated fair values would have decreased by 15% in total. If the estimated average rate of revenue growth rate were decreased by 1%, then the estimated fair values would have decreased by 13% in total. These sensitivity analyses do not affect the impairment loss due to the absence of an impairment loss indicator for our long-lived assets.

Goodwill

Goodwill is tested for impairment annually at the level of the groups of cash generating units or whenever changes in circumstances indicate that the carrying amount may not be recoverable. The recoverable amounts of the groups of cash-generating units are determined from the higher of their fair value less cost to sell or their value-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 using post-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 average long-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 discounted cash-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 estimated value-in-use would have decreased by 4.12% in total. If the estimated terminal growth rates were decreased by 0.25%, the estimated value-in-use would have decreased by 3.44% in total. If the discount rate assumptions were increased by 0.25% or the terminal growth rate assumptions were decreased by 0.25%, there would be no impact on goodwill impairment. Based on an impairment test as of December 31, 2013, we recognized impairment loss of goodwill of Won 97 billion in POSCO Thainox Public Company Limited and Won 6 billion in EPC Equities LLP. We believe that determining the existence and impairment of goodwill is a critical accounting estimate because significant management judgment is involved in the evaluation of the value of goodwill, and any reasonably possible changes in the key assumptions on which the recoverable amount is based would cause a change in impairment loss of 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 the moving-weighted average or weighted average method. Materials-in-transit are determined using the specific identification method. Amounts of inventory are written down to net realizable value due to losses occurring in the normal course of business and the allowance is reported as a contra inventory account, while the related charge is recognized in cost of goods sold.

The net realizable value is determined based on the latest selling price available at the end of each quarter taking into account the directly attributable selling costs. The latest selling price is the base price which is the negotiated selling price based upon the recent transactions entered into with major customers. Considering that our inventory turnover is approximately two months and inventories at the balance sheet date would be sold during the following two months, we perform valuation of inventories using the base price as of the balance sheet date and adjust for significant changes in selling price occurring subsequent to the reporting date. The selling price range used for determining the net realizable value of our inventories ranged from the inventory cost amount less 17.8% of gross

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profit margin to the inventory cost amount plus 25.1% of gross profit margin. For inventories in which expected selling prices are less than the cost amount, the necessary adjustment to write-down the inventories to net realizable value is made. There was no recovery in 2011, 2012 and 2013. The valuation losses of inventories recognized within cost of goods sold were Won 140 billion in 2011, Won 76 billion in 2012 and Won 49 billion in 2013.

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 the then-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 103 billion, or 6.8% in total. If the estimated future pay inflation rates were decreased by 1%, then the estimated provision for severance benefits would have decreased by Won 102 billion, or 6.7% in total.

Explanatory Note Regarding Presentation of Certain Financial Information under K-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 with K-IFRS as adopted by the KASB, which we are required to file with the Financial Services Commission and the Korea Exchange under the Financial Investment Services and Capital Markets Act of Korea.

Beginning with our financial statements prepared in accordance with K-IFRS as of and for the year ended December 31, 2012, we are required to adopt certain amendments to K-IFRS No. 1001, Presentation of Financial Statements, as adopted by the KASB in 2012. Accordingly, beginning with our consolidated statements of comprehensive income prepared in accordance with K-IFRS for the year ended December 31, 2012, we present operating profit or loss as an amount of revenue less cost of sales and selling and administrative expenses. The amendments were applied retroactively to our consolidated statements of comprehensive income prepared in accordance with K-IFRS for the year ended December 31, 2011 and certain of the items in such consolidated statements of comprehensive income were reclassified to conform to the presentation of operating profit or loss in the consolidated statements of comprehensive income prepared in accordance with K-IFRS for the year ended December 31, 2012. Prior to the adoption of the amendments to K-IFRS No. 1001, Presentation of Financial Statements, we had presented operating profit or loss in our consolidated statements of comprehensive income prepared in accordance with K-IFRS as an amount of revenue plus other income less cost of sales, selling and administrative expenses, and other expenses.

In our consolidated statements of comprehensive income prepared in accordance with IFRS as issued by the IASB included in this annual report, such changes in presentation were not adopted. As a result, the presentation of results from operating activities in our consolidated statements of comprehensive income prepared in accordance with IFRS as issued by the IASB included in this

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annual report differs from the presentation of operating profit or loss in the our consolidated statements of comprehensive income prepared in accordance with K-IFRS. The table below sets forth a reconciliation of our results from operating activities 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, 2011, 2012 and 2013 to the operating profit or loss as presented in our consolidated statements of comprehensive income prepared in accordance with K-IFRS after giving effect to the amendments to K-IFRS No. 1001, Presentation of Financial Statements, for each of the corresponding years.

	For the Year Ended December 31,
	2011			2012			2013
	(In millions of Won)
Operating profit under IFRS as issued by the IASB	￦	5,408,102		￦	3,291,763		￦	2,574,401
Additions:
Loss on disposals of property, plant and equipment		60,550			65,486			121,133
Loss on disposal of investment property		8,826			3,197			522
Loss on disposals of assets held for sale		—			9,510			26,498
Idle tangible assets expenses		16,881			31,297			17,624
Impairment loss on other long-term assets		34,544			36,453			9,000
Impairment loss on assets held for sale		—			258,451			1,814
Impairment loss of property, plant and equipment		26,171			12,977			9,742
Impairment loss of investment property		23,397			1,053			22,943
Other bad debt expenses		11,155			44,115			111,065
Donations		66,558			73,963			60,940
Impairment losses on intangible assets		14,959			21,776			125,316
Penalty and default losses		39,551			149,437			19,340
Loss on disposal of wastes		30,585			45,480			15,231
Loss on disposal of investments in associates		—			15,119			19,404
Other provision expenses		—			—			65,896
Others		33,356			41,151			24,338
		366,533			809,465			650,806
Deductions:
Gain on disposals of property, plant and equipment		(13,812	)		(42,290	)		(14,177	)
Rental revenues		(6,510	)		(1,898	)		(1,588	)
Gain on disposals of intangible assets		(953	)		(906	)		(801	)
Gain on disposals of investment in associates		(2,247	)		(39,441	)		(7,668	)
Gain on disposal of assets held for sale		—			(193,333	)		(101,611	)
Grant income		(1,228	)		(3,198	)		(2,287	)
Reversal of other bad debt allowance		(57,875	)		—			—
Reversal of other provisions		(35,629	)		(16,037	)		—
Outsourcing income		(42,136	)		(29,136	)		(25,428	)
Gain on disposal of wastes		(11,348	)		(38,597	)		(16,541	)
Gain from claim compensation		(68,853	)		(31,613	)		(14,525	)
Penalty income from early termination of contracts		(38,570	)		(15,054	)		(16,477	)
Others		(27,780	)		(36,617	)		(27,970	)
		(306,941	)		(448,120	)		(229,073	)
Operating profit under K-IFRS after adoption of the amendments	￦	5,467,694		￦	3,653,108		￦	2,996,134

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Operating Results — 2012 Compared to 2013

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

							Changes
	For the Year Ended December 31,						2012 versus 2013
	2012			2013			Amount			%
	(In billions of Won)
Revenue	￦	63,604		￦	61,865		￦	(1,740	)		(2.7	)%
Cost of sales		56,143			55,005			(1,138	)		(2.0	)
Gross profit		7,461			6,860			(601	)		(8.1	)
Administrative expenses		2,129			2,232			102			4.8
Selling expenses		1,679			1,632			(47	)		(2.8	)
Other operating income		448			229			(219	)		(48.9	)
Other operating expenses		809			651			(159	)		(19.6	)
Operating profit		3,292			2,574			(717	)		(21.8	)
Share of loss of equity-accounted investees		23			180			157			692.0
Finance income		2,897			2,381			(516	)		(17.8	)
Finance costs		2,798			2,829			32			1.1
Profit before income tax		3,368			1,946			(1,422	)		(42.2	)
Income tax expense		983			591			(392	)		(39.9	)
Profit for the period		2,386			1,355			(1,030	)		(43.2	)
Profit for the period attributable to owners of the controlling company		2,462			1,376			(1,086	)		(44.1	)
Loss for the period attributable to non-controlling interests		(76	)		(21	)		55			(72.3	)

Revenue

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

							Changes
	For the Year Ended December 31,						2012 versus 2013
	2012			2013			Amount			%
	(In billions of Won)
Steel Segment:
External revenue	￦	35,259		￦	31,795		￦	(3,464	)		(9.8	)%
Internal revenue		17,610			16,229			(1,381	)		(7.8	)
Total revenue from Steel Segment		52,869			48,024			(4,845	)		(9.2	)
Trading Segment:
External revenue		18,946			18,308			(638	)		(3.4	)
Internal revenue		7,468			7,611			144			1.9
Total revenue from Trading Segment		26,414			25,919			(494	)		(1.9	)
Construction Segment:
External revenue		4,676			6,897			2,221			47.5
Internal revenue		5,050			3,885			(1,165	)		(23.1	)
Total revenue from Construction Segment		9,726			10,782			1,056			10.9
Others Segment:
External revenue		4,724			4,865			141			3.0
Internal revenue		2,857			3,019			162			5.7
Total revenue from Others Segment		7,581			7,885			304			4.0
Total revenue prior to consolidation adjustments		96,589			92,609			(3,980	)		(4.1	)
Consolidation adjustments		(32,985	)		(30,745	)		(2,240	)		(6.8	)
Revenue	￦	63,604		￦	61,865			(1,740	)		(2.7	)

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Our revenue decreased by 2.7%, or Won 1,740 billion, from Won 63,604 billion in 2012 to Won 61,865 billion in 2013 due to decreases in external revenues from the Steel Segment and the Trading Segment, which were offset in part by increases in external revenues from the Construction Segment and the Others Segment. Specifically:

Steel Segment. External revenue from the Steel Segment, which does not include internal revenue from inter-company transactions that are eliminated during consolidation, decreased by 9.8%, or Won 3,464 billion, from Won 35,259 billion in 2012 to Won 31,795 billion in 2013 primarily due to a decrease in the average unit sales price per ton of the principal steel products produced by us and directly sold to external customers, as well as a decrease in our sales volume of the principal steel products produced by us and directly sold to external customers. The weighted average unit sales price per ton of the principal steel products produced by us and directly sold to external customers decreased by 6.8% from Won 1,070,565 per ton in 2012 to Won 998,012 per ton in 2013, while the overall sales volume of the principal steel products produced by us and directly sold to external customers decreased by 2.9% from 30.0 million tons in 2012 to 29.1 million tons in 2013. Such factors were principally attributable to the following:

• The unit sales prices in Won for all of our principal product lines of steel products produced by us and directly sold to external customers decreased from 2012 to 2013, ranging from a decrease of 2.7% for stainless steel products to a decrease of 13.9% for cold rolled products. For a discussion of changes in the unit sales prices of each of our principal product lines, see “— Overview — Sales Volume, Prices and Product Mix” above.

• The sales volume of hot rolled products, plates and silicon steel sheets produced by us and directly sold to external customers decreased by 11.1%, 7.1% and 0.8%, respectively, from 2012 to 2013. On the other hand, our sales volume of wire rods, stainless steel and cold rolled products produced by us and directly sold to external customers increased by 13.3%, 4.4% and 0.4%, respectively, from 2012 to 2013. 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 from inter-company transactions, decreased by 9.2%, or Won 4,845 billion, from Won 52,869 billion in 2012 to Won 48,024 billion in 2013, as internal revenue from inter-company transactions decreased from 2012 to 2013 due to a decrease in reliance on sales subsidiaries for the sale of our steel products.

Trading Segment. External revenue from the Trading Segment, which does not include internal revenue from inter-company transactions that are eliminated during consolidation, decreased by 3.4%, or Won 638 billion, from Won 18,946 billion in 2012 to Won 18,308 billion in 2013 primarily due to a decrease in external revenues of Daewoo International and our other trading subsidiaries from 2012 to 2013, reflecting market conditions related to the prolonged slowdown of the global economy that has been characterized by weaker demand and falling prices for export and import products and reduced trading volume.

Total revenue from the Trading Segment, which includes internal revenue from inter-company transactions, decreased by 1.9%, or Won 494 billion, from Won 26,414 billion in 2012 to Won 25,919 billion in 2013, primarily due to the reasons stated above, which was partially offset by an increase in reliance on sales subsidiaries by us on our steel trading activities.

Construction Segment. External revenue from the Construction Segment, which does not include internal revenue from inter-company transactions that are eliminated during consolidation, increased by 47.5%, or Won 2,221 billion, from Won 4,676 billion in 2012 to Won 6,897 billion in 2013 primarily due to increases in POSCO E&C’s construction activities of architectural works.

Total revenue from the Construction Segment, which includes internal revenue from inter-company transactions, increased by 10.9%, or Won 1,056 billion, from Won 9,726 billion in 2012 to

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Won 10,782 billion in 2013 primarily due to an increase in revenue of POSCO E&C by 17.6%, or Won 1,520 billion, from Won 8,637 billion in 2012 to Won 10,155 billion in 2013. POSCO E&C’s revenue increased primarily due to the reasons stated above, which was partially offset by a decrease in internal revenue from inter-company transactions by 23.1%, or Won 1,165 billion, from Won 5,050 billion in 2012 to Won 3,885 billion in 2013 primarily due to a decrease in the amount of construction activities for POSCO.

Others Segment. The Others Segment includes power generation, LNG production, network and system integration, logistics and magnesium coil and sheet production. External revenue from the Others Segment, which does not include internal revenue from inter-company transactions that are eliminated during consolidation, increased by 3.0%, or Won 141 billion, from Won 4,724 billion in 2012 to Won 4,865 billion in 2013 primarily due to an increase in revenue of POSCO Energy Corporation as it increased its power generation capacity in the second half of 2012.

Total revenue from the Others Segment, which includes internal revenue from inter-company transactions, increased by 4.0%, or Won 304 billion, from Won 7,581 billion in 2012 to Won 7,885 billion in 2013, primarily due to an increase in revenue of POSCO Energy Corporation by 3.4%, or Won 92 billion, from Won 2,809 billion in 2012 to Won 2,901 billion in 2013.

Cost of Sales

Our cost of sales decreased by 2.0%, or Won 1,138 billion, from Won 56,143 billion in 2012 to Won 55,005 billion in 2013. The decrease in cost of sales was primarily due to decreases in our sales volume of steel products and trading activities as discussed above, as well as decreases in the average price in Won terms of key raw materials that were used to manufacture our finished steel products sold, which were partially offset by increases in our construction activities and sales volume of non-steel products.

The following table presents a breakdown of our cost of sales by segment, prior to adjusting for inter-company transactions that are eliminated during consolidation, and changes therein for 2012 and 2013.

							Changes
	For the Year Ended December 31,						2012 versus 2013
	2012			2013			Amount			%
	(In billions of Won)
Steel Segment	￦	47,616		￦	43,274		￦	(4,342	)		(9.1	)%
Trading Segment		25,287			24,816			(471	)		(1.9	)
Construction Segment		8,937			9,848			911			10.2
Others Segment		6,771			7,123			353			5.2
Consolidation adjustments		(32,468	)		(30,057	)		2,411			(7.4	)
Cost of sales	￦	56,143		￦	55,005			(1,138	)		(2.0	)

Steel Segment. The cost of sales of our Steel Segment, prior to consolidation adjustments, decreased by 9.1%, or Won 4,342 billion, from Won 47,616 billion in 2012 to Won 43,274 billion in 2013, primarily due to decreases in the average price in Won terms of coal and other key raw materials (other than iron ore) that were used to manufacture our finished goods sold as well as in our sales volume of the principal steel products produced by us and directly sold to external customers. For a discussion of fluctuations in prices of our key raw materials, see “Item 4.B. Business Overview — Raw Materials.”

Trading Segment. The cost of sales of our Trading Segment, prior to consolidation adjustments, decreased by 1.9%, or Won 471 billion, from Won 25,287 billion in 2012 to Won 24,816 billion in 2013, primarily due to a decrease in our trading volumes.

55

Construction Segment. The cost of sales of our Construction Segment, prior to consolidation adjustments, increased by 10.2%, or Won 911 billion, from Won 8,937 billion in 2012 to Won 9,848 billion in 2013, primarily due to an increase in the construction activities of POSCO E&C.

Others Segment. The cost of sales of our Others Segment, prior to consolidation adjustments, increased by 5.2%, or Won 353 billion, from Won 6,771 billion in 2012 to Won 7,123 billion in 2013, primarily due to costs related to an increase in POSCO Energy Corporation’s power generation activities in 2013 resulting from an increase in its power generation capacity in the second half of 2012.

Gross Profit

Our gross profit decreased by 8.1%, or Won 601 billion, from Won 7,461 billion in 2012 to Won 6,860 billion in 2013 primarily due to a decrease in gross profit of our Steel Segment. Our gross margin decreased from 11.7% in 2012 to 11.1% in 2013.

The following table presents our gross profit by segment, prior to adjusting for inter-company transactions that are eliminated during consolidation, and changes therein for 2012 and 2013.

	For the Year Ended December 31,						Changes
							2012 versus 2013
	2012			2013			Amount			%
	(In billions of Won)
Steel Segment	￦	5,253		￦	4,749		￦	(504	)		(9.6	)%
Trading Segment		1,127			1,103			(24	)		(2.1	)
Construction Segment		789			934			145			18.4
Others Segment		810			761			(49	)		(6.1	)
Consolidation adjustments		(518	)		(688	)		(170	)		32.9
Gross profit	￦	7,461		￦	6,860			(601	)		(8.1	)

Steel Segment. The gross profit of our Steel Segment, prior to consolidation adjustments, decreased by 9.6%, or Won 504 billion, from Won 5,253 billion in 2012 to Won 4,749 billion in 2013 primarily due to a decrease in the average unit sales price per ton of our principal steel products as well as a decrease in the overall sales volume of our principal steel products, as discussed above, which were partially offset by a decrease in the average price in Won terms of coal and other key raw materials (other than iron ore) that were used to manufacture our finished steel product sold. The gross margin of our Steel Segment, which is gross profit as a percentage of total revenue prior to consolidation adjustments, remained constant at 9.9% in 2012 and 2013.

Trading Segment. The gross profit of our Trading Segment, prior to consolidation adjustments, decreased by 2.1%, or Won 24 billion, from Won 1,127 billion in 2012 to Won 1,103 billion in 2013, reflecting market conditions related to the prolonged slowdown of the global economy as discussed above. The gross margin of our Trading Segment, prior to consolidation adjustments, remained constant at 4.3% in 2012 and 2013.

Construction Segment. The gross profit of our Construction Segment, prior to consolidation adjustments, increased by 18.4%, or Won 145 billion, from Won 789 billion in 2012 to Won 934 billion in 2013, and the gross margin increased from 8.1% in 2012 to 8.7% in 2013 primarily due to POSCO E&C’s participation in construction projects with higher margins in 2013.

Others Segment. The gross profit of our Others Segment, prior to consolidation adjustments, decreased by 6.1%, or Won 49 billion, from Won 810 billion in 2012 to Won 761 billion in 2013, and the gross margin decreased from 10.7% in 2012 to 9.7% in 2013 as POSCO Energy Corporation’s gross margin was negatively impacted in 2013 from an increase in its power generation capacity in the second half of 2012 and the ramp-up of the capacity utilization rate.

56

Selling and Administrative Expenses

The following table presents a breakdown of our selling and administrative expenses and changes therein for 2012 and 2013.

					Changes
	For the Year Ended December 31,				2012 versus 2013
	2012		2013		Amount			%
	(In billions of Won)
Freight	￦	1,473	￦	1,433	￦	(40	)		(2.7	)%
Sales commissions		74		74		(0	)		(0.5	)
Sales promotion		18		27		10			54.8
Sales insurance premium		32		27		(5	)		(15.7	)
Contract cost		52		37		(15	)		(28.5	)
Others		30		34		4			13.4
Total selling expenses	￦	1,679	￦	1,632		(47	)		(2.8	)
Wages and salaries	￦	695	￦	755	￦	60			8.7	%
Expenses related to defined benefit plan		61		67		6			10.2
Other employee benefits		171		166		(5	)		(2.9	)
Depreciation		219		228		10			4.5
Rental		93		110		17			18.1
Repairs		12		6		(6	)		(51.5	)
Advertising		56		106		50			89.4
Research and development		192		193		0			0.3
Service fees		264		240		(24	)		(9.2	)
Vehicle maintenance		22		12		(10	)		(46.0	)
Training		18		12		(6	)		(32.2	)
Warranty expense		13		19		6			45.1
Bad debt allowance		79		90		11			13.7
Others		234		227		(6	)		(2.7	)
Total administrative expenses	￦	2,129	￦	2,232		102			4.8
Total selling and administrative expenses	￦	3,808	￦	3,864		56			1.5

Our selling and administrative expenses increased by 1.5%, or Won 56 billion, from Won 3,808 billion in 2012 to Won 3,864 billion in 2013 primarily due to increases in labor-related expenses and advertising expense, which was partially offset by a decrease in freight expense and service fees. Such factors were principally attributable to the following:

• Our labor-related expenses included in selling and administrative expenses, which consist of wages and salaries, expenses related to defined benefit plans and other employee benefits, increased by 6.6%, or Won 61 billion, from Won 927 billion in 2012 to Won 988 billion in 2013 primarily due to an increase in the number of employees and a rise in their wages.

• Our advertising expense increased by 89.4%, or Won 50 billion, from Won 56 billion in 2012 to Won 106 billion in 2013 primarily due to diversification of our advertising channels.

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

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

57

Other Operating Income and Expenses

The following table presents a breakdown of our other operating income and expenses and changes therein for 2012 and 2013.

					Changes
	For the Year Ended December 31,				2012 versus 2013
	2012		2013		Amount			%
	(In billions of Won)
Gain on disposals of property, plant and equipment	￦	42	￦	14	￦	(28	)		(66.5	)%
Gain on disposals of investments in associates		39		8		(32	)		(80.6	)
Gain on disposals of assets held for sale		193		102		(92	)		(47.4	)
Reversal of other provisions		16		—		(16	)		(100.0	)
Outsourcing income		29		25		(4	)		(12.7	)
Gain on disposal of wastes		39		17		(22	)		(57.1	)
Gain from claim compensation		32		15		(17	)		(54.1	)
Penalty income from early termination of contracts		15		16		1			9.5
Others		43		33		(10	)		(23.4	)
Total other operating income	￦	448	￦	229		(219	)		(48.9	)

Our other operating income decreased by 48.9%, or Won 219 billion, from Won 448 billion in 2012 to Won 229 billion in 2013 primarily due to a decrease in our gain on disposal of assets held for sale. Our gain on disposal of assets held for sale decreased by 47.4%, or Won 92 billion, from Won 193 billion in 2012 to Won 102 billion in 2013. In 2012, we recognized a gain of Won 146 billion from Daewoo International’s disposal of Daewoo Cement (Shandong) Co., Ltd. to China United Cement Group Co., Ltd. in June 2012. In addition, we recognized a gain of Won 46 billion from Daewoo International’s disposal of its interest in Kyobo Life Insurance Co., Ltd. (“Kyobo Life Insurance”), subsequent to our impairment of Won 258 billion of such asset as described below. In 2013, we recognized a gain of Won 102 billion on disposal of assets held for sale primarily from our disposition of SK Telecom shares and SeAH Steel shares.

					Changes
	For the Year Ended December 31,				2012 versus 2013
	2012		2013		Amount			%
	(In billions of Won)
Loss on disposals of property, plant and equipment	￦	65	￦	121	￦	56			85.0	%
Loss on disposals of asset held for sale		10		26		17			178.6
Idle tangible assets expenses		31		18		(14	)		(43.7	)
Impairment loss on other long-term assets		36		9		(27	)		(75.3	)
Impairment loss on assets held for sale		258		2		(257	)		(99.3	)
Impairment loss on investment property		1		23		22			2,078.8
Other bad debt expenses		44		111		67			151.8
Donations		74		61		(13	)		(17.6	)
Impairment losses on intangible assets		22		125		104			475.5
Penalty and default losses		149		19		(130	)		(87.1	)
Loss on disposal of wastes		45		15		(30	)		(66.5	)
Other provision expenses		—		66		66			N.A.
Others		72		54		(18	)		(25.5	)
Total other operating expenses	￦	809	￦	651		(159	)		(19.6	)

N.A. means not applicable.

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Our other operating expenses decreased by 19.6%, or Won 159 billion, from Won 809 billion in 2012 to Won 651 billion in 2013, primarily due to significant decreases in our impairment loss on assets held for sale and penalty and default losses, which were partially offset by increases in our impairment losses on intangible assets, other bad debt expenses, other provision expenses and loss on disposals of property, plant and equipment. Such factors were principally attributable to the following:

• Our impairment loss on assets held for sale decreased significantly, by Won 257 billion, from Won 258 billion in 2012 to Won 2 billion in 2013. We recognized an impairment loss on assets held for sale of Won 258 billion in 2012 related to a decrease in the market value of Daewoo International’s interest in Kyobo Life Insurance, compared to no such loss in 2013.

• Our penalty and default losses decreased significantly, or Won 130 billion, from Won 149 billion in 2012 to Won 19 billion in 2013 primarily due to our payment of a fine imposed by the Korea Fair Trade Commission on us and POSCO Coated & Color Steel Co., Ltd. in 2012 for alleged antitrust violations.

• Our impairment losses on intangible assets increased by more than five-fold, or Won 104 billion, from Won 22 billion in 2012 to Won 125 billion in 2013 due to impairment loss of Won 97 billion in POSCO Thainox Public Company Limited in 2013.

• Our other bad debt expenses more than doubled, by Won 67 billion, from Won 44 billion in 2012 to Won 111 billion in 2013 due to increase in bad debt expenses of POSCO E&C related to some of its construction projects.

• We recorded other provision expenses of Won 66 billion in 2013 compared to no such expense in 2012, as POSCO E&C recorded reserves for subrogation payments related to some of its construction projects.

• Our loss on disposals of property, plant and equipment increased by 85.0%, or Won 56 billion, from Won 65 billion in 2012 to Won 121 billion in 2013 primarily due to loss resulting from the merger of Sungjin Geotec with POSCO Plantec in July 2013 as well as sale of certain assets of POSCO Energy Corporation in 2013.

Operating Profit

Due to the factors described above, our operating profit decreased by 21.8%, or Won 717 billion, from Won 3,292 billion in 2012 to Won 2,574 billion in 2013. Our operating margin decreased from 5.2% in 2012 to 4.2% in 2013.

Share of Loss of Equity-Accounted Investees

Our share of loss of equity-accounted investees increased nearly eight-fold, or by Won 157 billion, from Won 23 billion in 2012 to Won 180 billion in 2013. In 2012, we recognized a net loss for our proportionate share of equity-accounted investees of Won 23 billion primarily due to our share of loss of AMCI (WA) Pty Ltd. and Busan-Gimhae Light Rail Transit Co., Ltd., which was partially offset by our share of profit of Kyobo Life Insurance and KOBRASCO. In 2013, we recognized a net loss for our proportionate share of equity-accounted investees of Won 180 billion primarily due to our share of loss of POSCO Plantec, Roy Hill Holdings Pty Ltd. and CSF-Compania Siderurgica do Pecem, which was partially offset by our share of profit of KOBRASCO, Korea LNG Ltd. and CAML Resources Pty Ltd. For a discussion of our share of profits or losses of equity-accounted investees, 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 2012 and 2013.

					Changes
	For the Year Ended December 31,				2012 versus 2013
	2012		2013		Amount			%
	(In billions of Won)
Interest income	￦	279	￦	260	￦	(18	)		(6.6	)%
Dividend income		124		59		(65	)		(52.5	)
Gain on foreign currency transactions		935		998		62			6.6
Gain on foreign currency translations		937		511		(426	)		(45.4	)
Gain on transactions of derivatives		408		370		(37	)		(9.2	)
Gain on valuations of derivatives		94		72		(22	)		(23.5	)
Gain on disposals of available-for-sale investments		112		106		(7	)		(5.8	)
Others		7		4		(3	)		(40.0	)
Total finance income	￦	2,897	￦	2,381		(516	)		(17.8	)
Interest expenses	￦	871	￦	658	￦	(214	)		(24.5	)%
Loss on foreign currency transactions		839		927		88			10.5
Loss on foreign currency translations		243		345		102			41.9
Loss on transactions of derivatives		309		287		(22	)		(7.3	)
Loss on valuations of derivatives		160		291		132			82.6
Impairment loss on available-for-sale investments		224		280		56			25.0
Loss on disposals of available-for-sale investments		36		4		(33	)		(89.7	)
Loss on Financial guarantee		38		6		(33	)		(84.7	)
Others		76		31		(45	)`		(58.9	)
Total finance costs	￦	2,798	￦	2,829		32			1.1

Our net gain on foreign currency translations decreased by 76.0%, or Won 527 billion, from Won 693 billion in 2012 to Won 166 billion in 2013, and our net gain on foreign currency transactions decreased by 27.1%, or Won 26 billion, from Won 96 billion in 2012 to Won 70 billion in 2013 as the Won appreciated against the Dollar and Yen in 2012 and 2013. In terms of the market average exchange rates announced by Seoul Money Brokerage Services, Ltd., the Won appreciated from Won 1,153.3 to US$1.00 as of December 31, 2011 to Won 1,071.1 to US$1.00 as of December 31, 2012 and appreciated further to Won 1,055.3 to US$1.00 as of December 31, 2013. The Won appreciated against the Yen from Won 1,485.2 per Yen 100 as of December 31, 2011 to Won 1,247.5 per Yen 100 as of December 31, 2012 and appreciated further to Won 1,004.7 as of December 31, 2013. Against such appreciation, we recognized a more than three-fold increase in net loss on valuation of derivatives, or by Won 154 billion, from Won 65 billion in 2012 to Won 219 billion in 2013, as well as a decrease of 15.1% in net gain on transactions of derivatives, or Won 15 billion, from Won 99 billion in 2012 to Won 84 billion in 2013.

Our impairment loss on available-for-sale investments increased by 25.0%, or Won 56 billion, from Won 224 billion in 2012 to Won 280 billion in 2013 primarily due to a significant decline in the fair value of shares of KB Financial Group and others for a prolonged period, which was considered as objective evidence of impairment.

Our interest expenses decreased by 24.5%, or Won 214 billion, from Won 871 billion in 2012 to Won 658 billion in 2013 primarily due to a decrease in the average balance of our payables and financial liabilities as well as a general decrease in interest rates in Korea.

Income Tax Expense

Our income tax expense decreased by 39.9%, or Won 392 billion, from Won 983 billion in 2012 to Won 591 billion in 2013. Our effective tax rate increased from 29.2% in 2012 to 30.4% in 2013 primarily due to an increase in the amount of unrecognized deferred tax assets caused by net loss from our subsidiaries. See Note 35 of Notes to Consolidated Financial Statements.

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Profit for the Period

Due to the factors described above, our profit for the period decreased by 43.2%, or Won 1,030 billion, from Won 2,386 billion in 2012 to Won 1,355 billion in 2013. Our net profit margin decreased from 3.8% in 2012 to 2.2% in 2013.

The following table presents our profit for the period by segment, prior to adjusting for inter-company transactions that are eliminated during consolidation, and changes therein for 2012 and 2013.

							Changes
	For the Year Ended December 31,						2012 versus 2013
	2012			2013			Amount			%
	(In billions of Won)
Steel Segment	￦	2,246		￦	1,449		￦	(797	)		(35.5	)%
Trading Segment		325			10			(316	)		(97.1	)
Construction Segment		345			147			(198	)		(57.4	)
Others Segment		301			197			(104	)		(34.5	)
Consolidation adjustments		(833	)		(448	)		384			(46.1	)
Profit for the period	￦	2,386		￦	1,355			(1,030	)		(43.2	)

Operating Results — 2011 Compared to 2012

The following table presents our income statement information and changes therein for 2011 and 2012.

						Changes
	For the Year Ended December 31,					2011 versus 2012
	2011		2012			Amount			%
	(In billions of Won)
Revenue	￦	68,939	￦	63,604		￦	(5,335	)		(7.7	)%
Cost of sales		59,824		56,143			(3,681	)		(6.2	)
Gross profit		9,115		7,461			(1,654	)		(18.1	)
Administrative expenses		2,035		2,129			94			4.6
Selling expenses		1,612		1,679			67			4.1
Other operating income		307		448			141			46.0
Other operating expenses		367		809			443			120.8
Operating profit		5,408		3,292			(2,116	)		(39.1	)
Share of profit (loss) of equity-accounted investees		51		(23	)		(73	)		N.A.
Finance income		3,190		2,897			(293	)		(9.2	)
Finance costs		3,867		2,798			(1,069	)		(27.6	)
Profit before income tax		4,782		3,368			(1,414	)		(29.6	)
Income tax expense		1,068		983			(85	)		(8.0	)
Profit for the period		3,714		2,386			(1,329	)		(35.8	)
Profit for the period attributable to owners of the controlling company		3,648		2,462			(1,186	)		(32.5	)
Profit (loss) for the period attributable to non-controlling interests		66		(76	)		(143	)		N.A.

N.A. means not applicable.

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Revenue

The following table presents our revenue by segment and changes therein for 2011 and 2012.

							Changes
	For the Year Ended December 31,						2011 versus 2012
	2011			2012			Amount			%
	(In billions of Won)
Steel Segment:
External revenue	￦	39,152		￦	35,259		￦	(3,893	)		(9.9	)%
Internal revenue		17,139			17,610			471			2.7
Total revenue from Steel Segment		56,291			52,869			(3,422	)		(6.1	)
Trading Segment:
External revenue		21,097			18,946			(2,152	)		(10.2	)
Internal revenue		7,526			7,468			(58	)		(0.8	)
Total revenue from Trading Segment		28,623			26,414			(2,209	)		(7.7	)
Construction Segment:
External revenue		5,476			4,676			(801	)		(14.6	)
Internal revenue		2,997			5,050			2,053			68.5
Total revenue from Construction Segment		8,473			9,726			1,253			14.8
Others Segment:
External revenue		3,213			4,724			1,511			47.0
Internal revenue		2,446			2,857			411			16.8
Total revenue from Others Segment		5,660			7,581			1,921			33.9
Total revenue prior to consolidation adjustments		99,046			96,589			(2,457	)		(2.5	)
Consolidation adjustments		(30,108	)		(32,985	)		(2,878	)		9.6
Revenue	￦	68,939		￦	63,604			(5,335	)		(7.7	)

Our revenue decreased by 7.7%, or Won 5,335 billion, from Won 68,939 billion in 2011 to Won 63,604 billion in 2012 due to decreases in external revenues from the Steel Segment, the Trading Segment and the Construction Segment, which were offset in part by an increase in external revenue from the Others Segment. Specifically:

Steel Segment. External revenue from the Steel Segment, which does not include internal revenue from inter-company transactions that are eliminated during consolidation, decreased by 9.9%, or Won 3,893 billion, from Won 39,152 billion in 2011 to Won 35,259 billion in 2012 primarily due to a decrease in the average unit sales price per ton of the principal steel products produced by us and directly sold to external customers, the impact of which was partially offset by an increase in our sales volume of the principal steel products produced by us and directly sold to external customers. The weighted average unit sales price per ton of the principal steel products produced by us and directly sold to external customers decreased by 10.6% from Won 1,197,661 per ton in 2011 to Won 1,070,565 per ton in 2012, while the overall sales volume of the principal steel products produced by us and directly sold to external customers increased by 1.5% from 29.5 million tons in 2011 to 30.0 million tons in 2012. Such factors were principally attributable to the following:

• The unit sales prices in Won for all of our principal product lines of steel products produced by us and directly sold to external customers decreased from 2011 to 2012, ranging from a decrease of 6.3% for wire rods to a decrease of 16.2% for plates. 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 our stainless steel products produced by us and directly sold to external customers increased by 14.3% from 2011 to 2012, and the sales volume of our cold rolled products and silicon steel sheets produced by us and directly sold to external customers increased by 7.6% and 0.8%, respectively, from 2011 to 2012. On the other hand, our sales

62

volume of wire rods, plates and hot rolled products produced by us and directly sold to external customers decreased by 9.2%, 5.2% and 4.1%, respectively, from 2011 to 2012. 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 from inter-company transactions, decreased by 6.1%, or Won 3,422 billion, from Won 56,291 billion in 2011 to Won 52,869 billion in 2012, as internal revenue from inter-company transactions increased from 2011 to 2012 due to an increased reliance on Daewoo International for our sale of steel products.

Trading Segment. External revenue from the Trading Segment, which does not include internal revenue from inter-company transactions that are eliminated during consolidation, decreased by 10.2%, or Won 2,152 billion, from Won 21,097 billion in 2011 to Won 18,946 billion in 2012 primarily due to a decrease in external revenue of Daewoo International from 2011 to 2012, reflecting market conditions related to the prolonged slowdown of the global economy that has been characterized by weaker demand and falling prices for export and import products and reduced trading volume.

Total revenue from the Trading Segment, which includes internal revenue from inter-company transactions, decreased by 7.7%, or Won 2,209 billion, from Won 28,623 billion in 2011 to Won 26,414 billion in 2012, primarily due to the reasons stated above, which was offset in part by an increase in reliance on Daewoo International by us on our steel trading activities.

Construction Segment. External revenue from the Construction Segment, which does not include internal revenue from inter-company transactions that are eliminated during consolidation, decreased by 14.6%, or Won 801 billion, from Won 5,476 billion in 2011 to Won 4,676 billion in 2012 primarily due to a general slowdown in the domestic construction market resulting in weaker demand.

Total revenue from the Construction Segment, which includes internal revenue from inter-company transactions, increased by 14.8%, or Won 1,253 billion, from Won 8,473 billion in 2011 to Won 9,726 billion in 2012 primarily due to an increase in revenue of POSCO E&C by 15.0%, or Won 1,129 billion, from Won 7,508 billion in 2011 to Won 8,637 billion in 2012. POSCO E&C’s revenue increased primarily due to increases in revenues from plant works and architectural works operations, the impact of which was partially offset by a decrease in revenue from civil and environmental works operations.

Others Segment. The Others Segment includes power generation, LNG production, network and system integration, logistics and magnesium coil and sheet production. External revenue from the Others Segment, which does not include internal revenue from inter-company transactions that are eliminated during consolidation, increased by 47%, or Won 1,511 billion, from Won 3,213 billion in 2011 to Won 4,724 billion in 2012 primarily due to an increase in revenue of POSCO Energy Corporation. Revenue of POSCO Energy Corporation increased by 49.0%, or Won 939 billion, from Won 1,918 billion in 2011 to Won 2,857 billion in 2012 as it substantially increased its power generation capacity in 2012.

Total revenue from the Others Segment, which includes internal revenue from inter-company transactions, increased by 33.9%, or Won 1,921 billion, from Won 5,660 billion in 2011 to Won 7,581 billion in 2012, primarily due to the increase in revenue of POSCO Energy Corporation discussed above as well as increases in the revenues of POSCO Chemtech and POSCO M-Tech.

Cost of Sales

Our cost of sales decreased by 6.2%, or Won 3,681 billion, from Won 59,824 billion in 2011 to Won 56,143 billion in 2012. The decrease in cost of sales was primarily due to decreases in our sales volume of steel and non-steel products and trading activities as discussed above, as well as decreases in the average price in Won terms of key raw materials that were used to manufacture our finished goods sold.

63

The following table presents a breakdown of our cost of sales by segment, prior to adjusting for inter-company transactions that are eliminated during consolidation, and changes therein for 2011 and 2012.

							Changes
	For the Year Ended December 31,						2011 versus 2012
	2011			2012			Amount			%
	(In billions of Won)
Steel Segment	￦	49,459		￦	47,616		￦	(1,843	)		(3.7	)%
Trading Segment		27,453			25,287			(2,166	)		(7.9	)
Construction Segment		7,706			8,937			1,231			16.0
Others Segment		5,301			6,771			1,470			27.7
Consolidation adjustments		(30,095	)		(32,468	)		(2,373	)		7.9
Cost of sales	￦	59,824		￦	56,143			(3,681	)		(6.2	)

Steel Segment. The cost of sales of our Steel Segment, prior to consolidation adjustments, decreased by 3.7%, or Won 1,843 billion, from Won 49,459 billion in 2011 to Won 47,616 billion in 2012, primarily due to decreases in the average price in Won terms of key raw materials that were used to manufacture our finished goods sold, the impact of which was partially offset by an increase in our sales volume of the principal steel products produced by us and directly sold to external customers as well as. For a discussion of fluctuations in prices of our key raw materials, see “Item 4.B. Business Overview — Raw Materials.”

Trading Segment. The cost of sales of our Trading Segment, prior to consolidation adjustments, decreased by 7.9%, or Won 2,166 billion, from Won 27,453 billion in 2011 to Won 25,287 billion in 2012, primarily due to a decrease in our trading volumes.

Construction Segment. The cost of sales of our Construction Segment, prior to consolidation adjustments, increased by 16.0%, or Won 1,231 billion, from Won 7,706 billion in 2011 to Won 8,937 billion in 2012, primarily due to an increase in the construction activities of POSCO E&C.

Others Segment. The cost of sales of our Others Segment, prior to consolidation adjustments, increased by 27.7%, or Won 1,470 billion, from Won 5,301 billion in 2011 to Won 6,771 billion in 2012, primarily due to costs related to substantial increase in POSCO Energy Corporation’s power generation activities in 2012.

Gross Profit

Our gross profit decreased by 18.1%, or Won 1,654 billion, from Won 9,115 billion in 2011 to Won 7,461 billion in 2012. Our gross margin decreased from 13.2% in 2011 to 11.7% in 2012 as the decrease in revenue from 2011 to 2012 more than outpaced the decrease in cost of sales from 2011 to 2012, as described above. Our gross margin was negatively affected primarily by a decrease in the gross margin of our Steel Segment as described below.

The following table presents our gross profit by segment, prior to adjusting for inter-company transactions that are eliminated during consolidation, and changes therein for 2011 and 2012.

							Changes
	For the Year Ended December 31,						2011 versus 2012
	2011			2012			Amount			%
	(In billions of Won)
Steel Segment	￦	6,832		￦	5,253		￦	(1,579	)		(23.1	)%
Trading Segment		1,170			1,127			(43	)		(3.7	)
Construction Segment		767			789			22			2.8
Others Segment		359			810			452			125.8
Consolidation adjustments		(13	)		(518	)		(505	)		4,025.9
Gross profit	￦	9,115		￦	7,461			(1,654	)		(18.1	)

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Steel Segment. As a result of the factors described above, the gross margin of our Steel Segment, which is gross profit as a percentage of total revenue prior to consolidation adjustments, decreased from 12.1% in 2011 to 9.9% in 2012.

Trading Segment. The gross margin of our Trading Segment, prior to consolidation adjustments, increased from 4.1% in 2011 to 4.3% in 2012 primarily due to Daewoo International’s efforts to streamline its trading operations to focus on higher margin trades.

Construction Segment. The gross margin of our Construction Segment, prior to consolidation adjustments, decreased from 9.1% in 2011 to 8.1% in 2012 due to further weakening of market conditions in the domestic construction industry in 2012 that resulted in an increase in competition, which in turn increased the portion of construction contracts with lower profit margins.

Others Segment. The gross margin of our Others Segment, prior to consolidation adjustments, increased from 6.3% in 2011 to 10.7% in 2012 primarily due to an increase in gross margin of POSCO Energy Corporation, which initiated operations of additional power plants and substantially increased its power generation capacity in 2012.

Selling and Administrative Expenses

The following table presents a breakdown of our selling and administrative expenses and changes therein for 2011 and 2012.

					Changes
	For the Year Ended December 31,				2011 versus 2012
	2011		2012		Amount			%
	(In billions of Won)
Freight	￦	1,406	￦	1,473	￦	67			4.7	%
Sales commissions		85		74		(11	)		(13.0	)
Sales insurance premium		20		32		12			61.0
Contract cost		63		52		(11	)		17.2
Others		38		47		10			26.0
Total selling expenses	￦	1,612	￦	1,679		67			4.1
Wages and salaries	￦	607	￦	695	￦	88			14.5	%
Expenses related to defined benefit plan		60		61		1			1.6
Other employee benefits		165		171		6			3.8
Depreciation		173		219		46			26.6
Taxes and public dues		51		60		9			17.9
Rental		66		93		28			42.3
Advertising		71		56		(15	)		(21.4	)
Research and development		212		192		(20	)		(9.5	)
Service fees		287		264		(22	)		(7.7	)
Bad debt allowance		92		79		(13	)		(14.0	)
Others		252		239		(13	)		(5.1	)
Total administrative expenses	￦	2,035	￦	2,129		94			4.6
Total selling and administrative expenses	￦	3,647	￦	3,808		161			4.4

Our selling and administrative expenses increased by 4.4%, or Won 161 billion, from Won 3,647 billion in 2011 to Won 3,808 billion in 2012 primarily due to increases in labor-related expenses and freight expense. Such factors were principally attributable to the following:

• Our labor-related expenses included in selling and administrative expenses, which consist of wages and salaries, expenses related to defined benefit plans and other employee benefits, increased by 11.4%, or Won 95 billion, from Won 832 billion in 2011 to Won 927 billion in 2012 primarily due to an increase in the number of employees and a rise in their wages.

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• Our freight expense increased by 4.7%, or Won 67 billion, from Won 1,406 billion in 2011 to Won 1,473 billion in 2012 primarily due to an increase in freight rates, which was offset in part by a decrease in our export volume.

Other Operating Income and Expenses

The following table presents a breakdown of our other operating income and expenses and changes therein for 2011 and 2012.

					Changes
	For the Year Ended December 31,				2011 versus 2012
	2011		2012		Amount			%
	(In billions of Won)
Gain on disposals of property, plant and equipment	￦	14	￦	42	￦	28			206.2	%
Gain on disposals of investments in associates		2		39		37			1,655.3
Gain on disposals of assets held for sale		—		193		193			N.A.
Reversal of other bad debt allowance		58		—		(58	)		(100.0	)
Reversal of other provisions		36		16		(20	)		(55.0	)
Outsourcing income		42		29		(13	)		(30.9	)
Gain on disposals of wastes		11		39		27			240.1
Gain from claim compensation		69		32		(37	)		(54.1	)
Penalty income from early termination of contracts		39		15		(23	)		(61.0	)
Others		36		43		6			16.9
Total other operating income	￦	307	￦	448		141			46.0

N.A. means not applicable.

Our other operating income increased by 46.0%, or Won 141 billion, from Won 307 billion in 2011 to Won 448 billion in 2012 primarily due to our gain on disposals of assets held for sale of Won 193 billion in 2012. We recognized a gain of Won 146 billion from Daewoo International’s disposal of Daewoo Cement (Shandong) Co., Ltd. to China United Cement Group Co., Ltd. in June 2012. In addition, we recognized a gain of Won 46 billion from Daewoo International’s disposal of its interest in Kyobo Life Insurance Co., Ltd. (“Kyobo Life Insurance”), subsequent to our impairment of Won 258 billion of such asset as described below.

					Changes
	For the Year Ended December 31,				2011 versus 2012
	2011		2012		Amount			%
	(In billions of Won)
Loss on disposals of property, plant and equipment	￦	61	￦	65	￦	5			8.2	%
Idle tangible assets expenses		17		31		14			85.4
Impairment losses on other long-term assets		35		36		2			5.5
Impairment loss on assets held for sale		—		258		258			N.A.
Impairment loss of property, plant and equipment		26		13		(13	)		(50.4	)
Impairment loss of investment property		23		1		(22	)		(95.5	)
Other bad debt expenses		11		44		33			295.5
Donations		67		74		7			11.1
Penalty and default losses		40		149		110			277.8
Loss on disposal of wastes		31		45		15			48.7
Others		57		91		34			58.8
Total other operating expenses	￦	367	￦	809		443			120.8

N.A. means not applicable.

Our other operating expenses increased by Won 443 billion, from Won 367 billion in 2011 to Won 809 billion in 2012, primarily due to our impairment loss on assets held for sale in 2012 as well as an increase in our penalty and default losses. In 2012, we recorded an impairment loss on assets held

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for sale of Won 258 billion related to a decrease in market value of Daewoo International’s interest in Kyobo Life Insurance. Our penalty and default losses increased by Won 110 billion, from Won 40 billion in 2011 to Won 149 billion in 2012, primarily due to a fine of Won 118 billion imposed by the Korea Fair Trade Commission for price fixing galvanized steel sheets.

Operating Profit

Due to the factors described above, our operating profit decreased by 39.1%, or Won 2,116 billion, from Won 5,408 billion in 2011 to Won 3,292 billion in 2012. Our operating margin decreased from 7.8% in 2011 to 5.2% in 2012.

Share of Profit of Equity-Accounted Investees

We recognized a net profit for our proportionate share of equity-accounted investees of Won 51 billion in 2011 primarily due to our share of profit of Kyobo Life Insurance, SNNC Co., Ltd. and KOBRASCO, which were offset in part by our share of loss of Sungjin Geotec, AMCI (WA) Pty Ltd. and USS-POSCO Industries. However, we recognized a net loss for our proportionate share of equity-accounted investees of Won 23 billion in 2012 primarily due to our share of loss of AMCI (WA) Pty Ltd. and Busan-Gimhae Light Rail Transit Co., Ltd., which were offset in part by our share of profit of Kyobo Life Insurance and KOBRASCO. For a discussion of our share of profits or losses of equity-accounted investees, see Note 11 of Notes to Consolidated Financial Statements.

Finance Income and Finance Costs

The following table presents a breakdown of our finance income and costs and changes therein for 2011 and 2012.

					Changes
	For the Year Ended December 31,				2011 versus 2012
	2011		2012		Amount			%
	(In billions of Won)
Interest income	￦	216	￦	279	￦	63			28.9	%
Dividend income		144		124		(19	)		(13.5	)
Gain on foreign currency transactions		1,454		935		(519	)		(35.7	)
Gain on foreign currency translations		259		937		678			261.7
Gain on transactions of derivatives		549		408		(142	)		(25.8	)
Gain on valuations of derivatives		112		94		(17	)		(15.4	)
Gain on disposals of available-for-sale investments		455		112		(342	)		(75.3	)
Others		2		7		6			359.3
Total finance income	￦	3,190	￦	2,897		(293	)		(9.2	)
Interest expenses	￦	788	￦	871	￦	83			10.5	%
Loss on foreign currency transactions		1,620		839		(781	)		(48.2	)
Loss on foreign currency translations		530		243		(287	)		(54.1	)
Loss on transactions of derivatives		513		309		(204	)		(39.7	)
Loss on valuations of derivatives		189		160		(29	)		(15.4	)
Impairment loss on available-for-sale investments		153		224		71			46.7
Loss on disposals of available-for-sale investments		1		36		35			3,517.7
Loss on Financial guarantee		1		38		37			3,744.2
Others		72		76		5			6.5
Total finance costs	￦	3,867	￦	2,798		(1,069	)		(27.6	)

We recognized a net loss on foreign currency translations of Won 271 billion in 2011 compared to a net gain on foreign currency translations of Won 694 billion in 2012 and a net loss on foreign currency transactions of Won 166 billion in 2011 compared to a net gain on foreign currency transactions of Won 96 billion in 2012 as the Won depreciated against the Dollar and Yen in 2011 while it appreciated against the Dollar and Yen in 2012. In terms of the market average exchange rates

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announced by Seoul Money Brokerage Services, Ltd., the Won depreciated from Won 1,138.9 to US$1.00 as of December 31, 2010 to Won 1,153.3 to US$1.00 as of December 31, 2011 but appreciated to Won 1,071.1 to US$1.00 as of December 31, 2012. The Won depreciated against the Yen from Won 1,397.1 per Yen 100 as of December 31, 2010 to Won 1,485.2 per Yen 100 as of December 31, 2011 but appreciated to Won 1,247.5 per Yen 100 as of December 31, 2012. Against such fluctuations, we recognized an increase of 170.1% in net gain on transactions of derivatives, or Won 62 billion, from Won 37 billion in 2011 to Won 99 billion in 2012 as well as a decrease of 15.6% in net loss on valuation of derivatives, or Won 12 billion, from Won 77 billion in 2011 to Won 65 billion in 2012.

On the other hand, our gain on disposals of available-for-sale investments decreased significantly from Won 455 billion in 2011 to Won 112 billion in 2012 primarily due to the recognition of a Won 332 billion gain in 2011 from our disposal of a minority investment in an iron ore manufacturer in Australia, compared to no comparable disposal of available-for-sale investments in 2012.

Our interest expenses increased by 10.5%, or Won 83 billion, from Won 788 billion in 2011 to Won 871 billion in 2012 primarily due to an increase in the average balance of our payables and financial liabilities, which was partially offset by a general decrease in interest rates in Korea.

Our impairment loss on available-for-sale investments increased by 46.7%, or Won 71 billion, from Won 153 billion in 2011 to Won 224 billion in 2012 primarily due to a significant decline in the fair value of shares of Jupiter Mines Ltd., SK Telecom and others for a prolonged period, which was considered as objective evidence of impairment.

Income Tax Expense

Our income tax expense decreased by 8.0%, or Won 85 billion, from Won 1,068 billion in 2011 to Won 983 billion in 2012 primarily due to a 29.6% decrease in profit before income tax expense, which was partially offset by increases in adjustments related to difference in tax rate and unrealized deferred tax assets. See Note 35 of Notes to Consolidated Financial Statements. Our effective tax rates increased from 22.3% in 2011 to 29.2% in 2012 primarily due to our disposition of Daewoo International’s interest in Kyobo Life Insurance in September 2012.

Profit for the Period

Due to the factors described above, our profit for the period decreased by 35.8%, or Won 1,329 billion, from Won 3,714 billion in 2011 to Won 2,386 billion in 2012. Our net profit margin decreased from 5.4% in 2011 to 3.8% in 2012.

The following table presents our profit for the period by segment, prior to adjusting for inter-company transactions that are eliminated during consolidation, and changes therein for 2011 and 2012.

							Changes
	For the Year Ended December 31,						2011 versus 2012
	2011			2012			Amount			%
	(In billions of Won)
Steel Segment	￦	3,689		￦	2,246		￦	(1,443	)		(39.1	)%
Trading Segment		195			325			130			66.5
Construction Segment		155			345			191			123.3
Others Segment		155			301			146			94.3
Consolidation adjustments		(480	)		(833	)		(352	)		73.3
Profit for the period	￦	3,714		￦	2,386			(1,329	)		(35.8	)

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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,
	2011			2012			2013
	(In billions of Won)
Net cash provided by operating activities	￦	1,692		￦	7,319		￦	4,858
Net cash used in investing activities		(5,517	)		(6,169	)		(8,752	)
Net cash provided by (used in) financing activities		4,900			(908	)		3,532
Effect of exchange rate fluctuations on cash held		3			(161	)		(111	)
Cash and cash equivalents at beginning of period		3,521			4,599			4,681
Cash and cash equivalents at end of period		4,599			4,681			4,209
Net increase (decrease) in cash and cash equivalents		1,078			82			(472	)

Capital Requirements

Historically, uses of cash consisted principally of purchases of property, plant and equipment and other assets and repayments of outstanding debt and payments of dividends. From time to time, we have also engaged in the acquisition of treasury shares.

Net cash used in investing activities was Won 5,517 billion in 2011, Won 6,169 billion in 2012 and Won 8,752 billion in 2013. These amounts included acquisition of property, plant and equipment of Won 5,331 billion in 2011, Won 7,055 billion in 2012 and Won 6,570 billion in 2013. We plan to spend between Won 6 trillion to Won 7 trillion in capital expenditures in 2014, which we may adjust on an on-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 disposals of short-term financial instruments of Won 1,238 billion in 2011 and Won 232 billion in 2012, and net acquisition of short-term financial instruments of Won 548 billion in 2013. We also had net disposals of available-for-sale investments of Won 89 billion in 2011 and Won 393 billion in 2012, and net acquisition of available-for-sale investments of Won 40 billion in 2013.

In our financing activities, we used cash of Won 1,746 billion in 2011, Won 1,884 billion in 2012 and Won 2,846 billion in 2013 for repayments of borrowings. We paid dividends on common stock in the amount of Won 771 billion in 2011, Won 752 billion in 2012 and Won 649 billion in 2013.

In recent years, we have also selectively considered various opportunities to acquire or invest in companies that may complement our businesses, as well as invest in overseas resources development projects. For example, we acquired a controlling interest in Daewoo International on September 20, 2010 for Won 3.37 trillion, and we spent Won 390 billion in 2011 to acquire a controlling interest in Thainox Stainless Public Company Limited, a major stainless steel manufacturer in Thailand. We may require additional capital for such acquisitions or entering into other strategic relationships. Other than capital required for such activities, we anticipate that capital expenditures, repayments of outstanding debt and payments of cash dividends will represent the most significant uses of funds for the next several years.

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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 our related companies’ indebtedness. The following table sets forth the amount of long-term debt, capital lease and operating lease obligations as of December 31, 2013.

	Payments Due by Period
Contractual Obligations	Total		Less Than 1 Year		1 to 3 Years		4 to 5 Years		After 5 Years
	(In billions of Won)
Long-term debt obligations (a)	￦	18,842	￦	3,348	￦	3,437	￦	2,877	￦	9,179
Interest payments on long-term debt (b)		1,942		499		774		386		282
Capital lease obligations (c)		28		9		10		10		—
Operating lease obligations (d)		33		25		8		—		—
Purchase obligations (e)		40,622		17,735		17,122		9,143		2,894
Accrued severance benefits (f)		1,488		79		199		263		948
Total	￦	62,956	￦	21,696	￦	21,549	￦	12,680	￦	13,303

(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, 2013, a portion of our long-term debt carried variable interest rates. We used the interest rate in effect as of December 31, 2013 in calculating the interest payments on long-term debt for the periods indicated.

(c) We entered into a capital lease contract with Ilshin Shipping Co., Ltd. for a vessel for transporting plates and other products.

(d) We acquired certain tools and equipment under operating lease agreements with Orix Rentec Korea Co., Ltd. and others.

(e) Our purchase obligations include supply contracts to purchase iron ore, coal, LNG and other raw materials. These contracts generally have terms of one to ten years and the long-term contracts provide for periodic price adjustments according to the market prices. As of December 31, 2013, 193 million tons of iron ore and 14 million tons of coal remained to be purchased under long-term contracts. In addition, we entered into an agreement with Tanggun 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, 2013 in calculating the iron ore, coal and LNG purchase obligations described above for the periods indicated.

(f) Represents, as of December 31, 2013, the expected amount of severance benefits that we will be required to pay under applicable Korean law to all of our employees when they reach their normal retirement age. The amounts were determined based on the employees’ current salary rates and the number of service years that will be accumulated upon their retirement. These amounts do not include amounts that may be paid to employees who cease to work at the company before their normal retirement age.

Capital Resources

We have traditionally met our working capital and other capital requirements principally from cash provided by operations, while raising the remainder of our requirements primarily through long-term debt and short-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 sale of treasury shares and our holdings in available-for-sale securities.

Our net cash provided by operating activities increased by 332.7%, or Won 5,628 billion, from Won 1,692 billion in 2011 to Won 7,319 billion in 2012. Our gross cash inflow from our sales activities decreased as discussed above. However, our overall net cash provided by operating activities increased as a result of a decrease in our inventory and better management of outstanding trade accounts and notes receivables. Our inventory decreased primarily due to a decrease in the price of raw materials as well as our management of inventory levels in preparation for a decrease in demand due to continuing uncertainties in the global economy.

Our net cash provided by operating activities decreased by 33.6%, or Won 2,461 billion, from Won 7,319 billion in 2012 to Won 4,858 billion in 2013. Our gross cash flow from our sales activities

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decreased as discussed above. In addition, we continued to manage our inventory levels in 2013 in response to a decrease in demand resulting from continuing uncertainties in the global economy. The inventory turnover was faster in 2013 compared to 2012 as we maintained a relatively lower inventory level in 2013 compared to 2012. Our outstanding trade accounts and notes receivables also increased in 2013, as we extended payment terms for some of our key customers, which in turn negatively impacted our net cash provided by operating activities.

Net proceeds from borrowings, after deducting for repayment of borrowings, were Won 5,322 billion in 2011, Won 1,123 billion in 2012 and Won 2,253 billion in 2013. Net proceeds from short-term borrowings, after deducting for repayment of short-term borrowings, were Won 52 billion in 2011 and Won 87 billion in 2013. We had net repayments of short-term borrowings of Won 1,412 billion in 2012. We also raised Won 1,495 billion from our issuances of hybrid bonds in 2013, which are accounted for as part of our equity. Long-term borrowings, excluding current installments, were Won 16,020 billion as of December 31, 2011, Won 14,412 billion as of December 31, 2012 and Won 15,533 billion as of December 31, 2013. Total short-term borrowings and current installments of long-term borrowings were Won 10,792 billion as of December 31, 2011, Won 10,509 billion as of December 31, 2012 and Won 10,714 billion as of December 31, 2013. Outstanding hybrid bonds were Won 997 billion as of December 31, 2013. Our net borrowings-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 54.54% as of December 31, 2011, 47.70% as of December 31, 2012 and 48.09% as of December 31, 2013.

We periodically increase our short-term borrowings and adjust our long-term debt financing levels depending on changes in our capital requirements. We also generated cash of Won 164 billion in 2011 and Won 14 billion in 2013 from the sale of our treasury shares. We also generated cash of Won 580 billion from our disposal of a portion of our holdings of shares in SK Telecom, KB Financial Group and Hana Financial Group in 2012 and Won 128 billion from our disposal of additional shares in SK Telecom in 2013. In addition, we generated cash of Won 1,151 billion in September 2012 from Daewoo International’s disposal of its interest in Kyobo Life Insurance.

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 13,952 billion as of December 31, 2011, Won 11,791 billion as of December 31, 2012 and Won 11,425 billion as of December 31, 2013. Our holding of cash and cash equivalents were Won 4,599 billion as of December 31, 2011, Won 4,681 billion as of December 31, 2012 and Won 4,209 billion as of December 31, 2013. Our holding of other receivables and other short-term financial assets were Won 3,656 billion as of December 31, 2011, Won 3,846 billion as of December 31, 2012 and Won 4,861 billion as of December 31, 2013. As of December 31, 2013, approximately 24.4% of our cash and cash equivalents, other receivables and other short-term financial assets were held outside of Korea, which we expect to use in our operations abroad, including capital expenditure activities. In the event that such assets are needed for our operations in Korea, such amounts are typically not restricted under local laws from being used in Korea. In addition, we believe that there are no material tax implications in the event our foreign subsidiaries elect to grant cash dividends to us. POSCO had total available credit lines of Won 2,533 billion as of December 31, 2013, none of which was used as of such date. We have not had, and do not believe that we will have, difficulty gaining access to short-term financing sufficient to meet our current requirements.

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

Capital Expenditures and Capacity Expansion

Cash used for acquisitions of property, plant and equipment was Won 5,331 billion in 2011, Won 7,055 billion in 2012 and Won 6,570 billion in 2013. We plan to spend between Won 6 trillion to Won 7 trillion in capital expenditures in 2014, which we may adjust on an on-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 higher value-added products and improvements in the efficiency of older facilities in order to reduce operating costs. The following table sets out the major items of our capital expenditures as of December 31, 2013:

Project	Expected  Completion Date	Total Cost of Project		Estimated Remaining Cost of Completion as of December 31, 2013
	(In billions of Won)
Steel Segment:
Miscellaneous capital expenditures, including rationalization of furnace no. 2 and construction of production infrastructure for new businesses	December 2016		3,534		173
Optimization of Pohang Works facilities	January 2014		2,212		169
Construction of no. 4 hot rolling mill at Gwangyang Works	October 2014		1,626		448
Upgrading of raw materials treatment and transportation facilities	September 2016		1,301		247
Construction of cold rolling mill by POSCO Maharashtra Steel Private Limited	June 2014		629		108
Construction of steel manufacturing plant by POSCO SS-VINA	December 2014		617		174
Construction of off-gas power plant by POSCO Energy	March 2014		292		26
Rationalization of rolling mill by POSCO Specialty Steel	May 2014		167		17
Trading Segment:
Construction of under-sea pipeline and on-land gas terminal by Daewoo International	April 2014		236		11
Acquisition of Northeast Asia Trade Tower by Daewoo International	July 2014		208		187
Others Segment:
Construction of backup power plant no. 1 and no. 2 in Incheon by POSCO Energy	January 2015		1,063		433
Construction of power plant in Pohang by POSCO Energy	March 2014		595		29

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, 2013, POSCO Technical Research Laboratories employed 1,049 personnel, including 462 researchers. Our technology development department also works closely with the Pohang University of Science & Technology, Korea’s first research-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.

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We recorded research and development expenses of Won 380 billion as cost of sales in 2011, Won 385 billion in 2012 and Won 370 billion in 2013, as well as research and development expenses of Won 212 billion as selling and administrative expenses in 2011, Won 192 billion in 2012 and Won 193 billion in 2013.

Our research and development program has filed over thirty-two thousand industrial rights applications relating to steel-making technology, approximately one-third of which were registered as of December 31, 2013, and has successfully applied many of these to the improvement of our manufacturing process.

Item 5.D.  Trend Information

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

Item 5.E.  Off-balance Sheet Arrangements

As of December 31, 2012 and 2013, 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 facilitating off-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 Committee”) after the committee reviews such candidates’ qualifications. Any shareholder holding our outstanding shares with voting rights may suggest candidates for Outside Directors to the Director Candidate Recommendation Committee.

Our board of directors maintains the following six sub-committees:

• the Director Candidate Recommendation Committee;

• the Evaluation and Compensation Committee;

• the Finance and Operation Committee;

• the Executive Management Committee;

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• the Audit Committee; and

• the Related Party Transactions Committee.

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

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

Inside Directors

Our current Inside Directors are:

Name	Position	Responsibilities and Division		Years as Director		Years with POSCO		Age		Expiration of Term of Office
Kwon, Oh-Joon	Chief Executive Officer and Representative Director		—		0		25		63	March 2017
Kim, Jin-Il	President and Representative Director		Head of Steel Production Division		2		37		61	March 2015
Chang, In-Hwan	Senior Executive Vice President and Representative Director		Head of Steel Business Division		1		31		59	March 2015
Yoon, Dong-Jun	Senior Executive Vice President		Head of Corporate Infrastructure Division		0		27		55	March 2016
Lee, Young-Hoon	Senior Executive Vice President		Head of Finance and Investment Division		0		27		54	March 2015

All Inside Directors are engaged in our business on a full-time basis.

Outside Directors

Our current Outside Directors are set out in the table below. Each of our Outside Directors meets the applicable independence standards set forth under the rules of the Financial Investment Services and Capital Markets of Korea (the “FSCMA”).

Name	Position	Principal Occupation	Years as Director		Age		Expiration of Term of Office
Lee, Chang-Hee	Chairman	Professor, Seoul National University		5		53		March 2015
Bemowski, James B.	Director	Vice Chairman, Doosan Co., Ltd.		2		60		March 2015
Shin, Chae-Chol	Director	Former Chairman and CEO, IBM Korea Inc.		1		66		March 2015
Lee, Myoung-Woo	Director	President, Dongwon Industries		1		60		March 2016
Kim, Il-Sup	Director	President, Seoul School of Integrated Sciences & Technologies		0		67		March 2017
Sunwoo, Young	Director	Representative Lawyer, Rhi & Partners		0		58		March 2017
Ahn, Dong-Hyun	Director	Professor, Seoul National University		0		50		March 2017

The term of office of the Directors elected in March 2014 is up to three (3) years. Each Director’s term expires at the close of the ordinary general meeting of shareholders convened in respect of the fiscal year that is the last one to end during such Director’s tenure.

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Senior Management

In addition to the Inside Directors who are also our executive officers, we have the following executive officers:

Name	Position	Responsibility and Division	Years with POSCO		Age
Baek, Sung-Kwan	Senior Executive Vice President	General Superintendent, Gwangyang Works		33		58
Lee, Jung-Sik	Senior Executive Vice President	General Superintendent, Pohang Works		34		59
Park, Sung-Ho	Executive Vice President	Head of Technical Research Laboratories		31		57
Oh, In-Hwan	Executive Vice President	Department Manager of Steel Business Strategy Dept.		31		55
Yim, Chang-Hee	Executive Vice President	General Manager of Europe Office		28		57
Kim, Won-Ki	Executive Vice President	Department Manager of Global Marketing Coordination Dept.		32		57
Ko, Suk-Bum	Executive Vice President	Department Manager of Labor and Outside Services Dept.		29		56
Kim, Jhi-Yong	Executive Vice President	Center Manager of Steel Solution Center		21		52
Lee, Young-Ki	Executive Vice President	President, POSCO-Japan Co., Ltd.		28		54
Kim, Se-Hyun	Executive Vice President	Department Manager of Corporate Project Management Dept.		4		54
Chang, In-Hwa	Executive Vice President	Department Manager of New Business Development Dept.		3		58
Min, Kyung-Zoon	Senior Vice President	President, PT Krakatau POSCO Co., Ltd.		30		55
Shim, Tong-Wook	Senior Vice President	Department Manager of Corporate Audit Dept.		28		54
Kwon, Suk-Chul	Senior Vice President	President, POSCO-China Co., Ltd.		30		57
Lee, Tae-Ju	Senior Vice President	Department Manager of Steel Production Strategy Dept.		31		56
Yun, Ki-mok	Senior Vice President	Department Manager of Raw Materials Dept.		30		56
Kim, Jae-Yeol	Senior Vice President	President, Zhangjiagang Pohang Stainless Steel Co., Ltd.		28		54
Kim, Hong-Soo	Senior Vice President	Department Manager of Steel Investment & Technology Planning Dept.		31		56
Son, Chang Hwan	Senior Vice President	Department Manager of Automotive Materials Marketing Dept.		29		53
Sung, Gee-Woong	Senior Vice President	President, POSCO-India Private Ltd.		19		54
Jeong, Tak	Senior Vice President	Department Manager of Energy and Shipbuilding Materials Marketing Dept.		2		54
Chung, Chang-Hwa	Senior Vice President	Department Manager of Public Relations Dept.		18		52
Kim, Kwan Young	Senior Vice President	Deputy General Superintendent (Administration, Pohang Works)		26		52
Yi, Kyung-Jo	Senior Vice President	Deputy General Superintendent (Hot and Cold Rolling, Gwangyang Works)		28		53
Ha, Young-Sul	Senior Vice President	Department Manager of Plant, Equipment and Materials Procurement Dept.		27		55
Nam, Cheol-Soon	Senior Vice President	Department Manager of Stainless Steel Marketing Dept.		1		53
Hwangbo, Won	Senior Vice President	President, POSCO-Mexico Co., Ltd.		24		50
Kim, Byung-Hwi	Senior Vice President	President, POSCO-South Asia Co., Ltd.		24		50
Choi, Seung-Deug	Senior Vice President	Department Manager of New Business Investment & Technology Planning Dept.		6		52

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Name	Position	Responsibility and Division	Years with POSCO		Age
Kim, Jun-Hyung	Senior Vice President	Deputy General Superintendent (Hot and Cold Rolling, Pohang Works)		28		51
Oh, Hyoung-Soo	Senior Vice President	President, POSCO-Thainox Co., Ltd.		28		53
Park, Joo-Cheul	Senior Vice President	Deputy General Superintendent (Maintenance, Pohang Works)		27		53
Park, Young-Kwan	Senior Vice President	Deputy General Superintendent (Iron and Steel Making, Pohang Works)		28		55
Son, Geon-Jae	Senior Vice President	Deputy General Superintendent (Maintenance, Gwangyang Works)		26		52
Joo, Sang-Hoon	Senior Vice President	General Manager of Gwangyang Research Lab.		23		54
Kim, Dong-Ho	Senior Vice President	President, CSP		29		54
Yun, Han-Kuen	Senior Vice President	General Manager of Pohang Research Lab		31		55
Choi, Jong-Jin	Senior Vice President	Department Manager of Human Resources Dept.		26		50
Choi, Joo	Senior Vice President	Deputy General Superintendent (Iron and Steel Making, Gwangyang Works)		30		55
Kang, Seog-Beom	Senior Vice President	Department Manager of Wire Rod Marketing Dept.		28		53
Kwon, Woo-Taeck	Senior Vice President	Department Manager of Investment Planning & Engineering Dept.		28		54
Bang, Gil-Ho	Senior Vice President	Department Manager of Hot Rolled and Construction Steel Materials Marketing Dept.		25		52
Yun, Yang-Su	Senior Vice President	President, POSCO-Vietnam Co., Ltd		25		50
Yang, Weon-Jun	Senior Vice President	Deputy General Superintendent (Administration, Gwangyang Works)		25		48
Lee, Won-Hwi	Senior Vice President	Department Manager of Electrical and Electronic Materials Marketing Dept.		24		50
Noh, Min-Yong	Senior Vice President	Department Manager of Finance Dept.		24		50
Lee, Eun-Seok	Senior Vice President	Deputy General Superintendent (Stainless Steel Production, Pohang Works)		28		53
Song, Se-Bin	Executive Vice President	Legal Affairs Dept.		3		51
Lee, Hoo-Geun	Executive Vice President	Finance and Investment Division		31		56
An, Tong-Il	Executive Vice President	Steel Production Division		27		54
Jeong, Chul-Gyu	Executive Vice President	Steel Production Division		31		58
Yu-Seong	Executive Vice President	Finance and Investment Division		28		57
Hwang, Seok-Joo	Executive Vice President	Corporate Infrastructure Division		28		51
Cho, Chung-Myong	Executive Vice President	Value Management Department		24		53
Kim, Myoung- Kyun	Senior Vice President	Public Relations Department		35		59
Kim, Jeong-Sik	Senior Vice President	Steel Production Division		31		57
Lee, Yun-Yong	Senior Vice President	Finance and Investment Division		26		56
Chon, Jung-Son	Senior Vice President	Value Management Department		27		51
Chin, Kwang-Geun	Senior Vice President	Technical Research Laboratories		29		56
Cho, Yong-Doo	Senior Vice President	Value Management Department		4		53
Shin, Geon	Senior Vice President	Technical Research Laboratories		32		56
Kim, Jae-Seok	Senior Vice President	Finance and Investment Division		29		56
Moon, Hee-Kyung	Senior Vice President	Steel Production Division		31		56
Cho, Il-Hyun	Senior Vice President	Steel Production Division		27		52
Lee, Jong-Sub	Senior Vice President	Steel Business Division		30		57

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Name	Position	Responsibility and Division	Years with POSCO		Age
Park, Yong-Kyu .	Senior Vice President	Steel Production Division		29		54
Yoo, Sun-Hee	Senior Vice President	Corporate Infrastructure Division		2		52
Kwak Jeong-Shik	Senior Vice President	Value Management Department		26		56
Lee, Young-Woo	Senior Vice President	Steel Business Division		25		53
Lee, Chang-Sun	Senior Vice President	Technical Research Laboratories		26		56
Kim, Gyo-Sung	Senior Vice President	Steel Business Division		29		52
Yi, Sang-Ho	Senior Vice President	Technical Research Laboratories		29		53
Oh, Sung-Chel	Senior Vice President	Value Management Department		27		54
Hong, Moon-Hi	Senior Vice President	Steel Production Division		27		48
Yang, Seong-Sik	Senior Vice President	Steel Business Division		28		52
Yoo, Byeong-Og	Senior Vice President	Raw Materials Department		25		51
Shin, Hak Kyun	Senior Vice President	Raw Materials Department		2		51
Han Chan-Hee	Senior Vice President	Technical Research Laboratories		28		55
Lee, Ju-Tae	Senior Vice President	Secretariat Department		26		50
Bae, Jae-Tak	Senior Vice President	Steel Business Division		26		49
Ha, Kyung-Sik	Senior Vice President	Raw Materials Department		24		51
Won, Hyung-Il	Senior Vice President	Legal Affairs Department		2		45

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. The aggregate compensation paid and accrued to all Directors and executive officers was approximately Won 31.4 billion in 2013 and the aggregate amount set aside or accrued by us to provide pension and retirement benefits to such persons was Won 6.3 billion in 2013.

The compensation of our directors and executive officers who received total annual compensation exceeding Won 500 million in 2013 were as follows:

Name	Position	Total Compensation in 2013		Long-term Incentive Compensation for Payment Subsequent to  2013
		(In millions of Won)
Chung, Joon-Yang	Chief Executive Officer and Representative Director	￦	1,954	￦343 in 2014 and ￦343 in 2015
Park, Ki-Hong	President and Representative Director		809	—
Kim, Joon-Sik	President and Representative Director		809	—
Chang, In-Hwan	Senior Executive Vice President and Representative Director		588	—
Kim, Yeung Gyu	Senior Executive Vice President		576	—
Park, Han-Yong (1)	President and Representative Director		1,204	225 in 2014 and 225 in 2015
Cho, Noi-Ha (2)	Senior Executive Vice President		1,298	68 in 2014 and 68 in 2015

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(1) Includes severance payment of Won 580 million.

(2) Includes severance payment of Won 1,027 million.

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 Committee

The Director Candidate Recommendation Committee is composed of three Outside Directors, Lee, Myoung-Woo (committee chair), Kim, Il-Sup, Ahn, Dong-Hyun and one Inside Director, Yoon, Dong-Jun. The Director Candidate Recommendation Committee reviews the qualifications of potential candidates and proposes nominees to serve on our board of directors as an Outside Director. Any shareholder holding our outstanding shares with voting rights may suggest candidates for Outside Directors to the Director Candidate Recommendation Committee.

Evaluation and Compensation Committee

The Evaluation and Compensation Committee is composed of four Outside Directors, Shin, Chae-Chol (committee chair), Lee, Chang-Hee, Lee, Myoung-Woo and Sunwoo, Young. The Evaluation and Compensation Committee’s primary responsibilities include establishing evaluation procedures and compensation plans for executive officers and taking necessary measures to execute such plans.

Finance and Operation Committee

The Finance and Operation Committee is composed of three Outside Directors, Shin, Chae-Chol (committee chair), James B. Bemowski, Ahn, Dong-Hyun and two Inside Directors, Chang, In-Hwan and Lee, Young-Hoon. This committee is an operational committee that oversees decisions with respect to finance and operational matters, including making assessments with respect to potential capital investments and evaluating prospective capital-raising activities.

Executive Management Committee

The Executive Management Committee is composed of five Inside Directors, Kwon, Oh-Joon (committee chair), Kim, Jin-Il, Chang, In-Hwan, Yoon, Dong-Jun and Lee, Young-Hoon. This committee oversees decisions with respect to our operational and management matters, including review of management’s proposals of new strategic initiatives, as well as deliberation over critical internal matters related to organization structure and development of personnel.

Audit Committee

Under Korean law and our articles of incorporation, we are required to have an Audit Committee. The Audit Committee may be composed of three or more directors; all members of the Audit Committee must be Outside Directors. Audit Committee members must also meet the applicable independence criteria set forth under the rules and regulations of the Sarbanes-Oxley Act of 2002. Members of the Audit Committee are elected by the shareholders at the ordinary general meeting of shareholders. We currently have an Audit Committee composed of three Outside Directors. Members of our Audit Committee are Kim, Il-Sup (committee chair), Lee, Chang-Hee and Sunwoo, Young.

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The duties of the Audit Committee include:

• engaging independent auditors;

• approving independent audit fees;

• approving audit and non-audit services;

• reviewing annual financial statements;

• reviewing audit results and reports, including management comments and recommendations;

• reviewing our system of controls and policies, including those covering conflicts of interest and business ethics; and

• examining improprieties or suspected improprieties.

In addition, in connection with general meetings of stockholders, the committee examines the agenda for, and financial statements and other reports to be submitted by, the board of directors at each general meeting of stockholders. Our internal and external auditors report directly to the Audit Committee. The committee holds regular meetings at least once each quarter, and more frequently as needed.

Related Party Transactions Committee

The Related Party Transaction Committee is composed of three Outside Directors, Kim, Il-Sup (committee chair), Lee, Chang-Hee and Sunwoo, Young. This committee reviews related party and other internal transactions and ensures compliance with the Monopoly Regulation and Fair Trade Act.

Item 6.D.  Employees

As of December 31, 2013, we had 34,713 employees, including 16,881 persons employed by our subsidiaries, almost all of whom were employed within Korea. Of the total number of employees, approximately 80% are technicians and skilled laborers and 20% are administrative staff. We use subcontractors for maintenance, cleaning and transport activities. We had 35,094 employees, including 17,471 persons employed by our subsidiaries, as of December 31, 2012, and 34,936 employees, including 17,383 persons employed by our subsidiaries, as of December 31, 2011. To improve operational efficiency and increase labor productivity, we plan to reduce the number of our employees in future years through natural attrition. However, we expect the number of persons employed by our subsidiaries in growth industries to increase in the future.

We consider our relations with our work force to be excellent. We have never experienced a work stoppage or strike. Wages of our employees are among the highest of manufacturing companies in Korea. In addition to a base monthly wage, employees receive periodic bonuses and allowances. Base wages are determined annually following consultation between the management and employee representatives, who are currently elected outside the framework of the POSCO labor union. A labor union was formed by our employees in June 1988. Union membership peaked at 19,026 employees at the beginning of 1991, but has steadily declined since then. As of December 31, 2013, only 12 of our employees were members of the POSCO labor union.

In accordance with the National Pension Act of Korea, we contribute an amount equal to 4.5% of an employee’s standard monthly wages, and each employee contributes 4.5% of his or her standard monthly wages, into his or her personal pension account. Our employees, including executive officers as well as non-executive employees, are subject to a pension insurance system, under which we make monthly contributions to the pension accounts of the employees, and upon retirement, such employees

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are paid from their pension accounts. Prior to 2011, our executive and non-executive employees were subject to a lump-sum severance payment system, under which they were entitled to receive a lump-sum severance payment upon termination of their employment, based on their length of service and salary level at the time of termination. Starting in 2011, in accordance with the Korean Employee Retirement Income Security Act, we replaced such lump-sum severance payment system with our current pension insurance system in the form of either a defined benefit plan or a defined contribution plan, with a total unfunded portion of Won 133 billion as of December 31, 2013. Our employees have the option of choosing either the defined benefit plan or the defined contribution plan. Lump-sum severance amounts previously accrued prior to our adoption of the current pension insurance system continue to remain payable. We also provide a wide range of fringe benefits to our employees, including housing, housing loans, company-provided hospitals and schools, a company-sponsored pension program, an employee welfare fund, industrial disaster insurance, and cultural and athletic facilities.

As of December 31, 2013, our employees owned, through our employee stock ownership association, approximately 0.01% of our common stock in their association accounts and 1.70% of our common stock in their employee accounts.

Item 6.E.  Share Ownership

Common Stock

The persons who are currently our Directors or executive officers held, as a group, 21,850 common shares as of March 28, 2014, 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.

Kwon, Oh-Joon	1,250
Lee, Hoo-Geun	672
Park, Joo-Chul	650
Park, Yong-Gyu	620
Shim, Tong-Wook	520
Yim, Chang-Hee	509
Lee, Yun-Yong	494
Hwang, Seok-Joo	480
Kwon, Suk-Chul	480
Kim, Jeong-Sik	464
Lee, Jung-Sik	453
Jeong, Chul-Gyu	450
Park, Sung-Ho	446
Min, Kyung-Zoon	430
Kim, Kwan-Young	420
Kwon, Woo-Taeck	420
Song, Sebin	400
Yoon, Dong-Jun	381
Baek, Sung-Kwan	381
Chang, In-Hwan	374
Kim, Won-Ki	372
Kim, Hong-Soo	371
Kim, Jae-Seok	370
Lee, Young-Ki	360
Lee, Tae-Ju	347
Yang, Seong-Sik	343
Lee, Chang-Sun	340
Kim, Myung-Kyun	325
Kim, Dong-Ho	320
Yi, Sang-Ho	320
Han, Chan-Hee	320
Lee, Eun-Seok	320

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Ko, Suk-Bum	306
Kim, Jin-Il	300
Yang, Weon-Jun	280
Yu, Seong	268
Yoo, Byeong-Og	265
Kang, Seog-Beom	264
Lee, Jong-Seob	261
Lee, Young-Woo	252
Cho, Il-Hyun	251
Choi, Joo	251
An, Tong-Il	250
Sung, Gee-Woong	247
Kim, Jhi-Yong	243
Park, Young-Kwan	221
Bae, Jae-Tak	212
Kwak, Jeong-Shik	209
Hwangbo, Won	202
Chon, Jung-Son	194
Lee, Young-Hoon	178
Kim, Gyo-Sung	175
Yun, Ki-Mok	172
Oh, In-Hwan	150
Shin, Geon	144
Moon, Hee-Kyung	143
Oh, Hyoung-Soo	143
Choi, Jong-Jin	141
Joo, Sang-Hoon	140
Yi, Kyung-Jo	130
Chung, Chang-Hwa	128
Chin, Kwang-Geun	112
Son, Chang-Hwan	104
Kim, Se-hyun	100
Chang, In-Hwa	100
Kim, Jae-Yeol	100
Yun, Yang-Su	100
Kim, Byung-Hwi	99
Kim, Jun-Hyung	99
Hong, Moon-Hi	76
Oh, Sung-Chel	59
Ha, Young-Sul	52
Cho, Yong-Doo	50
Jeong, Tak	50
Choi, Seung-Duk	50
Noh, Min-Yong	50
Yoo, Sun-Hee	49
Yun, Han-Keun	36
Nam, Cheol-Soon	30
Bang, Gil-Ho	12
Cho, Chung-Myong	—
Son, Geon-Jae	—
Shin, Hak-Kyun	—
Lee, Ju-Tae	—
Ha, Kyung-Sik	—
Lee, Won-Hwi	—
Won, Hyung-Il	—
Total	21,850

Stock Options

With respect to the options granted, we may elect either to issue shares of common stock, distribute treasury stock or to pay in cash the difference between the exercise and the market price at the date of exercise. The options may be exercised by a person who has continued employment with

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POSCO for two or more years from the date on which the options are granted. Expiration date of options is seven years from the date on which the options are granted. All of the stock options below relate to our common stock.

At the annual shareholders’ meeting held in February 2006, our shareholders elected to terminate the stock option program. Stock options granted prior to this meeting remain valid and outstanding pursuant to the articles of incorporation in effect at the time of the issuance of the stock option. Currently, there are no outstanding exercisable stock options. The following table sets forth information regarding the stock options we have granted to our current Directors and executive officers as of May 9, 2014.

Grant Date

Exercise Period

Exercise Price

Granted Options

Exercised Options

Exercisable Options

Director

From

To

Kwon, Oh-Joon

April 26, 2003

4/27/2005

4/26/2010

102,900

9,604

9,604

0

Kim, Jin-II

April 25, 2003

4/27/2005

4/26/2010

102,900

9,604

9,604

0

Item 7.  Major Shareholders and Related Party Transactions

Item 7.A.  Major Shareholders

The following table sets forth certain information relating to the shareholders of our common stock issued as of December 31, 2013.

Shareholders	Number of Shares Owned		Percentage
National Pension Service		6,577,907		7.54	%
Nippon Steel & Sumitomo Metal Corporation (1)		4,394,712		5.04
Hyundai Heavy Industries		2,197,707		2.52
Pohang University of Science and Technology		1,905,000		2.18
KB Financial Group Inc. and subsidiaries		1,846,994		2.12
Directors and executive officers as a group		20,618		0.02
Public (2)		62,840,686		72.08
POSCO (held in the form of treasury stock)		7,403,211		8.49
Total issued shares of common stock		87,186,835		100.00	%

(1) Held in the form of ADRs.

(2) Includes ADRs.

As of December 31, 2013, there were 13,437,266 shares of common stock outstanding in the form of ADRs, representing 15.41% of the total issued shares of common stock.

Item 7.B.  Related Party Transactions

We have issued guarantees of Won 7,366 billion as of December 31, 2011, Won 9,140 billion as of December 31, 2012 and Won 9,704 billion as of December 31, 2013, in favor of affiliated and related companies. We have also engaged in various transactions with our subsidiaries and affiliated companies. See Notes 37 and 38 of Notes to Consolidated Financial Statements.

As of December 31, 2011, 2012 and 2013, we had no loans outstanding to our executive officers and Directors.

Item 7.C.  Interests of Experts and Counsel

Not applicable

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Item 8.  Financial Information

Item 8.A.  Consolidated Statements and Other Financial Information

See “Item 18. Financial Statements” and pages F-1 through F-125.

Legal Proceedings

In recent years, we have become subject to a number of anti-dumping duties in India, Indonesia, Australia, Thailand, Brazil, Taiwan and Malaysia and a number of anti-dumping and countervailing duty investigations in several other countries, including the U.S., India and Canada. In addition, the Mexican government initiated an anti-dumping investigation in October 2012 relating to our exports of cold rolled steel products, and the investigation was suspended until 2018 on condition that we comply with supply undertakings. Our products that are subject to anti-dumping 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, countervailing duties, quotas or tariffs on our exports of products abroad may not have a material adverse impact on our exports in the future. See “Item 4. Information on the Company — Item 4.B. Business Overview — Markets — Exports.”

In 2012, the Korea Fair Trade Commission imposed a fine of Won 118 billion on us and POSCO Coated & Color Steel Co., Ltd., our consolidated subsidiary, for alleged antitrust violations, including price fixing of galvanization surcharge rates. We intend to vigorously defend against such administrative action and filed for judicial review of such administrative action in the Seoul High Court on February 28, 2013, which ruling is currently pending.

In April 2012, Nippon Steel & Sumitomo Metal Corporation filed civil lawsuits in Japan and the United States relating to claims of alleged improper acquisition and infringement of intellectual property rights related to production of grain oriented electrical steel sheets. Nippon Steel & Sumitomo Metal Corporation is seeking an injunction to prohibit us from manufacturing and selling the allegedly infringing products as well as seeking compensation of Won 991 billion. We plan to vigorously defend against such claims. With respect to the lawsuit in Japan, we have not recorded any provisions because we do not believe that we have any present obligations. With respect to the lawsuit in the United States, estimates of possible loss cannot be reliably determined because the lawsuit is still in the discovery stage and no claim amount has been specified. Since we do not believe that we have any present obligations, we have not recorded any provision for this lawsuit.

The National Tax Service conducts periodic audits of tax payments and refunds of corporations in Korea. The latest round of such audit on us began in September 2013 and is scheduled to be completed by the end of April 2014. As part of such audit, the National Tax Service completed its initial round of investigation in March 2014 and assessed payment of Won 190 billion. We accounted for such payments in the first quarter of 2014. The National Tax Service may assess additional payment upon completion of its audit. We cannot predict the ultimate outcome of such investigation, and we plan to review the merit of any additional tax assessment made by the National Tax Service.

In May 2002, Industrial Development Bank of India Limited filed lawsuits against Daewoo International, Daewoo Motors India Ltd., Daewoo Co., Ltd. and Daewoo Engineering & Construction Co., Ltd. in the India Delhi Mumbai Court, seeking judgment relating to its loans to Daewoo Motors India Ltd. guaranteed by Daewoo Co., Ltd. (predecessor of Daewoo International). The total claim amount of such lawsuits is Won 76 billion, and Daewoo International recorded provision of Won 18 billion relating to its portion of the guarantee. The outcome of such lawsuits remains uncertain and Daewoo International’s provision is classified as a non-current liability as of December 31, 2013.

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.

83

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 interim dividends once a year under our articles of incorporation. If we decide to pay interim dividends, our articles of incorporation authorize us to pay them in cash, shares or other form of property to the shareholders of record as of June 30 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 declared on the outstanding common stock to shareholders of record on June 30 of the years indicated. A total of 87,186,835 shares of common stock were issued as of December 31, 2013. Of these shares and as of such date, 79,783,624 shares were outstanding and 7,403,211 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)
2009	6,500	1,500		8,000
2010	7,500	2,500		10,000
2011	7,500	2,500		10,000
2012	6,000	2,000		8,000
2013	6,000	2,000		8,000

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

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

Item 8.B.  Significant Changes

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

Item 9. The Offer and Listing

Item 9.A. Offer and Listing Details

Market Price Information

Notes

Not applicable

84

Common Stock

The principal trading market for our common stock is the KRX KOSPI Market. Our common stock, which is in registered form and has a par value of Won 5,000 per share, has been listed on the first section of the KRX KOSPI Market since June 1988 under the identifying code 005490. The table below shows the high and low trading prices and the average daily volume of trading activity on the KRX KOSPI Market for our common stock.

	Price				Average Daily     Trading Volume
	High		Low
	(In Won)				(Number of Shares)
2009
First Quarter		430,000		303,000		389,081
Second Quarter		435,000		369,000		390,866
Third Quarter		519,000		420,000		324,403
Fourth Quarter		619,000		472,500		293,724
2010
First Quarter		625,000		516,000		255,173
Second Quarter		560,000		434,500		343,367
Third Quarter		524,000		460,500		257,784
Fourth Quarter		538,000		448,500		299,776
2011
First Quarter		517,000		450,500		345,785
Second Quarter		565,000		421,000		282,070
Third Quarter		480,000		358,500		277,876
Fourth Quarter		351,000		308,000		235,063
2012
First Quarter		424,000		376,000		198,239
Second Quarter		385,000		351,500		169,135
Third Quarter		391,000		353,500		159,508
Fourth Quarter		367,000		308,000		202,895
2013
First Quarter		371,000		321,500		169,232
Second Quarter		326,000		292,500		182,277
Third Quarter		340,000		292,500		225,474
Fourth Quarter		338,000		307,500		183,055
October		321,500		307,500		178,051
November		330,000		317,000		181,486
December		338,000		326,500		189,957
2014
First Quarter		328,500		268,500		215,243
January		322,000		297,500		181,589
February		295,500		284,000		214,757
March		303,000		272,500		268,821
Second Quarter (through May 9)		328,500		268,500		216,869
April		321,000		290,000		213,465
May (through May 9)		307,000		299,500		149,802

ADSs

Our common stock is also listed on the New York Stock Exchange, the London Stock Exchange and the Tokyo Stock Exchange in the form of ADSs. The ADSs have been issued by The Bank of New York Mellon as ADR depositary and are listed on the New York Stock Exchange under the symbol “PKX.” One ADS represents one-fourth of one share of common stock. As of December 31, 2013, 53,749,064 ADSs representing 13,437,266 common shares were outstanding, representing 15.41% shares of common stock.

85

The table below shows the high and low trading prices and the average daily volume of trading activity on the New York Stock Exchange for our ADSs.

	Price				Average Daily Trading Volume
	High		Low
	(In US$)				(Number of ADSs)
2009
First Quarter		79.11		47.14		212,268
Second Quarter		89.00		69.23		168,527
Third Quarter		108.08		80.73		491,455
Fourth Quarter		131.47		100.00		458,775
2010
First Quarter		140.10		108.23		429,700
Second Quarter		124.83		88.78		559,765
Third Quarter		113.98		94.67		344,102
Fourth Quarter		120.47		95.34		376,905
2011
First Quarter		117.57		100.50		403,646
Second Quarter		116.83		95.86		348,986
Third Quarter		112.41		76.01		344,454
Fourth Quarter		89.16		72.51		366,073
2012
First Quarter		94.06		80.28		268,347
Second Quarter		85.09		74.82		262,176
Third Quarter		85.55		77.21		190,260
Fourth Quarter		82.97		71.85		187,932
2013
First Quarter		86.69		72.41		258,130
Second Quarter		74.82		63.23		252,261
Third Quarter		78.75		64.29		186,347
Fourth Quarter		80.40		72.19		177,415
October		75.67		72.19		159,424
November		77.49		74.50		142,124
December		80.40		77.17		230,730
2014
First Quarter		75.88		64.03		298,320
January		75.88		67.97		301,742
February		69.90		66.40		275,099
March		70.05		64.03		315,906
Second Quarter (through May 9)		76.56		69.60		271,052
April		76.56		69.60		296,096
May (through May 9)		74.50		73.76		195,920

Item 9.B.  Plan of Distribution

Not applicable

Item 9.C.  Markets

The Korean Securities Market

On January 27, 2005, the Korea Exchange was established pursuant to the Korea Securities and Futures Exchange Act by consolidating the Korea Stock Exchange, the Korea Futures Exchange, the KOSDAQ Stock Market, Inc., or the KOSDAQ, and the KOSDAQ Committee of the Korea Securities Dealers Association, which had formerly managed the KOSDAQ. There are three different markets operated by the Korea Exchange: the KRX KOSPI Market, the KRX KOSDAQ Market, and the KRX Derivatives Market. The Korea Exchange has two trading floors located in Seoul, one for the KRX KOSPI Market and one for the KRX KOSDAQ Market, and one trading floor in Busan for the KRX Derivatives Market. The Korea Exchange is a limited liability company, the shares of which are held by (i) investment brokers and investment dealers that were formerly members of the Korea Futures Exchange or the Korea Stock Exchange and (ii) the stockholders of the KOSDAQ. Currently, the Korea Exchange is the only stock exchange in Korea and is operated by membership, having as its members most of the Korean investment brokers and investment dealers and some Korean branches of foreign investment brokers and investment dealers.

86

According to data published by the Korea Exchange, as of December 31, 2013, the aggregate market value of equity securities listed on the KRX KOSPI Market and the KRX KOSDAQ Market was approximately Won 1,304 trillion, and the average daily trading volume of equity securities for 2013 was approximately 723 million shares with an average transaction value of Won 5,816 billion. The Korea Exchange has the power in some circumstances to suspend trading in the shares of a given company or to de-list a security pursuant to the Regulation on Listing on the Korea Exchange. The Korea Exchange also restricts share price movements. All listed companies are required to file accounting reports annually, semi-annually and quarterly and to release immediately all information that may affect trading in a security.

The Government has in the past exerted, and continues to exert, substantial influence over many aspects of the private sector business community that can have the intention or effect of depressing or boosting the market. In the past, the Government has informally both encouraged and restricted the declaration and payment of dividends, induced mergers to reduce what it considers excess capacity in a particular industry and induced private companies to offer publicly their securities.

The Korea Exchange publishes the Korea Composite Stock Price Index, or KOSPI, every ten seconds, which is an index of all equity securities listed on the Korea Exchange. On January 1, 1983, the method of computing KOSPI was changed from the Dow Jones method to the aggregate value method. In the new method, the market capitalizations of all listed companies are aggregated, subject to certain adjustments, and this aggregate is expressed as a percentage of the aggregate market capitalization of all listed companies as of the base date, January 4, 1980.

Movements in KOSPI are set out in the following table together with the associated dividend yields and price earnings ratios.

									Period Average
Year	Opening		High		Low		Closing		Dividend Yield (1)(2) (Percent)		Price Earnings Ratio (2)(3)
1985		139.53		163.37		131.40		163.37		5.3		5.2
1986		161.40		279.67		153.85		272.61		4.3		7.6
1987		264.82		525.11		264.82		525.11		2.6		10.9
1988		532.04		922.56		527.89		907.20		2.4		11.2
1989		919.61		1,007.77		844.75		909.72		2.0		13.9
1990		908.59		928.82		566.27		696.11		2.2		12.8
1991		679.75		763.10		586.51		610.92		2.6		11.2
1992		624.23		691.48		459.07		678.44		2.2		10.9
1993		697.41		874.10		605.93		866.18		1.6		12.7
1994		879.32		1,138.75		855.37		1,027.37		1.2		16.2
1995		1,027.45		1,016.77		847.09		882.94		1.2		16.4
1996		882.29		986.84		651.22		651.22		1.3		17.8
1997		647.67		792.29		350.68		376.31		1.5		17.0
1998		374.41		579.86		280.00		562.46		1.9		10.8
1999		565.10		1,028.07		498.42		1,028.07		1.1		13.5
2000		1,028.33		1,059.04		500.60		504.62		1.6		18.6
2001		503.31		704.50		468.76		693.70		2.0		14.2
2002		698.00		937.61		584.04		627.55		1.4		17.8
2003		633.03		822.16		515.24		810.71		2.2		10.9
2004		821.26		936.06		719.59		895.92		2.1		15.8
2005		896.00		1,379.37		870.84		1,379.37		1.7		11.0
2006		1,383.32		1,464.70		1,203.86		1,434.46		1.7		11.4
2007		1,438.89		2,015.48		1,345.08		1,897.13		1.4		16.8
2008		1,891.45		1,888.88		938.75		1,124.47		2.6		8.9
2009		1,132.87		1,718.88		1,018.81		1,682.77		1.2		23.7
2010		1,681.71		2,052.97		1,552.79		2,051.00		1.1		19.0
2011		2,063.69		2,231.47		1,644.11		1,825.12		1.3		13.1
2012		1,831.69		2,057.28		1,758.99		1,997.05		1.3		12.9
2013		2,031.10		2,059.58		1,780.63		2,011.34		1.1		15.0
2014 (through May 9)		2,013.11		2,013.89		1,885.53		1,956.55		1.2		15.2

87

Source: The KRX KOSPI Market

(1) Dividend yields are based on daily figures. Before 1983, dividend yields were calculated at the end of each month. Dividend yields after January 3, 1984 include cash dividends only.

(2) Starting in April 2000, dividend yield and price earnings ratio are calculated based on KOSPI 200, an index of 200 equity securities listed on the KRX KOSPI Market. Starting in April 2000, KOSPI 200 excludes classified companies, companies which did not submit annual reports to the KRX KOSPI Market, and companies which received qualified opinion from external auditors.

(3) The price earnings ratio is based on figures for companies that record a profit in the preceding year.

Shares are quoted “ex-dividend” on the first trading day of the relevant company’s accounting period. Since the calendar year is the accounting period for the majority of listed companies, this may account for the drop in KOSPI between its closing level at the end of one calendar year and its opening level at the beginning of the following calendar year.

With certain exceptions, principally to take account of a share being quoted “ex-dividend” and “ex-rights,” permitted upward and downward movements in share prices of any category of shares on any day are limited under the rules of the Korea Exchange to 15% of the previous day’s closing price of the shares, rounded down as set out below:

Previous Day’s Closing Price (Won)	Rounded Down to (Won)
Less than 5,000		5
5,000 to less than 10,000		10
10,000 to less than 50,000		50
50,000 to less than 100,000		100
100,000 to less than 500,000		500
500,000 or more		1,000

As a consequence, if a particular closing price is the same as the price set by the fluctuation limit, the closing price may not reflect the price at which persons would have been prepared, or would be prepared to continue, if so permitted, to buy and sell shares. Orders are executed on an auction system with priority rules to deal with competing bids and offers.

Due to deregulation of restrictions on brokerage commission rates, the brokerage commission rate on equity securities transactions may be determined by the parties, subject to commission schedules being filed with the Korea Exchange by the financial investment companies with a brokerage license. In addition, a securities transaction tax of 0.15% of the sales price will generally be imposed on the transfer of shares or certain securities representing rights to subscribe for shares. An agricultural and fishery special surtax of 0.15% of the sales prices will also be imposed on transfer of these shares and securities on the Korea Exchange. See “Item 10. Additional Information — Item 10.E. Taxation — Korean Taxation.”

The number of companies listed on the KRX KOSPI Market, the corresponding total market capitalization at the end of the periods indicated and the average daily trading volume for those periods are set forth in the following table:

	Market Capitalization on the Last Day of Each Period						Average Daily Trading Volume, Value
Year	Number of Listed Companies		(Billions of Won)		(Millions of US$) (1)		Thousands of Shares		(Millions of Won)		(Thousands of US$) (1)
1985		342	￦	6,570	US$	7,381		18,925	￦	12,315	US$	13,834
1986		355		11,994		13,924		31,755		32,870		38,159
1987		389		26,172		33,033		20,353		70,185		88,583
1988		502		64,544		94,348		10,367		198,364		289,963
1989		626		95,477		140,490		11,757		280,967		414,430

88

	Market Capitalization on the Last Day of Each Period						Average Daily Trading Volume, Value
Year	Number of Listed Companies		(Billions of Won)		(Millions of US$)  (1)		Thousands of Shares		(Millions of Won)		(Thousands of US$) (1)
1990		669		79,020		110,301		10,866		183,692		256,411
1991		686		73,118		96,107		14,022		214,263		281,629
1992		688		84,712		107,448		24,028		308,246		390,977
1993		693		112,665		139,420		35,130		574,048		710,367
1994		699		151,217		191,730		36,862		776,257		984,223
1995		721		141,151		182,201		26,130		487,762		629,613
1996		760		117,370		139,031		26,571		486,834		576,680
1997		776		70,989		50,162		41,525		555,759		392,707
1998		748		137,799		114,091		97,716		660,429		546,803
1999		725		349,504		305,137		278,551		3,481,620		3,039,655
2000		704		188,042		149,275		306,163		2,602,211		2,065,739
2001		689		255,850		192,934		473,241		1,997,420		1,506,237
2002		683		258,681		215,496		857,245		3,041,598		2,533,815
2003		684		355,363		296,679		542,010		2,216,636		1,850,589
2004		683		412,588		395,275		372,895		2,232,109		2,138,445
2005		702		655,075		646,158		467,629		3,157,662		3,114,679
2006		731		704,588		757,948		279,096		3,435,180		3,695,331
2007		745		951,900		1,016,770		363,741		5,539,653		5,917,168
2008		763		576,888		458,758		352,599		3,211,039		2,553,510
2009		770		887,935		762,503		485,657		5,595,552		4,976,859
2010		777		1,141,885		1,006,243		380,859		5,619,768		4,952,210
2011		791		1,041,999		904,670		353,760		6,836,146		5,935,185
2012		930		1,154,294		1,078,578		486,479		4,823,642		4,507,234
2013		777		1,185,974		1,123,720		328,425		3,993,422		3,783,800
2014 (through May 9)		770		1,165,867		1,138,098		205,209		3,484,373		3,401,380

Source: The Korea Exchange

(1) Converted at the Concentration Base Rate of The Bank of Korea or the Market Average Exchange Rate, as the case may be, at the end of the periods indicated.

The Korean securities markets are principally regulated by the Financial Services Commission and under the regulations set forth in the FSCMA. In July 2007, the National Assembly of Korea enacted the FSCMA. The FSCMA, which came into effect on February 4, 2009, comprehensively regulates the Korean capital markets, the financial investment business (including collective investment businesses and trust businesses) and financial investment products (such as securities and derivatives). The FSCMA imposes restrictions on insider trading and price manipulation, requires specified information to be made available by listed companies to investors and establishes rules regarding margin trading, proxy solicitation, takeover bids, acquisition of treasury shares and reporting requirements for shareholders holding substantial interests. The FSCMA regulates the operation and monitoring of the securities and derivatives markets.

Protection of Customer’s Interest in Case of Insolvency of Investment Brokers or Investment Dealers

Under Korean law, the relationship between a customer and an investment broker or an investment dealer in connection with a securities sell or buy order is deemed to be a consignment and the securities acquired by a consignment agent (i.e., the investment broker or the investment dealer) through such sell or buy order are regarded as belonging to the customer in so far as the customer and the consignment agent’s creditors are concerned. Therefore, in the event of a bankruptcy or reorganization procedure involving an investment broker or an investment dealer, the customer of the investment broker or the investment dealer is entitled to the proceeds of the securities sold by the investment broker or the investment dealer.

89

When a customer places a sell order with an investment broker or an investment dealer that is not a member of the KRX KOSPI Market or the KRX KOSDAQ Market and this investment broker or investment dealer places a sell order with another investment broker or investment dealer that is a member of the KRX KOSPI Market or the KRX KOSDAQ Market, the customer is still entitled to the proceeds of the securities sold and received by the non- member company from the member company regardless of the bankruptcy or reorganization of the non-member company.

Under the FSCMA, the Korea Exchange is obliged to indemnify any loss or damage incurred by a counterparty as a result of a breach by members of the KRX KOSPI Market or the KRX KOSDAQ Market. If an investment broker or an investment dealer that is a member of the KRX KOSPI Market or the KRX KOSDAQ Market breaches its obligation in connection with a buy order, the Korea Exchange is obliged to pay the purchase price on behalf of the breaching member. Therefore, the customer can acquire the securities that have been ordered to be purchased by the breaching member.

When a customer places a buy order with a non-member company and the non-member company places a buy order with a member company, the customer has the legal right to the securities received by the non-member company from the member company because the purchased securities are regarded as belonging to the customer in so far as the customer and the non-member company’s creditors are concerned.

As the cash deposited with an investment broker or an investment dealer is regarded as belonging to the investment broker or investment dealer, which is liable to return the same at the request of its customer, the customer cannot take back deposited cash from the investment broker or the investment dealer if a bankruptcy or rehabilitation procedure is instituted against the investment broker or the investment dealer and, therefore, can suffer from loss or damage as a result. However, in case of the investment broker or the investment dealer’s bankruptcy, liquidation, cancellation of investment broker or investment dealer license or other insolvency events, the Depositor Protection Act provides that the Korea Deposit Insurance Corporation will, upon the request of the investors, pay each investor up to a total of Won 50 million, which shall represent both actual cash deposited and any interest accrued thereon. Pursuant to the FSCMA, as amended, investment brokers or investment dealers are required to deposit the cash received from its customers at the securities finance company established pursuant to the FSCMA. Set-off or attachment of cash deposits by investment brokers or investment dealers is prohibited. The premiums related to this insurance are paid by investment brokers or investment dealers.

Clearance and Settlement

The settlement of trades on the Korea Exchange is required to be handled by a settlement agency of the Korea Exchange. The Korea Securities Depository is the institution commissioned by the Korea Exchange to handle all such settlement of trades. The settlement of trades on the Korea Exchange takes place through a clearance and settlement procedure. The Korea Exchange has adopted the multilateral netting system and carries out the clearance of the trades by netting the sales and purchases of each Korea Securities Depository participant. The Korea Exchange is required to provide the daily net settlement results of the trades to the Korea Securities Depository one business day after the day of the sale and purchase contract. The Korea Securities Depository then handles settlement of the securities and the funds based on the information received from the Korea Exchange. The securities are settled through book-entry changes in the accounts of Korea Securities Depository participants and the funds are settled by transfer to an account at a bank designated by the Korea Securities Depository. Settlement of trades is generally required to take place on the third day following the day of the sale and purchase contract.

Item 9.D.  Selling Shareholders

Not applicable

90

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 of non-voting stock, par value Won 5,000 per share (“Non-Voting Preferred Shares”). Our Non-Voting Preferred Shares have a preferential right to dividend payments. Common Shares and Non-Voting Preferred Shares together are referred to as “Shares.” Under our articles of incorporation, we are authorized to issue Non-Voting Preferred Shares up to the limit prescribed by applicable law, the aggregate of which currently is one-quarter of our total issued and outstanding capital stock. As of December 31, 2013, 87,186,835 Common Shares were issued, of which 7,403,211 shares were held by us in treasury. We have never issued any Non-Voting Preferred Shares. All of the issued and outstanding Common Shares are fully-paid and non-assessable and are in registered form. We issue share certificates in denominations of 1, 3, 4, 5, 10, 50, 100, 500, 1,000 and 10,000 shares.

Item 10.B. Memorandum and Articles of Association

This section provides information relating to our capital stock, including brief summaries of material provisions of our articles of incorporation, the FSCMA, the Commercial Code and related laws, all as currently in effect. The following summaries are subject to, and are qualified in their entirety by reference to, our articles of incorporation and the applicable provisions of the FSCMA and the Commercial Code. We have filed copies of our articles of incorporation and these laws (except for the newly enacted the FSCMA) as exhibits to registration statements under the Securities Act or the Securities Exchange Act previously filed by us.

Dividends

We distribute dividends to our shareholders in proportion to the number of shares owned by each shareholder. The Common Shares represented by the ADSs have the same dividend rights as other outstanding Common Shares.

Holders of Non-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 the Non-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 the Non-Voting Preferred Shares.

We may declare dividends annually at the annual general meeting of shareholders which is held within three months after the end of the fiscal year. We pay the annual dividend shortly after the annual general meeting to the shareholders of record as of the end of the preceding fiscal year. We may distribute the annual dividend in cash, Shares or other form of property. However, a dividend of Shares must be distributed at par value. Dividends in Shares may not exceed one-half of the annual dividend. In addition, we may declare, and distribute in cash, interim dividends pursuant to a board resolution once a fiscal year. We have no obligation to pay any annual dividend unclaimed for five years from the payment date.

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Under the Commercial Code, we may pay an annual dividend only to the extent the net asset amount in our balance sheets exceeds the sum of the following: (i) our stated capital, (ii) the total amount of our capital surplus reserve and legal reserve accumulated up to the end of the relevant dividend period, (iii) the legal reserve to be set aside for annual dividend, and (iv) unrealized profits determined in the Presidential Decree to the Commercial Code. We may not pay an annual dividend unless we have set aside as earned surplus reserve an amount equal to at least 10% of the cash portion of the annual dividend or unless we have accumulated earned surplus reserve of not less than one-half of our stated capital. We may not use legal reserve to pay cash dividends but may transfer amounts from legal reserve to capital stock or use legal reserve to reduce an accumulated deficit.

Distribution of Free Shares

In addition to paying dividends in Shares out of our retained or current earnings, we may also distribute to our shareholders an amount transferred from our capital surplus or legal reserve to our stated capital in the form of free shares. We must distribute such free shares to all our shareholders in proportion to their existing shareholdings.

Preemptive Rights and Issuance of Additional Shares

We may issue authorized but unissued shares at the times and, unless otherwise provided in the Commercial Code, on the terms our board of directors may determine. All our shareholders are generally entitled to subscribe for any newly issued Shares in proportion to their existing shareholdings. We must offer new Shares on uniform terms to all shareholders who have preemptive rights and are listed on our shareholders’ register as of the relevant record date. Under the Commercial Code, we may vary, without shareholders’ approval, the terms of these preemptive rights for different classes of shares. We must give public notice of the preemptive rights regarding new Shares and their transferability at least two weeks before the relevant record date. Our board of directors may determine how to distribute Shares for which preemptive rights have not been exercised or where fractions of Shares occur.

Under our articles of incorporation, we may issue new Shares pursuant to a board resolution to persons other than existing shareholders, who in these circumstances will not have preemptive rights, if the new Shares are:

• offered publicly or to underwriters for underwriting pursuant to the FSCMA;

• issued to members of our employee stock ownership association pursuant to the FSCMA;

• represented by depositary receipts pursuant to the FSCMA;

• issued in a general public offering pursuant to a board resolution in accordance with the FSCMA, the amount of which is no more than 10% of the outstanding Shares;

• issued to our creditors pursuant to a debt-equity swap;

• issued to domestic or foreign corporations pursuant to a joint venture agreement, strategic coalition or technology inducement agreement when deemed necessary for management purposes; or

• issued to domestic or foreign financial institutions when necessary for raising funds in emergency cases.

In addition, we may issue convertible bonds or bonds with warrants, each up to an aggregate principal amount of Won 2 trillion, to persons other than existing shareholders.

Members of our employee stock ownership association, whether or not they are our shareholders, generally have a preemptive right to subscribe for up to 20% of the Shares publicly offered pursuant to the FSCMA. This right is exercisable only to the extent that the total number of

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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, 2013, our employees owned, through our employee stock ownership association, approximately 0.01% of our common stock in their association accounts and 1.70% of our common stock in their employee accounts.

General Meeting of Shareholders

We hold the annual general meeting of shareholders within three months after the end of each fiscal year. The record date of the register of shareholders is December 31 of each year, and such shareholders listed on the register of shareholder as of the record date are entitled to exercise their right at the general meeting of shareholders. Subject to a board resolution or court approval, we may hold an extraordinary general meeting of shareholders:

• as necessary;

• at the request of holders of an aggregate of 3% or more of our outstanding Shares;

• at the request of shareholders holding an aggregate of 1.5% or more of our outstanding Shares for at least six months; or

• at the request of our audit committee.

Holders of Non-Voting Preferred Shares may request a general meeting of shareholders only after the Non-Voting Preferred Shares become entitled to vote or “enfranchised,” as described under “— Voting Rights” below.

We must give shareholders written notice 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 use The Seoul Shinmun published in Seoul, The Maeil Shinmun published in Taegu and The Kwangju Ilbo published 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 of Non-Voting Preferred Shares, unless enfranchised, are not entitled to receive notice of general meetings of shareholders, but may attend such meetings. Our general meetings of shareholders are held either in Pohang or Seoul.

Voting Rights

Holders of our Common Shares are entitled to one vote for each Common Share, except that voting rights of Common Shares held by us, or by a corporate shareholder that is more than 10% owned by us either directly or indirectly, may not be exercised. The Commercial Code permitted cumulative voting, under which voting method each shareholder would have multiple voting rights corresponding to the number of directors to be appointed in the voting and may exercise all voting rights cumulatively to elect one director.

Our shareholders may adopt resolutions at a general meeting by an affirmative majority vote of the voting Shares present or represented at the meeting, where the affirmative votes also represent at least one-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 least two-thirds of the voting Shares present or represented at a meeting, where the affirmative votes also represent at least one-third of our total voting Shares then issued and outstanding:

• amending our articles of incorporation;

• removing a director;

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• 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 of Non-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 the Non-Voting Preferred Shares, approval of the holders of Non-Voting Preferred Shares is required. We may obtain the approval by a resolution of holders of at least two-thirds of the Non-Voting Preferred Shares present or represented at a class meeting of the holders of Non-Voting Preferred Shares, where the affirmative votes also represent at least one-third of our total issued and outstanding Non-Voting Preferred Shares.

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

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

Rights of Dissenting Shareholders

In some limited circumstances, including the transfer of the whole or any significant part of our business and our merger or consolidation with another company, dissenting shareholders have the right to require us to purchase their Shares. Only the shareholders who have executed a share purchase agreement evidencing their acquisition of the relevant Shares on or prior to the day immediately following the public disclosure of the board resolutions approving any of the aforementioned transactions have the rights to require us to purchase their Shares. To exercise this right, shareholders, including holders of Non-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 the 20-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 the two-month period before the date of the adoption of the relevant board resolution, (2) the weighted average of the daily Share price on the Korea Exchange for the one month period before the date of the adoption of the relevant resolution and (3) the weighted average of the daily Share price on the Korea Exchange for the one week period before such date of the adoption of the relevant resolution. However, the court may determine this price if we or dissenting shareholders do not accept the purchase price. Holders of ADSs will not be able to exercise dissenter’s rights unless they have withdrawn the underlying common stock and become our direct shareholders.

Register of Shareholders and Record Dates

Our transfer agent, Kookmin Bank, maintains the register of our shareholders at its office in Seoul, Korea. It registers transfers of Shares on the register of shareholders on presentation of the Share certificates.

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The record date for annual dividends is December 31. For the purpose of determining the shareholders entitled to annual dividends, the register of shareholders may be closed for the period from January 1 to January 15 of each year. Further, for the purpose of determining the shareholders entitled to some other rights pertaining to the Shares, we may, on at least two weeks’ public notice, set a record date and/or close the register of shareholders for not more than three months. The trading of Shares and the delivery of share certificates may continue while the register of shareholders is closed.

Annual Report

At least one week before the annual general meeting of shareholders, we must make our annual report and audited financial statements available for inspection at our principal office and at all of our branch offices. In addition, copies of annual reports, the audited financial statements and any resolutions adopted at the general meeting of shareholders will be available to our shareholders.

Under the FSCMA, we must file with the Financial Services Commission and the Korea Exchange (1) an annual business report within 90 days after the end of our fiscal year, (2) a half-year report within 45 days after the end of the first six months of our fiscal year, and (3) quarterly reports within 45 days after the end of the third month and the ninth month of our fiscal year. Copies of these reports are or will be available for public inspection at the Financial Services Commission and the Korea Exchange.

Transfer of Shares

Under the Commercial Code, the transfer of Shares is effected by delivery of share certificates. However, to assert shareholders’ rights against us, the transferee must have his name and address registered on our register of shareholders. For this purpose, a shareholder is required to file his name, address and seal with our transfer agent. A non-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, a non-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 by non-residents or non-Koreans. See “Item 10. Additional Information — Item 10.D. Exchange Controls.”

Our transfer agent is Kookmin Bank, located at 26, Gukjegeumyung-ro, 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.

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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 of Non-Voting Preferred Shares have no preference in liquidation.

Item 10.C.  Material Contracts

None.

Item 10.D.  Exchange Controls

Shares and ADSs

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

Subject to certain limitations, the Ministry of Strategy and Finance has the authority to take the following actions under the Foreign Exchange Transaction Laws:

• if the Government deems it necessary on account of war, armed conflict, natural disaster or grave and sudden and significant changes in domestic or foreign economic circumstances or similar events or circumstances, the Ministry of Strategy and Finance may temporarily suspend performance under any or all foreign exchange transactions, in whole or in part, to which the Foreign Exchange Transaction Laws apply (including suspension of payment and receipt of foreign exchange) or impose an obligation to deposit, safe-keep or sell any means of payment to The Bank of Korea, a foreign exchange stabilization fund, certain other governmental agencies or financial companies; and

• if the Government concludes that the international balance of payments and international financial markets are experiencing or are likely to experience significant disruption or that the movement of capital between Korea and other countries is likely to adversely affect the Won, exchange rates or other macroeconomic policies, the Ministry of Strategy and Finance may take action to require any person who intends to effect a capital transaction to obtain permission or to require any person who effects a capital transaction to deposit a portion of the means of payment acquired in such transactions with The Bank of Korea, a foreign exchange stabilization fund, certain other governmental agencies or financial companies.

Government Review of Issuance of ADSs

In order for us to issue shares represented by ADSs, we are required to file a prior report of the issuance with our designated foreign exchange bank or the Ministry of Strategy and Finance, depending on the issuance amount. No further Korean governmental approval is necessary for the initial offering and issuance of the ADSs.

Under current Korean laws and regulations, the depositary bank is required to obtain our prior consent for the number of shares to be deposited in any given proposed deposit which exceeds the difference between (1) the aggregate number of shares deposited by us for the issuance of ADSs (including deposits in connection with the initial and all subsequent offerings of ADSs and stock dividends or other distributions related to these ADSs) and (2) the number of shares on deposit with the depositary bank at the time of such proposed deposit. We can give no assurance that we would grant our consent, if our consent is required.

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Reporting Requirements for Holders of Substantial Interests

Under the FSCMA, any person whose direct or beneficial ownership of shares with voting rights, whether in the form of shares or ADSs, certificates representing the rights to subscribe for Shares and equity-related debt securities including convertible bonds and bonds with warrants (collectively, “Equity Securities”) together with the Equity Securities beneficially owned by certain related persons or by any person acting in concert with the person accounts for 5% or more of the total outstanding Equity Securities is required to report the status and the purpose (whether or not to exert an influence on management control over the issuer) of the holdings to the Financial Services Commission and the Korea Exchange within five business days after reaching the 5% ownership interest. In addition, any change in the purpose of holding such ownership interest or a change in the ownership interest subsequent to the report which equals or exceeds 1% of the total outstanding Equity Securities is required to be reported to the Financial Services Commission and the Korea Exchange within five business days from the date of the change. However, the reporting deadline of such reporting requirement is extended to the tenth day of the month immediately following the month of such change in their shareholding for (1) certain professional investors, as specified under the FSCMA, or (2) persons who hold shares for purposes other than management control. Those who report the purpose of shareholding as management control of the issuer are prohibited from exercising their voting rights and acquiring additional shares for five days subsequent to their report under the FSCMA.

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

In addition to the reporting requirements described above, any person whose direct or beneficial ownership of a company’s shares accounts for 10% or more of the total issued and outstanding shares with voting rights (a “major stockholder”) must report the status of his or her shareholding to the Securities and Futures Commission and the Korea Exchange within five business days after he or she becomes a major stockholder. In addition, any change in the ownership interest subsequent to the report must be reported to the Securities and Futures Commission and the Korea Exchange by the fifth business day of any changes in his or her shareholding. Violation of these reporting requirements may subject a person to criminal sanctions such as fines or imprisonment.

Under the KRX regulations, if a company listed on the KRX KOSPI Market has submitted public disclosure of material matters to a foreign financial investment supervisory authority pursuant to the laws of the foreign jurisdiction, then it must submit a copy of the public disclosure and a Korean translation thereof to the Korea Exchange. In addition, if a company listed on the KRX KOSPI Market is approved for listing on a foreign stock exchange or determined to be de-listed from the foreign stock exchange or actually lists on, or de-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.

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In addition, under the Financial Services Commission regulations, effective as of November 30, 2006, we are required to file a securities registration statement with the Financial Services Commission and such securities registration statement has to become effective pursuant to the FSCMA in order for us to issue shares represented by ADSs, except in certain limited circumstances.

Restrictions Applicable to Shares

Under the Foreign Exchange Transaction Laws and the Financial Services Commission regulations (together, the “Investment Rules”), foreigners may invest, with limited exceptions and subject to procedural requirements, in all shares of Korean companies, whether listed on the KRX KOSPI Market or the KRX KOSDAQ Market, unless prohibited by specific laws. Foreign investors may trade shares listed on the KRX KOSPI Market or the KRX KOSDAQ Market only through the KRX KOSPI Market or the KRX KOSDAQ Market, except in limited circumstances, including, among others:

• odd-lot trading of shares;

• acquisition of shares (“Converted Shares”) by exercise of warrant, conversion right under convertible bonds or withdrawal right under depositary receipts issued outside of Korea by a Korean company;

• acquisition of shares as a result of inheritance, donation, bequest or exercise of shareholders’ rights, including preemptive rights or rights to participate in free distributions and receive dividends;

• over-the-counter transactions between foreigners of a class of shares for which the ceiling on aggregate acquisition by foreigners, as explained below, has been reached or exceeded with certain exceptions;

• shares acquired by direct investment as defined in the Foreign Investment Promotion Law;

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

• disposal of shares in connection with a tender offer;

• acquisition of shares by a foreign depositary in connection with the issuance of depositary receipts;

• acquisition and disposal of shares through overseas stock exchange market if such shares are simultaneously listed on the KRX KOSPI Market or the KRX KOSDAQ Market and such overseas stock exchange; and

• arm’s length transactions between foreigners, if all of such foreigners belong to an investment group managed by the same person.

The Investment Rules require a foreign investor who wishes to invest in shares for the first time on the Korea Exchange (including Converted Shares) to register its identity with the Financial Supervisory Service prior to making any such investment; however, the registration requirement does not apply to foreign investors who acquire Converted Shares with the intention of selling such Converted Shares within three months from the date of acquisition of the Converted Shares or who acquire the shares in an over-the-counter transaction or dispose of shares where such acquisition or disposal is deemed to be a foreign direct investment pursuant to the Foreign Investment Promotion Law. Upon registration, the Financial Supervisory Service will issue to the foreign investor an investment registration card which must be presented each time the foreign investor opens a brokerage account with a financial investment company with a brokerage license or dealing license in Korea. Foreigners eligible to obtain an investment registration card include foreign nationals who are individuals residing abroad for more than six months, foreign governments, foreign municipal

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authorities, foreign public institutions, international financial institutions or similar international organizations, corporations incorporated under foreign laws and any person in any additional category designated by the Enforcement Decree to the FSCMA. All Korean offices of a foreign corporation as a group are treated as a separate foreigner from the offices of the corporation outside Korea. However, a foreign corporation or depositary issuing depositary receipts may obtain one or more investment registration cards in its name in certain circumstances as described in the relevant regulations.

Upon a foreign investor’s purchase of shares through the Korea Exchange, no separate report by the investor is required because the investment registration card system is designed to control and oversee foreign investment through a computer system. However, a foreign investor’s acquisition or sale of shares outside the Korea Exchange (as discussed above) must be reported by the foreign investor or his standing proxy to the Governor at the time of each such acquisition or sale; provided, however, that a foreign investor must ensure that any acquisition or sale by it of shares outside the Korea Exchange in the case of trades in connection with a tender offer, odd-lot trading of shares or trades of a class of shares for which the aggregate foreign ownership limit has been reached or exceeded, is reported to the Governor by the Korea Securities Depository, financial investment companies with a dealing or brokerage license or securities finance companies engaged to facilitate such transaction. A foreign investor must appoint one or more standing proxies from among the Korea Securities Depository, foreign exchange banks (including domestic branches of foreign banks) financial investment companies with a dealing, brokerage or collective investment license and internationally recognized custodians which will act as a standing proxy to exercise shareholders’ rights or perform any matters related to the foregoing activities if the foreign investor does not perform these activities himself. However, a foreign investor may be exempted from complying with these standing proxy rules with the approval of the Governor in cases deemed inevitable by reason of conflict between laws of Korea and those of the home country of the foreign investor.

Certificates evidencing shares of Korean companies must be kept in custody with an eligible custodian in Korea. Only foreign exchange banks (including domestic branches of foreign banks), financial investment companies with a dealing, brokerage or collective investment license, the Korea Securities Depository and internationally recognized custodians are eligible to act as a custodian of shares for a non-resident or foreign investor. A foreign investor must ensure that his custodian deposits its shares with the Korea Securities Depository. However, a foreign investor may be exempted from complying with this deposit requirement with the approval of the Governor in circumstances where compliance with that requirement is made impracticable, including cases where compliance would contravene the laws of the home country of such foreign investor.

Under the Investment Rules, with certain exceptions, foreign investors may acquire shares of a Korean company without being subject to any foreign investment ceiling. As one such exception, designated public corporations are subject to a 40% ceiling on the acquisition of shares by foreigners in the aggregate. Designated public corporations may set a ceiling on the acquisition of shares by a single person according to its articles of incorporation. We set this ceiling at 3% until the discontinuation of our designation as a public corporation on September 28, 2000. As a result, we currently do not have any ceiling on the acquisition of shares by a single person or by foreigners in the aggregate. Furthermore, an investment by a foreign investor of not less than 10% of the outstanding shares with voting rights of a Korean company is defined as a direct foreign investment under the Foreign Investment Promotion Law, which is, in general, subject to the report to, and acceptance by, the Ministry of Trade, Industry & Energy. The acquisition of shares of a Korean company by a foreign investor may also be subject to certain foreign shareholding restrictions in the event that the restrictions are prescribed in each specific law which regulates the business of the Korean company.

Under the Foreign Exchange Transaction Laws, a foreign investor who intends to acquire shares must designate a foreign exchange bank at which he must open a foreign currency account and a Won account exclusively for stock investments. No approval is required for remittance into Korea and deposit of foreign currency funds in the foreign currency account. Foreign currency funds may be

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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 a non-resident of Korea must be deposited either in a Won account with the investor’s financial investment company with a dealing, brokerage or collective investment license or his Won Account. Funds in the investor’s Won Account may be transferred to his foreign currency account or withdrawn for local living expenses up to certain limitations. Funds in the Won Account may also be used for future investment in shares or for payment of the subscription price of new shares obtained through the exercise of preemptive rights.

Financial investment companies with a dealing, brokerage or collective investment license are allowed to open foreign currency accounts with foreign exchange banks exclusively for accommodating foreign investors’ stock investments in Korea. Through these accounts, these financial investment companies and asset management companies may enter into foreign exchange transactions on a limited basis, such as conversion of foreign currency funds and Won funds, as counterparty to foreign investors, without the investors having to open their own accounts with foreign exchange banks.

Item 10.E.  Taxation

The following summary is based upon tax laws of the United States and Korea as in effect on the date of this annual report on Form 20-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 are non-resident individuals or non-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 a Non-resident Holder will be subject to Korean withholding taxes at the rate of 22% (including local income tax) or such lower rate as is applicable under a treaty between Korea and such Non-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.

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The tax is withheld by the payer of the dividend. Since the payer is required to withhold the tax, Korean law does not entitle the person who was subject to the withholding of Korean tax to recover from the Government any part of the Korean tax withheld, even if it subsequently produces evidence that it was entitled to have tax withheld at a lower rate, except in certain limited circumstances.

Tax on Capital Gains

As a general rule, capital gains earned by Non-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 the Non-resident Holder’s country of tax residence.

However, a Non-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 the Non-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 such Non-resident Holder) 25% or more of the total issued and outstanding shares of us at any time during the calendar year in which the sale occurs and during the five calendar years prior to the calendar year in which the sale occurs.

It should be noted that capital gains earned by you (regardless of whether you have a permanent establishment in Korea) from a transfer of ADSs outside Korea will generally be exempt from Korean income taxation, provided that the ADSs are deemed to have been issued overseas. If and when an owner of the underlying common shares transfers the ADSs following the conversion of the underlying shares for ADSs, such person will not be exempt from Korean income taxation.

Inheritance Tax and Gift Tax

Korean inheritance tax is imposed upon (1) all assets (wherever located) of the deceased if at the time of his death he was domiciled in Korea and (2) all property located in Korea which passes on death (irrespective of the domicile of the deceased). Gift tax is imposed in similar circumstances to the above. The taxes are imposed if the value of the relevant property is above a certain limit and vary according to the identity of the parties involved.

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.

Securities Transaction Tax

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

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

Securities transaction tax, if applicable, must be paid by the transferor of the shares or rights, in principle. When the transfer is effected through a securities settlement company, such settlement company is generally required to withhold and pay (to the tax authority) the tax, and when such

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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 a Non-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, 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 a non-resident from the transfer of securities issued by a Korean company is often eliminated.

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

Furthermore, in order for a non-resident of Korea to obtain the benefits of tax exemption on certain Korean source income (e.g., capital gains and interest) under an applicable tax treaty, Korean tax law requires such non-resident (or its agent) to submit to the payer of such Korean source income an application for a tax exemption along with a certificate of tax residency of such non-resident issued by a competent authority of the non-resident’s country of tax residence, subject to certain exceptions. The payer of such Korean source income, in turn, is required to submit such application to the relevant district tax office by the ninth day of the month following the date of the first payment of such income.

For a non-resident of Korea to obtain the benefits of treaty-reduced tax rates on certain Korean source income (e.g., capital gains and interest) under an applicable tax treaty, Korean tax law requires such non-resident (or its agents) to submit to the payer of such Korean source income an application for treaty-reduced tax rates prior to receipt of such Korean source income; provided, however, that an owner of ADSs who is a non-resident of Korea is not required to submit such application, if the Korean source income on the ADSs is paid through an account opened at the Korea Securities Depository by a foreign depository.

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

United States Taxation

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

• a dealer in securities or currencies;

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

• a bank;

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• a life insurance company;

• a tax-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

• a partnership that holds shares of common stock or ADSs, or partners 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

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

Shares of Common Stock and ADSs

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

Dividends

The gross amount of cash dividends that you receive (prior to deduction of Korean taxes) generally will be subject to U.S. federal income taxation as foreign source dividend income. Dividends paid in Won will be included in your income in a Dollar amount calculated by reference to the exchange rate in effect on the date of your (or, in the case of ADSs, the depositary’s) receipt of the dividend, regardless of whether the payment is in fact converted into Dollars. If such a dividend is converted into Dollars on the date of receipt, you generally should not be required to recognize foreign currency gain or loss in respect of the dividend income. U.S. holders should consult their own tax advisers regarding the treatment of any foreign currency gain or loss on any Won received by U.S. holders that are converted into Dollars on a date subsequent to receipt.

Subject to certain exceptions for short-term and hedged positions, the Dollar amount of dividends received by an individual with respect to the ADSs and common stock will be subject to taxation at a preferential rate applicable to long-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

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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 was 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 2012 or 2013 taxable year. In addition, based on our audited financial statements and our current expectations regarding the value and nature of our assets, the sources and nature of our income, and relevant market and shareholder data, we do not anticipate becoming a PFIC for our 2014 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 a pro-rata distribution to all of our shareholders generally will not be subject to U.S. federal income tax.

Sales and Other Dispositions

For U.S. federal income tax purposes, you will recognize taxable gain or loss on any sale, exchange or other taxable disposition of common stock or ADSs equal to the difference, if any, between the amount realized (Dollars) on the sale or exchange and your adjusted tax basis in the common stock or ADSs. Any gain realized by a U.S. holder on the sale or other disposition of common stock or ADSs generally will be treated as U.S. source income for U.S. foreign tax credit purposes. This gain or loss will be capital gain or loss, and will be long-term capital gain or loss if the shares of common stock or ADSs 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 a 16-day period that includes the ex-dividend date. Instead of claiming a credit, you may, at your election, deduct such Korean taxes in computing your taxable income, provided that you do not elect to claim a foreign tax credit for any foreign income taxes paid or accrued for the relevant tax year and subject to generally applicable limitations under U.S. tax law. Foreign tax credits will not be allowed for withholding taxes imposed in respect of certain 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. tax unless you can use the credit against United States tax due on other foreign-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.

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U.S. Information Reporting and Backup Withholding Rules

Payments in respect of the notes, shares of common stock or ADSs that are made within the United States or through certain U.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 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 its non-U.S. status in connection with payments received within the United States or through a U.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 Bank of New York Mellon.

Item 10.G.  Statements by Experts

Not applicable

Item 10.H.  Documents on Display

We file reports, including annual reports on Form 20-F, and other information with the SEC pursuant to the rules and regulations of the SEC that apply to foreign private issuers. You may read and copy any materials filed with the SEC at the Public Reference Rooms in Washington, D.C., New York, New York and Chicago, Illinois. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Any filings we make electronically will be available to the public over the Internet at the SEC’s web site at http://www.sec.gov.

Item 10.I.  Subsidiary Information

Not applicable

Item 11.  Quantitative and Qualitative Disclosures about Market Risk

We are exposed to foreign exchange rate and interest rate risk primarily associated with underlying liabilities, and to changes in the commodity prices of principal raw materials. Following evaluation of these positions, we selectively enter into derivative financial instruments to manage the related risk exposures, primarily with respect to foreign exchange rate and interest rate risks, which are entered into with major financial institutions in order to minimize the risk of credit loss. Our market risk management policy determines the market risk tolerance level, measuring period, controlling responsibilities, management procedures, hedging period and hedging ratio very specifically. We also prohibit all speculative hedging transactions and evaluate and manage foreign exchange exposures to receivables and payables.

None of our loss exposures related to derivative contracts are unlimited, and we do not believe that our net derivative positions could result in a material loss to our profit before income tax or total equity due to significant fluctuations of major currencies against the Korean Won. Due to the nature of our derivative contracts primarily as hedging instruments that manage foreign exchange risks, net gain or net loss on derivatives transactions and valuation of derivatives are typically offset by net loss or net gain on foreign currency transaction and translation. We recorded net gain on derivatives transactions

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of Won 98 billion and net loss on valuation of derivatives of Won 65 billion in 2012, and we recorded net gain on derivatives transactions of Won 84 billion and net loss on valuation of derivatives of Won 219 billion in 2013.

Exchange Rate Risk

Korea is our most important market and, therefore, a substantial portion of our cash flow is denominated in Won. Most of our exports are denominated in Dollars. Japan is also an important market for us, and we derive significant cash flow denominated in Yen. We are exposed to foreign exchange risk related to foreign currency denominated liabilities and anticipated foreign exchange payments. Anticipated foreign exchange payments, which represent a substantial sum and are mostly denominated in Dollars, relate primarily to imported raw material costs and freight costs. Foreign currency denominated liabilities relate primarily to foreign currency denominated debt.

We strive to naturally offset our foreign exchange risk by matching foreign currency receivables with our foreign currency payables and our overseas subsidiaries have sought to further mitigate the adverse impact of exchange rate fluctuations by conducting business transactions in the local currency of the respective market in which the transactions occur. In particular, Daewoo International’s exposure to fluctuations in exchange rates, including the Won/Dollar exchange rate, is limited because trading transactions typically involve matched purchase and sale contracts, which result in limited settlement exposure, and because Daewoo International’s 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 Daewoo International and POSCO E&C, also periodically enter into derivative contracts, primarily foreign currency swaps and forward exchange contracts, to further hedge our foreign exchange risks.

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,
	2011					2012					2013
	Increase			Decrease		Increase			Decrease		Increase			Decrease
	(In billions of Won)
US Dollars	￦	(706	)	￦	706	￦	(519	)	￦	519	￦	(503	)	￦	503
Japanese Yen		(212	)		212		(178	)		178		(4	)		4
Euro		(34	)		34		(1	)		1		(125	)		125

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,
	2011		2012		2013
	(In billions of Won)
Increase or decrease in annual profit and net equity	￦	26	￦	96	￦	106

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 our short-term and long-term liabilities as of December 31, 2013 which are sensitive to exchange rates and/or interest rates. The information is presented in Won, which is our reporting currency.

	Maturities
																			December 31, 2013					December 31, 2012
	2014			2015			2016			2017			2018			Thereafter			Total			Fair   Value		Total			Fair   Value
	(In billions of Won except rates)
Local currency:
Fixed rate		3,026			666			707			568			573			3,900			9,439			9,523		6,995			7,113
Average weighted rate (1)		4.83	%		3.93	%		3.83	%		4.66	%		3.73	%		4.20	%		4.35	%				3.68	%
Variable rate		920			84			33			20			0			268			1,327			1,345		3,316			3,316
Average weighted rate (1)		3.71	%		4.50	%		4.93	%		2.03	%		2.69	%		2.27	%		3.47	%				2.56	%
Sub-total		3,946			750			740			588			573			4,169			10,766			10,868		10,311			10,429
Foreign currency, principally Dollars and Yen:
Fixed rate		2,283			155			846			169			928			2,533			6,913			6,988		7,666			8,069
Average weighted rate (1)		4.50	%		1.88	%		2.58	%		4.72	%		3.16	%		3.64	%		3.72	%				2.90	%
Variable rate		4,485			512			442			265			361			2,501			8,568			8,634		6,182			6,089
Average weighted rate (1)		1.64	%		2.36	%		1.34	%		2.08	%		1.99	%		2.03	%		1.81	%				2.12	%
Sub-total		6,768			667			1,288			434			1,289			5,034			15,481			15,623		13,848			14,158
Total		10,714			1,417			2,028			1,023			1,862			9,203			26,247			26,490		24,159			24,587

(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	None
Distribution of ADSs pursuant to (i) stock dividends or other free stock distributions, or (ii) exercise of rights to purchase additional ADSs	None
Distribution of securities other than ADSs or rights to purchase additional ADSs	None
General depositary services	None

Holders of our ADSs are also responsible for paying certain fees and expenses incurred by the depositary and certain taxes and governmental charges such as:

• fees for the transfer and registration of shares charged by the registrar and transfer agent for the shares in Korea (i.e., upon deposit and withdrawal of shares);

• expenses incurred for converting foreign currency into Dollars;

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

• taxes and duties upon the transfer of securities (i.e., when shares are deposited or withdrawn from deposit);

• 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.

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The fees and charges that holders of our ADSs may be required to pay may vary over time and may be changed by us and by the depositary. Holders of our ADSs will receive prior notice of such changes.

Fees and Payments from the Depositary to Us

In 2013, we received the following payments from the depositary

Reimbursement of NYSE listing fees:	$	50,289.00
Reimbursement of London Stock Exchange listing fees:	$	5,773.80
Reimbursement of proxy process expenses (printing, postage and distribution):	$	73,997.19
Contributions toward our investor relations efforts:	$	108,820.97

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 an internet-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 Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of December 31, 2013. 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.

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Our internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

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

Our management has completed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2013 based on criteria in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992). Based on this assessment, management concluded that our internal control over financial reporting was effective as of December 31, 2013.

c. Report of the Independent Registered Public Accounting Firm

KPMG Samjong Accounting Corp. (“KPMG Samjong”), an independent registered public accounting firm, which audited our consolidated financial statements as of, and for the year ended, December 31, 2013, has issued an audit report on the effectiveness of our internal control over financial reporting, which report is included in Item 18 of this Form 20-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.

Item 16. [Reserved]

Item 16A. Audit Committee Financial Expert

The board of directors has approved the members of our audit committee. Kim, Il-Sup is an audit committee financial expert and is independent within the meaning of applicable SEC rules.

Item 16B. Code of Ethics

We have adopted a code of business conduct and ethics, as defined in Item 16B. of Form 20-F under the Securities Exchange Act of 1934, as amended. Our code of business conduct and ethics, called Code of Conduct, applies to our chief executive officer and chief financial officer, as well as to our directors, other officers and employees. Our Code of Conduct is available on our web site at www.posco.com. If we amend the provisions of our Code of Conduct that apply to our chief executive officer or chief financial officer and persons performing similar functions, or if we grant any waiver of such provisions, we will disclose such amendment or waiver on our web site at the same address.

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Item 16C. Principal Accountant Fees and Services

Audit and Non-Audit Fees

The following table sets forth the fees billed to us by our independent auditor, KPMG, in 2011, 2012 and 2013:

	For the Year Ended December 31,
	2011		2012		2013
	(In millions of Won)
Audit fees	￦	5,846	￦	6,501	￦	5,356
Audit-related fees		946		170		90
Tax fees		687		1,730		1,110
Other fees		222		48		25
Total fees	￦	7,701	￦	8,449	￦	6,581

Audit fees in 2013 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 2013 as set forth in the above table are the aggregate fees billed by KPMG for comfort letter services related to our securities offering.

Tax fees in 2013 as set forth in the above table are fees billed by KPMG for our tax compliance and tax planning, as well as tax planning and preparation of other related companies.

Other fees in 2013 as set forth in the above table are fees billed by KPMG primarily related to agreed-upon procedures for sales transactions of certain products.

Audit Committee Pre-Approval Policies and Procedures

Our audit committee has not established pre-approval policies and procedures for the engagement of our independent auditors for services. Our audit committee expressly approves on a case-by-case basis any engagement of our independent auditors for audit and non-audit services provided to our subsidiaries or us.

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

Not applicable

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Item 16E. 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, 2013:

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 16F. Change in Registrant’s Certifying Accountant

Not applicable

Item 16G. 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 6 out of 12 directors are Outside Directors. Under our articles of incorporation, we may have up to five Inside Directors and seven 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 Committee composed of three Outside Directors and one Inside Director.

112

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 the Dodd-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 Rule 10A-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 Rule 10A-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. We previously provided a stock options program for officers and directors, as another equity compensation plan. However, during our annual shareholders’ meeting in February 2006, our shareholders resolved to terminate the stock option program and amended our articles of incorporation to delete the provision allowing grant of stock options to officers and directors. Consequently, since February 24, 2006, we have not granted stock options to officers and directors. Matters related to the Employee Stock Ownership Program are not subject to shareholders’ approval under Korean law.
Corporate Governance Guidelines
Listed companies must adopt and disclose corporate governance 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 at 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 Conduct for all directors, officers and employees. A copy of our Code of Conduct is available on our website at www.posco.com.

Item 16H. Mine Safety Disclosure

Not applicable

113

PART III

Item 17. Financial Statements

Not applicable

Item 18. Financial Statements

	Page
Report of Independent Registered Public Accounting Firm, KPMG Samjong Accounting Corp., on Consolidated Financial Statements		F-1
Report of Independent Registered Public Accounting Firm, KPMG Samjong Accounting Corp., on Internal Control over Financial Reporting		F-2
Consolidated Statements of Financial Position as of December 31, 2012 and 2013		F-3
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2011, 2012 and 2013		F-5
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2011, 2012 and 2013		F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 2011, 2012 and 2013		F-9
Notes to Consolidated Financial Statements		F-11

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 Statement No. 333-189473)*
2.2	—	Form of Deposit Agreement (including Form of American Depositary Receipts) (incorporated by reference to the Registrant’s Registration Statement (File No. 33-84318) on Form F-6)*
8.1	—	List of consolidated subsidiaries
12.1	—	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2	—	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13.1	—	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Filed previously

114

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

POSCO:

We have audited the accompanying consolidated statements of financial position of POSCO and subsidiaries as of December 31, 2012 and 2013 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, 2013. These consolidated financial statements are the responsibility of POSCO’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of POSCO and subsidiaries as of December 31, 2012 and 2013 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2013, 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), the effectiveness of POSCO’s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992), and our report dated May 9, 2014 expressed an unqualified opinion on the effectiveness of POSCO’s internal control over financial reporting.

/s/    KPMG Samjong Accounting Corp.

Seoul, Korea

May 9, 2014

F-1

Report of Independent Registered Public Accounting Firm

on Internal Control over Financial Reporting

The Board of Directors and Stockholders

POSCO:

We have audited POSCO’s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992). POSCO’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on POSCO’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, 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.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, POSCO maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial position of POSCO and subsidiaries as of December 31, 2012 and 2013, 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, 2013, and our report dated May 9, 2014 expressed an unqualified opinion on those consolidated financial statements.

/s/    KPMG Samjong Accounting Corp.

Seoul, Korea

May 9, 2014

F-2

POSCO and Subsidiaries

Consolidated Statements of Financial Position

As of December 31, 2012 and 2013

	Notes		December 31, 2012		December 31, 2013
	(in millions of Won)
Assets
Cash and cash equivalents		4,5,23	￦	4,680,526		4,208,562
Trade accounts and notes receivable, net		6,17,23,28,29,37		11,037,973		11,492,601
Other receivables, net		7		1,997,152		1,890,423
Other short-term financial assets		8,23,37		1,849,281		2,970,665
Inventories		9		10,584,646		9,798,381
Current income tax assets		35		17,168		32,417
Assets held for sale		10		1,190		2,494
Other current assets		16		1,398,180		1,270,668
Total current assets				31,566,116		31,666,211
Long-term trade accounts and notes receivable, net		6,23		142,204		97,000
Other receivables, net		7		808,903		797,455
Other long-term financial assets		8,23		3,860,966		4,465,730
Investments in associates and joint ventures		11		3,039,261		3,808,693
Investment property, net		13		521,191		425,229
Property, plant and equipment, net		14		32,276,379		35,760,119
Intangible assets, net		15		5,662,361		5,929,840
Deferred tax assets		35		994,684		1,139,932
Other long-term assets		16		393,786		365,198
Total non-current assets				47,699,735		52,789,196
Total assets			￦	79,265,851		84,455,407

See accompanying notes to the consolidated financial statements.

F-3

POSCO and Subsidiaries

Consolidated Statements of Financial Position, Continued

As of December 31, 2012 and 2013

	Notes		December 31, 2012			December 31, 2013
	(in millions of Won)
Liabilities
Trade accounts and notes payable		23,37	￦	4,389,195			4,231,322
Short-term borrowings and current installments of long-term borrowings		4,17,23		10,509,348			10,713,646
Other payables		18		1,834,904			2,128,854
Other short-term financial liabilities		19,23,37		92,741			135,904
Current income tax liabilities		35		559,328			358,930
Provisions		20		77,831			107,329
Other current liabilities		22,29		2,311,654			2,565,174
Total current liabilities				19,775,001			20,241,159
Long-term trade accounts and notes payable		23,37		2,593			559
Long-term borrowings, excluding current installments		4,17,23		14,412,085			15,532,959
Other payables		18		243,922			206,634
Other long-term financial liabilities		19,23		117,713			260,021
Net defined benefit liabilities		21		345,688			273,160
Deferred tax liabilities		35		1,461,519			1,711,762
Long-term provisions		20		100,098			146,272
Other long-term liabilities		22		377,814			260,851
Total non-current liabilities				17,061,432			18,392,218
Total liabilities				36,836,433			38,633,377
Equity
Share capital		24		482,403			482,403
Capital surplus		24		1,104,814			1,078,266
Hybrid bonds		25		—			996,919
Reserves		26		(88,150	)		(23,076	)
Treasury shares		27		(2,391,406	)		(1,579,124	)
Retained earnings				40,346,481			41,090,649
Equity attributable to owners of the controlling company				39,454,142			42,046,037
Non-controlling interests		25		2,975,276			3,775,993
Total equity				42,429,418			45,822,030
Total liabilities and equity			￦	79,265,851			84,455,407

See accompanying notes to the consolidated financial statements.

F-4

POSCO and Subsidiaries

Consolidated Statements of Comprehensive Income

For the years ended December 31, 2011, 2012 and 2013

	Notes		2011			2012			2013
	(in millions of Won, except per share information)
Revenue		28,29,37	￦	68,938,725			63,604,151			61,864,650
Cost of sales		29,31,34,37		(59,823,850	)		(56,142,892	)		(55,004,591	)
Gross profit				9,114,875			7,461,259			6,860,059
Selling and administrative expenses		30,34
Administrative expenses		31		(2,035,053	)		(2,129,463	)		(2,231,805	)
Selling expenses				(1,612,128	)		(1,678,688	)		(1,632,120	)
				(3,647,181	)		(3,808,151	)		(3,863,925	)
Other operating income		32		306,941			448,120			229,073
Other operating expenses		32,34,37		(366,533	)		(809,465	)		(650,806	)
Operating profit				5,408,102			3,291,763			2,574,401
Share of gain (loss) of equity-accounted investees, net		11		50,569			(22,702	)		(179,809	)
Finance income		23,33		3,190,419			2,897,063			2,380,838
Finance costs		23,33		(3,866,695	)		(2,797,638	)		(2,829,253	)
Profit before income taxes				4,782,395			3,368,486			1,946,177
Income tax expense		35		(1,068,109	)		(982,879	)		(590,997	)
Profit for the period				3,714,286			2,385,607			1,355,180
Other comprehensive income (loss)
Items that will not be reclassified subsequently to profit or loss:
Remeasurements of defined benefit pension plans		21		(30,577	)		(62,527	)		6,224
Items that are or may be reclassified subsequently to profit or loss :
Capital adjustment arising from investments in equity-method investees				(11,240	)		(130,836	)		(183,836	)
Net changes in the unrealized fair value of available-for-sale investments		23		(1,231,758	)		(81,471	)		412,346
Foreign currency translation differences				1,666			(363,088	)		(220,464	)
Other comprehensive income (loss), net of tax				(1,271,909	)		(637,922	)		14,270
Total comprehensive income for the period			￦	2,442,377			1,747,685			1,369,450
Profit (loss) attributable to:
Owners of the controlling company			￦	3,648,136			2,462,081			1,376,396
Non-controlling interests				66,150			(76,474	)		(21,216	)
Profit for the period			￦	3,714,286			2,385,607			1,355,180
Total comprehensive income (loss) attributable to:
Owners of the controlling company			￦	2,530,437			1,911,506			1,444,262
Non-controlling interests				(88,060	)		(163,821	)		(74,812	)
Total comprehensive income for the period			￦	2,442,377			1,747,685			1,369,450
Basic and diluted earnings per share		36	￦	47,224			31,874			17,409

See accompanying notes to the consolidated financial statements.

F-5

POSCO and Subsidiaries

Consolidated Statements of Changes in Equity

For the years ended December 31, 2011, 2012 and 2013

	Attributable to owners of the controlling company																			Non-controlling interests			Total
	Share capital		Capital surplus			Hybrid bonds		Reserves			Treasury shares			Retained earnings			Sub total
	(in millions of Won)
Balance as of January 1, 2011	￦	482,403		1,101,561			—		1,507,288			(2,403,263	)		35,887,697			36,575,686			1,961,481			38,537,167
Comprehensive income:
Profit for the period		—		—			—		—			—			3,648,136			3,648,136			66,150			3,714,286
Net changes in accumulated comprehensive income of investments in associates, net of tax		—		—			—		(12,276	)		—			—			(12,276	)		1,036			(11,240	)
Net changes in the unrealized fair value of available-for-sale investments, net of tax		—		—			—		(1,227,050	)		—			—			(1,227,050	)		(4,708	)		(1,231,758	)
Foreign currency translation differences, net of tax		—		—			—		146,622			—			—			146,622			(144,956	)		1,666
Remeasurements of defined benefit pension plans, net of tax		—		—			—		—			—			(24,995	)		(24,995	)		(5,582	)		(30,577	)
Total comprehensive income		—		—			—		(1,092,704	)		—			3,623,141			2,530,437			(88,060	)		2,442,377
Transactions with owners of the controlling company, recognized directly in equity:
Year-end dividends		—		—			—		—			—			(577,747	)		(577,747	)		(16,831	)		(594,578	)
Interim dividends		—					—		—						(193,111	)		(193,111	)		—			(193,111	)
Changes in subsidiaries		—		—			—		—			—			—			—			247,483			247,483
Changes in ownership interests in subsidiaries		—		(20,694	)		—		—			—			—			(20,694	)		266,643			245,949
Acquisition of treasury shares		—		—			—		—			(61,296	)		—			(61,296	)		—			(61,296	)
Disposal of treasury shares		—		69,153			—		—			73,153			—			142,306			—			142,306
Others		—		432			—		(9,158	)		—			(30,505	)		(39,231	)		2,854			(36,377	)
Total transactions with owners of the controlling company		—		48,891			—		(9,158	)		11,857			(801,363	)		(749,773	)		500,149			(249,624	)
Balance as of December 31, 2011	￦	482,403		1,150,452			—		405,426			(2,391,406	)		38,709,475			38,356,350			2,373,570			40,729,920

See accompanying notes to the consolidated financial statements.

F-6

POSCO and Subsidiaries

Consolidated Statements of Changes in Equity, Continued

For the years ended December 31, 2011, 2012 and 2013

	Attributable to owners of the controlling company																						Total
	Share capital		Capital surplus			Hybrid bonds		Reserves			Treasury shares			Retained earnings			Sub total			Non-controlling interests
	(in millions of Won)
Balance as of January 1, 2012	￦	482,403		1,150,452			—		405,426			(2,391,406	)		38,709,475			38,356,350			2,373,570			40,729,920
Comprehensive income:
Profit for the period		—		—			—		—			—			2,462,081			2,462,081			(76,474	)		2,385,607
Net changes in accumulated comprehensive income of investments in associates, net of tax		—		—			—		(112,974	)		—			—			(112,974	)		(17,862	)		(130,836	)
Net changes in the unrealized fair value of available-for-sale investments, net of tax		—		—			—		(86,661	)		—			—			(86,661	)		5,190			(81,471	)
Foreign currency translation differences, net of tax		—		—			—		(292,015	)		—			—			(292,015	)		(71,073	)		(363,088	)
Remeasurements of defined benefit pension plans, net of tax		—		—			—		—			—			(58,925	)		(58,925	)		(3,602	)		(62,527	)
Total comprehensive income		—		—			—		(491,650	)		—			2,403,156			1,911,506			(163,821	)		1,747,685
Transactions with owners of the controlling company, recognized directly in equity:
Year-end dividends		—		—			—		—			—			(579,333	)		(579,333	)		(19,751	)		(599,084	)
Interim dividends		—		—			—		—			—			(154,489	)		(154,489	)		—			(154,489	)
Changes in subsidiaries		—		—			—		—			—			—			—			35,870			35,870
Changes in ownership interests in subsidiaries		—		(41,924	)		—		—			—			—			(41,924	)		715,148			673,224
Others		—		(3,714	)		—		(1,926	)		—			(32,328	)		(37,968	)		34,260			(3,708	)
Total transactions with owners of the controlling company		—		(45,638	)		—		(1,926	)		—			(766,150	)		(813,714	)		765,527			(48,187	)
Balance as of December 31, 2012	￦	482,403		1,104,814			—		(88,150	)		(2,391,406	)		40,346,481			39,454,142			2,975,276			42,429,418

See accompanying notes to the consolidated financial statements.

F-7

POSCO and Subsidiaries

Consolidated Statements of Changes in Equity, Continued

For the years ended December 31, 2011, 2012 and 2013

	Attributable to owners of the controlling company																						Total
	Share capital		Capital surplus			Hybrid bonds		Reserves			Treasury shares			Retained earnings			Sub total			Non-controlling interests
	(in millions of Won)
Balance as of January 1, 2013	￦	482,403		1,104,814			—		(88,150	)		(2,391,406	)		40,346,481			39,454,142			2,975,276			42,429,418
Comprehensive income:
Profit for the period		—		—			—		—			—			1,376,396			1,376,396			(21,216	)		1,355,180
Net changes in accumulated comprehensive income of investments in associates, net of tax		—		—			—		(166,787	)		—			—			(166,787	)		(17,049	)		(183,836	)
Net changes in the unrealized fair value of available-for-sale investments, net of tax		—		—			—		412,453			—			—			412,453			(107	)		412,346
Foreign currency translation differences, net of tax		—		—			—		(180,839	)		—			—			(180,839	)		(39,625	)		(220,464	)
Remeasurements of defined benefit pension plans, net of tax		—		—			—		—			—			3,039			3,039			3,185			6,224
Total comprehensive income		—		—			—		64,827			—			1,379,435			1,444,262			(74,812	)		1,369,450
Transactions with owners of the controlling company, recognized directly in equity:
Year-end dividends		—		—			—		—			—			(463,467	)		(463,467	)		(30,544	)		(494,011	)
Interim dividends		—		—			—		—			—			(154,490	)		(154,490	)		—			(154,490	)
Changes in subsidiaries		—		—			—		—			—			—			—			40,506			40,506
Changes in ownership interests in subsidiaries		—		(31,417	)		—		—			—			—			(31,417	)		373,963			342,546
Issuance of hybrid bonds		—		—			996,919		—			—			—			996,919			498,468			1,495,387
Interest of hybrid bonds		—		—			—		—			—			(24,161	)		(24,161	)		(6,228	)		(30,389	)
Disposal of treasury shares		—		5,348			—		—			812,282			—			817,630			—			817,630
Others		—		(479	)		—		247			—			6,851			6,619			(636	)		5,983
Total transactions with owners of the controlling company		—		(26,548	)		996,919		247			812,282			(635,267	)		1,147,633			875,529			2,023,162
Balance as of December 31, 2013	￦	482,403		1,078,266			996,919		(23,076	)		(1,579,124	)		41,090,649			42,046,037			3,775,993			45,822,030

See accompanying notes to the consolidated financial statements.

F-8

POSCO and Subsidiaries

Consolidated Statements of Cash Flows

For the years ended December 31, 2011, 2012 and 2013

	Note	2011			2012			2013
		(in millions of Won)
Cash flows from operating activities
Profit for the period		￦	3,714,286			2,385,607			1,355,180
Adjustments for:
Depreciation			2,133,010			2,405,769			2,505,536
Amortization			133,289			157,991			180,014
Finance income			(1,734,280	)		(1,553,200	)		(1,012,281	)
Finance costs			2,245,957			1,605,414			1,585,778
Income tax expense			1,068,109			982,879			590,997
Gain on disposal of property, plant and equipment			(13,812	)		(42,290	)		(14,177	)
Loss on disposal of property, plant and equipment			60,550			65,486			121,133
Share of loss of equity-accounted investees			(50,569	)		22,702			179,809
Cost for defined benefit plans			236,999			226,132			247,748
Warranty expense			(7,202	)		25,127			111,364
Bad debt expenses			45,477			123,373			201,185
Loss on valuation of inventories			140,361			76,484			49,172
Impairment loss of assets held for sale			—			258,451			1,814
Impairment loss of goodwill and intangible assets			14,959			21,776			125,316
Gain on disposals of assets held for sale			—			(193,333	)		(101,611	)
Gain on disposals of investments in associates			(2,247	)		(39,441	)		(7,668	)
Loss on disposals of investments in associates			—			15,119			19,404
Impairment loss of property, plant and equipment			26,171			12,977			9,742
Others, net			(32,406	)		(2,314	)		19,343
			4,264,366			4,169,102			4,812,618
Changes in operating assets and liabilities	39		(4,850,747	)		1,933,358			(116,432	)
Interest received			218,682			238,231			227,989
Interest paid			(745,111	)		(874,711	)		(797,316	)
Dividends received			308,692			178,317			193,008
Income taxes paid			(1,218,602	)		(710,448	)		(816,912	)
Net cash provided by operating activities			1,691,566			7,319,456			4,858,135
Cash flows from investing activities
Acquisitions of short-term financial instruments			(4,556,340	)		(3,616,118	)		(4,449,312	)
Proceeds from disposal of short-term financial instruments			5,794,770			3,847,682			3,901,527
Increase in loans			(962,099	)		(434,156	)		(575,343	)
Collection of loans			896,656			318,745			417,971
Acquisitions of available-for-sale investments			(322,046	)		(307,712	)		(309,469	)
Proceeds from disposal of available-for-sale investments			411,061			700,686			269,363
Acquisitions of investments of equity-accounted investees			(740,971	)		(492,681	)		(1,076,763	)
Proceeds from disposal of investments of equity-accounted investees			2,404			18,428			89,533
Acquisitions of property, plant and equipment			(5,330,968	)		(7,054,543	)		(6,569,613	)
Proceeds from disposal of property, plant and equipment			140,221			272,948			82,153
Acquisitions of intangible assets			(574,753	)		(448,214	)		(543,666	)
Proceeds from disposal of intangible assets			55,899			10,945			5,429
Proceeds from disposal of assets held for sale			—			1,268,545			126,809
Acquisitions of other investment assets			(450	)		(128	)		(9,258	)
Proceeds from disposal of other investment assets			137,116			19,566			31,295
Cash received from (paid in) acquisition of business, net of cash acquired			(437,464	)		(98,880	)		5,729
Cash received from disposal of business			—			13,041			5,962
Acquisition of investment property			(157,072	)		(29,689	)		(20,945	)
Disposal of investment property			107,443			42,616			8,464
Acquisition of long-term financial instruments			(34,374	)		(178,163	)		(123,703	)
Other, net			54,101			(21,921	)		(17,833	)
Net cash used in investing activities		￦	(5,516,866	)		(6,169,003	)		(8,751,670	)

See accompanying notes to the consolidated financial statements.

F-9

POSCO and Subsidiaries

Consolidated Statements of Cash Flows, Continued

For the years ended December 31, 2011, 2012 and 2013

	Note	2011			2012			2013
		(in millions of Won)
Cash flows from financing activities
Proceeds from borrowings		￦	7,068,322			3,007,017			5,098,702
Repayment of borrowings			(1,746,487	)		(1,884,140	)		(2,845,957	)
Proceeds from (repayment of) short-term borrowings, net			51,808			(1,412,138	)		86,475
Proceeds from disposal of treasury shares			164,384			—			14,019
Payment of cash dividends			(770,858	)		(751,908	)		(648,580	)
Proceeds from issuance of hybrid bonds			—			—			1,495,387
Payment of interest of hybrid bonds			—			—			(26,088	)
Increase in non-controlling interests			146,264			208,187			363,044
Government grant received			64,603			1,631			6,371
Repayment of government grants			—			(64,263	)		(139	)
Other, net			(78,151	)		(12,013	)		(10,898	)
Net cash provided (used in) by financing activities			4,899,885			(907,627	)		3,532,336
Effect of exchange rate changes on cash held			3,052			(160,982	)		(110,765	)
Net increase in cash and cash equivalents			1,077,637			81,844			(471,964	)
Cash and cash equivalents at beginning of the period			3,521,045			4,598,682			4,680,526
Cash and cash equivalents at end of the period		￦	4,598,682			4,680,526			4,208,562

See accompanying notes to the consolidated financial statements.

F-10

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2011, 2012 and 2013

1. General Information

General information about POSCO, its 39 domestic subsidiaries including POSCO Engineering & Construction Co., Ltd., 172 foreign subsidiaries including POSCO America Corporation (collectively, “the Company”) and its 100 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 1988. POSCO owns and operates two steel plants (Pohang and Gwangyang) and one office in Korea and it also operates internationally through eight of its overseas liaison offices.

As of December 31, 2012 and 2013, POSCO’s shareholders are as follows:

	2012				2013
Shareholder’s name	Number of shares		Ownership (%)		Number of shares		Ownership (%)
National Pension Service		5,225,654		5.99		6,577,907		7.54
Nippon Steel & Sumitomo Metal Corporation (*1)		4,394,712		5.04		4,394,712		5.04
Hyundai Heavy Industries Co., Ltd. and subsidiaries (*2)		2,183,997		2.50		2,197,707		2.52
Pohang University of Science and Technology		1,905,000		2.18		1,905,000		2.18
KB Financial Group Inc. and subsidiaries (*2)		1,919,773		2.20		1,846,994		2.12
Others		71,557,699		82.09		70,264,515		80.60
		87,186,835		100.00		87,186,835		100.00

(*1) Nippon Steel & Sumitomo Metal Corporation owns American Depository Receipts (ADRs) of the Company, 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 pursuant to Articles of Incorporation.

As of December 31, 2013, the shares of the Company are listed on the Korea Exchange, while its depository shares are listed on the New York, Tokyo and London Stock Exchanges.

F-11

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

(b) Consolidated subsidiaries

Details of consolidated subsidiaries as of December 31, 2012 and 2013 are as follows:

		Ownership (%)
		2012						2013
	Principal Operations	POSCO		Subsidiaries		Total		POSCO		Subsidiaries		Total		Region
[Domestic]
POSCO ENGINEERING & CONSTRUCTION CO., LTD.	Engineering and construction		89.53		—		89.53		89.53		—		89.53	Pohang
POSCO Processing & Service	Steel sales and service		95.31		—		95.31		95.31		—		95.31	Seoul
POSCO COATED & COLOR STEEL Co., Ltd.	Coated steel manufacturing		56.87		—		56.87		56.87		—		56.87	Pohang
POSCO PLANTEC Co., Ltd.	Steel work maintenance and machinery installation		100.00		—		100.00		—		—		—	Pohang
POSCO ICT	Computer hardware and software distribution		72.54		—		72.54		65.38		—		65.38	Seongnam
POSCO Research Institute	Economic research and consulting		100.00		—		100.00		100.00		—		100.00	Seoul
POSMATE (former Seoung Gwang Co., Ltd.)	Business facility maintenance		69.38		30.62		100.00		54.46		11.77		66.23	Suncheon
POSCO A&C	Architecture and consulting		100.00		—		100.00		100.00		—		100.00	Seoul
POSCO Specialty Steel Co., Ltd.	Steel manufacturing and sales		94.74		—		94.74		72.09		—		72.09	Changwon
POSTECH Venture Capital Co., Ltd.	Investment in venture companies		95.00		—		95.00		95.00		—		95.00	Pohang
eNtoB Corporation	Electronic commerce		32.19		30.20		62.39		32.19		30.20		62.39	Seoul
POSCO CHEMTECH	Manufacturing and sellings of refractories		60.00		—		60.00		60.00		—		60.00	Pohang
POSCO-Terminal Co., Ltd.	Transporting and warehousing		51.00		—		51.00		51.00		—		51.00	Gwangyang
POSCO M-TECH (*1)	Packing materials manufacturing		48.85		—		48.85		48.85		—		48.85	Pohang
POSCO ENERGY CO., LTD.	Generation of electricity		89.02		—		89.02		89.02		—		89.02	Seoul
Postech 2006 Energy Fund (*2)	Investment in new technologies		—		22.11		22.11		—		—		—	Seoul
POSCO TMC Co., Ltd.	Component manufacturing		34.20		33.56		67.76		34.20		40.36		74.56	Cheonan
POSCO NIPPON STEEL RHF JOINT VENTURE.CO., Ltd.	Steel manufacturing and sales		70.00		—		70.00		70.00		—		70.00	Pohang
MegaAsset Co., Ltd.	Real estate rental and sales		—		100.00		100.00		—		100.00		100.00	Cheonan
POSCO Engineering CO., Ltd	Construction and engineering service		—		95.56		95.56		—		95.56		95.56	Seongnam
Pohang SPFC Co., Ltd.	Steel manufacturing		—		90.00		90.00		—		—		—	Pohang
POSWITH Co., Ltd.	Industrial clean service		100.00		—		100.00		—		—		—	Pohang
POSCO AST	Steel manufacturing and sales		100.00		—		100.00		100.00		—		100.00	Ansan
POSHIMETAL Co., Ltd.	Steel manufacturing and sales		65.00		—		65.00		65.00		—		65.00	Gwangyang
Poscoene	Handling & disposal of waste matter		—		100.00		100.00		—		100.00		100.00	Seoul
POSFINE Co., Ltd.	Non metallic minerals manufacturing		69.23		—		69.23		69.23		—		69.23	Gwangyang
POSCO Humans	Construction		85.25		—		85.25		90.30		—		90.30	Pohang
Mapo Hibroad Parking co., Ltd.	Construction		—		71.00		71.00		—		71.00		71.00	Seoul
Dakos Co., Ltd.	Railway equipment manufacturing		—		81.00		81.00		—		—		—	Seongnam

F-12

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

		Ownership (%)
		2012						2013
	Principal Operations	POSCO		Subsidiaries		Total		POSCO		Subsidiaries		Total		Region
Steel Processing and Fabricating Center Co., LTD	Steel manufacturing		—		65.84		65.84		—		70.52		70.52	Gwangyang
POSCALCIUM Company, Ltd.	Non metallic minerals manufacturing		—		86.87		86.87		—		—		—	Pohang
Plant Engineering service Technology Co., Ltd.	Engineering service		—		100.00		100.00		—		100.00		100.00	Pohang
9Digit Co., Ltd.	Steel manufacturing		—		86.48		86.48		—		—		—	Incheon
Postech Early Stage Fund (*2)	Financial investment		—		10.00		10.00		—		—		—	Pohang
Busan E&E Co,. Ltd.	Handling & disposal of waste matter		70.00		—		70.00		70.00		—		70.00	Busan
POSCO Family Strategy Fund	Financial investment		60.79		39.21		100.00		60.79		39.21		100.00	Pohang
POREKA Co., Ltd.	Advertising agency		100.00		—		100.00		100.00		—		100.00	Seoul
Daewoo International Corporation	Trading and Energy & Resource development		60.31		—		60.31		60.31		—		60.31	Seoul
POSCO LED Co., Ltd.	LED lightening		16.70		63.30		80.00		16.70		63.30		80.00	Seongnam
Gunsan SPFC Co., Ltd.	Steel processing and sales		—		70.09		70.09		—		—		—	Gunsan
Pohang Scrap Recycling Distribution Center Co., Ltd.	Steel processing and sales		—		51.00		51.00		—		51.00		51.00	Pohang
PSC Energy Global Co., Ltd.	Investment in energy industry		—		100.00		100.00		—		100.00		100.00	Pohang
Suncheon Eco Trans Co., Ltd	Train manufacturing & management		100.00		—		100.00		100.00		—		100.00	Suncheon
Reco Metal Co., Ltd.	Smelting of metal		—		100.00		100.00		—		—		—	Hwasung
New Altec Co., Ltd	Aluminum products manufacturing and sales		—		60.10		60.10		—		60.10		60.10	Incheon
PONUTech Co., Ltd.	Nuclear power plant design and repair service		—		100.00		100.00		—		100.00		100.00	Ulsan
BLUE O&M Co., Ltd.	Service		—		100.00		100.00		—		—		—	Ulsan
Tamra Offshore Wind Power Co., Ltd	Cogeneration plant operation		—		64.00		64.00		—		64.00		64.00	Jeju
POS-HiAL	Aluminum products manufacturing and sales		—		65.30		65.30		—		51.00		51.00	Youngam
MCM Korea	Iron ore sales & mine development		—		100.00		100.00		—		—		—	Seoul
Tancheonene Co., Ltd	Sewage heat energy supply		5.00		95.00		100.00		—		—		—	Seoul
IT Engineering (*2)	Automotive engineering service		—		—		—		—		17.00		17.00	Seoul
[Foreign]
POSCO America Corporation	Steel trading		99.45		0.55		100.00		99.45		0.55		100.00	USA
POSCO AUSTRALIA PTY LTD	Iron ore sales & mine development		100.00		—		100.00		100.00		—		100.00	Australia
POSCO Canada Ltd.	Coal sales		—		100.00		100.00		—		100.00		100.00	Canada
POSCAN Elkveiw Coal Ltd.	Coal sales		—		100.00		100.00		—		100.00		100.00	Canada
POSCO Asia Co., Ltd.	Steel and raw material trading		100.00		—		100.00		100.00		—		100.00	Hong Kong
Dalian POSCO Steel Co., Ltd	Steel manufacturing		30.00		55.00		85.00		—		—		—	China
POSCO-CTPC Co., Ltd.	Steel manufacturing		56.60		43.40		100.00		56.60		43.40		100.00	China
POSCO-JKPC Co., Ltd.	Steel manufacturing		—		95.00		95.00		—		95.00		95.00	Japan
INTERNATIONAL BUSINESS CENTER CORPORATION	Leasing service		—		60.00		60.00		—		60.00		60.00	Vietnam
POSCO E&C Vietnam Co., Ltd.	Steel manufacturing		—		100.00		100.00		—		100.00		100.00	Vietnam

F-13

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

		Ownership (%)
		2012						2013
	Principal Operations	POSCO		Subsidiaries		Total		POSCO		Subsidiaries		Total		Region
Zhangjiagang Pohang Stainless Steel Co., Ltd.	Stainless steel manufacturing		58.60		23.88		82.48		58.60		23.88		82.48	China
POSCO (Guangdong) Steel Co., Ltd.	Plating steel sheet manufacturing		87.04		10.04		97.08		87.04		10.04		97.08	China
POSCO (Thailand) Company Limited	Steel manufacturing		85.62		14.38		100.00		85.62		14.38		100.00	Thailand
Myanmar POSCO Steel Co., Ltd	Zinc relief manufacturing		70.00		—		70.00		70.00		—		70.00	Myanmar
POSCO-JOPC Co., Ltd.	Steel manufacturing		—		56.84		56.84		—		56.84		56.84	Japan
POSCO Investment Co., Ltd.	Financial Service		100.00		—		100.00		100.00		—		100.00	Hong Kong
POSCO-MKPC SDN BHD	Steel manufacturing		44.69		25.31		70.00		44.69		25.31		70.00	Malaysia
Qingdao Pohang Stainless Steel Co., Ltd.	Stainless steel manufacturing		70.00		30.00		100.00		70.00		30.00		100.00	China
POSCO (Suzhou) Automotive Processing Center Co., Ltd.	Steel manufacturing		90.00		10.00		100.00		90.00		10.00		100.00	China
POSCO BIOVENTURES I, L.P.	Bio tech Industry		—		100.00		100.00		—		100.00		100.00	USA
PT. POSNESIA Stainless Steel Industry	Steel manufacturing		70.00		—		70.00		70.00		—		70.00	Indonesia
POSEC Hawaii, Inc.	Real estate Industry		—		100.00		100.00		—		100.00		100.00	USA
POSCO-China Qingdao Processing Center Co., Ltd.	Steel manufacturing		—		100.00		100.00		—		100.00		100.00	China
POS-ORE PTY LTD	Iron ore sales & mine development		—		100.00		100.00		—		100.00		100.00	Australia
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		100.00		—		100.00		100.00		—		100.00	India
POSCO-India Pune Processing Center. Pvt. Ltd.	Steel manufacturing		65.00		—		65.00		65.00		—		65.00	India
POSCO-JEPC Co., Ltd.	Steel manufacturing		—		88.02		88.02		—		88.02		88.02	Japan
POSCO-CFPC Co., Ltd.	Steel manufacturing		39.60		60.40		100.00		39.60		60.40		100.00	China
POSCO E&C CHINA Co., Ltd.	Construction and civil engineering		—		100.00		100.00		—		100.00		100.00	China
POSCO MPPC S.A. de C.V.	Steel manufacturing		—		95.00		95.00		—		95.00		95.00	Mexico
Zhangjigang Pohang Port Co., Ltd.	Loading and unloading service		—		100.00		100.00		—		100.00		100.00	China
Qingdao Pos-metal Co., Ltd.	Steel manufacturing		—		100.00		100.00		—		100.00		100.00	China
POSCO-VIETNAM Co., Ltd.	Steel manufacturing		85.00		—		85.00		85.00		—		85.00	Vietnam
POSCO MEXICO S.A. DE C.V.	Automotive steel sheet manufacturing		84.84		15.16		100.00		84.84		15.16		100.00	Mexico
POSCO India Delhi Steel Processing Centre Private Limited	Steel manufacturing		66.40		10.00		76.40		66.40		10.00		76.40	India
POSCO-Poland Wroclaw Processing Center Sp. z o. o.	Steel manufacturing		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-Vietnam Processing Center Co., Ltd.	Steel manufacturing		91.63		—		91.63		91.63		—		91.63	Vietnam
POSCO (Chongqing) Automotive Processing Center Co., Ltd.	Steel manufacturing		90.00		10.00		100.00		90.00		10.00		100.00	China

F-14

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

		Ownership (%)
		2012						2013
	Principal Operations	POSCO		Subsidiaries		Total		POSCO		Subsidiaries		Total		Region
SUZHOU POSCO-CORE TECHNOLOGY CO., LTD.	Component manufacturing		—		100.00		100.00		—		100.00		100.00	China
POSCO-Malaysia SDN. BHD.	Steel manufacturing		80.07		13.34		93.41		80.07		13.34		93.41	Malaysia
POS-Minerals Corporation	Mine development & sales		—		100.00		100.00		—		100.00		100.00	USA
POSCO (Wuhu) Automotive Processing Center Co., Ltd.	Steel manufacturing		68.57		31.43		100.00		68.57		31.43		100.00	China
POSCO Engineering and Construction India Private Limited	Construction and engineering		—		100.00		100.00		—		100.00		100.00	India
POSCO E&C SMART S DE RL DE CV	Construction and engineering		—		100.00		100.00		—		100.00		100.00	Mexico
POSCO Philippine Manila Processing Center, Inc.	Steel manufacturing		—		100.00		100.00		—		100.00		100.00	Philippines
POSCO Gulf SFC LLC	Steel manufacturing		—		81.93		81.93		—		81.93		81.93	UAE
Dalian POSCO ICT-DONGFANG Engineering Co., Ltd.	Electric control equipment manufacturing		—		100.00		100.00		—		100.00		100.00	China
SANPU TRADING Co., Ltd.	Raw material trading		—		70.00		70.00		—		70.00		70.00	China
Zhangjiagang BLZ Pohang International Trading	Steel transit trading		—		100.00		100.00		—		100.00		100.00	China
POSCO MEXICO HUMAN TECH S.A. de C.V.	Service		80.00		20.00		100.00		80.00		20.00		100.00	Mexico
POSCO MESDC S.A. DE C.V.	Steel product sales		—		56.80		56.80		—		56.80		56.80	Mexico
POSCO ICT-China	IT service and DVR business		—		100.00		100.00		—		100.00		100.00	China
DWEMEX, S.A. DE. C.V.	Construction		—		99.00		99.00		—		99.00		99.00	Mexico
POSCO MPC Servicios S.A. de C.V.	Steel manufacturing		—		61.00		61.00		—		61.00		61.00	Mexico
POSCO-Uruguay S.A	Lumber manufacturing & sales		98.00		—		98.00		98.00		—		98.00	Uruguay
Pos-Sea Pte Ltd	Steel transit trading		—		67.54		67.54		—		67.54		67.54	Singapore
POSCO Europe Steel Distribution Center	Steel product sales		50.00		20.00		70.00		50.00		20.00		70.00	Slovenia
VECTUS LIMITED	PRT test track construction		—		99.57		99.57		—		99.57		99.57	England
Zeus (Cayman)	Service		100.00		—		100.00		100.00		—		100.00	Cayman
														Islands
POSCO VST CO., LTD.	Stainless steel manufacturing		95.65		—		95.65		95.65		—		95.65	Vietnam
POSCO Maharashtra Steel Private Limited	Steel manufacturing		100.00		—		100.00		100.00		—		100.00	India
POSCO India Chennai Steel Processing Centre Pvt. Ltd.	Steel manufacturing		100.00		—		100.00		100.00		—		100.00	India
POSCO TNPC Otomotiv Celik San. Ve Tic. A.S	Steel manufacturing		100.00		—		100.00		100.00		—		100.00	Turkey
POSCO Vietnam Ha Noi Processing Center Co., Ltd.	Steel manufacturing		70.00		—		70.00		70.00		—		70.00	Vietnam
POSCO (Liaoning) Automotive Processing Center Co., Ltd.	Steel manufacturing		90.00		10.00		100.00		90.00		10.00		100.00	China
POSCO-Indonesia Jakarta Processing Center	Steel manufacturing		65.00		20.00		85.00		65.00		20.00		85.00	Indonesia
POSCO E&C VENEZUELA C.A.	Construction and engineering		—		100.00		100.00		—		100.00		100.00	Venezuela
Motta Resources Indonesia	Mine development		65.00		—		65.00		65.00		—		65.00	Indonesia

F-15

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

		Ownership (%)
		2012						2013
	Principal Operations	POSCO		Subsidiaries		Total		POSCO		Subsidiaries		Total		Region
POSCO TMC INDIA PRIVATE LIMITED	Steel manufacturing		—		100.00		100.00		—		100.00		100.00	India
POSCO America Alabama Processing Center Co., Ltd.	Steel manufacturing		—		100.00		100.00		—		100.00		100.00	USA
PT PEN INDONESIA	Construction		—		95.00		95.00		—		95.00		95.00	Indonesia
POSCO (Yantai) Automotive Processing Center Co., Ltd.	Steel manufacturing		90.00		10.00		100.00		90.00		10.00		100.00	China
POSCO India Steel Distribution Center Private Ltd.	Steel logistics		—		100.00		100.00		—		100.00		100.00	India
POSCO China Dalian Plate Processing Center Co., Ltd.	Steel manufacturing		80.00		10.00		90.00		80.00		10.00		90.00	China
POSCO-South Asia Company Limited	Steel product sales		100.00		—		100.00		100.00		—		100.00	Thailand
POSCO SS-VINA	Steel manufacturing		—		100.00		100.00		—		100.00		100.00	Vietnam
POSCO-NCR Coal Ltd.	Coal sales		—		100.00		100.00		—		100.00		100.00	Canada
POSCO WA PTY LTD	Iron ore sales & mine development		100.00		—		100.00		100.00		—		100.00	Australia
POSCO Engineering and Construction — UZ	Construction		—		100.00		100.00		—		100.00		100.00	Uzbekistan
POSCO AUSTRALIA GP PTY LIMITED	Resource development		—		100.00		100.00		—		100.00		100.00	Australia
Daewoo International (America) Corp.	Trading business		—		100.00		100.00		—		100.00		100.00	USA
Daewoo International (Deutschland) GmbH.	Trading business		—		100.00		100.00		—		100.00		100.00	Germany
Daewoo International Japan Corp.	Trading business		—		100.00		100.00		—		100.00		100.00	Japan
DAEWOO INTERNATIONAL SINGAPORE PTE. LTD.	Trading business		—		100.00		100.00		—		100.00		100.00	Singapore
Daewoo Italia S.r.l.	Trading business		—		100.00		100.00		—		100.00		100.00	Italy
Daewoo (China) Co., Ltd.	Trading business		—		100.00		100.00		—		100.00		100.00	China
DAEWOO TEXTILE FERGANA LLC	Textile manufacturing		—		100.00		100.00		—		100.00		100.00	Uzbekistan
DAEWOO TEXTILE BUKHARA LLC	Textile manufacturing		—		100.00		100.00		—		100.00		100.00	Uzbekistan
DAEWOO INTERNATIONAL AUSTRALIA HOLDINGS PTY LTD	Resource development		—		100.00		100.00		—		100.00		100.00	Australia
Daewoo Paper Manufacturing Co., Ltd.	Paper manufacturing		—		66.70		66.70		—		66.70		66.70	China
Tianjin Daewoo Paper Manufacturing Co., Ltd.	Paper manufacturing		—		68.30		68.30		—		68.30		68.30	China
POSCO MAURITIUS LIMITED	Mine development & sales		—		100.00		100.00		—		100.00		100.00	Mauritius
PT. KRAKATAU POSCO	Steel manufacturing		70.00		—		70.00		70.00		—		70.00	Indonesia
Myanmar Daewoo Limited	Trading business		—		100.00		100.00		—		100.00		100.00	Myanmar
DAEWOO INTERNATIONAL MEXICO S.A. DE C.V.	Trading business		—		100.00		100.00		—		100.00		100.00	Mexico
Daewoo International Guangzhou Corp.	Trading business		—		100.00		100.00		—		100.00		100.00	China
DAEWOO STC VINA LTD.	Textile manufacturing		—		100.00		100.00		—		—		—	Vietnam
Daewoo (M) SDN. BHD.	Trading business		—		100.00		100.00		—		100.00		100.00	Malaysia
Daewoo CANADA LTD.	Trading business		—		100.00		100.00		—		—		—	Canada
Daewoo EL SALVADOR S.A. DE C.V.	Trading business		—		88.00		88.00		—		88.00		88.00	El Salvador
GEZIRA TANNERY CO., LTD.	Leather manufacturing		—		60.00		60.00		—		—		—	Sudan

F-16

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

		Ownership (%)
		2012						2013
	Principal Operations	POSCO		Subsidiaries		Total		POSCO		Subsidiaries		Total		Region
POSCO (Zhangjiagang) STS Processing Center Co., Ltd	Steel manufacturing		—		100.00		100.00		—		100.00		100.00	China
Daewoo International (M) SDN BHD	Trading business		—		100.00		100.00		—		100.00		100.00	Malaysia
Daewoo International SHANGHAI CO., LTD.	Trading business		—		100.00		100.00		—		100.00		100.00	China
DAEWOO POWER AND INFRA (PTY) LTD.	Electricity		—		—		—		—		100.00		100.00	Republic of South Africa
PGSF, L.P.	Investment in Bio tech Industry		—		100.00		100.00		—		100.00		100.00	USA
Xenesys Inc.	Power generation equipment manufacturing		29.58		21.35		50.93		29.58		21.35		50.93	Japan
Daewoo International INDIA Private Ltd.	Trading business		—		100.00		100.00		—		100.00		100.00	India
TECHREN Solar, LLC	Electrical Industry		—		99.92		99.92		—		99.92		99.92	USA
PT. POSCO E&C INDONESIA	Construction		—		100.00		100.00		—		100.00		100.00	Indonesia
HUME COAL PTY LTD	Raw material manufacturing		—		70.00		70.00		—		100.00		100.00	Australia
Daewoo HANDELS GmbH	Trading business		—		100.00		100.00		—		—		—	Germany
POSCO FOUNDATION	Non-profit charitable organization		—		100.00		100.00		—		100.00		100.00	India
EPC EQUITIES LLP	Construction		—		70.00		70.00		—		70.00		70.00	England
SANTOS CMI CONSTRUCTION TRADING LLP	Construction		—		99.90		99.90		—		99.90		99.90	England
SANTOS CMI INC. USA	Construction		—		100.00		100.00		—		100.00		100.00	USA
SANTOS CMI ENGENHARIA E CONSTRUCOES LTDA	Construction		—		99.98		99.98		—		99.98		99.98	Brazil
SANTOS CMI PERU S.A.	Construction		—		99.99		99.99		—		99.99		99.99	Peru
SANTOS CMI COSTA RICA S.A.	Construction		—		100.00		100.00		—		—		—	Coasta Rica
SANTOS CMI CONSTRUCCIONES S.A.	Construction		—		100.00		100.00		—		100.00		100.00	Uruguay
GENTECH INTERNATIONAL INC.	Construction		—		90.00		90.00		—		90.00		90.00	Panama
EPC INVESTMENTS C.V.	Construction		—		99.99		99.99		—		99.99		99.99	Netherlands
INGENIERiA Y CONSTRUCCION HOLAND CO S.A.	Construction		—		99.90		99.90		—		—		—	Ecuador
ASESORiA Y SERVICIOS EPC S.A CHILE	Construction		—		99.00		99.00		—		—		—	Chile
SANTOSCMI S.A.	Construction		—		70.00		70.00		—		70.00		70.00	Ecuador
SANTOSCMI CONSTRUCCIONES DE CHILE S.A.	Construction		—		99.00		99.00		—		99.00		99.00	Chile
S&K -SANTOSCMI S.A. DE C.V.	Construction		—		99.00		99.00		—		99.00		99.00	Mexico
COMPANIADEAUTOMATI ZACION & CONTROL, GENESYS S.A.	Construction		—		90.00		90.00		—		90.00		90.00	Ecuador
VAUTIDAMERICAS S.A.	Construction		—		51.00		51.00		—		51.00		51.00	Ecuador
SANTOS CMI Constructions Argentina S.A.	Construction		—		95.00		95.00		—		—		—	Argentina
POSCO ENGINEERING & CONSTRUCTION DO BRAZIL LTDA.	Construction		—		100.00		100.00		—		100.00		100.00	Brazil

F-17

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

		Ownership (%)
		2012						2013
	Principal Operations	POSCO		Subsidiaries		Total		POSCO		Subsidiaries		Total		Region
POSCO Electrical Steel India Private Limited	Electrical Steel manufacturing		100.00		—		100.00		100.00		—		100.00	India
Daewoo International Cameroon S.A.	Resource Development		—		100.00		100.00		—		100.00		100.00	Cameroon
POSCO ASSAN TST STEEL INDUSTRY	Steel manufacturing		60.00		10.00		70.00		60.00		10.00		70.00	Turkey
HONG KONG POSCO E&C (CHINA) INVESTMENT Co., Ltd.	Investment		—		100.00		100.00		—		100.00		100.00	Hong Kong
POSCO Klappan Coal Ltd.	Coal sales		—		100.00		100.00		—		100.00		100.00	Canada
DAESAN (CAMBODIA) Co., Ltd.	Investment		—		100.00		100.00		—		100.00		100.00	Cambodia
Brazil Sao Paulo Steel Processing Center	Steel manufacturing		—		76.00		76.00		—		76.00		76.00	Brazil
POSCO(Dalian) IT Center Development Co., Ltd.	Investment		—		100.00		100.00		—		100.00		100.00	China
PT. POSCO RESOURCES INDONESIA	Mine development		100.00		—		100.00		100.00		—		100.00	Indonesia
PT.POSCO ICT INDONESIA	IT service and Electric Control Engineering		—		66.99		66.99		—		66.99		66.99	Indonesia
PT. POSCO MTECH INDONESIA	Steel manufacturing		—		60.00		60.00		—		60.00		60.00	Indonesia
PT. KRAKATAU POSCO ENERGY	Manufacturing & management		—		90.00		90.00		—		90.00		90.00	Indonesia
POSCO RUS LLC	Trading business		90.00		10.00		100.00		90.00		10.00		100.00	Russia
POSCO Thainox Public Company Limited	Steel manufacturing		84.93		—		84.93		84.93		—		84.93	Thailand
DAEWOO INTERNATIONAL SHANGHAI WAIGAOQIAO CO., LTD.	Merchandising trade		—		100.00		100.00		—		100.00		100.00	China
PT. Bio Inti Agrindo	Forest resources development		—		85.00		85.00		—		85.00		85.00	Indonesia
POSCO ENGINEERING AND CONSTRUCTION AUSTRALIA (POSCO E&C AUSTRALIA) PTY LTD	Iron ore sales		—		100.00		100.00		—		100.00		100.00	Australia
POSCO-TISCO (JILIN) PROCESSING CENTER Co., Ltd.	Steel manufacturing		50.00		10.00		60.00		50.00		10.00		60.00	China
Hunchun Posco Hyundai International Logistics Complex Development Co., Ltd	Logistics		—		78.15		78.15		—		72.93		72.93	China
USA-SRDC	Scrap sales		—		100.00		100.00		—		100.00		100.00	USA
Daewoo International Vietnam Co., Ltd.	Trading business		—		100.00		100.00		—		100.00		100.00	Vietnam
PT.Krakatau Posco Chemtech Calcination	Manufacturing and selling of quicklime		—		80.00		80.00		—		80.00		80.00	Indonesia
POSCO AFRICA (PROPRIETARY) LIMITED	Trading business		100.00		—		100.00		100.00		—		100.00	South Africa
EPC INGENIERIA & SERVICIOS DE COSTA RICA SA	Construction and engineering service		—		100.00		100.00		—		100.00		100.00	Costa Rica
POSCO ICT BRASIL	IT service and engineering		—		100.00		100.00		—		100.00		100.00	Brazil
LA-SRDC	Scrap manufacturing		—		68.41		68.41		—		68.41		68.41	USA
DONG FANG JIN HONG	Real estate development, rental and management		—		99.00		99.00		—		99.00		99.00	China

F-18

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

		Ownership (%)
		2012						2013
	Principal Operations	POSCO		Subsidiaries		Total		POSCO		Subsidiaries		Total		Region
PRODUCTOS OFERTAS SISTEMAS Y COMERCIALIZADORA ORIENTAL S DE RL DE CV	Steel sales		—		100.00		100.00		—		100.00		100.00	Mexico
POSCO(Guangdong) Automotive Steel Co., Ltd.	Steel manufacturing and sales		83.64		10.00		93.64		83.64		10.00		93.64	China
POSCO MAPC SA DE CV	Steel manufacturing and sales		80.00		20.00		100.00		80.00		20.00		100.00	Mexico
POSCO AMERICA COMERCIALIZADORA S DE RL DE CV	Human-resource service		—		100.00		100.00		—		100.00		100.00	Mexico
POSCO ENGINEERING (THAILAND) CO., LTD. (*2)	Chemical plant		—		—		—		—		48.90		48.90	Thailand
POSCO YongXin Rare Earth Metal Co., Ltd.	Magnet material manufacturing and sales		—		—		—		—		51.67		51.67	China
POSCO-Mory-Maruyasu PIPE	Common steel welded pipe manufacturing and selling		—		—		—		—		50.00		50.00	Japan
PT KRAKATAU BLUE WATER	Wastewater treatment facilities operation and maintenance		—		—		—		—		67.00		67.00	Indonesia
KRAKATAU POS-CHEM DONG-SUH CHEMICAL (*2)	Chemical by-product manufacturing and sales		—		—		—		—		45.00		45.00	Indonesia
Myanmar Daewoo International Corporation	Trading business		—		—		—		—		100.00		100.00	Myanmar
POSCO-Italy Processing Center	Stainless steel sheet manufacturing and sales		—		—		—		80.00		10.00		90.00	Italy
DAEWOO E&P CANADA CORPORATION	Crude oil and natural gas mining		—		—		—		—		100.00		100.00	Canada
Yingkou Puxiang Trade Co., Ltd.	Refractory quality test and import and export trade		—		—		—		—		100.00		100.00	China
Myanmar POSCO C&C Company, Limited.	Steel manufacturing and sales		—		—		—		—		70.00		70.00	Myanmar
POSCO ICT VIETNAM	IT service and electric control engineering		—		—		—		—		100.00		100.00	Vietnam
Daewoo Global Development. Pte., Ltd	Real estate development		—		—		—		—		51.00		51.00	Myanmar
Myanmar POSCO Engineering & Construction Company, Limited.	Construction and engineering service		—		—		—		—		100.00		100.00	Myanmar
POSCO COATED STEEL (THAILAND) CO., LTD.	Automotive steel sheet manufacturing and sales		—		—		—		100.00		—		100.00	Thailand

(*1) Included as a subsidiary from 2011 as the Company has the power over more than half of the voting rights by virtue of an agreement with Postech, which has a 4.72% ownership interest.

(*2) These subsidiaries are included in the consolidated financial statements as the controlling company has control over them in consideration of the board of directors’ composition and others.

The amounts recognized in equity as a result of changes in the Company’s ownership interests in subsidiaries that did not result in a loss of control (2011 : POSCO ENGINEERING CO., LTD, Guangdong Pohang Coated Steel Co., Ltd., POSCO VST Co., Ltd., etc., 2012: POSCO Specialty Steel Co., Ltd., POSCO ENERGY Co., Ltd., POSCO-Thainox Public Company Limited, etc., 2013: POSCO Specialty Steel Co., Ltd., POSCO ICT Co., Ltd., POSCO TMC Co., Ltd. etc.) were ￦20,694 million , ￦41,924 million and ￦31,417 million for the years ended December 31, 2011, 2012 and 2013, respectively.

F-19

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

Cash flows from increase in non-controlling interest, net for the years ended December 31, 2011, 2012 and 2013 amounted to ￦155,785 million, ￦375,850 million and ￦385,122 million, respectively.

Cash dividends paid to POSCO by subsidiaries for the years ended December 31, 2011, 2012 and 2013 amounted to ￦45,675 million, ￦22,581 million and ￦71,970 million, respectively.

As of December 31, 2013, 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.

F-20

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

(c) Summarized financial information of subsidiaries as of December 31, 2011 2012 and 2013 are as follows:

1) December 31, 2011

Company	Sales		Net income (loss)
	(in millions of Won)
[Domestic]
POSCO ENGINEERING & CONSTRUCTION CO., LTD.	￦	6,142,026		109,921
POSCO Processing & Service		3,141,999		19,234
POSCO COATED & COLOR STEEL Co., Ltd.		956,179		(24,713	)
POSCO Plant Engineering Co., Ltd.		597,508		6,758
POSCO ICT		983,649		30,578
POSCO Research Institute		30,844		216
POSMATE (formerly Seoung Gwang Co., Ltd.)		14,652		2,522
POSCO A&C		196,794		7,236
POSCO Specialty Steel Co., Ltd.		1,662,896		127,573
POSTECH Venture Capital Co., Ltd.		—		1,041
eNtoB Corporation		634,830		1,249
POSCO CHEMTECH		1,186,623		92,391
POSCO-Terminal Co., Ltd.		100,710		22,955
POSCO M-TECH		602,155		12,447
POSCO ENERGY CO., LTD.		1,863,670		25,152
Postech 2006 Energy Fund		—		(202	)
PHP Co., Ltd.		4,456		483
POSCO TMC Co., Ltd.		219,580		5,746
POSCO NIPPON STEEL RHF JOINT VENTURE. CO., Ltd.		74,013		13,366
MegaAsset Co., Ltd.		63,667		5,794
POSCO Engineering CO., Ltd		980,340		3,225
Pohang Feul Cell Co. Ltd.		2,235		(286	)
Pohang SPFC Co., Ltd.		38,117		1,170
POSWITH Co., Ltd.		13,745		151
BASYS INDUSTRY Co., Ltd.		2,500		369
POSTECH BD Newundertaking fund		—		(1	)
POSBRO Co., Ltd.		—		(54	)
POSCO AST		365,682		4,972
DaiMyung TMS Co., Ltd.		6,265		(3,695	)
POSHIMETAL Co., Ltd.		34,682		(28,857	)
Poscoene		—		508
POMIC Co., Ltd.		21,111		317
POSFINE Co., Ltd.		2,285		(3,847	)
POS ECO HOUSING Co., Ltd.		13,629		265
Mapo high broad parking Co., Ltd.		—		(355	)
Dakos Co., Ltd.		225		(58	)
Steel Processing and Fabricating Center Co., LTD		4,686		(2,156	)
POSCALCIUM Company, Ltd.		106		(1,353	)
Plant Engineering service Technology Co., Ltd.		6,259		354
9Digit Co., Ltd.		58,341		(308	)
Postech Early Stage Fund		—		(31	)
Busan E&E Co., Ltd.		—		127
POSCO Family Strategy Funds		—		290
POREKA Co., Ltd.		20,785		1,158
Songdo SE Co., Ltd.		2,761		77
Posgreen Co., Ltd.		2,944		(33	)
Daewoo International Corporation		18,758,511		160,088
POSCO LED Co., Ltd.		14,063		(5,355	)
Gunsan SPFC Co., Ltd.		53,797		(236	)

F-21

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

Company	Sales		Net income (loss)
	(in millions of Won)
POSCO NST Co., Ltd.	￦	202,334		(803	)
Pohang Scrap Recycling Distribution Center Co., Ltd.		1,748		143
PSC Energy Global Co., Ltd.		—		(1,595	)
Suncheon Eco Trans Co., Ltd		—		48
Shinan Energy Co., Ltd.		—		(56	)
Reco Metal Co., Ltd.		6,761		(2,658	)
New Altec Co., Ltd		92,849		638
PONUTech Co., Ltd.		—		(263	)
BLUE O&M Co., Ltd.		—		(12	)
[Foreign]
POSCO America Corporation		419,258		8,866
POSCO AUSTRALIA PTY LTD		136,144		283,875
POSCO Canada Ltd.		304,274		133,660
POSCAN Elkveiw Coal Ltd.		—		—
POSCO Asia Co., Ltd.		2,968,097		6,523
Dalian POSCO Steel Co., Ltd		90,990		(8,711	)
POSCO-CTPC Co., Ltd.		134,930		1,320
POSCO-JKPC Co., Ltd.		87,203		1,405
INTERNATIONAL BUSINESS CENTER CORPORATION		25,889		11,655
POSCO E&C Vietnam Co., Ltd.		114,350		6,670
Zhangjiagang Pohang Stainless Steel Co., Ltd.		2,808,722		4,444
POSCO (Guangdong) Steel Co., Ltd.		275,521		(7,849	)
POSCO (Thailand) Company Ltd.		231,144		1,227
Myanmar POSCO Steel Co., Ltd		30,967		5,885
POSCO-JOPC Co., Ltd.		92,296		768
POSCO Investment Co., Ltd.		10,792		10,509
POSCO-MKPC SDN BHD		177,822		1,763
Qingdao Pohang Stainless Steel Co., Ltd.		615,532		(3,110	)
POSCO (Suzhou) Automotive Processing Center Co., Ltd.		384,705		11,046
POSCO BIOVENTURES I, L.P.		—		(4,226	)
PT. POSNESIA Stainless Steel Industry		—		(28	)
POSEC Hawaii, Inc.		—		(304	)
POSCO-China Qingdao Processing Center Co., Ltd.		117,470		65
POS-ORE PTY LTD		250,347		132,737
POSCO-China Holding Corp.		173,639		3,617
POSCO JAPAN Co., Ltd.		1,686,385		13,518
POS-CD PTY LTD		22,575		557
POS-GC PTY LTD		10,263		(4,344	)
POSCO-India Private Limited		—		(1,034	)
POSCO-India Pune Processing Center. Pvt. Ltd.		211,417		(16,626	)
POSCO-JNPC Co., Ltd.		207,654		716
POSCO-CFPC Co., Ltd.		529,788		227
POSCO E&C CHINA Co., Ltd.		104,055		1,898
POSCO MPPC S.A. de C.V.		316,446		(6,587	)
Zhangjigang Pohang Port Co., Ltd.		6,244		222
Qingdao Pos-metal Co., Ltd.		79,732		13
POSCO-VIETNAM Co., Ltd.		962,490		(46,976	)
POSCO MEXICO S.A. DE C.V.		396,897		(43,298	)
POSCO India Delhi Steel Processing Centre Private Limited		129,434		(9,824	)
POSCO-Poland Wroclaw Processing Center Sp. z o. o.		71,871		(1,483	)
POS-NP PTY LTD		48,404		9,480
POSCO-Vietnam Processing Center Co., Ltd.		159,369		26
POSCO (Chongqing) Automotive Processing Center Co, Ltd.		62,795		(1,622	)
SUZHOU POSCO-CORE TECHNOLOGY CO., LTD.		96,008		781
POSCO-JYPC Co., Ltd.		102,700		781
POSCO-Malaysia SDN. BHD.		140,709		(4,114	)

F-22

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

Company	Sales		Net income (loss)
	(in millions of Won)
POS-Minerals Corporation		—		(808	)
POSCO (Wuhu) Automotive Processing Center Co., Ltd.	￦	92,554		618
POSCO Engineering and Construction India Private Limited		4,966		1,135
POSCO E&C SMART S DE RL DE CV		4,421		135
POSCO Philippine Manila Processing Center, Inc.		45,680		266
Dalian POSCO ICT-DONGFANG Engineering Co., Ltd.		5,104		382
SANPU TRADING Co., Ltd.		73		3
Zhangjiagang BLZ Pohang International Trading		100,833		116
POSCO MEXICO HUMAN TECH S.A. de C.V.		5,378		221
POSCO MESDC S.A. DE C.V.		5,638		110
POSCO Gulf Logistics LLC.		—		—
POSCO ICT-China		4,920		114
DWEMEX, S.A.DE.C.V.		2		(29	)
POSCO MPC Servicios S.A. de C.V.		4,902		90
EUROTALY S.A.		24		(898	)
Pos-Sea Pte Ltd		62,235		256
POSCO Europe Steel Distribution Center		13,354		322
VECTUS LIMITED		3,560		(1,530	)
POSCO VST CO., LTD.		264,616		(10,669	)
POSCO Maharashtra Steel Private Limited		44		2,036
POSCO India Chennai Steel Processing Centre Pvt. Ltd.		134,409		(3,232	)
POSCO TNPC Otomotiv Celik San. Ve Tic. A.S		38,729		(3,971	)
POSCO Vietnam Ha Noi Processing Center Co., Ltd.		55,239		902
POSCO (Liaoning) Automotive Processing Center Co., Ltd.		117,395		3,267
POSCO-Indonesia Jakarta Processing Center		64,597		216
POSCO E&C VENEZUELA C.A.		—		—
Motta Resources Indonesia		458		(3,854	)
POSCO TMC INDIA PRIVATE LIMITED		15,186		(48	)
POSCO America Alabama Processing Center Co., Ltd.		85,381		(858	)
PT PEN INDONESIA		13,962		(267	)
POSCO (Yantai) Automotive Processing Center Co., Ltd.		32,301		172
POSCO India Steel Distribution Center Private Ltd.		786		(427	)
POSCO China Dalian Plate Processing Center Co., Ltd.		66,113		(165	)
POSCO-South Asia Company Limited		8,015		1,039
POSCO SS-VINA		—		(1,122	)
POSCO NCR Coal Ltd.		—		—
POSCO WA PTY LTD		—		(33,142	)
POSCO Engineering and Construction — UZ		2,046		104
POSCO AUSTRALIA GP PTY LIMITED		—		(8	)
Daewoo International (America) Corp.		984,378		5,372
Daewoo International (Deutschland) GmbH.		482,585		314
Daewoo International Japan Corp.		804,864		981
DAEWOO INTERNATIONAL SINGAPORE PTE. LTD.		902,315		481
Daewoo Italia S.r.l.		361,821		145
Daewoo Cement (Shandong) Co., Ltd.		133,502		20,361
Daewoo (China) Co., Ltd.		54,521		726
PT. RISMAR Daewoo Apparel		58,182		1,246
DAEWOO TEXTILE FERGANA LLC		132,866		(11,994	)
DAEWOO TEXTILE BUKHARA LLC		51,312		(11,500	)
DAEWOO INTERNATIONAL AUSTRALIA HOLDINGS PTY LTD		1,935		199
Daewoo Paper Manufacturing Co., Ltd.		76,632		(5,210	)
Tianjin Daewoo Paper Manufacturing Co., Ltd.		—		—
POSCO MAURITIUS LIMITED		—		(22	)
PT. KRAKATAU POSCO		—		(2,385	)
Myanmar Daewoo Limited		1,373		152
DAEWOO INTERNATIONAL MEXICO S.A. DE C.V.		240,448		299
Daewoo International Guangzhou Corp.		61,554		(1,265	)

F-23

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

Company	Sales		Net income (loss)
	(in millions of Won)
Daewoo Energy Central Asia	￦	—		—
DAEWOO STC VINA LTD.		9,435		94
MYANMAR Daewoo International Ltd.		11,947		759
DAYTEK ELECTRONICS CORP.		—		—
Daewoo (M) SDN. BHD.		—		—
Daewoo CANADA LTD.		—		—
Daewoo EL SALVADOR S.A. DE C.V.		—		—
GEZIRA TANNERY CO., LTD.		—		—
POSCO (Zhangjiagang) STS Processing Center Co., Ltd		67,175		15
Daewoo International (M) SDN BHD		21,190		157
Daewoo International SHANGHAI CO., LTD.		91,541		1,286
PGSF, L.P.		—		280
Xenesys Inc.		2,494		(3,865	)
Daewoo International INDIA Private Ltd.		3,343		69
TECHREN Solar, LLC		—		(506	)
PT. POSCO E&C INDONESIA		46,665		2,114
HUME COAL PTY LTD		—		(9	)
Daewoo HANDELS GmbH		—		—
POSCO FOUNDATION		—		3
EPC EQUITIES LLP		438		(2,743	)
SANTOS CMI CONSTRUCTION TRADING LLP		2,750		(1,323	)
SANTOS CMI INC. USA		11,604		(155	)
SANTOS CMI ENGENHARIA E CONSTRUCOES LTDA		14,823		7,484
SANTOS CMI PERU S.A.		59,091		4,779
SANTOS CMI COSTA RICA S.A.		1,228		(1,794	)
SANTOS CMI CONSTRUCCIONES S.A.		—		(9	)
GENTECH INTERNATIONAL INC.		1,800		728
EPC INVESTMENTS C.V.		—		(6	)
INGENIERÍA Y CONSTRUCCIÓN HOLANDCO S.A.		—		(2	)
ASESORÍA Y SERVICIOS EPC S.A. CHILE		635		88
SANTOSCMI S.A.		34,879		(5,430	)
SANTOSCMI CONSTRUCCIONES DE CHILE S.A.		13,009		1,703
S&K-SANTOSCMI S.A. DE C.V.		203		(208	)
COMPANIADEAUTOMATIZACION & CONTROL, GENESYS S.A.		14,588		923
VAUTIDAMERICAS S.A.		1,765		141
SANTOS CMI CONSTRUCTION ARGENTINA S.A.		—		1
POSCO ENGINEERING & CONSTRUCTION DO BRAZIL LTDA.		6,200		(465	)
POSCO Electrical Steel India Private Limited		—		346
Daewoo International Cameroon S.A.		—		—
POSCO ASSAN TST STEEL INDUSTRY		—		1,724
HONG KONG POSCO E&C (CHINA) INVESTMENT Co., Ltd.		—		(3,466	)
POSCO Klappan Coal Ltd.		—		—
DAESAN (Cambodia) Co., Ltd.		—		(946	)
Brazil Sao Paulo Steel Processing Center		—		—
POSCO(Dalian) IT Center Development Co., Ltd.		—		(1,464	)
PT.POSCO Resources Indonesia		—		(415	)
PT.POSCO ICT INDONESIA		—		(80	)
PT. POSCO MTECH INDONESIA		3,329		61
PT. KRAKATAU POSCO ENERGY		—		(134	)
POSCO RUS LLC		—		(273	)
POSCO Thainox Public Company Limited		401,257		(22,466	)
DAEWOO INTERNATIONAL SHANGHAI WAIGAOQIAO CO., LTD.		22,354		343
PT. Bio Inti Agrindo		—		(1,486	)
POSCO ENGINEERING AND CONSTRUCTION AUSTRALIA (POSCO E&C AUSTRALIA) PTY LTD		—		(237	)
POSCO-TISCO (JILIN) PROCESSING CENTER Co., Ltd.		—		(375	)
Hunchun Posco Hyundai International Logistics Complex Development Co., Ltd		—		(229	)
USA-SRDC		—		—
Daewoo International Vietnam Co., Ltd.		—		—

F-24

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

2) December 31, 2012

Company	Assets		Liabilities		Equity (deficit)			Sales		Net income (loss)
	(in millions of Won)
[Domestic]
POSCO ENGINEERING & CONSTRUCTION., LTD.	￦	7,893,306		5,007,149		2,886,157			7,041,300		346,107
POSCO Processing & Service		1,084,473		456,338		628,135			2,770,764		8,087
POSCO COATED & COLOR STEEL Co., Ltd.		468,910		294,718		174,192			853,499		(47,444	)
POSCO Plant Engineering Co., Ltd.		255,831		162,662		93,169			523,227		2,121
POSCO ICT		802,675		527,641		275,034			1,017,662		40,089
POSCO Research Institute		34,138		9,239		24,899			46,340		535
POSMATE		83,439		33,998		49,441			12,667		685
POSCO A&C		87,019		40,382		46,637			160,667		(6,227	)
POSCO Specialty Steel Co., Ltd.		1,496,939		484,585		1,012,354			1,405,667		69,091
POSTECH Venture Capital Co., Ltd.		107,796		501		107,295			6,475		1,438
eNtoB Corporation		103,000		71,712		31,288			607,230		1,839
POSCO CHEMTECH		533,402		134,298		399,104			1,292,356		78,554
POSCO-Terminal Co., Ltd.		120,483		14,806		105,677			111,275		25,796
POSCO M-TECH		340,877		169,150		171,727			618,316		14,737
POSCO ENERGY CO., LTD.		3,315,742		2,374,622		941,120			2,805,208		177,796
Postech 2006 Energy Fund		26,000		950		25,050			6,141		385
POSCO TMC Co., Ltd.		253,987		163,175		90,812			268,574		152
POSCO NIPPON STEEL RHF JOINT VENTURE.CO., Ltd.		149,117		104,272		44,845			72,607		13,380
MegaAsset Co., Ltd.		112,729		64,252		48,477			14,274		1,402
POSCO Engineering CO., Ltd		562,645		383,154		179,491			881,279		1,141
Pohang SPFC Co., Ltd.		29,514		22,941		6,573			75,513		816
POSWITH Co., Ltd.		5,140		2,366		2,774			14,873		105
POSCO AST		453,410		298,192		155,218			372,185		4,564
POSHIMETAL Co., Ltd.		341,640		321,197		20,443			155,274		(19,369	)
Poscoene		22,787		52		22,735			—		407
POSFINE Co., Ltd.		58,480		46,640		11,840			19,651		(2,304	)
POSCO Humans		8,274		1,822		6,452			14,513		108
Mapo Hibroad Parking co., Ltd.		1,561		281		1,280			—		(285	)
Dakos Co., Ltd.		670		191		479			245		16
Steel Processing and Fabricating Center Co., LTD		85,814		76,909		8,905			39,472		(6,539	)
POSCALCIUM Company, Ltd.		7,637		6,528		1,109			155		(1,790	)
Plant Engineering service Technology Co., Ltd.		3,620		1,316		2,304			8,332		477
9Digit Co., Ltd.		27,458		22,798		4,660			289,912		(431	)
Postech Early Stage Fund		9,869		—		9,869			163		(100	)
Busan E&E Co,. Ltd.		79,054		37,470		41,584			67,419		(745	)
POSCO Family Strategy Fund		66,390		—		66,390			1,368		362
POREKA Co., Ltd.		16,785		12,967		3,818			40,560		1,389
Daewoo International Corporation		6,989,140		4,866,242		2,122,898			17,011,373		306,041
POSCO LED Co., Ltd.		37,735		23,523		14,212			41,278		(8,205	)
Gunsan SPFC Co., Ltd.		61,683		41,606		20,077			70,443		(692	)
Pohang Scrap Recycling Distribution Center Co., Ltd.		19,435		3,207		16,228			5,657		1,270
PSC Energy Global Co., Ltd.		61,168		—		61,168			—		(3,060	)
Suncheon Eco Trans Co., Ltd		49,496		27,118		22,378			—		(251	)
Reco Metal Co., Ltd.		32,959		35,547		(2,588	)		42,482		(4,736	)
New Altec Co., Ltd		126,527		28,488		98,039			95,474		1,376
PONUTech Co., Ltd.		133,854		97,105		36,749			53,662		(5,825	)
BLUE O&M Co., Ltd.		900		21		879			232		(110	)
Tamra Offshore Wind Power Co., Ltd		20,074		2		20,072			—		(56	)

F-25

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

Company	Assets		Liabilities		Equity (deficit)			Sales		Net income (loss)
	(in millions of Won)
POS-HiAL	￦	47,314		32,852		14,462			—		(1,158	)
MCM Korea		50		—		50			—		—
Tancheonene Co., Ltd		5,606		17		5,589			—		(165	)
[Foreign]
POSCO America Corporation		510,392		333,246		177,146			803,368		(1,338	)
POSCO AUSTRALIA PTY LTD		1,195,398		477,894		717,504			118,874		23,634
POSCO Canada Ltd.		555,972		47,925		508,047			205,885		62,584
POSCO Asia Co., Ltd.		586,971		550,913		36,058			2,616,390		2,148
Dalian POSCO Steel Co., Ltd.		29,078		47,280		(18,202	)		18,615		(9,958	)
POSCO-CTPC Co., Ltd.		82,206		50,391		31,815			132,510		1,481
POSCO-JKPC Co., Ltd.		79,788		61,793		17,995			115,531		3,108
INTERNATIONAL BUSINESS CENTER CORPORATION		81,465		46,210		35,255			25,340		10,987
POSCO E&C Vietnam Co., Ltd.		127,161		102,831		24,330			187,325		14,331
Zhangjiagang Pohang Stainless Steel Co., Ltd.		1,340,336		867,576		472,760			2,786,474		(79,016	)
POSCO (Guangdong) Steel Co., Ltd.		141,727		102,418		39,309			221,738		(20,980	)
POSCO (Thailand) Company Limited		155,836		110,059		45,777			255,611		5,611
Myanmar POSCO Steel Co., Ltd		23,699		7,810		15,889			19,484		2,569
POSCO-JOPC Co., Ltd.		78,402		73,817		4,585			114,432		647
POSCO Investment Co., Ltd.		718,078		621,268		96,810			13,461		6,000
POSCO-MKPC SDN BHD		159,191		111,749		47,442			232,088		107
Qingdao Pohang Stainless Steel Co., Ltd.		206,941		117,753		89,188			514,354		(17,445	)
POSCO (Suzhou) Automotive Processing Center Co., Ltd.		284,046		195,684		88,362			407,513		8,425
POSCO BIOVENTURES I, L.P.		7,571		—		7,571			—		(1,301	)
PT. POSNESIA Stainless Steel Industry		14,978		1,926		13,052			—		(55	)
POSEC Hawaii, Inc.		350		2		348			—		(35	)
POSCO-China Qingdao Processing Center Co., Ltd.		47,351		33,119		14,232			111,017		(623	)
POS-ORE PTY LTD		59,784		11,043		48,741			163,407		75,389
POSCO-China Holding Corp.		438,538		184,127		254,411			138,067		3,055
POSCO JAPAN Co., Ltd.		852,406		735,583		116,823			1,659,045		16,218
POS-CD PTY LTD		68,681		17,931		50,750			12,869		(9,603	)
POS-GC PTY LTD		83,998		49,598		34,400			20,160		(10,905	)
POSCO-India Private Limited		131,409		306		131,103			—		(768	)
POSCO-India Pune Processing Center. Pvt. Ltd.		179,112		164,386		14,726			252,296		(6,061	)
POSCO-JEPC Co., Ltd.		221,086		200,769		20,317			351,377		4,769
POSCO-CFPC Co., Ltd.		218,881		177,426		41,455			515,773		727
POSCO E&C CHINA Co., Ltd.		145,448		101,733		43,715			169,956		8,459
POSCO MPPC S.A. de C.V.		204,770		178,108		26,662			359,768		(7,137	)
Zhangjigang Pohang Port Co., Ltd.		23,889		9,070		14,819			6,542		255
Qingdao Pos-metal Co., Ltd.		10,429		9,628		801			59,165		(1,313	)
POSCO-VIETNAM Co., Ltd.		572,453		539,426		33,027			805,214		(46,619	)
POSCO MEXICO S.A. DE C.V.		772,518		538,907		233,611			430,986		(12,354	)
POSCO India Delhi Steel Processing Centre Private Limited		100,153		81,218		18,935			142,038		977
POSCO-Poland Wroclaw Processing Center Sp. z o. o.		56,394		37,399		18,995			97,381		5,875
POS-NP PTY LTD		62,868		26,259		36,609			28,872		(4,363	)
POSCO-Vietnam Processing Center Co., Ltd.		64,551		39,418		25,133			137,641		58
POSCO (Chongqing) Automotive Processing Center Co., Ltd.		63,038		54,523		8,515			93,615		(729	)
SUZHOU POSCO-CORE TECHNOLOGY CO., LTD.		52,746		29,180		23,566			83,910		(1,055	)
POSCO-Malaysia SDN. BHD.		74,431		96,028		(21,597	)		153,122		1,529

F-26

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

Company	Assets		Liabilities		Equity (deficit)			Sales		Net income (loss)
	(in millions of Won)
POS-Minerals Corporation	￦	213,365		108,246		105,119			—		(496	)
POSCO (Wuhu) Automotive Processing Center Co., Ltd.		62,067		39,958		22,109			86,998		(363	)
POSCO Engineering and Construction India Private Limited		33,536		26,578		6,958			56,037		2,990
POSCO E&C SMART S DE RL DE CV		12,607		10,693		1,914			41,717		1,326
POSCO Philippine Manila Processing Center, Inc.		23,737		14,091		9,646			35,897		673
POSCO Gulf SFC LLC		41,150		33,676		7,474			24,891		(3,297	)
Dalian POSCO ICT-DONGFANG Engineering Co., Ltd.		6,358		1,418		4,940			5,109		270
SANPU TRADING Co., Ltd.		1,753		2		1,751			86		21
Zhangjiagang BLZ Pohang International Trading		9,150		4,408		4,742			61,529		192
POSCO MEXICO HUMAN TECH S.A. de C.V.		693		708		(15	)		6,777		(148	)
POSCO MESDC S.A. DE C.V.		12,860		717		12,143			5,654		287
POSCO ICT-China		1,922		1,286		636			6,528		227
DWEMEX, S.A.DE.C.V.		211		19		192			—		29
POSCO MPC Servicios S.A. de C.V.		925		697		228			6,077		62
POSCO-Uruguay S.A		24,835		226		24,609			3		(1,842	)
Pos-Sea Pte Ltd		9,571		7,126		2,445			90,158		556
POSCO Europe Steel Distribution Center		7,270		1,460		5,810			13,054		399
VECTUS LIMITED		2,859		12,164		(9,305	)		3,365		(7,325	)
POSCO VST CO., LTD.		405,882		353,058		52,824			348,339		(30,977	)
POSCO Maharashtra Steel Private Limited		942,982		754,791		188,191			97,948		(41,512	)
POSCO India Chennai Steel Processing Centre Pvt. Ltd.		129,030		119,375		9,655			187,797		1,453
POSCO TNPC Otomotiv Celik San. Ve Tic. A.S		51,139		40,429		10,710			53,246		1,841
POSCO Vietnam Ha Noi Processing Center Co., Ltd.		46,382		40,764		5,618			72,321		(1,232	)
POSCO (Liaoning) Automotive Processing Center Co., Ltd.		71,502		48,643		22,859			114,046		1,143
POSCO-Indonesia Jakarta Processing Center		79,711		57,569		22,142			76,506		(1,402	)
POSCO E&C VENEZUELA C.A.		128		—		128			—		—
Motta Resources Indonesia		8,148		15,508		(7,360	)		1,109		(1,603	)
POSCO TMC INDIA PRIVATE LIMITED		9,004		6,823		2,181			17,192		(45	)
POSCO America Alabama Processing Center Co., Ltd.		49,178		37,475		11,703			109,454		(397	)
PT PEN INDONESIA		6,960		6,936		24			15,296		(101	)
POSCO (Yantai) Automotive Processing Center Co., Ltd.		35,773		20,063		15,710			57,464		442
POSCO India Steel Distribution Center Private Ltd.		4,759		2,698		2,061			57		(72	)
POSCO China Dalian Plate Processing Center Co., Ltd.		86,264		55,531		30,733			37,501		(7,020	)
POSCO-South Asia Company Limited		13,212		183		13,029			8,354		72
POSCO SS-VINA		156,811		4,050		152,761			—		(2,602	)
POSCO WA PTY LTD		235,224		51		235,173			—		(39,181	)
POSCO Engineering and Construction — UZ		8,589		7,968		621			1,076		334
POSCO AUSTRALIA GP PTY LIMITED		62,768		4		62,764			—		(67,392	)
Daewoo International (America) Corp.		332,620		288,716		43,904			1,040,183		4,767
Daewoo International (Deutschland) GmbH.		104,259		94,087		10,172			324,061		739

F-27

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

Company	Assets		Liabilities		Equity (deficit)			Sales		Net income (loss)
	(in millions of Won)
Daewoo International Japan Corp.	￦	236,056		228,631		7,425			749,714		273
DAEWOO INTERNATIONAL SINGAPORE PTE. LTD.		80,294		75,966		4,328			708,613		13
Daewoo Italia S.r.l.		103,710		99,911		3,799			262,784		383
Daewoo (China) Co., Ltd.		56,225		9,614		46,611			118,971		683
DAEWOO TEXTILE FERGANA LLC		86,781		65,730		21,051			127,432		9,214
DAEWOO TEXTILE BUKHARA LLC		54,780		40,581		14,199			44,382		2,615
DAEWOO INTERNATIONAL AUSTRALIA HOLDINGS PTY LTD		154,829		26,482		128,347			7,539		(3,464	)
Daewoo Paper Manufacturing Co., Ltd.		70,572		70,339		233			69,880		(4,132	)
Tianjin Daewoo Paper Manufacturing Co., Ltd.		13,739		31,105		(17,366	)		—		—
POSCO MAURITIUS LIMITED		23,316		2		23,314			—		(15	)
PT. KRAKATAU POSCO		1,912,134		969,415		942,719			—		(29,063	)
Myanmar Daewoo Limited		5,671		3		5,668			1,305		473
DAEWOO INTERNATIONAL MEXICO S.A. DE C.V.		80,432		75,226		5,206			262,230		1,412
Daewoo International Guangzhou Corp.		18,292		14,120		4,172			66,808		(4,854	)
DAEWOO STC VINA LTD.		1,736		89		1,647			1,856		96
POSCO (Zhangjiagang) STS Processing Center Co., Ltd		114,433		102,240		12,193			265,850		519
Daewoo International (M) SDN BHD		9,145		6,689		2,456			37,244		213
Daewoo International SHANGHAI CO., LTD.		38,374		30,621		7,753			63,039		(2,746	)
PGSF, L.P.		5,669		2		5,667			—		731
Xenesys Inc.		10,162		1,404		8,758			4,302		(1,083	)
Daewoo International INDIA Private Ltd.		2,279		272		2,007			2,382		223
TECHREN Solar, LLC		6,015		—		6,015			—		(2,486	)
PT. POSCO E&C INDONESIA		100,543		78,852		21,691			247,331		20,302
HUME COAL PTY LTD		36,681		1,194		35,487			48		(210	)
POSCO FOUNDATION		187		2		185			—		(4	)
EPC EQUITIES LLP		36,602		36,636		(34	)		—		(141	)
SANTOS CMI CONSTRUCTION TRADING LLP		39,148		30,527		8,621			15,299		8,963
SANTOS CMI INC. USA		43,496		47,350		(3,854	)		60,152		(5,013	)
SANTOS CMI ENGENHARIA E CONSTRUCOES LTDA		9,338		17,629		(8,291	)		20,029		(17,431	)
SANTOS CMI PERU S.A.		19,937		39,932		(19,995	)		69,415		(26,391	)
SANTOS CMI COSTA RICA S.A.		10,720		10,469		251			—		(99	)
SANTOS CMI CONSTRUCCIONES S.A.		18		7		11			—		(25	)
GENTECH INTERNATIONAL INC.		1,972		1,568		404			1,008		227
EPC INVESTMENTS C.V.		107		24		83			—		(8	)
INGENIERÍA Y CONSTRUCCIÓN HOLANDCO S.A.		103		4		99			—		(6	)
ASESORÍA Y SERVICIOS EPC S.A.		891		468		423			1,691		250
SANTOSCMI S.A.		58,219		44,584		13,635			46,738		1,737
SANTOSCMI CONSTRUCCIONES DE CHILE S.A.		9,533		3,608		5,925			1,608		178
S&K-SANTOSCMI S.A. DE C.V.		84		149		(65	)		335		(158	)
COMPANIADEAUTOMATIZACION & CONTROL, GENESYS S.A.		8,648		6,018		2,630			16,926		465
VAUTIDAMERICAS S.A.		4,866		2,217		2,649			1,445		(451	)
SANTOS CMI CONSTRUCTION ARGENTINA S.A.		58		24		34			—		4
POSCO ENGINEERING & CONSTRUCTION DO BRAZIL LTDA.		343,882		322,576		21,306			59,862		11,470
POSCO Electrical Steel India Private Limited		132,529		94,046		38,483			—		(1,343	)

F-28

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

Company	Assets		Liabilities		Equity (deficit)			Sales		Net income (loss)
	(in millions of Won)
Daewoo International Cameroon S.A.	￦	2,064		25		2,039			—		—
POSCO ASSAN TST STEEL INDUSTRY		377,066		230,778		146,288			—		1,072
HONG KONG POSCO E&C (CHINA) INVESTMENT Co., Ltd.		147,685		172,085		(24,400	)		—		(21,103	)
DAESAN (CAMBODIA) Co., Ltd.		27,979		33,111		(5,132	)		—		(18	)
Brazil Sao Paulo Steel Processing Center		39,794		23,210		16,584			4,863		(1,634	)
POSCO (Dalian) IT Center Development Co., Ltd.		176,026		37,908		138,118			—		(4,691	)
PT. POSCO RESOURCES INDONESIA		2,448		48		2,400			—		(1,147	)
PT. POSCO ICT INDONESIA		3,624		3,185		439			4,335		(324	)
PT. POSCO MTECH INDONESIA		11,577		6,620		4,957			9,631		(34	)
PT. KRAKATAU POSCO ENERGY		143,452		55,475		87,977			—		(949	)
POSCO RUS LLC		12,384		8,324		4,060			4,260		505
POSCO Thainox Public Company Limited		473,048		153,836		319,212			502,041		(5,532	)
DAEWOO INTERNATIONAL SHANGHAI WAIGAOQIAO CO., LTD.		11,003		10,241		762			161,675		255
PT. Bio Inti Agrindo		35,514		21,447		14,067			404		828
POSCO ENGINEERING AND CONSTRUCTION AUSTRALIA (POSCO E&C AUSTRALIA) PTY LTD		35,552		34,986		566			52,143		836
POSCO-TISCO (JILIN) PROCESSING CENTER Co., Ltd.		26,258		9,203		17,055			1,497		(514	)
Hunchun Posco Hyundai International Logistics Complex Development Co., Ltd		46,923		8		46,915			—		(829	)
USA-SRDC		311		21		290			—		—
Daewoo International Vietnam Co., Ltd.		4,453		149		4,304			2,096		14
PT.Krakatau Posco Chemtech Calcination		23,217		1,279		21,938			—		(722	)
POSCO AFRICA (PROPRIETARY) LIMITED		3,580		112		3,468			—		(1,509	)
EPC INGENIERIA & SERVICIOS DE COSTA RICA SA		1,497		1,553		(56	)		1,973		(73	)
POSCO ICT BRASIL		1,983		1,471		512			—		(336	)
LA-SRDC		1,274		758		516			5,128		62
DONG FANG JIN HONG		267,838		97,208		170,630			—		(1,233	)
PRODUCTOS OFERTAS SISTEMAS Y COMERCIALIZADORA ORIENTAL S DE RL DE CV		177		175		2			168		2
POSCO AMERICA COMERCIALIZADORA S DE RL DE CV		309		649		(340	)		339		(408	)
POSCO (Guangdong) Automotive Steel Co., Ltd.		351,910		203,033		148,877			1,061		(9,197	)
POSCO MAPC SA DE CV		6,427		—		6,427			—		—

F-29

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

3) December 31, 2013

Company	Assets		Liabilities		Equity (deficit)		Sales		Net income (loss)
	(in millions of Won)
[Domestic]
POSCO ENGINEERING & CONSTRUCTION., LTD.	￦	6,853,318		3,885,127		2,968,191		8,028,269		98,714
POSCO Processing & Service		1,061,686		367,791		693,895		2,745,727		35,941
POSCO COATED & COLOR STEEL Co., Ltd.		449,661		280,097		169,564		821,183		(5,173	)
POSCO ICT		733,968		327,728		406,240		1,050,747		33,796
POSCO Research Institute		36,841		10,051		26,790		58,519		1,167
POSMATE		214,286		56,247		158,039		118,489		8,501
POSCO A&C		98,502		56,578		41,924		154,053		(6,076	)
POSCO Specialty Steel Co., Ltd.		1,792,904		533,797		1,259,107		1,316,781		31,703
POSTECH Venture Capital Co., Ltd.		118,603		11,186		107,417		11,506		3,506
eNtoB Corporation		89,371		56,789		32,582		648,761		1,414
POSCO CHEMTECH		588,671		139,399		449,272		1,280,591		59,953
POSCO-Terminal Co., Ltd.		134,787		9,443		125,344		104,586		22,152
POSCO M-TECH		346,577		193,375		153,202		902,541		(10,649	)
POSCO ENERGY CO., LTD.		4,022,984		2,433,704		1,589,280		2,901,117		143,976
POSCO TMC Co., Ltd.		209,745		117,890		91,855		319,580		447
POSCO NIPPON STEEL RHF JOINT VENTURE. CO., Ltd.		139,612		92,134		47,478		56,789		2,601
MegaAsset Co., Ltd.		136,387		87,750		48,637		83,809		183
POSCO Engineering CO., Ltd		608,624		435,380		173,244		1,013,115		10,286
POSCO AST		508,189		354,591		153,598		611,458		(3,006	)
POSHIMETAL Co., Ltd.		359,240		350,158		9,082		179,550		(12,109	)
Poscoene		22,447		91		22,356		—		66
POSFINE Co., Ltd.		58,252		44,852		13,400		28,974		1,560
POSCO Humans		13,691		4,179		9,512		33,116		286
Mapo Hibroad Parking co., Ltd.		1,544		300		1,244		—		(36	)
Steel Processing and Fabricating Center Co., LTD		169,437		136,488		32,949		194,018		(2,558	)
Plant Engineering service Technology Co., Ltd.		6,754		2,970		3,784		10,731		1,385
Busan E&E Co,. Ltd.		113,287		73,609		39,678		136,279		(1,820	)
POSCO Family Strategy Fund		61,033		7		61,026		1,082		(5,298	)
POREKA Co., Ltd.		19,403		15,468		3,935		23,961		69
Daewoo International Corporation		7,739,676		5,524,030		2,215,646		16,601,358		132,541
POSCO LED Co., Ltd.		57,561		50,419		7,142		60,693		(7,029	)
Pohang Scrap Recycling Distribution Center Co., Ltd.		17,072		511		16,561		5,530		734
PSC Energy Global Co., Ltd.		96,058		—		96,058		—		(13,890	)
Suncheon Eco Trans Co., Ltd		67,768		46,467		21,301		—		(1,065	)
New Altec Co., Ltd		131,244		34,473		96,771		81,318		(1,366	)
PONUTech Co., Ltd.		117,033		80,881		36,152		56,151		(560	)
Tamra Offshore Wind Power Co., Ltd		26,728		—		26,728		—		(12	)
POS-HiAL		59,836		43,460		16,376		—		(2,521	)
IT Engineering		7,026		3,349		3,677		11,293		133
[Foreign]
POSCO America Corporation		360,278		307,874		52,404		737,584		(126,699	)
POSCO AUSTRALIA PTY LTD		971,471		328,455		643,016		117,481		74,784
POSCO Canada Ltd.		589,015		100,337		488,678		143,485		48,611
POSCO Asia Co., Ltd.		760,306		721,090		39,216		2,861,848		3,829
POSCO-CTPC Co., Ltd.		87,914		51,514		36,400		127,558		4,526
POSCO-JKPC Co., Ltd.		66,374		50,347		16,027		107,220		1,717
INTERNATIONAL BUSINESS CENTER CORPORATION		75,459		41,476		33,983		24,275		9,894

F-30

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

Company	Assets		Liabilities		Equity (deficit)			Sales		Net income (loss)
	(in millions of Won)
POSCO E&C Vietnam Co., Ltd.	￦	263,042		214,573		48,469			363,321		25,364
Zhangjiagang Pohang Stainless Steel Co., Ltd.		1,305,878		806,051		499,827			2,935,626		21,467
POSCO (Guangdong) Steel Co., Ltd.		128,859		84,435		44,424			211,606		4,715
POSCO (Thailand) Company Limited		119,445		76,044		43,401			220,471		1,471
Myanmar POSCO Steel Co., Ltd		19,884		3,318		16,566			14,001		932
POSCO-JOPC Co., Ltd.		54,026		49,524		4,502			97,003		906
POSCO Investment Co., Ltd.		802,503		702,337		100,166			13,962		4,949
POSCO-MKPC SDN BHD		136,957		92,539		44,418			211,330		1,058
Qingdao Pohang Stainless Steel Co., Ltd.		191,829		100,902		90,927			396,564		1,783
POSCO (Suzhou) Automotive Processing Center Co., Ltd.		300,725		187,070		113,655			458,113		22,798
POSCO BIOVENTURES I, L.P.		7,255		—		7,255			—		(206	)
PT. POSNESIA Stainless Steel Industry		11,568		—		11,568			—		(1,340	)
POSEC Hawaii, Inc.		314		7		307			—		(38	)
POSCO-China Qingdao Processing Center Co., Ltd.		54,609		40,042		14,567			108,054		155
POS-ORE PTY LTD		43,442		2,642		40,800			130,819		72,845
POSCO-China Holding Corp.		360,809		108,315		252,494			145,469		(21,932	)
POSCO JAPAN Co., Ltd.		756,571		649,824		106,747			1,379,727		11,868
POS-CD PTY LTD		55,347		14,354		40,993			22,178		(2,173	)
POS-GC PTY LTD		55,150		45,074		10,076			8,411		(21,444	)
POSCO-India Private Limited		115,183		311		114,872			—		620
POSCO-India Pune Processing Center. Pvt. Ltd.		143,286		139,149		4,137			266,832		(9,619	)
POSCO-JEPC Co., Ltd.		165,310		147,355		17,955			299,848		1,780
POSCO-CFPC Co., Ltd.		180,275		136,369		43,906			619,308		1,962
POSCO E&C CHINA Co., Ltd.		307,625		250,899		56,726			238,999		12,733
POSCO MPPC S.A. de C.V.		198,465		168,548		29,917			352,952		(3,433	)
Zhangjigang Pohang Port Co., Ltd.		22,495		6,736		15,759			6,712		768
Qingdao Pos-metal Co., Ltd.		5,947		6,481		(534	)		50,774		(1,376	)
POSCO-VIETNAM Co., Ltd.		541,348		509,293		32,055			714,841		(503	)
POSCO MEXICO S.A. DE C.V.		794,853		594,916		199,937			359,422		(32,287	)
POSCO India Delhi Steel Processing Centre Private Limited		91,704		83,949		7,755			145,625		(9,685	)
POSCO-Poland Wroclaw Processing Center Sp. z o. o.		41,003		20,860		20,143			66,597		978
POS-NP PTY LTD		56,343		25,704		30,639			21,429		(364	)
POSCO-Vietnam Processing Center Co., Ltd.		84,133		58,435		25,698			132,608		1,299
POSCO (Chongqing) Automotive Processing Center Co., Ltd.		67,049		52,512		14,537			115,253		5,634
SUZHOU POSCO-CORE TECHNOLOGY CO., LTD.		60,707		36,249		24,458			86,400		324
POSCO-Malaysia SDN. BHD.		82,648		104,940		(22,292	)		124,556		(2,730	)
POS-Minerals Corporation		217,664		119,701		97,963			—		(5,815	)
POSCO (Wuhu) Automotive Processing Center Co., Ltd.		69,625		44,536		25,089			113,011		2,758
POSCO Engineering and Construction India Private Limited		18,098		11,083		7,015			76,805		1,034
POSCO E&C SMART S DE RL DE CV		20,993		17,054		3,939			21,562		2,194
POSCO Philippine Manila Processing Center, Inc.		29,045		19,037		10,008			32,582		726
POSCO Gulf SFC LLC		53,831		48,441		5,390			23,585		(1,951	)
Dalian POSCO ICT-DONGFANG Engineering Co., Ltd.		7,630		5,037		2,593			7,564		318
SANPU TRADING Co., Ltd.		1,806		3		1,803			70		24

F-31

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

Company	Assets		Liabilities		Equity (deficit)			Sales		Net income (loss)
	(in millions of Won)
Zhangjiagang BLZ Pohang International Trading	￦	10,036		5,050		4,986			52,649		187
POSCO MEXICO HUMAN TECH S.A. de C.V.		1,035		908		127			9,267		101
POSCO MESDC S.A. DE C.V.		12,574		491		12,083			4,784		203
POSCO ICT-China		2,566		1,742		824			6,957		163
DWEMEX, S.A. DE. C.V.		183		19		164			—		(12	)
POSCO MPC Servicios S.A. de C.V.		1,152		875		277			6,591		57
POSCO-Uruguay S.A		22,805		120		22,685			1		(891	)
Pos-Sea Pte Ltd		12,724		9,855		2,869			122,439		675
POSCO Europe Steel Distribution Center		7,564		1,205		6,359			13,769		458
POSCO ENGINEERING (THAILAND) CO., LTD.		21,082		20,357		725			23,492		741
VECTUS LIMITED		954		15,565		(14,611	)		5,240		(5,155	)
POSCO VST CO., LTD.		399,242		371,409		27,833			377,478		(24,136	)
POSCO Maharashtra Steel Private Limited		942,836		832,247		110,589			224,385		(111,675	)
POSCO India Chennai Steel Processing Centre Pvt. Ltd.		93,623		89,043		4,580			183,304		(4,247	)
POSCO TNPC Otomotiv Celik San. Ve Tic. A.S		41,597		34,336		7,261			64,185		(1,923	)
POSCO Vietnam Ha Noi Processing Center Co., Ltd.		56,855		50,358		6,497			110,108		995
POSCO (Liaoning) Automotive Processing Center Co., Ltd.		73,083		46,710		26,373			113,971		3,297
POSCO-Indonesia Jakarta Processing Center		106,838		89,768		17,070			80,534		(5,110	)
POSCO E&C VENEZUELA C.A.		126		—		126			—		—
Motta Resources Indonesia		4,264		18,259		(13,995	)		—		(5,522	)
POSCO TMC INDIA PRIVATE LIMITED		9,095		7,211		1,884			18,376		(29	)
POSCO America Alabama Processing Center Co., Ltd.		46,816		34,958		11,858			107,780		339
PT PEN INDONESIA		4,681		3,707		974			20,037		(1,289	)
POSCO (Yantai) Automotive Processing Center Co., Ltd.		45,863		27,874		17,989			64,784		2,124
POSCO India Steel Distribution Center Private Ltd.		6,063		4,413		1,650			5,526		(144	)
POSCO China Dalian Plate Processing Center Co., Ltd.		88,337		67,680		20,657			29,843		(10,876	)
POSCO-South Asia Company Limited		13,061		235		12,826			10,214		1,049
POSCO SS-VINA		505,785		264,716		241,069			—		(1,586	)
POSCO WA PTY LTD		317,250		38		317,212			—		(6,338	)
POSCO Engineering and Construction — UZ		3,964		3,039		925			2,690		406
POSCO AUSTRALIA GP PTY LIMITED		38,786		4		38,782			—		(18,523	)
POSCO YongXin Rare Earth Metal Co., Ltd.		23,925		33,715		(9,790	)		3,962		(9,194	)
Daewoo International (America) Corp.		417,955		372,011		45,944			1,046,283		2,788
Daewoo International (Deutschland) GmbH.		148,268		137,035		11,233			308,507		772
Daewoo International Japan Corp.		190,524		184,329		6,195			588,810		240

F-32

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

Company	Assets		Liabilities		Equity (deficit)			Sales			Net income (loss)
	(in millions of Won)
DAEWOO INTERNATIONAL SINGAPORE PTE. LTD.	￦	125,927		122,160		3,767			659,805			(516	)
Daewoo Italia S.r.l.		59,839		54,973		4,866			277,455			959
Daewoo (China) Co., Ltd.		84,004		36,556		47,448			250,006			244
DAEWOO TEXTILE FERGANA LLC		85,758		57,733		28,025			117,548			8,237
DAEWOO TEXTILE BUKHARA LLC		51,071		33,520		17,551			47,896			3,695
DAEWOO INTERNATIONAL AUSTRALIA HOLDINGS PTY LTD		134,238		27,044		107,194			21,629			(1,525	)
Daewoo Paper Manufacturing Co., Ltd.		69,020		72,745		(3,725	)		61,163			(4,052	)
Tianjin Daewoo Paper Manufacturing Co., Ltd.		13,916		31,505		(17,589	)		—			—
POSCO MAURITIUS LIMITED		24,071		5		24,066			—			(22	)
PT. KRAKATAU POSCO		3,410,502		2,437,868		972,634			—			(41,921	)
Myanmar Daewoo Limited		181		8		173			1,075			564
DAEWOO INTERNATIONAL MEXICO S.A. DE C.V.		46,695		40,563		6,132			170,951			1,098
Daewoo International Guangzhou Corp.		9,668		9,077		591			54,403			(3,718	)
POSCO (Zhangjiagang) STS Processing Center Co., Ltd		63,729		50,653		13,076			350,000			743
Daewoo International (M) SDN BHD		28,161		25,865		2,296			87,881			61
Daewoo International SHANGHAI CO., LTD.		66,677		58,754		7,923			44,490			73
PGSF, L.P.		7,464		2		7,462			—			1,948
Xenesys Inc.		7,996		2,337		5,659			3,877			(1,558	)
Daewoo International INDIA Private Ltd.		4,771		3,008		1,763			18,805			43
TECHREN Solar, LLC		1,373		528		845			—			(8,531	)
PT. POSCO E&C INDONESIA		54,139		44,327		9,812			217,879			17,145
HUME COAL PTY LTD		40,634		259		40,375			110			(282	)
POSCO FOUNDATION		161		—		161			—			(1	)
EPC EQUITIES LLP		59,500		60,378		(878	)		(1,592	)		516
SANTOS CMI CONSTRUCTION TRADING LLP		35,562		37,836		(2,274	)		—			(11,991	)
SANTOS CMI INC. USA		28,780		27,425		1,355			36,385			8,777
SANTOS CMI ENGENHARIA E CONSTRUCOES LTDA		12,997		17,017		(4,020	)		15,907			3,474
SANTOS CMI PERU S.A.		6,590		30,761		(24,171	)		13,187			(16,510	)
SANTOS CMI CONSTRUCCIONES S.A.		26		14		12			17			3
GENTECH INTERNATIONAL INC.		981		323		658			1,901			293
EPC INVESTMENTS C.V.		—		24		(24	)		—			(11	)
SANTOSCMI S.A.		39,513		24,918		14,595			87,597			907
SANTOSCMI CONSTRUCCIONES DE CHILE S.A.		6,159		270		5,889			1,833			191
S&K-SANTOSCMI S.A. DE C.V.		55		169		(114	)		468			(54	)
COMPANIADEAUTOMATIZACION & CONTROL, GENESYS S.A.		10,872		7,530		3,342			19,350			754
VAUTIDAMERICAS S.A.		4,559		2,757		1,802			2,020			(839	)
POSCO ASSAN TST STEEL INDUSTRY		622,336		527,955		94,381			122,071			(51,312	)
HONG KONG POSCO E&C (CHINA) INVESTMENT Co., Ltd.		146,186		168,589		(22,403	)		—			1,881
POSCO ENGINEERING & CONSTRUCTION DO BRAZIL LTDA.		261,738		234,275		27,463			122,020			8,683

F-33

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

Company	Assets		Liabilities		Equity (deficit)			Sales		Net income (loss)
	(in millions of Won)
POSCO Electrical Steel India Private Limited	￦	141,462		109,955		31,507			1,769		(12,645	)
Daewoo International Cameroon S.A.		3,060		36		3,024			—		—
DAESAN (CAMBODIA) Co., Ltd.		27,556		32,635		(5,079	)		—		(24	)
Brazil Sao Paulo Steel Processing Center		65,191		58,010		7,181			32,155		(7,930	)
POSCO(Dalian) IT Center Development Co., Ltd.		235,918		99,127		136,791			—		(3,174	)
PT. POSCO RESOURCES INDONESIA		1,089		60		1,029			—		(1,024	)
PT. POSCO ICT INDONESIA		9,106		8,674		432			24,975		116
PT. POSCO MTECH INDONESIA		15,502		12,477		3,025			3,882		(2,207	)
PT. KRAKATAU POSCO ENERGY		275,011		189,242		85,769			—		(945	)
POSCO RUS LLC		17,301		14,256		3,045			2,052		(702	)
POSCO Thainox Public Company Limited		398,449		114,365		284,084			403,382		(10,166	)
DAEWOO INTERNATIONAL SHANGHAI WAIGAOQIAO CO., LTD.		26,123		25,310		813			109,757		43
PT. Bio Inti Agrindo		48,986		33,525		15,461			880		399
POSCO ENGINEERING AND CONSTRUCTION AUSTRALIA (POSCO E&C AUSTRALIA) PTY LTD		5,285		3,270		2,015			19,369		(3,567	)
POSCO-TISCO (JILIN) PROCESSING CENTER Co., Ltd.		72,832		56,324		16,508			71,052		(790	)
Hunchun Posco Hyundai International Logistics Complex Development Co., Ltd		58,355		26		58,329			—		369
USA-SRDC		411		5		406			—		140
Daewoo International Vietnam Co., Ltd.		4,031		123		3,908			3,537		(271	)
PT. Krakatau Posco Chemtech Calcination		53,317		32,970		20,347			107		(1,694	)
POSCO AFRICA (PROPRIETARY) LIMITED		44,885		31		44,854			129		5,592
EPC INGENIERIA & SERVICIOS DE COSTA RICA SA		5,101		1,266		3,835			6,519		4,016
POSCO ICT BRASIL		3,944		4,371		(427	)		829		(983	)
LA-SRDC		1,373		725		648			6,276		144
DONG FANG JIN HONG		365,795		194,786		171,009			—		(1,856	)
PRODUCTOS OFERTAS SISTEMAS Y COMERCIALIZADORA ORIENTAL S DE RL DE CV		127		125		2			531		—
POSCO AMERICA COMERCIALIZADORA S DE RL DE CV		13,000		14,424		(1,424	)		15,401		(1,160	)
POSCO (Guangdong) Automotive Steel Co., Ltd.		402,115		277,747		124,368			141,877		(27,026	)
POSCO MAPC SA DE CV		40,278		20,320		19,958			14,492		(1,186	)
POSCO-Mory-Maruyasu PIPE		7,879		3,612		4,267			9		(371	)
PT KRAKATAU BLUE WATER		592		285		307			337		20
KRAKATAU POS-CHEM DONG-SUH CHEMICAL		14,853		6,395		8,458			—		(768	)
Myanmar Daewoo International Corporation		5,709		4		5,705			629		447
POSCO-Italy Processing Center		53,683		47,700		5,983			6,541		(1,732	)

F-34

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

Company	Assets		Liabilities		Equity (deficit)		Sales		Net income (loss)
	(in millions of Won)
DAEWOO E&P CANADA CORPORATION	￦	16,584		8,606		7,978		912		215
Yingkou Puxiang Trade Co., Ltd.		421		73		348		473		60
Myanmar POSCO C&C Company, Limited.		6,611		279		6,332		—		—
POSCO ICT VIETNAM		1,659		982		677		498		194
Daewoo Global Development. Pte., Ltd		26,378		202		26,176		—		(214	)
Myanmar POSCO Engineering & Construction Company, Limited.		1,052		—		1,052		—		(3	)
POSCO COATED STEEL (THAILAND) CO., LTD		5,874		—		5,874		—		—

(d) Details of non-controlling interest as of December 31, 2012 and 2013 are as follows :

1) December 31, 2012

Company	Daewoo International Corporation			PT. KRAKATAU POSCO			POSCO Specialty Steel Co., Ltd.			POSCO ENGINEERING & CONSTRUCTION CO., LTD.			POSCO ENERGY Co., Ltd.			Others			Total
	(in millions of Won)
Current assets	￦	4,142,307			165,929			420,353			6,239,531			804,453			9,153,256		￦	20,925,829
Non-current assets		5,553,655			1,746,193			897,110			966,467			2,363,485			7,957,323			19,484,233
Current liabilities		(3,569,545	)		(175,718	)		(389,757	)		(4,227,440	)		(691,825	)		(8,706,504	)		(17,760,789	)
Non-current liabilities		(1,739,130	)		(793,686	)		(95,357	)		(944,170	)		(1,688,581	)		(2,385,111	)		(7,646,035	)
Equity		4,387,287			942,718			832,349			2,034,388			787,532			6,018,964			15,003,238
Non-controlling interests		1,741,207			282,815			43,785			213,094			86,435			1,308,989			3,676,325
Sales		16,996,730			—			1,405,667			7,041,300			2,805,208			25,029,616			53,278,521
Profit for the period		(143,667	)		(29,063	)		69,078			278,566			174,539			(108,430	)		241,023
Profit (loss) attributable to non-controlling interests		(57,018	)		(8,719	)		3,634			29,179			19,156			(13,733	)		(27,501	)
Cash flows from operating activities		254,061			(20,775	)		8,376			(16,465	)		50,179			56,375			331,751
Cash flows from investing activities		265,091			(287,476	)		(2,394	)		(29,694	)		(62,721	)		(409,440	)		(526,634	)
Cash flows from financing activities (before dividends to non-controlling interest)		(541,778	)		273,209			(3,071	)		20,832			11,235			341,974			102,400
Dividend to non-controlling interest		(8,190	)		—			(1,597	)		(686	)		—			(5,098	)		(15,571	)
Effect of exchange rate fluctuation on cash held		(74	)		(2,306	)		—			(256	)		—			(15,191	)		(17,827	)
Net increase in cash and cash equivalents		(30,891	)		(37,348	)		1,314			(26,269	)		(1,307	)		(31,380	)		(125,881	)

F-35

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

2) December 31, 2013

Company	Daewoo International Corporation			PT. KRAKATAU POSCO			POSCO Specialty Steel Co., Ltd.			POSCO ENGINEERING & CONSTRUCTION CO., LTD.			POSCO ENERGY Co., Ltd.			Others			Total
	(in millions of Won)
Current assets	￦	4,313,678			427,029			633,583			5,071,247			697,234			9,773,753		￦	20,916,524
Non-current assets		6,110,630			3,019,191			879,536			1,062,166			3,115,599			8,538,325			22,725,447
Current liabilities		(4,258,245	)		(611,434	)		(269,749	)		(3,515,803	)		(674,370	)		(8,990,091	)		(18,319,692	)
Non-current liabilities		(1,835,835	)		(1,862,078	)		(264,596	)		(478,070	)		(1,760,156	)		(3,038,981	)		(9,239,716	)
Equity		4,330,228			972,708			978,774			2,139,540			1,378,307			6,283,006			16,082,563
Non-controlling interests		1,718,562			291,812			273,143			224,108			151,274			1,451,734			4,110,633
Sales		16,838,559			—			1,316,781			8,036,752			2,901,117			25,405,268			54,498,477
Profit for the period		42,312			(41,844	)		31,749			144,888			146,419			(143,940	)		179,584
Profit (loss) attributable to non-controlling interests		16,793			(12,553	)		8,860			15,176			16,070			(15,634	)		28,712
Cash flows from operating activities		(67,785	)		(50,209	)		18,721			40,815			32,174			23,342			(2,942	)
Cash flows from investing activities		(123,609	)		(405,186	)		(54,152	)		(15,888	)		(94,741	)		(337,253	)		(1,030,829	)
Cash flows from financing activities (before dividends to non-controlling interest)		156,326			467,617			80,213			(29,059	)		62,273			375,947			1,113,317
Dividend to non-controlling interest		(13,558	)		—			(2,217	)		(2,885	)		—			(9,125	)		(27,785	)
Effect of exchange rate fluctuation on cash held		(114	)		(560	)		—			(360	)		—			(9,036	)		(10,070	)
Net increase in cash and cash equivalents		(48,740	)		11,662			42,565			(7,377	)		(294	)		43,875			41,691

F-36

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

(e) Details of associates and joint ventures

1) Associates

Details of associates as of December 31, 2012 and 2013 are as follows:

		Ownership (%)
Investee	Category of Business	2012		2013		Region
[Domestic]
MTAPOLIS Co., Ltd.	Multiplex development		40.05		40.05	Hwaseong
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
CHUNGJU ENTERPRISE CITY DEVELOPMENT Co., Ltd.	Real estate development		25.10		25.10	Chungju
Taegisan Wind Power Corporation	Wind power plant construction and management		50.00		50.00	Hoengseong
Garolim Tidal Power Plant Co., Ltd.	Tidal power plant construction and management		32.13		32.13	Seosan
Posco e&c Songdo International Building	Non-resident building lease		49.00		49.00	Seoul
Universal Studios Resort Asset Management Corporation	Real estate services		26.17		26.17	Seoul
Daewoo Public Car Sales (Gwangju) CO., Ltd.	Leasing services		50.00		50.00	Gwangju
UITrans LRT Co., Ltd.	Transporting		41.89		38.19	Seoul
Suwon Green Environment Co., Ltd.	Construction		27.50		27.50	Hwaseong
Pajoo & Viro Co., Ltd.	Construction		40.00		40.00	Paju
Clean Gimpo Co., Ltd.	Construction		29.58		29.58	Gimpo
Busan-Gimhae Light Rail Transit Co., Ltd.	Transporting		25.00		25.00	Gimhae
Incheon-Gimpo Expressway Co., Ltd.	Construction		29.94		29.94	Anyang
Green Jang Ryang Co. Ltd.	Sewerage treatment		25.00		25.00	Pohang
Dakos Co., Ltd. (*1)	Railway equipment manufacturing		81.00		31.00	Seongnam
Pureun Tongyeong Enviro Co., Ltd.	Sewerage treatment		20.40		20.40	Tongyoung
Pure Gimpo Co., Ltd.	Construction		28.79		28.79	Seoul
Pohang Techno Valley AMC	Construction		29.50		29.50	Pohang
POSCO PLANTEC Co., Ltd. (formerly, SUNGJIN GEOTEC Co., Ltd.)	Industrial structure manufacturing		33.02		43.97	Ulsan
Postech Early Stage Fund	Investment in venture companies		10.00		10.00	Pohang
Posgreen Co., Ltd.	Plastic manufacturing		19.00		19.00	Gwangyang
Clean Iksan Co., Ltd.	Construction		23.50		23.50	Pohang
Gyeonggi CES Co., Ltd.	Facility construction		21.83		21.83	Yangju
Innovalley Co., Ltd.	Real estate development		28.77		28.77	Yongin
Applied Science Corp.	Machinery manufacturing		27.57		27.11	Paju
AROMA POSTECH RENEWABLE ENERGY Co., Ltd. (*2)	Other science research		28.57		—	Seoul
Hyundai Investment Network Private Equity Fund I	Mine investment		50.00		50.00	Seoul
Pohang Techno Valley PFV Corporation (*3)	Real estate development		29.90		54.99	Pohang
BLUE OCEAN Private Equity Fund	Private Equity Financial		27.52		27.52	Seoul
SuNAM Co., Ltd.	Power supply manufacturing		23.92		19.17	Seoul
KONES, Corp.	Technical service		41.67		41.67	Gyeongju
DAEHO GLOBAL MANAGEMENT CO., LTD.	Investment advisory service		35.82		35.82	Pohang
Mokpo Deayang Industrial Corporation	Real estate development		29.90		27.40	Mokpo
Gunggi Green Energy	Electricity generation		25.50		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 (*4)	Investment in new technologies		—		12.50	Seoul

F-37

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

		Ownership (%)
Investee	Category of Business	2012		2013		Region
EQP POSCO Global NO1 Natural Resources PEF (*4)	Investment in new technologies		—		27.23	Seoul
KC Chemicals (*4)	Machinery manufacturing		—		19.00	Hwaseong
POSTECH Social Enterprise Fund (*4)	Investment in new technologies		—		9.17	Seoul
QSONE Co., Ltd. (*5)	Real estate rental and facility management		—		50.00	Seoul
Future Creation M&A Fund (*4)	M&A Fund		—		40.00	Seoul
Chuncheon Energy Co., ltd. (*4)	Electricity generation		—		29.90	Chooncheon
POSMATE (*6)	Business facilities maintenance		45.15		—	Seoul
[Foreign]
VSC POSCO Steel Corporation	Steel manufacturing and sales		50.00		50.00	Vietnam
POSCHROME (PROPRIETARY) LIMITED	Raw material manufacturing and sales		50.00		50.00	South Africa
POSVINA Co., Ltd. (*10)	Plating steel sheet manufacturing and sales		50.00		—	Vietnam
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
POSK(Pinghu) Steel Processing Center Co., Ltd.	Steel processing and sales		20.00		20.00	China
AN KHANH NEW CITY DEVELOPMENT J.V CO., LTD.	Highway construction and new town development		50.00		50.00	Vietnam
Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd.	Tinplate manufacturing and sales		34.00		34.00	China
POSCO-SAMSUNG Suzhou Processing Center Co., Ltd.	Steel processing and sales		30.00		30.00	China
Eureka Moly LLC	Steel processing and sales		20.00		20.00	USA
POSCO SeAH Steel Wire (Nantong) Co., Ltd.	Steel processing and sales		25.00		25.00	China
Yingkou Posrec Refractories Co., Ltd.	Refractory manufacturing		25.00		25.00	China
Sebang Steel	Scrap sales		49.00		49.00	Japan
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
Hanjung Power Pty., Ltd.	Electric power manufacturing and sales		49.00		49.00	Papua New Guinea
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
KG Power (M) SDN. BHD	Energy & resource development		20.00		20.00	Malaysia
Daewoo (THAILAND) CO., LTD.	Trading		49.00		49.00	Thailand
N.I.CO., LTD.	Trading		50.00		50.00	North Korea
South-East Asia Gas Pipeline Company Ltd.	Pipeline construction		25.04		25.04	Myanmar
GLOBAL KOMSCO Daewoo LLC	Mintage		35.00		35.00	Uzbekistan
POSCO-Poggenamp Electrical Steel Pvt. Ltd.	Steel manufacturing		26.00		26.00	India
Arctos Anthracite Joint Venture	Coal sales		20.00		20.00	Canada
AES-VCM Mong Duong Power Company Limited	Electricity generation		30.00		30.00	Vietnam
PT. INDONESIA POS CHEMTECH CHOSUN Ref	Refractory manufacturing and sales		30.00		30.19	Indonesia
NS-Thainox Auto Co., Ltd.	Steel manufacturing and sales		49.00		49.00	Vietnam
PT. Tanggamus Electric Power	Construction and engineering service		20.00		20.00	Indonesia
PT. Wampu Electric Power	Construction and engineering service		20.00		20.00	Indonesia
Boulder Solar Power, LLC	Electric power manufacturing		25.00		21.74	USA
LLP POSUK Titanium	Titanium manufacturing and sales		50.00		36.83	Kazakhstan
LI3 ENERGY INC	Energy & resource development		26.06		26.06	Peru

F-38

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

		Ownership (%)
Investee	Category of Business	2012		2013		Region
Fifth Combined Heat and Power Plant LLC	Thermal power generation		30.00		30.00	Mongolia
IMFA ALLOYS FINLEASE LTD.	Raw material manufacturing and sales		24.00		24.00	India
7623704 Canada Inc. (*4)	Investments management		—		10.40	Canada
Baganuur Energy Corporation (*4)	Refined oil manufacturing		—		50.00	Mongolia
Hamparan Mulia (*4)	Resource development		—		45.00	Indonesia
BGC-POS PTY LTD. (*4)	Construction		—		49.00	Australia
POS-SEAHSTEELWIRE(TIANJIN) CO., Ltd. (*4)	Steel manufacturing and sales		—		25.00	China
POS-Hyundai Steel Manufacturing India Private Ltd. (*7)	Steel manufacturing and sales		29.50		—	India
Liaoning Rongyuan Posco Refractories Co., Ltd. (*2)	Refractory manufacturing and sales		35.00		—	China
Daewoo Engineering (THAILAND) Co., Ltd. (*8)	Development and contract business		48.90		—	Thailand
POSCO YongXin Rare Earth Metal Co., Ltd. (*8)	Resource development		31.00		—	China
Myanmar Korea Timber International Ltd. (*9)	Plywood manufacturing		45.00		—	Myanmar

(*1) Reclassified to associate from subsidiary due to decrease in ownership percentage during the year ended December 31, 2013.

(*2) Excluded from associates due to the disposal during the year ended December 31, 2013.

(*3) The Company is not able to exercise control over the investee because of the redeemable preferred stock with voting rights held by others, which results in the Company holding less than 50% voting rights considering the potential voting rights from the redeemable preferred stock.

(*4) These associates were newly established or acquired in 2013.

(*5) This entity split off from POSCO Processing & Service during the year ended December 31, 2013.

(*6) Reclassified to subsidiary from associate due to the merger with Seoung Gwang Co., Ltd., a subsidiary of the Company.

(*7) Reclassified to associate from subsidiary due to a decrease in ownership percentage during the year ended December 31, 2013.

(*8) Reclassified to subsidiary from associate due to an increase in ownership percentage during the year ended December 31, 2013.

(*9) Excluded from associates due to the liquidation during the year ended December 31, 2013.

(*10) Reclassified to assets held for sale in 2013.

As of December 31, 2013, there are no restrictions on the ability of associates to transfer funds to the Company, such as in the form of cash dividends, repayment of loans or payment of advances.

2) Joint ventures

Details of joint ventures as of December 31, 2012 and 2013 are as follows :

		Ownership (%)
Investee	Category of Business	2012		2013		Region
[Domestic]
POSCO ES MATERIALS	Secondary battery manufacturing		50.00		50.00	Gumi
POSCO MITSUBISHI CARBON TECHNOLOGY	Steel processing and sales		60.00		60.00	Gwangyang
[Foreign]
KOBRASCO	Facility lease		50.00		50.00	Brazil
USS-POSCO Industries	Cold rolled coil manufacturing and sales		50.00		50.00	USA
PT. POSMI Steel Indonesia	Steel processing and sale		36.69		36.69	Indonesia
Henan Tsingpu Ferro Alloy Co., Ltd.	Raw material manufacturing and sales		49.00		49.00	China
United Spiral Pipe, LLC	Material manufacturing and sales		35.00		35.00	USA
BX STEEL POSCO Cold Rolled Sheet Co., Ltd.	Steel processing and sales		25.00		25.00	China

F-39

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

		Ownership (%)
Investee	Category of Business	2012		2013		Region
POSCO-SAMSUNG-Slovakia Processing Center	Steel processing and sales		30.00		30.00	Slovakia
Zhangjiagang Pohang Refractories Co., Ltd.	Refractory manufacturing		50.00		50.00	China
DMSA, AMSA	Energy & resource development		4.00		4.00	Madagascar
POSCO-NPS Niobium LLC	Mine development		50.00		50.00	USA
CSP — Compania Siderurgica do Pecem	Steel manufacturing and sales		20.00		20.00	Brazil
Korea Siberia Wood CJSC	Forest resource development		50.00		50.00	Russia
Roy Hill Holdings Pty Ltd.	Energy & resource development		12.50		12.50	Australia

(f) Newly included subsidiaries

1) Consolidated subsidiaries acquired or newly established during the year ended December 31, 2013 are as follows:

Company	Date of acquisition	Ownership (%)	Reason
POSCO ENGINEERING (THAILAND) CO., LTD. (*1)	January 2013	48.90	Reclassification from associate
POSMATE Co., Ltd.	January 2013	66.23	Reclassification from associate
POSCO-Mory-Maruyasu PIPE (*1)	February 2013	50.00	New establishment
PT KRAKATAU BLUE WATER	February 2013	67.00	New establishment
KRAKATAU POS-CHEM DONG-SUH CHEMICAL (*1)	March 2013	45.00	New establishment
MAX STEEL Co., Ltd.	March 2013	100.00	New acquisitions
Myanmar Daewoo International Corporation	March 2013	100.00	New establishment
POSCO YongXin Rare Earth Metal Co., Ltd.	March 2013	51.67	Reclassification from associate
POSCO-Italy Processing Center	July 2013	90.00	New establishment
NEW POWER TECH Co., Ltd.	August 2013	100.00	Split off from POSCO Engineering Co., Ltd.
DAEWOO E&P CANADA CORPORATION	August 2013	100.00	New establishment
IT Engineering (*1)	August 2013	17.00	New acquisitions
Yingkou Puxiang Trade Co., Ltd.	September 2013	100.00	New establishment
POSCO ICT VIETNAM	October 2013	100.00	New establishment
Daewoo Global Development. Pte., Ltd	October 2013	51.00	New establishment
Myanmar POSCO Engineering & Construction Company, Limited.	November 2013	100.00	New establishment
Myanmar POSCO C&C Company, Limited.	December 2013	70.00	New establishment
POSCO COATED STEEL (THAILAND) Co., Ltd.	December 2013	100.00	New establishment
DAEWOO POWER AND INFRA (PTY) LTD.	December 2013	100.00	New establishment

(*1) These subsidiaries are included in the consolidated financial statements as the controlling company has control over them in consideration of the board of directors’ composition and others.

2) Cash outflows (inflows) caused by the acquisitions for the years ended December 31, 2011, 2012 and 2013

	2011			2012			2013
	(in millions of Won)
Consideration transferred	￦	551,732			287,085			4,359
Less: Cash and cash equivalent acquired		(114,268	)		(188,205	)		(10,088	)
Total	￦	437,464			98,880			(5,729	)

F-40

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

(g) Excluded subsidiaries

Subsidiaries that were excluded from consolidation during the year ended December 31, 2013 are as follows:

Company	Date of disposal	Reason
	(in millions of Won)
Postech 2006 Energy Fund	January 2013	Reclassification from subsidiary to associate
Postech Early Stage Fund	January 2013	Reclassification from subsidiary to associate Statutory merger by SPFC Co., LTD.
Pohang SPFC Co., Ltd.	January 2013	(formerly, Gwangyang SPFC Co., LTD.) Statutory merger by SPFC Co., LTD.
Gunsan SPFC Co., Ltd.	January 2013	(formerly, Gwangyang SPFC Co., LTD.)
POSCALCIUM Company, Ltd.	January 2013	Statutory merger by POSCO CHEMTECH
Reco Metal Co., Ltd.	January 2013	Statutory merger by POSCO M-TECH
9Digit Co., Ltd.	January 2013	Statutory merger by POSCO M-TECH
SeungGwang Co., Ltd.	January 2013	Statutory merger by POSMATE
POSWITH Co., Ltd.	January 2013	Statutory merger by POSCO Humans Co., Ltd. (formerly, POS ECO HOUSING Co., LTD.)
MCM Korea	March 2013	Exclusion by liquidation
DAEWOO CANADA LTD.	March 2013	Exclusion by liquidation
DAEWOO HANDELS GmbH	March 2013	Exclusion by liquidation
Dalian POSCO Steel Co., Ltd.	March 2013	Disposal Statutory merger by POSCO-Vietnam
MAX STEEL Co., LTD.	April 2013	Processing Center Co., Ltd. Statutory merger by Sungjin Geotec Co., Ltd.
POSCO PLANTEC Co., Ltd.	July 2013	(currently, POSCO PLANTEC Co., Ltd. by changing its name)
Dakos Co., Ltd.	October 2013	Disposal Statutory merger by Plant Engineering Service
BLUE O&M Co., Ltd	December 2013	Technology Co., Ltd. Statutory merger by POSCO
NEW POWER TECH CO., LTD	December 2013	ENGINEERING & CONSTRUCTION CO., LTD.
Tancheonene Co., Ltd	December 2013	Statutory merger by Poscoene
SANTOS CMI COSTA RICA S.A.	December 2013	Exclusion by liquidation
INGENIERIA Y CONSTRUCCION HOLANDCO S.A.	December 2013	Exclusion by liquidation
		Statutory merger by SANTOSCMI CONSTRUCCIONES
ASESORIA Y SERVICIOS EPC S.A. CHILE	December 2013	DE CHILE S.A.
SANTOS CMI CONSTRUCTION ARGENTINA S.A.	December 2013	Exclusion by liquidation
DAEWOO STC VINA LTD.	December 2013	Disposal
GEZIRA TANNERY Co., Ltd.	December 2013	Exclusion by liquidation

2. Statement of Compliance

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.

Basis of measurement

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

(a) Derivatives instruments are measured at fair value

F-41

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

(b) Financial instruments at fair value through profit or loss (FVTPL) are measured at fair value

(c) Available-for-sale financial assets are measured at fair value

(d) Defined benefit liabilities are measured at the present value of the defined benefit obligation less the fair value of the plan assets

Functional and presentation currency

These consolidated financial statements are presented in Korean won, which is POSCO’s functional currency and 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 in which the estimates are revised and in any future periods affected.

(a) Judgments

Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements is included in the following notes:

• Note 1 — Subsidiaries, associates and joint venture

• Note 8 — Other financial assets

• Note 12 — Joint operations

• Note 13 — Investment property, net

• Note 14 — Property, plant and equipment, net

• Note 15 — Goodwill and other intangibles

(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 financial year is included in the following notes:

• Note 20 — Provisions

• Note 21 — Employee benefits

• Note 29 — Construction contracts

• 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 and non-financial assets and liabilities. The Company has an

F-42

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

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.

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 — quoted prices (unadjusted) 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 (i.e. as prices) or indirectly (i.e. derived from prices).

• Level 3 — inputs for the assets or liability that are not based on observable market data (that is, unobservable inputs).

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 notes:

• Note 23 — Financial instruments

Changes in accounting policies

Except for the changes below, the Company has consistently applied the accounting policies set out in note 3 to all periods presented in these consolidated financial statements.

The Company has adopted the following new standards and amendments to standards with a date of initial application of January 1, 2013.

(a) IAS No. 1, “Presentation of Financial Statements”

(b) IAS No. 19, “Employee Benefits”

(c) IFRS No. 7, “Financial Instruments: Disclosures”

(d) IFRS No. 10, “Consolidated Financial Statements”

(e) IFRS No. 11, “Joint Arrangements”

(f) IFRS No. 12, “Disclosure of Interests in Other Entities”

(g) IFRS No. 13, “Fair Value Measurement”

F-43

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

The details of changes in accounting policies are as follows:

(a) Classification of other comprehensive income

As a result of the amendments to IAS No. 1, the Company has modified the presentation of items of other comprehensive income in its statement of comprehensive income to present separately items that would be reclassified to profit or loss from those that would never be reclassified to profit or loss. Comparative information has been re-presented accordingly.

(b) Post-employment defined benefit plan

As a result of the amendments to IAS No. 19, the Company has changed its accounting policy with respect the basis for determining the income or expense related to its post-employment defined benefit plans. Under the amendments to IAS No. 19, 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 the then-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. Consequently, the net interest on the net defined benefit liability (asset) now comprises: interest cost on the defined benefit obligation, interest income on plan assets and interest on the effect on the asset ceiling. Previously, the Company determined interest income on plan assets based on their long-term rate of expected return.

(c) Offsetting of financial assets and financial liabilities

As a result of the amendments to IFRS No. 7, the Company has expanded its disclosures about the offsetting of financial assets and financial liabilities (Note 23).

(d) Subsidiaries

As a result of IFRS No. 10, the Company has changed its accounting policy for determining whether it has control over and consequently whether it consolidates its investees. IFRS No. 10 introduces a new control model that focuses on whether the Company has power over an investee, exposure or rights to variable returns from its involvement with the investee and ability to use its power to affect those returns.

In accordance with the transitional provisions of IFRS No. 10, the Company reassessed the control conclusion for its investees at January 1, 2013. As a consequence, the Company changed its control conclusion with the following investees:

	Company
Newly included subsidiaries	POSCO Engineering (Thailand) Co., Ltd.
Excluded subsidiaries	Postech 2006 Energy Fund, Postech Early Stage Fund

(e) Joint arrangements

As a result of IFRS No. 11, the Company has changed its accounting policy for its interests in joint arrangements. Under IFRS No. 11, the Company has classified its interests in joint arrangements as either joint operations (if the Company has rights to the assets, and obligations for the liabilities, relating to an arrangement) or joint ventures (if the Company has rights only to the net assets of an arrangement). When making this assessment, the Company considered the structure of the arrangements, the legal form of any separate vehicles, the contractual terms of the arrangements and other facts and circumstances. Previously, the structure of the arrangement was the sole focus of classification.

F-44

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

The Company has re-evaluated its involvement in its only joint arrangement and has reclassified the investment from a jointly controlled entity to a joint venture. Notwithstanding the reclassification, the investment continues to be recognized by applying the equity method and there has been no impact on the recognized assets, liabilities and comprehensive income of the Company.

(f) Disclosure of interests in other entities

As a result of IFRS No. 12, the Company has expanded its disclosures about its interests in subsidiaries (see Note 1) and equity-accounted investees (Note 11).

(g) Fair value measurement

IFRS No. 13 establishes a single framework for measuring fair value and making disclosures about fair value measurements when such measurements are required or permitted by other IFRSs. It unifies the definition of fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It replaces and expands the disclosure requirements about fair value measurements in other IFRSs, including IFRS No. 7. As a result, the Company has included additional disclosures in this regard (Note 23).

In accordance with the transitional provisions of IFRS No. 13, the Company has applied the new fair value measurement guidance prospectively and has not provided any comparative information for new disclosures. Notwithstanding the above, the change had no significant impact on the measurements of the Company’s assets and liabilities.

Impact of changes in accounting policies

As management believes the impact of the amendments to IAS No. 19, IFRS No. 10 and No. 13 on the Company’s prior year’s consolidated financial statement is not significant, the comparative period’s consolidated financial statements are not restated.

Approval of financial statements

The consolidated financial statements were authorized for issue by the Board of Directors on January 29, 2014.

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 financial statements, except for those as disclosed in note 2.

The comparative amounts in consolidated statements of comprehensive income have been re-presented as a result of a change in the accounting policy regarding the presentation of items of other comprehensive income.

Basis of consolidation

(a) Business combinations

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

F-45

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

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 of pre-existing relationships. Such amounts are generally recognized in profit or loss.

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

If share-based payment awards (replacement awards) are required to be exchanged for awards held by the acquiree’s employees (acquiree’s awards), then all or a portion of the amount of the acquirer’s replacement awards is included in measuring the consideration transferred in the business combination. This determination is based on the market-based measure of the replacement awards compared with the market-based measure of the acquiree’s awards and the extent to which the replacement awards relate to pre-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 related non-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

F-46

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

recognition, the consolidated financial statements include the Company’s share of the profit or loss and other comprehensive income of equity-accounted investees, until the date on which significant influence or joint control ceases.

(f) Transactions eliminated on consolidation

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

Foreign currency transactions and translation

1) 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 on non-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 on non-monetary items are recognized in profit or loss, exchange components of those gains or losses are recognized in profit or loss.

2) 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

F-47

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

amount is reattributed to non-controlling interest. In any other partial disposal of a foreign operation, the relevant proportion is reclassified to profit or loss.

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

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, demand deposits, and short-term investments in highly liquid securities that are readily convertible to known amounts of cash with maturities of three months or less from the acquisition date and which are subject to an insignificant risk of changes in value. Equity investments are excluded from cash and cash equivalents.

Non-derivative financial assets

The Company recognizes and 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. The Company recognizes financial assets in the consolidated statement of financial position when the Company becomes a party to the contractual provisions of the instrument.

Upon initial recognition, non-derivative financial assets are measured at their fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the asset’s acquisition or issuance.

(a) Financial assets at fair value through profit or loss

Financial assets are classified at fair value through profit or loss if they are held for trading or designated as such upon initial recognition. Upon initial recognition, transaction costs are recognized in profit or loss when incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss.

(b) Held-to-maturity financial assets

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.

(c) 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.

(d) 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

F-48

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

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.

(e) Derecognition of non-derivative financial assets

The Company derecognizes non-derivative financial assets when the contractual rights to the cash flows from the financial asset expire, or the Company transfers the rights to receive the contractual cash flows from the financial asset as well as substantially all the risks and rewards of ownership of the financial asset. Any interest in a transferred financial asset that is created or retained by the Company is recognized as a separate asset or liability.

If the Company retains substantially all the risks and rewards of ownership of the transferred financial assets, the Company continues to recognize the transferred financial assets and recognizes financial liabilities for the consideration received.

(f) Offsetting a financial asset and a financial liability

Financial assets and financial liabilities are offset and the net amount is presented in the consolidated statement of financial position only when the Company currently has a legally enforceable 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

Inventories are measured at the lower of cost and net realizable value. Costs are determined by using the moving-weighted average method. The cost of inventories comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. The allocation of fixed production overheads to the costs of finished goods or work in progress are based on the normal capacity of the production facilities.

When inventories are sold, the carrying amount of those inventories is recognized as cost of goods sold in the period in which the related revenue is recognized. Inventories are measured at the lower of cost and net realizable value. The amount of any write-down of inventories to net realizable value and all losses of inventories are recognized as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories arising from an increase in net realizable value is recognized as a reduction in the amount of inventories recognized as a cost of goods sold in the period in which the reversal occurs.

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 as non-current assets held for sale are measured at the lower of their carrying amount and fair value less cost to sell.

F-49

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

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”.

A non-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 the day-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.

The carrying amount of the replaced part is derecognized at the time the replacement part is recognized. The costs of the day-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,

F-50

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

over the estimated useful lives of each component of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term. Land is not depreciated.

Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately.

The gain or loss arising from the derecognition of an item of property, plant and equipment is included in profit or loss when the item is derecognized.

The estimated useful lives for the current and comparative periods are as follows:

Buildings	10-60 years
Structures	4-50 years
Machinery and equipment	2-25 years
Vehicles	3-10 years
Tools	4-10 years
Furniture and fixtures	3-10 years
Lease assets	3-18 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.

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

F-51

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

over which club memberships are expected to be available for use, this intangible asset is determined as having an indefinite useful life and not amortized.

Intellectual property rights	5-10 years
Development costs	3-10 years
Port facilities usage rights	5-75 years
Other intangible assets	2-25 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 in the mines or other contractual arrangements. Expenditures related to the development of mineral resources are recognized as exploration or development intangible assets. The nature of these intangible assets are as follows:

(a) Exploration and evaluation assets

Exploration and evaluation assets consist of expenditures for topographical studies, geophysical studies and trenching. These assets are reclassified as development assets when it is proved that the exploration has identified an economically feasible mine.

(b) Development assets

Development assets consist of expenditures for the evaluation of oil fields, facility construction, drilling for viability and others. These development assets are reclassified as industrial rights (mining rights) at inception of the extraction when the technical feasibility and commercial viability of extracting mineral resources are demonstrable. When proved reserves of oil and natural gas are determined and development is sanctioned, the relevant expenditure is transferred to property, plant and equipment and depreciation is computed by the unit of production method.

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

F-52

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

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 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

F-53

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

value of the underlying asset that was identified as the subject of the lease. Subsequently, the liability shall be reduced as payments are made and an imputed finance charge on the liability recognized using the purchaser’s incremental borrowing rate of interest.

Impairment for financial assets

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. However, losses expected as a result of future events, regardless of likelihood, are not recognized.

Objective evidence that a financial asset or group of 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 equity instrument classified as available-for-sale, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

If financial assets have objective evidence that they 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

F-54

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

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 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 for non-financial assets

The carrying amounts of the Company’s non-financial assets, other than assets arising from construction contracts, employee benefits, inventories, deferred tax assets and non-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 recoverable amount of an asset or CGU is the greater of its value-in-use and its fair value less costs to sell. The Company determined that individual operating entities are CGUs.

The recoverable amount of an asset or CGU is the greater of its value-in-use and its fair value less costs to sell. The value-in-use is estimated by applying a pre-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 value 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.

F-55

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

Derivative financial instruments and hedges

Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are recognized in profit or loss.

(a) Embedded derivatives

Embedded derivatives are separated from the host contract and accounted for separately only if the following criteria have been met: (a) the economic characteristics and risks of the host contract and the embedded derivatives are not clearly and closely related to a separate instrument with the same terms as the embedded derivative that would meet the definition of a derivative, and (b) the hybrid (combined) instrument is not measured at fair value through profit or loss. Changes in the fair value of separable embedded derivatives from the host contract are recognized immediately in profit or loss. However, convertible rights of convertible bonds are not separated from the host contract and the compound financial instruments of bonds and convertible rights are designated and measured at fair value through profit and loss.

(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 classifies non-derivative financial liabilities into financial liabilities at fair value through profit or loss or other financial liabilities in accordance with the substance of the contractual arrangement and the definitions of financial liabilities. The Company recognizes financial liabilities in the consolidated statement of financial position when the Company becomes a party to the contractual provisions of the financial liability.

(a) Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading or designated as such upon initial recognition. Subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss. Upon initial recognition, transaction costs that are directly attributable to the acquisition are recognized in profit or loss as incurred.

(b) Other financial liabilities

Non-derivative financial liabilities other than financial liabilities at fair value through profit or loss are classified as other financial liabilities.

Financial guarantee liabilities are initially measured at their fair values and, if not designated as financial liabilities at fair value through profit or loss, they are subsequently measured at the higher of:

• the amount of the best estimate of the expenditure required to settle the present obligation at the end of the reporting period; and

• the amount initially recognized less, cumulative amortization recognized on a straight-line basis over the guarantee period

At the date of initial recognition, other financial liabilities are measured at fair value minus transaction costs that are directly attributable to the acquisition. Subsequent to initial recognition, other financial liabilities are measured at amortized cost using the effective interest method.

F-56

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

The Company derecognizes a financial liability from the consolidated statement of financial position when it is extinguished (i.e. when the obligation specified in the contract is discharged, cancelled or expires).

Construction work in progress

Construction work in progress represents the gross unbilled amount expected to be collected from customers for contract work performed to date. It is measured at cost plus profit recognized to date less progress billings and recognized losses. Cost includes all expenditures related directly to specific projects and an allocation of fixed and variable overheads incurred in the Company’s contract activities based on normal operating capacity.

Construction work in progress is presented as part of trade accounts and notes receivable in the consolidated statement of financial position for all contracts in which costs incurred plus recognized profits exceed progress billings. If progress billings exceed costs incurred plus recognized profits, then the difference is presented as amounts due to customers for contract work in the consolidated statement of financial position.

Employee benefits

(a) Short-term employee benefits

Short-term employee benefits are employee benefits that are due to be settled within twelve months after the end of the period in which the employees render the related service. When an employee has rendered service to the Company during an accounting period, the Company recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service as profit or loss. If the Company has a legal or constructive obligation which can be reliably measured, the Company recognizes the amount of expected payment for profit-sharing and bonuses payable as liabilities.

(b) Other long-term employee benefits

Other long-term employee benefits include employee benefits that are settled beyond 12 months after the end of the period in which the employees render the related service, and are calculated at the present value of the amount of future benefit that employees have earned in return for their service in the current and prior periods, less the fair value of any related assets. The present value is determined by discounting the expected future cash flows using the interest rate of corporate bonds that have maturity dates approximating the terms of the Company’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. Any actuarial gains and losses are recognized in profit or loss in the period in which they arise.

(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.

F-57

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

(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 the then-net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments, net interest expense and other expenses related to defined benefit plans are recognized in profit or loss.

When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss in curtailment is recognized immediately in profit or loss. The Company recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs.

Provisions

Provisions are recognized when the Company has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

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.

F-58

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

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

A provision for warranties is recognized when the underlying products are sold. The provision is based on historical warranty data and a weighting of all possible outcomes against their associated probabilities.

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.

Equity instruments

(a) Share capital

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

If the Company reacquires its own equity instruments, the amount of those instruments (“treasury shares”) are presented as a contra equity account. No gain or loss is recognized in profit or loss on the purchase, sale, issuance or cancellation of its own equity instruments. When treasury shares are sold or reissued subsequently, the amount received is recognized as an increase to equity, and the resulting surplus or deficit on the transaction is recorded in capital surplus.

(b) Hybrid Bonds

Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of financial liability and an equity instrument. When the Company has an unconditional right to avoid delivering cash or another financial asset to settle a contractual obligation, the Company’s hybrid bond has been classified as an equity instrument.

Revenue

Revenue from the sale of goods, services provided and the use of assets is measured at the fair value of the consideration received or receivable, net of returns and allowances, trade discounts and volume rebates, which are not significant for all periods presented.

(a) Sale of goods

Revenue from the sale of goods in the ordinary course of activities is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue is recognized when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. The appropriate timing for transfer of risks and rewards varies depending on the individual terms and conditions of the sales contract. For international sales, this timing depends on the type of international commercial terms of the contract.

F-59

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

(b) Services rendered

Revenue from services rendered is recognized in profit or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to surveys of work performed.

(c) Construction contracts

Construction contracts of the Company primarily consist of contracts for the construction of plants and commercial or residential buildings, and revenue recognition for different types of contracts is as follows:

When the outcome of a construction contract can be estimated reliably, contract revenue is recognized in profit or loss in proportion to the stage of completion of the contract. Contract revenue includes the initial amount agreed in the contract plus any variation in contract work, claims and incentive payments, to the extent that it is probable that they will result in revenue and can be measured reliably. The stage of completion of a contract is determined based on the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs.

When the outcome of a construction contract cannot be estimated reliably, the revenue is recognized only to the extent of contract costs incurred that it is probable will be recoverable. An expected loss on the construction contract shall be recognized as an expense immediately.

(d) Rental income

Rental income from investment property, net of lease incentives granted, is recognized in profit or loss on a straight-line basis over the term of the lease.

Finance income and finance costs

Finance income comprises interest income on funds invested (including available-for-sale financial assets), dividend income, gains on the disposal of available-for-sale financial assets and changes in the fair value of financial assets at fair value through profit or loss. Interest income is recognized as it accrues in profit or loss, using the effective interest rate method. Dividend income is recognized in profit or loss on the date that the Company’s right to receive payment is established.

Finance costs comprise interest expense on borrowings and changes in the fair value of financial assets at fair value through profit or loss. Borrowing costs are recognized in profit or loss using the effective interest rate method.

Income taxes

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.

(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

F-60

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

determining taxable profit of future periods, and non-taxable or non-deductible items from the accounting profit.

(b) Deferred income tax

The measurement of deferred income tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

The Company recognizes a deferred income tax liability for all taxable temporary differences associated with investments in subsidiaries, associates, and joint ventures, except to the extent that the Company is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The Company recognizes a deferred income tax asset for deductible temporary differences arising from investments in subsidiaries, associates and joint ventures, to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized. However, deferred income tax is not recognized for the following temporary differences: taxable temporary differences arising on the initial recognition of goodwill, or the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting profit or loss nor taxable income.

The carrying amount of a deferred income tax asset is reviewed at the end of each reporting period and is reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred income tax liabilities and deferred income tax assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period to recover or settle the carrying amount of its assets and liabilities.

Deferred income tax assets and liabilities are offset only if there is a legally enforceable right to offset the related current income tax liabilities and assets, and they relate to income taxes levied by the same tax authority and they intend to settle current income tax liabilities and assets on a net basis.

Earnings per share

Management calculates basic earnings per share (“EPS”) data for the Company’s ordinary shares, which is presented at the end of the statement of comprehensive income. Basic EPS is calculated by dividing profit attributable to ordinary shareholders of the Company 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

F-61

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

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.

Segment profit and loss is determined the same way that consolidated net after tax profit for the period is 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 measured based on total assets and liabilities in accordance with IFRS without any adjustment for corporate allocations. Also, segment assets and liabilities are based on the separate financial statements of the entities instead of on consolidated basis. In addition, there are varying levels of transactions amongst the reportable segments. These transactions include sales of property, plant and assets, and rendering of construction service and so on. Inter-segment transactions are accounted for on an arm’s length basis.

Segment results that are reported to the CEO include items directly attributable to a segment and do not include allocated items. Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets other than goodwill.

New standards and interpretations not yet adopted

Amendments to IAS No. 32 “Financial Instruments : Presentation”

The amendments clarify the application guidance related to offsetting of a financial asset and a financial liability. The amendments are mandatorily effective for annual periods beginning on or after January 1, 2014 with earlier adoption permitted. Management believes the impact of the initial adoption of these amendments on the Company’s consolidated statements of financial position will not be significant.

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.

F-62

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

(a) Financial risk management

1) Risk management policy

The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities.

The Company, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

2) Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers and investment securities. In addition, credit risk arises from finance guarantees.

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

The Company establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for companies of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets. Debt securities are analyzed individually, and an expected loss shall be directly deducted from debt securities.

Credit risk also arises from transactions with financial institutions, and such transactions include transactions of cash and cash equivalents, various deposits, and financial instruments such as derivative contracts. The Company manages its exposure to this credit risk by only entering into transactions with banks that have high international credit ratings. The Company’s treasury department authorizes, manages, and overseas new transactions with financial institutions with whom the Company has no previous relationship. Furthermore, the Company limits its exposure to credit risk of financial guarantee contracts by strictly evaluating their necessity based on internal decision making processes, such as the approval of the board of directors.

F-63

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

3) Liquidity risk management

Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

The Company’s cash flow from business, borrowing or financing is sufficient to meet the cash requirements for the Company’s strategic investments. Management believes that the Company is capable of raising funds by borrowing or financing if the Company is not able to generate cash flow requirements from its operations. The Company has committed borrowing facilities with various banks.

4) Market risk management

Market risk means that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. The goal of market risk management is optimization of profit and controlling the exposure to market risk within acceptable limits.

 Currency risk

Each segment is influenced by a risk factor of changes in foreign currency exchange rates for the different directions due to the difference in structure of each industry regarding the cash inflows and cash outflows in foreign currency. The steel segment generally has a lack of foreign currency cash outflows, while the engineering and construction segments generally have excessive foreign currency inflows due to the nature of their respective business. Therefore, the result of the business is affected by the changes of foreign exchange rates.

The trading segment is structured such that the cash inflows and outflows of foreign currencies are to be offset; however, the trading segment is exposed to a risk of changes in foreign currency exchange rates when there are differences in currencies on receiving and paying the foreign currency amount and time differences.

The Company’s policy in respect of foreign currency risks is a natural hedge whereby foreign currency income is offset with foreign currency expenditures. The remaining net exposures after the natural hedge have been hedged using derivative contracts such as forward exchange contracts. In addition, the Company’s derivative transactions are limited to hedging actual foreign currency transactions and speculative hedging is not permitted. Based on this policy, the Company entities have performed currency risk management specific to various characteristics of different segments. The entities in the steel industry, which has a lack of foreign currency cash flows, has foreign currency borrowings from banks and hedges foreign currency risks of the foreign currency borrowings by using foreign currency swaps. The entities in the engineering and construction segments, which have excessive foreign currency cash flows, have hedged foreign currency risks by using forward exchange contracts. Entities in the trading industry have hedged foreign currency risks by using forward exchange contracts when the foreign currencies received and paid are different.

F-64

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

‚ Interest rate risk

The Company mostly borrows at fixed interest rates. The Company’s management monitors interest rate risks regularly.

ƒ Other market price risk

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

(b) Management of capital risk

The fundamental goal of capital management is the maximization of shareholders’ value by means of the stable dividend policy and the retirement of treasury shares. The capital structure of the Company consists of equity and net debt, deducting cash and cash equivalents and current financial instruments from borrowings. The Company applied the same financial risk management strategy that was applied in the previous period.

Net borrowing-to-equity ratio as of December 31, 2012 and 2013 is as follows:

	2012			2013
	(in millions of Won)
Total borrowings	￦	24,921,433			26,246,605
Less: Cash and cash equivalents		4,680,526			4,208,562
Net borrowings		20,240,907			22,038,043
Total equity		42,429,418			45,822,030
Net borrowings-to-equity ratio		47.70	%		48.09	%

5. Cash and Cash Equivalents

Cash and cash equivalents as of December 31, 2012 and 2013 are as follows:

	2012		2013
	(in millions of Won)
Cash	￦	8,595		12,575
Demand deposits and checking accounts		1,609,934		1,199,768
Time deposits		2,945,537		2,959,380
Other financial cash equivalents		116,460		36,839
	￦	4,680,526		4,208,562

F-65

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

6. Trade Accounts and Notes Receivable

(a) Trade accounts and notes receivable as of December 31, 2012 and 2013 are as follows:

	2012			2013
	(in millions of Won)
Current
Trade accounts and notes receivable	￦	9,865,436			10,299,826
Finance lease receivables		44,918			36,029
Unbilled due from customers for contract work		1,493,709			1,574,929
Less: Allowance for doubtful accounts		(366,090	)		(418,183	)
		11,037,973			11,492,601
Non-current
Trade accounts and notes receivable		52,763			50,639
Finance lease receivables		102,887			67,251
Less: Allowance for doubtful accounts		(13,446	)		(20,890	)
	￦	142,204			97,000

Trade accounts and notes receivable sold to financial institutions, for which the derecognition conditions were not met, amounted to ￦80,258 million and ￦73,956 million as of December 31, 2012 and 2013, respectively, and are included in bank borrowings (Note 17).

(b) Finance lease receivables are as follows:

Customer	Contents	2012		2013
	(in millions of Won)
Korea Electric Power Corporation	Combined thermal power plant 1~4	￦	147,634		102,887
KC CHEMICAL Co., Ltd	Machinery and equipment		—		393
Tenant of EXPO Apartment	Leasehold contract		171		—
		￦	147,805		103,280

(c) The gross amount and present value of minimum lease payments as of December 31, 2012 and 2013 are as follows:

	2012			2013
	(in millions of Won)
Less than 1 year	￦	62,048			48,112
1 year – 5 years		120,135			84,270
Greater than 5 year		11,772			—
Unrealized interest income		(46,150	)		(29,102	)
Present value of minimum lease payment	￦	147,805			103,280

F-66

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

7. Other Receivables

Other receivables as of December 31, 2012 and 2013 are as follows:

	2012			2013
	(in millions of Won)
Current
Short-term loans	￦	271,067			298,289
Other accounts receivable		1,298,878			1,322,352
Accrued income		71,076			74,968
Deposits		107,208			69,502
Other checking accounts		302,738			275,892
Less : Allowance for bad debt accounts		(53,815	)		(150,580	)
		1,997,152			1,890,423
Non-current
Long-term loans		574,255			604,478
Long-term other accounts receivable		164,289			152,383
Accrued income		1,204			1,110
Deposits		110,681			111,482
Less : Allowance for bad debt accounts		(41,526	)		(71,998	)
	￦	808,903			797,455

8. Other Financial Assets

(a) Other short-term financial assets as of December 31, 2012 and 2013 are as follows:

	2012		2013
	(in millions of Won)
Derivatives assets held for trading	￦	62,720		44,082
Short-term available-for-sale securities		133,656		10,772
Current portion of held-to-maturity securities (bonds)		31,237		2,232
Short-term financial instruments (*1,2,3,4)		1,621,668		2,913,579
	￦	1,849,281		2,970,665

(*1) As of December 31, 2012 and 2013, short-term financial instruments amounting to ￦3,400 million and ￦4,700 million, respectively, are provided as collateral in relation to long-term borrowings from the National Forestry Cooperative Federation.

(*2) As of December 31, 2012 and 2013, ￦12,699 million and ￦949 million, respectively, are restricted for the use in a government project.

(*3) As of December 31, 2012 and 2013, short-term financial instruments amounting to ￦7,650 million and ￦27,195 million, respectively, are provided as collateral for long-term borrowings.

(*4) As of December 31, 2012 and 2013, short-term financial instruments amounting to ￦153,251 million and ￦261,034 million, respectively, are restricted for use in financial arrangements, pledge and others.

F-67

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

(b) Other long-term financial assets as of December 31, 2012 and 2013 are as follows:

	2012		2013
	(in millions of Won)
Derivatives assets held for trading	￦	8,634		34,140
Long-term available-for-sale securities (equity instruments) (*1,2,3)		3,711,169		4,068,766
Long-term available-for-sale securities (bonds)		26,430		32,456
Long-term available-for-sale securities (others)		43,267		54,390
Held-to-maturity securities (bonds)		3,251		1,602
Long-term financial instruments		68,215		274,376
	￦	3,860,966		4,465,730

(*1) As of December 31, 2013, 1,795,860 shares equivalent to 16,162,743 American Depository Receipts (“ADRs”) of SK Telecom Co., Ltd. have been pledged as collateral for exchangeable bonds issued.

(*2) During the year ended December 31, 2013, there was a significant decline in the fair value of shares of KB Financial Group Inc. and others for a prolonged period, which was considered as objective evidence of impairment. As a result, an impairment loss of ￦280,237 million was recognized in profit or loss during the year ended December 31, 2013.

(*3) As of December 31, 2012 and 2013, ￦167,100 million and ￦229,052 million of long-term available-for-sale securities, respectively, have been provided as collateral for construction projects of CHUNGJU ENTERPRISE CITY DEVELOPMENT Co., Ltd. and others.

9. Inventories

(a) Inventories as of December 31, 2012 and 2013 are as follows:

	2012			2013
	(in millions of Won)
Finished goods	￦	1,475,832			1,406,297
Merchandise		703,923			711,802
Semi-finished goods		1,876,196			1,711,294
Raw materials		2,425,367			2,228,110
Fuel and materials		893,137			801,992
Construction inventories		1,324,873			1,183,390
Materials-in-transit		2,007,106			1,848,389
Others		93,007			96,389
		10,799,441			9,987,663
Less: Allowance for inventories valuation		(214,795	)		(189,282	)
	￦	10,584,646			9,798,381

(b) The changes of allowance for inventories valuation for the years ended December 31, 2011, 2012 and 2013 were as follows:

	2011			2012			2013
	(in millions of Won)
Beginning	￦	87,895			215,594			214,795
Valuation losses of inventories		140,361			76,484			49,172
Write-off		(10,736	)		(71,459	)		(73,220	)
Reversal and others		(1,926	)		(5,824	)		(1,465	)
Ending	￦	215,594			214,795			189,282

F-68

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

10. Non-Current Assets Held for Sale

Details of non-current assets held for sale as of December 31, 2012 and 2013 are as follows:

	2012		2013
	Subsidiaries		Controlling company		Subsidiaries		Total
	(in millions of Won)
Property, plant and equipment (*1)	￦	1,190		—		1,190		1,190
Investments in associates(*2)		—		1,304		—		1,304
	￦	1,190		1,304		1,190		2,494

(*1) POSCO AST determined to dispose of its land and building for employee welfare and classified them as assets held for sale as of December 31, 2012. The amount measured at the lower of those carrying amount and fair value less costs to sell of certain land and building was ￦1,190 million, the Company recorded impairment loss for the assets held for sale of ￦70 million.

(*2) The Company determined to dispose of the shares of POSVINA Co., Ltd., an associate of the Company, and classified it as assets held for sale as of September 2013. The amount based on the difference between those carrying amount and fair value less costs to sell was ￦1,304 million. The Company recorded impairment loss for the assets held for sale of ￦1,814 million.

11. Investments in Associates and Joint ventures

(a) Investments in associates and joint ventures as of December 31, 2012 and 2013 are as follows:

	2012		2013
	(in millions of Won)
Investments in associates		1,530,802		1,830,047
Investments in joint ventures		1,508,459		1,978,646
	￦	3,039,261		3,808,693

F-69

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

(b) Details of investments in associates as of December 31, 2012 and 2013 are as follows:

	2012		2013
Company	Book value		Number of shares		Ownership (%)		Acquisition cost		Book value
	(in millions of Won)
[Domestic]
EQP POSCO Global NO 1 Natural Resources PEF	￦	—		178,565		27.23		178,566	￦	177,563
POSCO PLANTEC Co., Ltd. (formerly, SUNGJIN GEOTEC Co., Ltd.) (*1)		181,361		27,365,388		43.97		341,087		234,203
SNNC		147,539		18,130,000		49.00		90,650		123,969
BLUE OCEAN Private Equity Fund		33,839		333		27.52		33,300		29,391
CHUNGJU ENTERPRISE CITY DEVELOPMENT Co., Ltd. (*4)		29,414		2,008,000		25.10		10,040		23,733
Incheon-Gimpo Expressway Co., Ltd.		13,680		7,975,319		29.94		39,877		37,759
UITrans LRT Co., Ltd. (*4)		16,444		3,929,751		38.19		19,649		19,185
Garolim Tidal Power Plant Co., Ltd.		11,544		3,020,220		32.13		15,101		12,941
Gunggi Green Energy		7,353		2,880,000		19.00		14,400		4,996
KoFC POSCO HANWHA KB Shared Growth NO. 2. Private Equity Fund		—		7,012,500		12.50		7,013		6,685
KONES, Corp.		6,476		3,250,000		41.67		6,893		5,784
Busan-Gimhae Light Rail Transit Co., Ltd. (*2,4)		7,601		9,160,000		25.00		45,800		—
QSONE Co., Ltd.		—		200,000		50.00		84,395		84,096
POSMATE (*3)		46,204		—		—		—		—
Others (31 companies) (*4)		39,096		—		—		—		39,820
		540,551								800,125
[Foreign]
Eureka Moly LLC		213,136		—		20.00		240,123		217,513
South-East Asia Gas Pipeline Company Ltd.		144,831		135,219,000		25.04		150,779		140,202
Nickel Mining Company SAS		146,699		3,234,698		49.00		157,585		135,178
7623704 Canada Inc.		—		114,452,000		10.40		124,341		119,516
AMCI (WA) Pty LTD.		123,018		49		49.00		209,664		98,467
KOREA LNG LTD.		99,976		2,400		20.00		135,205		64,453
AES-VCM Mong Duong Power Company Limited		48,636		—		30.00		74,161		81,436
CAML Resources Pty. LTD.		62,227		3,239		33.34		40,388		43,820
NCR LLC		39,303		—		29.41		32,348		30,496
POSCHROME (PROPRIETARY) LIMITED		21,324		43,350		50.00		19,892		7,911
Others (31 companies) (*4)		91,101		—		—		—		90,930
		990,251								1,029,922
	￦	1,530,802							￦	1,830,047

(*1) It is reclassified from subsidiary to associate due to the merger with Sungjin Geotec Co., Ltd. during the year ended December 31, 2013.

(*2) As the Company’s share of losses exceeded its interest in this entity, the carrying amount of that interest was reduced to nil and the recognition of further losses was discontinued. Unrecognized losses in this entity are ￦10,258 million during the year ended December 31, 2013.

(*3) It is reclassified from associate to subsidiary due to the merger with Seoung Gwang Co., Ltd. during the year ended December 31, 2013.

(*4) Investments in associates amounting to ￦64,810 are provided as collateral related to associates’ borrowings.

F-70

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

(c) Details of investments in joint ventures as of December 31, 2012 and 2013 are as follows:

	2012		2013
Company	Book value		Number of shares		Ownership (%)		Acquisition cost		Book value
	(in millions of Won)
[Domestic]
POSCO MITSUBISHI CARBON TECHNOLOGY	￦	28,060		11,568,000		60.00		115,680	￦	115,708
POSCO ES MATERIALS		42,388		1,000,000		50.00		43,000		40,386
		70,448								156,094
[Foreign]
Roy Hill Holdings Pty Ltd.		527,129		12,723,959		12.50		998,180		825,901
CSP-Compania Siderurgica do Pecem		214,761		660,301,330		20.00		393,925		263,419
POSCO-NPS Niobium LLC		348,646		325,050,000		50.00		364,609		343,590
DMSA, AMSA		124,326		—		4.00		193,182		180,355
KOBRASCO		113,847		2,010,719,185		50.00		32,950		95,233
BX STEEL POSCO Cold Rolled Sheet Co., Ltd.		92,888		—		25.00		61,961		96,309
Others (7 companies)		16,414								17,745
		1,438,011								1,822,552
	￦	1,508,459							￦	1,978,646

(d) The movements of investments in associates and joint ventures for the years ended December 31, 2012 and 2013 are as follows:

1) December 31, 2012

Company	Dec. 31, 2011 Book value		Acquisition		Dividends			Share of profits (losses)			Other increase (decrease) (*1)			Dec. 31, 2012 Book value
	(in millions of Won)
[Domestic]
POSCO PLANTEC Co., Ltd. (formerly, SUNGJIN GEOTEC Co., Ltd.)	￦	194,942		—		—			(17,162	)		3,581			181,361
SNNC		154,131		—		(20,306	)		15,157			(1,443	)		147,539
POSCO MITSUBISHI CARBON TECHNOLOGY		—		28,920		—			(860	)		—			28,060
POSCO ES MATERIALS		—		43,000		—			(560	)		(52	)		42,388
BLUE OCEAN Private Equity Fund		35,971		—		—			(4,542	)		2,410			33,839
CHUNGJU ENTERPRISE CITY DEVELOPMENT Co., Ltd.		21,026		—		—			8,534			(146	)		29,414
Incheongimpo Highway Co., Ltd		3,500		9,368		—			(377	)		1,189			13,680
UITrans LRT Co., Ltd.		3,610		11,294		—			1,268			272			16,444
Garolim Tidal Power Plant Co., Ltd.		11,995		—		—			(451	)		—			11,544
Gunggi Green Energy		—		8,925		—			(1,572	)		—			7,353
KONES, Corp.		6,764		—		—			(219	)		(69	)		6,476
Busan-Gimhae Light Rail Transit Co., Ltd.		34,227		—		—			(26,626	)		—			7,601
POSMATE		22,409		21,025		(536	)		2,158			1,148			46,204
Kyobo Life Insurance Co., Ltd.		1,377,114		—		(24,600	)		37,038			(1,389,552	)		—
Cheongna IBT Co., Ltd.		35,564		—		—			(729	)		(34,835	)		—
MTAPOLIS Co., Ltd.		15,674		—		—			(15,674	)		—			—
MIDAS Information Technology Co., Ltd.		12,476		—		(87	)		1,530			(13,919	)		—
Others		56,163		3,619		(107	)		(2,051	)		(18,528	)		39,096
		1,985,566		126,151		(45,636	)		(5,138	)		(1,449,944	)		610,999
[Foreign]
Roy Hill Holdings Pty Ltd.		—		551,979		—			(16,537	)		(8,313	)		527,129
POSCO-NPS Niobium LLC		374,868		—		(18,632	)		19,199			(26,789	)		348,646

F-71

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

Company	Dec. 31, 2011 Book value		Acquisition		Dividends			Share of profits (losses)			Other increase (decrease) (*1)			Dec. 31, 2012 Book value
	(in millions of Won)
CSP-Compania Siderurgica do Pecem	￦	124,231		132,849		—			(2,520	)		(39,799	)		214,761
Eureka Moly LLC		109,772		—		—			—			103,364			213,136
South-East Asia Gas Pipeline Company Ltd.		136,175		19,248		—			—			(10,592	)		144,831
Nickel Mining Company SAS		168,292		—		—			(12,795	)		(8,798	)		146,699
DMSA, AMSA		119,556		16,813		—			(1,176	)		(10,867	)		124,326
AMCI (WA) Pty LTD.		168,212		—		—			(38,706	)		(6,488	)		123,018
KOREA LNG LTD.		127,901		—		(21,534	)		12,697			(19,088	)		99,976
BX STEEL POSCO Cold Rolled Sheet Co., Ltd.		95,577		—		—			2,650			(5,339	)		92,888
KOBRASCO		128,884		—		(24,644	)		28,792			(19,185	)		113,847
AES-VCM Mong Duong Power Company Limited		31,201		—		—			(1,246	)		18,681			48,636
CAML Resources Pty. LTD.		55,465		—		—			11,390			(4,628	)		62,227
NCR LLC		24,107		—		—			(452	)		15,648			39,303
POSCHROME (PROPRIETARY) LIMITED		24,674		33		—			(311	)		(3,072	)		21,324
Others		157,178		19,136		(5,143	)		(18,549	)		(45,107	)		107,515
		1,846,093		740,058		(69,953	)		(17,564	)		(70,372	)		2,428,262
	￦	3,831,659		866,209		(115,589	)		(22,702	)		(1,520,316	)		3,039,261

(*1) Other increase or decrease represents the changes in investments in associates and joint ventures due to disposals and change in capital adjustments arising 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, 2011, 2012 and 2013

2) December 31, 2013

Company	December 31, 2012 Book value		Acquisition		Dividends			Share of profits (losses)			Other increase (decrease)  (*1)			December 31, 2013 Book value
	(in millions of Won)
[Domestic]
EQP POSCO Global NO1 Natural Resources PEF	￦	—		178,566		—			(1,017	)		14			177,563
POSCO PLANTEC Co., Ltd. (formerly, SUNGJIN GEOTEC Co., Ltd.)		181,361		101,210		—			(49,065	)		697			234,203
SNNC		147,539		—		(27,685	)		2,183			1,932			123,969
POSCO MITSUBISHI CARBON TECHNOLOGY		28,060		86,760		—			888			—			115,708
POSCO ES MATERIALS		42,388		—		—			(1,963	)		(39	)		40,386
BLUE OCEAN Private Equity Fund		33,839		—		—			(2,015	)		(2,433	)		29,391
CHUNGJU ENTERPRISE CITY DEVELOPMENT Co., Ltd.		29,414		—		—			(5,535	)		(146	)		23,733
Inc heongimpo Highway Co., Ltd		13,680		24,521		—			(441	)		(1	)		37,759
UITrans LRT Co., Ltd.		16,444		1,967		—			668			106			19,185
Garolim Tidal Power Plant Co., Ltd.		11,544		2,201		—			(804	)		—			12,941
Gunggi Green Energy		7,353		5,475		—			(8,213	)		381			4,996
KoFC POSCO HANWHA KB Shared Growth NO. 2. Private Equity Fund		—		7,013		—			(327	)		(1	)		6,685
KONES, Corp.		6,476		—		—			(740	)		48			5,784
Busan-Gimhae Light Rail Transit Co., Ltd.		7,601		—		—			(7,601	)		—			—
QSONE Co., Ltd.		—		84,395		—			(299	)		—			84,096
POSMATE		46,204		—		—			—			(46,204	)		—
Others		39,096		9,124		—			1,820			(10,220	)		39,820
		610,999		501,232		(27,685	)		(72,461	)		(55,866	)		956,219
[Foreign]
Roy Hill Holdings Pty Ltd.		527,129		446,201		—			(37,781	)		(109,648	)		825,901
POSCO-NPS Niobium LLC		348,646		—		(16,188	)		16,079			(4,947	)		343,590
CSP-Compania Siderurgica do Pecem		214,761		128,185		—			(34,410	)		(45,117	)		263,419
Eureka Moly LLC		213,136		—		—			—			4,377			217,513
South-East Asia Gas Pipeline Company Ltd.		144,831		—		—			(2,585	)		(2,044	)		140,202
Nickel Mining Company SAS		146,699		—		—			(16,617	)		5,096			135,178
DMSA, AMSA		124,326		58,374		—			31			(2,376	)		180,355
7623704 Canada Inc.		—		124,341		—			(1	)		(4,824	)		119,516
AMCI (WA) Pty Ltd.		123,018		—		—			(6,283	)		(18,268	)		98,467
KOREA LNG LTD.		99,976		—		(21,999	)		21,898			(35,422	)		64,453
BX STEEL POSCO Cold Rolled Sheet Co., Ltd.		92,888		—		—			2,400			1,021			96,309
KOBRASCO		113,847		—		(26,482	)		21,948			(14,080	)		95,233
AES-VCM Mong Duong Power Company Limited		48,636		—		—			(12,841	)		45,641			81,436
CAML Resources Pty. LTD.		62,227		—		(12,428	)		17,984			(23,963	)		43,820
NCR LLC		39,303		—		—			(9,609	)		802			30,496
POSCHROME (PROPRIETARY) LIMITED		21,324		—		(7,196	)		2,943			(9,160	)		7,911
Others		107,515		7,439		(5,252	)		(70,504	)		69,477			108,675
		2,428,262		764,540		(89,545	)		(107,348	)		(143,435	)		2,852,474
	￦	3,039,261		1,265,772		(117,230	)		(179,809	)		(199,301	)		3,808,693

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

F-73

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

(e) The fair value of investments in associates for which there are published price quotations as of December 31, 2013 is as follows:

Company	Fair value
	(in millions of Won)
POSCO PLANTEC Co., Ltd. (formerly, SUNGJIN GEOTEC Co., Ltd.)	￦	189,916

(f) Summarized financial information of associates and joint ventures as of and for years ended December 31, 2012 and 2013 is as follows:

1) December 31, 2012

Company	Assets		Liabilities		Equity		Sales		Net income (loss)
[Domestic]
POSCO PLANTEC Co., Ltd. (formerly, SUNGJIN GEOTEC Co., Ltd.)		763,581		632,999		130,582		703,236		(29,219	)
SNNC		577,273		261,781		315,492		379,230		16,959
POSCO MITSUBISHI CARBON TECHNOLOGY		47,014		247		46,767		—		(1,433	)
POSCO ES MATERIALS		69,287		16,067		53,220		—		(1,422	)
BLUE OCEAN Private Equity Fund		347,298		224,338		122,960		429,210		(16,504	)
CHUNGJU ENTERPRISE CITY DEVELOPMENT Co., Ltd.		333,716		250,540		83,176		229,271		36,971
Incheongimpo Highway Co., Ltd		44,714		334		44,380		—		(1,323	)
UITrans LRT Co., Ltd.		50,932		12,822		38,110		—		(880	)
Garolim Tidal Power Plant Co.,Ltd.		37,476		1,546		35,930		—		(1,404	)
Gunggi Green Energy		103,340		68,990		34,350		—		(467	)
KONES, Corp.		6,739		3,627		3,112		8,274		(527	)
Busan-Gimhae Light Rail Transit Co., Ltd.		787,011		756,606		30,405		16,811		(106,668	)
POSMATE		118,077		14,580		103,497		104,705		9,587
MTAPOLIS Co., Ltd.		521,942		512,720		9,222		21,063		(35,244	)
[Foreign]
Roy Hill Holdings Pty Ltd.		1,404,336		105,340		1,298,996		—		(146,321	)
POSCO-NPS Niobium LLC		697,431		140		697,291		—		38,412
CSP-Compania Siderurgica do Pecem		1,088,105		16,551		1,071,554		—		(12,622	)
South-East Asia Gas Pipeline Company Ltd.		1,341,510		763,116		578,394		—		—
Nickel Mining Company SAS		445,344		91,266		354,078		120,224		(33,981	)
DMSA, AMSA		7,935,489		5,906,301		2,029,188		—		(29,407	)
KOREA LNG LTD.		545,841		64		545,777		109,992		107,953
BX STEEL POSCO Cold Rolled Sheet Co., Ltd.		922,932		579,140		343,792		1,506,012		2,296
KOBRASCO		231,524		3,831		227,693		121,619		56,282
CAML Resources Pty. LTD.		209,717		70,502		139,215		284,134		34,162
POSCHROME (PROPRIETARY) LIMITED		53,900		3,582		50,318		89,962		(899	)

F-74

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

2) December 31, 2013

Company	Assets		Liabilities		Equity (deficit)			Sales		Net income (loss)
	(in millions of Won)
[Domestic]
EQP POSCO Global NO1 Natural Resources PEF	￦	652,849		1,034		651,815			—		(3,684	)
POSCO PLANTEC Co., Ltd. (formerly, SUNGJIN GEOTEC Co., Ltd.)		900,409		765,481		134,928			597,561		(98,435	)
SNNC		504,351		235,830		268,521			405,419		8,458
POSCO MITSUBISHI CARBON TECHNOLOGY		243,644		51,747		191,897			—		89
POSCO ES MATERIALS		59,807		10,590		49,217			5,759		(3,926	)
BLUE OCEAN Private Equity Fund		341,118		234,321		106,797			425,678		(7,321	)
CHUNGJU ENTERPRISE CITY DEVELOPMENT Co., Ltd.		284,290		222,246		62,044			10,224		(15,924	)
Incheongimpo Highway Co., Ltd		157,082		32,691		124,391			—		(1,473	)
UITrans LRT Co., Ltd.		102,828		56,438		46,390			—		(925	)
Garolim Tidal Power Plant Co., Ltd.		43,592		3,350		40,242			—		(2,502	)
Gunggi Green Energy		333,027		263,608		69,419			21,577		(5,526	)
KoFC POSCO HANWHA KB Shared Growth NO. 2. Private Equity Fund		55,195		1,712		53,483			1,064		(1,116	)
KONES, Corp.		3,748		2,296		1,452			7,442		(1,612	)
Busan-Gimhae Light Rail Transit Co., Ltd.		752,011		793,042		(41,031	)		34,670		(71,110	)
QSONE Co., Ltd.		247,592		79,399		168,193			882		(597	)
[Foreign]
Roy Hill Holdings Pty Ltd.		2,703,533		244,437		2,459,096			—		(302,248	)
POSCO-NPS Niobium LLC		686,978		—		686,978			—		32,158
CSP-Compania Siderurgica do Pecem		1,520,989		78,847		1,442,142			—		(16,915	)
South-East Asia Gas Pipeline Company Ltd.		1,755,847		1,195,935		559,912			19,878		(10,323	)
Nickel Mining Company SAS		416,878		91,851		325,027			120,324		(39,686	)
DMSA, AMSA		8,636,317		5,190,558		3,445,759			—		(473	)
7623704 Canada Inc.		1,161,363		15		1,161,348			—		(10	)
KOREA LNG LTD.		381,437		98		381,339			111,602		109,495
BX STEEL POSCO Cold Rolled Sheet Co., Ltd.		776,557		418,958		357,599			1,479,765		5,359
KOBRASCO		203,467		13,001		190,466			70,428		42,852
CAML Resources Pty. LTD.		185,465		52,782		132,683			238,296		53,950
POSCHROME (PROPRIETARY) LIMITED		38,440		3,779		34,661			72,243		6,765

12. Joint Operations

Details of significant joint operations of the Company as of December 31, 2013 are as follows:

Joint operations	Operation		Ownership (% )		Location
Myanmar A-1/A-3 mine		Mine development		51.00		Myanmar
Offshore midstream		Mine development		51.00		Myanmar
Gleenhills mine		Mine development		20.00		Canada
Actos Anthracite coal project		Mine development		20.00		Canada
Mt. Thorley J/V		Mine development		20.00		Australia
POSMAC J/V		Mine development		20.00		Australia
CD J/V		Mine development		5.00		Australia
Intergra Coal J/V		Mine development		5.95		Australia
RUM J/V		Mine development		10.00		Australia

F-75

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

13. Investment Property, Net

(a) Investment property as of December 31, 2012 and 2013 are as follows:

	2012							2013
	Acquisition cost		Accumulated depreciation and impairment loss			Book value		Acquisition cost		Accumulated depreciation and impairment loss			Book value
	(in millions of Won)
Land	￦	252,846		(41,464	)		211,382		200,468		(38,966	)		161,502
Buildings		490,657		(186,154	)		304,503		399,998		(160,805	)		239,193
Structures		9,448		(4,142	)		5,306		6,836		(3,237	)		3,599
Others		—		—			—		20,935		—			20,935
Total	￦	752,951		(231,760	)		521,191		628,237		(203,008	)		425,229

As of December 31, 2013, the fair value of investment property is ￦705,707 million, among which the Company evaluated investment property of 7 subsidiaries including International Business Center Corporation as its book value amounted to ￦84,479 million since it is believed that fair value is approximately same as book value. Also, the Company used the prior year’s fair value for some of the investment property since it is believed to be approximately same.

(b) Changes in the carrying value of investment property for the years ended December 31, 2012 and 2013 were as follows:

1) For the year ended December 31, 2012

	Beginning		Acquisitions		Business combination		Disposals			Depreciation (*1)			Others (*2)			Ending
	(in millions of Won)
Land	￦	219,477		15,832		1,442		(38,575	)		(475	)		13,681			211,382
Buildings		301,733		13,857		1,560		(6,730	)		(15,044	)		9,127			304,503
Structures		6,323		—		—		—			(322	)		(695	)		5,306
Total	￦	527,533		29,689		3,002		(45,305	)		(15,841	)		22,113			521,191

(*1) Impairment losses of investment property amounted to ￦1,053 million are included.

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

2) For the year ended December 31, 2013

	Beginning		Acquisitions		Business combination		Disposals			Depreciation			Others (*1)			Ending
	(in millions of Won)
Land	￦	211,382		—		12,625		(4,410	)		—			(58,095	)		161,502
Buildings		304,503		10		8,432		(3,129	)		(12,008	)		(58,615	)		239,193
Structures		5,306		—		—		—			(314	)		(1,393	)		3,599
Others		—		20,935		—		—			—			—			20,935
Total	￦	521,191		20,945		21,057		(7,539	)		(12,322	)		(118,103	)		425,229

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

F-76

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

14. Property, Plant and Equipment, Net

(a) Property, plant and equipment as of December 31, 2012 and 2013 are as follows:

	2012										2013
	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	￦	2,658,401		(11,979	)		—			2,646,422		2,719,989		(11,979	)		—			2,708,010
Buildings		7,120,322		(2,951,420	)		(100	)		4,168,802		8,112,980		(3,223,992	)		(153	)		4,888,835
Structures		3,997,124		(1,676,669	)		(274	)		2,320,181		4,649,271		(1,864,574	)		(110	)		2,784,587
Machinery and equipment		36,217,492		(19,684,338	)		(950	)		16,532,204		40,685,986		(21,242,212	)		(938	)		19,442,836
Vehicles		279,650		(219,489	)		(7	)		60,154		284,113		(233,080	)		—			51,033
Tools		331,870		(261,972	)		(47	)		69,851		346,018		(283,120	)		(45	)		62,853
Furniture and fixtures		526,396		(342,706	)		(310	)		183,380		568,313		(394,958	)		(203	)		173,152
Finance lease assets		105,241		(48,017	)		—			57,224		151,219		(50,695	)		—			100,524
Construction-in-progress		6,238,161		—			—			6,238,161		5,553,322		—			(5,033	)		5,548,289
Total	￦	57,474,657		(25,196,590	)		(1,688	)		32,276,379		63,071,211		(27,304,610	)		(6,482	)		35,760,119

(b) Changes in the carrying value of property, plant and equipment for the years ended December 31, 2012 and 2013 were as follows:

1) For the year ended December 31, 2012

	Beginning		Acquisitions		Business combination		Disposals			Depreciation (*1)			Others (*2)			Ending
	(in millions of Won)
Land	￦	2,549,178		51,978		2,377		(26,793	)		—			69,682			2,646,422
Buildings		4,019,829		210,756		12,210		(29,756	)		(298,978	)		254,741			4,168,802
Structures		2,260,437		25,170		—		(24,308	)		(199,970	)		258,852			2,320,181
Machinery and equipment		16,179,384		698,693		5,804		(209,357	)		(1,774,051	)		1,631,731			16,532,204
Vehicles		66,743		15,620		141		(1,244	)		(20,705	)		(401	)		60,154
Tools		80,877		17,404		411		(1,081	)		(36,026	)		8,266			69,851
Furniture and fixtures		169,689		53,040		76		(3,369	)		(65,074	)		29,018			183,380
Finance lease assets		38,542		535		—		(236	)		(9,154	)		27,537			57,224
Construction-in-progress		3,088,505		6,314,731		—		—			—			(3,165,075	)		6,238,161
Total	￦	28,453,184		7,387,927		21,019		(296,144	)		(2,403,958	)		(885,649	)		32,276,379

(*1) Impairment losses of property, plant and equipment amounted to ￦12,977 million are included.

(*2) Includes reclassification for changing purpose of use, adjustments of foreign currency translation differences and others.

F-77

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

2) For the year ended December 31, 2013

	Beginning		Acquisitions		Business combination		Disposals			Depreciation (*1)			Others (*2)			Ending
	(in millions of Won)
Land	￦	2,646,422		23,404		23,108		(24,548	)		—			39,624			2,708,010
Buildings		4,168,802		72,168		7,352		(48,278	)		(308,084	)		996,875			4,888,835
Structures		2,320,181		29,338		18,568		(7,633	)		(189,740	)		613,873			2,784,587
Machinery and equipment		16,532,204		740,682		9,634		(88,565	)		(1,867,408	)		4,116,289			19,442,836
Vehicles		60,154		10,326		700		(2,356	)		(19,402	)		1,611			51,033
Tools		69,851		20,638		304		(1,811	)		(33,494	)		7,365			62,853
Furniture and fixtures		183,380		31,578		1,087		(4,837	)		(72,062	)		34,006			173,152
Finance lease assets		57,224		670		—		(712	)		(12,766	)		56,108			100,524
Construction-in-progress		6,238,161		5,931,141		—		(10,369	)		—			(6,610,644	)		5,548,289
Total	￦	32,276,379		6,859,945		60,753		(189,109	)		(2,502,956	)		(744,893	)		35,760,119

(*1) Impairment losses of property, plant and equipment amounted to ￦9,742 million are included.

(*2) Includes reclassification for changing purpose of use, adjustment of foreign currency translation differences and others.

(c) Borrowing costs capitalized and the capitalized interest rate for the years ended December 31, 2012 and 2013 were as follows:

	2012			2013
	(in millions of Won)
Weighted average expenditure	￦	3,131,866			6,442,564
Borrowing costs capitalized		101,794			290,117
Capitalization rate		3.25	%		4.50	%

(d) Property, plant and equipment and investment property pledged as collateral as of December 31, 2012 and 2013 are as follows:

	Collateral right holder	2012		2013
		(in millions of Won)
Land (*1)	Korean Development Bank and others	￦	545,654		767,004
Buildings and structures (*1)	Korean Development Bank and others		327,757		1,112,855
Machinery and equipment	Korean Development Bank and others		1,285,452		3,343,747
Tools	Korean Development Bank		—		7,300
Construction-in-progress	The Export-Import Bank of Korea		1,486,745		382,339
		￦	3,645,608		5,613,245

(*1) Investment property is included.

F-78

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

15. Goodwill and Other Intangible Assets, Net

(a) Goodwill and other intangible assets as of December 31, 2012 and 2013 are as follows:

	2012										2013
	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	￦	1,735,879		(22,188	)		—			1,713,691		1,741,562		(125,624	)		—			1,615,938
Intellectual property rights		317,748		(41,448	)		(1,154	)		275,146		1,551,898		(76,026	)		(1,013	)		1,474,859
Premium in rental		151,116		(13,383	)		—			137,733		148,295		(17,028	)		—			131,267
Development expense		127,856		(65,367	)		(1,558	)		60,931		158,228		(95,780	)		(1,346	)		61,102
Port facilities usage rights		410,023		(326,901	)		—			83,122		504,331		(337,220	)		—			167,111
Exploration and evaluation assets		509,581		(29,853	)		—			479,728		389,601		(29,853	)		—			359,748
Mining development assets		1,643,306		—			—			1,643,306		968,191		—			—			968,191
Customer relationships		862,217		(111,485	)		—			750,732		856,308		(163,428	)		—			692,880
Other intangible assets		921,277		(403,302	)		(3	)		517,972		843,705		(384,960	)		(1	)		458,744
Total	￦	6,679,003		(1,013,927	)		(2,715	)		5,662,361		7,162,119		(1,229,919	)		(2,360	)		5,929,840

(b) The changes in carrying value of goodwill and other intangible assets for the years ended December 31, 2012 and 2013 were as follows:

1) For the year ended December 31, 2012

			Increase				Decrease
	Beginning		Acquisitions		Business combination		Disposals			Amortization			Impairment loss			Others (*3)			Ending
	(in millions of Won)
Goodwill (*1)	￦	1,656,817		—		77,298		—			—			(7,230	)		(13,194	)		1,713,691
Intellectual property rights		274,907		26,677		1		(1,375	)		(24,829	)		—			(235	)		275,146
Premium in rental (*2)		139,144		13,498		622		(10,038	)		(544	)		(12,336	)		7,387			137,733
Development expense		45,583		10,266		—		(148	)		(23,011	)		—			28,241			60,931
Port facilities usage rights		94,746		—		—		—			(11,624	)		—			—			83,122
Exploration and evaluation assets		473,192		7,349		—		—			—			(1,671	)		858			479,728
Mining development assets		1,414,315		228,991		—		—			—			—			—			1,643,306
Client relationships		807,068		—		—		—			(53,517	)		—			(2,819	)		750,732
Other intangible assets		339,156		201,269		26,748		(652	)		(44,466	)		(9	)		(4,074	)		517,972
Total	￦	5,244,928		488,050		104,669		(12,213	)		(157,991	)		(21,246	)		16,164			5,662,361

(*1) Acquisition amounts include goodwill amounting to ￦77,298 million related to the acquisition of PONUTech Co., Ltd.

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

(*3) Includes translation adjustment and reclassification.

F-79

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

2) For the year ended December 31, 2013

			Increase				Decrease
	Beginning		Acquisitions		Business combination		Disposals			Amortization			Impairment loss			Others (*3)			Ending
	(in millions of Won)
Goodwill (*1)	￦	1,713,691		—		2,668		—			—			(103,436	)		3,015			1,615,938
Intellectual property rights		275,146		54,182		—		(291	)		(35,532	)		(10,313	)		1,191,667			1,474,859
Premium in rental (*2)		137,733		4,089		1,605		(4,382	)		(211	)		(4,457	)		(3,110	)		131,267
Development expense		60,931		13,717		2,032		—			(23,166	)		(5,675	)		13,263			61,102
Port facilities usage rights		83,122		—		—		—			(10,318	)		—			94,307			167,111
Exploration and evaluation assets		479,728		4,669		—		—			—			—			(124,649	)		359,748
Mining development assets		1,643,306		289,016		—		—			—			—			(964,131	)		968,191
Customer relationships		750,732		—		—		—			(51,944	)		—			(5,908	)		692,880
Other intangible assets		517,972		211,627		684		(1,102	)		(58,843	)		(1,435	)		(210,159	)		458,744
Total	￦	5,662,361		577,300		6,989		(5,775	)		(180,014	)		(125,316	)		(5,705	)		5,929,840

(*1) Acquisition amounts include goodwill amounting to ￦2,668 million related to the acquisition of POSCO YongXin Rare Earth Metal Co., Ltd.

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

(*3) Includes translation adjustment and reclassification.

(c) For the purpose of impairment testing, goodwill is allocated to individually operating entities determined to be CGUs. The goodwill amounts as of December 31, 2012 and 2013 are as follows:

Reporting segments	Total number of CGUs
	2012		2013		CGUs	2012		2013
	(in millions of Won)
Steel		10		10	POSCO Thainox Public Company Limited (*3)	￦	109,779		18,624
					POSCO VST CO., LTD.		36,955		36,955
					Others		14,096		14,084
Trading		3		3	Daewoo International Corporation (*1)		1,163,922		1,163,922
					Others		11,906		9,711
E&C		4		4	POSCO Engineering Co., Ltd. (*2)		194,637		194,637
					EPC EQUITIES LLP (*4)		47,913		44,412
					Others		11,291		11,119
Others		10		10	PONUTech Co., Ltd		77,298		77,298
					POSCO ENERGY Co., LTD.		26,471		26,471
					Others (*4)		19,423		18,705
Total		27		27		￦	1,713,691		1,615,938

(*1) Recoverable amounts of Daewoo International Corporation were ￦3,849,700 million as of December 31, 2013 based on its value-in-use. As of December 31, 2013, value-in-use is estimated by applying 8.3% discount rate and 3.0% terminal growth rate with 5 years, the period for the estimated future cash flows, based on management’s business plan. The key assumption for the estimated future cash flow projections for the next 5 years is the revenue growth rate. The average annual growth rate of 3.7% is used based on the average growth rate of revenue in the past 5 years (2009 through 2013) and the Company’s business plan for the next 5 years. No impairment loss of goodwill was recognized during the year ended December 31, 2013 as the recoverable amount exceeded the carrying value of the CGU.

The estimated recoverable amount of CGU exceeded the carrying value by ￦65,816 million. Value-in-use of the CGU was affected by the assumption such as discount rate and terminal growth used in discount cash flow model. When the discount rate increases by 0.25%, value-in-use will be decreased by 5.49% and when the terminal growth rate decreases by 0.25%, value-in-use will be decreased by 3.39%.

Management believes that any reasonably possible change in the key assumptions on which the recoverable amount is based would cause a change in impairment loss of goodwill.

(*2) Recoverable amounts of POSCO Engineering Company were ￦635,980 million as of December 31, 2013 determined based on value-in-use. As of December 31, 2013, value-in-use is estimated by applying 12.3% discount rate and 1%

F-80

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

terminal growth rate with 5 years. The estimated future cash flows for the next 5 years are based on management’s approved business plan. The most significant assumption on the cash flow projections for the next 5 years is the cash flows from construction projects based on the business plan. No impairment loss of goodwill was recognized during the year ended December 31, 2013 as the recoverable amount exceeded the carrying value of the CGU.

The estimated recoverable amounts of CGU exceeded the carrying value by ￦288,906 million. Value-in-use of the CGU was affected by the assumption such as discount rate and terminal growth used in discount cash flow model. When the discount rate increases by 0.25%, value-in-use will be decreased by 2.69% and when the terminal growth rate decreases by 0.25%, value-in-use will be decreased by 1.84%. The change has no effect on the impairment loss of the goodwill.

Management believes that any reasonably possible change in the key assumptions on which the recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the CGU.

(*3) Recoverable amounts of POSCO-Thainox Public Company Limited were ￦340,248 million as of December 31, 2013, determined based on fair value less cost to sell, which was calculated based on quoted market price plus control premium.

The Company recognized goodwill impairment loss of ￦97,245 million as the carrying value of the CGU was higher than its recoverable amount as of December 31, 2013 and market price decreased due to the market condition of stainless steel industry during the current period.

(*4) The Company recognized goodwill impairment loss of ￦6,191 million as the carrying values of the EPC EQUITIES LLP and other subsidiaries were higher than recoverable amounts as of December 31, 2013.

16. Other Assets

Other current assets and other long-term assets as of December 31, 2012 and 2013 are as follows:

	2012		2013
	(in millions of Won)
Other current assets
Advance payment	￦	1,205,969		1,138,976
Prepaid expenses		189,647		130,272
Others		2,564		1,420
	￦	1,398,180		1,270,668
Other long-term assets
Long-term advance payment	￦	2,119		3,090
Long-term prepaid expenses		178,934		204,449
Others		212,733		157,659
	￦	393,786		365,198

F-81

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

17. Borrowings

(a) Short-term borrowings and current portion of long-term borrowings as of December 31, 2012 and 2013 are as follows:

	Bank	Issuance date	Maturity date	Interest rate (%)		2012			2013
	(in millions of Won)
Short-term borrowings
Bank overdrafts	Bank of America and others	January, 2013~ December, 2013	January, 2014~ December, 2014		0.1~1.0	￦	123,685			100,211
Short-term borrowings (*1)	Shinhan Bank and others	January, 2013~ December, 2013	January, 2014~ December, 2014		0.3~12.8		7,586,993			7,256,486
							7,710,678			7,356,697
Current portion of long-term liabilities
Current portion of long-term borrowings (*1)	Korean Development Bank	June, 2003~ December, 2013	January, 2014~ December, 2014		0.5~9.0		898,564			856,188
Less : Present value discount							—			(59	)
Current portion of foreign loan	NATIXIS	June, 1984~ March, 1986	March, 2014~ December, 2014		2.0		901			927
Current portion of debentures (*1)	Korean Development Bank	January, 2009~ November, 2011	January, 2014~ December, 2014		1.5~9.0		1,899,430			2,502,246
Less: Current portion of discount on debentures issued							(2,644	)		(2,353	)
Add: Premium on debentures redemption							2,419			—
							2,798,670			3,356,949
						￦	10,509,348			10,713,646

(*1) Property, plant and equipment, trade accounts, short-term financial assets, available-for-sale financial assets and inventories amounting to ￦5,437,689 million, ￦43,872 million (three hundred fourteen sheets of note receivable), ￦27,195 million, ￦675,812 million and ￦87,029 million, respectively, are provided as collateral related to short-term borrowings, long-term borrowings and debentures.

(b) Long-term borrowings, excluding current portion as of December 31, 2012 and December 31, 2013 are as follows:

	Bank	Issuance date	Maturity date	Interest rate (%)		2012			2013
	(in millions of Won)
Long-term borrowings (*1)	Korean Development Bank	January, 1983~ December, 2013	February, 2015~ December, 2099		0.5~11.2	￦	5,161,711			7,017,532
Less : Present value discount							(44,293	)		(43,897	)
Foreign loan (*2)	NATIXIS	March, 1986	March, 2017		2.0		2,009			1,140
Bonds (*1,3)	Korean Development Bank	August, 2006~ December, 2013	February, 2015~ December, 2021		0.0~6.3		9,339,966			8,590,965
Less: Discount on debentures issued							(62,943	)		(45,372	)
Add: Premium on debentures redemption							15,635			12,591
						￦	14,412,085			15,532,959

(*1) Property, plant and equipment, trade accounts, short-term financial assets, available-for-sale financial assets and inventories amounting to ￦5,437,689 million, ￦43,872 million (three hundred fourteen sheets of note receivable),

F-82

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

￦27,195 million, ￦675,812 million and ￦87,029 million, respectively, are provided as collateral related to short-term borrowings, long-term borrowings and debentures.

(*2) Korea Development Bank has provided guarantees related to the foreign loan.

(*3) POSCO issued exchangeable bonds with SK Telecom Co., Ltd. ADRs through Zeus (Cayman) Ltd. August 2011. The Company accounted for these exchangeable bonds as long-term borrowings. The Company also provides guarantees for Zeus (Cayman) Ltd.

18. Other Payables

Other payables as of December 31, 2012 and 2013 are as follows:

	2012		2013
	(in millions of Won)
Current
Accounts payable (*)	￦	737,802		914,288
Accrued expenses		868,015		873,613
Dividend payable		7,487		11,709
Finance lease liabilities		16,044		14,218
Withholding		205,556		315,026
	￦	1,834,904		2,128,854
Non-current
Accounts payable	￦	117,462		116,160
Accrued expenses		24,950		25,358
Finance lease liabilities		32,961		39,257
Long-term withholding		68,549		25,859
	￦	243,922		206,634

(*) During the year ended December 31, 2012, a fine of ￦117,629 million was imposed on POSCO and POSCO Coated & Color Steel Co., Ltd. for price fixing galvanized steel sheets as a result of Korea Fair Trade Commission’s investigation. The Company made a payment for the fine in the first half of 2013.

19. Other Financial Liabilities

Other financial liabilities as of December 31, 2012 and 2013 are as follows:

	2012		2013
	(in millions of Won)
Current
Derivatives liabilities	￦	84,922		128,370
Financial guarantee liabilities		7,819		7,534
	￦	92,741		135,904
Non-current
Derivatives liabilities	￦	100,220		229,096
Financial guarantee liabilities		17,493		30,925
	￦	117,713		260,021

F-83

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

20. Provisions

(a) Provisions as of December 31, 2012 and 2013 are as follows:

	2012				2013
	Current		Non-current		Current		Non-current
	(in millions of Won)
Provision for bonus payments	￦	42,904		—		52,377		—
Provision for construction warranties		23,489		27,227		35,027		20,669
Provision for legal contingencies and claims (*1)		—		30,920		—		30,330
Others (*2)		11,438		41,951		19,925		95,273
	￦	77,831		100,098		107,329		146,272

(*1) As of December 31, 2012 and 2013, the amount includes a provision of ￦23,784 million and ￦23,300 million, respectively, for potential claims in connection with the spin-off of the trading division of Daewoo International Corporation in 2000 (Note 38). In addition, a provision of ￦7,136 million and ￦7,030 million are included as of December 31, 2012 and 2013, respectively, for a payment guarantee related to borrowings incurred in the disposition of Daewoo Cement (Shandong) Co., Ltd. during the year ended December 31, 2012.

(*2) As of December 31, 2013, the amount includes a provision of ￦74,888 million for expected outflows of resources in connection with the subrogation and financial joint guarantee for the construction projects 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
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, 2012 and 2013 were as follows:

1) For the year ended December 31, 2012

	Beginning		Increase		Utilization			Reversal			Others (*1)			Ending
	(in millions of Won)
Provision for bonus payments	￦	47,682		343,062		(347,262	)		(523	)		(55	)		42,904
Provision for construction warranties		50,623		24,694		(16,054	)		(4,472	)		(4,075	)		50,716
Provision for legal contingencies and claims		38,847		8,540		—			(16,163	)		(304	)		30,920
Others		41,623		14,209		(3,450	)		(1,680	)		2,687			53,389
	￦	178,775		390,505		(366,766	)		(22,838	)		(1,747	)		177,929

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

2) For the year ended December 31, 2013

	Beginning		Increase		Utilization			Reversal			Others (*1)			Ending
	(in millions of Won)
Provision for bonus payments	￦	42,904		48,362		(36,126	)		(2,058	)		(705	)		52,377
Provision for construction warranties		50,716		27,008		(15,356	)		(3,887	)		(2,785	)		55,696
Provision for legal contingencies and claims		30,920		5,090		(4,353	)		(1,327	)		—			30,330
Others		53,389		86,077		(23,576	)		(1,597	)		905			115,198
	￦	177,929		166,537		(79,411	)		(8,869	)		(2,585	)		253,601

(*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, 2011, 2012 and 2013

21. Employee Benefits

(a) Defined contribution plans

The Company operates a defined contribution plan for participating employees. Though the Company pays fixed contributions into a separate fund, employee benefits relating to employee service in the future is based on the contributions to the funds and the investment earnings on it. Plan assets are managed by a trustee within a fund separate from the Company’s assets.

The expenses related to post-employment benefit plans under defined contribution plans for the years ended December 31, 2011, 2012 and 2013 were as follows:

	2011		2012		2013
	(in millions of Won)
Expense related to post-employment benefit under defined contribution plans	￦	8,874		16,520		19,126

(b) Defined benefit plans

The Company also operates a defined benefit pension plan for employees. The employees who chose defined benefit pension plan will receive defined payment upon termination of their employment if they fulfill the condition to qualify as recipients. Before the termination of employment, the Company recognizes the pension liability related to defined benefit plans at the end of the reporting period, and measures it at the present value of the defined benefit obligation less the fair value of the plan assets. The Company uses the projected unit credit method in the actuarial valuation of plan assets and the defined benefit obligation.

1) The amounts recognized in relation to net defined benefit liabilities in the statements of financial position as of December 31, 2012 and 2013 are as follows:

	2012			2013
	(in millions of Won)
Present value of funded obligations	￦	1,394,675			1,515,426
Fair value of plan assets		(1,064,711	)		(1,247,483	)
Present value of non-funded obligations		15,724			5,217
Net defined benefit liabilities	￦	345,688			273,160

2) Changes in present value of defined benefit obligations for the years ended December 31, 2012 and 2013 were as follows:

	2012			2013
	(in millions of Won)
Defined benefit obligation at the beginning of period	￦	1,173,238			1,410,399
Current service costs		212,450			238,386
Interest costs		51,351			47,039
Remeasurements:		83,050			(12,615	)
— Gain from change in demographic assumptions		(7,842	)		(5,624	)
— Loss from change in financial assumptions		85,483			7,667
— Others		5,409			(14,658	)
Business combinations		1,684			11,379
Benefits paid		(116,846	)		(129,038	)
Others		5,472			(44,907	)
Defined benefit obligation at the end of period	￦	1,410,399			1,520,643

F-85

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

3) Changes in fair value of plan assets for the years ended December 31, 2012 and 2013 were as follows:

	2012			2013
	(in millions of Won)
Fair value of plan assets at the beginning of period	￦	832,771			1,064,711
Interest on plan assets		37,669			37,677
Remeasurement of plan assets		2,157			(1,482	)
Contributions to plan assets (*1)		267,420			254,771
Business combinations		906			9,372
Others		(489	)		(34,942	)
Benefits paid		(75,723	)		(82,624	)
Fair value of plan assets at the end of period	￦	1,064,711			1,247,483

(*1) The Company expects to make a contribution of ￦254,771 million to the defined benefit plan assets in 2014.

4) The fair value of plan assets as of December 31, 2012 and 2013 are as follows:

	2012		2013
	(in millions of Won)
Equity instruments	￦	12,002		35,364
Debt instruments		107,303		98,686
Deposits		743,884		958,509
Others		201,522		154,924
	￦	1,064,711		1,247,483

5) The amounts recognized in consolidated statements of comprehensive income for the years ended December 31, 2011, 2012 and 2013 were as follows:

	2011		2012		2013
	(in millions of Won)
Current service costs	￦	207,871		212,450		238,386
Net interest costs (*1)		29,127		13,682		9,362
	￦	236,998		226,132		247,748

(*1) The actual return on plan assets amounted to ￦41,318 million, ￦39,826 million and ￦36,195 million for the years ended December 31, 2011, 2012 and 2013, respectively.

The above expenses by function were as follows :

	2011		2012		2013
	(in millions of Won)
Cost of sales	￦	169,548		164,763		180,090
Selling and administrative expenses		59,978		60,457		66,327
Others		7,472		912		1,331
	￦	236,998		226,132		247,748

F-86

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

6) Accumulated actuarial gains (losses), net of tax recognized in other comprehensive income for the years ended December 31, 2011, 2012 and 2013 were as follows:

	2011			2012			2013
	(in millions of Won)
Beginning	￦	(152,125	)		(182,702	)		(245,229	)
Current actuarial gains (losses)		(30,577	)		(62,527	)		6,224
Ending	￦	(182,702	)		(245,229	)		(239,005	)

7) The principal actuarial assumptions as of December 31, 2012 and 2013 are as follows:

	2012		2013
	(%)
Discount rate (*1)		3.29~4.46		3.47~4.91
Expected future increase in salaries (*2)		1.04~6.72		1.07~5.75

(*1) Discount rate is the yield at the end of the reporting period on high quality corporate bonds that have maturity dates approximating the terms of benefits obligations and that are denominated in the same currency in which the benefits are expected to be paid.

(*2) The expected future increase in salaries is based on the average salary increase rate for past three- years.

All assumptions are reviewed at the end of the reporting period. Additionally, the total estimated defined benefit obligation includes actuarial assumptions associated with the long-term characteristics of the defined benefit plan.

8) Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation by the amounts shown below:

	1% Increase						1% Decrease
	Amount			Percentage (%)			Amount			Percentage (%)
	(in millions of Won)
Discount rate	￦	(102,996	)		(6.8	)	￦	114,323			7.5
Expected future increases in salaries		112,291			7.4			(101,720	)		(6.7	)

9) As of December 31, 2013 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

Later than 20 years

Total

(in millions of Won)

Benefits paid

￦

69,334

239,632

532,724

992,760

254,495

￦

2,088,945

The maturity analysis of the defined benefit obligation were nominal amounts of defined benefit obligations using expected remaining working lives of employees.

F-87

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

22. Other Liabilities

Other liabilities as of December 31, 2012 and 2013 are as follows:

	2012		2013
	(in millions of Won)
Other current liabilities
Due to customers for contract work	￦	529,104		898,605
Advances received		1,289,805		1,176,621
Unearned revenue		46,963		29,217
Withholdings		162,073		192,497
Deferred revenue		235		202
Others (*1)		283,474		268,032
	￦	2,311,654		2,565,174
Other long-term liabilities
Advances received	￦	312,668		201,432
Unearned revenue		841		1,465
Others (*1)		64,305		57,954
	￦	377,814		260,851

(*1) Includes other current liabilities amounting to ￦274,490 million, ￦261,855 million and other long-term liabilities amounting to ￦14,939 million and ￦8,935 million as of December 31, 2012 and 2013, respectively, due to proportionate consolidation of joint ventures which are owned by POSCO’s subsidiaries.

23. Financial Instruments

(a) Classification of financial instruments

1) Financial assets as of December 31, 2012 and 2013 are as follows:

	2012		2013
	(in millions of Won)
Financial assets at fair value through profit or loss
Derivatives assets held for trading	￦	71,354		78,222
Available-for-sale financial assets		3,914,522		4,166,384
Held-to-maturity investments		34,488		3,834
Loans and receivables		19,787,951		21,206,326
	￦	23,808,315		25,454,766

2) Financial liabilities as of December 31, 2012 and 2013 are as follows:

	2012		2013
	(in millions of Won)
Financial liabilities at fair value through profit or loss
Derivatives liabilities held for trading	￦	185,142		357,466
Financial liabilities evaluated as amortized cost
Trade accounts payable		4,391,788		4,231,881
Borrowings		24,921,433		26,246,605
Financial guarantee liabilities		25,312		38,459
Others		1,802,174		2,253,989
		31,140,707		32,770,934
	￦	31,325,849		33,128,400

F-88

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

3) Finance income and costs by category of financial instrument for the years ended December 31, 2011, 2012 and 2013 were as follows:

 December 31, 2011

	Finance income and costs
	Interest income (cost)			Dividend income		Gain and loss on foreign currency transactions			Gain and loss on foreign currency translations			Gain and loss on disposal			Others			Total			Other comprehensive loss
	(in millions of Won)
Financial assets at fair value through profit or loss	￦	3			—		—			—			544,913			70,656			615,572			—
Available-for-sale financial assets		768			143,880		—			—			453,540			(152,804	)		445,384			(1,231,758	)
Held-to-maturity investments		1,749			—		—			—			—			(311	)		1,438			—
Loans and receivables		213,714			—		(26,239	)		46,971			(41,171	)		(95	)		193,180			—
Financial liabilities at fair value through profit or loss		—			—		—			—			(506,664	)		(150,963	)		(657,627	)		—
Financial liabilities at amortized cost		(788,348	)		—		(140,052	)		(317,867	)		—			(27,956	)		(1,274,223	)		—
	￦	(572,114	)		143,880		(166,291	)		(270,896	)		450,618			(261,473	)		(676,276	)		(1,231,758	)

‚ December 31, 2012

	Financial income and costs
	Interest income (cost)			Dividend income		Gain and loss on foreign currency transactions			Gain and loss on foreign currency translations			Gain and loss on disposal			Others			Total			Other comprehensive loss
	(in millions of Won)
Financial assets at fair value through profit or loss	￦	130			—		—			—			407,505			77,907			485,542			—
Available-for-sale financial assets		1,046			124,475		—			—			75,809			(224,171	)		(22,841	)		(81,471	)
Held-to-maturity investments		1,664			—		—			—			(224	)		79			1,519			—
Loans and receivables		275,967			—		(252,265	)		(162,156	)		(33,786	)		(406	)		(172,646	)		—
Financial liabilities at fair value through profit or loss		—			—		—			—			(308,350	)		(143,754	)		(452,104	)		—
Financial liabilities at amortized cost		(871,457	)		—		348,481			855,805			—			(72,874	)		259,955			—
	￦	(592,650	)		124,475		96,216			693,649			140,954			(363,219	)		99,425			(81,471	)

F-89

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

ƒ December 31, 2013

	Financial income and costs
	Interest income (cost)			Dividend income		Gain and loss on foreign currency transactions		Gain and loss on foreign currency translations			Gain and loss on disposal			Others			Total			Other comprehensive income
	(in millions of Won)
Financial assets at fair value through profit or loss	￦	549			—		—		—			348,126			67,951			416,626			—
Available-for-sale financial assets		4,010			59,181		—		—			101,842			(280,237	)		(115,204	)		412,346
Held-to-maturity investments		480			—		—		—			—			84			564			—
Loans and receivables		255,359			—		20,232		(69,773	)		(20,009	)		(145	)		185,664			—
Financial liabilities at fair value through profit or loss		—			—		—		—			(264,739	)		(287,864	)		(552,603	)		—
Financial liabilities at amortized cost		(657,681	)		—		49,906		236,016			—			(11,703	)		(383,462	)		—
	￦	(397,283	)		59,181		70,138		166,243			165,220			(511,914	)		(448,415	)		412,346

(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, 2012 and 2013 are as follows:

	2012		2013
	(in millions of Won)
Cash and cash equivalents	￦	4,680,526		4,208,562
Financial assets at fair value through profit or loss		71,354		78,222
Available-for-sale financial assets		203,353		97,618
Held-to-maturity investments		34,488		3,834
Loans and other receivables		3,927,248		5,408,163
Trade accounts and notes receivable, net		11,037,973		11,492,601
Long-term trade accounts and notes receivable, net		142,204		97,000
	￦	20,097,146		21,386,000

The Company provided financial guarantees for the repayment of loans of associates and third parties. As of December 31, 2012 and 2013, the maximum exposure to credit risk related to the financial guarantee amounted to ￦4,607,773 million, ￦4,520,052 million, respectively.

F-90

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

2) Impairment losses on financial assets

 Allowance for doubtful accounts as of December 31, 2012 and 2013 are as follows:

	2012		2013
	(in millions of Won)
Trade accounts and notes receivable	￦	379,536		439,073
Other accounts receivable		47,565		81,470
Long-term loans		42,721		127,990
Other assets		5,055		13,118
	￦	474,877		661,651

‚ Impairment losses on financial assets for the years ended December 31, 2012 and 2013 were as follows:

	2012			2013
	(in millions of Won)
Bad debt expenses on trade receivables	￦	79,258			90,119
Impairment of available-for-sale financial assets		224,171			280,237
Other bad debt expenses (*1)		44,115			111,065
Less: Recovery of impairment of held-to-maturity financial assets		(79	)		(84	)
	￦	347,465			481,337

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

ƒ The aging schedule and the impaired losses of trade accounts and notes receivable as of December 31, 2012 and 2013 are as follows:

	2012				2013
	Trade accounts and notes receivable		Impairment		Trade accounts and notes receivable		Impairment
	(in millions of Won)
Not due	￦	9,106,925		52,063		8,465,892		48,147
Over due less than 1 month		1,313,554		4,387		1,849,829		12,675
1 month – 3 months		278,029		3,264		239,498		3,124
3 months – 12 months		413,251		41,291		503,171		10,681
Over 12 months		447,954		278,531		970,284		364,446
	￦	11,559,713		379,536		12,028,674		439,073

„ The aging schedule and the impaired losses of loans and other receivables as of December 31, 2012 and 2013 are as follows:

	2012				2013
	Loans and other receivables		Impairment		Loans and other receivables		Impairment
	(in millions of Won)
Not due	￦	3,688,845		3,059		5,186,745		11,176
Over due less than 1 month		12,491		359		28,501		19,138
1 month – 3 months		22,410		316		13,293		30
3 months – 12 months		120,224		2,833		92,022		820
Over 12 months		178,618		88,774		310,180		191,414
	￦	4,022,588		95,341		5,630,741		222,578

F-91

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

… Changes in the allowance for doubtful accounts for the years ended December 31, 2011, 2012 and 2013 were as follows:

	2011			2012			2013
	(in millions of Won)
Beginning	￦	357,063			406,721			474,877
Bad debt expenses		92,197			79,258			90,119
(Reversal of) Other bad debt expenses		(46,720	)		44,115			111,065
Write-off		(16,225	)		(40,138	)		(10,368	)
Others		20,406			(15,079	)		(4,042	)
Ending	￦	406,721			474,877			661,651

(c) Liquidity risk

1) Contractual maturities for non-derivative financial liabilities, including estimated interest, are as follows:

	Book value		Contractual cash flow		Within 1 year		1 year - 5 years		Later than 5 years
	(in millions of Won)
Trade accounts payable	￦	4,231,881		4,231,881		4,231,322		559		—
Financial guarantee liabilities (*1)		38,459		4,520,052		4,520,052		—		—
Other financial liabilities		2,253,989		2,253,989		2,047,355		206,634		—
Borrowings (*2)		26,246,605		29,293,081		11,946,021		11,723,706		5,623,354
	￦	32,770,934		40,299,003		22,744,750		11,930,899		5,623,354

(*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) Includes cash flows of embedded derivatives instruments in relation to exchangeable bonds (exchange right).

2) The maturity analysis of derivative financial liabilities is as follows:

	Within 1 year		1 year-  5 years		Later than 5 years		Total
	(in millions of Won)
Currency forward	￦	20,166		24,882		—		45,048
Currency futures		35,605		—		—		35,605
Currency swaps		72,267		23,459		5,291		101,017
Interest swaps		332		—		—		332
	￦	128,370		48,341		5,291		182,002

(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 changes in foreign exchange rates. The exposure to currency risk as of December 31, 2012 and 2013 are as follows:

	2012				2013
	Assets		Liabilities		Assets		Liabilities
	(in millions of Won)
USD	￦	3,933,448		9,120,893		3,929,623		8,953,287
EUR		317,381		330,481		365,021		408,542
JPY		239,569		2,017,179		482,691		1,727,946
Others		264,299		65,679		372,715		212,287

F-92

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

2) As of December 31, 2012 and 2013, provided that functional currency against foreign currencies other than functional currency hypothetically weakens or strengthens by 10%, the changes in gain or loss during the years ended December 31, 2012 and 2013 were as follows:

	2012					2013
	10% increase			10% decrease		10% increase			10% decrease
	(in millions of Won)
USD	￦	(518,745	)		518,745		(502,366	)		502,366
EUR		(1,310	)		1,310		(4,352	)		4,352
JPY		(177,761	)		177,761		(124,526	)		124,526

(e) Interest rate risk

1) The carrying amount of interest-bearing financial instruments as of December 31, 2012 and 2013 are as follows:

	2012			2013
	(in millions of Won)
Fixed rate
Financial assets	￦	7,325,825			8,195,153
Financial liabilities		(15,301,208	)		(15,633,891	)
	￦	(7,975,383	)		(7,438,738	)
Variable rate
Financial liabilities	￦	(9,620,225	)		(10,612,712	)

2) Sensitivity analysis on the fair value of financial instruments with variable interest rate

As of December 31, 2012 and 2013, provided that other factors remain the same and the interest rate of borrowings with floating rates increases or decreases by 1%, the changes in gain or loss for the years ended December 31, 2012 and 2013 were as follows:

	2012					2013
	1% increase			1% decrease		1% increase			1% decrease
	(in millions of Won)
Variable rate financial instruments	￦	(96,202	)		96,202		(106,127	)		106,127

F-93

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

(f) Fair value

1) Fair value and book value

The carrying amount and the fair value of financial instruments as of December 31, 2012 and 2013 are as follows:

	2012				2013
	Book Value		Fair Value		Book Value		Fair Value
	(in millions of Won)
Assets measured at fair value
Available-for-sale financial assets (*1)	￦	3,349,606		3,349,606		3,560,515		3,560,515
Derivatives assets held for trading (*2)		71,354		71,354		78,222		78,222
		3,420,960		3,420,960		3,638,737		3,638,737
Assets measured amortized cost (*3)
Cash and cash equivalents		4,680,526		4,680,526		4,208,562		4,208,562
Trade accounts and notes receivable, net		11,180,177		11,180,177		11,589,601		11,589,601
Loans and other receivables, net		3,927,248		3,927,248		5,408,163		5,408,163
Held-to-maturity investments		34,488		34,488		3,834		3,834
		19,822,439		19,822,439		21,210,160		21,210,160
Liabilities measured at fair value
Derivatives liabilities held for trading (*2)		185,142		185,142		357,466		357,466
Liabilities measured amortized cost (*3)
Trade accounts and notes payable		4,391,787		4,391,787		4,231,881		4,231,881
Borrowings		24,921,433		25,382,344		26,246,605		26,550,721
Financial guarantee liabilities		25,312		25,312		38,459		38,459
Others		1,802,175		1,802,175		2,253,989		2,253,989
	￦	31,140,707		31,601,618		32,770,934		33,075,050

(*1) The fair value of available-for-sale financial assets publicly traded is measured at the closing bid price quoted at the end of the reporting period. Meanwhile, the fair value of unquoted available-for-sale financial assets is calculated using the valuation results from an external pricing service in which weighted average cost of capital of evaluated companies is used as a discount rate. Available-for-sale financial assets which are not measured at fair value are excluded.

(*2) The fair value of derivatives is measured using valuation models such as Black-Scholes model and others in which the market yields on government bonds are used as a discount rate.

(*3) The fair value of financial assets and liabilities measured at amortized cost is determined at the present value of estimated future cash flows discounted at the current market interest rate. The fair value is calculated for the disclosures in the notes. On the other hand, the Company has not performed fair value measurement for the financial assets and liabilities measured at amortized cost except borrowings since the fair value is close to their carrying amounts.

2) Interest rates used for determining fair value

Interest rates used to discount estimated cash flows as of December 31, 2012 and 2013 are as follows:

	2012		2013
Interest rate of borrowings (%)		1.47~7.22		0.76~5.18

F-94

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

3) The fair value hierarchy

¨ The Company classifies fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in measurements.

Level 1:	quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2:	inputs other than quoted prices that are observable for the asset or liability either directly or indirectly.
Level 3:	inputs for the assets or liability that are not based on observable market data (that is, unobservable inputs).

¨ The fair values of financial instruments by fair value hierarchy as of December 31, 2012 and 2013 are as follows:

a. December 31, 2012

	Level 1		Level 2		Level 3		Total
	(in millions of Won)
Financial Assets
Available-for-sale financial assets	￦	2,590,933		—		758,673		3,349,606
Derivatives assets held for trading		—		71,354		—		71,354
	￦	2,590,933		71,354		758,673		3,420,960
Financial Liabilities
Derivatives liabilities held for trading	￦	—		185,142		—		185,142

b. December 31, 2013

	Level 1		Level 2		Level 3		Total
	(in millions of Won)
Financial Assets
Available-for-sale financial assets	￦	2,816,484		—		744,031		3,560,515
Derivatives assets held for trading		—		78,222		—		78,222
	￦	2,816,484		78,222		744,031		3,638,737
Financial Liabilities
Derivatives liabilities held for trading	￦	—		357,466		—		357,466

¨ Changes in fair value of financial instruments measured by Level 3 for the years ended December 31, 2012 and 2013 were as follows:

	2012			2013
	(in millions of Won)
Beginning	￦	939,241			758,673
Valuation		(182,927	)		(15,423	)
Acquisition and others (*1)		30,729			19,766
Disposal and others (*2)		(28,370	)		(18,985	)
Ending	￦	758,673			744,031

(*1) Included ￦15,326 million and ￦16,518 million transferred to Level 3 for the years ended December 31, 2012 and 2013, respectively.

(*2) Included ￦17,500 million and ￦12,176 million excluded from Level 3 for the years ended December 31, 2012 and 2013, respectively.

F-95

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

(g) Offsetting financial assets and financial liabilities

As of December 31, 2012 and 2013, financial assets and financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements are as follows:

1) December 31, 2012

	Gross amounts of recognized financial instruments		Gross amounts of recognized financial instruments set off in the statement of financial		Net amounts of financial instruments presented in the statement of financial position		Related amounts not set off in the statement of financial position						Net amount
							Financial instruments			Cash collateral received or pledged
	(in millions of Won)
Financial assets
Trade accounts and notes receivable	￦	80,258		—		80,258		(80,258	)		—			—
Derivatives (*1)		56,341		—		56,341		(56,341	)		—			—
Total		136,599		—		136,599		(136,599	)		—			—
Financial liabilities
Short-term borrowings		80,258		—		80,258		(80,258	)		—			—
Derivatives (*1)		59,274		—		59,274		(56,341	)		(2,933	)		—
Total	￦	139,532		—		139,532		(136,599	)		(2,933	)		—

(*1) Some of derivative contract are made under International Swaps and Derivatives Association (ISDA) master netting agreements. In general, under such agreements the amounts owed by each counter party on a single day in respect of all transactions outstanding in the same currency are aggregated into a single net amount that is payable by one party to the other. In certain circumstances (i.e. when a default occurs), all standing transactions under the agreement are terminated, the termination value is assessed and only a single amount is payable in settlement of all transactions.

2) December 31, 2013

	Gross amounts of recognized financial instruments		Gross amounts of recognized financial instruments set off in the statement of financial		Net amounts of financial instruments presented in the statement of financial position		Related amounts not set off in the statement of financial position						Net amount
							Financial instruments			Cash collateral received or pledged
	(in millions of Won)
Financial assets
Trade accounts and notes receivable	￦	73,956		—		73,956		(73,956	)		—			—
Derivatives (*1)		64,408		—		64,408		(64,408	)		—			—
Total		138,364		—		138,364		(138,364	)		—			—
Financial liabilities
Short-term borrowings		73,956		—		73,956		(73,956	)		—			—
Derivatives (*1)		108,405		—		108,405		(64,408	)		(3,410	)		40,587
Total	￦	182,361		—		182,361		(138,364	)		(3,410	)		40,587

(*1) Some of derivative contract are made under International Swaps and Derivatives Association (ISDA) master netting agreements. In general, under such agreements the amounts owed by each counter party on a single day in respect of all transactions outstanding in the same currency are aggregated into a single net amount that is payable by one party to the other. In certain circumstances (i.e. when a default occurs), all standing transactions under the agreement are terminated, the termination value is assessed and only a single amount is payable in settlement of all transactions.

F-96

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

24. Share Capital and Contributed Surplus

(a) Share capital as of December 31, 2012 and 2013 are as follows:

	2012		2013
	(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, 2013, total shares of ADRs of 53,749,064 are equivalent to 13,437,266 of common stock.

(*2) As of December 31, 2013, 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, 2012 and 2013 were as follows:

	2012							2013
	Issued shares		Treasury shares			Number of outstanding shares		Issued shares		Treasury shares			Number of outstanding shares
	(share)
Beginning		87,186,835		(9,942,391	)		77,244,444		87,186,835		(9,942,391	)		77,244,444
Disposal of treasury shares		—		—			—		—		2,539,180			2,539,180
Ending		87,186,835		(9,942,391	)		77,244,444		87,186,835		(7,403,211	)		79,783,624

(c) Capital surplus as of December 31, 2012 and 2013 are as follows:

	2012			2013
	(in millions of Won)
Share premium	￦	463,825			463,825
Gain on disposal of treasury shares		763,867			769,215
Other capital deficit		(122,878	)		(154,774	)
	￦	1,104,814			1,078,266

25. Hybrid Bonds

(a) Hybrid bonds classified as equity as of December 31, 2013 are as follows:

	Date of issue		Date of maturity		Rate of interest (%)		2013
	(in millions of Won)
Hybrid bond 1-1 (*1)		2013-06-13		2043-06-13		4.30	￦	800,000
Hybrid bond 1-2 (*1)		2013-06-13		2043-06-13		4.60		200,000
Issuance cost								(3,081	)
							￦	996,919

F-97

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

(*1) Details of hybrid bonds as of December 31, 2013 are as follows:

	Hybrid bond 1-1	Hybrid bond 1-2
	(in millions of Won)
Issue price	800,000	200,000
Maturity date	30 years (The Company has a right to extend the maturity date) Issue date~2018-06-12 : 4.3% reset every 5 years as follows;	30 years (The Company has a right to extend the maturity date) Issue date~2023-06-12 : 4.6% reset every 10 years as follows;
Interest rate	· After 5 years : return on government bond (5 years) + 1.3% · After 10 years : additionally +0.25% according to Step-up clauses · After 25 years : additionally +0.75%	· After 10 years : return on government bond (10 years) + 1.4% · After 10 years : additionally +0.25% according to Step-up clauses · After 30 years : additionally +0.75%
Interest payments	Quarterly	Quarterly
condition	(Optional deferral of interest payment is available to the Company) The Company can call the hybrid bond at year 5 and interest payment date afterwards	(Optional deferral of interest payment is available to the Company) The Company can call the hybrid bond at year 10 and interest payment date afterwards
Others

The Company holds the right to extend the maturity dates of the hybrid bonds and to defer interest payments for the hybrid bonds. If interest payments for the hybrid bonds are deferred, the Company cannot declare or pay dividends attributable to common stock. Since the Company has an unconditional right to avoid delivering cash or another financial asset to settle a contractual obligation, the hybrid bonds have been classified as equity instruments. The hybrid bond holders’ preference in the event of liquidation is higher than the common stock holders, but lower than other creditors. The interest accumulated but not paid on the hybrid bonds as of December 31, 2013 amounts to ￦2,301 million.

(b) POSCO ENERGY Co., Ltd., a subsidiary of the Company, issued hybrid bonds during the year ended December 31, 2013, which are classified as non-controlling interests in the consolidated financial statements. Hybrid bonds as of December 31, 2013 are as follows:

	Date of issue		Date of maturity		Interest rate (%)		2013
	(in millions of Won)
Hybrid bond 1-1 (*1)		2013-08-29		2043-08-29		4.66	￦	165,000
Hybrid bond 1-2 (*1)		2013-08-29		2043-08-29		4.72		165,000
Hybrid bond 1-3 (*1)		2013-08-29		2043-08-29		4.72		30,000
Hybrid bond 1-4 (*1)		2013-08-29		2043-08-29		5.21		140,000
Issuance cost								(1,532	)
							￦	498,468

(*1) Details of hybrid bonds of POSCO ENERGY Co., Ltd .as of December 31, 2013 are as follows:

F-98

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

	Hybrid bond 1-1	Hybrid bond 1-2 and 1-3	Hybrid bond 1-4
	(in millions of Won)
Issue price	165,000	195,000	140,000
Maturity date	30 years (The Company has a right to extend the maturity date) Issue date~2018-08-29 : 4.66% reset every 5 years as follows; · After 5 years : return on	30 years (The Company has a right to extend the maturity date) Issue date~2018-08-29 : 4.72% reset every 5 years as follows; · After 5 years : return on	30 years (The Company has a right to extend the maturity date) Issue date~2018-08-29 : 5.21% reset every 5 years as follows; · After 5 years : return on
Interest rate	government bond (5 years) + 1.39% · After 10 years : additionally +0.25% according to Step-up clauses · After 30 years : additionally +0.75% Quarterly	government bond (5 years) + 1.45% · After 10 years : additionally +0.25% according to Step-up clauses · After 30 years : additionally +0.75% Quarterly	government bond (5 years) + 1.55% · After 10 years : additionally +0.25% according to Step-up clauses · After 30 years : additionally +0.75% Quarterly
Interest payments condition	(Optional deferral of interest payment is available to the Company)	(Optional deferral of interest payment is available to the Company)	(Optional deferral of interest payment is available to the Company)
Others	The Company can call the hybrid bond at year 5 and interest payment date afterwards	The Company can call the hybrid bond at year 5 and interest payment date afterwards	The Company can call the hybrid bond at year 5 and interest payment date afterwards

The Company holds the right to extend the maturity dates of the hybrid bonds and to defer interest payments for the hybrid bonds. If interest payments for the hybrid bonds are deferred, the Company cannot declare or pay dividends attributable to common stock. Since the Company has an unconditional right to avoid delivering cash or another financial asset to settle a contractual obligation, the hybrid bonds have been classified as equity instruments (Non-controlling interests). 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, 2013 amounts to ￦2,000 million.

26. Reserves

(a) Reserves as of December 31, 2012 and 2013 are as follows:

	2012			2013
	(in millions of Won)
Accumulated comprehensive loss of investments in associates and joint ventures	￦	(129,159	)		(295,946	)
Changes in the unrealized fair value of available-for-sale investments		67,956			480,409
Currency translation differences		(8,591	)		(189,085	)
Others		(18,356	)		(18,454	)
	￦	(88,150	)		(23,076	)

F-99

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

(b) Changes in fair value of available-for-sale investments for the years ended December 31, 2012 and 2013 were as follows:

	2012			2013
	(in millions of Won)
Beginning balance	￦	154,617			67,956
Changes in the unrealized fair value of available-for-sale investments		(189,664	)		312,196
Reclassification to profit or loss upon disposal		(54,089	)		(73,848	)
Impairment of available-for-sale investments		150,869			170,892
Others		6,223			3,213
Ending balance	￦	67,956			480,409

27. Treasury Shares

Based on the Board of Director’s resolution, the Company holds treasury shares for the business purposes including price stabilization. The changes in treasury shares for the years ended December 31, 2012 and 2013 were as follows:

	2012				2013
	Number of shares		Amount		Number of shares			Amount
	(shares, in millions of Won)
Beginning		9,942,391	￦	2,391,406		9,942,391			2,391,406
Disposal of treasury shares		—		—		(2,539,180	)		(812,282	)
Ending		9,942,391	￦	2,391,406		7,403,211			1,579,124

28. Revenue

Details of revenue for the years ended December 31, 2011, 2012 and 2013 were as follows:

	2011		2012		2013
	(in millions of Won)
Goods sales	￦	61,001,789		55,123,774		50,921,090
Service sales		2,440,639		3,488,562		3,614,227
Construction sales		5,297,892		4,660,811		6,886,007
Rental income		39,862		32,056		24,735
Others		158,543		298,948		418,591
	￦	68,938,725		63,604,151		61,864,650

29. Construction Contracts

(a) Construction contracts in progress as of December 31, 2012 and 2013 were as follows:

	2012			2013
	(in million of Won)
Aggregate amount of costs incurred	￦	8,343,117			10,380,202
Add: Recognized profits		659,555			950,010
Less: Recognized losses		(213,055	)		(467,023	)
Cumulative construction revenue		8,789,617			10,863,189
Less: Progress billing		(7,691,482	)		(10,145,691	)
Foreign currency gains and losses		(2,589	)		(1,379	)
Others		(130,941	)		(39,795	)
	￦	964,605			676,324

F-100

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

(b) Unbilled amount due from customers and due to customers for contract work as of December 31, 2012 and 2013 are as follows:

	2012			2013
	(in million of Won)
Unbilled due from customers for contract work	￦	1,493,709			1,574,929
Due to customers for contract work		(529,104	)		(898,605	)
	￦	964,605			676,324

(c) When the outcome of a construction contract can be estimated reliably, contract revenue is recognized in profit or loss in proportion to the stage of completion of the contract.

The Company estimates the stage of completion of the contract based on the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs.

The estimated total contract costs are based on the nature and characteristics of an individual contract, historical costs of similar projects, and current circumstances. Only those contract costs that reflect work performed are included in costs incurred to date.

The following are the key assumptions for the estimated contract cost.

	Key assumptions for the estimation
Material	Estimations based on recent purchasing contracts, market price and quoted price
Labor Cost	Estimations based on standard monthly and daily labor cost
Outsourcing cost	Estimations based on the historical costs of similar projects, market price and quoted price

The management continually reviews all estimates involved in such construction contracts and adjusts them as necessary.

F-101

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

30. Selling and Administrative Expenses

(a) Administrative expenses

Administrative expenses for years ended December 31, 2011, 2012 and 2013 were as follows:

	2011		2012		2013
	(in millions of Won)
Wages and salaries	￦	606,819		694,682		754,819
Expenses related to post-employment benefits		60,271		61,261		67,482
Other employee benefits		164,508		170,734		165,751
Travel		56,635		52,817		53,003
Depreciation		172,807		218,747		228,496
Communication		13,061		15,088		14,601
Electric power		7,529		11,305		13,389
Taxes and public dues		50,617		59,664		55,177
Rental		65,559		93,268		110,191
Repairs		14,919		11,769		5,708
Entertainment		17,905		18,239		17,295
Advertising		70,939		55,777		105,663
Research & development		212,472		192,321		192,805
Service fees		286,635		264,439		240,034
Supplies		14,357		10,166		15,031
Vehicles maintenance		21,491		22,442		12,109
Industry association fee		10,200		11,487		11,924
Training		24,375		17,772		12,056
Conference		21,739		17,745		17,004
Warranty expense		12,606		13,148		19,075
Bad debt allowance		92,197		79,258		90,119
Others		37,412		37,334		30,073
	￦	2,035,053		2,129,463		2,231,805

(b) Selling expenses

Selling expenses for the years ended December 31, 2011, 2012 and 2013 were as follows:

	2011		2012		2013
	(in millions of Won)
Freight	￦	1,406,268		1,472,817		1,432,935
Operating expenses for distribution center		8,115		9,327		9,838
Sales commissions		85,410		74,308		73,922
Sales advertising		1,204		4,575		3,228
Sales promotion		16,179		17,525		27,129
Sample		7,321		7,489		4,751
Sales insurance premium		19,915		32,065		27,031
Contract cost		62,986		52,176		37,323
Others		4,730		8,406		15,963
	￦	1,612,128		1,678,688		1,632,120

F-102

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

31. Research and Development Expenditures Recognized as Expenses

Research and development expenditures recognized as expenses for the years ended December 31, 2011, 2012 and 2013 were as follows:

	2011		2012		2013
	(in millions of Won)
Selling and administrative expenses	￦	212,472		192,321		192,805
Cost of sales		380,177		385,128		369,842
	￦	592,649		577,449		562,647

32. Other Operating Income and Expenses

Details of other operating income and expenses for the years ended December 31, 2011, 2012 and 2013 were as follows:

	2011			2012			2013
	(in millions of Won)
Other operating income
Gain on disposals of property, plant and equipment	￦	13,812			42,290			14,177
Retail revenues		6,510			1,898			1,588
Gain on disposals of intangible assets		953			906			801
Gain on disposals of investments in associates		2,247			39,441			7,668
Gain on disposals of assets held for sale		—			193,333			101,611
Grant income		1,228			3,198			2,287
Reversal of other bad debt allowance		57,875			—			—
Reversal of other provisions		35,629			16,037			—
Outsourcing income		42,136			29,136			25,428
Gain on disposals of wastes		11,348			38,597			16,541
Gain from claim compensation		68,853			31,613			14,525
Penalty income from early termination of contracts		38,570			15,054			16,477
Others		27,780			36,617			27,970
	￦	306,941			448,120			229,073
Other operating expenses
Loss on disposals of property, plant and equipment	￦	(60,550	)		(65,486	)		(121,133	)
Loss on disposals of investment property		(8,826	)		(3,197	)		(522	)
Loss on disposals of assets held for sale		—			(9,510	)		(26,498	)
Idle tangible assets expenses		(16,881	)		(31,297	)		(17,624	)
Impairment loss on other long-term assets		(34,544	)		(36,453	)		(9,000	)
Impairment loss on assets held for sale		—			(258,451	)		(1,814	)
Impairment loss of property, plant and equipment		(26,171	)		(12,977	)		(9,742	)
Impairment loss of investment property		(23,397	)		(1,053	)		(22,943	)
Other bad debt expenses		(11,155	)		(44,115	)		(111,065	)
Donations		(66,558	)		(73,963	)		(60,940	)
Impairment loss on intangible assets		(14,959	)		(21,776	)		(125,316	)
Penalty and default losses		(39,551	)		(149,437	)		(19,340	)
Loss on disposals of wastes		(30,585	)		(45,480	)		(15,231	)
Loss on disposals of investments in associates		—			(15,119	)		(19,404	)
Other provision expenses		—			—			(65,896	)
Others		(33,356	)		(41,151	)		(24,338	)
	￦	(366,533	)		(809,465	)		(650,806	)

F-103

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

33. Finance Income and Costs

Details of finance income and costs for the years ended December 31, 2011, 2012 and 2013 were as follows:

	2011			2012			2013
	(in millions of Won)
Finance income
Interest income	￦	216,234			278,807			260,398
Dividend income		143,880			124,475			59,181
Gain on foreign currency transactions		1,454,103			935,457			997,591
Gain on foreign currency translations		259,014			936,740			511,143
Gain on transactions of derivatives		549,439			407,791			370,343
Gain on valuations of derivatives		111,637			94,492			72,297
Gain on disposals of available-for-sale investments		454,543			112,095			105,563
Others		1,569			7,206			4,322
	￦	3,190,419			2,897,063			2,380,838
Finance costs
Interest expenses	￦	(788,348	)		(871,457	)		(657,681	)
Loss on foreign currency transactions		(1,620,394	)		(839,241	)		(927,453	)
Loss on foreign currency translations		(529,910	)		(243,091	)		(344,900	)
Loss on transactions of derivatives		(512,882	)		(309,067	)		(286,574	)
Loss on valuations of derivatives		(188,742	)		(159,604	)		(291,465	)
Impairment loss on available-for-sale investments		(152,804	)		(224,171	)		(280,237	)
Loss on disposals of available-for-sale investments		(1,003	)		(36,286	)		(3,721	)
Loss on financial guarantee		(1,000	)		(38,442	)		(5,880	)
Others		(71,612	)		(76,279	)		(31,342	)
	￦	(3,866,695	)		(2,797,638	)		(2,829,253	)

34. Expenses by Nature

Expenses that are recorded by nature as cost of sales, selling, general and administrative expenses and other operating expenses in the statements of comprehensive income for the years ended December 31, 2011, 2012 and 2013 were as follows (excluding finance costs and income tax expense):

	2011		2012		2013
	(in millions of Won)
Changes in inventories	￦	17,546,701		14,161,271		12,163,136
Cost of merchandises sold		26,650,240		25,997,220		25,909,164
Employee benefits expenses (*2)		2,639,966		2,889,829		3,174,316
Outsourced processing cost		8,331,110		8,896,642		9,462,946
Depreciation expenses (*1)		2,133,010		2,405,769		2,505,536
Amortization expenses		133,289		157,991		180,014
Electricity and water expenses		715,265		837,507		1,109,765
Service fees		630,223		670,919		702,953
Research & development expenses		592,649		577,449		562,647
Freight and custody expenses		1,406,268		1,472,817		1,432,935
Commission paid		85,410		74,308		73,922
Loss on disposal of property, plant, and equipment		60,550		65,486		121,133
Donations		66,558		73,963		60,940
Other expenses		2,846,325		2,479,337		2,059,915
	￦	63,837,564		60,760,508		59,519,322

(*1) Includes depreciation expense of investment property.

F-104

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

(*2) The details of employee benefits expenses for the years ended December 31, 2011, 2012 and 2013 were as follows:

	2011		2012		2013
	(in millions of Won)
Wages and salaries	￦	2,394,094		2,647,177		2,907,442
Severance benefit		245,872		242,652		266,874
	￦	2,639,966		2,889,829		3,174,316

35. Income Taxes

(a) Income tax expense for the years ended December 31, 2011, 2012 and 2013 was as follows:

	2011			2012		2013
	(in millions of Won)
Current income taxes	￦	1,069,240			795,601		615,771
Deferred income tax due to temporary differences		(318,722	)		154,324		108,034
Less: Items recorded directly in equity		317,591			32,954		(132,808	)
Income tax expense	￦	1,068,109			982,879		590,997

(b) The following table reconciles the expected amount of income tax expense based on POSCO’s statutory rates (24.2%) to the actual amount of taxes recorded by the Company for the years ended December 31, 2011, 2012 and 2013:

	2011			2012			2013
	(in millions of Won)
Net income before income tax expense	￦	4,782,395			3,368,486			1,946,177
Income tax expense computed at statutory rate		1,157,340			815,174			470,975
Adjustments:		(89,231	)		167,705			120,022
Tax effects due to permanent differences		(13,798	)		48,220			7,703
Tax credit		(193,633	)		(188,713	)		(169,166	)
Tax rate change effect		17,661			—			—
Over (under) provision from prior years		(15,739	)		1,776			(1,178	)
Investments in subsidiaries and associates		97,246			281,437			251,014
Others		19,032			24,985			31,649
Income tax expense	￦	1,068,109			982,879			590,997
Effective tax rate (%)		22.33			29.18			30.37

(c) The income taxes credited (charged) directly to other comprehensive income during the period ended December 31, 2012 and 2013 were as follows:

	2012		2013
	(in millions of Won)
Net changes in the unrealized fair value of available-for-sale securities	￦	22,585		(139,679	)
Gains on sale of treasury stock		—		(1,707	)
Others		10,369		8,578
	￦	32,954		(132,808	)

F-105

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

(d) The movements in deferred tax assets (liabilities) for the years ended December 31, 2012 and 2013 were as follows:

	2012									2013
	Beginning			Inc (Dec)			Ending			Beginning			Inc (Dec)			Ending
	(in millions of Won)
Deferred income tax due to temporary differences
Reserve for special repairs	￦	(29,659	)		646			(29,013	)		(29,013	)		551			(28,462	)
Allowance for doubtful accounts		104,621			7,807			112,428			112,428			37,175			149,603
Reserve for technology developments		(366,232	)		(9,698	)		(375,930	)		(375,930	)		(4,735	)		(380,665	)
Depreciation		(58,288	)		11,714			(46,574	)		(46,574	)		13,232			(33,342	)
Share of profit or loss of equity-accounted investees		(224,136	)		127,762			(96,374	)		(96,374	)		7,069			(89,305	)
Reserve for inventory valuation		(1,514	)		(2,568	)		(4,082	)		(4,082	)		2,560			(1,522	)
Revaluation of assets		(570,403	)		(229,529	)		(799,932	)		(799,932	)		(211,661	)		(1,011,593	)
Prepaid expenses		21,437			9,803			31,240			31,240			(2,855	)		28,385
Impairment loss on property, plant and equipment		25,492			3,263			28,755			28,755			(3,237	)		25,518
Loss on foreign currency translation		95,787			(159,132	)		(63,345	)		(63,345	)		(125,857	)		(189,202	)
Defined benefit obligations		55,053			15,571			70,624			70,624			29,732			100,356
Plan assets		(43,091	)		(3,330	)		(46,421	)		(46,421	)		(12,245	)		(58,666	)
Provision for construction losses		2,852			(625	)		2,227			2,227			2,046			4,273
Provision for construction warranty		15,902			(1,061	)		14,841			14,841			1,833			16,674
Appropriated retained earnings for technological development		(165	)		(286	)		(451	)		(451	)		—			(451	)
Accrued income		(1,949	)		(1,248	)		(3,197	)		(3,197	)		282			(2,915	)
Others		376,107			(66,085	)		310,022			310,022			170,015			480,037
		(598,186	)		(296,996	)		(895,182	)		(895,182	)		(96,095	)		(991,277	)
Deferred income taxes recognized directly to equity
Loss (gain) on valuation of available-for-sale investments		1,421			22,585			24,006			24,006			(139,679	)		(115,673	)
Others		35,769			10,369			46,138			46,138			8,578			54,716
		37,190			32,954			70,144			70,144			(131,101	)		(60,957	)
Deferred tax from tax credit
Tax credit carryforward and others		256,877			82,231			339,108			339,108			98,534			437,642
Deferred tax effect due to unrealized gain (losses) and others		(8,375	)		27,470			19,095			19,095			23,666			42,761
	￦	(312,494)			(154,341	)		(466,835	)		(466,835	)		(104,996	)		(571,831	)

F-106

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

(e) Deferred tax assets and liabilities for the years ended December 31, 2012 and 2013 are as follows:

	2012								2013
	Assets		Liabilities			Net			Assets		Liabilities			Net
	(in millions of Won)
Deferred income tax due to temporary differences
Reserve for special repairs	￦	—		(29,013	)		(29,013	)		—		(28,462	)		(28,462	)
Allowance for doubtful accounts		112,480		(52	)		112,428			149,695		(92	)		149,603
Reserve for technology developments		—		(375,930	)		(375,930	)		—		(380,665	)		(380,665	)
Depreciation		15,192		(61,766	)		(46,574	)		23,265		(56,607	)		(33,342	)
Share of profit or loss of equity-accounted investees		—		(96,374	)		(96,374	)		—		(89,305	)		(89,305	)
Reserve for inventory valuation		1,751		(5,833	)		(4,082	)		4,392		(5,914	)		(1,522	)
Revaluation of assets		—		(799,932	)		(799,932	)		—		(1,011,593	)		(1,011,593	)
Prepaid expenses		31,240		—			31,240			28,385		—			28,385
Impairment loss on property, plant and equipment		28,755		—			28,755			25,518		—			25,518
Loss on foreign currency translation		202,973		(266,318	)		(63,345	)		243,772		(432,974	)		(189,202	)
Defined benefit obligations		86,200		(15,576	)		70,624			110,891		(10,535	)		100,356
Plan assets		—		(46,421	)		(46,421	)		22		(58,688	)		(58,666	)
Provision for construction losses		2,227		—			2,227			4,273		—			4,273
Provision for construction warranty		14,841		—			14,841			16,674		—			16,674
Appropriated retained earnings for technological development		—		(451	)		(451	)		—		(451	)		(451	)
Accrued income		25		(3,222	)		(3,197	)		5		(2,920	)		(2,915	)
Others		421,595		(111,573	)		310,022			506,291		(26,254	)		480,037
		917,279		(1,812,461	)		(895,182	)		1,113,183		(2,104,460	)		(991,277	)
Deferred income taxes recognized directly to equity
Loss (gain) on valuation of available-for-sale investments		281,599		(257,593	)		24,006			128,938		(244,611	)		(115,673	)
Others		66,975		(20,837	)		46,138			70,441		(15,725	)		54,716
		348,574		(278,430	)		70,144			199,379		(260,336	)		(60,957	)
Deferred tax from tax credit
Tax credit carryforward and others		378,926		(39,818	)		339,108			481,256		(43,614	)		437,642
Deferred tax effect due to unrealized gain (losses) and others		522,871		(503,776	)		19,095			530,823		(488,062	)		42,761
	￦	2,167,650		(2,634,485	)		(466,835	)		2,324,641		(2,896,472	)		(571,831	)

(f) As of December 31, 2013, the Company did not recognize income tax effects associated with deductible temporary differences of ￦3,030,715 million (deferred tax assets ￦733,433 million) mainly relating to loss of subsidiaries and affiliates because realization is not considered probable. As of December 31, 2013, the Company did not recognize income tax effects associated with taxable temporary differences of ￦3,258,235 million (deferred tax liabilities ￦788,493 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-107

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

36. Earnings per Share

(a) Basic and diluted earnings per share for the years ended December 31, 2011, 2012 and 2013 were as follows:

	2011		2012		2013
	(Won, except per share information)
Profit attribute to controlling interest	￦	3,648,136,025,973		2,462,080,504,484		1,376,396,068,069
Interests of hybrid bonds		—		—		(18,313,914,551	)
Weighted-average number of common shares outstanding (*1)		77,251,818		77,244,444		78,009,654
Basic and diluted earnings per share		47,224		31,874		17,409

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

	2011			2012			2013
	(share)
Total number of common shares issued	￦	87,186,835			87,186,835			87,186,835
Weighted-average number of treasury shares		(9,935,017	)		(9,942,391	)		(9,177,181	)
Weighted-average number of common shares outstanding	￦	77,251,818			77,244,444			78,009,654

As of December 31, 2011, 2012 and 2013, the Company has no potential dilutive common shares. Accordingly, diluted earnings per share is identical to basic earnings per share.

F-108

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

37. Related Party Transactions

(a) Significant transactions with related parties for the years ended December 31, 2011, 2012 and 2013 were as follows:

1) For the year ended December 31, 2011

	Sales and others (*1)						Purchase and others (*2)
	Sales		Others		Total		Purchase of material		Purchase of fixed assets		Outsourced processing cost		Others		Total
	(in millions of Won)
Subsidiaries
POSCO ENGINEERING & CONSTRUCTION Co., LTD.	￦	25,344		1,192	￦	26,536	￦	1,709		1,632,879		184		52,893	￦	1,687,665
POSCO Processing & Service		1,181,060		28		1,181,088		1,405,725		—		—		520		1,406,245
POSCO COATED & COLOR STEEL Co., Ltd.		593,634		22		593,656		—		—		1,800		90		1,890
POSCO PLANTEC Co., Ltd.		7,674		888		8,562		3,334		277,598		19,734		1,685		302,351
POSCO ICT		1,415		122		1,537		81		312,260		27,619		167,923		507,883
eNtoB Corporation		—		8		8		254,107		6,347		228		18,354		279,036
POSCO CHEMTECH		405,892		17,751		423,643		486,627		4,362		263,958		568		755,515
POSCO M-TECH		19,254		101		19,355		101,660		5,726		104,433		13		211,832
POSCO ENERGY CO., LTD.		69,864		1,404		71,268		1		—		—		267		268
POSCO TMC Co., Ltd.		168,304		10		168,314		—		—		654		230		884
POSCO AST		319,251		7		319,258		7,836		—		50,345		294		58,475
POSHIMETAL Co., Ltd.		8,739		54		8,793		34,649		—		—		86		34,735
Daewoo International Corporation		3,896,825		32		3,896,857		3,625		—		101		1,873		5,599
POSCO NST Co., Ltd.		186,807		2		186,809		1,305		—		2,890		539		4,734
POSCO America Corporation		353,904		—		353,904		—		—		—		1		1
POSCO Canada Ltd.		—		—		—		289,047		—		—		—		289,047
POSCO Asia Co., Ltd.		2,029,378		403		2,029,781		175,876		2,145		—		374		178,395
POSCO (Thailand) Company Limited		96,278		10		96,288		—		—		—		63		63
Qingdao Pohang Stainless Steel Co., Ltd.		49,860		2		49,862		—		—		—		—		—
POSCO(Suzhou) Automotive Processing Center Co., Ltd.		99,773		5		99,778		—		—		—		—		—
POSCO JAPAN Co., Ltd.		1,628,069		—		1,628,069		30,027		2,558		20		2,255		34,860
POSCO-India Pune Processing Center. Pvt. Ltd.		148,342		1		148,343		—		—		—		—		—
POSCO MEXICO S.A. DE C.V.		347,694		221		347,915		—		—		—		176		176
POSCO Maharashtra Steel Private Limited		510		1,830		2,340		—		—		—		—		—
DAEWOO INTERNATIONAL SINGAPORE PTE. LTD.		—		—		—		149,029		—		—		—		149,029
Others		567,215		4,126		571,341		132,625		110,370		11,721		115,090		369,806
	￦	12,205,086		28,219	￦	12,233,305	￦	3,077,263		2,354,245		483,687		363,294	￦	6,278,489
Associates and joint ventures
POSMATE		1,002		36		1,038		952		1,133		16,657		34,615		53,357
SNNC		1,609		3,178		4,787		447,130		—		—		—		447,130
POSCO PLANTEC Co., Ltd. (formerly, SUNGJIN GEOTEC Co., Ltd.)		44,451		—		44,451		—		—		—		—		—
Dongbang Special Steel Co., Ltd.		84,748		—		84,748		—		—		—		—		—
USS-POSCO Industries		342,290		304		342,594		—		—		—		29		29
POSCHROME (PROPRIETARY) LIMITED		—		—		—		72,502		—		—		—		72,502
PT. POSMI Steel Indonesia		12,205		—		12,205		—		—		—		—		—
POSK(Pinghu) Steel Processing Center Co., Ltd.		7,825		—		7,825		—		—		—		32		32
POSCO-SAMSUNG-Slovakia Processing Center		22,493		—		22,493		—		—		—		—		—
POSCO-SAMSUNG Suzhou Processing Center Co., Ltd.		23,974		—		23,974		—		—		—		—		—
Others		16,491		7		16,498		—		—		5,483		572		6,055
	￦	557,088		3,525	￦	560,613	￦	520,584		1,133		22,140		35,248	￦	579,105
.	￦	12,762,174		31,744	￦	12,793,918	￦	3,597,847		2,355,378		505,827		398,542	￦	6,857,594

(*1) Sales and others mainly consist of sales of steel products to subsidiaries, associates and joint ventures. These are priced on an arm’s length basis.

F-109

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

(*2) Purchases and others mainly consist of subsidiaries’ purchases of construction services and purchases of raw materials to manufacture steel products. These are priced on an arm’s length basis.

2) For the year ended December 31, 2012

	Sales and others (*1)						Purchase and others (*2)
	Sales		Others		Total		Purchase of material		Purchase of fixed assets		Outsourced processing cost		Others		Total
	(in millions of Won)
Subsidiaries
POSCO ENGINEERING & CONSTRUCTION Co., LTD.	￦	27,401		709	￦	28,110	￦	46		1,408,787		7		42,246	￦	1,451,086
POSCO Processing & Service		897,017		34		897,051		1,392,988		—		—		2,903		1,395,891
POSCO COATED & COLOR STEEL Co., Ltd.		489,507		38		489,545		—		—		5,574		922		6,496
POSCO PLANTEC Co., Ltd.		3,253		63		3,316		3,331		233,788		23,372		17,455		277,946
POSCO ICT		1,330		217		1,547		1,151		285,093		31,050		151,621		468,915
eNtoB Corporation		—		11		11		211,449		3,490		225		20,978		236,142
POSCO CHEMTECH		492,720		19,197		511,917		507,215		10,153		279,507		1,275		798,150
POSCO M-TECH		27,770		136		27,906		130,363		9,018		176,263		2,904		318,548
POSCO ENERGY CO., LTD.		87,387		820		88,207		—		482		—		1,772		2,254
POSCO TMC Co., Ltd.		230,215		20		230,235		25		—		995		12		1,032
POSCO AST		278,446		17		278,463		8,114		—		50,320		213		58,647
POSHIMETAL Co., Ltd.		23,882		130		24,012		149,809		180		—		5		149,994
Daewoo International Corporation		4,271,317		133		4,271,450		10,562		—		389		4,780		15,731
POSCO NST Co., Ltd.		212,534		2		212,536		1,229		—		2,147		242		3,618
POSCO America Corporation		726,450		—		726,450		—		—		—		733		733
POSCO Canada Ltd.		—		—		—		205,129		—		—		—		205,129
POSCO Asia Co., Ltd.		1,928,881		627		1,929,508		105,392		592		—		1,329		107,313
POSCO (Thailand) Company Limited		119,031		247		119,278		—		—		—		182		182
Qingdao Pohang Stainless Steel Co., Ltd.		62,347		2		62,349		—		—		—		—		—
POSCO(Suzhou) Automotive		128,974		—		128,974		—		—		—		—		—
Processing Center Co., Ltd.
POSCO JAPAN Co., Ltd.		1,439,580		—		1,439,580		20,472		2,857		—		5,381		28,710
POSCO-India Pune Processing Center. Pvt. Ltd.		164,450		33		164,483		—		—		—		15		15
POSCO MEXICO S.A. DE C.V.		337,921		724		338,645		—		—		—		492		492
POSCO Maharashtra Steel Private Limited		154,055		1,587		155,642		—		—		—		—		—
DAEWOO INTERNATIONAL SINGAPORE PTE. LTD.		—		—		—		73,471		—		—		—		73,471
Others		569,076		2,787		571,863		81,411		56,570		17,673		132,115		287,769
	￦	12,673,544		27,534	￦	12,701,078	￦	2,902,157		2,011,010		587,522		387,575	￦	5,888,264
Associates and joint ventures
POSMATE		951		21,093		22,044		1,058		21		14,947		30,032		46,058
SNNC		2,162		349		2,511		379,050		—		—		—		379,050
POSCO PLANTEC Co., Ltd. (formerly, SUNGJIN GEOTEC Co., Ltd.)		27,697		—		27,697		—		—		—		—		—
Dongbang Special Steel Co., Ltd.		89,094		—		89,094		—		—		—		—		—
POSCHROME (PROPRIETARY) LIMITED		—		58		58		68,079		—		—		—		68,079
PT. POSMI Steel Indonesia		9,696		—		9,696		—		—		—		—		—
POSK(Pinghu) Steel Processing Center Co., Ltd.		3,889		—		3,889		—		—		—		—		—
POSCO-SAMSUNG-Slovakia Processing Center		16,309		—		16,309		—		—		—		—		—
POSCO-SAMSUNG Suzhou Processing Center Co., Ltd.		26,280		—		26,280		—		—		—		—		—
Others		7,774		117		7,891		5,303		—		6,579		2,530		14,412
	￦	183,852		21,617	￦	205,469	￦	453,490		21		21,526		32,562	￦	507,599
	￦	12,857,396		49,151	￦	12,906,547	￦	3,355,647		2,011,031		609,048		420,137	￦	6,395,863

(*1) Sales and others mainly consist of sales of steel products to subsidiaries, associates and joint ventures. These are priced on an arm’s length basis.

(*2) Purchases and others mainly consist of subsidiaries’ purchases of construction services and purchases of raw materials to manufacture steel products. These are priced on an arm’s length basis.

F-110

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

3) For the year ended December 31, 2013

	Sales and others (*1)						Purchase and others (*2)
	Sales		Others		Total		Purchase of material		Purchase of fixed assets		Outsourced processing cost		Others		Total
	(in millions of Won)
Subsidiaries (*3)
POSCO ENGINEERING & CONSTRUCTION Co., LTD.	￦	16,439		3,421	￦	19,860	￦	3,042		2,235,798		5,855		9,242	￦	2,253,937
POSCO Processing & Service		987,424		8		987,432		1,215,510		—		—		805		1,216,315
POSCO COATED & COLOR STEEL Co., Ltd.		472,353		25		472,378		—		—		10,648		98		10,746
POSCO PLANTEC Co., Ltd.		2,324		19		2,343		1,499		67,081		13,733		2,492		84,805
POSCO ICT		1,210		195		1,405		679		279,660		31,231		157,126		468,696
POSMATE		1,419		85		1,504		805		1,041		15,732		32,894		50,472
eNtoB Corporation		—		10		10		234,352		13,241		149		20,079		267,821
POSCO CHEMTECH		512,139		25,868		538,007		491,562		21,832		287,584		1,223		802,201
POSCO M-TECH		11,122		94		11,216		158,709		2,336		220,986		141		382,172
POSCO ENERGY CO., LTD.		104,209		915		105,124		—		5,178		—		7		5,185
POSCO TMC Co., Ltd.		188,915		15		188,930		—		—		1,051		1,298		2,349
POSCO AST		500,193		10		500,203		6,985		—		56,520		2,029		65,534
POSHIMETAL Co., Ltd.		18,922		137		19,059		166,042		—		—		5		166,047
Daewoo International Corporation		3,522,678		65		3,522,743		16,297		—		—		2,843		19,140
POSCO America Corporation		596,681		1		596,682		—		—		—		339		339
POSCO Canada Ltd.		—		—		—		144,329		—		—		—		144,329
POSCO Asia Co., Ltd.		2,068,965		221		2,069,186		64,434		182		—		1,673		66,289
POSCO (Thailand) Company Limited		56,210		56		56,266		—		—		—		85		85
Qingdao Pohang Stainless Steel Co., Ltd.		58,502		—		58,502		—		—		—		14		14
POSCO(Suzhou) Automotive Processing Center Co., Ltd.		129,345		1		129,346		—		—		—		—		—
POSCO JAPAN Co., Ltd.		1,270,325		—		1,270,325		19,978		2		—		2,972		22,952
POSCO-India Pune Processing Center. Pvt. Ltd.		119,503		7		119,510		—		—		—		—		—
POSCO MEXICO S.A. DE C.V.		256,014		693		256,707		—		—		—		621		621
POSCO Maharashtra Steel Private Limited		176,425		3,157		179,582		—		—		—		236		236
DAEWOO INTERNATIONAL SINGAPORE PTE. LTD.		—		—		—		108,179		—		—		—		108,179
Others		558,923		7,569		566,492		92,527		38,843		18,782		77,101		227,253
	￦	11,630,240		42,572	￦	11,672,812	￦	2,724,929		2,665,194		662,271		313,323	￦	6,365,717
Associates and joint ventures (*3)
SNNC		1,532		458		1,990		402,639		—		—		—		402,639
POSCO PLANTEC Co., Ltd. (formerly, SUNGJIN GEOTEC Co., Ltd.) (*4)		15,028		48		15,076		1,735		65,802		9,781		6,883		84,201
POSCHROME (PROPRIETARY) LIMITED		—		—		—		66,762		—		—		—		66,762
PT. POSMI Steel Indonesia		6,538		—		6,538		—		—		—		—		—
POSK(Pinghu) Steel Processing Center Co., Ltd.		3,786		—		3,786		—		—		—		—		—
POSCO-SAMSUNG-Slovakia Processing Center		19,906		—		19,906		—		—		—		—		—
POSCO-SAMSUNG Suzhou Processing Center Co., Ltd.		6,429		—		6,429		—		—		—		—		—
Others		546		165		711		3,937		—		—		176		4,113
	￦	53,765		671	￦	54,436	￦	475,073		65,802		9,781		7,059	￦	557,715
	￦	11,684,005		43,243	￦	11,727,248	￦	3,200,002		2,730,996		672,052		320,382	￦	6,923,432

(*1) Sales and others mainly consist of sales of steel products to subsidiaries, associates and joint ventures. These are priced on an arm’s length basis.

(*2) Purchases and others mainly consist of subsidiaries’ purchases of construction services and purchases of raw materials to manufacture steel products. These are priced on an arm’s length basis.

(*3) As of December 31, 2013, the Company provided guarantees to related parties (Note 38).

(*4) Sungjin Geotec Co., Ltd. merged with POSCO Plant Engineering Co., Ltd. and changed its name to POSCO PLANTEC Co., Ltd.

F-111

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

(b) The related account balances of significant transactions with related companies as of December 31, 2012 and 2013 are as follows:

1) December 31, 2012

	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.	￦	5,084		2,893	￦	7,977	￦	—		403,630		—	￦	403,630
POSCO Processing & Service		64,206		358		64,564		28,723		3,949		—		32,672
POSCO COATED & COLOR STEEL Co., Ltd.		108,465		40		108,505		114		—		2,504		2,618
POSCO PLANTEC Co., Ltd.		59		208		267		3,066		29,231		—		32,297
POSCO ICT		—		287		287		248		84,432		6,617		91,297
eNtoB Corporation		—		3		3		7,246		9,323		12		16,581
POSCO CHEMTECH		43,086		3,988		47,074		52,485		13,300		18,753		84,538
POSCO M-TECH		1,230		63		1,293		8,226		10,900		17,866		36,992
POSCO ENERGY CO., LTD.		9,177		2,934		12,111		—		2,292		—		2,292
POSCO TMC Co., Ltd.		64,832		30		64,862		1		—		144		145
POSCO AST		64,542		1,033		65,575		90		2,919		4,791		7,800
POSHIMETAL Co., Ltd.		1,233		221		1,454		—		15,191		—		15,191
Daewoo International Corporation		357,446		1,378		358,824		685		—		45		730
POSCO America Corporation		63,545		—		63,545		—		—		—		—
POSCO Canada Ltd.		—		—		—		12,973		—		—		12,973
POSCO Asia Co., Ltd.		102,666		183		102,849		2,244		—		—		2,244
POSCO (Thailand) Company Limited		17,965		21		17,986		—		—		—		—
Qingdao Pohang Stainless Steel Co., Ltd.		8,710		—		8,710		—		—		—		—
POSCO JAPAN Co., Ltd.		35,400		—		35,400		673		—		—		673
POSCO MEXICO S.A. DE C.V.		131,372		297		131,669		—		—		—		—
POSCO Maharashtra Steel Private Limited		55,249		2,628		57,877		—		—		—		—
Others		49,679		5,500		55,179		5,920		22,509		3,359		31,788
	￦	1,183,946		22,065	￦	1,206,011	￦	122,694		597,676		54,091	￦	774,461
Associates and joint ventures
POSMATE		—		78		78		168		2,175		3,972		6,315
SNNC		194		35		229		37,145		—		—		37,145
POSCO PLANTEC Co., Ltd. (formerly, SUNGJIN GEOTEC Co., Ltd.)		4,849		—		4,849		—		—		—		—
POSCHROME (PROPRIETARY) LIMITED		—		—		—		2,273		—		—		2,273
Others		—		453		453		804		—		—		804
	￦	5,043		566	￦	5,609	￦	40,390		2,175		3,972	￦	46,537
	￦	1,188,989		22,631	￦	1,211,620	￦	163,084		599,851		58,063	￦	820,998

F-112

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

2) December 31, 2013

	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.	￦	40		110,955	￦	110,995	￦	—		105,603		—	￦	105,603
POSCO Processing & Service		103,400		73		103,473		17,914		683		—		18,597
POSCO COATED & COLOR STEEL Co., Ltd.		69,260		65		69,325		—		59		1,434		1,493
POSCO ICT		75		123		198		—		51,247		—		51,247
POSMATE		489		1,533		2,022		141		3,274		1,058		4,473
eNtoB Corporation		—		—		—		8,057		10,311		—		18,368
POSCO CHEMTECH		46,943		4,313		51,256		35,829		6,983		8,663		51,475
POSCO M-TECH		18		28		46		12,020		21,326		10,799		44,145
POSCO ENERGY CO., LTD.		14,733		2,894		17,627		—		421		—		421
POSCO TMC Co., Ltd.		20,510		26		20,536		—		16		50		66
POSCO AST		85,501		53		85,554		—		3,004		5,238		8,242
POSHIMETAL Co., Ltd.		1,721		12		1,733		—		12,624		—		12,624
Daewoo International Corporation		148,383		878		149,261		9,319		—		—		9,319
POSCO America Corporation		57,554		—		57,554		—		—		—		—
POSCO Canada Ltd.		—		—		—		12,323		—		—		12,323
POSCO Asia Co., Ltd.		134,602		142		134,744		2,063		—		—		2,063
POSCO (Thailand) Company Limited		6,052		7		6,059		—		—		—		—
Qingdao Pohang Stainless Steel Co., Ltd.		3,329		—		3,329		—		—		—		—
POSCO JAPAN Co., Ltd.		73,992		—		73,992		862		108		1		971
POSCO-India Pune Processing Center. Pvt. Ltd.		8,117		—		8,117		—		—		—		—
POSCO MEXICO S.A. DE C.V.		100,016		76		100,092		—		—		—		—
POSCO Maharashtra Steel Private Limited		55,392		3,218		58,610		—		—		—		—
Others		54,357		8,887		63,244		6,523		15,421		1,647		23,591
	￦	984,484		133,283	￦	1,117,767	￦	105,051		231,080		28,890	￦	365,021
Associates and joint ventures
SNNC		140		40		180		16,669		—		—		16,669
POSCO PLANTEC Co., Ltd. (formerly, SUNGJIN GEOTEC Co., Ltd.)		879		46		925		353		—		—		353
POSCHROME (PROPRIETARY) LIMITED		—		67		67		—		—		—		—
LLP POSUK Titanium		—		4,066		4,066		—		—		—		—
Others		—		17		17		319		2		—		321
	￦	1,019		4,236	￦	5,255	￦	17,341		2		—	￦	17,343
	￦	985,503		137,519	￦	1,123,022	￦	122,392		231,082		28,890	￦	382,364

(c) For the years ended December 31, 2011, 2012 and 2013, details of compensation to key management officers were as follows:

	2011		2012		2013
	(in millions of Won)
Short-term benefits	￦	93,231		109,614		121,054
Retirement benefits		23,407		25,049		20,713
Long-term benefits		26,971		22,462		23,480
	￦	143,609		157,125		165,247

Key management officers include directors (including non-standing directors), executive officials and fellow officials who have significant influence and responsibilities in the Company’s business and

F-113

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

operations. In addition to the compensation described above, the Company provided stock appreciation rights to its executive officers and recorded reversal of stock compensation expenses amounted to ￦4,223 million and stock compensation expenses amounted to ￦436 million for years ended December 31, 2011 and 2012, respectively (2013 : nil).

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 financial statements of the period in which the change in probability occurs (except in the extremely rare circumstances where no reliable estimate can be made).

Management makes estimates and assumptions that affect disclosures of commitments and contingencies. All estimates and assumptions are based on the evaluation of current circumstances and appraisals with the supports of internal specialists or external consultants.

Management regularly analyzes current information about these matters and provides provisions 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

Guarantors	Guarantee beneficiary	Financial institution	Foreign Currency		Won Equivalent
	(in millions of Won)
[The Company]
POSCO	POSCO (Guangdong) Automotive Steel Co., Ltd.	SMBC and others	USD	157,600,000		166,315
	POSCO Investment Co., Ltd.	BOC	CNY	350,000,000		60,932
		BOA and others	USD	280,000,000		295,484
	POSCO Maharashtra Steel Private Limited	Export-Import Bank of Korea and others	USD	566,069,000		597,373
	POSCO VST CO., LTD.	ANZ and others	USD	65,000,000		68,595
	POSCO MEXICO S.A. DE C.V.	HSBC and others	USD	244,725,000		258,258
	POSCO-VIETNAM Co., Ltd.	Export-Import Bank of Korea	USD	196,000,000		206,839
	Zeus II (Cayman) Ltd.	Creditor	JPY	25,779,278,600		258,994
	Zhangjiagang Pohang Stainless Steel Co., Ltd.	MIZUHO and others	USD	160,000,000		168,848
	POSCO ASSAN TST STEEL INDUSTRY	SMBC and others	USD	188,392,500		198,811
	POSCO Electrical Steel India Private Limited	ING and others	USD	83,784,000		88,417
	PT. KRAKATAU POSCO	Export-Import Bank of Korea and others	USD	1,350,300,000		1,424,972

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POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

Guarantors	Guarantee beneficiary	Financial institution	Foreign Currency		Won Equivalent
	(in millions of Won)
Daewoo International Corporation	Daewoo Paper Manufacturing Co., Ltd.	HSBC	USD	12,500,000		13,191
	DAEWOO TEXTILE BUKHARA LLC	Export-Import Bank of Korea	USD	20,000,000		21,106
	DAEWOO INTERNATIONAL MEXICO S.A. DE C.V.	NOVA SCOTIA	USD	30,000,000		31,659
	POSCO ASSAN TST STEEL INDUSTRY	ING and others	USD	20,932,500		22,090
	Brazil Sao Paulo Steel Processing Center	SMBC	USD	20,000,000		21,106
	Daewoo International (Deutschland) GmbH.	Shinhan Bank	EUR	15,000,000		21,844
	PT. Bio Inti Agrindo	Export-Import Bank of Korea	USD	30,000,000		31,659
POSCO ENGINEERING & CONSTRUCTION CO., LTD.	HONG KONG POSCO E&C (CHINA) INVESTMENT Co., Ltd.	Woori Bank and others	USD	135,000,000		142,466
	INTERNATIONAL BUSINESS CENTER CORPORATION	Export-Import Bank of Korea	USD	20,000,000		21,106
	POSCO E&C Vietnam Co., Ltd.	Export-Import Bank of Korea	USD	16,500,000		17,412
	SANTOSCMI S.A.	CITI Equador and others	USD	36,000,000		37,991
POSCO Processing & Service	POSCO Canada Ltd.	Hana Bank	USD	12,484,500		13,175
	POSCO Gulf SFC LLC	KEB bank	USD	20,000,000		21,106
POSCO ICT	PT. POSCO ICT INDONESIA	POSCO Investment Co., Ltd.	USD	3,000,000		3,166
	VECTUS LIMITED	KEB bank	GBP	3,500,000		6,092
		POSCO Investment Co., Ltd.	USD	4,000,000		4,221
POSCO ENERGY CO., LTD.	PT. KRAKATAU POSCO ENERGY	Export-Import Bank of Korea and others	USD	193,900,000		204,623
	TECHREN Solar, LLC	Woori Bank	USD	3,000,000		3,166
POSCO Engineering CO., Ltd	PT PEN INDONESIA	KEB bank KEB Bank and others	USD IDR	6,818,876 82,727,107,048		7,196 7,148
	POSCO ENGINEERING (THAILAND) CO., LTD.	Citi Bank Woori Bank and others	USD THB	15,300,000 6,342,881,200		16,146 203,860
POSCO-Japan Co., Ltd.	POSCO-JEPC Co., Ltd.	Mizuho Bank and others	JPY	1,944,160,748		19,532
	POSCO-JKPC Co., Ltd.	Higo bank and others	JPY	1,050,400,000		10,553
	POSCO-JOPC Co., Ltd.	Kiyo bank and others	JPY	112,500,000		1,130
	Xenesys Inc.	Aozora Bank	JPY	250,000,000		2,512
DAEWOO TEXTILE FERGANA LLC	DAEWOO TEXTILE BUKHARA LLC	NBU	USD	3,037,183		3,205
POSCO E&C CHINA Co., Ltd.	HONG KONG POSCO E&C (CHINA) INVESTMENT Co., Ltd.	Woori Bank (Beijing branch)	USD	33,000,000		34,825
POSCO-China Holding Corp.	POSCO YongXin Rare Earth Metal Co., Ltd.	KEB Bank and others	CNY	71,820,000		12,503
POSCO CHEMTECH	PT.Krakatau Posco Chemtech Calcination and others	KEB Bank and others	USD	55,130,000		58,179

F-115

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

Guarantors	Guarantee beneficiary	Financial institution	Foreign Currency		Won Equivalent
	(in millions of Won)
POSCO Specialty Steel Co., Ltd.	POSCO SS-VINA	Export-Import Bank of Korea	USD	354,409,800		374,009
SANTOSCMI S.A.	COMPANIADEAUTOMATIZACION & CONTROL, GENESYS S.A.	Banco de Guayaquil and others	USD	1,550,000		1,636
[Associates and joint ventures]
POSCO	United Spiral Pipe, LLC	Shinhan Bank	USD	24,500,000		25,855
	LLP POSUK Titanium	Shinhan Bank	USD	18,000,000		18,995
Daewoo International Corporation	DMSA/AMSA	Export-Import Bank of Korea and others	USD	165,133,333		174,265
	GLOBAL KOMSCO Daewoo LLC	Export-Import Bank of Korea and others	USD	8,050,000		8,495
POSCO ENGINEERING & CONSTRUCTION CO., LTD.	Taegisan Wind Power Corporation	KDB Bank	KRW	7,500		7,500
	Posco e&c Songdo International Building	Hana Bank and others	KRW	356,600		356,600
	CHUNGJU ENTERPRISE CITY DEVELOPMENT Co., Ltd and others	NH Bank and others	KRW	318,226		318,226
POSCO Engineering CO., Ltd	PT. Wampu Electric Power	Woori Bank	USD	344,848		364
POSCO Processing & Service	Sebang Steel	Shinhan Bank	JPY	245,000,000		2,461
POSCO ICT	UITrans LRT Co., Ltd.	Construction Guarantee Cooperative	KRW	64,638		64,638
	Incheon-Gimpo Expressway Co., Ltd.	KDB Bank and others	KRW	175,000		175,000
	CHUNGJU ENTERPRISE CITY DEVELOPMENT Co., Ltd	NH Bank	KRW	2,530		2,530
Daewoo (China) Co., Ltd.	SHANGHAI LANSHENG DAEWOO CORP.	Bank of Communications	CNY	100,000,000		17,409
POSCO CHEMTECH	PT.INDONESIA POS CHEMTECH CHOSUN Ref	KEB Bank	USD	6,000,000		6,332
[Others]
Daewoo International Corporation	Ambatovy Project Investments Limited	Export-Import Bank of Korea	USD	65,454,545		69,074
	Sherritt International Corporation	Export-Import Bank of Korea	USD	21,818,181		23,025
POSCO ENGINEERING & CONSTRUCTION CO., LTD.	The union of City environment improvement for Kukje building and others	NH Bank and others	KRW	853,150		853,150
	THE GALE INVESTMENTS COMPANY, L.L.C.	Woori Bank	USD	50,000,000		52,765
POSCO ICT	BTL business and others	Kyobo Life Insurance Co., Ltd. and others	KRW	2,065,471		2,065,471
	SMS Energy and others	Hana Bank and others	KRW	169,156		169,156

F-116

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

Guarantors	Guarantee beneficiary	Financial institution	Foreign Currency		Won Equivalent
	(in millions of Won)
POSCO M-TECH	PYUNGSAN SI Co., Ltd	Seoul Guarantee Insurance Co., Ltd.	KRW	67		67
POSCO AUSTRALIA PTY LTD	Department of Trade and Investment (NSW Government)	Woori Bank	AUD	8,023,765		7,542
POSCO Engineering CO., Ltd	Kwanma Solar Co., Ltd. and others	Hana Bank and others	KRW	57,124		57,124
	PT MPM and others	Export-Import Bank of Korea and others	USD	7,652,000		8,075
	Hyundai ENG Co., Ltd.	Engineering Financial Cooperative	KRW	35,933		35,933
			USD	4,705,386,266		4,965,596
			AUD	8,023,765		7,542
			CNY	521,820,000		90,844
			EUR	15,000,000		21,844
			GBP	3,500,000		6,092
			IDR	82,727,107,048		7,148
			JPY	29,381,339,348		295,182
			KRW	4,105,395		4,105,395
			THB	6,342,881,200		203,860

(c) POSCO ENGINEERING & CONSTRCTION Co., Ltd. has provided the completion guarantees for Samsung C&T Corporation amounting to ￦1,142,459 million while Samsung C&T Corporation has provided the construction guarantees or payment guarantees on customers’ borrowings on behalf of POSCO ENGINEERING & CONSTRCTION Co., Ltd. amounting to ￦801,676 million as of December 31, 2013. POSCO ENGINEERING & CONSTRCTION Co., Ltd. provides payment guarantees on borrowings of customers such as Asset Backed Commercial Paper amounted to ￦650,800 million and Project Financing loan amounted to ￦38,800 million as of December 31, 2013.

(d) Other commitments

Details of other commitments of the Company as of December 31, 2013, are as follows:

POSCO POSCO entered into long-term contracts to purchase iron ore, coal, nickel and others. The contracts of iron ore and coal generally have terms of more than three years and the contracts of nickel have terms of more than one year. These contracts provide for periodic price adjustments based on the market price. As of December 31, 2013, 193 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.   As of December 31, 2013, POSCO entered into commitments with Korea National Oil Corporation for long-term foreign currency borrowings, which are limited up to the amount of USD 6.86 million, USD 6.58 million and USD 4.12 million. The borrowings are related to the exploration of gas hydrates in Aral Sea, Uzbekistan, the exploration of gas hydrates in Namangan-Chust and the exploration of gas hydrates in Western Fergana-Chenavard, respectively. 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 money 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.

F-117

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

	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.
POSCO ENGINEERING & CONSTRUCTION CO., LTD.	As of December 31, 2013, POSCO ENGINEERING & CONSTRUCTION CO., LTD. has comprehensive loan agreements of up to ￦247,000 million and USD 408 million with Woori Bank and ￦53,000 million with Korea Exchange Bank. Also, POSCO ENGINEERING & CONSTRUCTION CO., LTD. has bank overdraft agreements of up to ￦20,000 million with WooriBank which is included in the limit of comprehensive loan agreements and ￦3,000 million with Korea Exchange Bank.
POSCO ICT	As of December 31, 2013, in relation to contract enforcement, POSCO ICT was provided with ￦58,954 million and ￦49,383 million guaranties from Korea Software Financial Cooperative and Seoul Guarantee Insurance, respectively. As of December 31, 2013, POSCO ICT provided ￦324 million of guaranties to Seoul Guarantee Insurance to ensure performance guarantee agreement which Busan Navy Residence and others had.
POSCO Specialty Steel Co., Ltd.	As of December 31, 2013, POSCO Specialty Steel Co., Ltd. has agreements for a loan and import letter of credit with Korea Exchange Bank and others.

(e) Litigation in progress

As of December 31, 2013, POSCO and certain subsidiaries are defendants in legal actions arising from the normal course of business.

1) Civil lawsuits with Nippon Steel & Sumitomo Metal Corporation

During the year ended December 31, 2012, Nippon Steel & Sumitomo Metal Corporation filed a civil lawsuit in the Tokyo District Court of Japan against POSCO and POSCO Japan Co., Ltd., a subsidiary of POSCO, to prohibit production and sales of grain oriented electrical steel sheets using improperly acquired trade secrets and seeking compensation from the Company of JPY 98.6 billion (￦990.6 billion). Through trials up to December 31, 2013, the Company submitted its responses that the Japan court did not have jurisdiction on this lawsuit as it should be judged by Korean law and the Company developed grain oriented electrical steel sheets using the Company’s own technologies. As of December 31, 2013, the Japan court has not made any judgments on this matter. Since the Company does not believe that it has any present obligation, the Company has not recorded any provision for this lawsuit as of December 31, 2013.

In addition, Nippon Steel & Sumitomo Metal Corporation filed a civil lawsuit in the New Jersey federal court, United States, against POSCO and POSCO America Co., Ltd., a subsidiary of POSCO, claiming infringement of intellectual property rights related to the production of grain oriented electrical steel sheets. Since the Company does not believe that it has any present obligation, the Company has not recorded any provision for this lawsuit as of December 31, 2013. An estimate of possible loss cannot be reliably determined because the lawsuit is still in the discovery stage and no claim amount has been specified.

2) Lawsuits related to liability of Daewoo Co., Ltd. which was spun off into Daewoo International Corporation and Daewoo Engineering & Construction Co., Ltd.

F-118

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

In May 2002, Industrial Development Bank of India Limited, the creditor of Daewoo Motors India Ltd. for which Daewoo Co., Ltd. provided a guarantee, filed lawsuits against Daewoo Motors India Ltd., Daewoo Co., Ltd., Daewoo Engineering & Construction Co., Ltd, and Daewoo International Corporation (a subsidiary of POSCO) seeking for the disposition of assets and judgment of debt of Daewoo Motors India Ltd. amounting to ￦76 billion in India Delhi Mumbai Court. A provision of ￦18 billion for these lawsuits was made as of December 31, 2013. The actual amount and timing of the outflows is uncertain the outcome depends on court proceedings but the provisions is classified as a non-current liability as of December 31, 2013 (See Note 20).

3) Other lawsuits and claims

Company	Legal actions		claim amount		Korean won equivalent		Description
	(In millions of Won, in thousand of foreign currencies)
POSCO		37	KRW	68,963		68,963	Lawsuit on claim for damages
POSCO ENGINEERING & CONSTRUCTION CO., LTD.		84	KRW	110,619		110,619	Lawsuit on claim for payment
POSCO Processing & Service		2	KRW	705		705	Lawsuit on claim for payment
POSCO COATED & COLOR STEEL Co., Ltd.		2	KRW	3,595		3,595	Lawsuit on claim for payment
POSCO ICT		14	KRW	7,333		7,333	Lawsuit on claim for payment
POSCO America Corporation		1	USD	—		—	Lawsuit on Anti-Trust
POSCO M-TECH		1	KRW	19		19	Lawsuit on claim for payment
POSCO E&C CHINA Co., Ltd.		1	CNY	37,000		6,441	Lawsuit on claim for payment
POSCO-Malaysia SDN. BHD.		1	MYR	5,782		1,852	Lawsuit on claim for payment
POSCO Engineering CO., Ltd		7	KRW	2,789		2,789	Lawsuit on claim for payment on construction by Samyanginnochem
Daewoo International (America) Corp.		3	USD	13,042		13,763	Lawsuit on claim for product liability and illegal act on products
Brazil Sao Paulo Steel Processing Center		3	BRL	978		437	Lawsuit on claim for payment
Daewoo International Corporation		2	CNY	42,201		7,347	Lawsuit on claim for indemnification damages
		2	EUR	8,270		12,043	Lawsuit on claim for damages
		3	KRW	1,175		1,175	Lawsuit on claim for payment
		7	USD	45,787		48,319	Lawsuit on claim for damages

For all other lawsuits and claims, management does not believe that the Company has any present obligations and therefore, the Company has not recognized any provisions as of December 31, 2013 for these matters.

(f) Other contingencies

Company	Description
POSCO	POSCO has provided two blank promissory notes and one blank check to Korea Resources Corporation and six blank promissory notes and three blank checks to Korea National Oil Corporation as collateral for out-standing loans.
POSCO ENGINEERING & CONSTRUCTION CO., LTD.	As of December 31, 2013, POSCO ENGINEERING & CONSTRUCTION CO., LTD. has provided twenty-six blank checks and ten blank promissory notes as collateral for agreements and outstanding loans.
Daewoo International Corporation	As of December 31, 2013, Daewoo International Corporation has provided forty-five blank promissory notes and thirteen blank checks to Korea National Oil Corporation as collateral for the guarantee on performance for contracts and others.
POSCO ICT	As of December 31, 2013, POSCO ICT has provided eight blank promissory notes and fourteen blank checks to financial institutions as collateral for the guarantee on performance for contracts and others.

F-119

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

39. Cash Flows from Operating Activities

Adjustments for operating cash flows for the years ended December 31, 2011, 2012 and 2013 were as follows:

	2011			2012			2013
	(in millions of Won)
Trade accounts and notes receivable	￦	(2,402,346	)		87,830			(612,379	)
Other financial assets		(187,607	)		(392,090	)		(98,420	)
Inventories		(2,538,178	)		1,450,431			582,287
Other current assets		(310,397	)		(198,157	)		181,755
Other long-term assets		47,929			(141,037	)		(23,412	)
Trade accounts payable		265,993			225,086			47,323
Other financial liabilities		260,306			357,502			194,419
Other current liabilities		384,943			583,159			13,522
Provisions		(36,511	)		17,108			(42,052	)
Payment severance benefits		(574,759	)		(116,846	)		(129,038	)
Plan assets		252,671			(191,696	)		(172,147	)
Other non-current liabilities		(12,791	)		252,068			(58,290	)
	￦	(4,850,747	)		1,933,358			(116,432	)

40. Non-Cash Transactions

Significant non-cash transactions for the years ended December 31, 2012 and 2013 were as follows:

	2012		2013
	(in millions of Won)
Construction-in-progress transferred to other accounts	￦	3,273,475		6,610,644
Acquisition of short-term financial statements through issuance of treasury stocks		—		804,496
Other non-current asset transferred to investments in associates and joint ventures		257,878		—
Conversion of bonds to shares		315,530		—

41. Operating Segment and Geographic Information

(a) Our operating businesses are organized based on the nature of markets and customers. We have four reportable operating segments — steel, engineering and construction, trading and other. The steel segment includes production of steel products and revenue of such products. The engineering and 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 segment includes power generation, liquefied natural gas production, network and system integration and logistics activities.

F-120

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

(b) Information about reportable segments as of and for the years ended December 31, 2011, 2012 and 2013 was as follows:

1) As of and for the year ended December 31, 2011

	Steel			Trading			Engineering and Construction			Other			Total
	(in millions of Won)
External revenues	￦	39,151,930			21,097,356			5,476,209			3,213,230		￦	68,938,725
Internal revenues		17,138,610			7,525,555			2,996,933			2,446,417			30,107,515
Total revenues		56,290,540			28,622,911			8,473,142			5,659,647			99,046,240
Interest income		154,671			43,842			22,744			22,025			243,282
Interest expenses		(551,478	)		(93,532	)		(69,050	)		(110,615	)		(824,675	)
Depreciation and amortization		(2,128,182	)		(37,320	)		(31,238	)		(178,429	)		(2,375,169	)
Impairment loss of property, plant and equipment and others		(25,177	)		(34,544	)		(23,397	)		(995	)		(84,113	)
Impairment loss of available-for-sale financial assets		(136,638	)		—			—			(16,166	)		(152,804	)
Share of profit or loss of investment in associates and joint ventures		(33,361	)		—			—			(6,888	)		(40,249	)
Income tax expense		(1,111,709	)		(35,322	)		(22,536	)		(16,454	)		(1,186,021	)
Segments profit		3,689,461			195,298			154,618			155,277			4,194,654
Segments assets		67,961,383			12,120,560			8,764,698			6,663,297			95,509,938
Investment in associates		14,226,687			1,899,762			918,079			186,490			17,231,018
Acquisition of non-current assets		9,385,381			607,076			207,619			594,514			10,794,590
Segments liabilities		23,169,910			9,706,622			5,554,097			4,528,283			42,958,912

2) As of and for the year ended December 31, 2012

	Steel			Trading			Engineering and Construction			Other			Total
	(in millions of Won)
External revenues	￦	35,258,970			18,945,642			4,675,596			4,723,943		￦	63,604,151
Internal revenues		17,609,789			7,467,872			5,050,287			2,857,139			32,985,087
Total revenues		52,868,759			26,413,514			9,725,883			7,581,082			96,589,238
Interest income		176,229			50,907			43,815			21,811			292,762
Interest expenses		(553,508	)		(174,607	)		(48,975	)		(116,499	)		(893,589	)
Depreciation and amortization		(2,334,357	)		(35,788	)		(35,323	)		(218,515	)		(2,623,983	)
Impairment loss of property, plant and equipment and others		(46,951	)		(30,073	)		(7,734	)		(16,257	)		(101,015	)
Impairment loss of available-for-sale financial assets		(201,850	)		(254	)		(1,713	)		(20,354	)		(224,171	)
Share of profit or loss of investment in associates and joint ventures		(39,806	)		(5,579	)		(27	)		(2,764	)		(48,176	)
Income tax expense		(658,307	)		(184,318	)		(135,469	)		(77,139	)		(1,055,233	)
Segments profit		2,245,977			325,197			345,295			301,670			3,218,139
Segments assets		69,920,261			10,904,747			10,775,895			7,723,374			99,324,277
Investment in associates		15,802,052			1,043,018			1,130,216			435,980			18,411,266
Acquisition of non-current assets		7,629,767			395,081			167,818			781,087			8,973,753
Segments liabilities		23,105,008			7,865,399			7,008,996			4,836,641			42,816,044

F-121

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

3) As of and for the year ended December 31, 2013

	Steel			Trading			Engineering and Construction			Other			Total
	(in millions of Won)
External revenues	￦	31,794,574			18,307,888			6,896,838			4,865,350		￦	61,864,650
Internal revenues		16,229,002			7,611,372			3,885,190			3,019,246			30,744,810
Total revenues		48,023,576			25,919,260			10,782,028			7,884,596			92,609,460
Interest income		162,149			46,064			47,070			19,892			275,175
Interest expenses		(412,142	)		(77,375	)		(48,030	)		(106,824	)		(644,371	)
Depreciation and amortization		(2,383,010	)		(43,775	)		(36,614	)		(235,365	)		(2,698,764	)
Impairment loss of property, plant and equipment and others		(34,153	)		(975	)		(4,058	)		(11,875	)		(51,061	)
Impairment loss of available-for-sale financial assets		(203,468	)		(435	)		(97,919	)		(10,172	)		(311,994	)
Share of profit or loss of investment in associates and joint ventures		(250,084	)		(131,534	)		(71,068	)		(26,326	)		(479,012	)
Income tax expense		(466,756	)		(27,549	)		(87,660	)		(73,371	)		(655,336	)
Segments profit		1,449,446			9,516			147,177			197,449			1,803,588
Segments assets		73,860,997			11,640,931			9,888,590			8,843,652			104,234,170
Investment in associates		16,863,991			1,019,252			1,090,089			598,775			19,572,107
Acquisition of non-current assets		5,955,799			242,413			150,469			1,191,243			7,539,924
Segments liabilities		23,774,850			8,649,557			6,068,059			5,059,440			43,551,906

(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

	2011			2012			2013
	(in millions of Won)
Total revenue for reportable segments	￦	99,046,240			96,589,238			92,609,460
Elimination of inter-segment revenue		(30,107,515	)		(32,985,087	)		(30,744,810	)
	￦	68,938,725			63,604,151			61,864,650

2) Profit

	2011			2012			2013
	(in millions of Won)
Total profit for reportable segments	￦	4,194,654			3,218,139			1,803,588
Corporate fair value adjustments		(39,489	)		(58,486	)		(91,718	)
Elimination of inter-segment profits		(440,879	)		(774,047	)		(356,690	)
Income tax expense		1,068,109			982,880			590,997
Profit before income tax expense	￦	4,782,395			3,368,486			1,946,177

F-122

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

3) Assets

	2012			2013
	(in millions of Won)
Total assets for reportable segments (*1)	￦	99,324,277			104,234,170
Equity-accounted investees		(15,365,984	)		(15,758,936	)
Goodwill and corporate FV adjustments		3,657,016			3,560,873
Elimination of inter-segment assets		(8,349,458	)		(7,580,700	)
	￦	79,265,851			84,455,407

(*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) Liability

	2012			2013
	(in millions of Won)
Total liabilities for reportable segments	￦	42,816,044			43,551,906
Corporate fair value adjustments		330,791			337,442
Elimination of inter-segment liabilities		(6,310,403	)		(5,255,971	)
	￦	36,836,432			38,633,377

5) Other significant items

a) December 31, 2011

	Total Segment			Corporate fair value adjustments			Elimination of inter-segment			Consolidated
	(in millions of Won)
Interest income	￦	243,282			—			(27,048	)		216,234
Interest expenses		(824,675	)		6,312			30,015			(788,348	)
Depreciation and amortization		(2,375,169	)		(63,690	)		172,560			(2,266,299	)
Share of profit or loss of investment in associates		(40,249	)		—			90,818			50,569
Income tax expense		(1,186,021	)		12,194			105,718			(1,068,109	)
Impairment loss of property, plant and equipment and others		(84,113	)		—			(14,958	)		(99,071	)
Impairment loss of available-for-sale financial assets		(152,804	)		—			—			(152,804	)
	￦	(4,419,749	)		(45,184	)		357,105			(4,107,828	)

F-123

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

b) December 31, 2012

	Total Segment			Corporate fair value adjustments			Elimination of inter-segment			Consolidated
	(in millions of Won)
Interest income	￦	292,762			—			(13,955	)		278,807
Interest expenses		(893,589	)		1,372			20,760			(871,457	)
Depreciation and amortization		(2,623,983	)		(77,496	)		137,719			(2,563,760	)
Share of profit or loss of investment in associates		(48,176	)		—			25,474			(22,702	)
Income tax expense		(1,055,233	)		15,150			57,203			(982,880	)
Impairment loss of property, plant and equipment and others		(101,015	)		(258,451	)		24,070			(335,396	)
Impairment loss of available-for-sale financial assets		(224,171	)		—			—			(224,171	)
	￦	(4,653,405	)		(319,425	)		251,271			(4,721,559	)

c) December 31, 2013

	Total Segment			Corporate fair value adjustments			Elimination of inter-segment			Consolidated
	(in millions of Won)
Interest income	￦	275,175			—			(14,777	)		260,398
Interest expenses		(644,371	)		(34,814	)		21,504			(657,681	)
Depreciation and amortization		(2,698,764	)		(84,223	)		97,437			(2,685,550	)
Share of profit or loss of investment in associates		(479,012	)		—			299,203			(179,809	)
Income tax expense		(655,336	)		25,074			39,265			(590,997	)
Impairment loss of property, plant and equipment and others		(51,061	)		—			(97,424	)		(148,485	)
Impairment loss of available-for-sale financial assets		(311,994	)		—			31,757			(280,237	)
	￦	(4,565,363	)		(93,963	)		376,965			(4,282,361	)

(d) Revenue by geographic area for years ended December 31, 2011, 2012 and 2013 was as follows:

	2011		2012		2013
	(in millions of Won)
Domestic	￦	53,986,926		47,692,025		45,953,826
Japan		2,386,578		2,380,651		1,920,253
China		6,070,588		6,022,875		6,493,119
Asia-other		2,645,428		3,157,469		3,011,980
North America		1,281,906		1,792,706		1,720,895
Others		2,567,299		2,558,425		2,764,577
Total	￦	68,938,725		63,604,151		61,864,650

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

F-124

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2011, 2012 and 2013

(e) Non-current assets by geographic area as of December 31, 2012 and 2013 are as follows:

	2012		2013
	(in millions of Won)
Domestic	￦	31,213,290		33,116,006
Japan		256,532		203,241
China		1,745,076		1,632,490
Asia-other		3,162,715		4,703,943
North America		125,206		167,468
Others		1,957,112		2,292,039
Total	￦	38,459,931		42,115,187

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 total consolidated revenues.

F-125

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

POSCO

(Registrant)

/s/ Kwon, Oh-Joon
Name:	Kwon, Oh-Joon
Title:	Chief Executive Officer and Representative Director
Date:	May 12, 2014

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 Statement No. 33-81554)*
2.2	—	Form of Deposit Agreement (including Form of American Depositary Receipts) (incorporated by reference to the Registrant’s Registration Statement (File No. 333-189473) on Form F-6)*
8.1	—	List of consolidated subsidiaries
12.1	—	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2	—	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13.1	—	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Filed previously

EX-1.1

Exhibit 1.1

ARTICLES OF INCORPORATION

Adopted on	March 6, 1968
Amended on	July 10, 1968	February 20, 1969	March 20, 1969
	June 16, 1969	February 7, 1970	February 6, 1971
	November 23, 1971	February 4, 1972	November 29, 1972
	February 12, 1973	February 5, 1974	February 8, 1975
	February 6, 1976	February 8, 1977	February 25, 1978
	February 24, 1979	February 28, 1981	February 23, 1982
	February 18, 1984	February 5, 1985	February 26, 1986
	March 7, 1987	February 27, 1988	March 15, 1989
	March 6, 1990	March 14, 1991	March 7, 1992
	October 13, 1992	March 8, 1993	April 15, 1994
	March 15, 1995	March 15, 1996	March 14, 1997
	March 17, 1998	August 20, 1998	March 16, 1999
	March 17, 2000	March 16, 2001	March 15, 2002
	March 14, 2003	March 12, 2004	February 24, 2006
	February 23, 2007	February 27, 2009	February 26, 2010
	February 25, 2011	March 16, 2012

CHAPTER I. GENERAL PROVISIONS

Article 1. Company Name

The name of the Company in Korean shall be “Chusik Hoesa POSCO” and in English, “POSCO”

1

Article 2. Purpose

The purpose of the Company is to engage in the following business activities:

1. To manufacture, market, promote, sell and distribute iron, steel and rolled products;

2. To engage in harbor loading and unloading, transportation and warehousing businesses;

3. To engage in the management of professional athletic organizations;

4. To engage in the supply of LNG and power generation as well as in the distribution business thereof and in the resources development business;

5. To engage in leasing of real estate and distribution businesses;

6. To engage in the supply of district heating business;

7. To engage in marine transportation, processing and sales of minerals within or outside of Korea;

8. To engage in educational service and other services related to business;

9. To engage in manufacture, process and sale of non-ferrous metal; and

10. To engage in all other conducts, activities or businesses which are related, directly or indirectly, to the attainment and continuation of the foregoing purposes.

Article 3. Location of the Head Office and Branch Offices

The head office of the Company shall be located at Pohang-si, Kyungsangbuk-do, the Republic of Korea (“Korea”). Branch offices may be established elsewhere by resolution of the Board of Directors of the Company.

Article 4. Notices

Public notices by the Company shall be disclosed on the website of the Company (http://www.posco.com). When such online disclosure is made impracticable due to online system error or any other electronic technical failure, public notices by the Company shall be disclosed in the Seoul Shinmun, the Maeil Shinmun and the Kwangju Ilbo, daily newspapers published in Seoul, Daegu Metropolitan City and Kwangju Metropolitan City, respectively.

2

CHAPTER II. SHARES

Article 5. Total Number of Authorized Shares

The total number of shares which the Company is authorized to issue (“Authorized Shares”) is two hundred million (200,000,000) shares.

Article 6. Face Value, Types of Shares and Share Certificates

The types of shares to be issued by the Company shall be registered common shares and registered preferred shares, having a face value of 5,000 Won per share.

Share certificates shall be issued by the Company in denominations of one (1), three (3), four (4), five (5), ten (10), fifty (50), one hundred (100), five hundred (500), one thousand (1,000) and ten thousand (10,000) shares as the shareholders may request.

Article 7. Number and Contents of Preferred Shares

(1) Preferred shares to be issued by the Company shall be non-voting, and the number thereof shall not exceed the limit prescribed in the mandatory provisions of the applicable laws or regulations.

(2) The dividends on non-voting preferred shares shall be no less than nine percent (9%) per annum of the par value and the rate thereof shall be determined by the Board of Directors at the time of issuance.

(3) Notwithstanding Paragraph (2), a dividend on preferred shares shall not be required to be declared in case the amount available for dividend is less than the aggregate amount of the minimum dividend.

3

Article 8. Shares to be Issued at the Time of Incorporation

The Company shall issue forty thousand (40,000) shares at the time of incorporation.

Article 9. No Issuance of Share Certificates

If a shareholder does not desire to receive share certificates representing the whole or part of the shares owned by him, no share certificates representing such shares shall be issued by the Company.

Article 9-2. Electronic Registration of Shares

(1) The Company, by the resolutions of the Board of Directors, may elect to adopt the system that allows shareholders electronically register its shares on the electronic registrar on the designated electronic registration system instead of issuing certificates representing its shares.

(2) The Board of Directors shall determine the standard operation policy necessary for the Company’s adoption of the electronic securities system.

Article 10. Pre-emptive Rights

(1) Except as otherwise provided by Paragraphs (2) through (4) of this Article 10 and the mandatory provisions of the applicable laws or regulations, in case of the issuance of new shares, the shareholders of the Company shall have the right to subscribe for such newly issued shares in proportion to the number of shares held by each of them; provided, however, that the Company may, by resolution of the Board of Directors, allocate preferred shares to holders of preferred shares in proportion to the number of shares held by each of them.

4

(2) The Board of Directors may allocate new shares to persons other than the shareholders by a resolution of the Board of Directors in the following cases. If the Company issues new shares to persons other than the shareholders of the Company pursuant to this Article 10, the Company shall notify the shareholders or make public two (2) weeks in advance of the date of subscription of the new shares detailing the type, number, issue price, date of subscription and the manner of subscription of the newly issued shares in accordance with the Korean Commercial Code.

1. If the Company issues new shares by a public offering or has underwriters underwrite new shares by a public offering in accordance with the applicable legislation;

2. If the Company allocates new shares to the members of the Company’s Employee Stock Ownership Association in accordance with the applicable legislation;

3. If the Company issues new shares for the issuance of depositary receipts in accordance with the applicable legislation;

4. If the Company issues new shares through offering to the public investors by the resolutions of the Board of Directors in accordance with the applicable legislation;

5. If the Company issues new shares to the existing creditors in order to convert the debt into capital;

6. If the Company issues new shares to the domestic and/or foreign entities in accordance with a joint venture agreement, strategic affiliation or technology license and transfer agreement executed by and between the Company and such entities for the management purposes; and

7. If the Company issues new shares to the domestic and/or foreign financial institutions in order to finance the Company in the emergent cases.

(3) Any shares unsubscribed after the exercise of pre-emptive rights by shareholders who are entitled to them or any fractional shares remaining after the allocation of new shares may be disposed of by a resolution of the Board of Directors.

5

(4) Notwithstanding the provisions of Paragraphs (2) through (3) of this Article 10, new shares may be allocated to persons other than the existing shareholders by a special resolution passed at a General Meeting of Shareholders when it is deemed necessary for attaining the purposes of the Company such as introduction of new technology and financial restructuring.

(5) In case the Company issues new shares by a rights offering, bonus issue or stock dividend, such shares will be deemed to have been issued at the end of the fiscal year immediately preceding the fiscal year during which the shares are issued.

Article 11. Offering to Public Investors, etc.

(1) The Company may issue new shares constituting not more than ten-hundredths (10/100) of the total issued shares of the Company through offering to public investors by the resolution of the Board of Directors in accordance with applicable legislations.

(2) In event that the Company issues new shares in accordance with the resolution of the Board of Directors due to the reasons set forth in Items 5 through 7 of Paragraph (2) of Article 10, the total face amount of new shares shall not exceed one hundred billion (100,000,000,000) Won.

(3) The type, number and the issue price of the shares to be issued by the manner as set forth in Paragraphs (1) and (2) shall be determined by the resolution of the Board of Directors; provided that the issue price of the new shares must be no less than the price as set forth in applicable legislations.

Article 12. (Deleted)

Article 13. Registration and Alteration of an Entry in the Register of Shareholders

(1) The Company shall, by resolution of the Board of Directors, appoint an agent to attend to the registration of transfer of shares and bonds and creation of pledges thereon, the indication of trust assets, the re-issuance of share certificates and any other matters relating thereto. Specific procedures therefor shall be in accordance with applicable laws and regulations relating to such matters and the rules the agent may set forth.

6

(2) Shareholders and registered pledgees who reside in foreign countries shall appoint and report the place where, and an agent to whom, notices will be given in Korea.

Article 13-2. Register of Shareholders by Electronic Means

In accordance with the Korean Commercial Code, the Company may make entries in the Register of Shareholders by electronic means.

Article 14. Fees

The Company may, by resolution of the Board of Directors, charge, or have the register agent charge, a fee for services it renders in connection with any of the matters set forth in Article 13 above, or for any services related to shareholder inspection of the Company’s financial statements or other documents, and for providing any copies thereof.

Article 15. Record Date and Suspension of Alterations of Entries in the Register of Shareholders

(1) The Company shall suspend entries of alterations, registration or cancellation of pledges over shares and indication of trust assets and cancellation thereof in the Register of Shareholders of a period commencing on January 1 and ending on January 15 of each year.

(2) The record date of the Register of Shareholders shall be December 31 of each year, and such shareholders listed on the Register of Shareholders as of the record date shall be entitled to exercise their rights thereof at the General Meetings of Shareholders.

(3) The Company may, by resolution of the Board of Directors or by resolution of a committee as authorized by the Board of Directors, suspend the entry of a change as to the matters contained in the Register of Shareholders for a specified period of time or set a record date when deemed necessary and for the purpose of convening an Extraordinary General Meeting of Shareholders; provided, however, that the period of suspension shall not exceed three (3) months and two (2) weeks prior notice of suspension or fixing of a record date has been given to the shareholders. The Board of Directors or such authorized committee may, when deemed necessary, both suspend the entry of a change in the Register of Shareholders and set a record date.

7

CHAPTER III. BONDS

Article 16. Issuance of Bonds

The Company may issue bonds by a resolution of the Board of Directors.

Article 17. Issuance of Convertible Bonds

(1) The Company may issue convertible bonds in the aggregate fact amount not exceeding two trillion (2,000,000,000,000) Won to persons other than the shareholders in the following cases:

1. If the Company issues convertible bonds by public offering.

2. If the Company enters into a joint venture agreement, strategic alliance or technical license and transfer agreement, when it is deemed necessary, and issues convertible bonds to any domestic or international corporation accordingly.

3. If the Company issues convertible bonds to a domestic or international financial institution to provide urgently needed funds.

(2) Convertible bonds mentioned in Paragraph (1) may, by resolution of the Board of Directors, be issued with their conversion rights limited to a certain portion of their face amount.

(3) Upon conversion from the aggregate face amount of convertible bonds, common shares may be issued up to one trillion three hundred billion (1,300,000,000,000) Won and preferred shares may be issued up to seven hundred billion (700,000,000,000) Won, and the conversion price, which shall not be less than the par value of the shares, shall be determined by resolution of the Board of Directors at the time of issuance of the convertible bonds.

8

(4) The conversion period shall be the period commencing from the date of issuance of the convertible bonds and ending on the date immediately preceding the date of redemption of the convertible bonds. The conversion period may be adjusted by a resolution of the Board of Directors; provided, that the conversion period shall in any event fall within the period mentioned above.

(5) The provisions of Article 10, Paragraph (5) shall apply mutatis mutandis to the payment of dividends on the shares issued upon conversion and the payment of interest on the convertible bonds.

Article 17-2. Issuance of Bonds with Warrants

(1) The Company may issue bonds with warrants to persons other than its shareholders to the extent that the aggregate par value of the bonds with warrants do not exceed two trillion (2,000,000,000,000) Won, in case of the events prescribed in Paragraph (1) of Article 17 above.

(2) The amount with respect to which the pre-emptive rights may be exercised shall be determined by resolution of the Board of Directors; provided, that such amount shall not in any event exceed the aggregate face amount of bonds with warrants.

(3) Upon exercise of the warrants, from the aggregate face amount of bonds with warrants, common shares may be issued up to one trillion three hundred billion (1,300,000,000,000) Won and preferred shares may be issued up to seven hundred billion (700,000,000,000) Won, and the issue price, which shall not be less than the face value of the shares, shall be determined by resolution of the Board of Directors at the time of issuance of bonds with warrants.

(4) The period during which the pre-emptive rights may be exercised shall be the period commencing from the date of issuance of bonds with warrants and ending on the date immediately preceding the date of redemption of bonds with warrants. The period during which the pre-emptive rights may be exercised may be adjusted by resolution of the Board of Directors; provided, that such period shall in any event fall within the period mentioned above.

(5) The provisions of Article 10, Paragraph (5) shall apply, mutatis mutandis, to the payment of dividends on the new shares issued upon exercise of the pre-emptive rights.

9

Article 18. Electronic Registration of Bonds

When the Company issues the bonds, instead of issuing certificates representing the bonds, the Company may electronically register its bonds on the electronic registrar of a designated electronic registration system by a resolution of the Board of Directors or by the decision of the Representative Director of the Company (in case the Board of Directors delegates an authority to issue the bonds to the Representative Director).

Article 18-2. Provisions Applicable mutatis mutandis to the Issuance of Bonds

Articles 13 and 14 of these Articles of Incorporation shall apply mutatis mutandis to the issuance of bonds.

10

CHAPTER IV. GENERAL MEETING OF SHAREHOLDERS

Article 19. Convening of General Meeting of Shareholders

(1) An Ordinary General Meeting of Shareholders shall be held within three (3) months after the end of each fiscal year, and an Extraordinary General Meetings of Shareholders may be convened at any time in compliance with a resolution of the Board of Directors and applicable laws or regulations.

(2) Shareholders may act only with respect to matters set forth in a written notice at a General Meeting of Shareholders.

(3) General Meeting of Shareholders shall be held in Seoul, Korea or at location of the Company’s head office.

(4) A General Meeting of Shareholders shall be convened by the Chairman of the Company or by the President or Vice President of the Company acting under the Chairman’s authorization.

Article 20. Notices

(1) Written notice of each General Meeting of Shareholders of the Company shall state the date, time, venue and the agenda for which the meeting has been called. The written notice shall be delivered to all shareholders by postal mail or by e-mail transmission at least two weeks prior to the date set for such General Meeting of Shareholders.

(2) Written notice of a General Meeting of Shareholders to be given to shareholders holding one-hundredth (1/100) or less of the total number of issued shares entitled to vote may be substituted by notices made at least twice in each of the Seoul Shinmun published in Seoul, the Maeil Shinmun published in Daegu Metropolitan City and the Kwangju Ilbo published in Kwangju Metropolitan City two weeks prior to the date set for such Meeting, or by notices to be posted on an electronic disclosure database system maintained by the Financial Supervisory Service or the Korea Exchange two weeks prior to the date set for such General Meeting of Shareholders.

11

Article 21. Presiding Officer

The Chairman and the Representative Director shall preside at the General Meetings of Shareholders. In the absence of the Chairman, the President and the Vice President among Inside Directors shall act as chairman in accordance with their order of authority.

Article 22. Authority of the Presiding Officer

The presiding officer at a General Meeting of Shareholders may order any person to cease making any statements or to leave the meeting or that statements made by such person be stricken from the record if the presiding officer determines that such person is deliberately preventing deliberations or is disturbing the order of the proceedings at the meeting. A person so ordered shall comply with the presiding officer’s instructions.

Article 23. Vote by Proxy

(1) Any shareholder entitled to vote at a General Meeting of Shareholders shall have the right to vote by proxy.

(2) Any shareholder may exercise his vote by proxy. However, the proxy shall submit a document evidencing the power of representation before the opening of the General Meeting of Shareholders. In the case of a corporate entity, any of its officers or directors may be a proxy.

Article 24. Quorum and Requisite for Resolutions

(1) Except as otherwise provided in these Articles of Incorporation or by applicable laws or regulations, all resolutions passed at a General Meeting of Shareholders shall be adopted by the affirmative vote of a majority of the voting shares of the shareholders present, which shall represent at least one-fourth (1/4) of the voting shares of the Company then issued and outstanding.

12

(2) In the following cases, the resolutions of a General Meeting of Shareholders shall be adopted by the affirmative vote of at least two-thirds (2/3) of the voting shares of the shareholders present and by the affirmative vote of at least one-third (1/3) of the voting shares of the total issued and outstanding shares:

1. Amendment of the Articles of Incorporation;

2. Transfer of all or any important part of the business;

3. Execution, amendment or rescission of a contract for leasing the whole of the business, for entrustment of management, or for sharing with another person all profits and losses in relation to the business or of a similar contract;

4. Acquisition of all or part of business of any other company, which may have a great influence upon the business of the Company;

5. Merger or consolidation of the Company (excluding a small scale merger or consolidation);

6. Matters required to be approved by the General Meeting of Shareholders, which have material effects on the company’s assets, as determined by the Board of Directors; and

7. Any other matter for which such vote is required by Korean laws and regulations.

Article 25. Exercise of Voting Right in Writing

(1) Any shareholder entitled to exercise its voting rights at a General Meeting of Shareholders in writing without being present at such General Meeting of Shareholders.

(2) In connection with Paragraph (1) above, the Company shall attach the document necessary for the shareholder’s exercise of its voting rights in writing and any reference documents to the written notice for convening a General Meeting of Shareholders.

(3) A shareholder, who intends to exercise its voting rights in writing, shall fill in the document referred to in Paragraph (2) above and submit such document to the Company one (1) day prior to the date of the relevant General Meeting of Shareholders.

13

Article 26. Minutes of General Meeting of Shareholders

The substance of the course of the proceedings of a General Meeting of Shareholders and the results thereof shall be recorded in the minutes which shall bear the names and seals or signatures thereon of the presiding officer and of the Directors present at the meeting, and shall be preserved in the archives of the Company.

14

CHAPTER V. BOARD OF DIRECTORS

Article 27. Number of the Directors

The total number of Directors of the Company shall be at least three (3) but no more than twelve (12) Directors, among which the Outside Directors shall constitute the majority of the total number of the Directors.

Article 28. Election of the Directors and Representative Directors

(1) The Directors shall be elected at the General Meeting of Shareholders.

(2) By resolution of the Board of Directors, a number of Representative Directors may be appointed from among Inside Directors. On recommendation of the Chairman, the Board of Directors may grant an Inside Director the position of President, Executive Vice President, Senior Managing Director and Managing Director.

(3) If Directors are appointed by a cumulative voting, the Inside Directors and the Independent Outside Directors are separately considered, and then, the cumulative voting shall apply to each group.

Article 29. Appointment of the Chairman and the Representative Director

(1) By resolution of the Board of Directors, the Chairman and the Representative Director shall be elected from among the Inside Directors after his qualification is approved by the CEO Candidate Recommendation Committee.

(2) In the event a candidate for the position of Inside Director is nominated as the Chairman and the Representative Director candidate and approved by the CEO Candidate Recommendation Committee, the Board of Directors shall recommend the name of one (1) The Chairman and the Representative Director candidate at the General Meetings of Shareholders. Where the Chairman and the Representative Director candidate is appointed as an Inside Director at General Meetings of Shareholders, the Board of Directors shall appoint the Chairman and the Representative Director candidate as the Chairman and the Representative Director.

15

(3) Details concerning the composition and operation of the CEO Candidate Recommendation Committee shall be determined by the Board of Directors.

Article 29-2. Recommendation of Inside Director Candidate other than the Chairman and the Representative Director

A candidate for Inside Director other than the Chairman and the Representative Director shall be recommended by the Board of Directors after his qualification is approved by the Director Candidate Recommendation Committee as prescribed in Paragraph (1) of Article 45.

Article 29-3. Qualification for Inside Director Candidate

(1) An Inside Director shall be a person capable of managing the Company, who has working experience as an officer or employee of the Company or sufficient experience in the related business area.

(2) A person (i) who retired prior to the completion of the full term of office due to gross negligence or unsound management, (ii) who was sentenced to imprisonment or a heavier penalty and for whom five years have not passed since the termination thereof or exemption therefrom or (iii) who is serving a suspended sentence or who was sentenced to a stay of execution and for whom two years have not passed since the expiration of the period of stay of execution cannot be an Inside Director of the Company.

Article 30. Recommendation of Candidate for Outside Directors

(1) A candidate for Outside Director shall be recommended by the Director Candidate Recommendation Committee as prescribed in Paragraph (1) of Article 45. Such candidates shall be among those qualified persons as prescribed in Article 31.

(2) A shareholder holding voting shares of the Company may recommend a candidate for Outside Director to the Director Candidate Recommendation Committee by the exercise of the shareholder proposal right under the applicable legislation.

(3) The Director Candidate Recommendation Committee shall determine the details regarding recommendation for, and evaluation on qualification of, candidates for Outside Director.

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Article 31. Qualification for Candidate for Outside Directors

An Outside Director must have sufficient and professional knowledge or experience in the areas of industry, finance, education, law, accounting and public administration and also must be qualified under the relevant laws.

Article 32. Duties of Representative Director

(1) Each Representative Director shall represent the Company, execute matters determined by the Board of Directors, control all affairs of the Company and provide all Directors with the updated information regarding the recent status of management and the Company.

(2) The Representative Directors and Directors shall carry on the administration of the affairs of the Company in accordance with the duties assigned to them by the Chairman.

Article 33. Duties of Directors

(1) The Directors, as the prudent manager, shall faithfully perform their duties for the Company such as attending the meeting of the Board of Directors, etc. in accordance with the laws and the Articles of Incorporation.

(2) If a Director finds any matter that may inflict any material loss to the Company, he shall immediately report it to the Audit Committee.

Article 34. Term of Directors

The term of office of the Directors shall be within three (3) years; provided, however, that the term of office for Directors shall be extended until the close of an Ordinary General Meeting of Shareholders which is to be held with respect to the fiscal year which is the last to end during their terms in office.

17

Article 35. By-Election

(1) In the event of any of the absence or inability to perform the duties as a Director, an Extraordinary General Meeting of Shareholders shall be convened to fill the vacancy. However, in the case the number of remaining Directors satisfies the legal requirement and such vacancy does not cause any difficulties in the operation of the business, the appointment through by-election may be suspended, or postponed until the holding of the next Ordinary General Meeting of Shareholders.

(2) In the event that the number of Outside Directors is less than a majority of total number of Directors due to death or resignation of Outside Directors or for any other reason, Outside Directors shall be elected to fill the vacancy at the General Meeting of Shareholders to be held first after such cause so as for the number of Outside Directors to constitute a majority of total number of Directors.

Article 36. Remuneration of Directors

(1) The limits of the salaries and performance incentives of the Directors shall be determined by resolution of the General Meeting of Shareholders. The Board of Directors shall determine the detailed operation standards thereof.

(2) Any severance allowance paid to the Inside Directors shall be in accordance with Severance Allowance Regulations for Directors as approved by shareholders at the General Meeting of Shareholders.

(3) The Company may pay to Outside Directors for expenses incurred during performance of services as required of Outside Directors.

18

Article 37. Indemnification of Directors

The Company shall indemnify, to the extent permitted by the Korean Commercial Code, the Directors from and against all expenses, losses or liabilities incurred in connection with defending any action, claim or proceeding to protect the interest of the Company, except for in case of the Directors’ willful misconduct or negligence with respect to their duties.

Article 38. Authority of the Board of Directors

(1) The Board of Directors shall have the power to take actions in respect of all such acts and things put on the agenda by any of the Directors relating to important matters regarding the administration of the Company or as are required by laws or regulations or by these Articles of Incorporation.

(2) The Board of Directors may delegate its powers to the Special Committees as prescribed in Paragraph (1) of Article 45 in accordance with the Korean laws and regulations and these Articles of Incorporation.

19

Article 39. Constitution and Convocation of Meeting of the Board of Directors

(1) The Board of Directors shall consist of all the Directors.

(2) The Presiding Director of the Board of Directors may convene all Meetings of the Board of Directors. Any other Director who wishes to convene a Meeting of the Board of Directors shall make his request to the Presiding Director of the Board of Directors and the Presiding Director shall convene the Meeting. If the Presiding Director of the Board of Directors fails to convene the Meeting without justifiable reasons, other Directors may convene such Meeting.

(3) Written or oral notice of each Meeting of the Board of Directors shall be given at least one day prior to the scheduled meeting date to each of the Directors. No notice shall, however, be required for a regular Meeting of the Board of Directors or if all of the Directors consent thereto.

(4) The Board of Directors may allow the Directors to attend, and vote at, the meeting of the Board of Directors by tele-conferencing, instead of attending and voting in person at such meeting. In such case, a Director participating in the Board Meeting by such arrangement shall be considered to be present at the Meeting of the Board of Directors.

Article 40. Presiding Director of the Board of Directors

(1) The Presiding Director of the Board of Directors shall be appointed by the resolution of the Board of Directors among Outside Directors.

(2) The term of office of the Presiding Director shall be one (1) year, and the Presiding Director shall not be reappointed to the office.

(3) In the event that the Presiding Director cannot preside at a Meeting of the Board of Directors, Outside Director in order of seniority (if the seniority is the same, the oldest has the priority) shall take his place as presiding Director.

20

Article 41. Adoption of Resolutions of the Board of Directors

(1) The Majority of Directors shall constitute a quorum for a Meeting of the Board of Directors. All actions and resolutions taken at a Meeting of the Board of Directors shall be adopted by the affirmative vote of a majority of the Directors present. Notwithstanding the foregoing, the adoption of a resolution by the Board of Directors with respect to the election of the Chairman and the Representative Director candidate may be separately decided by the Board of Directors whose quorum shall not exceed the affirmative vote of two-thirds (2/3) of all of the Directors.

(2) A Director having a special interest with respect to the resolution shall not exercise his voting right.

Article 42. Formalities of the Board of Directors

Directors shall set the agenda for each Meeting and make proposals for resolution thereat. If any Director plans to make proposals at the Meeting of the Board of Directors, he shall submit a written summary thereof to the Presiding Director of the Board of Directors and the Chairman and Representative Director in advance.

Article 43. Matters of Urgency

The Chairman and Representative Director may act upon matters of urgency without resolution of the Board of Directors by obtaining prior consent of more than two-thirds (2/3) of other Directors. A Meeting of the Board of Directors for the next term shall be convened to deliberate on and ratify the actions so taken.

Article 44. Minutes of the Meeting of the Board of Directors

With respect to the proceedings of the Meetings of the Board of Directors, the minutes should be made. The agenda, the substances of course, and the results of the proceedings of the Meetings of the Board of Directors, the name of objecting director and the reasons of objection shall be recorded in the minutes which shall bear the names and seals or the signatures thereon of the Directors present at the Meeting.

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Article 45. Special Committees

(1) The Company shall have special committees under the control of the Board of Directors as follows:

1. Director Candidate Recommendation Committee;

2. Evaluation and Compensation Committee;

3. Finance and Operation Committee;

4. Executive Management Committee;

5. Audit Committee; and

6. Related Party Transactions Committee.

(2) Except as otherwise provided by any relevant laws, authority, constitution and operation of the special committee shall be determined by a resolution of the Board of Directors.

(3) Matters regarding composition and duties of the Audit Committee shall be determined in accordance with Chapter VI.

Article 46. Unregistered Officers

(1) The Company shall have Unregistered Officers to execute the matters resolved by the Board of Directors and the matters important to the management of the Company.

(2) The Unregistered Officers shall be appointed by the Representative Director and C.E.O.; provided, however, that the appointment of the Unregistered Officers to the important positions that the Board of Directors decides shall require the approval of the Board of Directors.

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(3) The Unregistered Officers are President, Senior Executive Vice Presidents, Senior Managing Directors and Managing Directors, and the salaries and performance incentives payable to such Unregistered Officers shall be determined by the Board of Directors or by the Representative Director and C.E.O., to the extent the Representative Director and C.E.O. has been delegated such authority by the Board of Directors. Any severance allowance shall be distributed in accordance with the standards for the President, Senior Executive Vice Presidents, Senior Managing Directors and Managing Directors pursuant to the Directors Severance Allowance Regulations as approved by the General Meeting of Shareholders.

(4) The allocation of work among the Unregistered Officers shall be decided by the Representative Director and C.E.O

(5) The term of office of the Unregistered Officers shall not be more than two (2) years; provided, however, that the proviso of Article 34 may apply mutatis mutandis to the Unregistered Officers.

Article 47. Consultant and Part-time Officer

The Company may have consultants and part-time officers who will be treated as Officers of the Company if it is required for the business.

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CHAPTER VI. Audit Committee

Article 48. Constitution and Appointment of Members of Audit Committee

(1) The Audit Committee of the Company shall consist of three (3) or more Directors. All of the members shall be elected from among the Outside Directors.

(2) A member of the Audit Committee shall be appointed or dismissed at the General Meeting of Shareholders. When appointing a member of the Audit Committee, a shareholder holding more than three percent (3%) of the Company’s issued and outstanding shares shall not be entitled to exercise his voting rights for that excess portion.

(3) In the event that the number of the Audit Committee does not satisfy the requirement referred to in Paragraph (1) due to the death or resignation of members or any other reasons, the members shall be elected to fill the vacancy at the General Meeting of Shareholders to be held first after such cause so as for the number of members to satisfy the requirement referred to in Paragraph (1).

(4) The chairman of the Audit Committee shall be elected by a resolution of the Audit Committee.

Article 49. Duties of Audit Committee

(1) The Audit Committee shall examine the accounting and financial records of the Company.

(2) The Audit Committee may request to convene an Extraordinary General Meeting of Shareholders by submitting a written request specifying the agenda of the meeting and the reason for the meeting.

(3) If deemed necessary, the Audit Committee may request to convene a Board Meeting by submitting a written request specifying the agenda of a meeting and the reason for a meeting to the Presiding Director.

24

(4) The Audit Committee may directly convene a Board Meeting if a meeting has not been convened immediately on the request of the Audit Committee in accordance with Paragraph (3) of this Article.

(5) If it is required for management purpose, the Audit Committee may demand a subsidiary to make a report on the business. In such case, if the subsidiary fails to make an immediate report, or it is required to confirm the contents of such report, the Audit Committee may investigate the business and assets of the subsidiary.

(6) The Audit Committee shall prepare an audit report on the Company’s financial statements and shall report thereof to the General Meeting of Shareholders.

(7) The Audit Committee shall record the course of the proceedings of their meetings and the results thereof in the minutes and shall record the procedure of the inspection and the results thereof in the inspection book, on which the name and seal of the members shall be affixed or which shall be signed by such members.

(8) The Audit Committee may receive advice from outside professionals when necessary, for which the Company shall cover any expenses therefrom.

Article 50. Quorum and Adoption of Resolutions

Article 41 shall apply, mutatis mutandis, to the quorum and adoption of resolution of the Audit Committee.

Article 51. Appointment of External Auditor

An External Auditor of the Company pursuant to the Act on External Audit of Stock Companies shall be appointed by the approval of the Audit Committee. The details of the aforesaid appointment shall be reported to the shareholders at the Ordinary General Meeting of Shareholders for the fiscal year during which such appointment was or shall be made known to the shareholders in accordance with relevant laws and regulations.

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CHAPTER VII. ACCOUNTING

Article 52. Fiscal Year

The fiscal year of the Company shall commence on each January 1 and shall end on December 31 of the same year.

Article 53. Submission, Approval and Publication of Financial Statements

(1) After the end of each fiscal year, the Representative Directors shall prepare and submit, with the Board of Directors’ approval therefor, to the Audit Committee at least six (6) weeks before the date set for an Ordinary General Meeting of Shareholders, the following documents with its supplementary schedules:

1. A balance sheet;

2. A profit and loss statement;

3. Documents designated by the Presidential Decree and decided by the Board of Directors;

4. A consolidated financial statement; and

5. A business report for the pertinent fiscal year:

(2) Upon receiving the documents specified under Paragraph (1) above, the Audit Committee shall prepare and submit an auditor’s report to the Representative Director one (1) week before the date of each Ordinary General Meeting of Shareholders.

(3) The Representative Directors shall make available for inspection for five (5) years at the head office and copies thereof for three (3) years at branch offices, the documents prescribed under Items 1 through 4 of Paragraph (1) of this Article and the auditor’s report of the Company beginning from one (1) week before the date of each Ordinary General Meeting of Shareholders.

26

(4) The Representative Director shall submit and seek approval of the documents prescribed under Items 1 through 4 of Paragraph (1) of this Article at an Ordinary General Meeting of Shareholders. The Representative Directors shall report a business report to an Ordinary General Meeting of Shareholders.

(5) The Representative Directors shall make public the balance sheet, without delay, after an Ordinary General Meeting of Shareholders has approved the documents described in Paragraph (4).

Article 54. (Deleted)

Article 55. Disposition of Retained Earnings

Retained earnings for any fiscal year shall be disposed in the following order, but it may be appropriated for purposes other than those listed below if approved by the General Meeting of Shareholders:

1. Legal reserves (required to be more than one-tenth of cash dividends paid for the pertinent fiscal year);

2. Other statutory reserves;

3. Dividends to shareholders;

4. Merits bonuses for retiring Directors;

5. Discretionary reserves;

6. Average dividend reserves and other dispositions; and

7. Retained earnings carried forward to next fiscal year.

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Article 56. Dividends

(1) Dividends may be paid in cash, shares, or any other form of property.

(2) In the case of stock dividends, the Company may issue different types of shares to the shareholders by resolution of the General Meeting of Shareholders.

(3) The Company may pay interim dividends in cash, shares or any other form of property by a resolution of the Board of Directors each fiscal year. In such case, the record date for the distribution of interim dividends shall be the 30th day of June.

(4) Dividends referred to in Paragraphs (1) and (3) shall be paid to the shareholders and registered pledgees whose names appear in the shareholders’ register of the Company as of the last day of each fiscal year or the record date for the distribution of interim dividends.

Article 57. Cancellation of Shares with Profits

The Company, by a resolution of the Board of Directors, may repurchase and cancel its outstanding shares with the incomes distributable to the shareholders following the methods set forth in the applicable laws or regulations.

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ADDENDA (March 16, 2012)

Article 27 of the Articles of Incorporation shall be effective from the date the Ordinary General Meeting of Shareholders for the 44^th fiscal year approves such Article while the other amended Articles shall be effective from April 15, 2012.

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EX-8.1

Exhibit 8.1

LIST OF CONSOLIDATED SUBSIDIARIES

The following is a list of our consolidated subsidiaries as of December 31, 2013.

NAME	JURISDICTION OF INCORPORATION
POSCO ENGINEERING & CONSTRUCTION CO., LTD.	Korea
POSCO Processing&Service	Korea
POSCO COATED & COLOR STEEL Co., Ltd.	Korea
POSCO PLANTEC Co., Ltd.	Korea
POSCO ICT	Korea
POSCO Research Institute	Korea
POSMATE (former Seoung Gwang Co., Ltd.)	Korea
POSCO A&C	Korea
POSCO Specialty Steel Co., Ltd.	Korea
POSTECH Venture Capital Co., Ltd.	Korea
eNtoB Corporation	Korea
POSCO CHEMTECH	Korea
POSCO-Terminal Co., Ltd.	Korea
POSCO M-TECH	Korea
POSCO ENERGY CO., LTD.	Korea
Postech 2006 Energy Fund	Korea
POSCO TMC Co., Ltd.	Korea
POSCO NIPPON STEEL RHF JOINT VENTURE CO., Ltd.	Korea
MegaAsset Co., Ltd.	Korea
POSCO Engineering CO., Ltd.	Korea
Pohang SPFC Co., Ltd.	Korea
POSWITH Co., Ltd.	Korea
POSCO AST	Korea
POSHIMETAL Co., Ltd.	Korea
Poscoene	Korea
POSFINE Co., Ltd.	Korea
POSCO Humans	Korea
Mapo Hibroad Parking co., Ltd.	Korea
Dakos Co., Ltd.	Korea
Steel Processing and Fabricating Center Co.,LTD	Korea
POSCALCIUM Company, Ltd.	Korea
Plant Engineering Service Technology Co., Ltd.	Korea
9Digit Co., Ltd.	Korea
Postech Early Stage Fund	Korea
Busan E&E Co., Ltd.	Korea
POSCO Family Strategy Fund	Korea
POREKA Co., Ltd.	Korea
Daewoo International Corporation	Korea
POSCO LED Co., Ltd.	Korea
Gunsan SPFC Co., Ltd.	Korea
Pohang Scrap Recycling Distribution Center Co., Ltd.	Korea
PSC Energy Global Co., Ltd.	Korea
Suncheon Eco Trans Co., Ltd.	Korea
Reco Metal Co., Ltd.	Korea
New Altec Co., Ltd.	Korea
PONUTech Co., Ltd.	Korea
BLUE O&M Co., Ltd.	Korea
Tamra Offshore Wind Power Co., Ltd.	Korea

POS-HiAL	Korea
MCM Korea	Korea
Tancheonene Co., Ltd.	Korea
IT Engineering	Korea
POSCO America Corporation	USA
POSCO Australia PTY LTD	Australia
POSCO Canada Ltd.	Canada
POSCAN Elkveiw Coal Ltd.	Canada
POSCO Asia Co., Ltd.	Hong Kong
Dalian POSCO Steel Co., Ltd	China
POSCO-CTPC Co., Ltd.	China
POSCO-JKPC Co., Ltd.	Japan
INTERNATIONAL BUSINESS CENTER CORPORATION	Vietnam
POSCO E&C Vietnam Co., Ltd.	Vietnam
Zhangjiagang Pohang Stainless Steel Co., Ltd.	China
POSCO (Guangdong) Steel Co., Ltd.	China
POSCO (Thailand) Company Limited	Thailand
Myanmar POSCO Steel Co., Ltd.	Myanmar
POSCO-JOPC Co., Ltd.	Japan
POSCO Investment Co., Ltd.	Hong Kong
POSCO-MKPC SDN BHD	Malaysia
Qingdao Pohang Stainless Steel Co., Ltd.	China
POSCO (Suzhou) Automotive Processing Center Co., Ltd.	China
POSCO BIOVENTURES I, L.P.	USA
PT. POSNESIA Stainless Steel Industry	Indonesia
POSEC Hawaii, Inc.	USA
POSCO-China Qingdao Processing Center Co., Ltd.	China
POS-ORE PTY LTD	Australia
POSCO-China Holding Corp.	China
POSCO-JAPAN Co., Ltd.	Japan
POS-CD PTY LTD	Australia
POS-GC PTY LTD	Australia
POSCO-India Private Limited	India
POS-India Pune Processing Centre Pvt. Ltd.	India
POSCO-JEPC Co., Ltd.	Japan
POSCO-CFPC Co., Ltd.	China
POSCO E&C CHINA Co., Ltd.	China
POSCO MPPC S.A. de C.V.	Mexico
Zhangjigang Pohang Port Co., Ltd.	China
Qingdao Pos-metal Co., Ltd.	China
POSCO-VIETNAM Co., Ltd.	Vietnam
POSCO MEXICO S.A. de C.V.	Mexico
POSCO India Delhi Steel Processing Centre Private Limited	India
POSCO-Poland Wroclaw Processing Center Sp. z o. o.	Poland
POS-NP PTY LTD	Australia
POSCO-Vietnam Processing Center Co., Ltd.	Vietnam
POSCO(Chongqing) Automotive Processing Center Co, Ltd.	China
SUZHOU POSCO-CORE TECHNOLOGY CO., LTD.	China
POSCO-Malaysia SDN. BHD.	Malaysia
POS-Minerals Corporation	USA
POSCO(Wuhu) Automotive Processing Center Co., Ltd.	China
POSCO Engineering and Construction India Private Limited	India
POSCO E&C SMART S DE RL DE CV	Mexico
POSCO Philippine Manila Processing Center, Inc.	Philippines
POSCO Gulf SFC LLC	UAE
Dalian POSCO ICT-DONGFANG Engineering Co., Ltd.	China

2

SANPU TRADING Co., Ltd.	China
Zhangjiagang BLZ Pohang International Trading	China
POSCO MEXICO HUMAN TECH S.A. de C.V.	Mexico
POSCO MESDC S.A. DE C.V.	Mexico
POSCO-ICT China	China
DWEMEX, S.A.DE.C.V.	Mexico
POSCO MPC Servicios S.A. de C.V.	Mexico
POSCO-Uruguay S.A.	Uruguay
Pos-Sea Pte Ltd	Singapore
POSCO Europe Steel Distribution Center	Slovenia
VENTUS LIMITED	England
Zeus(Cayman)	Cayman Islands
POSCO VST CO., LTD.	Vietnam
POSCO Maharashtra Steel Private Limited	India
POSCO India Chennai Steel Processing Centre Pvt.Ltd.	India
POSCO TNPC Otomotiv Celik San. Ve Tic. A.S	Turkey
POSCO Vietnam Ha Noi Processing Center Co., Ltd.	Vietnam
POSCO(Liaoning) Automotive Processing Center Co., Ltd.	China
POSCO-Indonesia Jakarta Processing Center	Indonesia
POSCO E&C VENEZUELA C.A.	Venezuela
Motta Resources Indonesia	Indonesia
POSCO TMC INDIA PRIVATE LIMITED	India
POSCO America Alabama Processing Center Co., Ltd.	USA
PT PEN INDONESIA	Indonesia
POSCO(Yantai) Automotive Processing Center Co., Ltd.	China
POSCO India Steel Distribution Center Private Ltd.	India
POSCO China Dalian Plate Processing Center Co., Ltd.	China
POSCO-South Asia Company Limited	Thailand
POSCO SS-VINA	Vietnam
POSCO-NCR Coal Ltd.	Canada
POSCO WA PTY LTD	Australia
POSCO Engineering and Construction – UZ	Uzbekistan
POSCO AUSTRALIA GP PTY LIMITED	Australia
Daewoo International (America) Corp.	USA
Daewoo International (Deutschland) GmbH.	Germany
Daewoo International Japan Corp.	Japan
DAEWOO INTERNATIONAL SINGAPORE PTE. LTD.	Singapore
Daewoo Italia S.r.l.	Italy
Daewoo (China) Co., Ltd.	China
DAEWOO TEXTILE FERGANA LLC	Uzbekistan
DAEWOO TEXTILE BUKHARA LLC	Uzbekistan
DAEWOO INTERNATIONAL AUSTRALIA HOLDINGS PTY LTD	Australia
Daewoo Paper Manufacturing Co., Ltd.	China
Tianjin Daewoo Paper Manufacturing Co., Ltd.	China
POSCO MAURITIUS LIMITED	Mauritius
PT. KRAKATAU POSCO	Indonesia
Myanmar Daewoo Limited	Myanmar
DAEWOO INTERNATIONAL MEXICO S.A. DE C.V.	Mexico
Daewoo International Guangzhou Corp.	China
DAEWOO STC VINA LTD.	Vietnam
Daewoo (M) SDN. BHD.	Malaysia
Daewoo CANADA LTD.	Canada
Daewoo EL SALVADOR S.A. DE C.V.	El Salvador
GEZIRA TANNERY CO., LTD.	Sudan
POSCO (Zhangjiagang) STS Processing Center Co., Ltd.	China

3

Daewoo International (M) SDN BHD	Malaysia
Daewoo International SHANGHAI CO., LTD.	China
DAEWOO POWER AND INFRA (PTY) LTD.	South Africa
PGSF, L.P.	USA
Xenesys Inc.	Japan
Daewoo International INDIA Private Ltd.	India
TECHREN Solar, LLC	USA
PT. POSCO E&C INDONESIA	Indonesia
HUME COAL PTY LTD	Australia
Daewoo HANDELS GmbH	Germany
POSCO FOUNDATION	India
EPC EQUITIES LLP	England
SANTOS CMI INC CONSTRUCTION TRADING LLP	England
SANTOS CMI INC. USA	USA
SANTOS CMI ENGENHARIA E CONSTRUCOES LTDA	Brazil
SANTOS CMI PERU S.A.	Peru
SANTOS CMI COSTA RICA S.A.	Costa Rica
SANTOS CMI CONSTRUCCIONES S.A.	Uruguay
GENTECH INTERNATIONAL INC.	Panama
EPC INVESTMENTS C.V.	The Netherlands
INGENIERiA Y CONSTRUCCION HOLAND CO S.A.	Ecuador
ASESORiA Y SERVICIOS EPC S.A CHILE	Chile
SANTOSCMI S.A.	Ecuador
SANTOSCMI CONSTRUCCIONES DE CHILE S.A.	Chile
S&K –SANTOSCMI S.A. DE C.V.	Mexico
COMPANIADEAUTOMATIZACION&CONTROL, GENESYS S.A.	Ecuador
VAUTIDAMERICAS S.A.	Ecuador
SANTOS CMI Constructions Argentina S.A.	Argentina
POSCO ENGINEERING & CONSTRUCTION DO BRAZIL LTDA.	Brazil
POSCO Electrical Steel India Private Limited	India
Daewoo International Cameroon S.A.	Cameroon
POSCO ASSAN TST STEEL INDUSTRY	Turkey
HONG KONG POSCO E&C (CHINA) INVESTMENT Co., Ltd.	Hong Kong
POSCO Klappan Coal Ltd.	Canada
DAESAN (CAMBODIA) Co., Ltd.	Cambodia
Brazil Sao Paulo Steel Processing Center	Brazil
POSCO(Dalian) IT Center Development Co., Ltd.	China
PT.POSCO RESOURCES INDONESIA	Indonesia
PT. POSCO ICT INDONESIA	Indonesia
PT. POSCO MTECH INDONESIA	Indonesia
PT. KRAKATAU POSCO ENERGY	Indonesia
POSCO RUS LLC	Russia
POSCO Thainox Public Company Limited	Thailand
DAEWOO INTERNATIONAL SHANGHAI WAIGAOQIAO CO., LTD.	China
PT. Bio Inti Agrindo	Indonesia
POSCO ENGINEERING AND CONSTRUCTION AUSTRALIA (POSCO E&C AUSTRALIA) PTY LTD	Australia
POSCO-TISCO (JILIN) PROCESSING CENTER Co., Ltd.	China
Hunchun Posco Hyundai International Logistics Complex Development Co., Ltd	China
USA-SRDC	USA
Daewoo International Vietnam Co., Ltd.	Vietnam
PT.Krakatau Posco Chemtech Calcination	Indonesia
POSCO AFRICA (PROPRIETARY) LIMITED	South Africa
EPC INGENIERIA & SERVICIOS DE COSTA RICA SA	Costa Rica
POSCO ICT BRASIL	Brazil
LA-SRDC	USA

4

DONG FANG JIN HONG	China
PRODUCTOS OFERTAS SISTEMAS Y COMERCIALIZADORA ORIENTAL S DE RL DE CV	Mexico
POSCO(Guangdong) Automotive Steel Co., Ltd.	China
POSCO MAPC SA DE CV	Mexico
POSCO AMERICA COMERCIALIZADORA S DE RL DE CV	Mexico
POSCO ENGINEERING (THAILAND) CO., LTD.	Thailand
POSCO YongXin Rare Earth Metal Co., Ltd.	China
POSCO-Mory-Maruyasu PIPE	Japan
PT KRAKATAU BLUE WATER	Indonesia
KRAKATAU POS-CHEM DONG-SUH CHEMICA	Indonesia
Myanmar Daewoo International Corporation	Myanmar
POSCO-Italy Processing Center	Italy
DAEWOO E&P CANADA CORPORATION	Canada
Yingkou Puxiang Trade Co.,Ltd.	China
Myanmar POSCO C&C Company, Limited.	Myanmar
POSCO ICT VIETNAM	Vietnam
Daewoo Global Development. Pte., Ltd	Myanmar
Myanmar POSCO Engineering&Construction Company, Limited.	Myanmar
POSCO COATED STEEL (THAILAND) CO., LTD.	Thailand

5

EX-12.1

Exhibit 12.1

CERTIFICATION

I, Kwon, Oh-Joon, certify that:

1. I have reviewed this annual report on Form 20-F of POSCO;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: May 12, 2014

/s/ Kwon, Oh-Joon

Kwon, Oh-Joon

Chief Executive Officer and

Representative Director

EX-12.2

Exhibit 12.2

CERTIFICATION

I, Lee, Young-Hoon, certify that:

1. I have reviewed this annual report on Form 20-F of POSCO;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: May 12, 2014

/s/ Lee, Young-Hoon

Lee, Young-Hoon

President and

Chief Financial and Planning Officer

EX-13.1

Exhibit 13.1

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsection (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of POSCO, a corporation organized under the laws of the Republic of Korea (the “Company”), does hereby certify, to such officer’s knowledge, that:

The annual report on Form 20-F for the year ended December 31, 2013 (the “Form 20-F”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Form 20-F fairly presents, in all material respects, the financial condition and results of operation of the Company.

/s/ Kwon, Oh-Joon

Kwon, Oh-Joon

Chief Executive Officer and

Representative Director

Date: May 12, 2014

/s/ Lee, Young-Hoon

Lee, Young-Hoon

President and

Chief Financial and Planning Officer

Date: May 12, 2014

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to POSCO and will be retained by POSCO and furnished to the Securities and Exchange Commission or its staff upon request.