Exhibit 99.1

To Shareholders

Notice of the 45^th Ordinary General Meeting of Shareholders

We hereby notify you that the 45^th Ordinary General Meeting of Shareholders will be held as follows in accordance with the Article 20 of the Articles of Incorporation (“AOI”).

1. Date: March 22, 2013, 9:00 am

2. Place: POSCO Center, 892, Daechi-4dong Gangnam-gu, Seoul, 135-777, Korea

3. Agenda

Agenda 1: Approval of the 45^th Fiscal Year Financial Statements

Description of the Proposal

Pursuant to Article 449 of the Korean Commercial Act and Article 53 of the Company’s Articles of Incorporation, we request that the Ordinary General Meeting of Shareholders approve the 45^th Fiscal Year Financial Statements.

POSCO

and Subsidiaries

Consolidated Financial Statements

December 31, 2012

POSCO

Consolidated Statements of Financial Position

As of December 31, 2012 and 2011

(in millions of Won)	Notes	December 31, 2012		December 31, 2011
Assets
Cash and cash equivalents	5,20	₩	4,680,526		4,598,682
Trade accounts and notes receivable, net	6,15,20,24,25,34		11,037,973		11,450,515
Other receivables	7,20,34		1,591,439		1,433,508
Other short-term financial assets	7,20,34		2,254,994		2,222,762
Inventories	8		10,584,646		12,283,644
Current income tax assets	32		17,168		18,621
Assets held for sale	9		1,190		329,037
Other current assets	14		1,398,180		1,220,142
Total current assets			31,566,116		33,556,911
Long-term trade accounts and notes receivable, net	6,20		142,204		183,061
Other receivables	7,20		699,024		347,401
Other long-term financial assets	7,20		3,970,845		4,778,271
Investments in associates	10		3,039,261		3,831,659
Investment property, net	11		521,191		527,533
Property, plant and equipment, net	12		32,276,379		28,453,184
Intangible assets, net	13		5,662,361		5,244,928
Deferred tax assets	32		994,684		855,603
Other long-term assets	14		393,786		630,287
Total non-current assets			47,699,735		44,851,927
Total assets		₩	79,265,851		78,408,838

See accompanying notes to consolidated financial statements

POSCO

Consolidated Statements of Financial Position

As of December 31, 2012 and 2011

(in millions of Won)	Notes	December 31, 2012			December 31, 2011
Liabilities
Trade accounts and notes payable	20,34	₩	4,389,195			4,397,279
Short-term borrowings and current installments of long-term borrowings	15,20		10,509,348			10,791,510
Other payables	16,20,34		1,605,817			1,505,966
Other short-term financial liabilities	16,20,34		321,828			305,224
Current income tax liabilities	32		559,328			509,709
Liabilities related to assets held for sale	9		—			226,607
Provisions	17		77,831			69,432
Other current liabilities	19,25		2,311,654			1,799,631
Total current liabilities			19,775,001			19,605,358
Long-term trade accounts and notes payable	20,34		2,593			383
Long-term borrowings, excluding current installments	15,20		14,412,085			16,020,207
Other payables	16,20		142,412			169,375
Other long-term financial liabilities	16,20		219,223			181,185
Defined benefits liabilities	18		345,688			340,467
Deferred tax liabilities	32		1,461,519			1,168,097
Long-term provisions	17		100,098			109,343
Other long-term liabilities	19		377,814			84,503
Total non-current liabilities			17,061,432			18,073,560
Total liabilities			36,836,433			37,678,918
Equity
Share capital	21		482,403			482,403
Capital surplus	21		1,104,814			1,150,452
Reserves	22		(88,150	)		405,426
Treasury shares	23		(2,391,406	)		(2,391,406	)
Retained earnings			40,346,481			38,709,475
Equity attributable to owners of the controlling company			39,454,142			38,356,350
Non-controlling interests			2,975,276			2,373,570
Total equity			42,429,418			40,729,920
Total liabilities and equity		₩	79,265,851			78,408,838

See accompanying notes to consolidated financial statements

POSCO

Consolidated Statements of Comprehensive Income

For the years ended December 31, 2012 and 2011

(in millions of Won, except per share information)	Notes	December 31, 2012			December 31, 2011
Revenue	24,25,34	₩	63,604,151			68,938,725
Cost of sales	25,27,31,34		(56,142,892	)		(59,823,850	)
Gross profit			7,461,259			9,114,875
Selling and administrative expenses
Administrative expenses	26,27,31		(2,129,463	)		(2,035,053	)
Selling expenses	26,31		(1,678,688	)		(1,612,128	)
Operating profit	28		3,653,108			5,467,694
Share of profit (loss) of equity-accounted investees	10		(22,702	)		50,569
Finance income and costs
Finance income	20,29		2,897,063			3,190,419
Finance costs	20,29		(2,797,638	)		(3,866,695	)
Other non-operating income and expenses
Other non-operating income	30		448,120			306,941
Other non-operating expenses	30,31		(809,465	)		(366,533	)
Profit before income tax			3,368,486			4,782,395
Income tax expense	32		(982,879	)		(1,068,109	)
Profit for the period			2,385,607			3,714,286
Other comprehensive income (loss)
Capital adjustment arising from investments in equity-method investees			(130,836	)		(11,240	)
Net changes in the unrealized fair value of available-for-sale investments	20		(81,471	)		(1,231,758	)
Foreign currency translation differences			(363,088	)		1,666
Defined benefit plan actuarial losses			(62,527	)		(30,577	)
Other comprehensive loss, net of tax			(637,922	)		(1,271,909	)
Total comprehensive income for the period		₩	1,747,685			2,442,377
Profit (loss) attributable to:
Owners of the controlling company		₩	2,462,081			3,648,136
Non-controlling interests			(76,474	)		66,150
Profit for the period		₩	2,385,607			3,714,286
Total comprehensive income (loss) attributable to:
Owners of the controlling company		₩	1,911,506			2,530,437
Non-controlling interests			(163,821	)		(88,060	)
Total comprehensive income for the period		₩	1,747,685			2,442,377
Basic and diluted earnings per share	33	₩	31,874			47,224

See accompanying notes to consolidated financial statements

POSCO

Consolidated Statements of Changes in Equity

For the years ended December 31, 2012 and 2011

	Attributable to owners of the controlling company																	Non- controlling interests			Total
(in millions of Won)	Share capital		Capital surplus			Reserves			Treasury shares			Retained earnings			Sub total
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
Defined benefit plan actuarial losses, 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	)
Acquisition of subsidiaries		—		—			—			—			—			—			247,483			247,483
Changes in ownership interests in subsidiaries		—		(20,694	)		—			—			—			(20,694	)		266,642			245,948
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 consolidated financial statements

POSCO

Consolidated Statements of Changes in Equity

For the years ended December 31, 2012 and 2011

	Attributable to owners of the controlling company																	Non- controlling interests			Total
(in millions of Won)	Share capital		Capital surplus			Reserves			Treasury shares			Retained earnings			Sub total
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	)
Defined benefit plan actuarial losses, 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	)
Acquisition of 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 consolidated financial statements

POSCO

Consolidated Statements of Cash Flows

For the years ended December 31, 2012 and 2011

(in millions of Won)	Note	December 31, 2012			December 31, 2011
Cash flows from operating activities
Profit for the period		₩	2,385,607			3,714,286
Adjustments for:
Depreciation			2,405,769			2,133,010
Amortization			157,991			133,289
Finance income			(1,553,200	)		(1,734,280	)
Finance costs			1,605,414			2,245,957
Income tax expense			982,879			1,068,109
Gain on disposal of property, plant, and equipment			(42,290	)		(13,812	)
Loss on disposal of property, plant, and equipment			65,486			60,550
Share of profit (loss) of equity-accounted investees			22,702			(50,569	)
Costs for defined benefit plans			226,132			236,998
Bad debt expenses			123,373			45,477
Impairment loss of assets held for sale			258,451			—
Gain on disposal of assets held for sale			(193,333	)		—
Others, net			109,728			139,637
			4,169,102			4,264,366
Changes in operating assets and liabilities	36		1,933,358			(4,850,747	)
Interest received			238,231			218,682
Interest paid			(874,711	)		(745,111	)
Dividends received			178,317			308,692
Income taxes paid			(710,448	)		(1,218,602	)
Net cash provided by operating activities			7,319,456			1,691,566
Cash flows from investing activities
Proceeds from disposal of short-term financial instruments			3,847,682			5,794,770
Collection of loans			318,745			896,656
Proceeds from disposal of available-for-sale investments			700,686			411,061
Proceeds from disposal of other investment assets			19,566			—
Proceeds from disposal of property, plant and equipment			272,948			140,221
Proceeds from disposal of intangible assets			10,945			55,899
Proceeds from disposal of investments of equity-accounted investees			18,428			2,404
Proceeds from disposal of assets held for sale			1,268,545			—
Acquisition of short-term financial instruments			(3,616,118	)		(4,556,340	)
Issuance of loans			(434,156	)		(962,099	)
Acquisition of available-for-sale investments			(307,712	)		(322,046	)
Acquisition of other investment assets			(128	)		(450	)
Acquisition of investments of equity-accounted investees			(492,681	)		(740,971	)
Acquisition of property, plant and equipment			(7,054,543	)		(5,330,968	)
Acquisition of intangible assets			(448,214	)		(574,753	)
Payment for acquisition of business, net of cash acquired			(98,880	)		(437,464	)
Cash received from disposal of business			13,041			—
Other, net			(187,157	)		107,214
Net cash used in investing activities		₩	(6,169,003	)		(5,516,866	)

See accompanying notes to consolidated financial statements

POSCO

Consolidated Statements of Cash Flows

For the years ended December 31, 2012 and 2011

(in millions of Won)	Note	December 31, 2012			December 31, 2011
Cash flows from financing activities
Proceeds from borrowings		₩	3,007,017			7,068,322
Proceeds from disposal of treasury shares			—			164,384
Proceeds from short-term borrowings			(1,412,138	)		51,808
Repayment of borrowings			(1,884,140	)		(1,746,487	)
Acquisition of treasury shares			—			(61,296	)
Payment of cash dividends			(751,908	)		(770,858	)
Other, net			133,542			194,012
			(907,627	)		4,899,885
Effect of exchange rate fluctuation on cash held			(160,982	)		3,052
Net increase in cash and cash equivalents			81,844			1,077,637
Cash and cash equivalents at beginning of the period			4,598,682			3,521,045
Cash and cash equivalents at end of the period		₩	4,680,526			4,598,682

See accompanying notes to the consolidated financial statements

POSCO

Notes to the Consolidated Financial Statements

As of December 31, 2012

1. General Information

General information about POSCO, its 51 domestic subsidiaries (“the Company”) including POSCO Engineering & Construction Co., Ltd., 166 foreign subsidiaries including POSCO America Corporation and its 94 associates 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 nine of its overseas liaison offices.

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

	2012					2011
Shareholder’s name	Number of shares		Ownership (%)			Number of shares		Ownership (%)
National Pension Service		5,225,654		5.99	%		5,937,323		6.81	%
Nippon Steel & Sumitomo Metal Corporation (*1)		4,394,712		5.04	%		4,394,712		5.04	%
SK Telecom Co., Ltd.		—		—			2,481,310		2.85	%
KB Financial Group Inc. and subsidiaries		1,919,773		2.20	%		—		—
Pohang University of Science and Technology		1,905,000		2.18	%		1,905,000		2.18	%
Shinhan Financial Group Inc. and subsidiaries		1,845,054		2.12	%		1,870,879		2.15	%
Others		71,896,642		82.47	%		70,597,611		80.97	%
		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) Including number of shares subsidiaries held at the end of the reporting period under commercial law.

As of December 31, 2012, the shares of the Company are listed on the Korea Exchange, while its depository receipts are listed on the New York, Tokyo and London Stock Exchanges.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(b) Consolidated subsidiaries

Details of consolidated subsidiaries as of December 31, 2012 and 2011 are as follows:

		Ownership (%)
		2012						2011
	Principal operations	POSCO		Subsidiaries		Total		POSCO		Subsidiaries		Total		Region
[Domestic]
POSCO E&C Co., Ltd.	Engineering and construction		89.53		—		89.53		89.53		—		89.53	Pohang
POSCO P&S Co., Ltd.	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 Plant Engineering Co., Ltd.	Steel work maintenance and machinery installation		100.00		—		100.00		100.00		—		100.00	Pohang
POSCO ICT Co., Ltd.	Computer hardware and software distribution		72.54		—		72.54		72.54		—		72.54	Seongnam
POSCO Research Institute	Economic research and consulting		100.00		—		100.00		100.00		—		100.00	Seoul
Seoung Gwang Co., Ltd.	Athletic facilities operation		69.38		30.62		100.00		69.38		30.62		100.00	Suncheon
POSCO Architects & Consultants Co., Ltd.	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		100.00		—		100.00	Changwon
POSTECH Venture Capital Corp.	Investment in venture companies		95.00		—		95.00		95.00		—		95.00	Pohang
eNtoB Co., Ltd.	Electronic commerce		32.19		30.20		62.39		32.19		30.20		62.39	Seoul
POSCO Chemtec Company Ltd. (formerly, POSCO Refractories & Environment Co., Ltd.)	Manufacturing and sellings		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 Co., Ltd. (*1)	Packing materials manufacturing		48.85		—		48.85		48.85		—		48.85	Pohang
POSCO ENERGY Co., Ltd.	Generation of electricity		89.02		—		89.02		100.00		—		100.00	Seoul
Postech 2006 Energy Fund (*2)	Investment in new technologies		—		22.11		22.11		—		22.11		22.11	Seoul
PHP Co., Ltd.	Rental houses construction and management		—		—		—		—		100.00		100.00	Incheon
POSCO TMC Co., Ltd.	Component manufacturing		34.20		33.56		67.76		34.20		33.56		67.76	Cheonan
PNR 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 Company	Construction and engineering service		—		95.56		95.56		—		94.14		94.14	Seongnam
Pohang Fuel Cell Co. Ltd.	Generation of electricity		—		—		—		—		100.00		100.00	Pohang
Pohang SPFC Co., Ltd.	Steel manufacturing		—		90.00		90.00		—		90.00		90.00	Pohang
POSWITH Co., Ltd.	Industrial clean service		100.00		—		100.00		100.00		—		100.00	Pohang
BASYS INDUSTRY Co., Ltd.	Panel board, electric and control panel manufacturing		—		—		—		—		65.00		65.00	Seongnam
POSTECH BD Newundertaking fund	Bio diesel industries		—		—		—		—		100.00		100.00	Pohang
POSBRO Co., Ltd.	Video game manufacturing		—		—		—		—		97.79		97.79	Seongnam
POSCO AST Co., Ltd.	Steel manufacturing and Sales		100.00		—		100.00		100.00		—		100.00	Ansan
DaiMyung TMS Co., Ltd.	Cold- rolling of stainless steel and nickel alloy		—		—		—		—		100.00		100.00	Siheung
POS-HiMETAL Co., Ltd.	Steel manufacturing and Sales		65.00		—		65.00		65.00		—		65.00	Gwangyang
POSCO E&E Co., Ltd.	Handling & disposal of waste matter		—		100.00		100.00		—		100.00		100.00	Seoul
POMIC Co., Ltd.	Education services		—		—		—		—		100.00		100.00	Pohang
POSFINE Co., Ltd.	Non metallic minerals manufacturing		69.23		—		69.23		69.23		—		69.23	Gwangyang
POS ECO HOUSING Co., Ltd.	Construction		85.25		—		85.25		85.25		—		85.25	Pohang
Mapo high broad parking Co., Ltd.	Construction		—		71.00		71.00		—		71.00		71.00	Seoul
Dakos Co., Ltd.	Railway equipment manufacturing		—		81.00		81.00		—		81.00		81.00	Seongnam
Kwang Yang SPFC Co., Ltd.	Steel manufacturing		—		65.84		65.84		—		65.84		65.84	Gwangyang
POSCALCIUM Company, Ltd.	Non metallic minerals manufacturing		—		86.87		86.87		—		70.00		70.00	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		—		86.49		86.49	Incheon
Postech Early Stage Fund (*2)	Financial investment		—		10.00		10.00		—		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 Funds	Financial investment		60.79		39.21		100.00		69.93		30.07		100.00	Pohang
POREKA Co., Ltd.	Advertising agency		100.00		—		100.00		100.00		—		100.00	Seoul
Songdo SE Co., Ltd.	Cleaning service		—		—		—		100.00		—		100.00	Incheon
Daewoo International Corporation	Trading, Energy & Resource development		60.31		—		60.31		66.56		—		66.56	Seoul
POSCOLED Co., Ltd.	LED lightning		16.70		63.30		80.00		16.70		63.33		80.03	Seongnam
Gunsan SPFC Co., Ltd.	Steel manufacturing		—		70.09		70.09		—		70.09		70.09	Gunsan
POSCO NST Co., Ltd.	Steel manufacturing		—		—		—		100.00		—		100.00	Busan
Pohang Scrap Recycling Center Co., Ltd.	Steel manufacturing		—		51.00		51.00		—		51.00		51.00	Pohang
PSC energy global Co., Ltd.	Business service		—		100.00		100.00		—		100.00		100.00	Pohang
Suncheon Ecotrans Co., Ltd.	Train manufacturing & management		100.00		—		100.00		100.00		—		100.00	Suncheon
Shinan Energy Co., Ltd.	Manufacturing & management		—		—		—		—		100.00		100.00	Mokpo
Reco Metal Co., Ltd.	Steel manufacturing		—		100.00		100.00		—		88.58		88.58	Hwasung
NewAltec Co., Ltd.	Aluminum products manufacturing and sales		—		60.10		60.10		—		60.10		60.10	Incheon
PONUTech Co., Ltd.	Nuclear power generation design and repair service		—		100.00		100.00		—		100.00		100.00	Ulsan
BLUE O&M Co., Ltd	Service		—		100.00		100.00		—		100.00		100.00	Ulsan
Tamra Offshore Wind Power Co., Ltd	Cogeneration plant operation		—		64.00		64.00		—		—		—	Jeju
POS-HiAL	Aluminum products manufacturing and sales		—		65.30		65.30		—		—		—	Youngam
MCM Korea	Iron ore sales & mine development		—		100.00		100.00		—		—		—	Seoul
Tancheon E&E	Sewage heat energy supply		5.00		95.00		100.00		—		—		—	Seoul

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

		Ownership (%)
		2012						2011
	Principal operations	POSCO		Subsidiaries		Total		POSCO		Subsidiaries		Total		Region
[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 transit trading		100.00		—		100.00		100.00		—		100.00	Hong Kong
Dalian POSCO Steel Co., Ltd	Steel manufacturing		30.00		55.00		85.00		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
Zhangjiagang Pohang Stainless Steel Co., Ltd.	Stainless steel manufacturing		58.60		23.88		82.48		58.60		23.88		82.48	China
Guangdong Pohang Coated Steel Co., Ltd.	Plating steel sheet manufacturing		87.04		10.04		97.08		84.52		10.01		94.53	China
POSCO (Thailand) Company Ltd.	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		99.99		—		99.99	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 L.P.	Bio tech Industry		—		100.00		100.00		—		100.00		100.00	USA
PT. POSNESIA	Steel manufacturing		70.00		—		70.00		70.00		—		70.00	Indonesia
POSCO E&C - Hawaii Inc.	Real estate Industry		—		100.00		100.00		—		100.00		100.00	USA
POS-Qingdao Coil 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.	A 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 Ltd.	Steel manufacturing		100.00		—		100.00		100.00		—		100.00	India
POSCO-India Pune Steel Processing Centre Pvt. Ltd.	Steel manufacturing		65.00		—		65.00		65.00		—		65.00	India
POSCO-JEPC Co., Ltd. (formerly, POSCO-JNPC Co., Ltd.)	Steel manufacturing		—		88.02		88.02		—		90.00		90.00	Japan
POSCO-Foshan Steel Processing Center 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 MPC S.A. de C.V.	Steel manufacturing		—		95.00		95.00		—		90.00		90.00	Mexico
Zhangjigang Pohang Port Co., Ltd.	Load and unload industry		—		100.00		100.00		—		100.00		100.00	China
Qingdao Pujin Steel Material 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 Co., Ltd.	Mobile steel sheet manufacturing		84.84		15.16		100.00		80.68		19.32		100.00	Mexico
POSCO-India Delhi Steel Processing Centre Pvt. Ltd	Steel manufacturing		66.40		10.00		76.40		76.40		—		76.40	India
POSCO-Poland Wroclaw Steel Processing Center Co., Ltd	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		89.58		—		89.58	Vietnam
POSCO (Chongqing) Automotive Processing Center Co, Ltd.	Steel manufacturing		90.00		10.00		100.00		90.00		10.00		100.00	China
Suzhou POS-CORE Technology Co., Ltd.	Component manufacturing		—		100.00		100.00		—		100.00		100.00	China
POSCO-JYPC Co., Ltd.	Steel manufacturing		—		—		—		—		82.37		82.37	Japan
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 E&C India Private Ltd.	Construction and engineering		—		100.00		100.00		—		100.00		100.00	India
POSCO E&C SMART	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
POS-GSFC LLC	Steel manufacturing		—		81.93		81.93		48.98		48.98		48.98	AEU
Dalian POSCON Dongbang Automatic Co., Ltd.	Electronical control equipment manufacturing		—		100.00		100.00		—		70.00		70.00	China
SANPU TRADING CO.,LTD.	Transit trade		—		70.00		70.00		—		70.04		70.04	China
Zhangjiagang BLZ Pohang International Trading Co., Ltd.	Steel transit trading		—		100.00		100.00		—		100.00		100.00	China
POSCO Mexico Human Tech.	Service		80.00		20.00		100.00		80.00		20.00		100.00	Mexico
POSCO Mexico East Steel Distribution Center Co., Ltd	Steel product sales		—		56.80		56.80		—		56.81		56.81	Mexico

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

		Ownership (%)
		2012						2011
	Principal operations	POSCO		Subsidiaries		Total		POSCO		Subsidiaries		Total		Region
[Foreign]
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
POS MPC Servicios 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
POSCO South East Asia Pte. Ltd.	Steel transit trading		—		67.54		67.54		—		51.00		51.00	Singapore
Europe Steel Distribution Center	Steel product sales		50.00		20.00		70.00		50.00		20.00		70.00	Slovenia
VECTUS Ltd.	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 Pvt. Ltd.	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 Turkey Nilufer Processing Center Co., Ltd.	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
PT. MRI	mine development		65.00		—		65.00		65.00		—		65.00	Indonesia
POSCORE-INDIA	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 DEC 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 Co., Ltd.	Steel product sales		100.00		—		100.00		100.00		—		100.00	Thailand
POSCO SS-VINA Co., LTD	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 E&C - UZ	Construction		—		100.00		100.00		—		100.00		100.00	Uzbekistan
POSCO Australia GP 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	Italia
Daewoo Cement (Shandong) Co., Ltd.	Cement manufacturing		—		—		—		—		100.00		100.00	China
Daewoo (China) Co., Ltd.	Trading business		—		100.00		100.00		—		100.00		100.00	China
PT. RISMAR Daewoo Apparel	Clothing business		—		—		—		—		100.00		100.00	Indonesia
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 industry		—		66.70		66.70		—		66.70		66.70	China
Tianjin Daewoo. Paper Co., Ltd	Paper industry		—		68.30		68.30		—		68.00		68.00	China
POSCO Mauritius Ltd.	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 LTD.	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 Energy Central Asia	Resource development		—		—		—		—		100.00		100.00	Uzbekistan
Daewoo STC (& Apparel) Vietnam Ltd.	Textile manufacturing		—		100.00		100.00		—		100.00		100.00	Vietnam
MYANMAR Daewoo International Ltd.	Textile manufacturing		—		—		—		—		55.00		55.00	Myanmar
DAYTEK ELECTRONICS CORP.	Trading business		—		—		—		—		100.00		100.00	Canada
Daewoo (M) SDN. BHD.	Trading business		—		100.00		100.00		—		100.00		100.00	Malaysia
Daewoo CANADA LTD.	Trading business		—		100.00		100.00		—		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		—		60.00		60.00	Sudan

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

		Ownership (%)
		2012						2011
	Principal operations	POSCO		Subsidiaries		Total		POSCO		Subsidiaries		Total		Region
[Foreign]
POSCO (Zhangjiagang) Stainless Steel Processing Center Co., Ltd.	Steel manufacturing		—		100.00		100.00		—		100.00		100.00	China
Daewoo International Corporation (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
PGSF, LLC	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		21.36		50.94	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		—		99.97		99.97	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		—		70.00		70.00	Australia
Daewoo HANDELS GmbH	Trading business		—		100.00		100.00		—		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		—		100.00		100.00	Coasta Rica
SANTOS CMI CONSTRUCCIONES S.A. (URUGUAY)	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		—		99.90		99.90	Ecuador
ASESORiA Y SERVICIOS EPC S.A CHILE	Construction		—		99.00		99.00		—		99.00		99.00	Chile
SANTOS CMI S.A.	Construction		—		70.00		70.00		—		70.00		70.00	Ecuador
SANTOS CMI CONSTRUCCIONES DE CHILE S.A.	Construction		—		99.00		99.00		—		99.00		99.00	Chile
S&K -SANTOS CMI S.A. DE C.V. (MEXICO)	Construction		—		99.00		99.00		—		99.00		99.00	Mexico
COMPANIA DE AUTOMATIZACION & 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		—		95.00		95.00	Argentina
POSCO E&C Brazil Ltd.	Construction		—		100.00		100.00		—		100.00		100.00	Brazil
POSCO Electrical Steel India Private Limited	Electrical steel manufacturing		100.00		—		100.00		100.00		—		100.00	India
Daewoo International Cameroon PLC	Resource development		—		100.00		100.00		—		100.00		100.00	Cameroon
POSCO ASSAN TST STEEL Industry	Resource development		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 Co., Ltd	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		—		100.00		100.00	Indonesia
PT. POSCO M-Tech Indonesia	Steel manufacturing		—		60.00		60.00		—		100.00		100.00	Indonesia
PT. KRAKATAU POSCOPOWER	Manufacturing & management		—		90.00		90.00		—		70.00		70.00	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		94.93		—		94.93	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 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		73.53		14.71		88.24	China
Hunchun POSCO Logistics Co., Ltd.	Logistics		—		78.15		78.15		—		80.00		80.00	China
USA SRDC Corporation	Scrap sale		—		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		—		80.00		80.00		—		—		—	Indonesia
POSCO-Africa	Trading business		100.00		—		100.00		—		—		—	South Africa
E.P.C. INGENIERIA & SERVICIOS DE COSTA RICA S. A.	Construction and engineering service		—		100.00		100.00		—		—		—	Costa Rica
POSCO ICT BRASIL PARTICIPACOES LTDA	IT service and engineering		—		100.00		100.00		—		—		—	Brazil
LA-SCRAP RECYCLING DISTRIBUTION CENTER, LLC.	Scrap manufacturing		—		68.41		68.41		—		—		—	USA
EEC, GmbH	Construction and engineering service		—		—		—		—		—		—	Germany
Posco Center Beijing	Real estate development, rental and management		—		99.00		99.00		—		—		—	China

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

		Ownership (%)
		2012						2011
	Principal operations	POSCO		Subsidiaries		Total		POSCO		Subsidiaries		Total		Region
POSCO AMERICA COMERCIALIZADORA S DE RL DE C.V.	Steel sale		—		100.00		100.00		—		—		—	Mexico
POSCO AMERICA PRODUCTOS, OFERTAS, SISTEMAS Y COMERCIALIZADORA ORIENTAL S DE RL DE C.V.	Human-resource service		—		100.00		100.00		—		—		—	Mexico
Guangdong Pohang Car Steel Co., Ltd.	Steel manufacturing and selling		83.64		10.00		93.64		—		—		—	China
POSCO Mexico Aguascalientes Processing Center Co., Ltd.	Steel manufacturing and selling		80.00		20.00		100.00		—		—		—	Mexico

(*1) In 2011, this company was included as a subsidiary as the Company has the power over more than half of the voting rights by virtue of an agreement with Postech, which has 4.72% of ownership.

(*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 of changes in equity recognized as a result of changes in the Company’s ownership interests in subsidiaries that do not result in a loss of control (2012 : POSCO Specialty Steel Co., Ltd., POSCO ENERGY Co., Ltd., POSCO-Thainox Public Company Limited , etc., 2011 : POSCO ENGINEERING CO., LTD, Guangdong Pohang Coated Steel Co., Ltd., POSCO VST Co., Ltd., etc.) are ₩ 41,924 million and ₩ 20,695 million for the year ended December 31, 2012 and 2011, respectively.

Also there are no restrictions on the ability of subsidiaries to transfer funds to the parent in the form of cash dividends, repayment of loans or payment of advances, etc.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

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

1) December 31, 2012

(in millions of Won)
Company	Assets		Liabilities		Equity (deficit)		Sales		Net income (loss)
[Domestic]
POSCO E&C Co., Ltd.	₩	7,893,306		5,007,149		2,886,157		7,041,300		346,107
POSCO P&S Co., Ltd.		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 Co., Ltd.		802,675		527,641		275,034		1,017,662		40,089
POSCO Research Institute		34,138		9,239		24,899		46,340		535
Seoung Gwang Co., Ltd.		83,439		33,998		49,441		12,667		685
POSCO Architects & Consultants Co., Ltd.		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 Corp.		107,796		501		107,295		6,475		1,438
eNtoB Co., Ltd.		103,000		71,712		31,288		607,230		1,839
POSCO Chemtec Company Ltd.		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 Co., Ltd. (*1)		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. (*2)		253,987		163,175		90,812		268,574		152
PNR 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 Company		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 Co., Ltd.		453,410		298,192		155,218		372,185		4,564
POS-HiMETAL Co., Ltd.		341,640		321,197		20,443		155,274		(19,369	)
POSCO E&E Co., Ltd.		22,787		52		22,735		—		407
POSFINE Co., Ltd.		58,480		46,640		11,840		19,651		(2,304	)
POS ECO HOUSING Co., Ltd.		8,274		1,822		6,452		14,513		108
Mapo high broad parking Co., Ltd.		1,561		281		1,280		—		(285	)
Dakos Co., Ltd.		670		191		479		245		16
Kwang Yang SPFC 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 Funds		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
POSCOLED 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 Center Co., Ltd.		19,435		3,207		16,228		5,657		1,270

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(in millions of Won)
Company	Assets		Liabilities		Equity (deficit)			Sales		Net income (loss)
[Domestic]
PSC energy global Co., Ltd.	₩	61,168		—		61,168			—		(3,060	)
Suncheon Ecotrans Co., Ltd.		49,496		27,118		22,378			—		(251	)
Reco Metal Co., Ltd.		32,959		35,547		(2,588	)		42,482		(4,736	)
NewAltec 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	)
POS-HiAL		47,314		32,852		14,462			—		(1,158	)
MCM Korea		50		—		50			—		—
Tancheon E&E		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	)
Guangdong Pohang Coated Steel Co., Ltd.		141,727		102,418		39,309			221,738		(20,980	)
POSCO (Thailand) Company Ltd.		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 L.P.		7,571		—		7,571			—		(1,301	)
PT. POSNESIA		14,978		1,926		13,052			—		(55	)
POSCO E&C - Hawaii Inc.		350		2		348			—		(35	)
POS-Qingdao Coil 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 Ltd.		131,409		306		131,103			—		(768	)
POSCO-India Pune Steel Processing Centre Pvt. Ltd.		179,112		164,386		14,726			252,296		(6,061	)
POSCO-JEPC Co., Ltd. (formerly, POSCO-JNPC Co., Ltd.)		221,086		200,769		20,317			351,377		4,769
POSCO-Foshan Steel Processing Center 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 MPC 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 Pujin Steel Material 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 Co., Ltd.		772,518		538,907		233,611			430,986		(12,354	)
POSCO-India Delhi Steel Processing Centre Pvt. Ltd		100,153		81,218		18,935			142,038		977
POSCO-Poland Wroclaw Steel Processing Center Co., Ltd		56,394		37,399		18,995			97,381		5,875

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(in millions of Won)
Company	Assets		Liabilities		Equity (deficit)			Sales		Net income (loss)
[Foreign]
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 POS-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
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 E&C India Private Ltd.		33,536		26,578		6,958			56,037		2,990
POSCO E&C SMART		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
POS-GSFC LLC		41,150		33,676		7,474			24,891		(3,297	)
Dalian POSCON Dongbang Automatic 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 Co., Ltd.		9,150		4,408		4,742			61,529		192
POSCO Mexico Human Tech.		693		708		(15	)		6,777		(148	)
POSCO Mexico East Steel Distribution Center Co., Ltd		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
POS MPC Servicios de C.V.		925		697		228			6,077		62
POSCO-URUGUAY S.A.		24,835		226		24,609			3		(1,842	)
POSCO South East Asia Pte. Ltd.		9,571		7,126		2,445			90,158		556
Europe Steel Distribution Center		7,270		1,460		5,810			13,054		399
VECTUS Ltd.		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 Pvt. Ltd.		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 Turkey Nilufer Processing Center Co., Ltd.		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			—		—
PT. MRI		8,148		15,508		(7,360	)		1,109		(1,603	)
POSCORE-INDIA		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 DEC 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 Co., Ltd.		13,212		183		13,029			8,354		72
POSCO SS-VINA Co., LTD		156,811		4,050		152,761			—		(2,602	)
POSCO WA Pty. Ltd.		235,224		51		235,173			—		(39,181	)
POSCO E&C - UZ		8,589		7,968		621			1,076		334
POSCO Australia GP 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

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(in millions of Won)
Company	Assets		Liabilities		Equity (deficit)			Sales		Net income (loss)
[Foreign]
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 Co., Ltd		13,739		31,105		(17,366	)		—		—
POSCO Mauritius Ltd.		23,316		2		23,314			—		(15	)
PT. KRAKATAU STEEL POSCO		1,912,134		969,415		942,719			—		(29,063	)
MYANMAR Daewoo LTD.		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 & Apparel Vietnam Ltd.		1,736		89		1,647			1,856		96
POSCO (Zhangjiagang) Stainless Steel Processing Center Co., Ltd.		114,433		102,240		12,193			265,850		519
Daewoo International Corporation (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, LLC		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. (URUGUAY)		18		7		11			—		(25	)
GENTECH International INC.		1,972		1,568		404			1,008		227
EPC INVESTMENTS C.V.		107		24		83			—		(8	)
INGENIERiA Y CONSTRUCCION HOLAND CO S.A.		103		4		99			—		(6	)
ASESORiA Y SERVICIOS EPC S.A CHILE		891		468		423			1,691		250
SANTOS CMI S.A.		58,219		44,584		13,635			46,738		1,737
SANTOS CMI CONSTRUCCIONES DE CHILE S.A.		9,533		3,608		5,925			1,608		178
S&K -SANTOS CMI S.A. DE C.V. (MEXICO)		84		149		(65	)		335		(158	)
COMPANIA DE AUTOMATIZACION & CONTROL, GENESYS S.A.		8,648		6,018		2,630			16,926		465

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(in millions of Won)
Company	Assets		Liabilities		Equity (deficit)			Sales		Net income (loss)
[Foreign]
VAUTIDAMERICAS S.A.	₩	4,866		2,217		2,649			1,445		(451	)
SANTOS CMI Constructions Argentina S.A.		58		24		34			—		4
POSCO E&C Brazil Ltd.		343,882		322,576		21,306			59,862		11,470
POSCO Electrical Steel India Private Limited		132,529		94,046		38,483			—		(1,343	)
Daewoo International Cameroon PLC		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 Co., Ltd		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 M-Tech Indonesia		11,577		6,620		4,957			9,631		(34	)
PT. KRAKATAU POSCOPOWER		143,452		55,475		87,977			—		(949	)
POSCO RUS LLC.		12,384		8,324		4,060			4,260		505
POSCO Thainox Co., Ltd.		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 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 Logistics Co., Ltd.		46,923		8		46,915			—		(829	)
USA SRDC Corporation		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		3,580		112		3,468			—		(1,509	)
E.P.C. INGENIERIA & SERVICIOS DE		1,497		1,553		(56	)		1,973		(73	)
POSCO ICT BRASIL PARTICIPACOES LTDA		1,983		1,471		512			—		(336	)
LA-SCRAP RECYCLING DISTRIBUTION		1,274		758		516			5,128		62
Posco Center Beijing		267,838		97,208		170,630			—		(1,233	)
POSCO AMERICA COMERCIALIZADORA S		177		175		2			168		2
POSCO AMERICA PRODUCTOS, OFERTAS, SISTEMAS Y COMERCIALIZADORA ORIENTAL S DE RL DE C.V.		309		649		(340	)		339		(408	)
Guangdong Pohang Car Steel Co., Ltd.		351,910		203,033		148,877			1,061		(9,197	)
POSCO Mexico Aguascalientes Processing Center Co., Ltd.		6,427		—		6,427			—		—

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

2) December 31, 2011

(in millions of Won)
Company	Assets		Liabilities		Equity			Sales		Net income (loss)
[Domestic]
POSCO E&C Co., Ltd.	₩	6,819,542		4,260,627		2,558,915			6,142,026		109,921
POSCO P&S Co., Ltd.		1,017,070		472,175		544,895			3,141,999		19,234
POSCO Coated & Color Steel Co., Ltd.		521,471		297,947		223,524			956,179		(24,713	)
POSCO Plant Engineering Co., Ltd.		208,084		117,629		90,455			597,508		6,758
POSCO ICT Co., Ltd.		687,657		446,640		241,017			983,649		30,578
POSCO Research Institute		29,320		6,304		23,016			30,844		216
Seoung Gwang Co., Ltd.		82,671		34,868		47,803			14,652		2,522
POSCO Architects & Consultants Co., Ltd.		93,268		40,458		52,810			196,794		7,236
POSCO Specialty Steel Co., Ltd.		1,582,832		691,581		891,251			1,662,896		127,573
POSTECH Venture Capital Corp.		34,222		1,094		33,128			—		1,041
eNtoB Co., Ltd.		99,382		69,607		29,775			634,830		1,249
POSCO Chemtec Company Ltd. (formerly, POSCO Refractories & Environment Co., Ltd.)		479,615		152,416		327,199			1,186,623		92,391
POSCO Terminal Co., Ltd.		96,806		15,145		81,661			100,710		22,955
POSCO M-TECH Co., Ltd.		316,953		153,876		163,077			602,155		12,447
POSCO ENERGY Co., Ltd. (formerly, POSCO Power Corp.)		2,891,382		2,327,398		563,984			1,863,670		25,152
Postech 2006 Energy Fund		21,662		1,042		20,620			—		(202	)
PHP Co., Ltd.		66,461		58,521		7,940			4,456		483
POSCO TMC Co., Ltd.		204,738		113,595		91,143			219,580		5,746
PNR Co., Ltd.		159,076		129,198		29,878			74,013		13,366
Megaasset Co., Ltd.		23,757		9,354		14,403			63,667		5,794
POSCO Engineering Company (formerly Daewoo Engineering Company)		508,290		341,946		166,344			980,340		3,225
Pohang Feul Cell Co. Ltd.		12,061		8,592		3,469			2,235		(286	)
Pohang SPFC Co., Ltd.		10,021		4,221		5,800			38,117		1,170
POSWITH Co., Ltd.		5,129		2,460		2,669			13,745		151
BASYS INDUSTRY Co., Ltd.		967		266		701			2,500		369
POSTECH BD Newundertaking fund		90		—		90			—		(1	)
POSBRO Co., Ltd.		126		—		126			—		(54	)
POSCO AST Co., Ltd.		316,695		163,548		153,147			365,682		4,972
DaiMyung TMS Co., Ltd.		28,350		52,497		(24,147	)		6,265		(3,695	)
POS-HiMETAL Co., Ltd.		309,369		268,788		40,581			34,682		(28,857	)
POSCO E&E Co., Ltd.		22,435		127		22,308			—		508
POMIC Co., Ltd.		4,411		2,431		1,980			21,111		317
POSFINE Co., Ltd.		62,775		48,146		14,629			2,285		(3,847	)
POS ECO HOUSING Co., Ltd.		8,190		1,846		6,344			13,629		265
Mapo high broad parking Co., Ltd.		1,676		110		1,566			—		(355	)
Dakos Co., Ltd.		783		321		462			225		(58	)
Kwang Yang SPFC Co., Ltd.		68,279		52,806		15,473			4,686		(2,156	)
POSCALCIUM Company, Ltd.		8,403		7,004		1,399			106		(1,353	)
Plant Engineering service Technology Co., Ltd.		2,327		500		1,827			6,259		354
9Digit Co., Ltd.		33,820		27,091		6,729			58,341		(308	)
Postech Early Stage Fund		10,034		65		9,969			—		(31	)
Busan E&E Co., Ltd.		44,731		1,687		43,044			—		127
POSCO Family Strategy Funds		57,678		250		57,428			—		290
POREKA Co., Ltd.		15,131		12,880		2,251			20,785		1,158
Songdo SE Co., Ltd.		1,652		282		1,370			2,761		77
Posgreen Co., Ltd.		8,225		4,280		3,945			2,944		(33	)
Daewoo International Corporation		7,823,738		6,302,994		1,520,744			18,758,511		160,088
POSCOLED Co., Ltd.		28,717		5,917		22,800			14,063		(5,355	)
Gunsan SPFC Co., Ltd.		51,483		30,673		20,810			53,797		(236	)
POSCO NST Co., Ltd.		158,470		121,493		36,977			202,334		(803	)
Pohang Scrap Recycling Center Co., Ltd.		17,842		2,863		14,979			1,748		143

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(in millions of Won)
Company	Assets		Liabilities		Equity			Sales		Net income (loss)
[Domestic]
PSC energy global Co., Ltd.	₩	38,780		—		38,780			—		(1,595	)
Suncheon Ecotrans Co., Ltd.		25,526		2,878		22,648			—		48
Shinan Energy Co., Ltd.		8,494		—		8,494			—		(56	)
Reco Metal Co., Ltd.		15,043		13,280		1,763			6,761		(2,658	)
NewAltec Co., Ltd.		114,744		17,171		97,573			92,849		638
PONUTech Co., Ltd.		9,919		182		9,737			—		(263	)
BLUE O&M Co., Ltd		988		—		988			—		(12	)
[Foreign]
POSCO America Corporation		416,078		223,968		192,110			419,258		8,866
POSCO Australia Pty. Ltd.		1,161,366		462,383		698,983			136,144		283,875
POSCO Canada Ltd.		565,424		82,867		482,557			304,274		133,660
POSCO Asia Co., Ltd.		540,685		504,059		36,626			2,968,097		6,523
Dalian POSCO Steel Co., Ltd		49,104		58,254		(9,150	)		90,990		(8,711	)
POSCO-CTPC Co., Ltd.		84,966		52,546		32,420			134,930		1,320
POSCO-JKPC Co., Ltd.		93,668		75,512		18,156			87,203		1,405
International Business Center Corporation		90,577		51,831		38,746			25,889		11,655
POSCO E&C Vietnam Co., Ltd.		77,583		77,679		(96	)		114,350		6,670
Zhangjiagang Pohang Stainless Steel Co., Ltd.		1,569,551		986,798		582,753			2,808,722		4,444
Guangdong Pohang Coated Steel Co., Ltd.		394,452		163,785		230,667			275,521		(7,849	)
POSCO (Thailand) Company Ltd.		140,260		98,044		42,216			231,144		1,227
Myanmar POSCO Steel Co., Ltd		27,519		9,580		17,939			30,967		5,885
POSCO-JOPC Co., Ltd.		80,896		76,118		4,778			92,296		768
POSCO Investment Co., Ltd.		787,069		688,482		98,587			10,792		10,509
POSCO-MKPC SDN BHD.		165,789		116,928		48,861			177,822		1,763
Qingdao Pohang Stainless Steel Co., Ltd.		268,411		155,877		112,534			615,532		(3,110	)
POSCO (Suzhou) Automotive Processing Center Co., Ltd.		305,690		220,468		85,222			384,705		11,046
POSCO BioVentures L.P.		16,851		—		16,851			—		(4,226	)
PT. POSNESIA		14,129		20		14,109			—		(28	)
POSCO E&C - Hawaii Inc.		914		503		411			—		(304	)
POS-Qingdao Coil Center Co., Ltd.		56,062		40,314		15,748			117,470		65
POS-Ore Pty. Ltd.		75,312		66,851		8,461			250,347		132,737
POSCO-China Holding Corp.		427,447		160,423		267,024			173,639		3,617
POSCO-Japan Co., Ltd.		1,157,755		1,017,990		139,765			1,686,385		13,518
POS-CD Pty. Ltd.		72,582		68,030		4,552			22,575		557
POS-GC Pty. Ltd.		79,517		32,397		47,120			10,263		(4,344	)
POSCO-India Private Ltd.		147,359		421		146,938			—		(1,034	)
POSCO-India Pune Steel Processing Centre Pvt. Ltd.		168,309		145,655		22,654			211,417		(16,626	)
POSCO-JNPC Co., Ltd.		192,177		176,268		15,909			207,654		716
POSCO-Foshan Steel Processing Center Co., Ltd.		178,488		135,213		43,275			529,788		227
POSCO E&C (China) Co., Ltd.		120,135		82,361		37,774			104,055		1,898
POSCO MPC S.A. de C.V.		192,538		182,180		10,358			316,446		(6,587	)
Zhangjigang Pohang Port Co., Ltd.		26,801		11,327		15,474			6,244		222
Qingdao Pujin Steel Material Co., Ltd		14,209		11,997		2,212			79,732		13
POSCO-Vietnam Co., Ltd.		659,931		576,657		83,274			962,490		(46,976	)
POSCO-Mexico Co., Ltd.		488,782		422,155		66,627			396,897		(43,298	)
POSCO-India Delhi Steel Processing Centre Pvt. Ltd		85,349		75,582		9,767			129,434		(9,824	)
POSCO-Poland Wroclaw Steel Processing Center Co., Ltd		62,709		49,981		12,728			71,871		(1,483	)

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(in millions of Won)
Company	Assets		Liabilities		Equity			Sales		Net income (loss)
[Foreign]
POS-NP Pty. Ltd.	₩	57,890		15,003		42,887			48,404		9,480
POSCO-Vietnam Processing Center Co., Ltd.		71,203		50,417		20,786			159,369		26
POSCO (Chongqing) Automotive Processing Center Co, Ltd.		69,253		59,468		9,785			62,795		(1,622	)
Suzhou POS-CORE Technology Co., Ltd.		60,082		33,980		26,102			96,008		781
POSCO-JYPC Co., Ltd.		67,587		64,165		3,422			102,700		781
POSCO-Malaysia SDN. BHD.		88,635		112,566		(23,931	)		140,709		(4,114	)
POS-Minerals Corporation		113,694		—		113,694			—		(808	)
POSCO (Wuhu) Automotive Processing Center Co., Ltd.		69,613		45,766		23,847			92,554		618
POSCO E&C India Private Ltd.		35,982		31,304		4,678			4,966		1,135
POSCO E&C SMART		4,670		4,034		636			4,421		135
POSCO-Phillippine Manila Processing Center Inc.		27,412		17,492		9,920			45,680		266
Dalian POSCON Dongbang Automatic Co., Ltd.		8,083		2,996		5,087			5,104		382
SANPU TRADING CO., LTD.		1,842		5		1,837			73		3
Zhangjiagang BLZ Pohang International Trading Co., Ltd.		15,720		10,881		4,839			100,833		116
POSCO Mexico Human Tech.		787		481		306			5,378		221
POSCO Mexico East Steel Distribution Center Co., Ltd		13,186		1,353		11,833			5,638		110
POSCO ICT-China		1,737		1,294		443			4,920		114
DWEMEX S.A.DE C.V.		226		62		164			2		(29	)
POS MPC Servicios de C.V.		667		458		209			4,902		90
EUROTALY S.A.		16,733		127		16,606			24		(898	)
POSCO South East Asia Pte. Ltd.		5,232		2,633		2,599			62,235		256
Europe Steel Distribution Center		6,775		991		5,784			13,354		322
VECTUS Ltd.		3,066		5,126		(2,060	)		3,560		(1,530	)
POSCO VST Co., Ltd.		356,484		268,005		88,479			264,616		(10,669	)
POSCO Maharashtra Steel Pvt. Ltd.		372,434		149,442		222,992			44		2,036
POSCO India Chennai Steel Processing Centre Pvt. Ltd.		89,782		80,514		9,268			134,409		(3,232	)
POSCO Turkey Nilufer Processing Center Co., Ltd.		49,588		40,578		9,010			38,729		(3,971	)
POSCO Vietnam Ha Noi Processing Center Co., Ltd.		47,931		40,500		7,431			55,239		902
POSCO (Liaoning) Automotive Processing Center Co., Ltd.		84,315		61,131		23,184			117,395		3,267
POSCO-Indonesia Jakarta Processing Center		62,550		55,069		7,481			64,597		216
POSCO E&C Venezuela C.A		138		—		138			—		—
PT. MRI		12,251		17,626		(5,375	)		458		(3,854	)
POSCORE-INDIA		10,917		8,446		2,471			15,186		(48	)
POSCO America Alabama Processing Center Co., Ltd.		63,014		50,007		13,007			85,381		(858	)
PT DEC Indonesia		4,577		4,752		(175	)		13,962		(267	)
POSCO (Yantai) Automotive Processing Center Co., Ltd.		40,586		24,355		16,231			32,301		172
POSCO India Steel Distribution Center Private Ltd.		5,224		2,204		3,020			786		(427	)
POSCO China Dalian Plate Processing Center Co., Ltd.		106,525		65,888		40,637			66,113		(165	)
POSCO-South Asia Co., Ltd.		13,703		199		13,504			8,015		1,039
POSCO SS-VINA Co., LTD		74,438		409		74,029			—		(1,122	)
POSCO WA Pty. Ltd.		212,984		9		212,975			—		(33,142	)
POSCO E&C - UZ		2,279		1,789		490			2,046		104
POSCO Australia GP Limited		97,196		5		97,191			—		(8	)
Daewoo International America Corp.		283,653		241,259		42,394			984,378		5,372
Daewoo International Deutschland GmbH		115,256		105,288		9,968			482,585		314

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(in millions of Won)
Company	Assets		Liabilities		Equity			Sales		Net income (loss)
[Foreign]
Daewoo International Japan Corp.	₩	245,086		236,533		8,553			804,864		981
Daewoo International Singapore Pte. Ltd.		43,647		38,982		4,665			902,315		481
Daewoo Italia S.r.l.		63,859		60,247		3,612			361,821		145
Daewoo Cement (Shandong) Co., Ltd.		221,807		291,000		(69,193	)		133,502		20,361
Daewoo (China) Co., Ltd.		150,079		101,449		48,630			54,521		726
PT. RISMAR Daewoo Apparel		17,767		18,417		(650	)		58,182		1,246
Daewoo Textile Fergana LLC		64,437		65,968		(1,531	)		132,866		(11,994	)
Daewoo Textile Bukhara LLC		51,939		49,630		2,309			51,312		(11,500	)
Daewoo International Australia Holdings Pty. Ltd.		151,462		12,964		138,498			1,935		199
Daewoo Paper Manufacturing Co., Ltd.		76,855		72,385		4,470			76,632		(5,210	)
Tianjin Daewoo. Paper Co., Ltd		14,589		33,029		(18,440	)		—		—
POSCO Mauritius Ltd.		24,648		2,839		21,809			—		(22	)
PT. KRAKATAU STEEL POSCO		819,899		44,918		774,981			—		(2,385	)
MYANMAR Daewoo LTD.		6,030		41		5,989			1,373		152
Dawwoo International MEXICO S.A. de C.V.		68,030		64,189		3,841			240,448		299
Daewoo International Guangzhou Corp.		7,666		7,473		193			61,554		(1,265	)
Daewoo Energy Central Asia		15,571		322		15,249			—		—
Daewoo STC & Apparel Vietnam Ltd.		3,848		1,313		2,535			9,435		94
MYANMAR Daewoo International Ltd.		7,651		2,240		5,411			11,947		759
POSCO (Zhangjiagang) Stainless Steel Processing Center Co., Ltd.		63,505		51,088		12,417			67,175		15
Daewoo International Corporation (M) SDN BHD		8,831		6,469		2,362			21,190		157
Daewoo International SHANGHAI CO., LTD.		63,694		52,656		11,038			91,541		1,286
PGSF, LLC		3,138		1		3,137			—		280
Xenesys Inc.		11,804		240		11,564			2,494		(3,865	)
Daewoo International INDIA Private Ltd.		3,285		1,277		2,008			3,343		69
TECHREN Solar, LLC		5,184		—		5,184			—		(506	)
PT. POSCO E&C Indonesia		37,495		34,094		3,401			46,665		2,114
Hume Coal Pty. Ltd.		24,316		2,499		21,817			—		(9	)
POSCO Foundation		213		3		210			—		3
EPC EQUITIES LLP		11,391		11,283		108			438		(2,743	)
SANTOS CMI Construction Trading LLP		13,851		13,742		109			2,750		(1,323	)
SANTOS CMI INC. USA		23,418		22,260		1,158			11,604		(155	)
SANTOS CMI ENGENHARIA E CONSTRUCOES LTDA		18,771		9,381		9,390			14,823		7,484
SANTOS CMI PERU S.A.		26,074		20,500		5,574			59,091		4,779
SANTOS CMI COSTA RICA S.A.		11,856		11,480		376			1,228		(1,794	)
SANTOS CMI CONSTRUCCIONES S.A. (URUGUAY)		122		73		49			—		(9	)
GENTECH International INC.		1,595		1,166		429			1,800		728
EPC INVESTMENTS C.V.		115		18		97			—		(6	)
INGENIERiA Y CONSTRUCCION HOLAND CO S.A.		115		2		113			—		(2	)
ASESORiA Y SERVICIOS EPC S.A CHILE		468		285		183			635		88
SANTOS CMI S.A.		42,766		30,495		12,271			34,879		(5,430	)
SANTOS CMI CONSTRUCCIONES DE CHILE S.A.		8,430		2,669		5,761			13,009		1,703
S&K -SANTOS CMI S.A. DE C.V. (MEXICO)		125		14		111			203		(208	)
COMPANIA DE AUTOMATIZACION & CONTROL, GENESYS S.A.		10,982		8,392		2,590			14,588		923

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(in millions of Won)
Company	Assets		Liabilities		Equity			Sales		Net income (loss)
[Foreign]
VAUTIDAMERICAS S.A.	₩	2,374		1,620		754			1,765		141
SANTOS CMI Constructions Argentina S.A.		82		46		36			—		1
POSCO E&C Brazil Ltd.		87,817		87,284		533			6,200		(465	)
POSCO Electrical Steel Inida Private Limited		26,448		138		26,310			—		346
Daewoo International Cameroon PLC		1,233		—		1,233			—		—
POSCO ASSAN TST STEEL Industry		59,415		1,897		57,518			—		1,724
HONG KONG POSCO E&C (CHINA) Investment Co., Ltd.		171,127		174,814		(3,687	)		—		(3,466	)
DAESAN (Cambodia) Co., Ltd.		30,145		35,652		(5,507	)		—		(946	)
Brazil Sao Paulo Steel Processing Center Co., Ltd		26,987		—		26,987			—		—
POSCO(Dalian) IT Center Development Co., Ltd.		152,725		1,271		151,454			—		(1,464	)
PT.POSCO Resources Indonesia		4,048		92		3,956			—		(415	)
PT. POSCO ICT Indonesia		3,480		2,661		819			—		(80	)
PT. POSCO M-Tech Indonesia		2,865		149		2,716			3,329		61
PT. KRAKATAU POSCOPOWER		45,041		42,874		2,167			—		(134	)
POSCO RUS LLC.		3,639		5		3,634			—		(273	)
POSCO Thainox Co., Ltd.		500,214		164,464		335,750			401,257		(22,466	)
Daewoo International Shanghai Waigaoqiao Co., Ltd.		13,804		13,256		548			22,354		343
PT. Bio Inti Agrindo		18,900		9,714		9,186			—		(1,486	)
POSCO E&C Australia Pty Ltd.		381		624		(243	)		—		(237	)
POSCO-TISCO (Jilin) Processing Center Co., Ltd.		12,587		12		12,575			—		(375	)
Hunchun POSCO Logistics Co., Ltd.		23,725		7		23,718			—		(229	)
USA SRDC Corporation		311		—		311			—		—
Daewoo International Vietnam Co., Ltd.		4,613		—		4,613			—		—

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(d) Details of associates

Details of associates as of December 31, 2012 and 2011 are as follows:

		Ownership (%)
Investee	Category of business	2012		2011		Region
[Domestic]
MIDAS Information Technology Co., Ltd. (*8)	Engineering		—		25.46	Seoul
Metapolis Co., Ltd.	Multiplex development		40.05		40.05	Hwaseong
Songdo New City Development Inc.	Real estate		29.90		29.90	Seoul
POSMATE Co., Ltd.	Services		45.15		30.00	Seoul
Gail International Korea Ltd.	Real estate		29.90		29.90	Seoul
SNNC Co., Ltd.	Raw material manufacturing and sale		49.00		49.00	Gwangyang
CHUNGJU ENTERPRISE CITY	Real estate		25.10		25.10	Chungju
Taegisan Wind Power Corporation	Wind power plant construction and management		50.00		50.00	Hoengseong
KOREASOLARPARK Co., Ltd. (*8)	Solar power plant construction and management		—		37.50	Youngam
Garolim Tidal Power Plant Co., Ltd.	Generation of electricity		32.13		32.13	Seosan
Cheongna IBT Co., Ltd. (*4)	Multiplex development		—		18.58	Incheon
PSIB Co., Ltd.	Non-resident building lease		49.00		49.00	Seoul
Universal Studios Resort Development Co., Ltd. (*3)	Construction		—		22.10	Hwaseong
Universal Studios Resort Asset Management Corp.	Real estate services		26.16		26.16	Seoul
Daewoo national car Gwangju selling Co., Ltd.	Real estate		50.00		50.00	Gwangju
Uitrans 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
Green Gimpo Co., Ltd.	Construction		31.84		31.84	Gimpo
Busan-Gimhae Light Rail Transit Co., Ltd.	Transporting		25.00		25.00	Gimhae
Incheon-Gimpo Highway Co., Ltd.	Construction		29.94		25.82	Anyang
Green Jangryang Co., Ltd.	Sewerage treatment		25.00		25.00	Pohang
Green Tongyeong Enviro Co., Ltd.	Sewerage treatment		20.40		20.40	Tongyoung
POSPLATE Co., Ltd. (*3)	Services		—		48.95	Gwangyang
Pure Gimpo.Co., Ltd.	Construction		28.79		28.79	Seoul
Pohang Techno Valley AMC Co., Ltd.	Construction		29.50		29.50	Pohang
Sungjin Geotec Co., Ltd.	Industrial machinery manufacturing		33.02		36.69	Ulsan
Kyobo Life Insurance Co., Ltd. (*6)	Life insurance		—		24.00	Seoul
POSGREEN Company, Ltd. (*9)	Plastic manufacturing		19.00		60.00	Gwangyang
Dongbang Special Steel Co., Ltd. (*3)	Steel processing and sales		—		35.82	Pohang
Pure Iksan Co., Ltd.	Construction		23.50		23.50	Pohang
Gyeonggi CES Co., Ltd.	Facility construction		21.84		21.84	Yangju
Innovalley Co., Ltd.	Real estate development		28.77		28.77	Yongin
Applied Science Corp.	Machinery manufacturing		28.27		29.30	Paju
SENTECH KOREA Corp. (*3)	Manufacturing		—		20.25	Paju
AROMA POSTECH RENEWABLE ENERGY Co., Ltd.	Other science research		28.57		28.57	Seoul
Hyundai Investment Network Private Equity Fund	Mine investment		50.00		50.00	Seoul
Pohang Techno Valley PFV Corporation	Real estate development		29.90		28.65	Pohang
BLUE OCEAN Private Equity Fund	Private equity financial		27.52		27.52	Seoul
SUNAM Co., Ltd.	Power supply manufacturing		23.91		23.91	Seoul
Kones Corporation	Technical service		41.67		41.67	Gyeongju
DAEHO G.M (*5)	Investment advisory service		35.82		—	Pohang
Mokpo Deayang Industrial Corporation (*1)	Real estate development		29.90		—	Mokpo
POSCO ES MATERIALS CO., LTD. (*1)	Secondary battery manufacturing		50.00		—	Gumi
Gyeonggi Fuel Cell Power Plant Co., Ltd. (*1)	Electricity generation		25.50		—	Hwaseong
BUSAN SANSEONG TUNNEL Co., Ltd. (*1, 3)	Highway construction and management		—		—	Busan
Pohang Special Welding Co., Ltd. (*1)	Welding material and tools manufacturing and sales		50.00		—	Pohang
Poscochemtech Mitsubishi Carbon Tech (*10)	Steel processing and sales		60.00		—	Gwangyang

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

		Ownership (%)
Investee	Category of business	2012		2011		Region
[Foreign]
VSC POSCO Steel Corporation	Steel manufacturing and Sale		50.00		50.00	Vietnam
KOBRASCO	Facility lease		50.00		50.00	Brazil
USS-POSCO Industries	Material manufacturing and sale		50.00		50.00	USA
Poschrome Pty. Ltd.	Raw material manufacturing and sale		50.00		50.00	Republic of South Africa
POS-Hyundai Steel Manufacturing India Private Ltd.	Steel processing and sale		29.50		29.50	India
POSVINA Co., Ltd.	Plating steel sheet manufacturing		50.00		50.00	Vietnam
PT. POSMI Steel Indonesia	Steel processing and sale		36.69		36.69	Indonesia
CAML Resources Pty. Ltd.	Raw material manufacturing and sale		33.34		33.34	Australia
Nickel Mining Company SAS	Raw material manufacturing and sale		49.00		49.00	New Caledonia
Liaoning Rongyuan Posco Refractories Co., Ltd.	Manufacturing and sale		35.00		35.00	China
POSK (PingHu)Processing Center Co.,Ltd	Steel processing and sale		20.00		20.00	China
AN KHANH NEW CITY DEVELOPMENT	Highway construction and new town development		50.00		50.00	Vietnam
Henan Tsingpu Ferro Alloy Co., Ltd.	Raw material manufacturing and sale		49.00		49.00	China
United Spiral Pipe, LLC	Material manufacturing and sale		35.00		35.00	USA
Zhongyue POSCO(Qinhuangdau) Tinplate Industrial Co., Ltd.	Plating sheet manufacturing		34.00		34.00	China
BX STEEL POSCO Cold RolledSheet Co., Ltd.	Steel processing and sale		25.00		25.00	China
POSCO-SAMSUNG-Slovakia Processing Center	Steel processing and sale		30.00		30.00	Slovakia
Eureka Moly LLC	Raw material manufacturing and sale		20.00		20.00	USA
POSCO SAMSUNG Suzhou Steel Processing Center Co., Ltd.	Steel processing and sale		30.00		30.00	China
POSCO SeAH Steel Wire(Nantong) Co., Ltd.	Steel processing and sale		25.00		25.00	China
Yingkou Posrec Refractories Co., Ltd.	Refractory manufacturing		25.00		25.00	China
Zhangjiagang Pohang Refractories Co., Ltd.	Refractory manufacturing		50.00		50.00	China
Daewoo Engineering (THAILAND) Co., Ltd.	Development and contract		48.90		48.90	Thailand
Sebang Steel	Scrap sale		49.00		49.00	Japan
NCR LLC	Coal sale		29.40		20.00	Canada
AMCI (WA) Pty. Ltd.	Iron ore sale & mine development		49.00		49.00	Australia
POSCO YongXin Rare Earth Metal Co., Ltd.	Energy & resource development		31.00		31.00	China
Shanghai Lansheng Daewoo Corporation	Trading		49.00		49.00	China
Shanghai Waigaogiao Free Trade Zone Lansheng Daewoo Int’l Trading Co., Ltd.	Trading		49.00		49.00	China
Hanjung Power Pty. Ltd	Electric power manufacturing and sale		49.00		49.00	Papua New Guinea
Myanmar Korea Timber International Ltd.	Plating sheet manufacturing		45.00		45.00	Myanmar
General Medicines Company Ltd.	Medicine manufacturing and sale		33.00		33.00	Sudan
KOREA LNG Ltd.	Gas production and sale		20.00		20.00	England
DMSA, AMSA (*2)	Energy & resource development		4.00		4.00	Madagascar
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
POSUK TITANIUM B.V	Steel manufacturing		—		50.00	Netherland
POSCO-NPS Niobium LLC	Mine development		50.00		50.00	USA
POSCO-POGEN AMP	Steel manufacturing		26.00		26.00	India
Klappan Coal Joint Venture	Coal sale		20.00		20.00	Canada
AES-VCM Mong Duong Power Company Ltd.	Coal sale		30.00		30.00	Vietnam
CSP	Steel manufacturing and sale		20.00		20.00	Brazil
PT.INDONESIA POS CHOSUN Ref	Refractory manufacturing and sale		30.00		30.00	Indonesia
NS-Thainox Auto Co., Ltd.	Steel manufacturing and sale		49.00		49.00	Vietnam
Korea-Siberia Wood	Forest resources development		50.00		50.00	Russia
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 (*1)	Electric power manufacturing		25.00		—	USA
POSUK Titanium (*1)	Titanium manufacturing and sale		50.00		—	Kazahstan
Roy Hill Holdings Pty Ltd. (*2)	Energy & resource development		12.50		—	Australia
Li3 Energy Inc. (*7)	Energy & resource development		26.06		—	Peru
Fifth Combined Heat and Power Plant LLC (*1)	Thermal power generation		30.00		—	Mongolia
IMFA ALLOYS FINLEASE LTD (*7)	Raw material manufacturing and sale		24.00		—	India

(*1) These associates were newly established or acquired during the year ended December 31, 2012.

(*2) The Company is able to exercise significant influence on the investee even though the Company’s percentage of ownership is below 20%.

(*3) Excluded from associates due to a decrease in ownership percentage during the year ended December 31, 2012.

(*4) Excluded from associates as the contract on entrusted voting rights expired during the year ended December 31, 2012.

(*5) This entity split off from Dongbang Special Steel Co., Ltd. during the year ended December 31, 2012.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(*6) The Company determined to dispose of the shares of Kyobo Life Insurance Co., Ltd., an associate of Daewoo International Corporation, one of the Company’s subsidiaries, in order to secure investment funds and improve the Company’s financial structure. The transaction was completed during the year ended December 31, 2012.

(*7) These securities were acquired during the year ended December 31, 2012.

(*8) Excluded from associates due to the disposal during the year ended December 31, 2012.

(*9) As the controlling company’s percentage of ownership dropped below 50% during the year ended December 31, 2012, this security is reclassified to associates.

(*10) This associate was newly established and the Company is not able to exercise significant influence on the investee, even though the Company’s percentage of ownership is above 50%.

There are no restrictions on the ability of subsidiaries to transfer funds to the parent in the form of cash dividends, repayment of loans or payment of advances, etc.

(e) Consolidated subsidiaries acquired during the year ended December 31, 2012 are as follows:

Company	Date of acquisition	Ownership (%)		Reason
Tamra Offshore Wind Power Co., Ltd.	January 2012		64.00	new investment
PT. Krakatau POSCO Chemtech Calcination	January 2012		80.00	new establishment
POS-HiAL Co., Ltd	January 2012		65.30	new establishment
POSCO-Africa	February 2012		100.00	new establishment
E.P.C. INGENIERIA & SERVICIOS DE COSTA RICA S. A.	May 2012		100.00	new establishment
POSCO ICT BRASIL PARTICIPACOES LTDA	May 2012		100.00	new establishment
LA-SCRAP RECYCLING DISTRIBUTION CENTER, LLC.	May 2012		68.41	new establishment
MCM Korea Co., Ltd.	July 2012		100.00	new investment
Tancheon E&E Co., Ltd.	July 2012		100.00	new establishment
EEC, GmbH	August 2012		100.00	new establishment
Posco Center Beijing	August 2012		99.00	new establishment
POSCO AMERICA COMERCIALIZADORA S DE RL DE C.V.	August 2012		100.00	new investment
POSCO AMERICA PRODUCTOS, OFERTAS, SISTEMAS Y COMERCIALIZADORA ORIENTAL S DE RL DE C.V.	August 2012		100.00	new investment
Guangdong Pohang Car Steel Co., Ltd.	October 2012		93.64	spin off from subsidiary
POSCO Mexico Aguascalientes Processing Center Co., Ltd.	December 2012		100.00	new establishment
POS-GSFC LLC	December 2012		81.93	new investment

(f) Cash outflows caused by the acquisitions

(in millions of Won)	Amounts
Consideration transferred	₩	287,085
Less: cash and cash equivalents-acquired		(188,205	)
Total	₩	98,880

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(g) Subsidiaries that were excluded from consolidation during the year ended December 31, 2012 are as follows:

(in millions of Won)

Company	Date of disposal	Reason
POSCO-JYPC Co., Ltd.	January 2012	Statutory merger by POSCO-JEPC CO., Ltd.
DaiMyung TMS Co., Ltd.	March 2012	Statutory merger by POSCO-AST CO., Ltd.
MYANMAR DAEWOO INT’L LTD.	April 2012	Disposal
PT. RISMAR DAEWOO APPAREL	April 2012	Disposal
Daewoo Cement (Shandong) Co., Ltd.	June 2012	Disposal
POMIC Co., Ltd.	July 2012	Statutory merger by POSCO Research Institute
DAEWOO ENERGY CENTRAL ASIA	July 2012	Exclusion by corporate liquidation
BASYS INDUSTRY CO., LTD.	August 2012	Disposal
DAYTEK ELECTRONICS CORP.	August 2012	Exclusion by corporate liquidation
PHP Co., Ltd.	November 2012	Statutory merger by Mega-Asset
Pohang Fuel Cell Power Corp.	November 2012	Statutory merger by POSCO ENERGY Co., Ltd.
POSGREEN Company, Ltd	November 2012	Disposal
Shinan Energy Co., Ltd.	November 2012	Statutory merger by POSCO ENERGY Co., Ltd.
EEC, GmbH	November 2012	Exclusion by corporate liquidation
POSTECH BD Newundertaking Fund	December 2012	Exclusion by corporate liquidation
POSBRO COMPANY LTD.	December 2012	Disposal
Songdose co., itd	December 2012	Disposal
POSCONST.CO.,LTD	December 2012	Statutory merger by POSCO-AST CO., Ltd.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

2. Statement of Compliance

Statement of compliance

The consolidated financial statements have been prepared in accordance with Korean International Financial Reporting Standards (“K-IFRS”), as prescribed in the Act on External Audits of Corporations in the Republic of Korea.

Basis of measurement

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

(a) Derivatives instruments are measured at fair value

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

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

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

Functional and presentation currency

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 judgements

The preparation of the consolidated financial statements in conformity with K-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.

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 7 – Other financial assets

• Note 11 – Investment property, net

• Note 12 – Property, plant and equipment, net

• Note 13 – Goodwill and other intangible assets

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

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 17 – Provisions

• Note 18 – Employee Benefits

• Note 25 – Construction Contracts

• Note 35 – Commitments and Contingencies

Changes in accounting policies

(a) Changes in accounting policies

1) Financial Instruments: Disclosures

The Company has applied the amendments to K-IFRS No. 1107, “Financial Instruments: Disclosures” since January 1, 2012. The amendments require disclosure of the nature of transferred assets, their carrying amount, and the description of risks and rewards for each class of transferred financial assets that are not derecognized in their entirety. If the Company derecognizes transferred financial assets but still retains their specific risks and rewards, the amendments require additional disclosures of their risks.

2) Presentation of financial statements

The Company adopted the amendment to K-IFRS No. 1001, “Presentation of Financial Statements” from the annual period ended December 31, 2012. The Company’s operating profit is calculated as revenue less: (1) cost of sales, and (2) selling and administrative expenses, and is presented separately in the statement of comprehensive income.

Additionally, in the notes to the financial statements, the Company provides voluntary disclosure of entity-specific measure of operating performance presented as “adjusted operating profit” which is calculated base on the Company’s own criteria. In doing so, the Company is required to disclose: (1) a reconciliation between the entity-specific measure of operating performance and operating profit or loss presented on the face of the statement of comprehensive income, and (2) the fact that the measure of operating performance disclosed in the notes is calculated based on the Company’s own criteria.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(b) Impact of change in accounting policy

The Company retrospectively applied the amendment to K-IFRS No. 1001, for which the impact is as follows:

(in millions of Won)	2012			2011
Operating profit before adoption of the amendment	₩	3,291,763			5,408,102
Add
Loss on disposals of property, plant and equipment		65,486			60,550
Loss on disposals of investment property		3,197			8,826
Loss on disposals of assets held for sale		9,510			—
Loss on disposals of investment in associates		15,119			—
Idle tangible assets expenses		31,297			16,881
Impairment loss of assets held for sale		258,451			—
Other bad debt expenses		44,115			11,155
Donations		73,963			66,558
Loss on disposals of waste		45,480			30,585
Penalty and default losses		149,437			39,551
Impairment loss of property, plant and equipment and others		72,259			99,071
Others		41,151			33,356
		809,465			366,533
Deduct
Gain on disposals of property, plant and equipment		(42,290	)		(13,812	)
Rental revenues		(1,898	)		(6,510	)
Gain on disposals of intangible assets		(906	)		(953	)
Gain on disposals of investment in associates		(39,441	)		(2,247	)
Gain on disposal of assets held for sale		(193,333	)		—
Grant income		(3,198	)		(1,228	)
Reversal of other bad debt allowance		—			(57,875	)
Reversal of other provisions		(16,037	)		(35,629	)
Outsourcing income		(29,136	)		(42,136	)
Gain on disposals of waste		(38,597	)		(11,348	)
Gain from claim compensation		(31,613	)		(68,853	)
Penalty income from early termination of contracts		(15,054	)		(38,570	)
Others		(36,617	)		(27,780	)
		(448,120	)		(306,941	)
Operating profit after adoption of the amendment	₩	3,653,108			5,467,694

Approval of financial statements

The consolidated financial statements for the year ended December 31, 2012 were approved by the Board of Directors on February 7, 2013.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

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.

Basis of consolidation

(a) Subsidiaries

A subsidiary is an entity that is controlled by the Company. Control exists when the Company has the power to govern the financial and operating policies of the other entity so as to obtain benefits from its activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Company controls another entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

If a member of the Company uses accounting policies other than those adopted in the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to its financial statements in preparing the consolidated financial statements.

Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Intra-group losses are recognized as expense if intra-group losses indicate an impairment that requires recognition in the consolidated financial statements.

(b) Non-controlling interests

Non-controlling interests in a subsidiary are accounted for separately from the parent’s ownership interests in a subsidiary. Each component of net profit or loss and other comprehensive income is attributed to the owners of the parent and non-controlling interest holders, even when the allocation reduces the non-controlling interest balance below zero.

(c) Changes in ownership interests in subsidiaries

Changes in the parent company’s ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions with owners in their capacity as owners. Adjustments to non-controlling interests are based on a proportionate amount of the net assets of the subsidiary. No adjustments are made to goodwill and no gain or loss is recognized in profit or loss. The difference between the consideration and the adjustments made to non-controlling interest is recognized directly in equity attributable to the owners of the parent company.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

Associates and jointly controlled entities

An associate is an entity in which the Company has significant influence, but not control, over the entity’s financial and operating policies. Significant influence is presumed to exist when the Company holds between 20 and 50 percent of the voting power of another entity.

Joint ventures are those entities over whose activities the Company has joint control, established by contractual agreement, and require unanimous consent for strategic financial and operating decisions.

The investment in an associate and a joint venture are initially recognized at cost and the carrying amount is increased or decreased to recognize the Company’s share of the profit or loss and changes in equity of the associate after the date of acquisition. Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Intra-group losses recognized as expense if intra-group losses indicate an impairment that requires recognition in the consolidated financial statements.

If an associate or a joint venture uses accounting policies different from those of the Company for like transactions and events in similar circumstances, appropriate adjustments are made to the Company’s consolidated financial statements in applying the equity method.

When the Company’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest, including any long-term investments, is reduced to nil and the recognition of further losses is discontinued except to the extent that the Company has an obligation or has to make payments on behalf of the investee for further losses.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

Business combination

(a) Business combination

A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control.

Each identifiable asset and liability is measured at its acquisition-date fair value except for below:

• Leases and insurance contracts are required to be classified on the basis of their contractual terms and other factors

• Only those contingent liabilities assumed in a business combination that are a present obligation and can be measured reliably are recognized

• Deferred tax assets or liabilities are recognized and measured in accordance with K-IFRS No. 1012 “Income Taxes”

• Employee benefit arrangements are recognized and measured in accordance with K-IFRS No.1019 “Employee Benefits”

• Indemnification assets are recognized and measured on the same basis as the indemnified liability or asset

• Reacquired rights are measured on the basis of the remaining contractual terms of the related contract.

• Liabilities or equity instruments related to share-based payment transactions are measured in accordance with K-IFRS No. 1102 “Share-based Payment”

• Assets held for sale are measured at fair value less costs to sell in accordance with K-IFRS No. 1105 “Non-current Assets Held for Sale”

As of the acquisition date, non-controlling interests in the acquiree are measured as the non-controlling interests’ proportionate share of the acquirer’s identifiable net assets.

The consideration transferred in a business combination shall be measured at fair value, which shall be calculated as the sum of the acquisition-date fair values of the assets transferred by the acquirer, the liabilities incurred by the acquirer to former owners of the acquire and the equity interests issued by the acquirer.

Acquisition-related costs are costs the acquirer incurs to effect a business combination. Those costs include finder’s fees; advisory, legal, accounting, valuation and other professional or consulting fees; general administrative costs, including the costs of maintaining an internal acquisitions department; and costs of registering and issuing debt and equity securities. Acquisition-related costs, other than those associated with the issue of debt or equity securities, are expensed in the periods in which the costs are incurred and the services are received. The costs to issue debt or equity securities are recognized in accordance with K-IFRS No. 1032 “Financial Instruments: Presentation” and K-IFRS No. 1039 “Financial Instruments: Recognition and Measurement”.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(b) Goodwill

The Company measures goodwill at the acquisition date as:

• the fair value of the consideration transferred; plus

• the recognized amount of any non-controlling interests in the acquiree; plus

• if the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquiree; less

• the net recognized amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

When the excess is negative, bargain purchase gain is recognized immediately in profit or loss.

As part of its transition to K-IFRS, the Company elected to restate only those business combinations which occurred on or after January 1, 2010 in accordance with K-IFRS. In respect of acquisitions prior to January 1, 2010, goodwill is included on the basis of its deemed cost, which represents the amount recorded under previous GAAP, Korean Generally Accepted Accounting Principles (“K-GAAP”).

Foreign currency transactions and translation

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.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

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 is treated as assets and liabilities of the foreign operation. Thus they are expressed in the functional currency of the foreign operation and translated at the closing rate.

When a foreign operation is disposed of, the relevant amount in the translation is transferred to profit or loss as part of the profit or loss on disposal. On the partial disposal of a subsidiary that includes a foreign operation, the relevant proportion of such cumulative amount is reattributed 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, investment 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.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

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.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

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 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 except for loans and receivables for which 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 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.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(e) De-recognition 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.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

Investment property

Property held for the purpose of earning rentals 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 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 the initial 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.

Other than land, the cost of an asset less its residual value are depreciated. Land is not depreciated. Depreciation of property, plant and equipment is recognized in profit or loss on a straight-line basis, which most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset, over the estimated useful lives of each component of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

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 residual value, the useful lives and 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.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

Intangible assets

Intangible assets are measured initially at cost and, subsequently, are carried at cost less accumulated amortization and accumulated impairment losses.

Amortization of intangible assets except for goodwill is calculated on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The residual value of intangible assets is zero. However, as there are no foreseeable limits to the periods over which club memberships are expected to be available for use, this intangible asset is determined as having an indefinite useful life and not amortized.

Intellectual property rights	5-10 years
Development cost	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.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

Exploration for and evaluation of mineral resources

The Company is engaged in exploration projects for mineral resources through equity ownership 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.

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. 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.

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

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

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 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.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

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 is impaired includes observable data that comes to the attention of the holder of the asset about the following loss events:

(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.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

If financial assets have objective evidence that they are impaired, impairment losses are measured and recognized.

(a) Financial assets carried 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.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(b) Financial assets carried at cost

If there is objective evidence that an impairment loss has occurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the impairment loss is measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses are not reversed.

(c) Available-for-sale financial assets

When a decline in the fair value of an available-for-sale financial asset has been recognized in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had been recognized in other comprehensive income shall be reclassified from equity to profit or loss as a reclassification adjustment even though the financial asset has not been derecognized. Impairment losses recognized in profit or loss 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.

Impairments 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 a cash-generating unit (“CGU”). A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The Company defines a CGU as an entity level of each operating unit and this is equal to the level which management of the Company monitors such as goodwill for the internal management purpose.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

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.

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.

The Company recognizes an impairment loss for any initial or subsequent write-down of 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 K-IFRS No. 1036 “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).

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

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.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(b) Other financial liabilities

Non-derivative financial liabilities other than financial liabilities at fair value through profit of 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.

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).

Convertible bonds

The convertible bonds issued by the Company can be converted into equity securities at the option of the bond holders. The number of shares to be issued is adjusted according to the fair value of the common shares. The convertible bonds, which are compound financial instruments of bonds and conversion rights, are designated and measured at fair value through profit or loss.

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.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

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 oblitation 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.

(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.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

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 total of cumulative unrecognized past service cost and the present value of any economic benefits available in the form of refunds from the plan or reduction in the future contributions to the plan.

Past service costs, which are the change in the present value of the defined benefits obligation for employee service in prior periods, resulting in the current period from the introduction of, or change to post-employment benefits, are recognized as an expense on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits are already vested immediately following the introduction of, or changes to, a defined benefit plan, the Company recognizes the past service cost immediately.

Provisions

Provisions are recognized when the Company has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

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

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

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

A provision 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.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

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.

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.

Revenue

Revenue from the sale of goods, services provided and the use of assets is measured at the fair value of the consideration received or receivable, net of returns and allowances, trade discounts and volume rebates, which are not significant for all periods presented.

(a) Sale of goods

Revenue from the sale of goods in the ordinary course of activities is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue is recognized when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. The appropriate timing for transfer of risks and rewards varies depending on the individual terms and conditions of the sales contract. For international sales, this timing depends on the type of international commercial terms of the contract.

(b) 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.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(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 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.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

Income tax

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 tax

Current tax is the expected tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted or substantively enacted at the end of the reporting period and any adjustment to tax payable in respect of previous years. The taxable profit is different from the accounting profit for the period since the taxable profit is calculated excluding the temporary differences, which will be taxable or deductible in determining taxable profit of future periods, and non-taxable or non-deductible items from the accounting profit.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(b) Deferred tax

The measurement of deferred 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.

Deferred tax is recognized, using the asset-liability method, in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. A deferred tax liability is recognized for all taxable temporary differences. A deferred tax asset is recognized for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which they can be utilized. However, deferred tax is not recognized for the following temporary differences: taxable temporary differences arising on the initial recognition of goodwill, or the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting profit or loss nor taxable income.

The Company recognizes a deferred 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 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.

The carrying amount of a deferred 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 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 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.

Deferred tax assets and liabilities are offset only if there is a legally enforceable right to offset the related current tax liabilities and assets, and they relate to income taxes levied by the same tax authority and they intend to settle current tax liabilities and assets on a net basis.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

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 engages in business activities from which it may earn revenues and incur expenditures, including revenues and expenses that relate to transactions with any of the Company’s other components. All operating segments’ 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 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.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

New standards and interpretations not yet adopted

The following new standards, interpretations and amendments to existing standards have been published and are mandatory for the Company for annual periods beginning after January 1, 2012, and the Company has not early adopted them. Management believes the impact of the amendments on the Company’s consolidated financial statements is not significant.

(a) K-IFRS No. 1110, “Consolidated Financial Statements”

The standard introduces a single control model to determine whether an investee should be consolidated. The standards are effective for annual periods beginning on or after January 1, 2013 with early adoption permitted.

Adopting the standard at December 31, 2012, the Company may need to change its consolidation conclusion in respect of its investees as below. The impacts of the standard cannot be estimated as of December 31, 2012.

	Company
Consolidating investees that were not previously consolidated	Daewoo Engineering (THAILAND) Co., Ltd.
Not consolidating investees that were previously consolidated	Postech 2006 Energy Fund, Postech Early Stage Fund

(b) K-IFRS No. 1111, “Joint Arrangements”

The standard classifies joint arrangements into two types - joint operations and joint ventures. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. joint operators) have rights to the assets, and obligations for the liabilities, relating to the arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. joint venturers) have rights to the net assets of the arrangement. The standard requires a joint operator to recognize and measure the assets and liabilities (and recognize the related revenues and expenses) in relation to its interest in the arrangement in accordance with relevant K-IFRSs applicable to the particular assets, liabilities, revenues and expenses. The standard requires a joint venturer to recognize an investment and to account for that investment using the equity method. The standards are effective for annual periods beginning on or after January 1, 2013 with early adoption permitted.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(c) K-IFRS No. 1112, “Disclosure of Interests in Other Entities”

The standard brings together into a single standard all the disclosure requirements about an entity’s interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities. The Company is currently assessing the disclosure requirements for interests in subsidiaries, interests in joint arrangements and associates and unconsolidated structured entities in comparison with the existing disclosures. The standard requires the disclosure of information about the nature, risks and financial effects of these interests. The standards are effective for annual periods beginning on or after January 1, 2013 with early adoption permitted.

(d) Amendments to K-IFRS No. 1019 “Employee Benefits”

The standard requires recognition of actuarial gains and losses immediately in other comprehensive income and to calculate expected return on plan assets based on the rate used to discount the defined benefit obligation. The standard will be applied retrospectively for the Company’s annual periods beginning on or after January 1, 2013.

(e) K-IFRS No. 1113 “Fair Value Measurement”

The standard defines fair value and a single framework for fair value, and requires disclosures about fair value measurements. The standard will be applied prospectively for the Company’s annual periods beginning on or after January 1, 2013.

(f) Amendments to K-IFRS No. 1001 “Presentation of Financial Statements”

The amendments require presenting in other comprehensive income on the basis of whether they are potentially reclassifiable to profit or loss subsequently (reclassification adjustments). The amendment is mandatorily effective for annual periods beginning on or after July 1, 2012.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

4. Financial risk management

The Company has exposure to the following risks from its use of financial instruments:

• credit risk

• liquidity risk

• market risk

• capital risk

This note presents information about the Company’s exposure to each of the above risks, the Company’s objectives, policies and processes for measuring and managing risk, and the Company’s management of capital. Further quantitative disclosures are included throughout these consolidated financial statements.

(a) 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.

(b) 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 and unused sales contracts.

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.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

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.

(c) 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.

(d) 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.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

1) 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.

2) Interest rate risk

The Company mostly borrows at fixed interest rates. The Company’s management monitors interest rate risks regularly.

(e) 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.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

The equity attributable to owners as of December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012			2011
Total borrowings	₩	24,921,433			26,811,717
Less: Cash and cash equivalents		4,680,526			4,598,682
Net borrowings		20,240,907			22,213,035
Total equity		42,429,418			40,729,920
Net borrowings-to-equity ratio		47.70	%		54.54	%

5. Cash and Cash Equivalents

Cash and cash equivalents as of December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012		2011
Cash	₩	8,595		23,954
Demand deposits and checking accounts		1,609,934		1,855,929
Financial instruments cash equivalents		3,061,997		2,718,799
	₩	4,680,526		4,598,682

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

6. Trade Accounts and Notes Receivable

(a) Trade accounts and notes receivable as of December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012			2011
Current
Trade accounts and notes receivable	₩	9,865,436			10,265,421
Capital lease receivables		44,918			117,230
Unbilled due from customers for contract work		1,493,709			1,361,416
Less: Allowance for doubtful accounts		(366,090	)		(293,552	)
		11,037,973			11,450,515
Non-current
Trade accounts and notes receivable		52,763			45,061
Capital lease receivables		102,887			147,634
Less: Allowance for doubtful accounts		(13,446	)		(9,634	)
		142,204			183,061
	₩	11,180,177			11,633,576

Trade accounts and notes receivable sold to financial institution, for which the derecognition conditions were not met, amounted to ₩80,258 million, ₩132,908 million as of December 31, 2012 and 2011, respectively, and are included in bank borrowings (note 15).

(b) Capital lease receivables are as follows:

(in millions of Won)
Customer	Contents	2012		2011
Korea Electric Power Corporation	Combined thermal power cycle 1~4	₩	147,634		199,141
Tenant of EXPO Apartment	Lease contract		171		65,723
		₩	147,805		264,864

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(c) The gross amount and present value of minimum lease payments as of December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012			2011
Less than 1 year	₩	62,048			141,670
1 year - 5 years		120,135			169,265
Greater than 5 year		11,772			24,519
Unrealized interest income		(46,150	)		(70,590	)
Present value of minimum lease payment	₩	147,805			264,864

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

7. Other Receivables and Other Financial Assets

(a) Other receivables as of December 31, 2012 and 2011 are as follows:

(in millions of Won)
	2012			2011
Current
Short-term loans	₩	271,067			367,330
Other accounts receivable		1,298,878			1,067,163
Accrued income		71,076			59,028
Allowance for bad debt accounts		(49,582	)		(60,013	)
		1,591,439			1,433,508
Non-Current
Long-term loans		574,255			298,106
Long-term other accounts receivable		164,289			86,923
Accrued income		1,204			956
Allowance for bad debt accounts		(40,724	)		(38,584	)
		699,024			347,401
	₩	2,290,463			1,780,909

(b) Other short-term financial assets as of December 31, 2012 and 2011 are as follows:

(in millions of Won)
	2012			2011
Financial assets at fair value through profit or loss
Financial assets held for trading	₩	—			50,861
Derivatives assets held for trading		62,720			92,055
Available-for-sale financial assets
Short-term available-for-sale securities		133,656			31,651
Held-to-maturity investments
Current portion of held-to-maturity securities (bonds)		31,237			876
Loans and other receivables
Short-term financial instruments (*1,2,3)		1,621,668			1,757,744
Deposits		107,208			73,343
Other receivables		302,738			221,125
Allowance for bad debt accounts		(4,233	)		(4,893	)
	₩	2,254,994			2,222,762

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(*1) As of December 31, 2012 and 2011, short-term financial instruments of ₩ 3,400 million and ₩ 1,670 million are secured related to long-term borrowings of forestry association, respectively.

(*2) As of December 31, 2012 and 2011, ₩ 12,699 million and ₩ 17,175 million, respectively, are restricted for use in a government project.

(*3) As of December 31, 2012 and 2011, short-term financial instruments amounting to ₩ 7,650 million are provided as collateral for long-term borrowings.

(c) Other long-term financial assets as of December 31, 2012 and 2011 are as follows:

(in millions of Won)
	2012			2011
Financial assets at fair value through profit or loss
Derivatives assets held for trading	₩	8,634			16,696
Available-for-sale financial assets
Long-term available-for-sale securities (equity instruments) (*1,2.3)		3,711,169			4,509,197
Long-term available-for-sale securities (bonds)		26,430			25,847
Long-term available-for-sale securities (others)		43,266			41,902
Held-to-maturity investments
Held-to-maturity securities (bonds)		3,251			34,698
Loan and other receivables
Long-term financial instruments		68,215			37,732
Deposits		110,682			112,244
Allowance for bad debt accounts		(802	)		(45	)
	₩	3,970,845			4,778,271

(*1) As of December 31, 2012, 2,294,961 shares equivalent to 20,654,653 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, 2012, there was a further significant decline in the fair value of shares of Jupiter mines Ltd., SK Telecom Co., Ltd. and others for a prolonged period, which was considered as objective evidence of impairment. As a result, an impairment losses of ₩ 224,171 million was recognized in profit or loss during the year ended December 31, 2012.

(*3) As of December 31, 2012, ₩ 28,354 million of long-term available-for-sale securities have been provided as collateral.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

8. Inventories

(a) Inventories as of December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012			2011
Finished goods	₩	1,475,832			1,556,573
Merchandise		703,923			1,185,496
Semi-finished goods		1,876,196			2,163,124
Raw materials		2,425,367			2,563,837
Fuel and materials		893,137			758,333
Construction inventories		1,324,873			1,245,546
Materials-in-transit		2,007,106			2,857,434
Others		93,007			168,895
		10,799,441			12,499,238
Less: allowance for inventories valuation		(214,795	)		(215,594	)
	₩	10,584,646			12,283,644

The amounts of valuation losses of inventories recognized within cost of goods sold during the years ended December 31, 2012 and 2011 were ₩ 76,483 million and ₩ 140,391 million, respectively.

9. Non-Current Assets Held for Sale

Details of non-current assets held for sale and related liabilities as of December 31, 2012 and 2011 are as follows:

(in millions of Won)
	2012		2011
	Subsidiaries (*1,2)		POSCO (*3)		Subsidiaries (*4)		Total
Assets
Trade accounts and notes receivable and other financial assets	₩	—		—		63,154		63,154
Inventories		—		—		23,186		23,186
Property, plant and equipment		1,190		16,887		172,538		189,425
Intangible assets		—		—		7,389		7,389
Other assets		—		—		45,883		45,883
		1,190		16,887		312,150		329,037
Liabilities
Trade accounts and note payables and other financial liabilities		—		—		28,509		28,509
Borrowings		—		—		144,920		144,920
Other liabilities		—		—		53,178		53,178
		—		—		226,607		226,607
Net assets	₩	1,190		16,887		85,543		102,430

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(*1) The Company determined to dispose of the shares of Kyobo Life Insurance Co., Ltd., an associate of Daewoo International Corporation, one of the Company’s subsidiaries, in order to secure investment funds and improve the Company’s financial structure. The investment was reclassified as a non-current asset held for sale at the beginning of the bidding process that started during the six-month period ended June 30, 2012. The amount measured at the lower of its carrying amount and fair value less costs to sell of Kyobo Life Insurance Co., Ltd. was ₩1,150,720 million. The Company recorded an impairment loss for the non-current assets held for sale of ₩258,381 million. The transaction was completed on September 5, 2012. The Company recognized a gain on disposal of assets held for sale of ₩45,874 million.

(*2) POSCOAST CO., LTD. determined to dispose of its land and building and classified as non-current 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 some land and building was ₩ 1,190 million, the Company recorded impairment loss for the non-current assets held for sale of ₩ 70 million.

(*3) POSCO planned to dispose of equipment of existing steel manufacturing plants due to the completion and expected use of a new plant. The relevant equipment was reclassified as non-current assets held for sale at December 31, 2011. Some of those non-current assets held for sale were disposed of by sale, and others were reclassified as property, plant and equipment due to the cancelation of plans to sell during the year ended December 31, 2012. POSCO recognized a gain of ₩1,150 million and a loss of ₩9,391 million from the assets held for sale during the year ended December 31, 2012.

(*4) The Company determined to dispose of Daewoo Cement (Shandong) Co., Ltd., a subsidiary of Daewoo International Corporation, one of POSCO’s subsidiaries, in order to close down a non-core business and collect long-term receivables and securities, pursuant to the board of director’s resolution on July 28, 2011. Daewoo International Corporation entered into a sales contract with China United Cement Group Co., Ltd. on August 9, 2011 and completed the disposal of relevant non-current assets held for sale on June 28, 2012. The Company recognized a gain on disposal of assets held for sale of 146,309 million.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

10. Investments in Associates

(a) Details of investments in associates as of December 31, 2012 and 2011 are as follows:

(in millions of Won)
	2012								2011
Company	Number of shares		Ownership (%)		Acquisition cost		Book value		Book value
[Domestic]
Kyobo Life Insurance Co., Ltd. (*1)	₩	—		—		—		—		1,377,114
Sungjin Geotec Co., Ltd.		17,193,510		33.02		239,877		181,361		194,942
SNNC Co., Ltd.		18,130,000		49.00		90,650		147,539		154,131
POSCO-ESM Co., Ltd. (*2)		1,000,000		50.00		43,000		42,388		—
Busan-Gimhae Light Rail Transit Co., Ltd.		9,160,000		25.00		45,800		7,601		34,227
Cheongna IBT Co., Ltd. (*3)		—		—		—		—		35,564
Blue ocean PEF		333		27.52		33,300		33,839		35,971
METAPOLIS Co., Ltd. (*4)		4,229,280		40.05		15,410		—		15,674
POSMATE Co., Ltd.		411,573		45.15		28,258		46,204		22,409
CHUNGJU ENTERPRISE CITY DEVELOPMENT Co., LTD.		2,008,000		25.10		10,040		29,414		21,026
MIDAS Information Technology Co., Ltd. (*5)		—		—		—		—		12,476
Poscochemtech Mitsubishi Carbon Tech (*6)		2,892,000		60.00		28,920		28,060		—
UI trans Co., Ltd		3,536,394		41.89		17,682		16,444		3,610
Incheongimpo Highway Co., Ltd.		3,071,147		29.94		15,356		13,680		3,500
Garolim Tidal Power Plant Co., Ltd		2,580,039		32.13		12,900		11,544		11,995
Others								52,925		62,926
								610,999		1,985,565
[Foreign]
Roy Hill Holdings Pty Ltd. (*7)		12,723,959		12.50		551,979		527,129		—
POSCO-NPS Niobium LLC		325,050,000		50.00		364,609		348,646		374,868
AMCI (WA) Pty Ltd.		49		49.00		213,446		123,018		168,212
CSP(Compania Siderurgica do Pecem)		415,729,274		20.00		265,740		214,761		124,231
Nickel Mining Company SAS		3,234,698		49.00		157,585		146,699		168,292
KOBRASCO		2,010,719,185		50.00		32,950		113,847		128,884
KOREA LNG Ltd.		2,400		20.00		137,993		99,976		127,901
Eureka Moly LLC		—		20.00		232,397		213,136		109,772
DMSA, AMSA		—		4.00		133,177		124,326		119,556
BX STEEL POSCO Cold RolledSheet Co., Ltd.		—		25.00		61,961		92,888		95,577
CAML Resources Pty. Ltd.		3,239		33.34		40,388		62,227		55,465
South-East Asia Gas Pipeline Company Ltd.		135,219,000		25.04		150,779		144,831		136,175
Poschrome Pty. Ltd.		43,350		50.00		19,892		21,324		24,674
USS-POSCO Industries (*4)		—		50.00		277,715		—		16,880
NCR LLC		—		29.40		31,110		39,303		24,107
Others								156,151		171,500
								2,428,262		1,846,094
							₩	3,039,261	₩	3,831,659

(*1) The Company determined to dispose of the shares of Kyobo Life Insurance Co., Ltd., an associate of Daewoo International Corporation, one of the Company’s subsidiaries, in order to secure investment funds and improve its financial structure. The transaction was completed in third quarter of 2012.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(*2) This entity was newly established during the year ended December 31, 2012.

(*3) Excluded from associates as the contract on entrusted voting rights expired during the year ended December 31, 2012.

(*4) 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 ₩ 17,952 million during the year ended December 31, 2012.

(*5) Excluded from associates due to disposal during the year ended December 31, 2012.

(*6) The Company is not able to exercise significant influence on the investee even though the Company’s percentage of ownership of above 50%.

(*7) This entity was acquired during the year ended December 31, 2012.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(b) The movements of investments in associates for the years ended December 31, 2012 and 2011 are as follows:

1) December 31, 2012

(in millions of Won)
Company	Dec. 31, 2011 Book value		Share of profits (losses)			Other increase (decrease) (*1)			Dec. 31, 2012 Book value
[Domestic]
Kyobo Life Insurance Co., Ltd.	₩	1,377,114		37,038			(1,414,152	)		—
Sungjin Geotec Co., Ltd.		194,942		(17,162	)		3,581			181,361
SNNC Co., Ltd.		154,131		15,157			(21,749	)		147,539
POSCO-ESM Co., Ltd.		—		(560	)		42,948			42,388
Busan-Gimhae Light Rail Transit Co., Ltd.		34,227		(26,626	)		—			7,601
Cheongna IBT Co., Ltd.		35,564		(729	)		(34,835	)		—
Blue ocean PEF		35,971		(4,542	)		2,410			33,839
METAPOLIS Co., Ltd.		15,674		(15,674	)		—			—
POSMATE Co., Ltd.		22,409		2,158			21,637			46,204
CHUNGJU ENTERPRISE CITY DEVELOPMENT Co., LTD.		21,026		8,534			(146	)		29,414
MIDAS Information Technology Co., Ltd.		12,476		1,530			(14,006	)		—
Poscochemtech Mitsubishi Carbon Tech		—		(860	)		28,920			28,060
UI trans Co., Ltd.		3,610		1,268			11,566			16,444
Incheongimpo Highway Co., Ltd.		3,500		(377	)		10,557			13,680
Garolim Tidal Power Plant Co., Ltd.		11,995		(451	)		—			11,544
Others		62,926		(3,842	)		(6,159	)		52,925
		1,985,565		(5,138	)		(1,369,428	)		610,999
[Foreign]
Roy Hill Holdings Pty Ltd.		—		(16,537	)		543,666			527,129
POSCO-NPS Niobium LLC		374,868		19,199			(45,421	)		348,646
AMCI (WA) Pty Ltd.		168,212		(38,706	)		(6,488	)		123,018
CSP (Compania Siderurgica do Pecem)		124,231		(2,520	)		93,050			214,761
Nickel Mining Company SAS		168,292		(12,795	)		(8,798	)		146,699
KOBRASCO		128,884		28,792			(43,829	)		113,847
KOREA LNG Ltd.		127,901		12,697			(40,622	)		99,976
Eureka Moly LLC		109,772		—			103,364			213,136
DMSA, AMSA		119,556		(1,176	)		5,946			124,326
BX STEEL POSCO Cold RolledSheet Co., Ltd.		95,577		2,650			(5,339	)		92,888
CAML Resources Pty. Ltd.		55,465		11,390			(4,628	)		62,227
South-East Asia Gas Pipeline Company Ltd.		136,175		—			8,656			144,831
Poschrome Pty. Ltd.		24,674		(311	)		(3,039	)		21,324
USS-POSCO Industries		16,880		(5,933	)		(10,947	)		—
NCR LLC		24,107		(452	)		15,648			39,303
Others		171,500		(13,862	)		(1,487	)		156,151
		1,846,094		(17,564	)		599,732			2,428,262
	₩	3,831,659		(22,702	)		(769,696	)		3,039,261

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

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

2) December 31, 2011

(in millions of Won)
Company	Dec. 31, 2010 Book value		Share of profits (losses)			Other increase (decrease) (*1)			Dec. 31, 2011 Book value
[Domestic]
Kyobo Life Insurance Co., Ltd.	₩	1,314,808		82,450			(20,144	)		1,377,114
Sungjin Geotec Co., Ltd.		227,245		(33,650	)		1,347			194,942
SNNC Co., Ltd.		145,466		49,605			(40,940	)		154,131
Busan-Gimhae Light Rail Transit Co., Ltd.		42,151		(7,924	)		—			34,227
Cheongna IBT Co., Ltd.		39,607		(4,043	)		—			35,564
Blue ocean PEF		—		1,478			34,493			35,971
METAPOLIS Co., Ltd.		32,666		(16,992	)		—			15,674
POSMATE Co., Ltd.		20,989		3,141			(1,721	)		22,409
CHUNGJU ENTERPRISE CITY DEVELOPMENT CO., LTD.		21,317		(146	)		(145	)		21,026
MIDAS Information Technology Co., Ltd.		9,457		3,089			(70	)		12,476
UI trans Co., Ltd.		3,920		(1,906	)		1,596			3,610
Incheongimpo Highway Co., Ltd.		3,049		(245	)		696			3,500
Garolim Tidal Power Plant Co., Ltd.		10,881		(164	)		1,278			11,995
Others		129,405		(5,064	)		(61,415	)		62,926
		2,000,961		69,629			(85,025	)		1,985,565
[Foreign]
POSCO-NPS Niobium LLC		—		5,658			369,210			374,868
AMCI (WA) Pty Ltd.		213,446		(32,879	)		(12,355	)		168,212
CSP (Compania Siderurgica do Pecem)		—		(1,661	)		125,892			124,231
Nickel Mining Company SAS		180,671		(7,073	)		(5,306	)		168,292
KOBRASCO		141,939		36,911			(49,966	)		128,884
KOREA LNG Ltd.		133,793		8,026			(13,918	)		127,901
Eureka Moly LLC		109,177		(754	)		1,349			109,772
DMSA, AMSA		100,536		38			18,982			119,556
BX STEEL POSCO Cold RolledSheet Co., Ltd.		89,313		1,797			4,467			95,577
CAML Resources Pty. Ltd.		67,401		15,517			(27,453	)		55,465
South-East Asia Gas Pipeline Company Ltd.		56,636		(25	)		79,564			136,175
Poschrome Pty. Ltd.		29,201		1,422			(5,949	)		24,674
USS-POSCO Industries		40,000		(31,585	)		8,465			16,880
NCR LLC		23,931		(85	)		261			24,107
Others		119,420		(14,367	)		66,447			171,500
		1,305,464		(19,060	)		559,690			1,846,094
	₩	3,306,425		50,569			474,665			3,831,659

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(*1) Other increase or decrease represents the changes in investment in associates due to acquisitions, disposals, dividends received, change in capital adjustments arising from translations of financial statements of foreign investees and others.

(c) The fair value of investments in associates for which there are published price quotations as of December 31, 2012 are as follows:

(in millions of Won)
Company	Fair value
Sungjin Geotec Co., Ltd.	₩	184,830

(d) Summarized financial information of associates as of December 31, 2012 and 2011 are as follows:

1) December 31, 2012

(in millions of Won)
Company	Assets		Liabilities		Equity			Sales		Net income (loss)
[Domestic]
Sungjin Geotec Co., Ltd.	₩	763,581		632,999		130,582			703,236		(29,219	)
SNNC Co., Ltd.		577,273		261,781		315,492			379,230		16,959
POSCO-ESM Co., Ltd.		69,287		16,067		53,220			—		(1,422	)
Busan-Gimhae Light Rail Transit Co., Ltd.		787,011		756,606		30,405			16,811		(106,668	)
Blue ocean PEF		347,298		224,338		122,960			429,210		(16,504	)
METAPOLIS Co., Ltd.		521,942		512,720		9,222			21,063		(35,244	)
POSMATE Co., Ltd.		118,077		14,580		103,497			104,705		9,587
CHUNGJU ENTERPRISE CITY DEVELOPMENT CO., LTD.		333,716		250,540		83,176			229,271		36,971
Poscochemtech Mitsubishi Carbon Tech		47,014		247		46,767			—		(1,433	)
UI trans Co., Ltd.		50,932		12,822		38,110			—		(880	)
Incheongimpo Highway Co., Ltd.		44,714		334		44,380			—		(1,323	)
Garolim Tidal Power Plant Co., Ltd.		37,476		1,546		35,930			—		(1,404	)
[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	)
Nickel Mining Company SAS		445,344		91,266		354,078			120,224		(33,981	)
KOBRASCO		231,524		3,831		227,693			121,619		56,282
KOREA LNG Ltd.		545,841		64		545,777			109,992		107,953
DMSA, AMSA		7,935,489		5,906,301		2,029,188			—		(29,407	)
BX STEEL POSCO Cold RolledSheet Co., Ltd.		922,932		579,140		343,792			1,506,012		2,296
CAML Resources Pty. Ltd.		209,717		70,502		139,215			284,134		34,162
South-East Asia Gas Pipeline Company Ltd.		1,341,510		763,116		578,394			—		—
Poschrome Pty. Ltd.		53,900		3,582		50,318			89,962		(899	)
USS-POSCO Industries		420,767		459,681		(38,914	)		990,356		(52,287	)

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

2) December 31, 2011

(in millions of Won)
Company	Assets		Liabilities		Equity		Sales		Net income (loss)
[Domestic]
Kyobo Life Insurance Co., Ltd.	₩	60,828,181		55,786,580		5,041,601		11,610,607		487,785
Sungjin Geotec Co., Ltd.		717,665		611,548		106,117		663,879		(58,894	)
SNNC Co., Ltd.		610,059		269,318		340,741		473,173		81,246
Busan-Gimhae Light Rail Transit Co., Ltd.		817,402		680,492		136,910		3,690		(31,696	)
Cheongna IBT Co., Ltd.		433,306		263,377		169,929		305		(20,527	)
Blue ocean PEF		385,060		254,353		130,707		79,583		5,371
METAPOLIS Co., Ltd.		579,241		534,775		44,466		21,333		(36,861	)
POSMATE Co., Ltd.		90,403		15,317		75,086		116,021		8,592
CHUNGJU ENTERPRISE CITY DEVELOPMENT CO., LTD.		302,887		256,485		46,402		67,459		2,099
MIDAS Information Technology Co., Ltd.		73,939		24,178		49,761		50,501		9,411
UI trans Co., Ltd.		30,292		17,279		13,013		—		(831	)
Incheongimpo Highway Co., Ltd.		14,690		1,518		13,172		—		(911	)
Garolim Tidal Power Plant Co., Ltd.		37,626		293		37,333		—		(510	)
[Foreign]
POSCO-NPS Niobium LLC		749,737		—		749,737		11,433		11,317
CSP(Compania Siderurgica do Pecem)		622,810		1,657		621,153		—		(1,302	)
Nickel Mining Company SAS		496,518		94,900		401,618		142,456		(12,983	)
KOBRASCO		314,458		56,691		257,767		130,725		73,978
KOREA LNG Ltd.		24,169		10,492		13,677		95,385		92,600
DMSA, AMSA		5,807,261		3,979,755		1,827,506		939		939
BX STEEL POSCO Cold RolledSheet Co., Ltd.		1,099,540		745,318		354,222		1,421,784		7,188
CAML Resources Pty. Ltd.		217,677		105,456		112,221		278,778		46,567
South-East Asia Gas Pipeline Company Ltd.		596,972		53,140		543,832		—		(99	)
Poschrome Pty. Ltd.		61,740		4,129		57,611		96,785		1,028
USS-POSCO Industries		470,963		434,722		36,241		1,062,110		(61,478	)

(e) Joint venture as of December 31, 2012 is as follows:

	Operation	Ownership			Location
Mt. Thorley J/V	Mine development		20	%	Australia
POSMAC J/V	Mine development		20	%	Australia
CD J/V	Mine development		5	%	Australia
RUM J/V	Mine development		10	%	Australia

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

11. Investment Property, Net

(a) Investment property as of December 31, 2012 and 2011 are as follows:

	2012							2011
(in millions of Won)	Acquisition cost		Accumulated depreciation and impairment loss			Book value		Acquisition cost		Accumulated depreciation and impairment loss			Book value
Land	₩	252,846		(41,464	)		211,382		280,634		(61,157	)		219,477
Buildings		490,657		(186,154	)		304,503		475,971		(174,238	)		301,733
Structures		9,448		(4,142	)		5,306		10,300		(3,977	)		6,323
Total	₩	752,951		(231,760	)		521,191		766,905		(239,372	)		527,533

As of December 31, 2012, the fair value of investment property is ₩ 837,511 million, among which the Company evaluated investment property of 7 subsidiaries including International Business Center Corporation as its book value amounted to ₩ 64,653 million since it is believed that fair value is approximately same as book value.

(b) Changes in the carrying value of investment property for the years ended December 31, 2012 and 2011 were as follows:

1) For the year ended December 31, 2012

(in millions of Won)	Beginning		Acquisitions		Business combination		Disposals			Depreciation (*1)			Others (*2)			Ending
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, 2011

(in millions of Won)	Beginning		Acquisitions		Business combination		Disposals			Depreciation (*1)			Others (*2)			Ending
Land	₩	211,464		41,243		94		(57,905	)		(14,010	)		38,591			219,477
Buildings		278,361		109,757		—		(56,953	)		(22,783	)		(6,649	)		301,733
Structures		3,540		6,072		—		—			(640	)		(2,649	)		6,323
Total	₩	493,365		157,072		94		(114,858	)		(37,433	)		29,293			527,533

(*1) Impairment losses of investment property amounted to ₩ 23,048 million are included.

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

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

12. Property, Plant and Equipment, Net

(a) Property, plant and equipment as of December 31, 2012 and 2011 are as follows:

	2012										2011
(in millions of Won)	Acquisition cost		Accumulated depreciation and impairment loss			Government grants			Book value		Acquisition cost		Accumulated depreciation and impairment loss			Government grants			Book value
Land	₩	2,658,401		(11,979	)		—			2,646,422		2,549,178		—			—			2,549,178
Buildings		7,120,322		(2,951,420	)		(100	)		4,168,802		6,664,004		(2,644,172	)		(3	)		4,019,829
Structures		3,997,124		(1,676,669	)		(274	)		2,320,181		3,761,535		(1,500,808	)		(290	)		2,260,437
Machinery and equipment		36,217,492		(19,684,338	)		(950	)		16,532,204		34,392,737		(18,211,863	)		(1,490	)		16,179,384
Vehicles		279,650		(219,489	)		(7	)		60,154		272,249		(205,478	)		(28	)		66,743
Tools		331,870		(261,972	)		(47	)		69,851		323,511		(242,612	)		(22	)		80,877
Furniture and fixtures		526,396		(342,706	)		(310	)		183,380		466,225		(296,120	)		(416	)		169,689
Capital lease assets		105,241		(48,017	)		—			57,224		72,426		(33,884	)		—			38,542
Construction-in-progress		6,238,161		—			—			6,238,161		3,151,924		—			(63,419	)		3,088,505
Total	₩	57,474,657		(25,196,590	)		(1,688	)		32,276,379		51,653,789		(23,134,937	)		(65,668	)		28,453,184

(b) The changes in carrying value of property, plant and equipment as for the years ended December 31, 2012 and 2011 were as follows:

1) For the year ended December 31, 2012

(in millions of Won)	Beginning		Acquisitions (*1)		Business combination		Disposals			Depreciation (*2)			Others (*3)			Ending
Land	₩	2,549,178		153,031		2,377		(26,793	)		—			(31,371	)		2,646,422
Buildings		4,019,829		342,088		12,210		(29,756	)		(298,978	)		123,409			4,168,802
Structures		2,260,437		256,958		—		(24,308	)		(199,970	)		27,064			2,320,181
Machinery and equipment		16,179,384		2,016,572		5,804		(209,357	)		(1,774,051	)		313,852			16,532,204
Vehicles		66,743		16,777		141		(1,244	)		(20,705	)		(1,558	)		60,154
Tools		80,877		21,833		411		(1,081	)		(36,026	)		3,837			69,851
Furniture and fixtures		169,689		72,052		76		(3,369	)		(65,074	)		10,006			183,380
Capital Lease Assets		38,542		535		—		(236	)		(9,154	)		27,537			57,224
Construction-in-progress		3,088,505		6,423,131		—		—			—			(3,273,475	)		6,238,161
Total	₩	28,453,184		9,302,977		21,019		(296,144	)		(2,403,958	)		(2,800,699	)		32,276,379

(*1) Acquisition includes assets transferred from construction-in-progress.

(*2) Impairment losses of property, plant and equipment amounted to ₩ 12,977 million are included.

(*3) Includes reclassification for changing purpose of use, adjustment of foreign currency translation difference and others.

2) For the year ended December 31, 2011

(in millions of Won)	Beginning		Acquisitions (*1)		Business combination		Disposals			Depreciation (*2)			Others (*3)			Ending
Land	₩	2,011,851		450,151		92,806		(55,751	)		—			50,121			2,549,178
Buildings		3,551,163		701,166		38,382		(38,755	)		(278,097	)		45,970			4,019,829
Structures		2,070,189		289,524		8,961		(10,775	)		(163,072	)		65,610			2,260,437
Machinery and equipment		13,777,382		2,892,960		204,871		(45,950	)		(1,605,342	)		955,463			16,179,384
Vehicles		64,173		21,041		1,981		(1,795	)		(17,894	)		(763	)		66,743
Tools		75,437		38,477		2,259		(1,477	)		(37,743	)		3,924			80,877
Furniture and fixtures		124,677		66,297		1,995		(1,657	)		(28,249	)		6,626			169,689
Capital Lease Assets		43,106		8,029		20		(145	)		(14,081	)		1,613			38,542
Construction-in-progress		3,719,762		4,593,524		10,536		—			—			(5,235,317	)		3,088,505
Total	₩	25,437,740		9,061,169		361,811		(156,305	)		(2,144,478	)		(4,106,753	)		28,453,184

(*1) Acquisition includes assets transferred from construction-in-progress.

(*2) Impairment losses of property, plant and equipment amounted to ₩ 25,852 million are included.

(*3) Includes reclassification for changing purpose of use, adjustment of foreign currency translation difference and others.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(c) Borrowing costs capitalized and the capitalized interest rate for the years ended December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012			2011
Weighted average expenditure	₩	3,131,866			1,433,877
Borrowing costs capitalized		101,794			78,777
Capitalization rate		3.25	%		5.49	%

(d) Pledged as collateral assets

(in millions of Won)	Collateral right holder	2012		2011
Land (*1)	Korean Development Bank and others	₩	545,654		381,096
Buildings and structures (*1)	Korean Development Bank and others		327,757		139,169
Machinery and equipment	Korean Development Bank and others		1,285,452		218,816
Construction-in-progress	The Export-Import Bank of Korea and others		1,486,745		—
		₩	3,645,608		739,081

(*1) Investment properties are included.

13. Goodwill and Other Intangible Assets

(a) Goodwill and other intangible assets as of December 31, 2012 and 2011 are as follows:

	2012										2011
(in millions of Won)	Acquisition cost		Accumulated depreciation and impairment loss			Government grants			Book value		Acquisition cost		Accumulated depreciation and impairment loss			Government grants			Book value
Goodwill	₩	1,735,879		(22,188	)		—			1,713,691		1,671,775		(14,958	)		—			1,656,817
Intellectual property rights		317,748		(41,448	)		(1,154	)		275,146		285,166		(10,259	)		—			274,907
Premium in rental		151,116		(13,383	)		—			137,733		151,747		(12,603	)		—			139,144
Development expense		127,856		(65,367	)		(1,558	)		60,931		90,109		(42,458	)		(2,068	)		45,583
Port facilities usage rights		410,023		(326,901	)		—			83,122		410,077		(315,331	)		—			94,746
Exploration and evaluation assets		509,581		(29,853	)		—			479,728		501,374		(28,182	)		—			473,192
Mining development assets		1,643,306		—			—			1,643,306		1,414,315		—			—			1,414,315
Customer relationships		862,217		(111,485	)		—			750,732		865,036		(57,968	)		—			807,068
Other intangible assets		921,277		(403,302	)		(3	)		517,972		710,257		(371,097	)		(4	)		339,156
Total	₩	6,679,003		(1,013,927	)		(2,715	)		5,662,361		6,099,856		(852,856	)		(2,072	)		5,244,928

(b) The changes in carrying value of goodwill and other intangible assets for the years ended December 31, 2012 and 2011 were as follows:

1) For the year ended December 31, 2012

	Beginning		Increase						Decrease									Others (*3)			Ending
(in millions of Won)			Acquisitions		Development		Business combination		Disposals			Amortization			Impairment loss
Goodwill (*1)	₩	1,656,817		—		—		77,298		—			—			(7,230	)		(13,194	)		1,713,691
Intellectual property rights		274,907		30,352		—		1		(1,375	)		(24,829	)		—			(3,910	)		275,146
Premium in rental (*2)		139,144		13,498		—		622		(10,038	)		(544	)		(12,336	)		7,387			137,733
Development expense		45,583		1,466		26,066		—		(148	)		(23,011	)		—			10,975			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
Customer relationships		807,068		—		—		—		—			(53,517	)		—			(2,819	)		750,732
Other intangible assets		339,156		193,561		17		26,748		(652	)		(44,466	)		(9	)		3,617			517,972
	₩	5,244,928		475,217		26,083		104,669		(12,213	)		(157,991	)		(21,246	)		2,914			5,662,361

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(*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 transfer of accounts.

2) For the year ended December 31, 2011

			Increase						Decrease									Others (*3)			Ending
(in millions of Won)	Beginning		Acquisitions		Development		Business combination		Disposals			Amortization			Impairment loss
Goodwill (*1)	₩	1,447,743		—		—		224,032		—			—			(14,958	)		—			1,656,817
Intellectual property rights		119,100		171,402		—		—		(7,544	)		(16,258	)		—			8,207			274,907
Premium in rental (*2)		159,761		15,355		—		9		(3,457	)		(8,391	)		—			(24,133	)		139,144
Development expense		49,275		13,978		252		688		(44	)		(20,092	)		—			1,526			45,583
Port facilities usage rights		108,161		—		—		—		—			(13,130	)		—			(285	)		94,746
Exploration and evaluation assets		594,464		10,151		—		—		(38,563	)		—			—			(92,860	)		473,192
Mining development assets		1,058,354		357,681		—		—		(96	)		—			—			(1,624	)		1,414,315
Customer relationships		778,080		—		—		75,836		—			(46,848	)		—			—			807,068
Other intangible assets		304,231		95,557		—		8,160		(5,684	)		(28,569	)		—			(34,539	)		339,156
	₩	4,619,169		664,124		252		308,725		(55,388	)		(133,288	)		(14,958	)		(143,708	)		5,244,928

(*1) Acquisition amounts include goodwill amounting to ₩ 119,260 million related to the acquisition of POSCO Thainox Co., Ltd. in 2011. An impairment loss of ₩ 14,958 million is related to the negative capital of DAESAN (CAMBODIA) Co. Ltd.

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

(*3) Includes translation adjustment and transfer of accounts.

(c) For the purpose of impairment testing, goodwill is allocated to individual operating entities determined to be CGUs. The goodwill amount as of December 31, 2012 and 2011 are as follows:

(in millions of Won)
	Total number of CGUs
Reporting segments	2012		2011		CGUs	2012		2011
Steel		11		11	POSCO-Thainox Public Company Limited. (*3)	₩	109,779		119,260
					POSCO VST Co., Ltd.		36,955		36,955
					Others (*4)		14,096		21,322
Trading		3		3	Daewoo International Corporation (*1)		1,163,922		1,163,922
					Others		11,906		13,316
E&C		3		1	POSCO Engineering Company (*2)		194,637		194,637
					EPC EQUITIES LLP		47,913		49,931
					Others		11,291		11,796
Others		10		8	PONUTech Co., Ltd		77,298		—
					POSCO ENERGY Co., Ltd.		26,471		26,471
					Others		19,423		19,207
Total		27		25		₩	1,713,691		1,656,817

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(*1) Recoverable amounts of Daewoo International Corporation were determined based on value-in-use. As of December 31, 2012, value-in-use is estimated by applying 7.60% discount rate and 2.8% terminal growth rate with 5 years, the period for the estimated future cash flows, based on management`s business plan. No impairment loss of goodwill was recognized during the year ended December 31, 2012 as the recoverable amount exceeded the carrying value of the CGU.

The estimated recoverable amount of CGU exceeded the carrying value by ₩ 1,087,136 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 decreases by 4.43%. When the terminal growth rate decreases by 0.25%, value-in-use decreases by 3.80%. There is no effect on the impairment loss of the goodwill.

The 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.

(*2) Recoverable amounts of POSCO Engineering Company were determined based on value-in-use. As of December 31, 2012, value-in-use is estimated by applying 11.15% discount rate and 1% terminal growth rate with 5 years, the period for the estimated future cash flows based on management’s business plan. No impairment loss of goodwill was recognized during the year ended December 31, 2012 as the recoverable amount exceeded the carrying value of the CGU.

The estimated recoverable amounts of CGU exceeded the carrying value by ₩ 171,253 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 decreases by 2.91%. When the terminal growth rate decreases by 0.25%, value-in-use decreases by 1.88%. There is no effect on the impairment loss of the goodwill.

The 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 determined based on fair value, which was calculated to 30% control premium added to the current stock price as of December 31, 2012. And no impairment loss of goodwill was recognized since there was no objective evidence of impairment on December 31, 2012.

(*4) The Company recognized the impairment loss of goodwill of ₩ 7,230 million, which was occurred when POSCONST CO., LTD. merged into POSCOAST CO., LTD. for the year ended December 31, 2012.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

14. Other Assets

Other current assets and other long-term assets as of December 31, 2012 and 2011 are as follows:

(in millions of Won)
	2012		2011
Other current assets
Advance payment	₩	1,205,969		1,035,846
Prepaid expenses		189,647		180,369
Others		2,564		3,927
	₩	1,398,180		1,220,142
Other long-term assets
Long-term advance payment	₩	2,119		2,895
Long-term prepaid expenses		178,934		190,741
Others (*1)		212,733		436,651
	₩	393,786		630,287

(*1) The guarantee deposits of ₩257,878 million related to the Australia Roy Hill iron ore mine were transferred to investments in associates during the year ended December 31, 2012.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

15. Borrowings

(a) Short-term borrowings and current portion of long-term borrowings as of December 31, 2012 and 2011 are as follows:

(in millions of Won)		Interest rate (%)
	Bank		2012			2011
Short-term borrowings
Bank overdrafts	BOA, others	0.4~1.0	₩	123,685			233,804
Short-term borrowings (*1)	Shinhan Bank, others	0.3~13.0		7,586,993			9,339,182
				7,710,678			9,572,986
Current portion of long-term liabilities
Current portion of long-term borrowings (*1)	Korean Development Bank, others	0.5~6.0		898,564			428,409
Current portion of foreign loan	NATIXIS	2.0		901			951
Current portion of debentures (*1)	Korean Development Bank, others	1.9~7.0		1,899,430			790,050
Less : Current portion of discount on debentures issued				(2,644	)		(886	)
Add : Premium on debentures redemption				2,419			—
				2,798,670			1,218,524
			₩	10,509,348			10,791,510

(*1) Property, plant and equipment, short-term financial assets, available-for-sale financial assets and other assets amounting to ₩ 3,629,296 million, ₩ 11,050 million, ₩ 624,187 million and ₩ 65 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 2011 are as follows:

(in millions of Won)		Interest rate(%)
	Bank		2012			2011
Long-term borrowings (*1)	Korean Development Bank and others	0.6~13.0	₩	5,161,711			4,614,391
Less : Present value discount				(44,293	)		(302,118	)
Foreign loan (*2)	NATIXIS	2.0		2,009			3,071
Bonds (*1,3,4)	Korean Development Bank and others	1.5~9.0		9,339,966			11,776,893
Less : Discount on debentures issued				(62,943	)		(94,356	)
Add : Premium on debentures redemption				15,635			21,493
Add : Premium on debentures issued				—			833
			₩	14,412,085			16,020,207

(*1) Property, plant and equipment, short-term financial assets, available-for-sale financial assets and other assets amounting to ₩ 3,629,296 million, ₩ 11,050 million, ₩ 624,187 million and ₩ 65 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 this foreign loan.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(*3) In 2009, one of the controlling company`s subsidiaries, Daewoo International Corporation, issued convertible bonds with a face value of USD 300 million and a 5 year maturity. All of these convertible bonds have been converted to equity stocks of the subsidiary during the year ended December 31, 2012.

(*4) 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 debts under K-IFRS. POSCO provides guarantees for Zeus (Cayman) Ltd.

16. Other Payables and Other Financial Liabilities

(a) Other payables as of December 31, 2012 and 2011 are as follows:

(in millions of Won)
	2012		2011
Current
Accounts payable	₩	737,802		1,048,895
Accrued expenses (*1)		868,015		457,071
		1,605,817		1,505,966
Non-Current
Accounts payable		117,462		149,308
Accrued expenses		24,950		20,067
		142,412		169,375
	₩	1,748,229		1,675,341

(*1) 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.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(b) Other financial liabilities as of December 31, 2012 and 2011 are as follows:

(in millions of Won)
	2012		2011
Current
Dividends payable		7,487		5,822
Derivatives liabilities		84,922		146,903
Finance lease liabilities		16,044		15,295
Financial guarantee liabilities		7,819		7,510
Withholding		205,556		129,694
		321,828		305,224
Non-Current
Derivatives liabilities		100,220		48,934
Finance lease liabilities		32,961		29,504
Financial guarantee liabilities		17,493		24,732
Long-term withholding		68,549		78,015
		219,223		181,185
	₩	541,051		486,409

17. Provisions

(a) Provisions as of December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012				2011
	Current		Non-current		Current		Non-current
Provision for bonus payments	₩	42,904		—		47,682		—
Provision for construction warranties		23,489		27,227		19,656		30,967
Provision for legal contingencies and claims (*1)		—		30,920		—		38,847
Others		11,438		41,951		2,094		39,529
	₩	77,831		100,098		69,432		109,343

(*1) As of December 31, 2012 and 2011, includes provision of ₩ 23,784 million and ₩ 38,847 million, respectively, for a potential claim in connection to the spin-off of the trading division of Daewoo International Corporation in 2000 (note 35). In addition, includes provision of ₩ 7,136 million for obligation to payment guarantee related to borrowings incurred in the process of disposal of Daewoo Cement (Shandong) Co., Ltd. during the year ended December 31, 2012.

(b) The following are the key assumptions concerning the future and other key sources of estimation uncertainty 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 sufficiently reliable estimate of the amount of loss

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(c) Changes in provisions for the year ended December 31, 2012 are as follows:

(in millions of Won)	Beginning		Increase		Utilization			Reversal			Others (*1)			Ending
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) Include adjustments of foreign currency translation difference and others.

(d) Changes in provisions for the year ended December 31, 2011 are as follows:

(in millions of Won)	Beginning		Increase		Utilization			Reversal			Others (*1)			Ending
Provision for bonus payments	₩	37,978		30,592		(20,888	)		—			—			47,682
Provision for construction warranties		49,068		30,724		(11,624	)		(1,334	)		(16,211	)		50,623
Provision for legal contingencies and claims		126,626		—		—			(35,629	)		(52,150	)		38,847
Others		2,286		371		1,062			(1,334	)		39,238			41,623
	₩	215,958		61,687		(31,450	)		(38,297	)		(29,123	)		178,775

(*1) Include adjustments of foreign currency translation difference and transfer to non-current liability held for sale (related to Daewoo Cement (Shandong) Co., Ltd.).

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

18. 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 expense related to post-employment benefit plans under defined contribution plans for the year ended December 31, 2012 and 2011 was as follows:

(in millions of Won)
	2012		2011
Expense related to post-employment benefit plans under defined contribution plans	₩	16,520		8,874

(b) Defined benefit plans

The Company also operates a defined benefit pension plan for employees. The employees who chose a defined benefit pension plan will receive a defined payment upon termination of their employment if they fulfill the condition to qualify as a recipient. 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.

(c) The amounts recognized in relation to defined benefit obligations in the statements of financial position as of December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012			2011
Present value of funded obligations	₩	1,394,675			1,158,329
Fair value of plan assets		(1,064,711	)		(832,771	)
Present value of non-funded obligations		15,724			14,909
Net defined benefit obligations	₩	345,688			340,467

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(d) The changes in present value of defined benefit obligations for the years ended December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012			2011
Defined benefit obligation at the beginning of period	₩	1,173,238			1,467,853
Current service cost (*1)		212,450			207,871
Interest costs		51,351			67,372
Actuarial losses		83,050			43,166
Business combinations		1,684			221
Benefits paid		(116,846	)		(593,369	)
Others		5,472			(19,876	)
Defined benefit obligation at the end of period	₩	1,410,399			1,173,238

(*1) This amount includes loss from a plan settlement in the amount of ₩ 3,704 million for the year ended December 31, 2011.

(e) The changes in fair value of plan assets for the years ended December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012			2011
Fair value of plan assets at the beginning of period	₩	832,771			964,727
Expected return on plan assets		37,670			38,244
Actuarial gains and losses		2,157			3,073
Contributions of participants (*1)		267,420			190,909
Business combinations		906			354
Others		(490	)		14,059
Benefits paid		(75,723	)		(378,595	)
Fair value of plan assets at the end of period	₩	1,064,711			832,771

(*1) The Company expects to make a contribution of ₩267,420 million to the defined benefit plan assets during the next financial year.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(f) The fair value of plan assets as of December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012		2011
Equity instruments	₩	12,002		7,703
Debt instruments		107,303		103,074
Deposits		743,884		538,260
Others		201,522		183,734
	₩	1,064,711		832,771

(g) The amounts recognized in the statements of comprehensive income for the years ended December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012			2011
Current service costs	₩	212,450			207,871
Interest costs		51,351			67,372
Expected return on plan assets (*1)		(37,670	)		(38,244	)
	₩	226,131			236,999

(*1) The actual return on plan assets amounted to ₩ 39,827 million and ₩ 41,317 million for the years ended December 31, 2012 and 2011, respectively.

The above expenses by function were as follows:

(in millions of Won)	2012		2011
Cost of sales	₩	165,675		177,020
Selling and administrative expenses		60,456		59,979
	₩	226,131		236,999

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(h) Accumulated actuarial gains (losses), net of tax, recognized in other comprehensive income as of and for the years ended December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012			2011
Beginning	₩	(182,702	)		(152,125	)
Current actuarial losses		(62,527	)		(30,577	)
Ending	₩	(245,229	)		(182,702	)

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(i) The principal actuarial assumptions as of December 31, 2012 and 2011 are as follows:

(%)	2012	2011
Discount rate (*1)	3.29~4.46	3.86~5.42
Expected return on plan assets (*2)	3.29~5.10	2.00~5.29
Expected future increases in salaries (*3)	1.04~6.72	1.03~7.35

(*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 our benefits obligations and that are denominated in the same currency in which the benefits are expected to be paid.

(*2) The overall expected rate of return on plan assets is a weighted average of the expected returns of the various categories of plan assets held. The management’s assessment of the expected returns is based on historical return trends and predictions of the market for the asset over the life of the related obligation.

(*3) The expected future increases in salaries are 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.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

19. Other Liabilities

Other liabilities as of December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012		2011
Other current liabilities
Due to customers for contract work	₩	529,104		449,470
Advances received		1,289,805		973,427
Unearned revenue		46,963		36,935
Withholdings		162,073		114,941
Deferred revenue		235		362
Others (*1)		283,474		224,496
		2,311,654		1,799,631
Other long-term liabilities
Advances received		312,668		1,547
Unearned revenue		841		1,200
Others (*1)		64,305		81,756
		377,814		84,503
	₩	2,689,468		1,884,134

(*1) Includes other current liabilities amounting to ₩ 274,490 million, ₩ 204,653 million and other long-term liabilities amounting to ₩ 14,939 million and ₩ 14,857 million as of December 31, 2012 and 2011, respectively, due to proportionate consolidation of joint ventures which are owned by POSCO’s subsidiaries.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

20. Financial Instruments

(a) Classification of financial instruments

1) Financial assets as of December 31, 2012 and 2011 are as follows:

(in millions of Won)
	2012		2011
Financial assets at fair value through profit or loss
Financial assets held for trading	₩	—		50,861
Derivatives assets held for trading		71,354		108,751
		71,354		159,612
Available-for-sale financial assets		3,914,521		4,608,597
Held-to-maturity investments		34,488		35,574
Loans and receivables		19,787,951		19,902,456
	₩	23,808,314		24,706,239

2) Financial liabilities as of December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012		2011
Financial liabilities at fair value through profit or loss
Derivatives liabilities held for trading	₩	185,142		195,837
Designated as financial liabilities at fair value through profit or loss		—		333,004
		185,142		528,841
Financial liabilities evaluated as amortized cost
Trade accounts payable		4,391,787		4,397,662
Borrowings		24,921,433		26,478,713
Financial guarantee liabilities		25,312		32,242
Others		1,802,175		1,882,179
		31,140,707		32,790,796
	₩	31,325,849		33,319,637

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

3) Finance income and costs by category of financial instrument for the years ended December 31, 2012 and 2011 were as follows:

¨ December 31, 2012

(in millions of Won)	Finance income and costs																				Other comprehensive loss
	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
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	)

¨ December 31, 2011

(in millions of Won)	Finance income and costs																				Other comprehensive loss
	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
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	)

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(b) Credit risk

1) Credit risk exposure

The carrying amount of financial assets represents the Company’s maximum exposure to credit risk. The maximum exposures to credit risk as of December 31, 2012 and 2011 is as follows:

(in millions of Won)	2012		2011
Cash and cash equivalents	₩	4,680,526		4,598,682
Financial assets at fair value through profit or loss		71,354		159,612
Available-for-sale financial assets		203,352		99,400
Held-to-maturity investments		34,488		35,574
Loans and other receivables		3,927,248		3,670,198
Trade accounts and notes receivable		11,037,973		11,450,515
Long-term trade accounts and notes receivable		142,204		183,061
	₩	20,097,145		20,197,042

The Company provided financial guarantees for the repayment of loans of associates and third parties. As of December 31, 2012 and 2011, the maximum exposure to credit risk amounted to ₩ 4,607,773 million and ₩ 4,542,734 million, respectively.

2) Impairment losses on financial assets

 Allowance for doubtful accounts as of December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012		2011
Trade accounts and notes receivable	₩	379,536		303,186
Other accounts receivable		47,565		36,453
Long-term loans		42,721		61,222
Other assets		5,055		5,860
	₩	474,877		406,721

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

‚ Impairment losses on financial assets for the years ended December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012			2011
Bad debt expenses on trade receivables	₩	79,258			92,197
Impairment of available-for-sale financial assets		224,171			152,804
Other bad debt expenses (*1)		44,115			11,155
Impairment of held to maturity financial assets		—			579
Less: Reversal of allowance for doubtful accounts		—			(57,875	)
Less: Impairment of held to maturity financial assets		(79	)		(268	)
	₩	347,465			198,592

(*1) Other bad debt expenses are mainly related to other receivables and long-term loans.

ƒ The aging schedule and the impaired losses of trade accounts and notes receivables as of December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012				2011
	Trade accounts and notes receivable		Impairment		Trade accounts and notes receivable		Impairment
Not due	₩	9,106,925		52,063		6,154,045		8,137
Over due less than 1 month		1,313,554		4,387		4,868,928		233
1 month - 3 months		278,029		3,264		256,022		1,506
3 months - 12 months		413,251		41,291		301,875		37,032
Over 12 months		447,954		278,531		355,892		256,278
	₩	11,559,713		379,536		11,936,762		303,186

„ Changes in the allowance for doubtful accounts for the years ended December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012			2011
Beginning	₩	406,721			357,063
Bad debt expenses		79,258			92,197
(Reversal of) other bad debt expenses		44,115			(46,720	)
Other		(55,217	)		4,181
Ending	₩	474,877			406,721

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(c) Liquidity risk

1) Contractual maturities for non-derivative financial liabilities, including estimated interests, are as follows:

(in millions of Won)	Book value		Contractual cash flow (*3)		Within 1 year		1 year - 5 years		Later than 5 years		Total
Non-derivative financial liabilities
Trade accounts payable	₩	4,391,787		4,391,787		4,389,194		2,593		—		4,391,787
Financial guarantee liabilities (*1)		25,312		4,607,773		4,607,773		—		—		4,607,773
Other financial liabilities		1,802,175		1,802,175		1,558,253		242,557		1,365		1,802,175
Borrowings (*2)		24,921,433		27,461,706		11,084,122		11,619,867		4,757,717		27,461,706
	₩	31,140,707		38,263,441		21,639,342		11,865,017		4,759,082		38,263,441

(*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 derivative instruments in relation to exchangeable bonds (exchange right).

(*3) Includes estimated interest.

2) The maturity analysis of derivative financial liabilities is as follows:

(in millions of Won)	Within 1 year		1 year - 5 years		Later than 5 years		Total
Derivative financial liabilities
Currency forward	₩	58,129		5,247		—		63,376
Currency futures		67		—		—		67
Currency swaps		9,499		65,119		4,525		79,143
Others		17,227		25,329		—		42,556
	₩	84,922		95,695		4,525		185,142

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(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 2011 are as follows:

(in millions of Won)	2012				2011
	Assets		Liabilities		Assets		Liabilities
USD	₩	3,933,448		9,120,893		3,852,909		10,912,882
EUR		317,381		330,481		275,012		610,454
JPY		239,569		2,017,179		236,046		2,353,794
Others		264,299		65,679		130,753		136,294

2) As of December 31, 2012 and 2011, provided that functional currency against foreign currencies other than functional currency hypothetically strengthens or weakens by 10%, the changes in gain or loss during the years ended December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012					2011
	10% increase			10% decrease		10% increase			10% decrease
USD	₩	(518,745	)		518,745		(705,997	)		705,997
EUR		(1,310	)		1,310		(33,544	)		33,544
JPY		(177,761	)		177,761		(211,775	)		211,775

(e) Interest rate risk

1) The carrying amount of interest-bearing financial instruments as of December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012			2011
Fixed rate
Financial assets	₩	7,325,825			7,086,835
Financial liabilities		(15,301,208	)		(24,169,245	)
	₩	(7,975,383	)		(17,082,410	)
Variable rate
Financial liabilities	₩	(9,620,225	)		(2,642,472	)

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

2) Sensitivity analysis on the fair value of financial instruments with variable interest rate

As of December 31, 2012 and 2011, 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 during the years ended December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012					2011
	1% increase			1% decrease		1% increase			1% decrease
Variable rate financial instruments	₩	(96,202	)		96,202		(26,425	)		26,425

(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 2011 are as follows

(in millions of Won)	2012				2011
	Book value		Fair value		Book value		Fair value
Assets measured at fair value
Financial assets held for trading	₩	—		—		50,861		50,861
Available-for-sale financial assets (*1)		3,349,606		3,349,606		4,359,202		4,359,202
Derivatives assets held for trading (*2)		71,354		71,354		108,751		108,751
		3,420,960		3,420,960		4,518,814		4,518,814
Assets measured amortized cost (*3)
Cash and cash equivalents		4,680,526		4,680,526		4,598,682		4,598,682
Trade accounts and notes receivable		11,180,177		11,180,177		11,633,576		11,633,576
Loans and other receivables		3,927,248		3,927,248		3,670,198		3,670,198
Held-to-maturity investments		34,488		34,488		35,574		35,574
		19,822,439		19,822,439		19,938,030		19,938,030
Liabilities measured fair value
Derivatives liabilities held for trading (*2)		185,142		185,142		195,837		195,837
Convertible bonds		—		—		333,004		333,004
		185,142		185,142		528,841		528,841
Liabilities measured amortized cost (*3)
Trade accounts and notes payable		4,391,787		4,391,787		4,397,662		4,397,662
Borrowings		24,921,433		25,382,344		26,478,713		26,793,230
Financial guarantee liabilities		25,312		25,312		32,242		32,242
Others		1,802,175		1,802,175		1,882,179		1,882,179
	₩	31,140,707		31,601,618		32,790,796		33,105,313

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(*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 borrowing rates of interest of evaluated companies are used as a discount rate.

(*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.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(*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 2011 are as follows:

	2012		2012
Interest rate of borrowings (%)		1.47~7.22		1.80~4.62

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 asset or liability that are not based on observable market data (that is, unobservable inputs).

¨ The fair values of financial instruments, by valuation method as of December 31, 2012 and 2011 are as follows:

a. December 31, 2012

(in millions of Won)	Level 1		Level 2		Level 3		Total
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
	₩	—		185,142		—		185,142

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

b. December 31, 2011

(in millions of Won)	Level 1		Level 2		Level 3		Total
Financial Assets
Financial assets held for trading	₩	—		50,861		—		50,861
Available-for-sale financial assets		3,419,961		—		939,241		4,359,202
Derivatives assets held for trading		—		108,751		—		108,751
	₩	3,419,961		159,612		939,241		4,518,814
Financial Liabilities
Derivatives liabilities held for trading	₩	—		195,837		—		195,837
Convertible bonds		333,004		—		—		333,004
	₩	333,004		195,837		—		528,841

¨ Changes in fair value of financial instruments measured by Level 3 for the years ended December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012			2011
Beginning	₩	939,241			805,160
Valuation		(182,927	)		157,329
Acquisition and others (*1)		30,729			98,242
Disposal and others (*1)		(28,370	)		(121,490	)
Ending	₩	758,673			939,241

(*1) Included change in amounts due to change of fair value level.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

21. Share Capital and Contributed Surplus

(a) Share capital as of December 31, 2012 and 2011 are as follows:

(share, Won)	2012		2011
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, 2012, total shares of ADRs of 52,294,944 are equivalent to 13,823,736 of common stock.

(*2) As of December 31, 2012, 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 2011 are as follows:.

(share)	2012							2011
	Issued shares		Treasury shares			Number of outstanding shares		Issued shares		Treasury shares			Number of outstanding shares
Beginning		87,186,835		(9,942,391	)		77,244,444		87,186,835		(10,153,957	)		77,032,878
Acquisition of treasury shares		—		—			—		—		(131,389	)		(131,389	)
Disposal of treasury shares		—		—			—		—		342,955			342,955
Ending		87,186,835		(9,942,391	)		77,244,444		87,186,835		(9,942,391	)		77,244,444

(c) Capital surplus as of December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012			2011
Share premium	₩	463,825			463,825
Gains on disposal of treasury shares		763,867			763,867
Other capital surplus		(122,878	)		(77,240	)
	₩	1,104,814			1,150,452

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

22. Reserves

(a) Reserves as of December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012			2011
Accumulated comprehensive loss of investments in associates	₩	(129,159	)		(16,186	)
Changes in the unrealized fair value of available-for-sale investments		67,956			154,617
Currency translation differences		(8,591	)		283,516
Others		(18,356	)		(16,521	)
	₩	(88,150	)		405,426

(b) Changes in fair value of available-for-sale securities as of December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012			2011
Beginning balance	₩	154,617			1,381,667
Changes in the unrealized fair value of available-for-sale investments		(189,664	)		(1,095,009	)
Reclassification to profit or loss upon disposal		(54,089	)		(252,102	)
Impairment of available-for-sale securities		150,869			120,978
Others		6,223			(917	)
Ending balance	₩	67,956			154,617

23. 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 2011 are as follows:

(share, in millions of Won)	2012				2011
	Number of shares		Amount		Number of shares			Amount
Beginning	₩	9,942,391		2,391,406		10,153,957			2,403,263
Acquisition of treasury shares		—		—		131,389			61,296
Disposal of treasury shares		—		—		(342,955	)		(73,153	)
Ending	₩	9,942,391		2,391,406		9,942,391			2,391,406

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

24. Sales

Details of the company sales for the years ended December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012		2011
Revenues
Goods sales	₩	55,123,774		59,915,941
Services sales		3,488,562		2,440,639
Construction sales		4,660,811		5,297,892
Rental income		32,056		39,862
Others		298,948		1,244,391
	₩	63,604,151		68,938,725

25. Construction Contracts

(a) Construction contracts in progress as of December 31, 2012 and 2011 were as follows:

(in million of Won)	2012			2011
Aggregate amount of costs incurred	₩	8,343,117			14,711,524
Add: Recognized profits		659,555			1,369,479
Less: Recognized losses		(213,055	)		(310,647	)
Cumulative construction revenue		8,789,617			15,770,356
Less: Progress billing		(7,691,482	)		(14,638,181	)
Foreign currency gains and losses		(2,589	)		(1,966	)
Others		(130,941	)		(218,263	)
	₩	964,605			911,946

(b) Amount unbilled due from customers and due to customers for contract work as of December 31, 2012 and 2011 were as follows:

(in million of Won)	2012			2011
Unbilled due from customers for contract work	₩	1,493,709			1,361,416
Due to customers for contract work		(529,104	)		(449,470	)
	₩	964,605			911,946

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(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 total 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.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

26. Selling and Administrative Expenses

(a) Administrative expenses

Administrative expenses for years ended December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012		2011
Wages and salaries	₩	694,682		606,819
Expenses related to defined benefit plan		61,261		60,271
Other employee benefits		170,734		164,508
Travel		52,817		56,635
Depreciation		218,747		172,807
Communication		15,088		13,061
Electric power		11,305		7,529
Taxes and public dues		59,664		50,617
Rental		93,268		65,559
Repairs		11,769		14,919
Entertainment		18,239		17,905
Advertising		55,777		70,939
Research & development		192,321		212,472
Service fees		264,439		286,635
Supplies		10,166		14,357
Vehicles maintenance		22,442		21,491
Industry association Fee		11,487		10,200
Training		17,772		24,375
Conference		17,745		21,739
Warranty expense		13,148		12,606
Bad debt allowance		79,258		92,197
Others		37,334		37,412
	₩	2,129,463		2,035,053

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(b) Selling expenses

Selling expenses for the years ended December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012		2011
Freight	₩	1,472,817		1,406,268
Operating expenses for distribution center		9,327		8,115
Sales commissions		74,308		85,410
Sales advertising		4,575		1,204
Sales promotion		17,525		16,179
Samples		7,489		7,321
Sales insurance premium		32,065		19,915
Contract cost		52,176		62,986
Others		8,406		4,730
	₩	1,678,688		1,612,128

27. Research and development expenses recognized as expense

Research and development expenses recognized as expense for the years ended December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012		2011
Selling and administrative expenses	₩	192,321		212,472
Cost of sales		385,128		380,177
	₩	577,449		592,649

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

28. Adjusted Operating Profit

Adjusted operating profits which include the other profits or losses excluded in operating profit but reflect the results of company’s operations for the years ended December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012			2011
Operating profit on the statement of comprehensive income	₩	3,653,108		₩	5,467,694
Add
Gain on disposals of property, plant and equipment		42,290			13,812
Rental revenues		1,898			6,510
Gain on disposals of intangible assets		906			953
Gain on disposals of investment in associates		39,441			2,247
Gain on disposals of assets held for sale		193,333			—
Grant income		3,198			1,228
Reversal of other bad debt allowance		—			57,875
Reversal of other provisions		16,037			35,629
Outsourcing income		29,136			42,136
Gain on disposals of wastes		38,597			11,348
Gain from claim compensation		31,613			68,853
Penalty income from early termination of contracts		15,054			38,570
Others		36,617			27,780
		448,120			306,941
Deduct
Loss on disposals of property, plant and equipment		(65,486	)		(60,550	)
Loss on disposals of investment property		(3,197	)		(8,826	)
Loss on disposals of assets held for sale		(9,510	)		—
Loss on disposals of investment in associates		(15,119	)		—
Idle tangible assets expenses		(31,297	)		(16,881	)
Impairment loss of assets held for sale		(258,451	)		—
Other bad debt expenses		(44,115	)		(11,155	)
Donations		(73,963	)		(66,558	)
Loss on disposals of wastes		(45,480	)		(30,585	)
Penalty and default losses		(149,437	)		(39,551	)
Impairment loss of property, plant and equipment and others		(72,259	)		(99,071	)
Others		(41,151	)		(33,356	)
		(809,465	)		(366,533	)
Adjusted operating profit	₩	3,291,763		₩	5,408,102

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

29. Finance Income and Costs

Details of finance income and costs for the years ended December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012			2011
Finance income
Interest income	₩	278,807			216,234
Dividend income		124,475			143,880
Gain on foreign currency transactions		935,457			1,454,103
Gain on foreign currency translations		936,740			259,014
Gain on transactions of derivatives		407,791			549,439
Gain on valuations of derivatives		94,492			111,637
Gain on disposals of available-for-sale investments		112,095			454,543
Others		7,206			1,569
	₩	2,897,063			3,190,419
Finance costs
Interest expenses	₩	(871,457	)		(788,348	)
Loss on foreign currency transactions		(839,241	)		(1,620,394	)
Loss on foreign currency translations		(243,091	)		(529,910	)
Loss on transactions of derivatives		(309,067	)		(512,882	)
Loss on valuations of derivatives		(159,604	)		(188,742	)
Impairment loss on available-for-sale investments		(224,171	)		(152,804	)
Loss on disposals of available-for-sale investments		(36,286	)		(1,003	)
Loss on Financial guarantee		(38,442	)		(1,000	)
Others		(76,279	)		(71,612	)
	₩	(2,797,638	)		(3,866,695	)

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

30. Other Non-Operating Income and Expenses

Details of other non-operating income and expenses for the years ended December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012		2011
Other non-operating income
Gain on disposals of property, plant and equipment	₩	42,290		13,812
Rental revenues		1,898		6,510
Gain on disposals of intangible assets		906		953
Gain on disposals of investment in associates		39,441		2,247
Gain on disposals of assets held for sale		193,333		—
Grant income		3,198		1,228
Reversal of other bad debt allowance		—		57,875
Reversal of other provisions		16,037		35,629
Outsourcing income		29,136		42,136
Gain on disposals of wastes		38,597		11,348
Gain from claim compensation		31,613		68,853
Penalty income from early termination of contracts		15,054		38,570
Others		36,617		27,780
	₩	448,120		306,941
Other non-operating expense
Loss on disposals of property, plant and equipment	₩	65,486		60,550
Loss on disposals of investment property		3,197		8,826
Loss on disposals of assets held for sale		9,510		—
Loss on disposals of investment in associates		15,119		—
Idle tangible assets expenses		31,297		16,881
Impairment loss of assets held for sale		258,451		—
Other bad debt expenses		44,115		11,155
Donations		73,963		66,558
Loss on disposals of wastes		45,480		30,585
Penalty and default losses		149,437		39,551
Impairment loss of property, plant and equipment and others		72,259		99,071
Others		41,151		33,356
	₩	809,465		366,533

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

31. Expenses by Nature

Expenses that are recorded by nature for the years ended December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012		2011
Changes in inventories	₩	14,161,271		17,546,701
Cost of merchandises sold		25,997,220		26,650,240
Employee benefits expenses (*2)		2,889,829		2,639,966
Outsourced processing cost		8,896,642		8,331,110
Depreciation expenses (*1)		2,405,769		2,133,010
Amortization expenses		157,991		133,289
Electricity and water expenses		837,507		715,265
Service fees		670,919		630,223
Research & development expenses		577,449		592,649
Freight and custody expenses		1,472,817		1,406,268
Commission paid		74,308		85,410
Loss on disposal of property, plant, and equipment		65,486		60,550
Donations		73,963		66,558
Other expenses		2,479,337		2,846,326
	₩	60,760,508		63,837,565

(*1) Includes depreciation expense of investment properties.

(*2) The details of employee benefits expenses for the years ended December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012		2011
Wages and salaries	₩	2,647,178		2,394,093
Severance benefit		242,651		245,873
	₩	2,889,829		2,639,966

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

32. Income Taxes

(a) Income tax expense for the years ended December 31, 2012 and 2011 was as follows:

(in millions of Won)	2012		2011
Current income taxes	₩	795,601		1,069,240
Deferred income tax due to temporary differences		154,324		(318,722	)
Less: Items recorded directly in equity		32,954		317,591
Income tax expense	₩	982,879		1,068,109

(b) The following table reconciles the expected amount of income tax expense based on statutory rates to the actual amount of taxes recorded by the Company for the nine-month period ended December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012			2011
Net income before income tax expense	₩	3,368,486			4,782,395
Income tax expense computed at statutory rate		815,174			1,157,340
Adjustments:		167,705			(89,231	)
Tax effects due to permanent differences		48,220			(13,798	)
Tax credit		(188,713	)		(193,633	)
Unrealized deferred tax assets		115,836			68,905
Tax rate change effect		—			17,661
Over (under) provision from prior years		1,776			(15,739	)
Difference in tax rate		165,601			28,341
Others		24,985			19,032
Income tax expense	₩	982,879			1,068,109
Effective tax rate (%)		29.18			22.33

(c) The income taxes credited (charged) directly to other comprehensive income during the period ended December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012		2011
Net changes in the unrealized fair value of available-for-sale securities	₩	22,585		306,827
Gains on sale of treasury stock		—		(22,078	)
Others		10,369		31,628
	₩	32,954		316,377

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(d) The movements in deferred tax assets (liabilities) for the years ended December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012									2011
	Beginning			Inc (Dec)			Ending			Beginning			Inc (Dec)			Ending
Deferred income tax due to temporary differences
Reserve for special repairs	₩	(29,659	)		646			(29,013	)		(27,776	)		(1,883	)		(29,659	)
Allowance for doubtful accounts		104,621			7,807			112,428			80,349			24,272			104,621
Reserve for technology developments		(366,232	)		(9,698	)		(375,930	)		(269,892	)		(96,340	)		(366,232	)
Depreciation		(58,288	)		11,714			(46,574	)		(61,129	)		2,841			(58,288	)
Share of profit or loss of equity-accounted investees		(224,136	)		127,762			(96,374	)		(170,016	)		(54,120	)		(224,136	)
Reserve for inventory valuation		(1,514	)		(2,568	)		(4,082	)		1,484			(2,998	)		(1,514	)
Revaluation of assets		(570,403	)		(229,529	)		(799,932	)		(362,949	)		(207,454	)		(570,403	)
Prepaid expenses		21,437			9,803			31,240			18,733			2,704			21,437
Impairment loss on property, plant and equipment		25,492			3,263			28,755			24,858			634			25,492
Loss on foreign currency translation		95,787			(159,132	)		(63,345	)		90,656			5,131			95,787
Defined benefit obligations		55,053			15,571			70,624			40,710			14,343			55,053
Plan assets		(43,091	)		(3,330	)		(46,421	)		(36,232	)		(6,859	)		(43,091	)
Provision for construction losses		2,852			(625	)		2,227			1,697			1,155			2,852
Provision for construction warranty		15,902			(1,061	)		14,841			13,056			2,846			15,902
Appropriated retained earnings for technological development		(165	)		(286	)		(451	)		(246	)		81			(165	)
Accrued income		(1,949	)		(1,248	)		(3,197	)		(1,061	)		(888	)		(1,949	)
Others		376,107			(66,085	)		310,022			317,877			58,230			376,107
		(598,186	)		(296,996	)		(895,182	)		(339,881	)		(258,305	)		(598,186	)
Deferred income taxes recognized directly to equity
Loss (gain) on valuation of available-for-sale investments		1,421			22,585			24,006			(305,406	)		306,827			1,421
Others		35,769			10,369			46,138			4,141			31,628			35,769
		37,190			32,954			70,144			(301,265	)		338,455			37,190
Deferred tax from tax credit
Tax credit carryforward and others		256,877			82,231			339,108			280,295			(23,418	)		256,877
Deferred tax effect due to unrealized gains (losses) and others		(8,375	)		27,470			19,095			(129,000	)		120,625			(8,375	)
	₩	(312,494	)		(154,341	)		(466,835	)		(489,851	)		177,357			(312,494	)

(e) Deferred tax assets and liabilities for the years ended December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012								2012
	Assets		Liabilities			Net			Assets		Liabilities			Net
Deferred income tax due to temporary differences
Reserve for special repairs	₩	—		(29,013	)		(29,013	)		—		(29,659	)		(29,659	)
Allowance for doubtful accounts		112,480		(52	)		112,428			104,672		(51	)		104,621
Reserve for technology developments		—		(375,930	)		(375,930	)		—		(366,232	)		(366,232	)
Depreciation		15,192		(61,766	)		(46,574	)		12,319		(70,607	)		(58,288	)
Share of profit or loss of equity-accounted investees		—		(96,374	)		(96,374	)		—		(224,136	)		(224,136	)
Reserve for inventory valuation		1,751		(5,833	)		(4,082	)		4,319		(5,833	)		(1,514	)
Revaluation of assets		—		(799,932	)		(799,932	)		—		(570,403	)		(570,403	)
Prepaid expenses		31,240		—			31,240			23,045		(1,608	)		21,437
Impairment loss on property, plant and equipment		28,755		—			28,755			25,492		—			25,492
Loss on foreign currency translation		202,973		(266,318	)		(63,345	)		176,621		(80,834	)		95,787
Defined benefit obligations		86,200		(15,576	)		70,624			75,912		(20,859	)		55,053
Plan assets		—		(46,421	)		(46,421	)		—		(43,091	)		(43,091	)
Provision for construction losses		2,227		—			2,227			2,852		—			2,852
Provision for construction warranty		14,841		—			14,841			15,902		—			15,902
Appropriated retained earnings for technological development		—		(451	)		(451	)		—		(165	)		(165	)
Accrued income		25		(3,222	)		(3,197	)		—		(1,949	)		(1,949	)
Others		421,595		(111,573	)		310,022			382,735		(6,628	)		376,107
		917,279		(1,812,461	)		(895,182	)		823,869		(1,422,055	)		(598,186	)
Deferred income taxes recognized directly to equity
Loss (gain) on valuation of available-for-sale investments		281,599		(257,593	)		24,006			199,317		(197,896	)		1,421
Others		66,975		(20,837	)		46,138			49,898		(14,129	)		35,769
		348,574		(278,430	)		70,144			249,215		(212,025	)		37,190
Deferred tax from tax credit
Tax credit carryforward and others		378,926		(39,818	)		339,108			292,255		(35,378	)		256,877
Deferred tax effect due to unrealized gains (losses) and others		522,871		(503,776	)		19,095			494,450		(502,825	)		(8,375	)
	₩	2,167,650		(2,634,485	)		(466,835	)		1,859,789		(2,172,283	)		(312,494	)

(f) Addible temporary difference amounting ₩ 1,952,989 million and deductible temporary difference amounting ₩ 3,095,821 million related to subsidiaries and associates are not recognized as deferred tax assets and liabilities due to remote possibility of realization.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

33. Earnings per Share

(a) Basic and diluted earnings per share for the year ended December 31, 2012 and 2011 were as follows:

(Won, except per share information)	2012		2011
Profit attribute to controlling interest	₩	2,462,080,504,484		3,648,136,025,973
Weighted-average number of common shares outstanding (*1)		77,244,444		77,251,818
Basic and diluted earnings per share		31,874		47,224

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

(share)	2012			2011
Total number of common shares issued	₩	87,186,835			87,186,835
Weighted-average number of treasury shares		(9,942,391	)		(9,935,017	)
Weighted-average number of common shares outstanding	₩	77,244,444			77,251,818

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

34. Related Party Transactions

(a) Significant transactions with related companies for the year ended December 31, 2012 and 2011 were as follows:

	Sales and others (*1)				Purchase and others (*2)
(in millions of Won)	2012		2011		2012		2011
Subsidiaries (*3)
POSCO E&C Co., Ltd.	₩	28,110		26,536		1,451,086		1,687,665
POSCO P&S Co., Ltd.		897,051		1,181,088		1,395,891		1,406,245
POSCO Coated & Color Steel Co., Ltd.		489,545		593,656		6,496		1,890
POSCO ICT Co., Ltd.		1,547		1,537		468,915		507,883
POSCO Chemtech Co., Ltd.		511,917		423,643		798,150		755,515
POSCO M-TECH CO., LTD.		27,906		19,355		318,548		211,832
POSCO TMC Co., Ltd.		230,235		168,314		1,032		884
POSCO AST Co., Ltd.		278,463		319,258		58,647		58,475
Daewoo International Corp.		4,271,450		3,896,857		15,731		5,599
POSCO NST CO., LTD.		212,536		186,809		3,618		4,734
POSCO America Corporation		726,450		353,904		733		1
POSCO Canada Co., Ltd.		—		—		205,129		289,047
POSCO Asia Co., Ltd.		1,929,508		2,029,781		107,313		178,395
POSCO-Japan Co., Ltd.		1,439,580		1,628,069		28,710		34,860
POSCO-India Delhi Steel Processing Centre Pvt. Ltd.		164,483		148,343		15		—
POSCO-Mexico Co., Ltd.		338,645		347,915		492		176
Daewoo International Singapore Pte. Ltd.		—		—		73,471		149,029
POSCO Maharashtra Steel Pvt. Ltd.		155,642		2,340		—		—
POSCO (Suzhou) Automotive Processing Center Co., Ltd.		128,974		99,778		—		—
POSCO-Thailand Bangkok Processing Center Co., Ltd		119,278		96,288		182		63
Others		749,758		709,834		954,105		986,196
		12,701,078		12,233,305		5,888,264		6,278,489
Associates
Posmate Co., Ltd.		22,044		1,038		46,058		53,357
SNNC Co., Ltd.		2,511		4,787		379,050		447,130
SUNG JIN GEOTEC Co., Ltd.		27,697		44,451		—		—
DONG BANG METAL IND.CO.,LTD.		89,094		84,748		—		—
POSCO SAMSUNG Suzhou Steel Processing Center Co., Ltd.		26,280		23,974		—		—
USS-POSCO Industries (UPI)		85		342,594		101		29
Poschrome(Proprietary) Ltd.		58		—		68,079		72,502
Others		37,700		59,021		14,311		6,087
		205,469		560,613		507,599		579,105
	₩	12,906,547		12,793,918		6,395,863		6,857,594

(*1) Sales and others include sales and other operating income which is composed largely of sales of steel manufactures to subsidiaries and associates. Sales are mainly sales of steel products and these are priced on an arm’s length basis.

(*2) Purchase and others include purchase of raw materials, property, plant and equipment, overhead cost and other operating expense, which is composed largely of sales of steel manufactures to subsidiaries and associates. Goods are purchased based on the price lists in force and terms that would be available to third parties.

(*3) The Company provides guarantees for its related party as of December 31, 2012 (Note 35).

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(b) The related account balances of significant transactions with related companies as of December 31, 2012 and 2011 are as follows:

(in millions of Won)	Receivables (*1)				Payables (*1)
	2012		2011		2012		2011
Subsidiaries
POSCO E&C Co., Ltd.	₩	7,977		647		403,630		241,918
POSCO Processing&Service		64,564		88,838		32,672		1,512
POSCO Plantec		267		65		32,297		42,534
POSCO ICT Co., Ltd.		287		30		91,297		62,583
POSCO Coated & Color Steel Co., Ltd.		108,505		116,252		2,618		335
POSCO Chemtech Company Ltd.		47,074		37,808		84,538		82,048
POSCO TMC CO., LTD.		64,862		21,601		145		134
POSCO AST Co., Ltd.		65,575		33,266		7,800		7,090
Daewoo International Corp.		358,824		284,125		730		1,589
POSCO NST.CO.,LTD		—		64,012		—		676
POSCO America Corporation		63,545		32,346		—		—
POSCO Asia Co., Ltd.		102,849		227,476		2,244		1,407
POSCO-TBPC Co., Ltd.		17,986		27,381		—		—
Qingdao Pohang Stainless Steel Co., Ltd.		8,710		6,713		—		—
POSCO-Vietnam Co., Ltd.		291		422		—		—
POSCO-Japan Co., Ltd.		35,400		52,362		673		1,546
POSCO-India Delhi Steel Processing Centre Pvt. Ltd.		—		3,484		—		—
POSCO-Mexico Co., Ltd.		131,669		171,908		—		—
Others		127,626		81,255		115,817		83,201
		1,206,011		1,249,991		774,461		526,573
Associate
Posmate Co., Ltd.		78		—		6,315		7,198
SNNC Co., Ltd.		229		223		37,145		23,187
DONG BANG METAL IND.CO., LTD.		—		17,038		—		—
SUNG JIN GEOTEC Co., Ltd.		4,849		4,122		—		—
Poschrome Pty. Ltd.		—		—		2,273		—
Others		453		—		804		809
		5,609		21,383		46,537		31,194
	₩	1,211,620		1,271,374		820,998		557,767

(*1) Receivables include trade accounts and notes receivable and other receivables. Payables include trade accounts payables and other payables.

(c) For the years ended December 31, 2012 and 2011, details of compensation to key management officers were as follows:

(in millions of Won)	2012		2011
Short-term benefits	₩	109,614		93,231
Retirement benefits		25,049		23,407
Long-term benefits		22,462		26,971
	₩	157,125		143,609

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 operations. In addition to the compensation described above, the Company provided stock appreciation rights to its executive officers and recorded stock compensation expenses amounted to ₩ 436 million and reversal of stock compensation expenses amounted to ₩ 4,223 million for the years ended December 31, 2012 and 2011, respectively.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

35. 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 provisions, management considers the degree of probability of an unfavorable outcome and the ability to make a sufficiently reliable estimate of the amount of loss.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(b) Details of guarantees

(in millions of Won)
Guarantors	Guarantee beneficiary	Financial institution	Foreign currency		Won equivalent
[The Company]
POSCO	Guangdong Pohang Coated Steel Co., Ltd.	SMBC and others	USD	122,600,000		131,317
	POSCO Investment Co., Ltd.	BOC and others	CNY	350,000,000		60,158
		HSBC	MYR	240,000,000		83,952
		HSBC and others	USD	350,000,000		374,885
	POSCO Maharashtra Steel Pvt. Ltd.	Export-Import Bank of Korea and others	USD	566,000,000		606,243
	POSCO VST Co., Ltd.	ANZ(Tapei) and others	USD	65,000,000		69,622
	POSCO-Mexico Co., Ltd.	HSBC and others	USD	244,725,000		262,125
	POSCO-Vietnam Co., Ltd.	Export-Import Bank of Korea and others	USD	200,000,000		214,220
	Zeus (Cayman) Ltd.	Creditor	JPY	38,798,173,522		484,007
	Zhangjiagang Pohang Stainless Steel Co., Ltd	MIZUHO and others	USD	160,000,000		171,376
	POSCO ASSAN TST Steel Industry	SMBC and others	USD	188,392,500		201,787
	POSCO Electrical Steel India Private Limited	ING and others	USD	84,000,000		89,972
	PT. KRAKATAU POSCO	Export-Import Bank of Korea and others	USD	1,210,300,000		1,296,352
Daewoo International Corporation	PT. Bio Inti Agrindo	Export-Import Bank of Korea	USD	19,000,000		20,351
	Daewoo International America Corp.	Shinhan Bank	USD	500,000		536
	Daewoo International Australia Holdings Pty. Ltd.	Korea Exchange Bank	USD	12,000,000		12,853
	Daewoo Paper Manufacturing Co., Ltd.	HSBC	USD	12,500,000		13,389
	Daewoo Textile Bukhara LLC	Export-Import Bank of Korea	USD	24,950,000		26,724
	Daewoo International MEXICO S.A. de C.V.	SMBC	USD	25,000,000		26,778
	POSCO ASSAN TST STEEL Industry	ING and others	USD	20,932,500		22,421
	Brazil Sao Paulo Steel Processing Center Co., Ltd.	SMBC	USD	20,000,000		21,422
	Daewoo International Deutschland GmbH	Shinhan Bank	EUR	15,000,000		21,244
POSCO E&C Co., Ltd.	HONG KONG POSCO E&C (CHINA) Investment Co., Ltd.	Woori Bank	USD	30,000,000		32,133
	International Business Center Corporation	Export-Import Bank of Korea and others	USD	20,000,000		21,422
	POSCO E&C Vietnam Co., Ltd.	ANZ	USD	10,000,000		10,711
		Kookmin Bank (Hong Kong)	USD	5,000,000		5,356
		Export-Import Bank of Korea and others	USD	16,500,000		17,673
	SANTOS CMI S.A	CITI Ecuador	USD	3,000,000		3,213
		KEB Panama	USD	25,000,000		26,778
POSCO P&S Co., Ltd.	POSCO Canada Pty., Ltd.	Hana Bank	USD	12,484,500		13,372
POSCO ICT Co., Ltd.	POSCO ICT Indonesia	POSCO Investment Co., Ltd.	USD	1,500,000		1,607
	VECTUS Ltd.	POSCO Investment Co., Ltd.	USD	4,000,000		4,284
	POSCO ICT BRASIL PARTICIPACOES LTDA	Korea Exchange Bank	BRL	8,875,000		4,652
POSCO Energy Co., Ltd.	TECHREN Solar, LLC	Woori Bank	USD	30,000,000		32,133
POSCO Engineering Co., Ltd.	PT DEC INDONESIA	Korea Exchange Bank	USD	6,818,876		7,304
		Korea Exchange Bank	IDR	41,707,614,097		4,634
		Woori Bank	IDR	32,128,484,002		3,569
POSCO JAPAN Co., Ltd.	POSCO-JEPC Co., Ltd.	Mizuho Bank and others	JPY	3,008,564,339		37,532
	POSCO-JKPC Co., Ltd.	Higo bank and others	JPY	1,436,800,000		17,924
	POSCO-JOPC Co., Ltd.	Kiyo bank and others	JPY	1,187,500,000		14,814
	Xenesys Inc.	Aozora Bank	JPY	85,000,000		1,060
Daewoo Textile Fergana LLC	Daewoo Textile Bukhara LLC	NBU	USD	3,286,250		3,520
POSCO E&C (CHINA) Co., Ltd.	HONG KONG POSCO E&C (China) Investment Co., Ltd.	Woori Bank (Beijing)	USD	33,000,000		35,346
International Business Center Corporation	POSCO E&C Co., Ltd.	Export-Import Bank of Korea and others	USD	20,000,000		21,422

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(in millions of Won)
Guarantors	Guarantee beneficiary	Financial institution	Foreign currency		Won equivalent
[Associates]
POSCO	BX STEEL POSCO Cold Rolled Sheet Co., Ltd.	BOC and others	CNY	119,600,000		20,557
			USD	21,980,000		23,543
	United Spiral Pipe, LLC	Shinhan Bank	USD	24,500,000		26,242
	POSUK Titanium	Shinhan Bank	USD	18,000,000		19,280
Daewoo International Corporation	DMSA, AMSA	Export-Import Bank of Korea and others	USD	165,133,333		176,874
	GLOBAL KOMSCO Daewoo LLC	Export-Import Bank of Korea and others	USD	5,950,000		6,373
POSCO E&C Co., Ltd.	Taegisan Wind Power Corporation	NH Bank and others	KRW	7,500		7,500
	PSIB Co., Ltd.	Hana Bank	KRW	356,600		356,600
	THE GALE INVESTMENTS COMPANY, L.L.C. and others	Woori Bank	USD	50,000,000		53,555
	Pohang Techno Valley PFV Corporation	Shinhan Bank and others	KRW	135,660		135,660
POSCO P&S Co., Ltd.	Sebang Steel Co., Ltd.	Fukuoka Bank	JPY	245,000,000		3,056
POSCO ICT Co., Ltd.	Uitrans LRT Co., Ltd.	Construction Guarantee Cooperative	KRW	64,638		64,638
	CHUNGJU ENTERPRISE CITY DEVELOPMENT Co., Ltd.	NH Bank	KRW	2,530		2,530
POSCO Engineering Co., Ltd.	Daewoo Engineering (THAILAND) Co., Ltd. and others	Citibank Korea Inc.	USD	19,300,000		20,672
	PT Wampu Electric Power	PT Bank Woori Indonesia	USD	344,848		369
		Export-Import Bank of Korea and SMBC	USD	59,357,000		63,577
Daewoo (China) Co., Ltd.	Shanghai Lansheng Daewoo Corporation	China Construction Bank	CNY	100,000,000		17,188
POSCO CHEMTECH Co., Ltd.	PT.INDONESIA POS CHEMTECH CHOSUN REF	Korea Exchange Bank	USD	6,000,000		6,427
[Others]
Daewoo International Corporation	Ambatovy Project Investments Limited	Export-Import Bank of Korea and others	USD	50,408,289		53,992
	Sherritt International Corporation	Export-Import Bank of Korea and others	USD	6,207,696		6,649
POSCO E&C Co., Ltd.	ALD PFV and others	Korea Exchange Bank and others	KRW	1,105,589		1,105,589
POSCO Plant Engineering Co., Ltd.	Gyeongpo wind power generation and others	KB Bank and others	KRW	229,213		229,213
	GS CALTEX HOU and others	Korea Exchange Bank and others	USD	9,787,628		10,484
POSCO ICT Co., Ltd.	BTL business and others	Kyobo Life Insurance Co., Ltd. and others	KRW	1,781,581		1,781,581
	SMS Energy and others	Hana Bank	KRW	207,110		207,110
POSCO M-TECH Co., Ltd.	PYUNGSAN SI Co., Ltd.	Seoul Guarantee Insurance Co., Ltd.	KRW	326		326
Posco Engineering Co., Ltd	Kwanma Solar Co., Ltd. and others	Hana Bank and others	KRW	60,476		60,476
	Hyundai ENG Co., Ltd.	Engineering Financial Cooperative	KRW	147,663		147,663
POSCALCIUM Company, Ltd	Pohang city	Seoul Guarantee Insurance Co., Ltd.	KRW	49		49
			CNY	569,600,000		97,903
			EUR	15,000,000		21,244
			BRL	8,875,000		4,652
			IDR	73,836,098,099		8,203
			JPY	44,761,037,861		558,393
			KRW	4,098,935		4,098,935
			MYR	240,000,000		83,952
			USD	3,983,458,420		4,266,684

(c) POSCO E&C Co., Ltd. has provided the completion guarantees for Samsung C&T Corporation amounting to ₩2,024,503 million while Samsung C&T Corporation and SK E&C have provided the construction guarantees or payment guarantees on customers’ borrowings on behalf of POSCO E&C Co., Ltd. amounting to ₩ 1,276,581 million as of December 31, 2012. POSCO E&C Co., Ltd. provides payment guarantees on borrowings of customers such as Asset Backed Commercial Paper amounted to ₩ 518,178 million and Project Financing loan amounted to ₩ 280,536 million as of December 31, 2012.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(d) Other commitments

POSCO	POSCO entered into long-term contracts to purchase iron ore, coal, nickel and others. These contracts generally have terms of more than three years and provide for periodic price adjustments to the market price. As of December 31, 2012, 217 million tons of iron ore and 27 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. Purchase price is subject to change, following the change of the monthly standard oil price (JCC) and also price ceiling is applicable.
	As of December 31, 2012, 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 3.54 million and USD 4.12 million, respectively. 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 project fails. POSCO has agreed to pay a certain portion of its profits under certain conditions, as defined by the borrowing agreements.
POSCO E&C Co., Ltd	POSCO E&C Co., Ltd. has bank overdraft agreements of up to ₩ 20,000 million with Woori Bank which is included in the limit of comprehensive loan agreements and ₩ 3,000 million with Korea Exchange Bank. Also POSCO E&C Co., Ltd. has comprehensive loan agreements of up to ₩ 360,000 million and USD 308 million with Woori Bank and ₩ 83,000 million with Korea Exchange Bank.
POSCO ICT Co., Ltd.	As of December 31, 2012, in relation to contract enforcement, POSCO ICT Co., Ltd. was provided with ₩ 123,999 million and ₩ 48,651 million guaranties from Seoul Guarantee Insurance and Korea Software Financial Cooperative, respectively.
	As of December 31, 2012, in relation to transfer of military camp based on Changwon city & land development projects, POSCO ICT Co., Ltd. provided Kyongnam Bank and other banks with ₩ 620,000 million fund support under fund support agreements between POSCO ICT Co., Ltd. and Unicity 7th LLC.
	As of December 31, 2012, in relation to Incheongimpo Highway investment projects, POSCO ICT Co., Ltd. provided Korea Development Bank and other banks with ₩ 175,000 million fund support under fund support agreements between POSCO ICT Co., Ltd. and Incheongimpo Highway INC.
	As of December 31, 2012, in relation to Busan sansung tunnel projects, POSCO ICT Co., Ltd. provided Korea Development Bank and other banks with ₩ 17,000 million fund support under fund support agreements between POSCO ICT Co., Ltd. and Busan Sansung Tunnel Co., Ltd.
POSCO Specialty Steel Co., Ltd.	POSCO Specialty Steel Co., Ltd. has a loan agreement, secured by trade accounts receivable, of up to ₩ 1,081,447 million with Woori Bank and others. POSCO Specialty Steel Co., Ltd. has used ₩ 133,489 million of this loan agreement.
	POSCO Specialty Steel Co., Ltd. has agreements with Woori Bank and nine other banks for opening letters of credit of up to USD 313 million, and for a loan of up to ₩120,975 million. POSCO Specialty Steel Co., Ltd. has used USD 202 million, EUR 666 thousand for opening letters of credit and ₩ 7,043 million for Korean Won loans.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(e) Litigation in progress

As of December 2012, the Company and certain subsidiaries are defendants in legal actions arising from the normal course of business. Details of amount claimed are as follows:

(in millions of Won, in thousand of foreign currencies)
Company	Legal actions	Claim amount		Korean Won equivalent		Description
POSCO	2	JPY	98,600,000		1,230,035	Lawsuit on claim for damages (*1)
	14	KRW	55,182		55,182	Lawsuit on claim for damages
POSCO E&C Co., Ltd.	78	KRW	71,983		71,983	Lawsuit on claim for payment
POSCO Plant Engineering Co., Ltd.	9	KRW	2,374		2,374	Lawsuit on claim for payment
POSCO ICT Co., Ltd.	12	KRW	6,918		6,918	Lawsuit on claim for payment
POSCO A&C Co., Ltd.	1	KRW	572		572	Imposed high tax rate
POSCO M-TECH Co., Ltd.	1	KRW	76		76
POSCO America Corporation	3	USD	—		—
POSCO E&C China Co., Ltd.	1	CNY	37,000		6,360	Lawsuit on claim for payment of work complied related with the subcontractor and second subcontractor.
POSCO-Malaysia SDN. BHD.	1	MYR	5,782		2,023
POSCO Engineering Co., Ltd.	3	KRW	1,662		1,662	Lawsuit on claim for damages
Kwang Yang SPFC Co., Ltd.	1	KRW	5,693		5,693	Lawsuit on claim for payment
Daewoo International Corporation	2	EUR	5,164		7,314	Lawsuit on claim for damages (*2)
	1	INR	4,458,849		87,037
	3	USD	190,231		203,756

(*1) Civil lawsuits with Nippon Steel & Sumitomo Metal Corporation

During the year ended December 31, 2012, Nippon Steel & Sumitomo Metal Corporation had filed civil lawsuits against POSCO and POSCO Japan Co., Ltd., a subsidiary of POSCO, relating to claims of prohibiting production and sales of grain oriented electrical steel sheets used improper acquiring trade secrets and of seeking compensation worth ₩ 1,230 billion in Tokyo District Court, Japan. Through first and second trials in October and December 2012, the Company submitted its answer to claim that Japan court didn’t have a jurisdiction on this lawsuit as it should be judged by Korean law and the Company developed a grain oriented electrical steel sheets by the Company’s own technologies. As of December 31, 2012, Japan court hasn’t made any judgment.

In addition, Nippon Steel & Sumitomo Metal Corporation had filed civil lawsuits against POSCO and POSCO America Co., Ltd., a subsidiary of POSCO, relating to claims of infringement of intellectual property rights related to production of grain oriented electrical steel sheets in New Jersey federal court, the United States. As of December 31, 2012, the Company is under discovery proceeding prior to the official defend.

Due to the early stage of the litigations, the Company is not able to assess the outcome of such lawsuits and the amount of compensation, if any, that might be awarded to Nippon Steel & Sumitomo Metal Corporation. Consequently, it is not possible for the Company to make an estimate of the expected financial effect that will result from the ultimate resolution of the civil lawsuits, and the Company has not accrued liabilities for those lawsuits as of December 31, 2012.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(*2) In May 2002, Industrial Development Bank of India Limited, the creditor of Daewoo Moters India Ltd. for which Daewoo Co., Ltd. provided guarantee, filed lawsuits against Daewoo Moters 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 Moters India Ltd. in India Delhi Mumbai Court. The Company has reasonably estimated the likelihood and amount of the outcome and reflected in the provision for loss contingencies.

The Company believes that although the outcome of these matters is uncertain, the impacts of these matters are not expected to be material to the Company.

(e) 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 outstanding loans.
POSCO E&C Co., Ltd.	As of December 31, 2012, POSCO E&C Co., Ltd. has provided ten blank promissory notes, sixteen blank checks and six other notes, approximately amounting to ₩ 61,704 million, to Korea Housing Guarantee Co., Ltd. and other financial institutions as collateral for agreements and outstanding loans.
Daewoo International Corporation	As of December 31, 2012, 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 Co., Ltd.	As of December 31, 2012, POSCO ICT Co., Ltd. has provided eight blank promissory notes and ten blank checks to financial institutions as collateral for the guarantee on performance for contracts and others.
POSCO Engineering Co., Ltd.	As of December 31, 2012, POSCO Engineering Co., Ltd. has provided one note to Hana Tank Terminal Co., Ltd. as collateral for the guarantee on performance for contracts and others.
POSCO-JKPC Co., Ltd.	As of December 31, 2012, POSCO-JKPC Co., Ltd. has provided two hundred-three notes as collateral for borrowings. (JPY 747,817,793, 45% of borrowings from the Kinakyushu Bank, Ltd., 30% of borrowings from Higo bank, Ltd.)
Daewoo International Japan Corp.	As of December 31, 2012, Daewoo International Japan Corp. has provided one hundred-fifteen notes receivable (JPY 563,771,819) to Resona bank Ltd. as collateral for loans from banks.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

36. Cash Flows from Operating Activities

Adjustments for operating cash flows for the years ended December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012			2011
Trade accounts and notes receivable	₩	87,830			(2,402,346	)
Other financial assets		(392,090	)		(187,607	)
Inventories		1,450,431			(2,538,178	)
Other current assets		(198,157	)		(310,397	)
Other long-term assets		(141,037	)		47,929
Trade accounts payable		225,086			265,993
Other financial liabilities		357,502			260,306
Other current liabilities		583,159			384,943
Provisions		17,108			(36,511	)
Payment severance benefits		(116,846	)		(574,759	)
Plan assets		(191,696	)		252,671
Other long-term liabilities		252,068			(12,791	)
	₩	1,933,358			(4,850,747	)

37. Non-cash Transactions

Significant non-cash transactions for the years ended December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012		2011
Construction-in-progress transferred to other accounts	₩	3,273,475		5,235,317
Other non-current asset transferred to investments in associates		257,878		—
Convertible bonds		315,530		76,677

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

38. Business Combinations

The Company has acquired additional shares in POSCO-Thainox Public Company Limited from its previous largest shareholder on September 23, 2011 in order to expand its footprint in the cold-rolled stainless steel sheets and coils market in Southeast Asia and to achieve its synergy effects with its existing operations in the region. The Company obtained control of POSCO-Thainox Public Company Limited. since its voting interest increased from 15.39% to 75.32%. There is no contingent consideration. The results of operations of POSCO-Thainox Public Company Limited have been consolidated from the date of acquisition. Therefore, comparability with POSCO’s consolidated financial statements for prior years is impacted accordingly the amounts of revenues and net profit of POSCO-Thainox Public Company Limited since the acquisition date included in consolidated revenues and net profit amounted to ₩ 92,798 million and ₩ 11,658 million, respectively. Goodwill recognized in this business combination is as follows:

(in millions of Won)	Amount
I. Consideration transferred
Acquisition cost of existing shares	₩	42,302
Fair value adjustment of existing shares (*1)		57,080
Cash		390,474
Total		489,856
II. Non-controlling interests (*2)		121,413
Total		611,269
III. Acquired identifiable assets and liabilities
[Assets]
Cash and cash equivalents		62,080
Trade accounts and notes receivable and other financial assets		102,464
Inventories		149,901
Property, plant and equipment and intangible assets		340,487
Other assets		20,129
Total		675,061
[Liabilities]
Trade accounts and notes payable and other financial liabilities		147,382
Borrowings		11,803
Other liabilities		23,867
Total		183,052
Total acquired net assets		492,009
VI. Goodwill acquired	₩	119,260

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(*1) Upon acquisition of the business, a ₩ 57,080 million re-measurement gain on the Company’s existing investment in the acquiree prior to acquisition date (acquisition cost: ₩ 42,302 million) was recognized as finance income. The fair value of this existing investment was determined using quoted market price of the shares on acquisition date.

(*2) The non-controlling interests at the acquisition date were measured using their proportionate share in the recognized amounts of POSCO-Thainox Public Company Limited’s identifiable net assets

After obtaining control, Company acquired additional 19.61% of shares amounting to ₩ 126,927 million through tender offer. In results, the percentage of shares increased from 75.32% to 94.93% as of December 31, 2011. Carrying value of POSCO-Thainox Public Company’s net assets is ₩ 667,571 million. Regarding this transaction, non-controlling interests decreased by ₩ 95,885 million and related differential amounts amounting to ₩ 31,043 million was deducted from consolidated capital surplus since it is equity transaction between consolidated entities.

Pro-forma Information

The following summarized pro forma consolidated statement of comprehensive income information assumes that the POSCO-Thainox Public Company Limited acquisition occurred as of January 1, 2011. The pro forma results reflect certain adjustments related to the acquisition, such as increased depreciation and amortization expense on assets acquired from POSCO-Thainox Public Company Limited resulting from the fair valuation of assets acquired in place on acquisition date, September 23, 2011. The pro forma results do not include any anticipated cost synergies or other effects of the planned integration of POSCO-Thainox Public Company Limited.

If the Company had acquired POSCO-Thainox Public Company Limited as of January 1, 2011, pro-forma consolidated revenues and pro-forma consolidated net profit for the year ended December 31, 2011 would have been ₩ 69,243,204 million and ₩ 3,726,225 million, respectively.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

39. Operating Segments

(a) Our operating businesses are organized based on the nature of markets and customers. We have four reportable operating segments— steel, construction, trading and others. 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 segments include power generation, liquefied natural gas production, network and system integration and logistics.

(b) 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.

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

(c) Information about reportable segments for the year ended December 31, 2012 and 2011 are as follows:

1) For the year ended December 31, 2012

(in millions of Won)	Steel			Trading			Construction			Others			Total
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		(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

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

2) For the year ended December 31, 2011

(in millions of Won)	Steel			Trading			Construction			Others			Total
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		(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

(d) Reconciliations of total segment revenues, profit or loss, assets and liabilities, and other significant items to their respective consolidated financial statement line items are as follows:

1) Revenues

(in millions of Won)	2012			2011
Total revenue for reportable segments	₩	96,589,238			99,046,240
Elimination of inter-segment revenue		(32,985,087	)		(30,107,515	)
	₩	63,604,151			68,938,725

2) Profit

(in millions of Won)	2012			2011
Total profit for reportable segments	₩	3,218,139			4,194,654
Goodwill and PP&E FV adjustments		(58,486	)		(39,489	)
Elimination of inter-segment profits		(774,047	)		(440,879	)
Income tax expense		982,880			1,068,109
Profit before income tax expense	₩	3,368,486			4,782,395

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

3) Assets

(in millions of Won)	2012			2011
Total assets for reportable segments	₩	99,324,277			95,509,938
Equity-accounted investees		(15,365,984	)		(13,393,184	)
Goodwill and PP&E FV adjustments		3,657,016			4,357,046
Elimination of inter-segment assets		(8,349,458	)		(8,064,962	)
	₩	79,265,851			78,408,838

4) Liability

(in millions of Won)	2012			2011
Total liabilities for reportable segments	₩	42,816,044			42,958,912
Goodwill and PP&E FV adjustments		330,791			341,852
Elimination of inter-segment liabilities		(6,310,403	)		(5,621,847	)
	₩	36,836,432			37,678,917

5) Other significant items

a) December 31, 2012

(in millions of Won)	Total Segment			Goodwill and PP&E FV adjustments			Elimination of inter-segment			Consolidated
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	)

POSCO

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2012

b) December 31, 2011

(in millions of Won)	Total segment			Goodwill and PP&E FV adjustments			Elimination of inter-segment			Consolidated
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	)

(e) Revenue by geographic area for years ended December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012		2011
Domestic	₩	47,692,025		53,986,926
Japan		2,380,651		2,386,578
China		6,022,875		6,070,588
Asia		3,157,469		2,645,428
North America		1,792,706		1,281,906
Others		2,558,425		2,567,299
Total	₩	63,604,151		68,938,725

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

(f) Non-current assets by geographic area as of December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012		2011
Domestic	₩	31,213,290		29,386,052
Japan		256,532		320,009
China		1,745,076		1,474,983
Asia		3,162,715		1,752,302
North America		125,206		110,702
Others		1,957,112		1,181,597
Total	₩	38,459,931		34,225,645

Non-current assets by geographic area include investment property, property, plant and equipment, goodwill and other intangible assets.

(g) There are no customers whose revenue is 10% or more of total consolidated revenues.

POSCO

Separate Financial Statements

December 31, 2012

POSCO

Separate Statements of Financial Position

As of December 31, 2012 and 2011

(in millions of Won)
	Notes	December 31, 2012		December 31, 2011
Assets
Cash and cash equivalents	5,19	₩	1,752,560		1,137,882
Trade accounts and notes receivable, net	6,19,33		4,087,030		4,220,242
Other receivables	7,19,33		393,223		330,629
Other short-term financial assets	7,19,33		930,316		1,050,834
Inventories	8		5,403,660		7,144,709
Assets held for sale	12		—		16,887
Other current assets	9		42,682		23,612
Total current assets			12,609,471		13,924,795
Long-term trade accounts and notes receivable, net	6,19,33		274		24
Other receivables	7,19,33		58,732		57,937
Other long-term financial assets	7,19,33		2,970,033		3,775,121
Investments in subsidiaries and associates	10		14,100,053		12,824,776
Investment property, net	11		110,526		117,418
Property, plant and equipment, net	12		22,166,735		21,533,135
Intangible assets, net	13		293,841		222,896
Other long-term assets	9		10,771		271,774
Total non-current assets			39,710,965		38,803,081
Total assets		₩	52,320,436		52,727,876

See accompanying notes to consolidated financial statements

POSCO

Separate Statements of Financial Position

As of December 31, 2012 and 2011

(in millions of Won)
	Notes	December 31, 2012			December 31, 2011
Liabilities
Trade accounts payable	19,33	₩	978,581			1,395,846
Short-term borrowings	6,14,19		2,116,540			2,294,380
Other payables	15,19,33		1,253,389			1,055,510
Other short-term financial liabilities	15,19,33		33,543			33,788
Current income tax liabilities	31		84,355			182,715
Provisions	16		6,239			4,451
Other current liabilities	18		70,865			48,455
Total current liabilities			4,543,512			5,015,145
Long-term borrowings	7,14,19		7,487,234			9,338,016
Other payables	15,19		113,602			106,489
Other long-term financial liabilities	15,19		88,130			40,810
Defined benefit liabilities	17		140,256			176,648
Deferred tax liabilities	31		779,312			448,552
Other long-term liabilities	18		3,842			4,200
Total non-current liabilities			8,612,376			10,114,715
Total liabilities			13,155,888			15,129,860
Shareholders’ equity
Share capital	20		482,403			482,403
Capital surplus	20		1,227,692			1,227,692
Accumulated other comprehensive income	21		3,362			156,707
Treasury shares	22		(2,391,406	)		(2,391,406	)
Retained earnings	23		39,842,497			38,122,620
Total shareholders’ equity			39,164,548			37,598,016
Total liabilities and shareholders’ equity		₩	52,320,436			52,727,876

See accompanying notes to consolidated financial statements

POSCO

Separate Statements of Comprehensive Income

As of December 31, 2012 and 2011

(in millions of Won, except per share information)
	Notes	2012			2011
Revenue	24,33	₩	35,664,933			39,171,703
Cost of sales	26,30,33		(31,041,900	)		(33,077,807	)
Gross profit			4,623,033			6,093,896
Selling and administrative expenses
Administrative expenses	19,25,26,30		(853,908	)		(846,332	)
Selling expenses	25,26,30		(979,528	)		(917,182	)
Operating profit	27		2,789,597			4,330,382
Finance income and costs
Finance income	19,28		1,356,539			1,240,359
Finance costs	19,28		(759,291	)		(1,370,668	)
Other non-operating income and expenses
Other non-operating income	27,29,33		69,737			45,640
Other non-operating expenses	19,27,29,30,33		(334,301	)		(179,993	)
Profit before income tax			3,122,281			4,065,720
Income tax expense	31		(622,758	)		(876,875	)
Profit for the period			2,499,523			3,188,845
Other comprehensive income
Net changes in the unrealized fair value of available-for-sale investments, net of tax	21		(153,345	)		(922,331	)
Defined benefit plan actuarial losses, net of tax	17		(45,824	)		(2,145	)
Total comprehensive income, net of tax		₩	2,300,354			2,264,369
Basic and diluted earnings per share	32	₩	32,359			41,279

See accompanying notes to consolidated financial statements

POSCO

Separate Statements of Changes in Equity

For the years ended December 31, 2012 and 2011

(in millions of Won)	Share capital		Capital surplus		Accumulated other comprehensive income			Treasury shares			Retained earnings			Total
Balance as of January 1, 2011	₩	482,403		1,158,539		1,079,038			(2,403,263	)		35,706,778			36,023,495
Comprehensive income:
Profit for the period		—		—		—			—			3,188,845			3,188,845
Net changes in the unrealized fair value of available-for-sale investments, net of tax		—		—		(922,331	)		—			—			(922,331	)
Defined benefit plan actuarial losses, net of tax		—		—		—			—			(2,145	)		(2,145	)
Total comprehensive income				—		(922,331	)		—			3,186,700			2,264,369
Transactions with owners of the Company, recognized directly in equity:
Year-end dividends		—		—		—			—			(577,747	)		(577,747	)
Interim dividends		—		—		—			—			(193,111	)		(193,111	)
Acquisition of treasury shares		—		—		—			(61,296	)		—			(61,296	)
Disposal of treasury shares		—		69,153		—			73,153			—			142,306
Balance as of December 31, 2011	₩	482,403		1,227,692		156,707			(2,391,406	)		38,122,620			37,598,016
	Share capital		Capital surplus		Accumulated other comprehensive income			Treasury shares			Retained earnings			Total
Balance as of January 1, 2012	₩	482,403		1,227,692		156,707			(2,391,406	)		38,122,620			37,598,016
Comprehensive income:
Profit for the period		—		—		—			—			2,499,523			2,499,523
Net changes in the unrealized fair value of available-for-sale investments, net of tax		—		—		(153,345	)		—			—			(153,345	)
Defined benefit plan actuarial losses, net of tax		—		—		—			—			(45,824	)		(45,824	)
Total comprehensive income		—		—		(153,345	)		—			2,453,699			2,300,354
Transactions with owners of the Company, recognized directly in equity:
Year-end dividends		—		—		—			—			(579,333	)		(579,333	)
Interim dividends		—		—		—			—			(154,489	)		(154,489	)
Balance as of December 31, 2012	₩	482,403		1,227,692		3,362			(2,391,406	)		39,842,497			39,164,548

See accompanying notes to consolidated financial statements

POSCO

Separate Statements of Cash Flows

For the years ended December 31, 2012 and 2011

(in millions of Won)	Notes	December 31, 2012			December 31, 2011
Cash flows from operating activities
Profit for the period		₩	2,499,523			3,188,845
Adjustments for:
Costs for defined benefit plans			107,107			129,600
Depreciation			1,840,807			1,738,466
Amortization			40,386			34,757
Finance income			(1,079,341	)		(743,797	)
Finance costs			542,944			763,976
Gain on disposal of property, plant and equipment			(27,688	)		(10,840	)
Loss on disposal of property, plant and equipment			84,990			60,174
Loss on disposal of investments in subsidiaries and associates			17,575			—
Income tax expense			622,758			876,875
Others, net			18,900			32,955
Changes in operating assets and liabilities	35		1,470,440			(1,958,361	)
Interest received			111,309			122,212
Interest paid			(443,470	)		(378,490	)
Dividends received			175,556			267,316
Income taxes paid			(310,907	)		(937,198	)
Net cash provided by operating activities		₩	5,670,889			3,186,490
Cash flows from investing activities	36
Proceeds from disposal of short-term financial instruments			3,182,714			5,108,712
Proceeds from disposal of available-for-sale investments			601,185			392,619
Collection of long-term loans			18,754			14,760
Proceeds from disposal of investment in subsidiaries and associates			37,134			22,125
Proceeds from disposal of property, plant and equipment			29,323			1,549
Proceeds from disposal of assets held for sale			3,378			—
Acquisition of short-term financial investments			(2,982,224	)		(3,731,276	)
Acquisition of available-for-sale investments			(130,845	)		(245,389	)
Issuance of long-term loans			(12,687	)		(20,039	)
Acquisition of investment in subsidiaries and associates			(1,056,628	)		(2,275,307	)
Acquisition of property, plant and equipment			(2,494,862	)		(3,304,376	)
Acquisition of intangible assets			(92,776	)		(25,499	)
Others			747			—
Net cash used in investing activities		₩	(2,896,787	)		(4,062,121	)

See accompanying notes to consolidated financial statements

POSCO

Separate Statements of Cash Flows

For the years ended December 31, 2012 and 2011

(in millions of Won)	Notes	December 31, 2012			December 31, 2011
Cash flows from financing activities	36
Proceeds from borrowings			3,855,933			5,693,070
Proceeds from long-term financial liabilities			3,033			3,781
Proceeds from disposal of treasury shares			—			164,384
Repayment of borrowings			(5,281,336	)		(3,686,447	)
Repayment of long-term financial liabilities			(3,674	)		(3,757	)
Acquisition of treasury shares			—			(61,296	)
Payment of cash dividends			(733,380	)		(770,858	)
Net cash provided by (used in) financing activities		₩	(2,159,424	)		1,338,877
Effect of exchange rate changes on cash held			—			2,210
Net increase in cash and cash equivalents			614,678			465,456
Cash and cash equivalents
Cash and cash equivalents at beginning of the period			1,137,882			672,426
Cash and cash equivalents at end of the period		₩	1,752,560			1,137,882

See accompanying notes to consolidated financial statements

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

1. Reporting Entity

POSCO (the “Company”) is the largest steel producer in Korea which 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 overseas markets.

The shares of the Company have been listed on the Korea Exchange since 1988. The Company owns and operates two steel plants (Pohang and Gwangyang) and one office in Korea, and it also operates internationally through nine of its overseas liaison offices.

As of December 31, 2012 and 2011, major shareholders are as follows:

	2012					2011
Shareholder’s name	Number of shares		Ownership (%)			Number of shares		Ownership (%)
National Pension Service		5,225,654		5.99	%		5,937,323		6.81	%
Nippon Steel & Sumitomo Metal Corporation (*1)		4,394,712		5.04	%		4,394,712		5.04	%
SK Telecom Co., Ltd.		—		—			2,481,310		2.85	%
KB Financial Group Inc. (*2)		1,919,773		2.20	%		—		—
Pohang University of Science and Technology		1,905,000		2.18	%		1,905,000		2.18	%
Shinhan Financial Group Inc. (*2)		1,845,054		2.12	%		1,870,879		2.15	%
Others		71,896,642		82.47	%		70,597,611		80.97	%
		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) Including number of shares subsidiaries held at the end of the reporting period under commercial law.

As of December 31, 2012, 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.

2. Statement of Compliance

Statement of compliance

The separate financial statements have been prepared in accordance with Korean International Financial Reporting Standards (“K-IFRS”), as prescribed in the Act on External Audits of Corporations.

These financial statements are separate financial statements prepared in accordance with K-IFRS No. 1027 “Consolidated and Separate Financial Statements” presented by a parent, an investor in an associate or a venture in a jointly controlled entity, in which the investments are accounted for on the basis of the direct equity interest rather than on the basis of the reported results and net assets of the investees.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

Basis of measurement

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

(a) Derivatives instruments are measured at fair value

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

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

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

Functional and presentation currency

These separate financial statements are presented in Korean won, which is the Company’s functional currency and the currency of the primary economic environment in which the Company operates.

Use of estimates and judgements

The preparation of the financial statements in conformity with K-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.

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

• Note 7 - Other Financial Assets

• Note 11 - Investment Property, Net

• Note 12 - Property, Plant and Equipment, Net

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are included in the following notes:

• Note 17 - Employee Benefits

• Note 34 - Commitments and Contingencies

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

Changes in accounting policies

(a) Changes in accounting policies

1) Financial Instruments: Disclosures

The Company has applied the amendments to K-IFRS No. 1107, “Financial Instruments: Disclosures” since January 1, 2012. The amendments require disclosure of the nature of transferred assets, their carrying amount, and the description of risks and rewards for each class of transferred financial assets that are not derecognized in their entirety. If the Company derecognizes transferred financial assets but still retains their specific risks and rewards, the amendments require additional disclosures of their risks.

2) Presentation of financial statements

The Company adopted the amendment to K-IFRS No. 1001, “Presentation of Financial Statements” from the annual period ended December 31, 2012. The Company’s operating profit is calculated as revenue less: (1) cost of sales, and (2) selling and administrative expenses, and is presented separately in the statement of comprehensive income.

Additionally, in the notes to the financial statements, the Company provides voluntary disclosure of entity-specific measure of operating performance presented as “adjusted operating profit” which is calculated base on the Company’s own criteria. In doing so, the Company is required to disclose: (1) a reconciliation between the entity-specific measure of operating performance and operating profit or loss presented on the face of the statement of comprehensive income, and (2) the fact that the measure of operating performance disclosed in the notes is calculated based on the Company’s own criteria.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(b) Impact of change in accounting policy

The Company retrospectively applied the amendment to K-IFRS No. 1001, for which the impact is as follows:

(in millions of Won)	2012			2011
Operating profit before adoption of the amendment	₩	2,525,033			4,196,029
Add
Loss on disposals of property, plant, and equipment		84,990			60,174
Reversal of other bad debt expenses		—			(51	)
Impairment loss of property, plant, and equipment		—			24,816
Loss on disposals of other long-term assets		131			—
Impairment loss of intangible assets		6,495			—
Loss on disposals of intangible assets		617			320
Donations		62,684			50,787
Idle tangible assets expenses		30,743			16,568
Impairment loss of investment in subsidiaries and associates		1,102			—
Loss on disposals of investment in subsidiaries and associates		17,575			—
Loss on disposals of assets held for sale		9,391			—
Miscellaneous loss		120,573			27,379
		334,301			179,993
Deduct
Gain on disposals of property, plant, and equipment		(27,688	)		(10,840	)
Gain on disposals of other long-term assets		(213	)		—
Gain on disposals of intangible assets		—			(38	)
Gain on disposals of investment in subsidiaries and associates		(8,693	)		(719	)
Reversal of impairment of property, plant, and equipment		(1,606	)		—
Gain on disposals of assets held for sale		(1,150	)		—
Miscellaneous income		(30,387	)		(34,043	)
		(69,737	)		(45,640	)
Operating profit after adoption of the amendment	₩	2,789,597			4,330,382

Approval of financial statements

The separate financial statements were approved by the Board of Directors on February 7, 2013.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

3. Summary of Significant Accounting Policies

The significant accounting policies applied by the Company in preparation of its separate 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.

Investments in subsidiaries and associates

These separate financial statements are prepared and presented in accordance with K-IFRS No. 1027 “Consolidated and Separate Financial Statements”. The Company applied the cost method to investments in subsidiaries, associates and joint ventures in accordance with K-IFRS No. 1027. Dividends from a subsidiary or associate are recognized in profit or loss when the right to receive the dividend is established.

Foreign currency transactions and translation

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 is 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.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, demand deposits, and short-term, investment 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.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

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 separate 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 financial assets. Subsequent to initial recognition, held-to-maturity financial assets are measured at amortized cost using the effective interest 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 except for loans and receivables for which the effect of discounting is immaterial.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(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 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.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(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 separate 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.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

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.

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 K-IFRS No. 1036 “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 for the purpose of earning rentals 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 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 the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

Subsequent to initial recognition, while an item of property, plant and equipment, except land, which shall be carried at its cost less any accumulated depreciation, any accumulated impairment losses and government grants, land is carried at cost initially measured.

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.

Other than land, the costs of an asset less its residual value are depreciated. Land is not depreciated. Depreciation of property, plant and equipment is recognized in profit or loss on a straight-line basis, which most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset, over the estimated useful lives of each component of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term.

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	20-40 years
Structures	20-40 years
Machinery and equipment	15 years
Vehicles	4-9 years
Tools	4 years
Furniture and fixtures	4 years
Lease assets	18 years

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

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

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 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 cost	4 years
Port facilities usage rights	2-75 years
Other intangible assets	4-20 years

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

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.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

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.

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. 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.

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.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

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.

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 is impaired includes observable data that comes to the attention of the holder of the asset about the following events:

(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

(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.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(a) Financial assets carried 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 (such as an improvement in the debtor’s credit rating), the previously recognized impairment loss shall be reversed either directly or by adjusting an allowance account.

(b) Financial assets carried at cost

If there is objective evidence that an impairment loss has occurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the impairment loss is measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses are not reversed.

(c) Available-for-sale financial assets

When a decline in the fair value of an available-for-sale financial asset has been recognized in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had been recognized in other comprehensive income shall be reclassified from equity to profit or loss as a reclassification adjustment even though the financial asset has not been derecognized. Impairment losses recognized in profit or loss 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.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

Impairments for non-financial assets

The carrying amounts of the Company’s non-financial assets, other than assets arising from 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. 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 a 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 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.

Any impairment identified at the CGU level is used to reduce the carrying amount of the other assets in the CGU on a pro rata basis. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

Derivative financial instruments

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.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(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.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(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 separate 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. 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 of 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.

The Company derecognizes a financial liability from the separate statement of financial position when it is extinguished (i.e. when the obligation specified in the contract is discharged, cancelled or expires).

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

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) 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.

(c) 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 any economic benefits available in the form of refunds from the plan or reduction in the future contributions to the plan.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

Past service costs, which are the change in the present value of the defined benefits obligation for employee service in prior periods, resulting in the current period from the introduction of, or change to post-employment benefits, are recognized as an expense on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits are already vested immediately following the introduction of, or changes to, a defined benefit plan, the Company recognizes the past service cost immediately.

Provisions

Provisions are recognized when the Company has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

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

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

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

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

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.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

Revenue

Revenue from the sale of goods, services provided and the use of assets is measured at the fair value of the consideration received or receivable, net of returns and allowances, trade discounts and volume rebates, which are not significant for all periods presented.

(a) Sale of goods

Revenue from the sale of goods in the ordinary course of activities is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue is recognized when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. The appropriate timing for transfer of risks and rewards varies depending on the individual terms and conditions of the sales contract. For international sales, this timing depends on the type of international commercial terms of the contract.

(b) 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.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

Income tax

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 items recognized directly in equity or in other comprehensive income.

(a) Current tax

Current tax is the expected tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted or substantively enacted at the end of the reporting period and any adjustment to tax payable in respect of previous years. The taxable profit is different from the accounting profit for the period since the taxable profit is calculated excluding the temporary differences, which will be taxable or deductible in determining taxable profit of future periods, and non-taxable or non-deductible items from the accounting profit.

(b) Deferred tax

The measurement of deferred 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.

Deferred tax is recognized, using the asset-liability method, in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. A deferred tax liability is recognized for all taxable temporary differences. A deferred tax asset is recognized for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which they can be utilized. However, deferred tax is not recognized for the following temporary differences: taxable temporary differences arising on the initial recognition of goodwill, or the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting profit or loss nor taxable income.

The Company recognizes a deferred 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 tax asset for deductible temporary differences arising from investments in subsidiaries, associates and joint venture, 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.

The carrying amount of a deferred 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.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

Deferred 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 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.

Deferred tax assets and liabilities are offset only if there is a legally enforceable right to offset the related current tax liabilities and assets, and they relate to income taxes levied by the same tax authority and they intend to settle current 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.

New standards and interpretations not yet adopted

The following new standards, interpretations and amendments to existing standards have been published and are mandatory for the Company for annual periods beginning after January 1, 2012, and the Company has not early adopted them. Management believes the impact of the amendments on the Company’s separate financial statements is not significant.

(a) Amendments to K-IFRS No. 1019 “Employee Benefits”

The standard requires recognition of actuarial gains and losses immediately in other comprehensive income and to calculate expected return on plan assets based on the rate used to discount the defined benefit obligation. The standard will be applied retrospectively for the Company’s annual periods beginning on or after January 1, 2013.

(b) K-IFRS No. 1113 “Fair Value Measurement”

The standard defines fair value and a single framework for fair value, and requires disclosures about fair value measurements. The standard will be applied prospectively for the Company’s annual periods beginning on or after January 1, 2013.

(c) Amendments to K-IFRS No. 1001 “Presentation of Financial Statements”

The amendments require presenting in other comprehensive income on the basis of whether they are potentially reclassifiable to profit or loss subsequently (reclassification adjustments). The amendment is mandatorily effective for annual periods beginning on or after July 1, 2012.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

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 separate financial statements.

(a) 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.

(b) 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 and unused sales contracts.

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.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

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.

(c) 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.

(d) 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.

1) Currency risk

The Company is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the functional currency of the Company, Korean Won. The Company’s management monitors currency risk regularly for hedging foreign exchange exposure.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

2) Interest rate risk

The Company mostly borrows at fixed interest rates. The Company’s management monitors interest rate risks regularly.

(e) 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.

The equity attributable to owners as of December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012			2011
Total borrowings		9,603,774			11,632,396
Less: Cash and cash equivalents		1,752,560			1,137,882
Net borrowings		7,851,214			10,494,514
Total equity		39,164,548			37,598,016
Net borrowings-to-equity ratio		20.05	%		27.91	%

5. Cash and Cash Equivalents

Cash and cash equivalents as of December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012		2011
Checking accounts	₩	660		149,982
Time deposits		1,320,000		810,000
Money market trust		321,400		157,900
Money market funds		110,000		20,000
Money market deposit account		500		—
	₩	1,752,560		1,137,882

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

6. Trade Accounts and Notes Receivable

Trade accounts and notes receivable as of December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012			2011
Current
Trade accounts and notes receivable	₩	4,099,006			4,222,187
Less: Allowance for doubtful accounts		(11,976	)		(1,945	)
		4,087,030			4,220,242
Non-Current
Trade accounts and notes receivable		502			252
Less: Allowance for doubtful accounts		(228	)		(228	)
		274			24
	₩	4,087,304			4,220,266

Trade accounts and notes receivable sold to financial institutions, for which the derecognition conditions were not met, amounted to ₩ 258,680 million and ₩ 342,307 million as of December 31, 2012 and 2011, respectively, and are included in short-term borrowings (note 14).

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

7. Other Receivables and Financial Assets

(a) Other receivables as of December 31, 2012 and 2011 are as follows:

(in millions of Won)
	2012			2011
Current
Other accounts receivable, net	₩	391,263			330,615
Accrued income		12,531			10,585
Allowance account for credit losses		(10,571	)		(10,571	)
		393,223			330,629
Non-current
Long-term loans		66,775			68,716
Long-term other accounts receivable		6,410			3,674
Allowance account for credit losses		(14,453	)		(14,453	)
		58,732			57,937
	₩	451,955			388,566

(b) Other short-term financial assets as of December 31, 2012 and 2011 are as follows:

(in millions of Won)
	2012		2011
Financial assets at fair value through profit or loss
Financial assets held for trading	₩	—		50,132
Available-for-sale financial assets
Short-term available-for-sale securities (bonds)		100,000		—
Held-to-maturity investments
Current portion of held-to-maturity securities (bonds)		29,981		—
Loans and other receivables
Short-term financial instruments (*1)		786,098		982,112
Cash deposits (*2)		12,699		17,175
Other checking accounts		1,538		1,415
	₩	930,316		1,050,834

(*1) Short-term financial instruments amounting to ₩ 3,400 million and ₩ 1,670 million are secured in relation to long-term borrowings from a forestry association as of December 31, 2012 and 2011, respectively.

(*2) Deposits are restricted in relation to government assigned projects.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(c) Other long-term financial assets as of December 31, 2012 and 2011 are as follows:

(in millions of Won)
	2012		2011
Financial asset at fair value through profit or loss
Derivative	₩	6,016		—
Available-for-sale investments
Long-term available-for-sale securities (bonds)		18,642		15,045
Long-term available-for-sale equity securities		2,942,915		3,716,014
Long-term available-for-sale securities (investment in capital)		500		500
Held-to-maturity investments
Held-to-maturity securities (bonds)		—		29,903
Loan and other receivable
Cash deposits (*1)		40		40
Deposits		1,920		13,619
	₩	2,970,033		3,775,121

(*1) The Company is required to provide deposits to maintain checking accounts and accordingly the withdrawal of these deposits is restricted.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(d) Long-term available-for-sale equity securities as of December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012																2011
	Number of shares		Ownership (%)		Acquisition cost		Fair value		Net changes in fair value of available-for-sale investments			Accumulated impairment loss			Book value		Book value
Marketable equity securities
Nippon Steel & Sumitomo Metal Corporation		238,352,000		2.38	₩	719,622		624,423		(95,199	)		—			624,423		679,662
SK Telecom Co., Ltd. (*1,2,3)		2,294,963		2.84		596,152		350,210		61,628			(307,570	)		350,210		640,221
KB Financial group Inc. (*3)		11,590,550		3.00		536,517		439,282		(97,235	)		—			439,282		560,983
Hyundai Heavy Industries Co., Ltd.		1,477,000		1.94		343,506		357,434		13,928			—			357,434		379,589
Shinhan Financial group Inc.		4,369,881		0.92		228,778		169,770		47,134			(106,142	)		169,770		173,703
Hana Financial group Inc. (*3)		2,430,498		1.00		15,633		84,338		68,705			—			84,338		165,797
Others (10 companies) (*4)						153,174		157,284		54,209			(50,099	)		157,284		174,883
						2,593,382		2,182,741		53,170			(463,811	)		2,182,741		2,774,838
Non-marketable equity securities
The Siam United Steel (*5)		11,071,000		12.30		34,658		50,717		38,584			(22,525	)		50,717		61,119
Nacional Minerios S.A. (*5)		30,784,625		6.48		668,635		517,683		(150,952	)		—			517,683		695,583
Dongbu Metal Co., Ltd. (*5)		3,000,000		10.00		98,242		96,126		(2,116	)		—			96,126		98,817
Troika Fund (*5)		8,372,361,480		3.66		8,372		6,499		(1,873	)		—			6,499		8,372
Others (32 companies) (*6)						97,295		89,149		251			(8,397	)		89,149		77,285
						907,202		760,174		(116,106	)		(30,922	)		760,174		941,176
					₩	3,500,584		2,942,915		(62,936	)		(494,733	)		2,942,915		3,716,014

(*1) As of December 31, 2012, 2,294,961 shares equivalent to 20,654,653 American Depository Receipts (“ADRs”) of SK Telecom Co., Ltd. have been pledged as collateral for exchangeable bonds issued.

(*2) The Company recorded impairment loss for investment of SK Telecom Co., Ltd. amounting to ₩ 272,079 million prior to January 1, 2012. During the year ended December 31, 2012, there was a further impairment loss of ₩ 35,491 million recognized in profit or loss.

(*3) The ownership, number of shares, and book value of the securities were decreased as compared to December 31, 2011 because the Company partially disposed of its shares during the year ended December 31, 2012.

(*4) The Company recognized ₩14,870 million of impairment loss on marketable equity securities of Seoul Semiconductor Co., Ltd., UNION STEEL and others for the year ended December 31, 2012 due to significant decline in the fair value of those shares during the corresponding period.

(*5) Fair value is based on an analysis performed by an external professional evaluation agency.

(*6) These non-marketable equity securities are recorded at cost since fair value cannot be reliably measured.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

8. Inventories

Inventories as of December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012			2011
Finished goods	₩	870,917			974,585
Semi-finished goods		1,446,058			1,916,411
By-products		11,399			7,610
Raw materials		1,297,926			1,465,347
Fuel and materials		607,908			596,100
Materials-in-transit		1,169,201			2,184,547
Others		621			575
		5,404,030			7,145,175
Allowance for inventories valuation		(370	)		(466	)
	₩	5,403,660			7,144,709

The amount of valuation losses of inventories recognized within cost of goods sold during the year ended December 31, 2012 and 2011 were ₩ 370 million and ₩ 466 million, respectively.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

9. Other Assets

Other current assets and other long-term assets as of December 31, 2012 and 2011 are as follows:

(in millions of Won)
	2012			2011
Other current assets
Advance payments	₩	4,505			4,935
Prepaid expenses		38,177			18,677
	₩	42,682			23,612
Other long-term assets
Long-term prepaid expenses	₩	8,216			9,452
Others (*1)		2,568			262,335
Less : Allowance for doubtful accounts		(13	)		(13	)
	₩	10,771			271,774

(*1) The guarantee deposits of ₩257,878 million related to the Australia Roy Hill iron ore mine were transferred to investments in associates during the year ended December 31, 2012.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

10. Investments in Subsidiaries and Associates

(a) Investments in subsidiaries and associates as of December 31, 2012 and 2011 are as follows:

(in millions of Won)
	2012		2011
Subsidiaries	₩	12,163,345		11,621,134
Associates		1,936,708		1,203,642
	₩	14,100,053		12,824,776

(b) Details of subsidiaries and carrying values as of December 31, 2012 and 2011 are as follows:

(in millions of Won)
			2012										2011
[Domestic]	Country	Principal operations	Number of shares		Ownership (%)		Acquisition cost		Net asset value		Book value		Book value
Daewoo International. Co., Ltd.	Korea	Trading		68,681,566		60.31	₩	3,371,481		2,122,898		3,371,481		3,371,481
POSCO E&C Co., Ltd.	Korea	Engineering and Construction		32,876,418		89.53		1,510,716		2,886,158		1,510,716		1,510,716
POSCO Energy Corp.	Korea	Generation of Electricity		40,234,508		89.02		658,176		941,120		658,176		649,148
POSCO Specialty Steel Co., Ltd.	Korea	Steel manufacturing and Sales		26,000,000		94.74		628,842		1,012,355		628,842		628,842
POSCO P&S Co., Ltd.	Korea	Steel sales and service		17,155,000		95.31		421,927		628,135		421,927		421,927
POSCO AST Co., Ltd.	Korea	Steel manufacturing and Sales		17,386,952		100.00		176,609		155,218		176,609		138,909
POSCO Coated & Color Steel Co., Ltd.	Korea	Coated steel manufacturing		3,412,000		56.87		108,421		174,192		108,421		108,421
POSCO M-TECH Co., Ltd. (*1)	Korea	Packing materials manufacturing		20,342,460		48.85		107,278		171,726		107,278		107,278
POSCO Chemtec Company Ltd.	Korea	Manufacturing and Sales		3,544,200		60.00		100,535		399,104		100,535		100,535
POSCO ICT Co., Ltd.	Korea	Computer hardware and software distribution		99,403,282		72.54		70,990		275,034		70,990		70,990
POS-HiMETAL CO., Ltd.	Korea	Steel manufacturing and Sales		10,023,000		65.00		49,452		20,443		49,452		49,452
POSCO Family Strategy Fund	Korea	Financial investment		400		60.79		40,000		66,390		40,000		40,000
Busan E&E Co. Ltd. (*2)	Korea	Municipal solid waste fuel and power generation		6,029,660		70.00		30,148		41,583		30,148		30,148
Others (15 companies)								343,308		655,536		343,308		312,286
							₩	7,617,883		9,549,892		7,617,883		7,540,133

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(in millions of Won)
			2012											2011
[Foreign]	Country	Principal operations	Number of shares		Ownership (%)		Acquisition cost		Net asset value			Book value		Book value
POSCO-Thainox Co., Ltd.	Thailand	Stainless steel manufacturing		6,620,532,219		84.93	₩	551,807		319,212			551,807		616,783
PT. KRAKATAU STEEL POSCO	Indonesia	Steel manufacturing and Sales		637,828		70.00		704,522		942,718			732,503		537,371
POSCO Australia Pty. Ltd.	Australia	Steel Sales and mine development		761,775		100.00		330,623		717,503			330,623		330,623
Zhangjiagang Pohang Stainless Steel Co., Ltd.	China	Stainless steel manufacturing		—		58.60		283,845		472,760			285,201		285,664
POSCO WA Pty. Ltd.	Australia	Mine development		286,481,386		100.00		312,851		235,173			312,851		238,821
POSCO China Holding Corp.	China	Investment management		—		100.00		223,436		254,411			223,436		223,436
POSCO Maharashtra Steel Pvt. Ltd.	India	Steel manufacturing and Sales		122,210,099		100.00		289,401		188,191			302,053		252,217
POSCO-India Private Ltd.	India	Steel manufacturing and Sales		764,999,999		99.99		184,815		131,103			184,815		184,815
Guangdong Pohang Coated Steel Co., Ltd.	China	Plate steel manufacturing		—		87.04		31,299		39,310			31,299		163,271
POSCO-Vietnam Co., Ltd.	Vietnam	Steel manufacturing		—		85.00		154,691		33,027			155,428		157,031
POSCO VST Co., Ltd.	Vietnam	Stainless steel manufacturing		—		95.65		144,573		52,824			145,462		145,649
POSCO America Corp.	USA	Trading-Steel		391,042		99.45		140,381		177,145			140,381		140,381
POSCO Investment Co., Ltd.	Hong Kong	Finance		4,999,999		99.99		85,521		96,810			86,323		88,797
POSCO-Mexico Co., Ltd.	Mexico	Plate steel manufacturing		2,686,705,272		84.84		180,069		233,611			182,048		86,163
POSCO-JAPAN Co., Ltd.	Japan	Trading-Steel		90,438		100.00		68,436		116,822			68,436		68,436
Qingdao Pohang Stainless Steel Co., Ltd.	China	Stainless steel manufacturing		—		70.00		65,982		89,188			65,982		65,982
POSCO (Suzhou) Automotive Processing Center Co., Ltd.	China	Steel manufacturing and Sales		—		90.00		62,494		88,362			62,494		62,494
POSCO ASSAN TST STEEL Industry	Turkey	Steel manufacturing and Sales		144,579,160		60.00		92,800		146,288			96,215		37,201
POSCO China Dalian Plate Processing Center Co., Ltd.	China	Heavy plate processing and Marketing		—		80.00		32,992		30,733			32,992		32,992
POSCO Asia Co., Ltd.	Hong Kong	Steel transit trade		9,360,000		100.00		32,189		36,058			32,189		32,189
POSCO-Malaysia SDN. BHD.	Malaysia	Steel manufacturing and Sales		98,486,000		80.07		31,027		(21,597	)		31,027		31,027
POSCO Electrical Steel India Private Limited	India	Electrical steel manufacturing and Sales		20,325,976		100.00		46,477		38,483			48,058		28,170
POSCO (Thailand) Co., Ltd.	Thailand	Steel manufacturing and Sales		12,721,734		85.62		25,945		45,777			25,945		25,945
POSCO Turkey Nilufer Processing Center Co., Ltd.	Turkey	Steel manufacturing and Sales		242,444		100.00		19,983		10,710			19,983		19,983
POSCO-URUGUAY S.A.	Uruguay	Wood manufacturing and Sales		507,483,060		98.00		27,724		24,609			27,722		17,715
Others (29 companies)								369,320		518,358			370,189		207,845
								4,493,203		5,017,589			4,545,462		4,081,001
							₩	12,111,086		14,567,481			12,163,345		11,621,134

(*1) As of December 31, 2012, this was classified as an investment in a subsidiary as the Company has control over of more than half of the voting rights by virtue of an agreement with Postech, which has 4.72% of ownership in POSCO M-TECH Co., Ltd.

(*2) As of December 31, 2012, this investment is collateral for the Company’s guarantee provided to certain borrowings of its subsidiary from banks.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(c) Details of associates and carrying values as of December 31, 2012 and 2011 are as follows:

(in millions of Won)
			2012										2011
[Domestic]	Country	Principal operations	Number of shares		Ownership (%)		Acquisition cost (*2)		Net asset value		Book value		Book value
Sungjin Geotec Co., Ltd.	Korea	Industrial machinery manufacturing		12,345,110		23.71	₩	159,878		130,582		159,878		159,878
SNNC Co., Ltd.	Korea	Material manufacturing		18,130,000		49.00		100,655		315,493		100,655		100,655
Posco ESM	Korea	Secondary battery manufacturing		1,000,000		50.00		43,000		53,220		43,000		—
POSMATE Co., Ltd.	Korea	Business facilities maintenance		411,573		45.15		33,295		103,497		33,295		12,270
Others (4 companies)								9,811		17,461		9,811		11,408
								346,639		620,253		346,639		284,211
[Foreign]
ROY HILL HOLDINGS PTY LTD. (*1)	Australia	Mine development		10,179,167		10.00		537,369		1,298,996		537,369		—
POSCO-NPS Niobium LLC.	USA	Mine development		325,050,000		50.00		364,609		697,291		364,609		364,609
NMC	New Caledonia	Raw material manufacturing and Sales		3,234,698		49.00		189,197		354,078		189,197		189,197
COMPANHIA SIDERURGICA DO PECEM (CSP)	Brazil	Steel manufacturing		415,729,274		20.00		265,740		1,071,554		265,740		132,891
KOBRASCO	Brazil	Facilities lease		2,010,719,185		50.00		98,962		227,694		98,962		98,962
BX Steel POSCO Cold Rolled Sheet Co., Ltd.	China	Steel manufacturing and Sales		—		25.00		63,865		343,791		63,901		63,983
Others (13 companies)						—		70,181		200,644		70,291		69,789
								1,589,923		4,194,048		1,590,069		919,431
							₩	1,936,562		4,814,301		1,936,708		1,203,642

(*1) Although the Company holds less than 20% ownership, the Company classifies its investment in Roy Hill Holdings Pty Ltd. within investments in associates, as the Company has significant influence over the operating and financial policies over the entity.

(*2) Representing 100% of the associates’ amount.

(d) There are no restrictions on the ability of subsidiaries to transfer funds to the parent in the form of cash dividends, repayment of loans or payment of advances, etc.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

11. Investment Property, Net

(a) Investment property as of December 31, 2012 and 2011 are as follows:

	2012							2011
	Acquisition cost		Accumulated depreciation			Book value		Acquisition cost		Accumulated depreciation			Book value
Land	₩	41,811		—			41,811		43,258		—			43,258
Buildings		110,927		(47,230	)		63,697		114,768		(45,992	)		68,776
Structures		8,136		(3,118	)		5,018		8,418		(3,034	)		5,384
Total	₩	160,874		(50,348	)		110,526		166,444		(49,026	)		117,418

The fair value of investment property as of December 31, 2012 is ₩ 310,000 million.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(b) The changes in carrying value in investment property for the years ended December 31, 2012 and 2011 were as follows:

1) For the year ended December 31, 2012

(in millions of Won)
	Beginning		Acquisition		Disposal		Depreciation (*1)			Others (*2)			Ending
Land	₩	43,258		—		—		—			(1,447	)		41,811
Buildings		68,776		—		—		(2,905	)		(2,174	)		63,697
Structures		5,384		—		—		(194	)		(172	)		5,018
Total	₩	117,418		—		—		(3,099	)		(3,793	)		110,526

(*1) The useful life and depreciation method of investment property are identical to those of property, plant and equipment.

(*2) Mainly includes assets transferred from property, plant and equipment in relation to change in rental ratio and the purpose of use.

2) For the year ended December 31, 2011

(in millions of Won)
	Beginning		Acquisition		Disposal			Depreciation (*1)			Others (*2)		Ending
Land	₩	41,877		—		—			—			1,381		43,258
Buildings		48,514		86		(153	)		(2,955	)		23,284		68,776
Structures		1,882		—		—			(195	)		3,697		5,384
Total	₩	92,273		86		(153	)		(3,150	)		28,362		117,418

(*1) The useful life and depreciation method of investment property are identical to those of property, plant and equipment.

(*2) Mainly includes assets transferred from property, plant and equipment in relation to change in rental ratio and the purpose of use.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

12. Property, Plant and Equipment, Net

(a) Property, plant and equipment as of December 31, 2012 and 2011 are as follows:

(in millions of Won)
	2012										2011
	Acquisition cost		Accumulated depreciation			Accumulated impairment			Book value		Acquisition cost		Accumulated depreciation			Accumulated impairment			Book value
Land	₩	1,367,822		—			—			1,367,822		1,275,564		—			—			1,275,564
Buildings		5,287,226		(2,552,379	)		(8	)		2,734,839		5,148,036		(2,316,164	)		(115	)		2,831,757
Structures		3,742,988		(1,629,238	)		—			2,113,750		3,544,936		(1,483,548	)		(40	)		2,061,348
Machinery and equipment		30,838,413		(17,949,647	)		(152	)		12,888,614		29,688,623		(16,771,327	)		(967	)		12,916,329
Vehicles		184,858		(171,819	)		—			13,039		184,219		(164,878	)		—			19,341
Tools		180,045		(150,352	)		—			29,693		177,811		(139,787	)		(2	)		38,022
Furniture and fixtures		253,742		(186,306	)		(5	)		67,431		234,456		(162,117	)		(5	)		72,334
Lease assets		11,466		(3,822	)		—			7,644		11,466		(3,185	)		—			8,281
Construction-in-progress		2,943,903		—			—			2,943,903		2,310,159		—			—			2,310,159
Total	₩	44,810,463		(22,643,563	)		(165	)		22,166,735		42,575,270		(21,041,006	)		(1,129	)		21,533,135

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(b) The changes in carrying value of property, plant and equipment for the years ended December 31, 2012 and 2011 were as follows:

1) For the year ended December 31, 2012

(in millions of Won)	Beginning		Acquisitions (*1)		Disposals			Depreciation			Others (*2)			Ending
Land	₩	1,275,564		101,053		(10,242	)		—			1,447			1,367,822
Buildings		2,831,757		138,843		(5,269	)		(237,038	)		6,546			2,734,839
Structures		2,061,348		243,236		(21,146	)		(165,632	)		(4,056	)		2,113,750
Machinery and equipment		12,916,329		1,398,443		(49,789	)		(1,382,901	)		6,532			12,888,614
Vehicles		19,341		1,413		(22	)		(7,893	)		200			13,039
Tools		38,022		6,796		(2	)		(15,123	)		—			29,693
Furniture and fixtures		72,334		23,737		(156	)		(28,484	)		—			67,431
Lease assets		8,281		—		—			(637	)		—			7,644
Construction-in-progress		2,310,159		2,561,233		—			—			(1,927,489	)		2,943,903
Total	₩	21,533,135		4,474,754		(86,626	)		(1,837,708	)		(1,916,820	)		22,166,735

(*1) Includes the acquisition cost of ₩1,913,521 million for items transferred from construction-in-progress in relation to the expansion of raw materials processing facilities, establishment of 3FINEX facilities and others.

(*2) Represents assets transferred from construction-in-progress to intangible assets and other property, plant and equipment as well as assets transferred from investment property and assets held for sale.

2) For the year ended December 31, 2011

(in millions of Won)	Beginning		Acquisitions (*1)		Disposals			Depreciation			Impairment (*2)			Others(*2,3)			Ending
Land	₩	1,068,294		209,599		(948	)		—			—			(1,381	)		1,275,564
Buildings		2,502,213		584,977		(3,194	)		(228,836	)		(273	)		(23,130	)		2,831,757
Structures		1,942,405		291,663		(10,229	)		(155,965	)		(142	)		(6,384	)		2,061,348
Machinery and equipment		11,736,629		2,556,617		(36,318	)		(1,301,849	)		(24,394	)		(14,356	)		12,916,329
Vehicles		22,753		5,407		(22	)		(8,797	)		—			—			19,341
Tools		27,807		24,307		(13	)		(14,077	)		(2	)		—			38,022
Furniture and fixtures		66,345		31,153		(4	)		(25,155	)		(5	)		—			72,334
Lease assets		8,918		—		—			(637	)		—			—			8,281
Construction-in-progress		2,635,746		3,393,445		—			—			—			(3,719,032	)		2,310,159
Total	₩	20,011,110		7,097,168		(50,728	)		(1,735,316	)		(24,816	)		(3,764,283	)		21,533,135

(*1) Includes the acquisition cost of ₩3,703,723 million for items transferred from construction-in-progress in relation to the expansion of Gwangyang sintering plates and coke establishment plants and others.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(*2) The Company plans to dispose of certain equipment at an existing steel manufacturing plant due to the completion and expected use of a new plant. Impairment losses amounting to ₩24,816 million are recognized since the fair value less cost to sell exceeds the carrying amount. The remaining book value of this equipment is expected to be sold by the first half of 2012, for ₩16,887 million, and were reclassified to assets held for sale.

(*3) Includes assets transferred from construction-in-progress to intangible assets, other property, plant and equipment and investment property.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(c) Borrowing costs capitalized and the capitalized interest rate for the years ended December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012			2011
Weighted average expenditure	₩	1,469,474		₩	472,258
Borrowing costs capitalized		66,371			21,823
Capitalisation rate		4.52	%		4.62	%

13. Intangible Assets, Net

(a) Intangible assets as of December 31, 2012 and 2011 are as follows:

(in millions of Won)
	2012										2011
	Acquisition cost		Accumulated depreciation			Accumulated impairment			Book value		Acquisition cost		Accumulated depreciation			Book value
Intellectual property rights	₩	12,490		(3,586	)		—			8,904		9,040		(2,664	)		6,376
Membership		55,775		—			(6,215	)		49,560		44,523		—			44,523
Development expense		79,982		(49,890	)		—			30,092		62,167		(32,985	)		29,182
Port facilities usage rights		414,884		(326,901	)		—			87,983		414,884		(315,331	)		99,553
Other intangible assets		434,526		(317,224	)		—			117,302		350,825		(307,563	)		43,262
Total	₩	997,657		(697,601	)		(6,215	)		293,841		881,439		(658,543	)		222,896

(b) Changes in carrying values of intangible assets for the years ended December 31, 2012 and 2011 were as follows:

1) For the year ended December 31, 2012:

(in millions of Won)	Increase								Decrease
	Beginning		Acquisition (*2)		Development		Transfer (*3)		Disposal			Depreciation			Impairment (*4)			Ending
Intellectual property rights	₩	6,376		4,075		—		—		(494	)		(1,053	)		—			8,904
Membership (*1)		44,523		767		—		11,757		(992	)		—			(6,495	)		49,560
Development expense		29,182		—		17,815		—		—			(16,905	)		—			30,092
Port facilities usage rights		99,553		—		—		—		—			(11,570	)		—			87,983
Other intangible assets		43,262		84,898		—		—		—			(10,858	)		—			117,302
	₩	222,896		89,740		17,815		11,757		(1,486	)		(40,386	)		(6,495	)		293,841

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(*1) Economic useful life of membership is indefinite.

(*2) Includes acquisition cost transferred from construction-in-progress amounting to ₩14,788 million.

(*3) Memberships which expire after a specific period are reclassified as financial instruments. However, memberships are reclassified from financial instruments to intangible asset as the estimate for the possibility of renewal is probable.

(*4) Since the carrying amount exceeded recoverable amount, impairment loss on memberships was recognized.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

2) For the year ended December 31, 2011

(in millions of Won)			Increase				Decrease
	Beginning		Acquisition (*2)		Development		Disposal			Depreciation			Reclassification (*3)			Ending
Intellectual property rights	₩	4,919		2,533		—		(319	)		(757	)		—			6,376
Membership (*1)		56,494		—		—		(214	)		—			(11,757	)		44,523
Development expense		32,308		—		11,152		—			(14,278	)		—			29,182
Port facilities usage rights		112,683		—		—		—			(13,130	)		—			99,553
Other intangible assets		22,733		27,122		—		(1	)		(6,592	)		—			43,262
	₩	229,137		29,655		11,152		(534	)		(34,757	)		(11,757	)		222,896

(*1) Economic useful life of membership is indefinite.

(*2) Includes acquisition cost transferred from construction-in-progress amounting to ₩15,309 million.

(*3) Memberships entitled to be returned after a specific period were reclassified to financial deposit.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

14. Borrowings

(a) Borrowings as of December 31, 2012 and 2011 are as follows:

(in millions of Won)
	2012			2011
Short-term borrowings
Short-term borrowings	₩	796,662			1,786,590
Current portion of long-term borrowings		34,769			7,571
Current portion of loans from foreign financial institutions		901			951
Current portion of debentures		1,283,742			500,000
Less : Current portion of discount on debentures issued		(1,953	)		(732	)
Add : Current portion of premium on debentures redemption		2,419			—
		2,116,540			2,294,380
Long-term borrowings
Long-term borrowings		843,014			892,296
Foreign loan		2,009			3,071
Debentures		6,680,192			8,502,852
Less : Discount on debentures issued		(53,616	)		(81,696	)
Add : Premium on debentures redemption		15,635			21,493
		7,487,234			9,338,016
	₩	9,603,774			11,632,396

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(b) Short-term borrowings as of December 31, 2012 and 2011 are as follows:

(in millions of Won)			Annual
Bank	Issuance date	Maturity date	interest rate (%)	2012		2011
BOA	9/26/2012	6/3/2013	0.91~1.20	₩	114,093		100,458
JP Morgan	7/3/2012	1/3/2013	1.43		75,282		228,996
DEUTSCHE	9/17/2012	6/11/2013	0.91~1.25		133,833		142,420
DBS	7/5/2012	3/22/2013	1.20~1.44		121,544		272,026
RBS	9/27/2012	6/12/2013	0.91~1.19		93,230		106,837
CA and others					—		593,546
Others (discount on accounts receivable)					258,680		342,307
				₩	796,662		1,786,590

(c) Current portion of long-term borrowings as of December 31, 2012 and 2011 are as follows:

(in millions of Won)				Annual
	Borrowers	Issuance date	Maturity date	interest rate (%)	2012		2011
Borrowings	Korea Resources Corporation	2006.10.31	2021.09.15	0.75	₩	3,000		3,000
Borrowings	Korea Resources Corporation	2006.12.28	2021.12.15	0.75		1,510		1,510
Borrowings	Woori Bank	2009.06.11	2017.03.15	1.75		2,654		1,990
Borrowings	Woori Bank	2009.11.26	2017.03.15	1.75		880		660
Borrowings	Woori Bank	2009.12.31	2017.03.15	1.75		547		411
Borrowings	Woori Bank	2010.06.10	2018.03.15	1.75		2,262		—
Borrowings	Woori Bank	2011.02.24	2018.03.15	1.75		1,383		—
Borrowings	Woori Bank	2010.02.18	2017.02.18	4.50		22,533		—
Loans from foreign financial institutions	NATIXIS (*1)	1984.06.30~ 1986.03.31	2014.12.30~ 2017.03.31	2.00		901		951
Debentures	Domestic debentures 288	2008.08.05	2013.08.05	6.52		499,711		—
Debentures	Domestic debentures 287	2007.05.11	2012.05.11	5.26		—		499,268
Debentures	9th Samurai Private Equity Bonds	2006.06.28	2013.06.28	2.05		623,563		—
Debentures	Exchangeable Bond (2008)	2008.08.19	2013.08.19	0.00		160,934		—
					₩	1,319,878		507,790

(*1) As of December 31, 2012, Korea Development Bank has provided guarantees for loans from foreign financial institutions.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(d) Long-term borrowings excluding current portion, as of December 31, 2012 and 2011 are as follows:

(in millions of Won)				Annual
	Borrowers	Issuance date	Maturity date	interest rate (%)	2012		2011
Borrowings	Woori Bank(*1)	2006.10.31~ 2012.12.03	2017.03.15~ 2040.12.03	0.75~1.75	₩	85,519		100,494
Borrowings Oil Corporation	Korea National	2007.12.27~ 2012.12.28	2022.06.25~ 2026.12.29	Government bond -2.25		13,657		10,441
Borrowings	Korea EXIM Bank	2010.02.18~ 2012.12.18	2017.02.18~ 2018.03.23	4.09~4.50		743,839		781,361
Loans from foreign financial institutions	NATIXIS (*2)	1984.06.30~ 1986.03.31	2014.12.30~ 2017.03.31	2.00		2,009		3,071
Debentures	Domestic debentures 301 and others	2009.01.20~ 2011.11.28	2014.01.20~ 2021.11.28	3.78~5.40		3,092,140		3,588,982
Debentures	Exchangeable Bond (*3) and others	2006.08.10~ 2011.12.22	2014.03.26~ 2021.12.22	0~8.75		3,550,070		4,853,667
					₩	7,487,234		9,338,016

(*1) Short-term financial instruments amounting to ₩ 3,400 million and ₩ 1,670 million, respectively, are collateral for long-term borrowings from a forestry association as of December 31, 2012 and 2011.

(*2) As of December 31, 2012 and 2011, Korea Development Bank has provided guarantees for loans from foreign financial institutions.

(*3) The Company issued exchangeable bonds with SK Telecom Co., Ltd. ADRs through Zeus (Cayman) Ltd., an SPV. The Company accounted for these exchangeable bonds as long-term borrowings. The Company provides guarantees for Zeus (Cayman) Ltd.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

15. Other Payables and Other Financial Liabilities

(a) Other Payables as of December 31, 2012 and 2011 are as follows:

(in millions of Won)
	2012		2011
Current
Accounts payable	₩	826,075		806,913
Accrued expenses (*1)		427,314		248,597
		1,253,389		1,055,510
Non-Current
Long-term accounts payable		88,938		86,871
Accrued expenses		24,664		19,618
		113,602		106,489
	₩	1,366,991		1,161,999

(*1) During the year ended December 31, 2012, a fine of ₩ 98,326 million was imposed for price-fixing galvanized steel sheets as a result of the Korea Fair Trade Commission’s investigation.

(b) Other short-term financial liabilities as of December 31, 2012 and 2011 are as follows:

(in millions of Won)
	2012		2011
Financial guarantee liabilities	₩	7,393		6,336
Dividends payable		6,493		6,050
Finance lease liabilities		1,088		1,108
Withholdings		9,070		9,396
Derivative instruments liabilities		9,499		10,898
	₩	33,543		33,788

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(c) Other long-term financial liabilities as of December 31, 2012 and 2011 are as follows:

(in millions of Won)
	2012		2011
Financial guarantee liabilities	₩	41,664		11,163
Derivatives liabilities		31,256		12,771
Finance lease liabilities		6,246		7,824
Long-term withholdings		8,964		9,052
	₩	88,130		40,810

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

16. Provisions

The changes in provisions for the years ended December 31, 2012 and 2011 were as follows:

1) For the year ended December 31, 2012

(in millions of Won)	Beginning		Increase		Utilization			Ending
Estimated allowance at the end of period (*1)	₩	4,451		241,498		(239,710	)		6,239

(*1) Represents the provision for bonuses.

2) For the year ended December 31, 2011

(in millions of Won)	Beginning		Increase		Utilization			Ending
Estimated allowance at the end of period	₩	9,582		304,869		(310,000	)		4,451

17. Employee Benefits

The Company introduced a retirement pension program for all employees in June 2011. The employees and directors employed with the Company had an option to choose whether they would join the defined contribution plan or the defined benefit pension plan. The pension plan benefit is based on each employee’s accrued length of service, including their length of service under the previous severance plan.

(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.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

The expense related to post-employment benefit plans under defined contribution plans for the year ended December 31, 2012 and 2011 was as follows:

(in millions of Won)
	2012		2011
Expense related to post-employment benefit plans under defined contribution plans	₩	13,032		6,807

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(b) Defined benefit plans

The Company also operates a defined benefit pension plan for employees. The employees who chose a defined benefit pension plan will receive a defined payment upon termination of their employment if they fulfill the condition to qualify as a recipient. 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.

(c) The amounts recognized in relation to defined benefit obligations in the statements of financial position as of December 31, 2012 and 2011 are as follows:

(in millions of Won)
	2012			2011
Present value of funded obligations	₩	817,618			690,321
Fair value of plan assets		(677,362	)		(513,673	)
Net defined benefit obligations	₩	140,256			176,648

(d) The changes in present value of defined benefit obligations for the years ended December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012			2011
Defined benefit obligation at the beginning of period	₩	690,321			1,013,165
Current service costs		99,066			108,879
Interest costs		31,156			47,607
Actuarial losses		63,184			6,157
Benefits paid		(66,109	)		(485,487	)
Defined benefit obligation at the end of period	₩	817,618			690,321

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(e) The changes in the fair value of plan assets for the years ended December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012			2011
Plan assets at the beginning of period	₩	513,673			689,162
Expected return on plan assets		23,115			26,886
Actuarial gains (losses)		2,732			(460	)
Contributions of participants (*1)		180,000			95,080
Benefits paid		(42,158	)		(296,995	)
Plan assets at the end of period	₩	677,362			513,673

(*1) The Company expects to make a contribution of ₩180,000 million to the defined benefit plan assets in 2013.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(f) The fair value of plan assets as of December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012		2011
Deposits	₩	677,296		513,607
Others		66		66
Total	₩	677,362		513,673

(g) The amounts recognized in the statements of comprehensive income for the years ended December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012			2011
Current service costs	₩	99,066			108,879
Interest costs		31,156			47,607
Expected return on plan assets (*1)		(23,115	)		(26,886	)
Total	₩	107,107			129,600

(*1) The actual return on plan assets amounted to ₩ 25,847 million and ₩ 26,426 million for the years ended December 31, 2012 and 2011, respectively.

The above expenses by function were as follows:

(in millions of Won)	2012		2011
Cost of sales	₩	85,298		98,275
Selling and administrative expenses		20,897		23,853
Others		912		7,472
Total	₩	107,107		129,600

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(h) Actuarial gains (losses), net of tax recognized in other comprehensive income for the year ended December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012			2011
Beginning	₩	(103,947	)		(101,802	)
Current actuarial losses		(60,452	)		(6,617	)
Effect on change of tax rate		14,628			4,472
Ending	₩	(149,771	)		(103,947	)

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(i) The principal actuarial assumptions as of December 31, 2012 and 2011 are as follows:

	2012			2011
Discount rate (*1)		3.47	%		4.32	%
Expected return on plan assets (*2)		4.32	%		3.95	%
Expected future increases in salaries (*3)		3.30	%		2.30	%

(*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 our benefits obligations and that are denominated in the same currency in which the benefits are expected to be paid.

(*2) The overall expected rate of return on plan assets is a weighted average of the expected returns of the various categories of plan assets held. The management’s assessment of the expected returns is based on historical return trends and predictions of the market for the asset over the life of the related obligation.

(*3) The expected future increases in salaries are 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.

18. Other Liabilities

(a) Other current liabilities as of December 31, 2012 and 2011 are as follows:

(in millions of Won)
	2012		2011
Other current liabilities
Advances received	₩	44,488		21,149
Withholding		20,962		25,534
Unearned revenue		5,415		1,772
	₩	70,865		48,455

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(b) Other long-term liabilities as of December 31, 2012 and 2011 are as follows:

(in millions of Won)
	2012		2011
Other long-term liabilities
Unearned revenue	₩	842		1,200
Others		3,000		3,000
	₩	3,842		4,200

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

19. Financial Instruments

(a) Classification of financial instruments

1) Financial assets as of December 31, 2012 and 2011 are as follows:

(in millions of Won)
	2012		2011
Financial assets at fair value through profit or loss
Financial assets held for trading	₩	—		50,132
Derivatives assets		6,016		—
Available-for-sale financial assets		3,062,057		3,731,559
Held-to-maturity investments		29,981		29,903
Loans and receivables		6,833,586		6,592,644
	₩	9,931,640		10,404,238

2) Financial liabilities as of December 31, 2012 and 2011 are as follows:

(in millions of Won)
	2012		2011
Financial liabilities at fair value through profit or loss:
Derivatives liabilities held for trading	₩	40,755		23,669
Financial liabilities evaluated as amortized cost:
Trade accounts payable		978,581		1,395,846
Borrowings		9,603,774		11,632,396
Financial guarantee liabilities (*1)		49,057		17,499
Others		1,300,526		1,195,429
		11,931,938		14,241,170
	₩	11,972,693		14,264,839

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(*1) Financial guarantee contracts recognized in financial guarantee liabilities as of December 31, 2012 are as follows:

(in millions of Won)
Guarantee beneficiary	Financial institution	Foreign currency		Won equivalent
Guangdong Pohang	ANZ	USD	10,000,000		10,711
Car Steel Co., Ltd.	BOA	USD	30,000,000		32,133
	BTMU	USD	24,000,000		25,706
	ING	USD	23,600,000		25,278
	SMBC	USD	35,000,000		37,489
BX STEEL POSCO Cold Rolled	Construction Bank	CNY	112,500,000		19,337
Sheet Co., Ltd.	Construction Bank	USD	880,000		943
	China Bank	CNY	7,100,000		1,220
	China Bank	USD	21,100,000		22,600
Zhangjiagang Pohang	BTMU	USD	30,000,000		32,133
Stainless Steel Co., Ltd.	Credit Agicole	USD	50,000,000		53,555
	MIZUHO	USD	80,000,000		85,688
POSCO Maharashtra	Export-Import Bank of Korea	USD	193,000,000		206,722
Steel Pvt. Ltd.	Citi	USD	60,000,000		64,266
	DBS	USD	100,000,000		107,110
	HSBC	USD	80,000,000		85,688
	ING	USD	30,000,000		32,133
	SC	USD	40,000,000		42,844
	SCB	USD	33,000,000		35,346
	KDB	USD	30,000,000		32,133
POSCO ASSAN TST STEEL Industry	SMBC and others	USD	188,392,500		201,787
POSCO Electrical Steel India Private Limited	ING and others	USD	84,000,000		89,972
POSCO Investment Co., Ltd.	KDB	USD	70,000,000		74,977
	BOA	USD	40,000,000		42,844
	BOC	CNY	350,000,000		60,158
	BTMU	USD	30,000,000		32,133
	HSBC	MYR	240,000,000		83,952
	HSBC	USD	100,000,000		107,110
	ING	USD	40,000,000		42,844
	SCB	USD	45,000,000		48,200
	SMBC	USD	25,000,000		26,778
POSCO-Mexico S.A. DE C.V	BOA	USD	40,000,000		42,844
	HSBC	USD	40,000,000		42,844
	KDB	USD	50,000,000		53,555
	MIZUHO	USD	45,000,000		48,200
	SMBC	USD	69,725,000		74,682
POSCO-Vietnam Co., Ltd.	Export-Import Bank of Korea	USD	200,000,000		214,220
POSCO-VST Co., Ltd.	ANZ	USD	25,000,000		26,778
	HSBC	USD	20,000,000		21,422
	MIZUHO	USD	20,000,000		21,422
POSUK Titanium LLP	Shinhan Bank	USD	18,000,000		19,280
PT. KRAKATAU POSCO	Export-Import Bank of Korea	USD	490,000,000		524,839
	ANZ	USD	87,500,000		93,721
	BTMU	USD	119,000,000		127,461
	Credit Suisse AG	USD	91,000,000		97,470
	HSBC	USD	91,000,000		97,470
	The Tokyo Star Bank, Ltd	USD	21,000,000		22,493
	MIZUHO	USD	105,000,000		112,466
	SCB	USD	86,800,000		92,971
	SMBC	USD	119,000,000		127,461
United Spiral Pipe, LLC	Shinhan Bank	USD	24,500,000		26,242
		USD	3,255,497,500		3,486,964
		CNY	469,600,000		80,715
		MYR	240,000,000		83,952

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

3) Finance income and costs by category of financial instrument for the year ended December 31, 2012 and 2011 were as follows:

 December 31, 2012

(in millions of Won)	Finance income and costs																				Other comprehensive loss
	Interest income (cost)			Dividend income (*1)		Gain and loss on foreign currency transactions			Gain and loss on foreign currency translations			Gain and loss on disposal			Others (*2)			Total
Financial assets at fair value through profit or loss	₩	—			—		—			—			(1,084	)		6,016			4,932			—
Available-for-sale financial assets		970			110,897		—			—			72,028			(63,466	)		120,429			(153,345	)
Held-to-maturity investments		1,580			—		—			—			—			—			1,580			—
Loans and receivables		111,263			—		(62,901	)		(24,476	)		(182	)		(569	)		23,135			—
Financial liabilities at fair value through profit or loss		—			—		—			—			—			(27,984	)		(27,984	)		—
Financial liabilities are evaluated as amortized cost		(391,767	)		—		126,193			628,822			—			(606	)		362,642			—
	₩	(277,954	)		110,897		63,292			604,346			70,762			(86,609	)		484,734			(153,345	)

(*1) Finance income in the statement of comprehensive income includes the dividends from subsidiaries and associates of ₩ 112,514 million for the year ended December 31, 2012.

(*2) Others related to available-for-sale financial assets mainly represent impairment losses.

‚ December 31, 2011

(in millions of Won)	Finance income and costs																				Other comprehensive loss
	Interest income (cost)			Dividend income  (*1)		Gain and loss on foreign currency transactions			Gain and loss on foreign currency translations			Gain and loss on disposal			Others (*2)			Total
Financial assets at fair value through profit or loss	₩	—			—		—			—			(3,358	)		132			(3,226	)		—
Available-for-sale financial assets		—			132,911		—			—			331,003			(107,377	)		356,537			(922,331	)
Held-to-maturity investments		1,611			—		—			—			—			—			1,611			—
Loans and receivables		102,409			—		(14,116	)		7,953			(545	)		(1,799	)		93,902			—
Financial liabilities at fair value through profit or loss		—			—		—			—			—			(6,745	)		(6,745	)		—
Financial liabilities are evaluated as amortized cost		(420,538	)		—		(95,505	)		(173,266	)		—			(17,497	)		(706,806	)		—
	₩	(316,518	)		132,911		(109,621	)		(165,313	)		327,100			(133,286	)		(264,727	)		(922,331	)

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(*1) Finance income in the statement of comprehensive income includes the dividends from subsidiaries and associates of ₩ 134,418 million for the year ended December 31, 2011.

(*2) Others related to available-for-sale financial assets mainly represent impairment losses.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(b) Credit risk

1) Credit risk exposure

The carrying amount of financial assets represents the Company’s maximum exposure to credit risk. The maximum exposures to credit risk as of December 31, 2012 and 2011 are as follows:

(in millions of Won)
	2012		2011
Cash and cash equivalents	₩	1,752,560		1,137,882
Financial assets at fair value through profit or loss		6,016		50,132
Available-for-sale financial assets		119,142		15,545
Held-to-maturity investments		29,981		29,903
Loans and other receivables		993,722		1,234,497
Trade accounts and notes receivable		4,087,030		4,220,242
Long-term trade accounts and notes receivable		274		24
	₩	6,988,725		6,688,225

The Company provided financial guarantees for the repayment of loans of subsidiaries and associates. As of December 31, 2012 and 2011, the maximum exposure to credit risk amounted to ₩ 3,651,631 million and ₩ 1,500,058 million, respectively.

2) Impairment losses on financial assets

¨ Allowance for doubtful accounts as of December 31, 2012 and 2011 are as follows:

(in millions of Won)
	2012		2011
Accounts receivable	₩	12,204		2,173
Other accounts receivable		10,571		10,571
Long-term loans		14,453		14,453
Other assets		13		13
	₩	37,241		27,210

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

¨ Impairment losses on financial assets for the years ended December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012		2011
(Reversal of) bad debt expenses	₩	10,613		(2,753	)
Reversal of other bad debt expenses		—		(51	)
	₩	10,613		(2,804	)

¨ The aging schedule and the impaired losses of trade accounts and notes receivable as of December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012				2011
	Trade accounts and notes receivable		Impairment		Trade accounts and notes receivable		Impairment
Not due	₩	3,758,894		—		3,890,405		—
Over due less than 1 month		120,848		11		210,630		—
1 month - 3 months		103,407		584		69,962		—
3 months - 12 months		102,255		9,458		40,521		—
Over 12 months		14,104		2,151		10,921		2,173
	₩	4,099,508		12,204		4,222,439		2,173

¨ Changes in the allowance for doubtful accounts for the years ended December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012			2011
Beginning	₩	27,212			30,013
(Reversal of) bad debt expenses		10,613			(2,804	)
Others		(584	)		3
Ending	₩	37,241			27,212

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(c) Liquidity risk

(in millions of Won)	Book value		Contractual cash flow (*3)		Within 3 months		3 months - 6 months		6 months - 1 year		1 year - 5 years		Later than 5 years
Non-derivative financial liabilities
Trade accounts payable	₩	978,581		978,581		978,581		—		—		—		—
Borrowings (*1)		9,603,774		11,086,963		696,583		928,738		872,417		6,242,098		2,347,127
Financial guarantee liabilities (*2)		49,057		3,651,631		3,651,631		—		—		—		—
Other financial liabilities		1,300,526		1,307,158		1,161,823		270		9,620		134,080		1,365
	₩	11,931,938		17,024,333		6,488,618		929,008		882,037		6,376,178		2,348,492

(*1) Includes cash flows of embedded derivatives instruments in relation to exchangeable bonds (exchange right).

(*2) For issued financial guarantee contracts, the maximum amount of the guarantee is allocated to the earliest period in which the guarantee could be called.

(*3) Includes estimated interest.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(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 due to changes in foreign exchange rates. The exposure to currency risk as of December 31, 2012 and 2011 is as follows:

(in millions of Won)	2012				2011
	Assets		Liabilities		Assets		Liabilities
EUR	₩	25,127		5,554		23,790		11,449
USD		876,780		4,599,558		888,896		5,842,319
JPY		62,602		1,863,516		83,627		2,129,999
Others		46,306		149		1,363		18,590
	₩	1,010,815		6,468,777		997,676		8,002,357

2) As of December 31, 2012 and 2011, provided that functional currency against foreign currencies other than functional currency hypothetically strengthens or weakens by 10%, the changes in gain or loss during the years ended December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012						2011
	10% increase			10% decrease			10% increase			10% decrease
EUR	₩	1,957			(1,957	)		1,234			(1,234	)
USD		(372,278	)		372,278			(495,342	)		495,342
JPY		(180,091	)		180,091			(204,637	)		204,637

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(e) Interest rate risk

1) The book value of interest-bearing financial instruments as of December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012			2011
Fixed rate
Financial assets	₩	2,752,342			2,286,554
Financial liabilities		(9,508,984	)		(11,525,827	)
	₩	(6,756,642	)		(9,239,273	)
Variable rate
Financial liabilities	₩	(94,790	)		(106,569	)

2) Sensitivity analysis on the fair value of financial instruments with fixed interest rate

The Company does not account for derivative instruments such as interest swaps as hedges in fair value hedging accounting. Therefore, fluctuations in interest rates do not affect gain or loss.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

3) Sensitivity analysis on the fair value of financial instruments with variable interest rate

As of December 31, 2012 and 2011, provided that other factors remain the same and the interest rate of borrowings with floating rates increases or decreases by 1%, the changes in interest expense during year ended December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012					2011
	1% increase			1% decrease		1% increase			1% decrease
Variable rate financial instruments		(948	)		948		(1,066	)		1,066

(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 2011 are as follows:

(in millions of Won)	2012				2011
	Book value		Fair value		Book value		Fair value
Assets measured at fair value
Financial assets held for trading	₩	—		—		50,132		50,132
Available-for-sale financial assets (*1)		2,853,766		2,853,766		3,630,357		3,630,357
Derivatives assets (*2)		6,016		6,016		—		—
		2,859,782		2,859,782		3,680,489		3,680,489
Assets measured amortised cost (*3)
Cash and cash equivalents		1,752,560		1,752,560		1,137,882		1,137,882
Trade accounts and note receivable		4,087,304		4,087,304		4,220,266		4,220,266
Loans and other receivables		993,722		993,722		1,234,497		1,234,497
Held-to-maturity investments		29,981		29,981		29,903		29,903
		6,863,567		6,863,567		6,622,548		6,622,548
Liabilities measured fair value
Derivatives liabilities (*2)		40,755		40,755		23,669		23,669
Liabilities measured amortised cost (*3)
Trade accounts payable		978,581		978,581		1,395,846		1,395,846
Borrowings		9,603,774		10,145,751		11,632,396		12,048,152
Financial guarantee liabilities		49,057		49,057		17,499		17,499
Others		1,300,526		1,300,526		1,195,429		1,195,429
	₩	11,931,938		12,473,915		14,241,170		14,656,926

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(*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 borrowing rates of interest of evaluated companies are used as a discount rate.

(*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.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(*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 rate for determining fair value

Interest rates to discount the estimated cash flows as of December 31, 2012 and 2011 are as follows:

	2012		2011
Borrowings		1.47 ~ 4.50		1.80 ~ 4.62

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 asset or liability that are not based on observable market data

(that is, unobservable inputs).

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

‚ The fair value measurements classified by fair value hierarchy as of December 31, 2012 and 2011 are as follows:

a. December 31, 2012

(in millions of Won)	Level 1		Level 2		Level 3		Total
Financial Assets
Available-for-sale financial assets	₩	2,182,741		—		671,025		2,853,766
Derivatives assets		—		6,016		—		6,016
	₩	2,182,741		6,016		671,025		2,859,782
Financial Liabilities
Derivatives liabilities held for trading	₩	—		40,755		—		40,755

b. December 31, 2011

(in millions of Won)	Level 1		Level 2		Level 3		Total
Financial Assets
Financial assets held for trading	₩	—		50,132		—		50,132
Available-for-sale financial assets		2,774,838		—		855,519		3,630,357
	₩	2,774,838		50,132		855,519		3,680,489
Financial Liabilities
Derivatives liabilities held for trading	₩	—		23,669		—		23,669

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

ƒ Changes in financial assets classified as level 3 for the years ended December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012			2011
Beginning	₩	855,519			603,747
Change to level 3		8,372			98,242
Other comprehensive income		(192,866	)		153,530
Ending	₩	671,025			855,519

20. Share Capital and Capital Surplus

(a) Share capital as of December 31, 2012 and 2011 are as follows:

(share, Won)
	2012		2011
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, 2012, total shares of ADRs of 52,294,944 are equivalent to 13,823,736 of common stock.

(*2) As of December 31, 2012, 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 2011 are as follows:

(share)	2012							2011
	Issued shares		Treasury shares			Number of outstanding shares		Issued shares		Treasury shares			Number of outstanding shares
Beginning		87,186,835		(9,942,391	)		77,244,444		87,186,835		(10,153,957	)		77,032,878
Acquisition of treasury shares		—		—			—		—		(131,389	)		(131,389	)
Disposal of treasury shares		—		—			—		—		342,955			342,955
Ending		87,186,835		(9,942,391	)		77,244,444		87,186,835		(9,942,391	)		77,244,444

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(c) Capital surplus as of December 31, 2012 and 2011 are as follows:

(in millions of Won)
	2012		2011
Share premium	₩	463,825		463,825
Gain on disposal of treasury shares		763,867		763,867
	₩	1,227,692		1,227,692

21. Accumulated Other Comprehensive Income

(a) Accumulated other comprehensive income as of December 31, 2012 and 2011 is comprised of the following:

(in millions of Won)	2012		2011
Accumulated changes in the unrealized fair value of available-for-sale investments, net of tax	₩	3,362		156,707

(b) The changes in the accumulated unrealized fair value of available-for-sale investments for the years ended December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012			2011
Beginning balance	₩	156,707			1,079,038
Changes in the unrealized fair value of available-for-sale investments		(206,555	)		(769,627	)
Reclassification to profit or loss upon disposal		(75,518	)		(331,977	)
Impairment of available-for-sale securities		63,466			(75,480	)
Tax effects		65,262			254,753
Ending balance	₩	3,362			156,707

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

22. 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 2011 are as follows:

(share, in millions of Won)	2012				2011
	Number of shares		Amount		Number of shares			Amount
Beginning		9,942,391	₩	2,391,406		10,153,957		₩	2,403,263
Acquistion of treasury shares		—		—		131,389			61,296
Disposal of treasury shares		—		—		(342,955	)		(73,153	)
Ending		9,942,391	₩	2,391,406		9,942,391		₩	2,391,406

23. Retained Earnings

(a) Retained earnings as of December 31, 2012 and 2011 are summarized as follows:

(in millions of Won)	2012		2011
Legal reserve	₩	241,202		241,202
Reserve for business rationalization		918,300		918,300
Reserve for research and manpower development		1,530,000		1,333,333
Appropriated retained earnings for business expansion		32,710,500		26,507,500
Appropriated retained earnings for dividends		1,858,726		1,626,993
Unappropriated retained earnings		2,583,769		7,495,292
	₩	39,842,497		38,122,620

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(b) Statements of appropriation of retained earnings as of December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012			2011
Retained earnings before appropriation
Unappropriated retained earnings carried over from prior year	₩	284,559			4,501,703
Actuarial losses		(45,824	)		(2,145	)
Interim dividends		(154,489	)		(193,111	)
Dividends (ratio) per share
₩ 2,000 (40%) in 2012
₩ 2,500 (50%) in 2011
Profit for the period		2,499,523			3,188,845
		2,583,769			7,495,292
Transfer from discretionary reserve
Reserve for research and human resource development		266,667			133,333
Appropriation of retained earnings
Cash dividends		(463,467	)		(579,333	)
Dividends (ratio) per share
₩ 6,000 (120%) in 2012
₩ 7,500 (150%) in 2011
Reserve for research and human development		(310,000	)		(330,000	)
Appropriated retained earnings for business expansion		(1,600,000	)		(6,203,000	)
Appropriated retained earnings for dividends		(185,387	)		(231,733	)
		(2,558,854	)		(7,344,066	)
Unappropriated retained earnings carried forward to subsequent year	₩	291,582			284,559

The date of appropriation for 2012 is expected to be March 22, 2013 and the date of appropriation for 2011 was March 16, 2012.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

24. Revenue

Details of revenue for the years ended December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012		2011
Revenues
Goods	₩	35,552,319		39,083,842
Others		112,614		87,861
	₩	35,664,933		39,171,703

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

25. Selling and Administrative Expenses

(a) Administrative expenses

Administrative expenses for the year ended December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012		2011
Wages and salaries	₩	182,393		159,201
Expenses related to defined benefit plan		21,006		26,254
Other employee benefits		60,682		67,211
Travel		15,666		20,349
Depreciation		24,733		22,571
Amortization		18,214		16,050
Rental		41,332		37,513
Repairs		14,090		17,988
Advertising		102,744		94,958
Research & development		136,537		146,745
Service fees		154,363		163,596
Supplies		4,943		5,598
Vehicles maintenance		7,153		7,220
Industry association fee		7,364		6,778
Training		12,007		20,301
Conference		5,178		6,569
(Reversal of) bad debt expenses		10,613		(2,753	)
Others		34,890		30,183
	₩	853,908		846,332

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(b) Selling expenses

Selling expenses for the year ended December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012		2011
Freight and custody expenses	₩	873,482		826,147
Operating expenses for distribution center		8,955		7,804
Sales commissions		75,207		63,463
Sales advertising		4,168		920
Sales promotion		6,206		5,148
Sample		1,932		2,611
Sales insurance premium		9,578		11,089
	₩	979,528		917,182

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

26. Research and Development Expenditures Recognized as Expense

Research and development expenditures recognized as expense for the years ended December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012		2011
Selling and administrative expenses	₩	136,537		146,745
Cost of sales		376,650		362,765
	₩	513,187		509,510

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

27. Adjusted Operating Profit

Adjusted operating profits which include the other profits or losses excluded in operating profit but reflect the results of the Company’s operations for the years ended December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012			2011
Operating profit on the statement of comprehensive income	₩	2,789,597			4,330,382
Add
Gain on disposals of property, plant, and equipment		27,688			10,840
Gain on disposals of other long-term assets		213			—
Gain on disposals of intangible assets		—			38
Gain on disposals of investment in subsidiaries and associates		8,693			719
Reversal of impairment of property, plant, and equipment		1,606			—
Gain on disposals of assets held for sale		1,150			—
Miscellaneous income		30,387			34,043
		69,737			45,640
Deduct
Loss on disposals of property, plant, and equipment		(84,990	)		(60,174	)
Reversal of other bad debt expenses		—			51
Impairment loss of property, plant, and equipment		—			(24,816	)
Loss on disposals of other long-term assets		(131	)		—
Impairment loss of intangible assets		(6,495	)		—
Loss on disposals of intangible assets		(617	)		(320	)
Donations		(62,684	)		(50,787	)
Idle tangible assets expenses		(30,743	)		(16,568	)
Impairment loss of investment in subsidiaries and associates		(1,102	)		—
Loss on disposals of investment in subsidiaries and associates		(17,575	)		—
Loss on disposals of assets held for sale		(9,391	)		—
Miscellaneous loss		(120,573	)		(27,379	)
		(334,301	)		(179,993	)
Adjusted operating profit	₩	2,525,033			4,196,029

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

28. Finance Income and Costs

Details of finance income and costs for the year ended December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012		2011
Finance income
Interest income	₩	113,813		104,020
Dividend income		223,411		267,329
Gains on disposal of financial assets held for trading		556		2,030
Gains on derivative transactions		—		69
Gains on foreign currency transactions		276,642		495,251
Gains on foreign currency translations		639,565		35,456
Gains on disposal of available-for-sale securities		96,441		331,919
Others		6,111		4,285
		1,356,539		1,240,359
Finance costs
Interest expenses		391,767		420,538
Losses on foreign currency transactions		213,350		604,872
Losses on foreign currency translations		35,219		200,769
Impairment of available-for-sale securities		63,466		107,377
Others		55,489		37,112
	₩	759,291		1,370,668

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

29. Other Non-Operating Income and Expenses

(a) Other non-operating income

Details of other non-operating income for the years ended December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012		2011
Gain on disposals of property, plant and equipment	₩	27,688		10,840
Gain on disposals of other long-term assets		213		—
Gain on disposals of intangible assets		—		38
Gain on disposals of investment in subsidiaries and associates		8,693		719
Reversal of impairment of property, plant, and equipment		1,606		—
Gain on disposals of assets held for sale		1,150		—
Miscellaneous income (*1)		30,387		34,043
	₩	69,737		45,640

(*1) Miscellaneous income mainly includes income from technology sales, management service fee and gain on disposals of wastes.

(b) Other non-operating expenses

Details of non-other operating expenses for the years ended December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012		2011
Loss on disposals of property, plant, and equipment	₩	84,990		60,174
Reversal of other bad debt expenses		—		(51	)
Impairment loss of property, plant, and equipment		—		24,816
Loss on disposals of other long-term assets		131		—
Impairment loss of intangible assets		6,495		—
Loss on disposals of intangible assets		617		320
Donations		62,684		50,787
Idle tangible assets expenses		30,743		16,568
Impairment loss of investment in subsidiaries and associates		1,102		—
Loss on disposals of investment in subsidiaries and associates		17,575		—
Loss on disposals of assets held for sale		9,391		—
Miscellaneous loss (*1)		120,573		27,379
	₩	334,301		179,993

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(*1) During the year ended December 31, 2012, a fine of (Won) 98,326 million was imposed for price-fixing galvanized steel sheets as a result of the Korea Fair Trade Commission’s investigation.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

30. Expenses by Nature

Expenses that are recorded by nature as cost of sales, selling, general and administrative expenses and other expenses in the statements of income for the years ended December 31, 2012 and 2011 were as follows (excluding finance costs and income tax expense):

(in millions of Won)	2012		2011
Changes in inventories (*1)	₩	570,136		(753,844	)
Raw materials and consumables used		24,090,512		27,336,030
Employee benefits expenses (*3)		1,335,949		1,233,462
Outsourced processing cost		1,996,707		1,943,507
Depreciation (*2)		1,840,807		1,738,466
Amortization		40,386		34,757
Ordinary research & development expenses		513,187		509,510
Electricity and water expenses		634,045		602,806
Service fees		218,019		231,404
Advertising expenses		102,744		94,958
Freight and custody expenses		873,482		826,147
Commission paid		75,207		63,463
Loss on disposal of property, plant, and equipment		84,990		60,174
Other expenses		833,466		1,100,475
	₩	33,209,637		35,021,315

(*1) Changes in inventories are the changes in product, semi-finished products and by-product.

(*2) Includes depreciation of investment property.

(*3) The details of employee benefits expenses for the years ended December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012		2011
Wages and salaries	₩	1,215,810		1,097,055
Expense related to defined benefit plan		120,139		136,407
	₩	1,335,949		1,233,462

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

31. Income Taxes

(a) Income tax expense for the years ended December 31, 2012 and 2011 was as follows:

(in millions of Won)	2012		2011
Current income taxes (*1)	₩	212,107		525,374
Deferred income taxes		330,760		114,353
Less: Items credited directly in shareholders’ equity		79,891		237,148
Income tax expense	₩	622,758		876,875

(*1) Additional tax payments arising from finalized tax assessment are added or deducted in current income taxes.

(b) The expected amount of income tax expense based on statutory rates compared to the actual amount of taxes recorded by the Company for the years ended December 31, 2012 and 2011 was as follows:

(in millions of Won)	2012			2011
Profit before income tax expense	₩	3,122,281			4,065,720
Income tax expense computed at statutory rate		755,592			983,878
Adjustments:		(132,834	)		(107,003	)
Tax credits		(160,139	)		(174,057	)
Additional payment of income taxes		3,328			1,088
Effect of tax rate change		—			53,459
Tax effects due to permanent differences		29,722			6,898
Others		(5,745	)		5,609
Income tax expense	₩	622,758			876,875
Effective tax rate (%)		19.9	%		21.6	%

(c) The income taxes credited (charged) directly to equity for the years ended December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012		2011
Net changes in the unrealized fair value of available-for-sale securities	₩	65,262		254,753
Defined benefit plan actuarial losses		14,629		4,473
Gain on disposal of treasury shares		—		(22,078	)
	₩	79,891		237,148

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(d) The movements in deferred tax assets (liabilities) for the years ended December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012									2011
	Dec. 31, 2011			Inc(Dec)			Dec. 31, 2012			Dec. 31, 2010			Inc(Dec)			Dec. 31, 2011
Deferred income tax due to temporary differences
Reserve for special repairs	₩	(29,659	)		646			(29,013	)		(27,776	)		(1,883	)		(29,659	)
Reserve for technology developments		(358,160	)		(10,487	)		(368,647	)		(264,000	)		(94,160	)		(358,160	)
Depreciation		(63,228	)		6,834			(56,394	)		(65,129	)		1,901			(63,228	)
Prepaid expenses		21,879			7,902			29,781			18,851			3,028			21,879
Revaluation of property, plant and equipment		(553,205	)		(235,851	)		(789,056	)		(345,058	)		(208,147	)		(553,205	)
Loss on foreign currency translation		93,911			(146,419	)		(52,508	)		81,066			12,845			93,911
Defined benefit obligations		102,738			54,821			157,559			130,271			(27,533	)		102,738
Plan assets		(124,536	)		(36,616	)		(161,152	)		(151,406	)		26,870			(124,536	)
Accrued revenue		(2,314	)		(261	)		(2,575	)		(6,600	)		4,286			(2,314	)
Others		283,880			(121,211	)		162,669			332,126			(48,246	)		283,880
		(628,694	)		(480,642	)		(1,109,336	)		(297,655	)		(331,039	)		(628,694	)
Deferred tax from tax credit
Tax credit carryforward		196,986			69,991			266,977			239,526			(42,540	)		196,986
		196,986			69,991			266,977			239,526			(42,540	)		196,986
Deferred income taxes recognized directly to equity
Loss (gain) on valuation of available-for-sale securities		(50,030	)		65,262			15,232			(304,783	)		254,753			(50,030	)
Defined benefit plan actuarial losses		33,186			14,629			47,815			28,713			4,473			33,186
		(16,844	)		79,891			63,047			(276,070	)		259,226			(16,844	)
	₩	(448,552	)		(330,760	)		(779,312	)		(334,199	)		(114,353	)		(448,552	)

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(e) Deferred tax assets (liabilities) as of December 31, 2012 and 2011 are as follows:

(in millions of Won)	2012							2011
	Assets		Liabilities		Net			Assets		Liabilities		Net
Deferred income tax due to temporary differences
Reserve for special repairs	₩	—		29,013		(29,013	)		—		29,659		(29,659	)
Reserve for technology developments		—		368,647		(368,647	)		—		358,160		(358,160	)
Depreciation		13,373		69,767		(56,394	)		15,661		78,889		(63,228	)
Prepaid expenses		29,781		—		29,781			21,879		—		21,879
Revaluation of property, plant and equipment		—		789,056		(789,056	)		—		553,205		(553,205	)
Loss on foreign currency translation		150,083		202,591		(52,508	)		173,776		79,865		93,911
Defined benefit obligations		157,559		—		157,559			102,738		—		102,738
Plan assets		—		161,152		(161,152	)		—		124,536		(124,536	)
Accrued revenue		—		2,575		(2,575	)		—		2,314		(2,314	)
Others		569,505		406,836		162,669			583,540		299,660		283,880
		920,301		2,029,637		(1,109,336	)		897,594		1,526,288		(628,694	)
Deferred tax from tax credit
Tax credit carryforward		266,977		—		266,977			196,986		—		196,986
		266,977		—		266,977			196,986		—		196,986
Deferred income taxes recognized directly to equity
Loss (gain) on valuation of available-for-sale securities		87,249		72,017		15,232			—		50,030		(50,030	)
Defined benefit plan actuarial losses		47,815		—		47,815			33,186		—		33,186
		135,064		72,017		63,047			33,186		50,030		(16,844	)
	₩	1,322,342		2,101,654		(779,312	)		1,127,766		1,576,318		(448,552	)

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

32. Earnings per Share

(a) Basic and diluted earnings per share for the years ended December 31, 2012 and 2011 were as follows:

(in millions of Won except per share information)	2012		2011
Profit for the period	₩	2,499,523		3,188,845
Weighted-average number of common shares outstanding (*1)		77,244,444		77,251,818
Basic and diluted earnings per share		32,359		41,279

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

(share)	2012			2011
Total number of common shares issued		87,186,835			87,186,835
Weighted-average number of treasury stock		(9,942,391	)		(9,935,017	)
Weighted-average number of common stock outstanding		77,244,444			77,251,818

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

33. Related Party Transactions

(a) Significant transactions with related companies for the year ended December 31, 2012 and 2011 are as follows:

(in millions of Won)	Sales and others (*1)				Purchase and others (*2)
	2012		2011		2012		2011
Subsidiaries (*3)
POSCO E&C Co., Ltd.	₩	28,110		26,536	₩	1,451,086		1,687,665
POSCO Processing & Service Co., Ltd.		897,051		1,181,088		1,395,891		1,406,245
POSCO Coated & Color Steel Co., Ltd.		489,545		593,656		6,496		1,890
POSCO ICT Co., Ltd.		1,547		1,537		468,915		507,883
POSCO Chemtech Company Ltd.		511,917		423,643		798,150		755,515
POSCO Mtech Company Ltd.		27,906		19,355		318,548		211,832
POSCO TMC Co., Ltd.		230,235		168,314		1,032		884
POSCO AST Co., Ltd.		278,463		319,258		58,647		58,475
Daewoo International Corp.		4,271,450		3,896,857		15,731		5,599
POSCO NST Co., Ltd.		212,536		186,809		3,618		4,734
POSCO America Corporation		726,450		353,904		733		1
POSCO Canada Ltd.		—		—		205,129		289,047
POSCO Asia Co., Ltd.		1,929,508		2,029,781		107,313		178,395
POSCO-Japan Co., Ltd.		1,439,580		1,628,069		28,710		34,860
POSCO-IPPC Pvt. Ltd.		164,483		148,343		15		—
POSCO-Mexico Co., Ltd.		338,645		347,915		492		176
Daewoo International Singapore Pte. Ltd.		—		—		73,471		149,029
POSCO Maharashtra Steel Pvt. Ltd.		155,642		2,340		—		—
POSCO (Suzhou) Automotive Processing Center Co., Ltd.		128,974		99,778		—		—
POSCO-Thailand Bangkok Processing Center Co.,Ltd		119,278		96,288		182		63
Others		749,758		709,834		954,105		986,196
		12,701,078		12,233,305		5,888,264		6,278,489
Associates (*3)
Posmate Co., Ltd.		22,044		1,038		46,058		53,357
SNNC Co., Ltd.		2,511		4,787		379,050		447,130
SUNGJIN GEOTEC CO.,LTD.		27,697		44,451		—		—
DONG BANG METAL IND.CO.,LTD.		89,094		84,748		—		—
POSCO SAMSUNG Suzhou Steel Processing Center Co., Ltd.		26,280		23,974		—		—
USS-POSCO Industries (UPI)		85		342,594		101		29
Poschrome(Proprietary) Ltd.		58		—		68,079		72,502
Others		37,700		59,021		14,311		6,087
		205,469		560,613		507,599		579,105
	₩	12,906,547		12,793,918	₩	6,395,863		6,857,594

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(*1) Sales and others include sales and insignificant other non-operating income. Sales are mainly sales of steel products and these are priced on an arm’s length basis.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(*2) Purchases and others include purchases and overhead costs. Purchases and others are mainly related to 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, 2012, the Company provided guarantees to related parties (note 19).

(b) The related account balances of significant transactions with related companies as of December 31, 2012 and 2011 are as follows:

(in millions of Won)	Receivables (*1)				Payables (*1)
	2012		2011		2012		2011
Subsidiaries
POSCO E&C Co., Ltd.	₩	7,977		647	₩	403,630		241,918
POSCO Processing & Service Co., Ltd.		64,564		88,838		32,672		1,512
POSCO Plantec Co., Ltd.		267		65		32,297		42,534
POSCO ICT Co., Ltd.		287		30		91,297		62,583
POSCO Coated & Color Steel Co., Ltd.		108,505		116,252		2,618		335
POSCO Chemtech Company Ltd.		47,074		37,808		84,538		82,048
POSCO TMC Co., Ltd.		64,862		21,601		145		134
POSCO AST Co., Ltd.		65,575		33,266		7,800		7,090
Daewoo International Corp.		358,824		284,125		730		1,589
POSCO NST Co., Ltd.		—		64,012		—		676
POSCO America Corporation		63,545		32,346		—		—
POSCO Asia Co., Ltd.		102,849		227,476		2,244		1,407
POSCO-TBPC Co., Ltd.		17,986		27,381		—		—
Qingdao Pohang Stainless Steel Co., Ltd.		8,710		6,713		—		—
POSCO-Vietnam Co., Ltd.		291		422		—		—
POSCO-Japan Co., Ltd.		35,400		52,362		673		1,546
POSCO-IPPC Pvt. Ltd.		—		3,484		—		—
POSCO-Mexico Co., Ltd.		131,669		171,908		—		—
Others		127,626		81,255		115,817		83,201
		1,206,011		1,249,991		774,461		526,573
Associates
Posmate Co., Ltd.		78		—		6,315		7,198
SNNC Co., Ltd.		229		223		37,145		23,187
DONG BANG METAL IND.CO.,LTD.		—		17,038		—		—
SUNGJIN GEOTEC CO.,LTD.		4,849		4,122		—		—
Poschrome Pty. Ltd.		—		—		2,273		—
Others		453		—		804		809
		5,609		21,383		46,537		31,194
	₩	1,211,620		1,271,374	₩	820,998		557,767

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(*1) Receivables include trade accounts and notes receivable and other receivables. Payables include trade accounts payable and other payables.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(c) For the years ended December 31, 2012 and 2011, details of compensation to key management officers are as follows:

(in millions of Won)	2012		2011
Short-term benefits	₩	34,471		29,371
Other long-term benefits		14,934		21,905
Retirement benefits		6,644		7,428
	₩	56,049		58,704

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 operations. In addition to the compensation described above, the Company provided stock appreciation rights to its executive officers and recorded stock compensation expenses amounted to ₩ 436 million and reversal of stock compensation expenses amounted to ₩ 4,223 million for the years ended December 31, 2012 and 2011, respectively.

34. Commitments and Contingencies

(b) 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.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

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 provisions, management considers the degree of probability of an unfavorable outcome and the ability to make a sufficiently reliable estimate of the amount of loss.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

(b) Commitment

The Company 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, 2012, 217 million tons of iron ore and 27 million tons of coal remained to be purchased under such long-term contracts.

The Company 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, 2012, the Company 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 3.54 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. The Company is not liable for the repayment of full or part of the money borrowed if the respective projects fail. The Company has agreed to pay a certain portion of its profits under certain conditions, as defined by the borrowing agreements.

As of December 31, 2012, the Company has provided two blank promissory notes and a blank check to Korea Resources Corporation as collateral for long-term domestic borrowings, and has provided six blank promissory notes and three blank checks to Korea National Oil Corporation as collateral for long-term foreign currency borrowings.

(c) Litigation in progress

1) Civil lawsuits with Nippon Steel & Sumitomo Metal Corporation

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

During the year ended December 31, 2012, Nippon Steel & Sumitomo Metal Corporation had filed civil lawsuits against POSCO and POSCO Japan Co., Ltd., a subsidiary of POSCO, relating to claims of prohibiting production and sales of grain oriented electrical steel sheets used improper acquiring trade secrets and of seeking compensation worth ₩ 1,230 billion in Tokyo District Court, Japan. Through first and second trials in October and December 2012, the Company submitted its answer to claim that Japan court didn’t have a jurisdiction on this lawsuit as it should be judged by Korean law and the Company developed a grain oriented electrical steel sheets by the Company’s own technologies. As of December 31, 2012, Japan court hasn’t made any judgment.

In addition, Nippon Steel & Sumitomo Metal Corporation had filed civil lawsuits against POSCO and POSCO America Co., Ltd., a subsidiary of POSCO, relating to claims of infringement of intellectual property rights related to production of grain oriented electrical steel sheets in New Jersey federal court, the United States. As of December 31, 2012, the Company is under discovery proceeding prior to the official defend.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

Due to the early stage of the litigations, the Company is not able to assess the outcome of such lawsuits and the amount of compensation, if any, that might be awarded to Nippon Steel & Sumitomo Metal Corporation. Consequently, it is not possible for the Company to make an estimate of the expected financial effect that will result from the ultimate resolution of the civil lawsuits, and the Company has not accrued liabilities for those lawsuits as of December 31, 2012.

2) Other lawsuits and claims

The Company is involved in 14 other lawsuits and claims for alleged damages aggregating to ₩ 55.2 billion as of December 31, 2012 which arose in the ordinary course of business. The Company is unable to predict the possible outcome of the above claims. However, in the opinion of management, the foregoing lawsuits and claims will not have a material adverse effect on the Company’s financial position, operating results or cash flows. No provision is recorded in connection with the above lawsuits and claims as of December 31, 2012.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

35. Cash Flows from Operating Activities

Changes in operating assets and liabilities for the years ended December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012			2011
Financial assets held for trading	₩	50,132			132,208
Trade accounts and notes receivable		107,670			(663,827	)
Other accounts receivable		(25,074	)		(156,186	)
Accured income		601			—
Advance payments		307			15
Prepaid expenses		(18,273	)		(3,793	)
Inventories		1,740,679			(1,146,630	)
Long-term guarantee deposits		(85	)		339
Other long-term assets		(348	)		—
Trade accounts payable		(415,787	)		86,164
Dividends Payable		—			482
Other accounts payable		19,072			74,146
Accrued expenses		192,539			10,445
Advances received		23,339			(12,093	)
Withholdings		(4,572	)		1,147
Unearned revenue		3,284			(2,486	)
Other long-term liabilities		907			(5,617	)
Derivatives liabilities held for trading		—			10,898
Payment severance benefits		(66,109	)		(485,487	)
Plan assets		(137,842	)		201,914
	₩	1,470,440			(1,958,361	)

POSCO

Notes to the Separate Financial Statements

As of December 31, 2012

36. Non-Cash Transactions

Significant non-cash transactions for the years ended December 31, 2012 and 2011 were as follows:

(in millions of Won)	2012		2011
Other non-current asset transferred to investments in associates	₩	257,878		—
Construction-in-progress transferred to other accounts		1,927,489		3,719,032
Financial guarantee liabilities		45,442		9,484

Agenda 2: Election of Directors

- 2-1: Election of Outside Directors

Description of the Proposal

Pursuant to Article 382 of the Korean Commercial Act and Article 28 of the Company’s Articles of Incorporation, we request that the Ordinary General Meeting of Shareholders appoint Outside Directors of the Company.

^¡   Number of Outside Directors to be Elected: 3 Directors

^¡   Candidates

	Date of Birth	Major Experience	Transactions with POSCO over the last three years	Relationships with largest shareholders	Term
Name	Recommended by
Shin, Chae-Chol	August 28, 1947	(Present) None President and Representative Director, LG CNS President and Representative Director, IBM Korea	None	None	2 years
	Director Candidate Recommendation Committee
Lee, Myoung-Woo	January 5, 1954	(Present) Professor, HanYang University, Outside Director, YES24(’11.3~’14.3) Vice Chairman, Iriver CEO, SONY Korea	None	None	3 years
	Director Candidate Recommendation Committee
Kim, Ji-Hyung	April 22, 1958	(Present) Of Counsel, Jipyong Jisung Justice, Supreme Court Research Judicial Officer, Judicial Research & Training Institute	None	None	3 years
	Director Candidate Recommendation Committee

- 2-2: Election of Audit Committee Members

Description of the Proposal

Pursuant to Article 415-2, 542-11 and 542-12 of the Korean Commercial Act and Article 48 of the Company’s Articles of Incorporation, we request that the Ordinary General Meeting of Shareholders appoint Audit Committee members of the Company.

^¡   Number of Audit Committee Members to be Elected: 1 Member

^¡   Candidate

	Date of Birth	Major Experience	Transactions with POSCO over the last three years	Relationships with largest shareholders	Term
Name	Recommended by
Kim, Ji-Hyung	April 22, 1958	(Present) Of Counsel, Jipyong Jisung Justice, Supreme Court Research Judicial Officer, Judicial Research & Training Institute	None	None	3 years
	Director Candidate Recommendation Committee

- 2-3: Election of Inside Directors

Description of the Proposald

Pursuant to Article 382 of the Korean Commercial Act and Article 28 of the Company’s Articles of Incorporation, we request that the Ordinary General Meeting of Shareholders appoint an Inside Directors of the Company.

^¡   Number of Inside Director to be Elected: 2 Directors

^¡   Candidates

	Date of Birth	Major Experience	Transactions with POSCO over the last three years	Relationships with largest shareholders	Term
Name	Recommended by
Chang, In-Hwan	January 18, 1955	(Present) Senior Executive Vice President, POSCO President and Representative Director, POSCO P&S Executive Vice President, POSCO	None	None	2 years
	Director Candidate Recommendation Committee
Kim, Yeung Gyu	August 25, 1954	(Present) Executive Vice President, POSCO Senior Vice President, POSCO Managing Director, POSCO Power	None	None	2 years
	Director Candidate Recommendation Committee

Agenda 3: Approval of Limits of Total Remuneration for Directors

Description of the Proposal

Pursuant to Article 388 of the Korean Commercial Act and Article 36 of the Company’s Articles of Incorporation, we request that the Ordinary General Meeting of Shareholders approve Limits of the Total Remuneration for Directors in the 46^th fiscal year.

^¡   The Limit (to be approved) of the Total Remuneration in the 46^th fiscal year: KRW 7.0 billion

^¡   The Limit (approved) of the Total Remuneration in the 45^th fiscal year: KRW 7.0 billion