Report of Foreign Issuer (6-k)

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15D-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of March, 2015

Commission File Number: 1-13368

POSCO

(Translation of registrant’s name into English)

POSCO Center, 892 Daechi 4-dong, Kangnam-gu, Seoul, Korea, 135-777

(Address of principal executive office)

(Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.)

Form 20-F x Form 40-F ¨

[Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes ¨ No x

[If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b) : 82- .]

POSCO is furnishing under cover of Form 6-K:

Exhibit 99.1: An English-language translation of documents with respect to POSCO’s 2014 Consolidated and Non-Consolidated Financial Statement

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


			POSCO

			(Registrant)

Date:	March 4, 2015	By	/s/ Noh, Min-Yong

			(Signature)*

* Print the name and title under the signature of the signing officer.

			Name:	Noh, Min-Yong

			Title:	Senior Vice President

Exhibit 99.1

POSCO

and Subsidiaries

Consolidated Financial Statements

December 31, 2014 and 2013

(With Independent Auditors’ Report Thereon)

Table of Contents


	Page

Independent Auditors’ Report		1

Consolidated Financial Statements

Consolidated Statements of Financial Position		3

Consolidated Statements of Comprehensive Income		5

Consolidated Statements of Changes in Equity		6

Consolidated Statements of Cash Flows		8

Notes to the Consolidated Financial Statements		10

Independent Auditors’ Report

Based on a report originally issued in Korean

The Board of Directors and Shareholders

POSCO:

We have audited the accompanying consolidated financial statements of POSCO and its subsidiaries (“the Company”), which comprise the consolidated statements of financial position as of December 31, 2014 and 2013, the consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Korean International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Korean Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2014 and 2013, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with Korean International Financial Reporting Standards.

Other Matters

The accompanying consolidated statement of financial position of the Company as of December 31, 2013, and the related statements of comprehensive income, changes in equity and cash flows for the year then ended, were audited by us in accordance with the previous auditing standards generally accepted in the Republic of Korea.

The procedures and practices utilized in the Republic of Korea to audit such consolidated financial statements may differ from those generally accepted and applied in other countries.

Seoul, Korea

February 25, 2015

This report is effective as of February 25, 2015, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that the above audit report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

POSCO and Subsidiaries

Consolidated Statements of Financial Position

As of December 31, 2014 and 2013


(in millions of Won)	Notes	December 31, 2014		December 31, 2013

Assets

Cash and cash equivalents	4,5,23	￦	3,811,202		4,208,562
Trade accounts and notes receivable, net	6,17,23,28,29,38		11,786,055		11,492,601
Other receivables, net	7,23		1,956,216		1,890,423
Other short-term financial assets	8,23,38		1,462,920		2,970,665
Inventories	9		10,471,330		9,798,381
Current income tax assets	36		36,147		32,417
Assets held for sale	10		2,127,087		2,494
Other current assets	16		976,425		1,270,668


Total current assets			32,627,382		31,666,211


Long-term trade accounts and notes receivable, net	6,23		79,336		97,000
Other receivables, net	7,23		1,144,160		797,455
Other long-term financial assets	8,23		2,455,900		4,465,730
Investments in associates and joint ventures	11		4,060,507		3,808,693
Investment property, net	13		1,055,592		425,229
Property, plant and equipment, net	14		35,241,195		35,760,119
Intangible assets, net	15,42		6,884,989		5,929,840
Deferred tax assets	36		1,195,563		1,139,932
Other long-term assets	16		507,549		365,198


Total non-current assets			52,624,791		52,789,196


Total assets		￦	85,252,173		84,455,407

See accompanying notes to the consolidated financial statements.

POSCO and Subsidiaries

Consolidated Statements of Financial Position, Continued

As of December 31, 2014 and 2013


(in millions of Won)	Notes	December 31, 2014			December 31, 2013

Liabilities

Trade accounts and notes payable	23,38	￦	3,950,786			4,231,322
Short-term borrowings and current installments of long-term borrowings	4,17,23		12,195,484			10,713,646
Other payables	18,23		2,194,713			2,128,854
Other short-term financial liabilities	19,23,38		111,637			135,904
Current income tax liabilities	36		453,613			358,930
Liabilities of disposal group held for sale	10		590,982			—
Provisions	20		150,030			107,329
Other current liabilities	22,29		2,229,764			2,565,174


Total current liabilities			21,877,009			20,241,159


Long-term trade accounts and notes payable	23,38		88,469			559
Long-term borrowings, excluding current installments	4,17,23		15,232,773			15,532,959
Other payables	18,23		169,986			206,634
Other long-term financial liabilities	19,23		91,095			260,021
Defined benefit liabilities, net	21		290,325			273,160
Deferred tax liabilities	36		1,832,260			1,711,762
Long-term provisions	20		223,239			146,272
Other long-term liabilities	22		155,653			260,851


Total non-current liabilities			18,083,800			18,392,218


Total liabilities			39,960,809			38,633,377


Equity

Share capital	24		482,403			482,403
Capital surplus	24		1,083,718			1,078,266
Hybrid bonds	25		996,919			996,919
Reserves	26		(408,773	)		(23,076	)
Treasury shares	27		(1,534,457	)		(1,579,124	)
Retained earnings			40,967,558			41,090,649


Equity attributable to owners of the controlling company			41,587,368			42,046,037
Non-controlling interests	25		3,703,996			3,775,993


Total equity			45,291,364			45,822,030


Total liabilities and equity		￦	85,252,173			84,455,407

See accompanying notes to the consolidated financial statements.

POSCO and Subsidiaries

Consolidated Statements of Comprehensive Income

For the years ended December 31, 2014 and 2013


(in millions of Won, except per share information)	Notes	2014			2013

Revenue	28,29,38	￦	65,098,445			61,864,650
Cost of sales	29,31,35,38		(57,815,041	)		(55,004,591	)


Gross profit			7,283,404			6,860,059

Selling and administrative expenses	30,35
Administrative expenses	31		(2,309,756	)		(2,231,805	)
Selling expenses			(1,760,118	)		(1,632,120	)


Operating profit	32		3,213,530			2,996,134

Share of loss of equity-accounted investees, net	11		(299,893	)		(179,809	)

Finance income and costs	23,33
Finance income			2,396,762			2,380,838
Finance costs			(3,221,987	)		(2,829,253	)

Other non-operating income and expenses	32,34,38
Other non-operating income			269,406			229,073
Other non-operating expenses	35		(979,674	)		(650,806	)


Profit before income tax			1,378,144			1,946,177
Income tax expense	36		(821,485	)		(590,997	)


Profit			556,659			1,355,180

Other comprehensive income (loss)
Items that will never be reclassified subsequently to profit or loss:
Remeasurements of defined benefit pension plans	21		(75,101	)		6,224
Items that are or may be reclassified subsequently to profit or loss:
Capital adjustment arising from investments in equity-method investees			(45,754	)		(183,836	)
Net changes in the unrealized fair value of available-for-sale investments	23		(333,891	)		412,346
Foreign currency translation differences			(836	)		(220,464	)


Other comprehensive income (loss), net of tax			(455,582	)		14,270


Total comprehensive income		￦	101,077			1,369,450


Profit (loss) attributable to:
Owners of the controlling company		￦	626,099			1,376,396
Non-controlling interests			(69,440	)		(21,216	)


Profit		￦	556,659			1,355,180


Total comprehensive income (loss) attributable to:
Owners of the controlling company		￦	174,918			1,444,262
Non-controlling interests			(73,841	)		(74,812	)


Total comprehensive income		￦	101,077			1,369,450


Basic and diluted earnings per share (in Won)	37		7,432			17,409

See accompanying notes to the consolidated financial statements.

POSCO and Subsidiaries

Consolidated Statements of Changes in Equity

For the years ended December 31, 2014 and 2013


	Attributable to owners of the controlling company																			Non-
(in millions of Won)	Share capital		Capital surplus			Hybrid bonds		Reserves			Treasury shares			Retained earnings			Sub total			controlling interests			Total
Balance as of January 1, 2013	￦	482,403		1,104,814			—		(88,150	)		(2,391,406	)		40,346,481			39,454,142			2,975,276			42,429,418

Comprehensive income:
Profit		—		—			—		—			—			1,376,396			1,376,396			(21,216	)		1,355,180
Other comprehensive income
Net changes in accumulated comprehensive income of investments in associates, net of tax		—		—			—		(166,787	)		—			—			(166,787	)		(17,049	)		(183,836	)
Net changes in the unrealized fair value of available-for-sale investments, net of tax		—		—			—		412,453			—			—			412,453			(107	)		412,346
Foreign currency translation differences, net of tax		—		—			—		(180,839	)		—			—			(180,839	)		(39,625	)		(220,464	)
Remeasurements of defined benefit pension plans, net of tax		—		—			—		—			—			3,039			3,039			3,185			6,224


Total comprehensive income		—		—			—		64,827			—			1,379,435			1,444,262			(74,812	)		1,369,450


Transactions with owners of the controlling company, Recognized directly in equity:
Year-end dividends		—		—			—		—			—			(463,467	)		(463,467	)		(30,544	)		(494,011	)
Interim dividends		—		—			—		—			—			(154,490	)		(154,490	)		—			(154,490	)
Changes in subsidiaries		—		—			—		—			—			—			—			40,506			40,506
Changes in ownership interests in subsidiaries		—		(31,417	)		—		—			—			—			(31,417	)		373,963			342,546
Issue of hybrid bonds		—		—			996,919		—			—			—			996,919			498,468			1,495,387
Interest of hybrid bonds		—		—			—		—			—			(24,161	)		(24,161	)		(6,228	)		(30,389	)
Disposal of treasury shares		—		5,348			—		—			812,282			—			817,630			—			817,630
Others		—		(479	)		—		247			—			6,851			6,619			(636	)		5,983


Total transactions with owners of the controlling company		—		(26,548	)		996,919		247			812,282			(635,267	)		1,147,633			875,529			2,023,162


Balance as of December 31, 2013	￦	482,403		1,078,266			996,919		(23,076	)		(1,579,124	)		41,090,649			42,046,037			3,775,993			45,822,030

See accompanying notes to the consolidated financial statements.

POSCO and Subsidiaries

Consolidated Statements of Changes in Equity, Continued

For years ended December 31, 2014 and 2013


	Attributable to owners of the controlling company																			Non-
(in millions of Won)	Share capital		Capital surplus			Hybrid bond		Reserves			Treasury shares			Retained earnings			Sub total			controlling interests			Total
Balance as of January 1, 2014	￦	482,403		1,078,266			996,919		(23,076	)		(1,579,124	)		41,090,649			42,046,037			3,775,993			45,822,030
Comprehensive income:
Profit		—		—			—		—			—			626,099			626,099			(69,440	)		556,659
Other comprehensive income
Net changes in accumulated comprehensive income of investments in associates, net of tax		—		—			—		(50,920	)		—			—			(50,920	)		5,166			(45,754	)
Net changes in the unrealized fair value of available-for-sale investments, net of tax		—		—			—		(335,626	)		—			—			(335,626	)		1,735			(333,891	)
Foreign currency translation differences, net of tax		—		—			—		517			—			—			517			(1,353	)		(836	)
Remeasurements of defined benefit pension plans, net of tax		—		—			—		—			—			(65,152	)		(65,152	)		(9,949	)		(75,101	)


Total comprehensive income		—		—			—		(386,029	)		—			560,947			174,918			(73,841	)		101,077


Transactions with owners of the controlling company, Recognized directly in equity:
Year-end dividends		—		—			—		—			—			(478,702	)		(478,702	)		(32,887	)		(511,589	)
Interim dividends		—		—			—		—			—			(159,568	)		(159,568	)		(76,854	)		(236,422	)
Changes in subsidiaries		—		—			—		—			—			—			—			91,551			91,551
Changes in ownership interests in subsidiaries		—		(9,401	)		—		—			—			—			(9,401	)		44,265			34,864
Interest of hybrid bonds		—		—			—		—			—			(43,600	)		(43,600	)		(26,175	)		(69,775	)
Disposal of treasury shares		—		14,576			—		—			44,667			—			59,243			—			59,243
Others		—		277			—		332			—			(2,168	)		(1,559	)		1,944			385


Total transactions with owners of the controlling company		—		5,452			—		332			44,667			(684,038	)		(633,587	)		1,844			(631,743	)


Balance as of December 31, 2014	￦	482,403		1,083,718			996,919		(408,773	)		(1,534,457	)		40,967,558			41,587,368			3,703,996			45,291,364

See accompanying notes to the consolidated financial statements.

POSCO and Subsidiaries

Consolidated Statements of Cash Flows

For the years ended December 31, 2014 and 2013


(in millions of Won)	Notes	2014			2013

Cash flows from operating activities
Profit		￦	556,659			1,355,180
Adjustments for:
Depreciation			2,894,609			2,505,536
Amortization			343,940			180,014
Finance income			(1,046,718	)		(1,012,281	)
Finance costs			1,801,015			1,585,778
Income tax expense			821,485			590,997
Gain on disposal of property, plant and equipment			(15,039	)		(14,177	)
Loss on disposal of property, plant and equipment			50,006			121,133
Impairment loss on property, plant and equipment			64,833			9,742
Share of loss of equity-accounted investees			299,893			179,809
Costs for defined benefit plans			237,886			247,748
Provision expense			245,470			111,364
Bad debt expenses			205,306			201,185
Loss on valuation of inventories			41,713			49,172
Impairment loss on goodwill and intangible assets			55,220			125,316
Gain on disposals of assets held for sale			(48,232	)		(101,611	)
Impairment loss on assets held for sale			17,205			1,814
Others, net			126,816			31,079


			6,095,408			4,812,618


Changes in operating assets and liabilities	40		(1,913,972	)		(116,432	)

Interest received			238,817			227,989
Interest paid			(882,183	)		(797,316	)
Dividends received			114,694			193,008
Income taxes paid			(797,324	)		(816,912	)


Net cash provided by operating activities		￦	3,412,099			4,858,135

See accompanying notes to the consolidated financial statements.

POSCO and Subsidiaries

Consolidated Statements of Cash Flows, Continued

For the years ended December 31, 2014 and 2013


(in millions of Won)	Notes	2014			2013

Cash flows from investing activities	41
Acquisitions of short-term financial instruments		￦	(3,096,602	)		(4,449,312	)
Proceeds from disposal of short-term financial instruments			4,635,120			3,901,527
Increase in loans			(361,671	)		(575,343	)
Collection of loans			76,717			417,971
Acquisitions of available-for-sale investments			(75,582	)		(309,469	)
Proceeds from disposal of available-for-sale investments			252,056			269,363
Acquisitions of investments of equity-accounted investees			(702,989	)		(1,076,763	)
Proceeds from disposal of investments of equity-accounted investees			21,359			89,533
Acquisitions of property, plant and equipment			(3,505,549	)		(6,569,613	)
Proceeds from disposal of property, plant and equipment			62,829			82,153
Acquisitions of investment property			(406,603	)		(20,945	)
Proceeds from disposal of investment property			43,167			8,464
Acquisitions of intangible assets			(343,804	)		(543,666	)
Proceeds from disposal of intangible assets			9,043			5,429
Cash received from (paid in) acquisition of business, net of cash acquired			(388,578	)		5,729
Cash received from disposal of business, net of cash transferred			48,949			5,962
Other, net			(13,044	)		7,310


Net cash used in investing activities			(3,745,182	)		(8,751,670	)

Cash flows from financing activities	41
Proceeds from borrowings			2,522,495			5,098,702
Repayment of borrowings			(2,802,150	)		(2,845,957	)
Proceeds from short-term borrowings, net			1,037,912			86,475
Payment of cash dividends			(677,000	)		(648,580	)
Proceeds from issuance of hybrid bonds			—			1,495,387
Payment of interest of hybrid bonds			(69,713	)		(26,088	)
Increase in non-controlling interests			54,066			363,044
Proceeds from disposal of treasury shares			43,188			14,019
Other, net			26,314			(4,666	)


Net cash provided by financing activities			135,112			3,532,336


Effect of exchange rate fluctuation on cash held			11,545			(110,765	)


Net decrease in cash and cash equivalents			(186,426	)		(471,964	)

Cash and cash equivalents at beginning of the period			4,208,562			4,680,526

Cash and cash equivalents classified as assets held for sale	10		(210,934	)		—


Cash and cash equivalents at end of the period		￦	3,811,202			4,208,562

See accompanying notes to the consolidated financial statements.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013

1. General Information

General information about POSCO, its 47 domestic subsidiaries including POSCO Engineering & Construction Co., Ltd., 181 foreign subsidiaries including POSCO America Corporation (collectively “the Company”) and its 97 associates and joint ventures are as follows:

(a)	The controlling company

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

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

As of December 31, 2014 and 2013, POSCO’s shareholders are as follows:


	2014				2013
Shareholder’s name	Number of shares		Ownership(%)		Number of shares		Ownership(%)
National Pension Service		7,203,493		8.26		6,577,907		7.54
Nippon Steel & Sumitomo Metal Corporation(*1)		4,394,712		5.04		4,394,712		5.04
Saudi Arabia, Kingdom of Saudi Arabia		2,109,593		2.42		948,477		1.09
Hyundai Heavy Industries Co., Ltd. and subsidiaries(*2)		1,319,560		1.51		2,197,707		2.52
Pohang University of Science and Technology		1,905,000		2.18		1,905,000		2.18
KB Financial Group Inc. and subsidiaries(*2)		1,847,438		2.12		1,846,994		2.12
Others		68,407,039		78.47		69,316,038		79.51

		87,186,835		100.00		87,186,835		100.00

(*1)	Nippon Steel & Sumitomo Metal Corporation owns American Depository Receipts (ADRs) of POSCO, each of which represents 0.25 share of POSCO’s common share which has par value of ￦5,000 per share.

(*2)	Includes shares held by subsidiaries pursuant to Articles of Incorporation.

As of December 31, 2014, the shares of POSCO are listed on the Korea Exchange, while its depository shares are listed on the New York, Tokyo and London Stock Exchanges.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

(b)	Consolidated subsidiaries

Details of consolidated subsidiaries as of December 31, 2014 and 2013 are as follows:


		Ownership (%)
		December 31, 2014						December 31, 2013
	Principal Operations	POSCO		Subsidiaries		Total		POSCO		Subsidiaries		Total		Region
[Domestic]
POSCO ENGINEERING & CONSTRUCTION., LTD.	Engineering and construction		89.53		—		89.53		89.53		—		89.53	Pohang
POSCO Processing & Service	Steel sales and service		96.01		—		96.01		95.31		—		95.31	Seoul
POSCO COATED & COLOR STEEL Co., Ltd.	Coated steel manufacturing		56.87		—		56.87		56.87		—		56.87	Pohang
POSCO ICT	Computer hardware and software distribution		65.38		—		65.38		65.38		—		65.38	Seongnam
POSCO Research Institute	Economic research and consulting		100.00		—		100.00		100.00		—		100.00	Seoul
POSMATE	Business facility maintenance		57.25		11.05		68.30		54.46		11.77		66.23	Suncheon
POSCO A&C	Architecture and consulting		100.00		—		100.00		100.00		—		100.00	Seoul
POSCO Specialty Steel Co., Ltd.	Steel manufacturing and sales		72.09		—		72.09		72.09		—		72.09	Changwon
POSCO Venture Capital Co., Ltd.	Investment in venture companies		95.00		—		95.00		95.00		—		95.00	Pohang
eNtoB Corporation	Electronic commerce		—		62.39		62.39		32.19		30.20		62.39	Seoul
POSCO CHEMTECH	Manufacturing and sellings of refractories		60.00		—		60.00		60.00		—		60.00	Pohang
POSCO-Terminal Co., Ltd.	Transporting and warehousing		51.00		—		51.00		51.00		—		51.00	Gwangyang
POSCO M-TECH(*1)	Packing materials manufacturing		48.85		—		48.85		48.85		—		48.85	Pohang
POSCO ENERGY CO., LTD.	Generation of electricity		89.02		—		89.02		89.02		—		89.02	Seoul
POSCO TMC Co., Ltd.	Component manufacturing		—		74.56		74.56		34.20		40.36		74.56	Cheonan
POSCO NIPPON STEEL RHF JOINT VENTURE. CO., Ltd.	Steel manufacturing and sales		70.00		—		70.00		70.00		—		70.00	Pohang
MegaAsset Co., Ltd.	Real estate rental and sales		—		100.00		100.00		—		100.00		100.00	Cheonan
POSCO Engineering CO., Ltd	Construction and engineering service		—		95.56		95.56		—		95.56		95.56	Seongnam
POSCO AST	Steel manufacturing and sales		—		100.00		100.00		100.00		—		100.00	Ansan
POSHIMETAL Co., Ltd.	Steel manufacturing and sales		65.00		—		65.00		65.00		—		65.00	Gwangyang
Poscoene	Handling & disposal of waste matter		—		100.00		100.00		—		100.00		100.00	Seoul
POSFINE Co., Ltd.	Non metallic minerals manufacturing		69.23		—		69.23		69.23		—		69.23	Gwangyang
POSCO Humans	Construction		90.30		—		90.30		90.30		—		90.30	Pohang
Mapo Hibroad Parking co., Ltd.	Construction		—		71.00		71.00		—		71.00		71.00	Seoul
Steel Processing and Fabricating Center Co., LTD	Steel manufacturing		—		84.89		84.89		—		70.52		70.52	Gwangyang
Plant Engineering service Technology Co., Ltd.	Engineering service		—		100.00		100.00		—		100.00		100.00	Pohang
POSCO PLANTEC Co., Ltd.	Steel work maintenance and machinery installation		60.84		13.10		73.94		—		—		—	Pohang
Busan E&E Co,. Ltd.	Handling & disposal of waste matter		70.00		—		70.00		70.00		—		70.00	Busan
POSCO Family Strategy Fund	Financial investment		60.79		39.21		100.00		60.79		39.21		100.00	Pohang
POREKA Co., Ltd.	Advertising agency		100.00		—		100.00		100.00		—		100.00	Seoul
Daewoo International Corporation	Trading and Energy & Resource development		60.31		—		60.31		60.31		—		60.31	Seoul
POSCO LED Co., Ltd.	LED lightening		16.70		63.30		80.00		16.70		63.30		80.00	Seongnam
Pohang Scrap Recycling Distribution Center Co., Ltd.	Steel processing and sales		—		51.00		51.00		—		51.00		51.00	Pohang
PSC Energy Global Co., Ltd.	Investment in energy industry		—		100.00		100.00		—		100.00		100.00	Pohang
Suncheon Eco Trans Co., Ltd	Train manufacturing & management		100.00		—		100.00		100.00		—		100.00	Suncheon
New Altec Co., Ltd	Aluminum products manufacturing and sales		—		60.10		60.10		—		60.10		60.10	Incheon
PONUTech Co., Ltd.	Nuclear power plant design and repair service		—		100.00		100.00		—		100.00		100.00	Ulsan
Tamra Offshore Wind Power Co., Ltd	Cogeneration plant operation		—		64.00		64.00		—		64.00		64.00	Jeju
POS-HiAL	Aluminum products manufacturing and sales		—		51.00		51.00		—		51.00		51.00	Youngam
IT Engineering(*2)	Automotive engineering service		—		17.00		17.00		—		17.00		17.00	Seoul
Future Creation Fund Postech Early Stage account(*2)	Investment in venture companies		—		40.00		40.00		—		—		—	Seoul
Keystone Private Equity	Investment in New Regeneration Energy		—		55.12		55.12		—		—		—	Seoul
POSCO Green Gas Technology	Gas manufacturing and Plumber		100.00		—		100.00		—		—		—	Gwangyang
POSCO WOMAN’S FUND(*2)	Investment in venture companies		—		40.00		40.00		—		—		—	Seoul
Chun Sa wind	Other development		—		100.00		100.00		—		—		—	Seoul
POSPOWER CO., Ltd.	Other development		—		100.00		100.00		—		—		—	Samchuck
Songdo Posco family Housing	House manufacturing and management		—		100.00		100.00		—		—		—	Incheon

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued


		Ownership (%)
		December 31, 2014						December 31, 2013
	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 and raw material trading		100.00		—		100.00		100.00		—		100.00	Hongkong
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		—		89.18		89.18		—		95.00		95.00	Japan
INTERNATIONAL BUSINESS CENTER CORPORATION	Leasing service		—		—		—		—		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
POSCO (Guangdong) Steel Co., Ltd.	Plating steel sheet manufacturing		87.04		10.04		97.08		87.04		10.04		97.08	China
POSCO (Thailand) Company Limited	Steel manufacturing		85.62		14.38		100.00		85.62		14.38		100.00	Thailand
Myanmar POSCO Steel Co., Ltd	Zinc relief manufacturing		70.00		—		70.00		70.00		—		70.00	Myanmar
POSCO-JOPC Co., Ltd.	Steel manufacturing		—		—		—		—		56.84		56.84	Japan
POSCO Investment Co., Ltd.	Financial Service		100.00		—		100.00		100.00		—		100.00	Hongkong
POSCO-MKPC SDN BHD	Steel manufacturing		44.69		25.31		70.00		44.69		25.31		70.00	Malaysia
Qingdao Pohang Stainless	Stainless steel manufacturing		70.00		30.00		100.00		70.00		30.00		100.00	China
POSCO (Suzhou) Automotive Processing Center Co., Ltd.	Steel manufacturing		90.00		10.00		100.00		90.00		10.00		100.00	China
POSCO BIOVENTURES I, L.P.	Bio tech Industry		—		100.00		100.00		—		100.00		100.00	USA
PT. POSNESIA Stainless Steel Industry	Steel manufacturing		70.00		—		70.00		70.00		—		70.00	Indonesia
POSEC Hawaii, Inc.	Real estate Industry		—		100.00		100.00		—		100.00		100.00	USA
POSCO-China Qingdao Processing Center Co., Ltd.	Steel manufacturing		—		100.00		100.00		—		100.00		100.00	China
POS-ORE PTY LTD	Iron ore sales & mine development		—		100.00		100.00		—		100.00		100.00	Australia
POSCO-China Holding Corp.	Holding company		100.00		—		100.00		100.00		—		100.00	China
POSCO JAPAN Co., Ltd.	Steel trading		100.00		—		100.00		100.00		—		100.00	Japan
POS-CD PTY LTD	Coal sales		—		100.00		100.00		—		100.00		100.00	Australia
POS-GC PTY LTD	Coal sales		—		100.00		100.00		—		100.00		100.00	Australia
POSCO-India Private Limited	Steel manufacturing		100.00		—		100.00		100.00		—		100.00	India
POSCO-India Pune Processing Center. Pvt. Ltd.	Steel manufacturing		65.00		—		65.00		65.00		—		65.00	India
POSCO-JEPC Co., Ltd.	Steel manufacturing		—		88.02		88.02		—		88.02		88.02	Japan
POSCO-CFPC Co., Ltd.	Steel manufacturing		39.60		60.40		100.00		39.60		60.40		100.00	China
POSCO E&C CHINA Co., Ltd.	Construction and civil engineering		—		100.00		100.00		—		100.00		100.00	China
POSCO MPPC S.A. de C.V.	Steel manufacturing		—		95.00		95.00		—		95.00		95.00	Mexico
Zhangjigang Pohang Port Co., Ltd.	Loading and unloading service		—		100.00		100.00		—		100.00		100.00	China
Qingdao Pos-metal Co., Ltd.	Steel manufacturing		—		100.00		100.00		—		100.00		100.00	China
POSCO-VIETNAM Co., Ltd.	Steel manufacturing		85.00		—		85.00		85.00		—		85.00	Vietnam
POSCO MEXICO S.A. DE C.V.	Automotive steel sheet manufacturing		84.84		15.16		100.00		84.84		15.16		100.00	Mexico
POSCO India Delhi Steel Processing Centre Private Limited	Steel manufacturing		66.40		10.00		76.40		66.40		10.00		76.40	India
POSCO-Poland Wroclaw Processing Center Sp. z o. o.	Steel manufacturing		60.00		—		60.00		60.00		—		60.00	Poland
POS-NP PTY LTD	Coal sales		—		100.00		100.00		—		100.00		100.00	Australia
POSCO-Vietnam Processing Center Co., Ltd.	Steel manufacturing		87.10		5.00		92.10		91.63		—		91.63	Vietnam
POSCO (Chongqing) Automotive Processing Center Co., Ltd.	Steel manufacturing		90.00		10.00		100.00		90.00		10.00		100.00	China
SUZHOU POSCO-CORE TECHNOLOGY CO., LTD.	Component manufacturing		—		100.00		100.00		—		100.00		100.00	China
POSCO-Malaysia SDN. BHD.	Steel manufacturing		81.79		13.63		95.42		80.07		13.34		93.41	Malaysia
POS-Minerals Corporation	Mine development & sales		—		100.00		100.00		—		100.00		100.00	USA
POSCO (Wuhu) Automotive Processing Center Co., Ltd.	Steel manufacturing		68.57		31.43		100.00		68.57		31.43		100.00	China
POSCO Engineering and Construction India Private Limited	Construction and engineering		—		100.00		100.00		—		100.00		100.00	India
POSCO E&C SMART S DE RL DE CV	Construction and engineering		—		100.00		100.00		—		100.00		100.00	Mexico

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued


		Ownership (%)
		December 31, 2014						December 31, 2013
	Principal Operations	POSCO		Subsidiaries		Total		POSCO		Subsidiaries		Total		Region
POSCO Philippine Manila Processing Center, Inc.	Steel manufacturing		—		100.00		100.00		—		100.00		100.00	Philippines
POSCO Gulf SFC LLC	Steel manufacturing		—		81.93		81.93		—		81.93		81.93	UAE
Dalian POSCO ICT-DONGFANG Engineering Co., Ltd.	Electric control equipment manufacturing		—		100.00		100.00		—		100.00		100.00	China
SANPU TRADING Co., Ltd.	Raw material trading		—		70.00		70.00		—		70.00		70.00	China
Zhangjiagang BLZ Pohang International Trading	Steel transit trading		—		100.00		100.00		—		100.00		100.00	China
POSCO MEXICO HUMAN TECH S.A. de C.V.	Service		80.00		20.00		100.00		80.00		20.00		100.00	Mexico
POSCO MESDC S.A. DE C.V.	Steel product sales		—		56.80		56.80		—		56.80		56.80	Mexico
POSCO ICT-China	IT service and DVR business		—		100.00		100.00		—		100.00		100.00	China
DWEMEX, S.A.DE.C.V.	Construction		—		99.00		99.00		—		99.00		99.00	Mexico
POSCO MPC Servicios S.A. de C.V.	Steel manufacturing		—		61.00		61.00		—		61.00		61.00	Mexico
POSCO-Uruguay S.A	Lumber manufacturing & sales		98.10		—		98.10		98.00		—		98.00	Uruguay
Pos-Sea Pte Ltd	Steel transit trading		—		67.54		67.54		—		67.54		67.54	Singapore
POSCO Europe Steel Distribution Center	Steel product sales		50.00		20.00		70.00		50.00		20.00		70.00	Slovenia
VECTUS LIMITED	PRT test track construction		—		99.69		99.69		—		99.57		99.57	England
Zeus (Cayman)	Service		100.00		—		100.00		100.00		—		100.00	Cayman Islands
POSCO VST CO., LTD.	Stainless steel manufacturing		95.65		—		95.65		95.65		—		95.65	Vietnam
POSCO Maharashtra Steel Private Limited	Steel manufacturing		100.00		—		100.00		100.00		—		100.00	India
[Foreign]
POSCO India Chennai Steel Processing Centre Pvt. Ltd.	Steel manufacturing		100.00		—		100.00		100.00		—		100.00	India
POSCO TNPC Otomotiv Celik San. Ve Tic. A.S	Steel manufacturing		100.00		—		100.00		100.00		—		100.00	Turkey
POSCO Vietnam Ha Noi Processing Center Co., Ltd.	Steel manufacturing		70.00		—		70.00		70.00		—		70.00	Vietnam
POSCO (Liaoning) Automotive Processing Center Co., Ltd.	Steel manufacturing		90.00		10.00		100.00		90.00		10.00		100.00	China
POSCO-Indonesia Jakarta Processing Center	Steel manufacturing		65.00		20.00		85.00		65.00		20.00		85.00	Indonesia
POSCO E&C VENEZUELA C.A.	Construction and engineering		—		100.00		100.00		—		100.00		100.00	Venezuela
Motta Resources Indonesia	Mine development		65.00		—		65.00		65.00		—		65.00	Indonesia
POSCO TMC INDIA PRIVATE LIMITED	Steel manufacturing		—		100.00		100.00		—		100.00		100.00	India
POSCO America Alabama Processing Center Co., Ltd.	Steel manufacturing		—		100.00		100.00		—		100.00		100.00	USA
PT PEN INDONESIA	Construction		—		67.00		67.00		—		95.00		95.00	Indonesia
POSCO (Yantai) Automotive Processing Center Co., Ltd.	Steel manufacturing		90.00		10.00		100.00		90.00		10.00		100.00	China
POSCO India Steel Distribution Center Private Ltd.	Steel logistics		—		100.00		100.00		—		100.00		100.00	India
POSCO China Dalian Plate Processing Center Co., Ltd.	Steel manufacturing		80.00		10.00		90.00		80.00		10.00		90.00	China
POSCO-South Asia Company Limited	Steel product sales		100.00		—		100.00		100.00		—		100.00	Thailand
POSCO SS-VINA	Steel manufacturing		—		100.00		100.00		—		100.00		100.00	Vietnam
POSCO-NCR Coal Ltd.	Coal sales		—		100.00		100.00		—		100.00		100.00	Canada
POSCO WA PTY LTD	Iron ore sales & mine development		100.00		—		100.00		100.00		—		100.00	Australia
POSCO Engineering and Construction - UZ	Construction		—		100.00		100.00		—		100.00		100.00	Uzbekistan
POSCO AUSTRALIA GP PTY LIMITED	Resource development		—		100.00		100.00		—		100.00		100.00	Australia
Daewoo International (America) Corp.	Trading business		—		100.00		100.00		—		100.00		100.00	USA
Daewoo International (Deutschland) GmbH.	Trading business		—		100.00		100.00		—		100.00		100.00	Germany
Daewoo International Japan Corp.	Trading business		—		100.00		100.00		—		100.00		100.00	Japan
DAEWOO INTERNATIONAL SINGAPORE PTE. LTD.	Trading business		—		100.00		100.00		—		100.00		100.00	Singapore
Daewoo Italia S.r.l.	Trading business		—		100.00		100.00		—		100.00		100.00	Italy

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued


		Ownership (%)
		December 31, 2014						December 31, 2013
	Principal Operations	POSCO		Subsidiaries		Total		POSCO		Subsidiaries		Total		Region
Daewoo (China) Co., Ltd.	Trading business		—		100.00		100.00		—		100.00		100.00	China
DAEWOO TEXTILE FERGANA LLC	Textile manufacturing		—		100.00		100.00		—		100.00		100.00	Uzbekistan
DAEWOO TEXTILE BUKHARA LLC	Textile manufacturing		—		100.00		100.00		—		100.00		100.00	Uzbekistan
DAEWOO INTERNATIONAL AUSTRALIA HOLDINGS PTY LTD	Resource development		—		100.00		100.00		—		100.00		100.00	Australia
Daewoo Paper Manufacturing Co., Ltd.	Paper manufacturing		—		66.70		66.70		—		66.70		66.70	China
Tianjin Daewoo Paper Manufacturing Co., Ltd.	Paper manufacturing		—		68.30		68.30		—		68.30		68.30	China
POSCO MAURITIUS LIMITED	Coal development and sales		—		100.00		100.00		—		100.00		100.00	Mauritius
PT. KRAKATAU POSCO	Steel manufacturing		70.00		—		70.00		70.00		—		70.00	Indonesia
Myanmar Daewoo Limited	Trading business		—		100.00		100.00		—		100.00		100.00	Myanmar
DAEWOO INTERNATIONAL MEXICO S.A. DE C.V.	Trading business		—		100.00		100.00		—		100.00		100.00	Mexico
Daewoo International Guangzhou Corp.	Trading business		—		100.00		100.00		—		100.00		100.00	China
Daewoo (M) SDN. BHD.	Trading business		—		100.00		100.00		—		100.00		100.00	Malaysia
Daewoo EL SALVADOR S.A. DE C.V.	Trading business		—		88.00		88.00		—		88.00		88.00	El Salvador
POSCO (Zhangjiagang) STS Processing Center Co., Ltd	Steel manufacturing		—		100.00		100.00		—		100.00		100.00	China
Daewoo International (M) SDN BHD	Trading business		—		100.00		100.00		—		100.00		100.00	Malaysia
Daewoo International SHANGHAI CO., LTD.	Trading business		—		100.00		100.00		—		100.00		100.00	China
DAEWOO POWER AND INFRA (PTY) LTD.	Electricity		—		100.00		100.00		—		100.00		100.00	Republic of South Africa
PGSF, L.P.	Investment in Bio tech Industry		—		100.00		100.00		—		100.00		100.00	USA
Xenesys Inc.	Power generation equipment manufacturing		29.58		21.35		50.93		29.58		21.35		50.93	Japan
Daewoo International INDIA Private Ltd.	Trading business		—		100.00		100.00		—		100.00		100.00	India
TECHREN Solar, LLC	Electrical Industry		—		99.92		99.92		—		99.92		99.92	USA
PT. POSCO E&C INDONESIA	Construction		—		100.00		100.00		—		100.00		100.00	Indonesia
HUME COAL PTY LTD	Raw material manufacturing		—		100.00		100.00		—		100.00		100.00	Australia
POSCO FOUNDATION	Non-profit charitable organization		—		100.00		100.00		—		100.00		100.00	India
EPC EQUITIES LLP	Construction		—		80.00		80.00		—		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 CONSTRUCCIONES S.A.	Construction		—		100.00		100.00		—		100.00		100.00	Uruguay
GENTECH INTERNATIONAL INC.	Construction		—		90.00		90.00		—		90.00		90.00	Panama
EPC INVESTMENTS C.V.	Construction		—		99.99		99.99		—		99.99		99.99	Netherlands
SANTOSCMI S.A.	Construction		—		80.00		80.00		—		70.00		70.00	Ecuador
SANTOSCMI CONSTRUCCIONES DE CHILE S.A.	Construction		—		99.00		99.00		—		99.00		99.00	Chile
S&K -SANTOSCMI S.A. DE C.V.	Construction		—		—		—		—		99.00		99.00	Mexico
COMPANIADEAUTOMATIZACION & 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
POSCO ENGINEERING & CONSTRUCTION DO BRAZIL LTDA.	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 S.A.	Resource Development		—		—		—		—		100.00		100.00	Cameroon

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued


		Ownership (%)
		December 31, 2014						December 31, 2013
	Principal Operations	POSCO		Subsidiaries		Total		POSCO		Subsidiaries		Total		Region
[Foreign]
POSCO ASSAN TST STEEL INDUSTRY	Steel manufacturing		60.00		10.00		70.00		60.00		10.00		70.00	Turkey
HONG KONG POSCO E&C (CHINA) INVESTMENT Co., Ltd.	Investment		—		100.00		100.00		—		100.00		100.00	Hongkong
POSCO Klappan Coal Ltd.	Coal sales		—		100.00		100.00		—		100.00		100.00	Canada
DAESAN (CAMBODIA) Co., Ltd.	Investment		—		100.00		100.00		—		100.00		100.00	Cambodia
Brazil Sao Paulo Steel Processing Center	Steel manufacturing		—		76.00		76.00		—		76.00		76.00	Brazil
POSCO (Dalian) IT Center Development Co., Ltd.	Investment		—		100.00		100.00		—		100.00		100.00	China
PT. POSCO RESOURCES INDONESIA	Mine development		100.00		—		100.00		100.00		—		100.00	Indonesia
PT. POSCO ICT INDONESIA	IT service and Electric Control Engineering		—		66.99		66.99		—		66.99		66.99	Indonesia
PT. POSCO MTECH INDONESIA	Steel manufacturing		—		71.43		71.43		—		60.00		60.00	Indonesia
PT. KRAKATAU POSCO ENERGY	Manufacturing & management		—		90.00		90.00		—		90.00		90.00	Indonesia
POSCO RUS LLC	Trading business		90.00		10.00		100.00		90.00		10.00		100.00	Russia
POSCO Thainox Public Company Limited	Steel manufacturing		84.93		—		84.93		84.93		—		84.93	Thailand
DAEWOO INTERNATIONAL SHANGHAI WAIGAOQIAO CO., LTD.	Merchandising trade		—		100.00		100.00		—		100.00		100.00	China
PT. Bio Inti Agrindo	Forest resources development		—		85.00		85.00		—		85.00		85.00	Indonesia
POSCO ENGINEERING AND CONSTRUCTION AUSTRALIA PTY LTD	Iron ore sales		—		100.00		100.00		—		100.00		100.00	Australia
POSCO-TISCO (JILIN) PROCESSING CENTER Co., Ltd.	Steel manufacturing		50.00		10.00		60.00		50.00		10.00		60.00	China
Hunchun Posco Hyundai International Logistics Complex Development Co., Ltd	Logistics		—		80.00		80.00		—		72.93		72.93	China
USA-SRDC	Scrap sales		—		100.00		100.00		—		100.00		100.00	USA
Daewoo International Vietnam Co., Ltd.	Trading business		—		100.00		100.00		—		100.00		100.00	Vietnam
PT.Krakatau Posco Chemtech Calcination	Manufacturing and selling of quicklime		—		80.00		80.00		—		80.00		80.00	Indonesia
POSCO AFRICA (PROPRIETARY) LIMITED	Trading business		100.00		—		100.00		100.00		—		100.00	Republic of South Africa
EPC INGENIERIA & SERVICIOS DE COSTA RICA SA	Construction and engineering service		—		100.00		100.00		—		100.00		100.00	Costa Rica
POSCO ICT BRASIL	IT service and engineering		—		100.00		100.00		—		100.00		100.00	Brazil
LA-SRDC	Scrap manufacturing		—		68.41		68.41		—		68.41		68.41	USA
DONG FANG JIN HONG	Real estate development, rental and management		—		99.00		99.00		—		99.00		99.00	China
PRODUCTOS OFERTAS SISTEMAS Y COMERCIALIZADORA ORIENTAL S DE RL DE CV	Steel manufacturing and sales		—		100.00		100.00		—		100.00		100.00	Mexico
POSCO (Guangdong) Automotive Steel Co., Ltd.	Steel manufacturing and sales		83.64		10.00		93.64		83.64		10.00		93.64	China
POSCO MAPC SA DE CV	Steel manufacturing and sales		80.00		20.00		100.00		80.00		20.00		100.00	Mexico
POSCO AMERICA COMERCIALIZADORA S DE RL DE CV	Human-resource service		—		100.00		100.00		—		100.00		100.00	Mexico
POSCO ENGINEERING (THAILAND) CO., LTD.(*2)	Chemical plant		—		48.90		48.90		—		48.90		48.90	Thailand
POSCO YongXin Rare Earth Metal Co., Ltd.	Magnet material manufacturing and sales		—		51.67		51.67		—		51.67		51.67	China
POSCO-Mory-Maruyasu PIPE	Common steel welded pipe manufacturing and selling		—		50.00		50.00		—		50.00		50.00	Japan
PT KRAKATAU BLUE WATER	Wastewater treatment facilities operation and maintenance		—		67.00		67.00		—		67.00		67.00	Indonesia

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued


		Ownership (%)
		December 31, 2014						December 31, 2013
	Principal Operations	POSCO		Subsidiaries		Total		POSCO		Subsidiaries		Total		Region
KRAKATAU POS-CHEM DONG-SUH CHEMICAL(*2)	Chemical by-product manufacturing and sales		—		45.00		45.00		—		45.00		45.00	Indonesia
Myanmar Daewoo International Corporation	Trading business		—		100.00		100.00		—		100.00		100.00	Myanmar
POSCO-Italy Processing Center	Stainless steel sheet manufacturing and sales		80.00		10.00		90.00		80.00		10.00		90.00	Italy
DAEWOO E&P CANADA CORPORATION	Crude oil and natural gas mining		—		100.00		100.00		—		100.00		100.00	Canada
Yingkou Puxiang Trade Co., Ltd.	Refractory quality test and import and export trade		—		100.00		100.00		—		100.00		100.00	China
Myanmar POSCO C&C Company, Limited.	Steel manufacturing and sales		—		70.00		70.00		—		70.00		70.00	Myanmar
POSCO ICT VIETNAM	IT service and electric control engineering		—		100.00		100.00		—		100.00		100.00	Vietnam
Daewoo Global Development. Pte., Ltd	Real estate development		—		51.00		51.00		—		51.00		51.00	Myanmar
Myanmar POSCO Engineering & Construction Company, Limited.	Construction and engineering service		—		100.00		100.00		—		100.00		100.00	Myanmar
POSCO COATED STEEL (THAILAND) CO., LTD.	Automotive steel sheet manufacturing and sales		100.00		—		100.00		100.00		—		100.00	Thailand
POSCO China Suzhou Processing Center Co., Ltd (formerly, POSCO-SAMSUNG Suzhou Processing Center Co., Ltd.)	Steel manufacturing		30.00		70.00		100.00		—		—		—	China
Hanjung Power Pty., Ltd	Electricity production		—		100.00		100.00		—		—		—	Papua New Guinea
Daewoo Amara Company Limited	Real estate development		—		98.54		98.54		—		—		—	Myanmar
POSMATE-CHINA CO., LTD	Business facility maintenance		—		100.00		100.00		—		—		—	China
Daewoo Precious Resources Co., Ltd.	Resources development		—		60.00		60.00		—		—		—	Myanmar
POSCO-Mexico Villagran Wire-rod Processing Center	Steel manufacturing		56.75		10.00		66.75		—		—		—	Mexico
SANTOS CMI Guatemala S.A.	Construction		—		99.00		99.00		—		—		—	Guatemala
POSCO-China Dalian Steel Fabricating Center	Steel manufacturing		42.16		25.39		67.55		—		—		—	China
POSCO E&C HOLDINGS CO., Ltd.	Holding company		—		100.00		100.00		—		—		—	Thailand
POSCO E&C (THAILAND) CO., Ltd.	Construction		—		100.00		100.00		—		—		—	Thailand
SUNGJIN CANADA LTD.	Machinery installation		—		70.00		70.00		—		—		—	Canada
POSCO PLANTEC Thailand CO. LTD(*2)	Steel work maintenance and machinery installation		—		48.78		48.78		—		—		—	Thailand
DAEWOO POWER PNG Ltd.	Electricity production		—		100.00		100.00		—		—		—	Papua New Guinea

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

(*1)	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 a 4.72% ownership interest.

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

The amounts recognized in equity as a result of changes in the Company’s ownership interests in subsidiaries that did not result in a loss of control (2014: POSCO P&S Co., Ltd., SPFC Co., Ltd. etc.,; 2013: POSCO Specialty Steel Co., Ltd., POSCO ICT Co., Ltd., POSCO TMC Co., Ltd. etc.) were ￦9,401 million and ￦31,417 million for the years ended December 31, 2014 and 2013, respectively.

As of December 31, 2014, there are no restrictions on the ability of subsidiaries to transfer funds to the controlling company, such as in the form of cash dividends, repayment of loans or payment of advances.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

(c)	Summarized financial information of subsidiaries as of and for the years ended December 31, 2014 and 2013 are as follows:

December 31, 2014


(in millions of Won)
Company	Assets		Liabilities		Equity (deficit)			Sales		Net income (loss)
[Domestic]
POSCO ENGINEERING & CONSTRUCTION CO., LTD.	￦	6,566,784		3,594,334		2,972,450			7,514,710		13,353
POSCO Processing & Service		1,297,049		425,568		871,481			3,162,892		(14,418	)
POSCO COATED & COLOR STEEL Co., Ltd.		423,833		257,365		166,468			801,982		(1,881	)
POSCO ICT		721,006		298,718		422,288			921,524		20,327
POSCO Research Institute		37,511		10,118		27,393			59,851		897
POSMATE (formerly, Seoung Gwang Co., Ltd.)		243,499		64,530		178,969			132,292		9,892
POSCO A&C		86,469		53,203		33,266			189,401		(6,755	)
POSCO Specialty Steel Co., Ltd.		1,693,511		744,776		948,735			1,261,374		(20,126	)
POSTECH Venture Capital Co., Ltd.		163,045		52,034		111,011			16,074		4,073
eNtoB Corporation		96,251		61,188		35,063			694,731		2,468
POSCO CHEMTECH		645,782		138,334		507,448			1,330,564		70,544
POSCO-Terminal Co., Ltd.		155,298		14,379		140,919			116,449		18,153
POSCO M-TECH		220,770		171,484		49,286			437,995		(100,718	)
POSCO ENERGY CO., LTD.		4,645,722		3,061,231		1,584,491			2,533,673		19,254
POSCO TMC Co., Ltd.		212,215		124,789		87,426			320,403		(3,418	)
POSCO NIPPON STEEL RHF JOINT VENTURE. CO., Ltd.		129,227		77,319		51,908			64,879		5,061
MegaAsset Co., Ltd.		96,884		51,690		45,194			97,793		(3,489	)
POSCO Engineering CO., Ltd		568,164		398,179		169,985			928,505		1,308
POSCO AST		494,743		349,438		145,305			621,944		(7,146	)
POSHIMETAL Co., Ltd.		348,050		353,470		(5,420	)		186,634		(14,184	)
Poscoene		39,990		17,647		22,343			33,140		(12	)
POSFINE Co., Ltd.		53,556		40,662		12,894			22,489		(506	)
POSCO Humans		15,784		7,791		7,993			32,998		(1,451	)
Mapo Hibroad Parking co., Ltd.		1,541		323		1,218			—		(27	)
Steel Processing and Fabricating Center Co., LTD		150,587		84,928		65,659			176,558		(7,051	)
Plant Engineering service Technology Co., Ltd.		11,255		4,532		6,723			21,052		3,406
POSCO PLANTEC Co., Ltd.		745,763		529,904		215,859			618,580		(279,217	)
Busan E&E Co,. Ltd.		97,734		57,278		40,456			22,096		897
POSCO Family Strategy Fund		53,144		—		53,144			1,249		(9,495	)
POREKA Co., Ltd.		19,791		15,924		3,867			20,477		(175	)
Daewoo International Corporation		8,631,129		6,287,212		2,343,917			19,938,097		173,421
POSCO LED Co., Ltd.		47,561		46,154		1,407			50,005		(5,718	)
Pohang Scrap Recycling Distribution Center Co., Ltd.		16,938		326		16,612			3,994		426
PSC Energy Global Co., Ltd.		108,792		8		108,784			—		(4,138	)
Suncheon Eco Trans Co., Ltd		69,362		46,226		23,136			1,295		(5,098	)
New Altec Co., Ltd		128,050		33,347		94,703			72,145		(1,867	)
PONUTech Co., Ltd.		110,739		84,288		26,451			48,581		(8,047	)
Tamra Offshore Wind Power Co., Ltd		26,881		12		26,869			—		141
POS-HiAL		60,794		53,068		7,726			1,445		(8,576	)
IT Engineering		6,002		2,274		3,728			7,666		51
Future Creation Fund Postech Early Stage account		16,590		3		16,587			98		(659	)
Keystone Private Equity		24,139		107		24,032			—		(4,143	)
POSCO Green Gas Technology		894,226		214,915		679,311			—		(3,289	)
POSCO WOMAN’S FUND		2,916		1		2,915			21		(85	)
POSPOWER CO., Ltd.		79,222		1,911		77,311			—		(1,190	)
Songdo Posco family Housing		69,125		68,135		990			—		(10	)

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued


(in millions of Won)
Company	Assets		Liabilities		Equity (deficit)			Sales		Net income (loss)
[Foreign]
POSCO America Corporation	￦	515,212		451,641		63,571			921,052		(17,185	)
POSCO AUSTRALIA PTY LTD		720,400		59,585		660,815			91,250		78,401
POSCO Canada Ltd.		585,737		75,284		510,453			142,286		41,083
POSCO Asia Co., Ltd.		1,064,932		1,018,268		46,664			3,561,754		5,570
POSCO-CTPC Co., Ltd.		106,837		67,556		39,281			138,102		2,145
POSCO-JKPC Co., Ltd.		105,381		85,664		19,717			216,557		990
POSCO E&C Vietnam Co., Ltd.		266,220		203,011		63,209			493,472		14,905
Zhangjiagang Pohang Stainless Steel Co., Ltd.		1,353,790		837,341		516,449			3,022,527		7,336
POSCO (Guangdong) Steel Co., Ltd.		115,250		72,510		42,740			185,880		(2,397	)
POSCO (Thailand) Company Limited		111,616		66,827		44,789			169,822		(356	)
Myanmar POSCO Steel Co., Ltd		19,206		846		18,360			15,393		1,058
POSCO Investment Co., Ltd.		852,003		742,198		109,805			14,865		5,302
POSCO-MKPC SDN BHD		114,638		72,849		41,789			162,687		(1,682	)
Qingdao Pohang Stainless Steel Co., Ltd.		192,701		107,717		84,984			347,484		(7,313	)
POSCO (Suzhou) Automotive Processing Center Co., Ltd.		373,257		248,405		124,852			460,216		8,821
POSCO BIOVENTURES I, L.P.		7,016		41		6,975			351		(992	)
PT. POSNESIA Stainless Steel Industry		12,080		—		12,080			—		29
POSEC Hawaii, Inc.		280		5		275			—		(43	)
POSCO-China Qingdao Processing Center Co., Ltd.		53,358		37,951		15,407			99,795		557
POS-ORE PTY LTD		22,757		13,589		9,168			112,323		32,629
POSCO-China Holding Corp.		430,973		173,012		257,961			220,376		880
POSCO JAPAN Co., Ltd.		631,040		520,718		110,322			1,440,254		13,854
POS-CD PTY LTD		29,252		13,661		15,591			11,873		(24,933	)
POS-GC PTY LTD		46,289		42,339		3,950			3,354		(6,004	)
POSCO-India Private Limited		118,083		1,186		116,897			—		71
POSCO-India Pune Processing Center. Pvt. Ltd.		194,840		187,259		7,581			335,847		3,356
POSCO-JEPC Co., Ltd.		155,248		137,364		17,884			283,836		1,558
POSCO-CFPC Co., Ltd.		211,258		165,223		46,035			638,272		1,289
POSCO E&C CHINA Co., Ltd.		275,313		201,973		73,340			319,427		17,504
POSCO MPPC S.A. de C.V.		236,416		202,138		34,278			348,507		2,985
Zhangjigang Pohang Port Co., Ltd.		22,145		5,567		16,578			6,167		516
Qingdao Pos-metal Co., Ltd.		5,368		5,838		(470	)		34,511		72
POSCO-VIETNAM Co., Ltd.		558,841		532,066		26,775			645,269		(6,334	)
POSCO MEXICO S.A. DE C.V.		806,888		598,459		208,429			492,045		168
POSCO India Delhi Steel Processing Centre Private Limited		119,803		113,271		6,532			170,150		(1,348	)
POSCO-Poland Wroclaw Processing Center Sp. z o. o.		38,960		21,430		17,530			49,446		73
POS-NP PTY LTD		36,662		21,434		15,228			17,092		(14,860	)
POSCO-Vietnam Processing Center Co., Ltd.		128,334		100,033		28,301			208,533		1,147
POSCO(Chongqing) Automotive Processing Center Co., Ltd.		94,082		67,088		26,994			128,069		3,392
SUZHOU POSCO-CORE TECHNOLOGY CO., LTD.		54,488		30,627		23,861			88,534		(1,001	)
POSCO-Malaysia SDN. BHD.		76,452		87,145		(10,693	)		112,578		(5,933	)
POS-Minerals Corporation		228,578		132,804		95,774			—		(5,999	)
POSCO(Wuhu) Automotive Processing Center Co., Ltd.		89,252		45,002		44,250			127,266		2,487
POSCO Engineering and Construction India Private Limited		13,444		4,737		8,707			39,427		1,564
POSCO E&C SMART S DE RL DE CV		14,365		10,040		4,325			4,077		730
POSCO Philippine Manila Processing Center, Inc.		25,367		14,501		10,866			30,918		577
POSCO China Suzhou Processing Center Co., Ltd (formerly, POSCO-SAMSUNG Suzhou Processing Center Co., Ltd.)		20,079		15,150		4,929			28,466		(308	)
POSCO Gulf SFC LLC		73,679		70,267		3,412			32,464		(2,090	)
Dalian POSCO ICT-DONGFANG Engineering Co., Ltd.		4,388		1,952		2,436			7,436		77
SANPU TRADING Co., Ltd.		1,859		—		1,859			69		23
Zhangjiagang BLZ Pohang International Trading		10,683		5,421		5,262			67,936		180
POSCO MEXICO HUMAN TECH S.A. de C.V.		1,314		1,129		185			10,209		72
POSCO MESDC S.A. DE C.V.		11,772		277		11,495			6,865		361

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued


(in millions of Won)
Company	Assets		Liabilities		Equity (deficit)			Sales		Net income (loss)
[Foreign]
POSCO ICT-China	￦	5,465		4,484		981			11,439		347
DWEMEX, S.A.DE.C.V.		169		25		144			—		(8	)
POSCO MPC Servicios S.A. de C.V.		1,403		1,121		282			7,449		28
POSCO-Uruguay S.A		21,408		168		21,240			8		(482	)
Pos-Sea Pte Ltd		43,343		43,168		175			200,491		(2,505	)
POSCO Europe Steel Distribution Center		7,880		1,382		6,498			15,151		693
POSCO ENGINEERING (THAILAND) CO., LTD.		47,197		44,170		3,027			118,897		2,202
VECTUS LIMITED		1,942		12,272		(10,330	)		3,252		1,993
POSCO VST CO., LTD.		345,119		320,642		24,477			414,452		(4,416	)
POSCO Maharashtra Steel Private Limited		1,408,178		1,210,616		197,562			376,207		(26,742	)
POSCO India Chennai Steel Processing Centre Pvt. Ltd.		115,574		104,350		11,224			173,873		2,426
POSCO TNPC Otomotiv Celik San. Ve Tic. A.S		38,009		31,066		6,943			48,985		56
POSCO Vietnam Ha Noi Processing Center Co., Ltd.		68,454		60,593		7,861			149,408		1,047
POSCO(Liaoning) Automotive Processing Center Co., Ltd.		90,145		58,957		31,188			155,931		4,184
POSCO-Indonesia Jakarta Processing Center		102,635		86,082		16,553			72,998		(1,175	)
POSCO E&C VENEZUELA C.A.		160		6		154			—		(189	)
Motta Resources Indonesia		3,723		18,391		(14,668	)		—		(367	)
POSCO TMC INDIA PRIVATE LIMITED		12,037		10,250		1,787			21,278		(128	)
POSCO America Alabama Processing Center Co., Ltd.		50,401		37,403		12,998			102,543		620
PT PEN INDONESIA		8,758		17,293		(8,535	)		14,765		(10,701	)
POSCO(Yantai) Automotive Processing Center Co., Ltd.		68,503		47,304		21,199			91,994		2,783
POSCO India Steel Distribution Center Private Ltd.		12,750		10,419		2,331			31,734		650
POSCO China Dalian Plate Processing Center Co., Ltd.		117,991		104,670		13,321			40,761		(7,434	)
POSCO-South Asia Company Limited		14,189		231		13,958			9,460		605
POSCO SS-VINA		670,244		422,339		247,905			—		(8,422	)
POSCO WA PTY LTD		450,307		8		450,299			—		(6,957	)
POSCO Engineering and Construction - UZ		5,479		4,394		1,085			2,967		222
POSCO AUSTRALIA GP PTY LIMITED		26,521		3		26,518			—		(11,381	)
POSCO YongXin Rare Earth Metal Co., Ltd.		76,178		96,493		(20,315	)		36,803		(9,979	)
Hanjung Power Pty., Ltd		26,855		12,737		14,118			39,364		8,441
Daewoo International (America) Corp.		556,964		506,331		50,633			1,336,452		2,660
Daewoo International (Deutschland) GmbH.		208,781		198,442		10,339			422,239		31
Daewoo International Japan Corp.		262,049		256,088		5,961			762,596		311
DAEWOO INTERNATIONAL SINGAPORE PTE. LTD.		197,342		193,290		4,052			1,084,755		123
Daewoo Italia S.r.l.		73,310		68,619		4,691			259,456		235
Daewoo (China) Co., Ltd.		121,588		71,510		50,078			320,028		1,275
DAEWOO TEXTILE FERGANA LLC		87,729		57,609		30,120			99,825		889
DAEWOO TEXTILE BUKHARA LLC		51,456		31,530		19,926			40,903		1,575
DAEWOO INTERNATIONAL AUSTRALIA HOLDINGS PTY LTD		125,964		24,150		101,814			22,493		(759	)
Daewoo Paper Manufacturing Co., Ltd.		63,029		71,231		(8,202	)		50,188		(4,253	)
Tianjin Daewoo Paper Manufacturing Co., Ltd.		14,166		32,073		(17,907	)		—		—
POSCO MAURITIUS LIMITED		26,585		4		26,581			—		(11	)
PT. KRAKATAU POSCO		3,955,121		3,131,407		823,714			1,129,977		(250,848	)
Myanmar Daewoo Limited		677		692		(15	)		—		(180	)
DAEWOO INTERNATIONAL MEXICO S.A. DE C.V.		101,819		94,153		7,666			249,722		2,128
Daewoo International Guangzhou Corp.		6,152		5,994		158			27,280		(428	)

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued


(in millions of Won)
Company	Assets		Liabilities		Equity (deficit)			Sales		Net income (loss)
[Foreign]
POSCO (Zhangjiagang) STS Processing Center Co., Ltd	￦	73,628		59,946		13,682			395,782		375
Daewoo International (M) SDN BHD		39,461		36,902		2,559			102,439		314
Daewoo International SHANGHAI CO., LTD.		39,981		31,572		8,409			30,161		330
PGSF, L.P.		9,290		2		9,288			—		1,452
Xenesys Inc.		5,141		1,713		3,428			2,668		(1,900	)
Daewoo International INDIA Private Ltd.		29,318		27,241		2,077			58,090		283
TECHREN Solar, LLC		106		330		(224	)		—		(5,623	)
PT. POSCO E&C INDONESIA		22,799		9,401		13,398			54,954		7,701
HUME COAL PTY LTD		88,827		6,580		82,247			266		(2	)
POSCO FOUNDATION		172		1		171			—		8
EPC EQUITIES LLP		49,096		50,173		(1,077	)		—		(156	)
SANTOS CMI CONSTRUCTION TRADING LLP		22,371		32,738		(10,367	)		730		(7,661	)
SANTOS CMI INC. USA		31,286		29,747		1,539			19,318		122
SANTOS CMI ENGENHARIA E CONSTRUCOES LTDA		22,741		30,708		(7,967	)		47,640		(3,300	)
SANTOS CMI PERU S.A.		10,863		37,270		(26,407	)		1,382		(2,806	)
SANTOS CMI CONSTRUCCIONES S.A.		9,888		10,399		(511	)		9,413		(518	)
GENTECH INTERNATIONAL INC.		103		104		(1	)		99		(658	)
EPC INVESTMENTS C.V.		—		25		(25	)		—		—
SANTOSCMI S.A.		38,264		26,176		12,088			38,840		(2,406	)
SANTOSCMI CONSTRUCCIONES DE CHILE S.A.		8,545		4,591		3,954			1,172		808
COMPANIADEAUTOMATIZACION & CONTROL, GENESYS S.A.		7,736		4,256		3,480			12,484		25
VAUTIDAMERICAS S.A.		3,365		2,265		1,100			1,573		(744	)
POSCO ASSAN TST STEEL INDUSTRY		723,377		694,452		28,925			509,859		(14,543	)
HONG KONG POSCO E&C (CHINA) INVESTMENT Co., Ltd.		150,088		182,662		(32,574	)		—		(9,418	)
POSCO ENGINEERING & CONSTRUCTION DO BRAZIL LTDA.		193,998		162,790		31,208			270,082		6,263
POSCO Electrical Steel India Private Limited		216,877		184,643		32,234			114,433		189
PT. POSCO RESOURCES INDONESIA		753		34		719			719		(334	)
POSCO(Dalian) IT Center Development Co., Ltd.		312,970		175,925		137,045			—		(2,134	)
Brazil Sao Paulo Steel Processing Center		63,978		69,325		(5,347	)		34,734		(12,867	)
DAESAN (CAMBODIA) Co., Ltd.		28,718		34,003		(5,285	)		—		6
PT.POSCO ICT INDONESIA		9,300		7,860		1,440			30,841		1,004
PT. POSCO MTECH INDONESIA		17,509		13,231		4,278			12,532		(1,026	)
PT. KRAKATAU POSCO ENERGY		320,630		215,524		105,106			31,693		15,152
POSCO RUS LLC		10,604		9,681		923			5,496		(1,344	)
POSCO Thainox Public Company Limited		421,059		122,113		298,946			475,345		3,799
DAEWOO INTERNATIONAL SHANGHAI WAIGAOQIAO CO., LTD.		21,997		21,169		828			125,707		—
PT. Bio Inti Agrindo		89,249		64,759		24,490			2,817		(2,048	)
POSCO ENGINEERING AND CONSTRUCTION AUSTRALIA PTY LTD		5,788		7,330		(1,542	)		7,799		(3,662	)
POSCO-TISCO (JILIN) PROCESSING CENTER Co., Ltd.		71,032		55,576		15,456			95,681		(1,302	)
Hunchun Posco Hyundai International Logistics Complex Development Co., Ltd		85,440		49		85,391			—		(537	)
USA-SRDC		419		—		419			—		(4	)
Daewoo International Vietnam Co., Ltd.		5,130		835		4,295			5,951		387
PT.Krakatau Posco Chemtech Calcination		75,294		48,625		26,669			23,856		5,244
POSCO AFRICA (PROPRIETARY) LIMITED		40,803		48		40,755			219		(1,048	)
EPC INGENIERIA & SERVICIOS DE COSTA RICA SA		3,616		132		3,484			2,914		773
POSCO ICT BRASIL		5,876		7,578		(1,702	)		2,863		(1,416	)
LA-SRDC		1,154		552		602			5,431		19
DONG FANG JIN HONG		470,759		298,789		171,970			—		(2,047	)

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued


(in millions of Won)
Company	Assets		Liabilities		Equity (deficit)			Sales		Net income (loss)
[Foreign]
PRODUCTOS OFERTAS SISTEMAS Y COMERCIALIZADORA ORIENTAL S DE RL DE CV	￦	79		75		4			787		3
POSCO AMERICA COMERCIALIZADORA S DE RL DE CV		55,653		56,127		(474	)		91,370		(696	)
POSCO(Guangdong) Automotive Steel Co., Ltd.		384,846		258,563		126,283			237,943		(317	)
POSCO MAPC SA DE CV		49,621		28,816		20,805			86,818		16
POSCO-Mory-Maruyasu PIPE		8,417		6,007		2,410			4,425		(1,622	)
PT KRAKATAU BLUE WATER		1,470		823		647			1,369		335
KRAKATAU POS-CHEM DONG-SUH CHEMICAL		28,389		20,196		8,193			16,626		(591	)
Myanmar Daewoo International Corporation		6,410		179		6,231			1,771		493
POSCO-Italy Processing Center		86,819		80,333		6,486			84,698		1,042
DAEWOO E&P CANADA CORPORATION		35,943		21,841		14,102			6,572		1,903
Yingkou Puxiang Trade Co., Ltd.		328		62		266			998		(85	)
Myanmar POSCO C&C Company, Limited.		19,773		13,594		6,179			606		(398	)
POSCO ICT VIETNAM		3,013		1,729		1,284			5,259		607
Daewoo Global Development. Pte., Ltd		109,238		61,067		48,171			352		(6,296	)
Myanmar POSCO Engineering & Construction Company, Limited.		11,871		7,221		4,650			18,763		2,351
POSCO COATED STEEL (THAILAND) CO., LTD.		91,177		727		90,450			—		(2,481	)
DAEWOO POWER AND INFRA (PTY) LTD.		705		327		378			1,116		388
Daewoo Amara Company Limited		102,412		55,162		47,250			—		(1,068	)
POSMATE-CHINA CO., LTD		254		5		249			120		34
Daewoo Precious Resources Co., Ltd.		3,411		3		3,408			—		—
POSCO-Mexico Villagran Wire-rod Processing Center		16,547		210		16,337			—		(566	)
SANTOS CMI Guatemala S.A.		9,001		8,814		187			36,602		101
POSCO-China Dalian Steel Fabricating Center		9,410		436		8,974			558		(906	)
POSCO E&C HOLDINGS CO., Ltd.		500		192		308			—		(22	)
POSCO E&C (THAILAND) CO., Ltd.		2,181		1,543		638			125		(10	)
SUNGJIN CANADA LTD.		357		55		302			—		(430	)
POSCO PLANTEC Thiland CO. LTD		1,498		1,108		390			5,015		40

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

December 31, 2013


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

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued


(in millions of Won)
Company	Assets		Liabilities		Equity (deficit)			Sales		Net income (loss)
[Foreign]
POSCO America Corporation	￦	360,278		307,874		52,404			737,584		(126,699	)
POSCO AUSTRALIA PTY LTD		971,471		328,455		643,016			117,481		74,784
POSCO Canada Ltd.		589,015		100,337		488,678			143,485		48,611
POSCO Asia Co., Ltd.		760,306		721,090		39,216			2,861,848		3,829
POSCO-CTPC Co., Ltd.		87,914		51,514		36,400			127,558		4,526
POSCO-JKPC Co., Ltd.		66,374		50,347		16,027			107,220		1,717
INTERNATIONAL BUSINESS CENTER CORPORATION		75,459		41,476		33,983			24,275		9,894
POSCO E&C Vietnam Co., Ltd.		263,042		214,573		48,469			363,321		25,364
Zhangjiagang Pohang Stainless Steel Co., Ltd.		1,305,878		806,051		499,827			2,935,626		21,467
POSCO (Guangdong) Steel Co., Ltd.		128,859		84,435		44,424			211,606		4,715
POSCO (Thailand) Company Limited		119,445		76,044		43,401			220,471		1,471
Myanmar POSCO Steel Co., Ltd		19,884		3,318		16,566			14,001		932
POSCO-JOPC Co., Ltd.		54,026		49,524		4,502			97,003		906
POSCO Investment Co., Ltd.		802,503		702,337		100,166			13,962		4,949
POSCO-MKPC SDN BHD		136,957		92,539		44,418			211,330		1,058
Qingdao Pohang Stainless Steel Co., Ltd.		191,829		100,902		90,927			396,564		1,783
POSCO (Suzhou) Automotive Processing Center Co., Ltd.		300,725		187,070		113,655			458,113		22,798
POSCO BIOVENTURES I, L.P.		7,255		—		7,255			—		(206	)
PT. POSNESIA Stainless Steel Industry		11,568		—		11,568			—		(1,340	)
POSEC Hawaii, Inc.		314		7		307			—		(38	)
POSCO-China Qingdao Processing Center Co., Ltd.		54,609		40,042		14,567			108,054		155
POS-ORE PTY LTD		43,442		2,642		40,800			130,819		72,845
POSCO-China Holding Corp.		360,809		108,315		252,494			145,469		(21,932	)
POSCO JAPAN Co., Ltd.		756,571		649,824		106,747			1,379,727		11,868
POS-CD PTY LTD		55,347		14,354		40,993			22,178		(2,173	)
POS-GC PTY LTD		55,150		45,074		10,076			8,411		(21,444	)
POSCO-India Private Limited		115,183		311		114,872			—		620
POSCO-India Pune Processing Center. Pvt. Ltd.		143,286		139,149		4,137			266,832		(9,619	)
POSCO-JEPC Co., Ltd.		165,310		147,355		17,955			299,848		1,780
POSCO-CFPC Co., Ltd.		180,275		136,369		43,906			619,308		1,962
POSCO E&C CHINA Co., Ltd.		307,625		250,899		56,726			238,999		12,733
POSCO MPPC S.A. de C.V.		198,465		168,548		29,917			352,952		(3,433	)
Zhangjigang Pohang Port Co., Ltd.		22,495		6,736		15,759			6,712		768
Qingdao Pos-metal Co., Ltd.		5,947		6,481		(534	)		50,774		(1,376	)
POSCO-VIETNAM Co., Ltd.		541,348		509,293		32,055			714,841		(503	)
POSCO MEXICO S.A. DE C.V.		794,853		594,916		199,937			359,422		(32,287	)
POSCO India Delhi Steel Processing Centre Private Limited		91,704		83,949		7,755			145,625		(9,685	)
POSCO-Poland Wroclaw Processing Center Sp. z o. o.		41,003		20,860		20,143			66,597		978
POS-NP PTY LTD		56,343		25,704		30,639			21,429		(364	)
POSCO-Vietnam Processing Center Co., Ltd.		84,133		58,435		25,698			132,608		1,299
POSCO(Chongqing) Automotive Processing Center Co., Ltd.		67,049		52,512		14,537			115,253		5,634
SUZHOU POSCO-CORE TECHNOLOGY CO., LTD.		60,707		36,249		24,458			86,400		324
POSCO-Malaysia SDN. BHD.		82,648		104,940		(22,292	)		124,556		(2,730	)

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued


(in millions of Won)
Company	Assets		Liabilities		Equity (deficit)			Sales		Net income (loss)
[Foreign]
POS-Minerals Corporation	￦	217,664		119,701		97,963			—		(5,815	)
POSCO(Wuhu) Automotive Processing Center Co., Ltd.		69,625		44,536		25,089			113,011		2,758
POSCO Engineering and Construction India Private Limited		18,098		11,083		7,015			76,805		1,034
POSCO E&C SMART S DE RL DE CV		20,993		17,054		3,939			21,562		2,194
POSCO Philippine Manila Processing Center, Inc.		29,045		19,037		10,008			32,582		726
POSCO Gulf SFC LLC		53,831		48,441		5,390			23,585		(1,951	)
Dalian POSCO ICT-DONGFANG Engineering Co., Ltd.		7,630		5,037		2,593			7,564		318
SANPU TRADING Co., Ltd.		1,806		3		1,803			70		24
Zhangjiagang BLZ Pohang International Trading		10,036		5,050		4,986			52,649		187
POSCO MEXICO HUMAN TECH S.A. de C.V.		1,035		908		127			9,267		101
POSCO MESDC S.A. DE C.V.		12,574		491		12,083			4,784		203
POSCO ICT-China		2,566		1,742		824			6,957		163
DWEMEX, S.A.DE.C.V.		183		19		164			—		(12	)
POSCO MPC Servicios S.A. de C.V.		1,152		875		277			6,591		57
POSCO-Uruguay S.A		22,805		120		22,685			1		(891	)
Pos-Sea Pte Ltd		12,724		9,855		2,869			122,439		675
POSCO Europe Steel Distribution Center		7,564		1,205		6,359			13,769		458
POSCO ENGINEERING (THAILAND) CO., LTD.		21,082		20,357		725			23,492		741
VECTUS LIMITED		954		15,565		(14,611	)		5,240		(5,155	)
POSCO VST CO., LTD.		399,242		371,409		27,833			377,478		(24,136	)
POSCO Maharashtra Steel Private Limited		942,836		832,247		110,589			224,385		(111,675	)
POSCO India Chennai Steel Processing Centre Pvt. Ltd.		93,623		89,043		4,580			183,304		(4,247	)
POSCO TNPC Otomotiv Celik San. Ve Tic. A.S		41,597		34,336		7,261			64,185		(1,923	)
POSCO Vietnam Ha Noi Processing Center Co., Ltd.		56,855		50,358		6,497			110,108		995
POSCO(Liaoning) Automotive Processing Center Co., Ltd.		73,083		46,710		26,373			113,971		3,297
POSCO-Indonesia Jakarta Processing Center		106,838		89,768		17,070			80,534		(5,110	)
POSCO E&C VENEZUELA C.A.		126		—		126			—		—
Motta Resources Indonesia		4,264		18,259		(13,995	)		—		(5,522	)
POSCO TMC INDIA PRIVATE LIMITED		9,095		7,211		1,884			18,376		(29	)
POSCO America Alabama Processing Center Co., Ltd.		46,816		34,958		11,858			107,780		339
PT PEN INDONESIA		4,681		3,707		974			20,037		(1,289	)
POSCO(Yantai) Automotive Processing Center Co., Ltd.		45,863		27,874		17,989			64,784		2,124
POSCO India Steel Distribution Center Private Ltd.		6,063		4,413		1,650			5,526		(144	)
POSCO China Dalian Plate Processing Center Co., Ltd.		88,337		67,680		20,657			29,843		(10,876	)
POSCO-South Asia Company Limited		13,061		235		12,826			10,214		1,049
POSCO SS-VINA		505,785		264,716		241,069			—		(1,586	)
POSCO WA PTY LTD		317,250		38		317,212			—		(6,338	)
POSCO Engineering and Construction - UZ		3,964		3,039		925			2,690		406
POSCO AUSTRALIA GP PTY LIMITED		38,786		4		38,782			—		(18,523	)
POSCO YongXin Rare Earth Metal Co., Ltd.		23,925		33,715		(9,790	)		3,962		(9,194	)

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued


(in millions of Won)
Company	Assets		Liabilities		Equity (deficit)			Sales			Net income (loss)
[Foreign]
Daewoo International (America) Corp.	￦	417,955		372,011		45,944			1,046,283			2,788
Daewoo International (Deutschland) GmbH.		148,268		137,035		11,233			308,507			772
Daewoo International Japan Corp.		190,524		184,329		6,195			588,810			240
DAEWOO INTERNATIONAL SINGAPORE PTE. LTD.		125,927		122,160		3,767			659,805			(516	)
Daewoo Italia S.r.l.		59,839		54,973		4,866			277,455			959
Daewoo (China) Co., Ltd.		84,004		36,556		47,448			250,006			244
DAEWOO TEXTILE FERGANA LLC		85,758		57,733		28,025			117,548			8,237
DAEWOO TEXTILE BUKHARA LLC		51,071		33,520		17,551			47,896			3,695
DAEWOO INTERNATIONAL AUSTRALIA HOLDINGS PTY LTD		134,238		27,044		107,194			21,629			(1,525	)
Daewoo Paper Manufacturing Co., Ltd.		69,020		72,745		(3,725	)		61,163			(4,052	)
Tianjin Daewoo Paper Manufacturing Co., Ltd.		13,916		31,505		(17,589	)		—			—
POSCO MAURITIUS LIMITED		24,071		5		24,066			—			(22	)
PT. KRAKATAU POSCO		3,410,502		2,437,868		972,634			—			(41,921	)
Myanmar Daewoo Limited		181		8		173			1,075			564
DAEWOO INTERNATIONAL MEXICO S.A. DE C.V.		46,695		40,563		6,132			170,951			1,098
Daewoo International Guangzhou Corp.		9,668		9,077		591			54,403			(3,718	)
POSCO (Zhangjiagang) STS Processing Center Co., Ltd		63,729		50,653		13,076			350,000			743
Daewoo International (M) SDN BHD		28,161		25,865		2,296			87,881			61
Daewoo International SHANGHAI CO., LTD.		66,677		58,754		7,923			44,490			73
PGSF, L.P.		7,464		2		7,462			—			1,948
Xenesys Inc.		7,996		2,337		5,659			3,877			(1,558	)
Daewoo International INDIA Private Ltd.		4,771		3,008		1,763			18,805			43
TECHREN Solar, LLC		1,373		528		845			—			(8,531	)
PT. POSCO E&C INDONESIA		54,139		44,327		9,812			217,879			17,145
HUME COAL PTY LTD		40,634		259		40,375			110			(282	)
POSCO FOUNDATION		161		—		161			—			(1	)
EPC EQUITIES LLP		59,500		60,378		(878	)		(1,592	)		516
SANTOS CMI CONSTRUCTION TRADING LLP		35,562		37,836		(2,274	)		—			(11,991	)
SANTOS CMI INC. USA		28,780		27,425		1,355			36,385			8,777
SANTOS CMI ENGENHARIA E CONSTRUCOES LTDA		12,997		17,017		(4,020	)		15,907			3,474
SANTOS CMI PERU S.A.		6,590		30,761		(24,171	)		13,187			(16,510	)
SANTOS CMI CONSTRUCCIONES S.A.		26		14		12			17			3
GENTECH INTERNATIONAL INC.		981		323		658			1,901			293
EPC INVESTMENTS C.V.		—		24		(24	)		—			(11	)
SANTOSCMI S.A.		39,513		24,918		14,595			87,597			907
SANTOSCMI CONSTRUCCIONES DE CHILE S.A.		6,159		270		5,889			1,833			191
S&K -SANTOSCMI S.A. DE C.V.		55		169		(114	)		468			(54	)
COMPANIADEAUTOMATIZACION & CONTROL, GENESYS S.A.		10,872		7,530		3,342			19,350			754
VAUTIDAMERICAS S.A.		4,559		2,757		1,802			2,020			(839	)
POSCO ASSAN TST STEEL INDUSTRY		622,336		527,955		94,381			122,071			(51,312	)
HONG KONG POSCO E&C (CHINA) INVESTMENT Co., Ltd.		146,186		168,589		(22,403	)		—			1,881
POSCO ENGINEERING & CONSTRUCTION DO BRAZIL LTDA.		261,738		234,275		27,463			122,020			8,683
POSCO Electrical Steel India Private Limited		141,462		109,955		31,507			1,769			(12,645	)
Daewoo International Cameroon S.A.		3,060		36		3,024			—			—

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued


(in millions of Won)
Company	Assets		Liabilities		Equity (deficit)			Sales		Net income (loss)
[Foreign]
DAESAN (CAMBODIA) Co., Ltd.	￦	27,556		32,635		(5,079	)		—		(24	)
Brazil Sao Paulo Steel Processing Center		65,191		58,010		7,181			32,155		(7,930	)
POSCO(Dalian) IT Center Development Co., Ltd.		235,918		99,127		136,791			—		(3,174	)
PT. POSCO RESOURCES INDONESIA		1,089		60		1,029			—		(1,024	)
PT.POSCO ICT INDONESIA		9,106		8,674		432			24,975		116
PT. POSCO MTECH INDONESIA		15,502		12,477		3,025			3,882		(2,207	)
PT. KRAKATAU POSCO ENERGY		275,011		189,242		85,769			—		(945	)
POSCO RUS LLC		17,301		14,256		3,045			2,052		(702	)
POSCO Thainox Public Company Limited		398,449		114,365		284,084			403,382		(10,166	)
DAEWOO INTERNATIONAL SHANGHAI WAIGAOQIAO CO., LTD.		26,123		25,310		813			109,757		43
PT. Bio Inti Agrindo		48,986		33,525		15,461			880		399
POSCO ENGINEERING AND CONSTRUCTION AUSTRALIA PTY LTD		5,285		3,270		2,015			19,369		(3,567	)
POSCO-TISCO (JILIN) PROCESSING CENTER Co., Ltd.		72,832		56,324		16,508			71,052		(790	)
Hunchun Posco Hyundai International Logistics Complex Development Co., Ltd		58,355		26		58,329			—		369
USA-SRDC		411		5		406			—		140
Daewoo International Vietnam Co., Ltd.		4,031		123		3,908			3,537		(271	)
PT.Krakatau Posco Chemtech Calcination		53,317		32,970		20,347			107		(1,694	)
POSCO AFRICA (PROPRIETARY) LIMITED		44,885		31		44,854			129		5,592
EPC INGENIERIA & SERVICIOS DE COSTA RICA SA		5,101		1,266		3,835			6,519		4,016
POSCO ICT BRASIL		3,944		4,371		(427	)		829		(983	)
LA-SRDC		1,373		725		648			6,276		144
DONG FANG JIN HONG		365,795		194,786		171,009			—		(1,856	)
PRODUCTOS OFERTAS SISTEMAS Y COMERCIALIZADORA ORIENTAL S DE RL DE CV		127		125		2			531		—
POSCO AMERICA COMERCIALIZADORA S DE RL DE CV		13,000		14,424		(1,424	)		15,401		(1,160	)
POSCO(Guangdong) Automotive Steel Co., Ltd.		402,115		277,747		124,368			141,877		(27,026	)
POSCO MAPC SA DE CV		40,278		20,320		19,958			14,492		(1,186	)
POSCO-Mory-Maruyasu PIPE		7,879		3,612		4,267			9		(371	)
PT KRAKATAU BLUE WATER		592		285		307			337		20
KRAKATAU POS-CHEM DONG-SUH CHEMICAL		14,853		6,395		8,458			—		(768	)
Myanmar Daewoo International Corporation		5,709		4		5,705			629		447
POSCO-Italy Processing Center		53,683		47,700		5,983			6,541		(1,732	)
DAEWOO E&P CANADA CORPORATION		16,584		8,606		7,978			912		215
Yingkou Puxiang Trade Co., Ltd.		421		73		348			473		60
Myanmar POSCO C&C Company, Limited.		6,611		279		6,332			—		—
POSCO ICT VIETNAM		1,659		982		677			498		194
Daewoo Global Development. Pte., Ltd		26,378		202		26,176			—		(214	)
Myanmar POSCO Engineering & Construction Company, Limited.		1,052		—		1,052			—		(3	)
POSCO COATED STEEL (THAILAND) CO., LTD.		5,874		—		5,874			—		—

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

(d) Details of non-controlling interest as of and for the years ended December 31, 2014 and 2013 are as follows:

December 31, 2014


(in millions of Won)	Daewoo International Corporation			PT. KRAKATAU POSCO			POSCO CHEMTECH			POSCO ENGINEERING & CONSTRUCTION CO., LTD.			POSCO ENERGY Co., Ltd.			Others			Total
Current assets	￦	5,177,495			645,598			360,673			4,501,969			501,219			12,781,184			23,968,138
Non-current assets		6,028,358			3,303,632			251,206			1,322,767			3,393,917			10,135,827			24,435,707
Current liabilities		(5,046,468	)		(988,132	)		(131,389	)		(2,996,618	)		(546,791	)		(11,493,074	)		(21,202,472	)
Non-current liabilities		(1,807,698	)		(2,118,519	)		(7,150	)		(754,696	)		(2,513,129	)		(3,681,307	)		(10,882,499	)
Equity		4,351,687			842,579			473,340			2,073,422			835,216			7,742,630			16,318,874
Non-controlling interests		1,727,078			252,773			189,336			217,182			91,668			1,677,400			4,155,437
Sales		19,938,711			1,129,977			1,331,527			7,514,710			2,533,673			28,738,206			61,186,804
Profit for the period		83,167			(232,503	)		68,196			42,643			21,100			(159,066	)		(176,463	)
Profit (loss) attributable to non-controlling interests		33,007			(69,751	)		27,278			4,467			2,316			(62,302	)		(64,985	)
Cash flows from operating activities		(149,695	)		(27,383	)		20,676			24,592			36,346			(121,697	)		(217,161	)
Cash flows from investing activities		(167,573	)		(74,454	)		(28,349	)		(33,755	)		(117,154	)		(230,954	)		(652,239	)
Cash flows from financing activities (before dividends to non-controlling interest)		336,114			75,680			—			(15,162	)		83,014			406,904			886,550
Dividend to non-controlling interest		(13,558	)		—			(3,544	)		(1,923	)		(2,648	)		(5,748	)		(27,421	)
Effect of exchange rate fluctuation on cash held		(46	)		134			43			(8	)		—			3,636			3,759
Net increase in cash and cash equivalents		5,242			(26,023	)		(11,174	)		(26,256	)		(442	)		52,141			(6,512	)

December 31, 2013


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

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

(e)	Details of associates and joint ventures

Associates

Details of associates as of December 31, 2014 and 2013 are as follows:

Ownership (%)

Investee

Category of Business

2014

2013

Region

[Domestic]

EQP POSCO Global NO1 Natual Resources PEF

Investment in new technologies

28.48

27.23

Seoul

SNNC

Raw material manufacturing and sales

49.00

Gwangyang

QSONE Co., Ltd.

Real estate rental and facility management

50.00

Seoul

Incheon-Gimpo Expressway Co., Ltd.

Construction

25.76

29.94

Anyang

BLUE OCEAN Private Equity Fund

Private equity financial

27.52

Seoul

UITrans LRT Co., Ltd.

Transporting

38.19

Seoul

CHUNGJU ENTERPRISE CITY DEVELOPMENT Co., Ltd

Real estate development

25.10

Chungju

KoFC POSCO HANWHA KB Shared Growth NO. 2. Private Equity Fund(*1)

Investment in new technologies

12.50

Seoul

KONES, Corp.

Technical service

41.67

Gyeongju

Gunggi Green Energy(*1)

Electricity generation

19.00

Hwaseong

Gale International Korea, LLC

Real estate rental

29.90

Seoul

Pohang Techno Valley PFV Corporation(*2)

Real estate development

54.99

Pohang

Pohang Special Welding Co., Ltd.

Welding material and tools manufacturing and sales

50.00

Pohang

KC Chemicals(*1)

Machinery manufacturing

19.00

Hwaseong

Green Jang Ryang Co. Ltd

Sewerage treatment

25.00

Pohang

DAEHO GLOBAL MANAGEMENT CO., LTD.

Investment advisory service

35.82

Pohang

Daewoo Public Car Sales (Gwangju) CO., Ltd

Leasing services

50.00

Gwangju

Clean Gimpo Co., Ltd.

Construction

29.58

Gimpo

Pajoo & Viro Co., Ltd.

Construction

40.00

Paju

Posco-IDV Growth Ladder IP Fund(*1,3)

Investment in new technologies

17.86

—

Seoul

SuNAM Co., Ltd(*1)

Power supply manufacturing

19.17

Seoul

Pureun Tongyeong Enviro Co., Ltd.

Sewerage treatment

20.40

Tongyeong

Postech Early Stage Fund(*1)

Investment in venture companies

10.00

Pohang

Posgreen Co., Ltd.(*1)

Plastic manufacturing

19.00

Gwangyang

POSTECH Social Enterprise Fund(*1)

Investment in new technologies

9.17

Seoul

Applied Science Corp.

Machinery manufacturing

26.47

27.11

Paju

Suwon Green Environment Co., Ltd

Construction

27.50

Hwaseong

Universal Studios Resort Asset Management Corporation

Real estate services

26.17

Seoul

Noel Green Energy Co., Ltd.(*3)

Electricity generation

20.00

—

Seoul

Synergy Private Equity Fund(*1,3)

Investment in new technologies

17.86

—

Seoul

Pure Gimpo Co., Ltd.

Construction

28.79

Seoul

Pohang Techno Valley AMC

Construction

29.50

Pohang

New Songdo International City Development, LLC

Real estate rental

29.90

Seoul

MTAPOLIS Co., Ltd.

Multiplex development

40.05

Hwaseong

Busan-Gimhae Light Rail Transit Co., Ltd.

Transporting

25.00

Gimhae

Clean Iksan Co., Ltd.

Construction

23.50

Pohang

Mokpo Deayang Industrial Corporation

Real estate development

27.40

Mokpo

Chun-cheon Energy Co., Ltd

Electricity generation

29.90

Chuncheon

Innovalley Co., Ltd.

Real estate development

28.77

Yongin

Garolim Tidal Power Plant Co., Ltd

Tidal power plant construction and management

32.13

Seosan

Posco e&c Songdo International Building

Non-resident building lease

49.00

Seoul

POSCO PLANTEC Co., Ltd.(*4)

Industrial structure manufacturing

—

43.97

Ulsan

Future Creation Fund Postech Early Stage account(*4)

Investment in new technologies

—

40.00

Seoul

Taegisan Wind Power Corporation(*5)

Wind power plant construction and management

—

50.00

Hoengseong

Dakos Co., Ltd.(*6)

Railway equipment manufacturing

—

31.00

Seongnam

Gyeonggi CES Co., Ltd(*5)

Facility construction

—

21.83

Yangju

Hyundai Investment Network Private Equity Fund I(*6)

Mine investment

—

50.00

Seoul

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

Ownership (%)

Investee

Category of Business

2014

2013

Region

[Foreign]

Eureka Moly LLC

Steel processing and sales

20.00

USA

South-East Asia Gas Pipeline Company Ltd.

Pipeline construction

25.04

Myanmar

7623704 Canada Inc.(*1)

Investments management

10.40

Canada

Nickel Mining Company SAS

Raw material manufacturing and sales

49.00

New Caledonia

AES-VCM Mong Duong Power Company Limited

Electricity generation

30.00

Vietnam

AMCI (WA) PTY LTD.

Iron ore sales & mine development

49.00

Australia

KOREA LNG LTD.

Gas production and sales

20.00

England

CAML RESOURCES PTY LTD.

Raw material manufacturing and sales

33.34

Australia

NCR LLC

Coal sales

29.41

Canada

Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd

Tinplate manufacturing and sales

34.00

China

PT. Batutua Tembaga Raya(*3)

Raw material manufacturing and sales

24.10

—

Indonesia

VSC POSCO Steel Corporation

Steel manufacturing and sales

50.00

Vietnam

PT. Wampu Electric Power

Construction and engineering service

20.00

Indonesia

POSCO SeAH Steel Wire(Nantong) Co., Ltd.

Steel processing and sales

25.00

China

POSCHROME (PROPRIETARY) LIMITED

Raw material manufacturing and sales

50.00

South Africa

LLP POSUK Titanium

Titanium manufacturing and sales

36.83

Kazakhstan

IMFA ALLOYS FINLEASE LTD

Raw material manufacturing and sales

24.00

India

AN KHANH NEW CITY DEVELOPMENT J.V CO., LTD.

Highway construction and new town development

50.00

Vietnam

XG Sciences(*3)

New materials manufacturing and development

26.27

—

USA

General Medicines Company Ltd.

Medicine manufacturing and sales

33.00

Sudan

PT.INDONESIA POS CHEMTECH CHOSUN Ref

Refractory manufacturing and sales

30.19

Indonesia

PT. Tanggamus Electric Power

Construction and engineering service

20.59

20.00

Indonesia

POS-SEAHSTEELWIRE(TIANJIN) CO., Ltd

Steel manufacturing and sales

25.00

China

SHANGHAI LANSHENG DAEWOO CORP.

Trading

49.00

China

POSK(Pinghu) Steel Processing Center Co., Ltd.

Steel processing and sales

20.00

China

SHANGHAI WAIGAOQIAO FREE TRADE ZONE LANSHENG DAEWOO IN’L TRADING CO., LTD.

Trading

49.00

China

NS-Thainox Auto Co., Ltd.

Steel manufacturing and sales

49.00

Vietnam

BGC-POS PTY LTD.

Construction

49.00

Australia

Sebang Steel

Scrap sales

49.00

Japan

Hamparan Mulia

Resource development

45.00

Indonesia

Baganuur Energy Corporation

Refined oil manufacturing

50.00

Mongolia

POSCO-Poggenamp Electrical Steel Pvt. Ltd.

Steel manufacturing

26.00

India

Fifth Combined Heat and Power Plant LLC

Thermal power generation

30.00

Mongolia

GLOBAL KOMSCO Daewoo LLC

Mintage

35.00

Uzbekistan

KG Power(M) SDN. BHD

Energy & resource development

20.00

Malaysia

Arctos Anthracite Joint Venture

Coal sales

20.00

Canada

LI3 ENERGY INC

Energy & resource development

26.06

Peru

POSCO China Suzhou Processing Center Co., Ltd. (formerly, POSCO-SAMSUNG Suzhou Processing Center Co., Ltd.)(*4)

Steel processing and sales

—

30.00

China

Hanjung Power Pty., Ltd(*4)

Electric power manufacturing and sales

—

49.00

Papua New Guinea

POSVINA Co., Ltd.(*5)

Plating steel sheet manufacturing and sales

—

50.00

Vietnam

Yingkou Posrec Refractories Co., Ltd.(*6)

Refractory manufacturing

—

25.00

China

Daewoo (THAILAND) CO., LTD.(*6)

Trading

—

49.00

Thailand

N.I.CO., LTD.(*6)

Trading

—

50.00

North Korea

Boulder Solar Power, LLC(*5)

Electric power manufacturing

—

21.74

USA

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

(*2)	Considering the composition of board of directors, the Company is not able to exercise control over the investee even though the Company’s percentage of ownership is above 50%.

(*3)	These associates were newly established or acquired in 2014.

(*4)	Reclassified to subsidiary from associate due to an increase in ownership percentage and acquisition of control during the year ended December 31, 2014.

(*5)	Excluded from associates due to the disposal of shares during the year ended December 31, 2014.

(*6)	Excluded from associates due to liquidation during the year ended December 31, 2014.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

Joint ventures

Details of joint ventures as of December 31, 2014 and 2013 are as follows:

Ownership (%)

Investee

Category of Business

2014

2013

Region

[Domestic]

POSCO ES MATERIALS

Secondary battery manufacturing

50.00

Gumi

POSCO MITSUBISHI CARBON TECHNOLOGY

Steel processing and sales

60.00

Gwangyang

[Foreign]

Roy Hill Holdings Pty Ltd

Energy & resource development

12.50

Australia

POSCO-NPS Niobium LLC

Mine development

50.00

USA

CSP - Compania Siderurgica do Pecem

Steel manufacturing and sales

20.00

Brazil

DMSA/AMSA

Energy & resource development

4.00

Madagascar

KOBRASCO

Facility lease

50.00

Brazil

BX STEEL POSCO Cold Rolled Sheet Co., Ltd.

Steel processing and sales

25.00

China

PT. POSMI Steel Indonesia

Steel processing and sale

36.69

Indonesia

POSCO-CDPC(POSCO ChengDu Processing Center) Co., Ltd(*1)

Steel processing and sale

43.00

—

China

Henan Tsingpu Ferro Alloy Co., Ltd.

Raw material manufacturing and sales

49.00

China

TANGGANG-POSCO LED(*1)

Led manufacturing and sales

50.00

—

China

VNS-DAEWOO Co., Ltd.(*1)

Steel processing and sale

40.00

—

Vietnam

POSCO-SAMSUNG-Slovakia Processing Center

Steel processing and sales

30.00

Slovakia

Zhangjiagang Pohang Refractories Co., Ltd.

Refractory manufacturing

50.00

China

Korea Siberia Wood CJSC

Forest resource development

50.00

Russia

United Spiral Pipe, LLC

Material manufacturing and sales

35.00

USA

SUNGJIN DRIVER INC(*1)

Moduel and Plant manufacturing

50.00

—

Canada

USS-POSCO Industries

Cold rolled coil manufacturing and sales

50.00

USA

(*1)	These joint ventures were newly established or acquired in 2014.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

(f)	Newly included subsidiaries

Consolidated subsidiaries acquired or newly established during the year ended December 31, 2014 are as follows:


Company	Date of acquisition	Ownership (%)		Reason
Hanjung Power Pty., Ltd	January 2014		100.00	Reclassification from associate
Daewoo Amara Company Limited	January 2014		85.00	New establishment
POSMATE-CHINA CO., LTD	January 2014		100.00	New establishment
Daewoo Precious Resources Co., Ltd.	March 2014		60.00	New establishment
POSCO-Mexico Villagran Wire-rod Processing Center	March 2014		66.75	New establishment
POSCO Green Gas Technology	April 2014		100.00	New establishment
SANTOS CMI Guatemala S.A.	April 2014		100.00	Acquisition
Santos CMI Construction Inc S.A	April 2014		100.00	Acquisition
POSCO-China Dalian Steel Fabricating Center	May 2014		51.00	New establishment
Keystone Private Equity	June 2014		55.12	Reclassification from associate
POSCO WOMAN’S FUND(*1)	July 2014		40.00	New establishment
Chun Sa wind	July 2014		100.00	Acquisition
POSCO China Suzhou Processing Center Co., Ltd. (formerly, POSCO-SAMSUNG Suzhou Processing Center Co., Ltd.)	July 2014		100.00	Reclassification from associate
POSPOWER Co., Ltd.	August 2014		100.00	Acquisition
Future Creation Fund Postech Early Stage account(*1)	September 2014		40.00	Reclassification from associate
POSCO E&C HOLDINGS CO., Ltd.	October 2014		100.00	New establishment
POSCO E&C (THAILAND) CO., Ltd.	October 2014		100.00	New establishment
Songdo Posco family Housing	November 2014		100.00	New establishment
POSCO PLANTEC Co., Ltd.	December 2014		73.94	Reclassification from associate
SUNGJIN CANADA LTD.	December 2014		70.00	Reclassification by POSCO PLANTEC Co., Ltd.
POSCO PLANTEC Thailand CO. LTD	December 2014		82.40	Reclassification by POSCO PLANTEC Co., Ltd.
DAEWOO POWER PNG Ltd.	December 2014		100.00	New establishment

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

Cash outflows (inflows) caused by the acquisitions for the year ended December 31, 2014.


(in millions of Won)	2014			2013
Consideration transferred	￦	747,569			4,359
Less: Cash and cash equivalent acquired		(358,991	)		(10,088	)

Total	￦	388,578			(5,729	)

(g)	Excluded subsidiaries

Subsidiaries that were excluded from consolidation during the year ended December 31, 2014 are as follows:


Company	Date of disposal	Reason
POSCO-JOPC Co., Ltd.	January 2014	Statutory merger by POSCO-JWPC Co., Ltd. (formerly, POSCO-JKPC Co., Ltd.)
S&K -SANTOSCMI S.A. DE C.V.	March 2014	Exclusion upon liquidation
Santos CMI Construction Inc S.A	September 2014	Statutory merger by SANTOS CMI Guatemala S.A
Daewoo International Cameroon S.A.	November 2014	Disposal
INTERNATIONAL BUSINESS CENTER CORPORATION	December 2014	Disposal

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

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.

The consolidated financial statements were authorized for issue by the Board of Directors on January 29, 2015, and will be submitted for approval at the shareholders’ meeting to be held on March 13, 2015.

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 judgments

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 prospectively.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

(a)

Judgments

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

•

Note1 - Subsidiaries, associates and joint venture

•

Note 8 - Other financial assets

•

Note 12 - Joint operations

•

Note 13 - Investment property, net

•

Note 14 - Property, plant and equipment, net

•

Note 15 - Goodwill and other intangibles

(b)	Assumptions and estimation uncertainties

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

•

Note 20 - Provisions

•

Note 21 - Employee benefits

•

Note 29 - Construction contracts

•

Note 36 - Income taxes

•

Note 39 - Commitments and contingencies

(c)	Measurement of fair value

The Company’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. The Company has an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values, and reports directly to the financial officer.

The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of K-IFRS including the level in the fair value hierarchy in which such valuation techniques should be classified.

When measuring the fair value of an asset or a liability, the Company uses market observable data as far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows.

•

Level 1 – unadjusted quoted prices in active markets for identical assets or liabilities.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

•

Level 2 - inputs other than quoted prices included in Level 1 that are observable for the assets or liability, either directly or indirectly.

•

Level 3 - inputs for the assets or liability that are not based on observable market data.

If the inputs used to measure the fair value of an asset or a liability might be categorized in different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Company recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

Information about the assumptions made in measuring fair values is included in the following note:

•

Note 23 – Financial instruments

(d)	Changes in accounting policies

The Company has adopted the following amendments to standards and new interpretation with a date of initial application of January 1, 2014.

K-IFRS No. 1032, “Financial Instruments: Presentation”

K-IFRS No. 1036, “Impairment of Assets”

K-IFRS No. 2121, “Levies”

The details of changes in accounting policies are as follows:

Offsetting financial assets and financial liabilities

The Company has adopted amendments to K-IFRS No. 1032, “Offsetting Financial Assets and Financial Liabilities” since January 1, 2014. The amendments clarify the meaning of ‘currently has a legally enforceable right of set-off’. According to the amendments, the right to set off should not be contingent on a future event, and legally enforceable in the normal course of business, in the event of default, and in the event of insolvency or bankruptcy of the entity and all of the counterparties. The amendments also state that some gross settlement systems would be considered equivalent to net settlement if they eliminate or result in insignificant credit and liquidity risk and process receivables and payables in a single settlement process or cycle.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

Disclosure of impairment loss

The Company has adopted amendments to K-IFRS No. 1036 “Impairment of Assets” since January 1, 2014. The amendments require the disclosure of information about the recoverable amount of impaired assets, if that amount is based on fair value less costs of disposal. They also require the disclosure of additional information about that fair value measurement. In addition, if the recoverable amount of impaired assets based on fair value less costs of disposal was measured using a present value technique, the amendments also require the disclosure of the discount rates that have been used in the current and previous measurements.

Levies

The Company has adopted K-IFRS No. 2121, “Levies” since January 1, 2014. K-IFRS No. 2121 is an Interpretation of K-IFRS No. 1037 Provisions, Contingent Liabilities and Contingent Assets, on the accounting for levies imposed by governments. K-IFRS No. 1037 sets out criteria for the recognition of a liability, one of which is the requirement for the entity to have a present obligation as a result of a past event (or “obligating event”). K-IFRS No. 2121 clarifies that the obligating event that gives rise to a liability to pay a levy is the activity described in the relevant legislation that triggers the payment of the levy.

The interpretation does not provide guidance on the accounting for the costs arising from recognizing the liability to pay a levy. Other K-IFRSs should be applied to determine whether the recognition of a liability to pay a levy gives rise to an asset or an expense.

Impact of changes in accounting policies

Upon adoption of amendments to K-IFRS No. 1032 and K-IFRS No. 2121, there is no impact on the Company’s prior year’s consolidated financial statements. Upon adoption of amendments to K-IFRS No. 1036, the Company has made the required disclosures in the annual financial statements as applicable (see note 15).

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

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)	Business combinations

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

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

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

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

(b)	Non-controlling interests

Non-controlling interests are measured at their proportionate share of the acquiree’s identifiable net assets at the acquisition date.

Changes in the Company’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.

(c)	Subsidiaries

Subsidiaries are entities controlled by the Company. The Company controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

(d)	Loss of control

When the Company loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related non-controlling interests and other components of equity. Any resulting gain or loss is recognized in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.

(e)	Interests in equity-accounted investees

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

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

(f)	Transactions eliminated on consolidation

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

Foreign currency transactions and translation

1)	Foreign currency transactions

Foreign currency transactions are initially recorded using the spot exchange rate between the functional currency and the foreign currency at the date of the transaction. At the end of each reporting period, foreign currency monetary items are translated using the closing rate. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the original transaction. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rate at the date fair value was initially determined.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements are recognized in profit or loss in the period in which they arise. When gains or losses on non-monetary items are recognized in other comprehensive income, exchange components of those gains or losses are recognized in other comprehensive income. Conversely, when gains or losses on non-monetary items are recognized in profit or loss, exchange components of those gains or losses are recognized in profit or loss.

2)	Foreign operations

If the presentation currency of the Company is different from a foreign operation’s functional currency, the financial statements of the foreign operation are translated into the presentation currency using the following methods:

The assets and liabilities of foreign operations, whose functional currency is not the currency of a hyperinflationary economy, are translated to presentation currency at exchange rates at the reporting date. The income and expenses of foreign operations are translated to functional currency at exchange rates at the dates of the transactions. Foreign currency differences are recognized in other comprehensive income.

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

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

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

Cash and cash equivalents

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

Non-derivative financial assets

The Company recognizes and measures non-derivative financial assets by the following four categories: financial assets at fair value through profit or loss, held-to-maturity financial assets, loans and receivables and available-for-sale financial assets. The Company recognizes financial assets in the consolidated statement of financial position when the Company becomes a party to the contractual provisions of the instrument.

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

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

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

(b)	Held-to-maturity financial assets

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

(c)	Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method unless the effect of discounting is immaterial.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

(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.

(e)	Derecognition of non-derivative financial assets

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

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

(f)	Offsetting a financial asset and a financial liability

Financial assets and financial liabilities are offset and the net amount is presented in the consolidated statement of financial position only when the Company currently has a legally enforceable right to offset the recognized amounts, and there is the intention to settle on a net basis or to realize the asset and settle the liability simultaneously.

Inventories

Inventory costs, except materials-in-transit in which costs are determined by using specific identification method, are determined by using the moving-weighted average method. The cost of inventories comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. The allocation of fixed production overheads to the costs of finished goods or work in progress are based on the normal capacity of the production facilities.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

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 or net realizable value. The amount of any write-down of inventories to net realizable value and all losses of inventories are recognized as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories arising from an increase in net realizable value is recognized as a reduction in the amount of inventories recognized as a cost of goods sold in the period in which the reversal occurs.

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

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

Depreciation methods, useful lives and residual values are reviewed at the end of each reporting date and adjusted, if appropriate. The change is accounted for as a change in an accounting estimate.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

Property, plant and equipment

Property, plant and equipment are initially measured at cost and after initial recognition, are carried at cost less accumulated depreciation and any accumulated impairment losses. The cost of property, plant and equipment includes expenditures arising directly from the construction or acquisition of the asset, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and, when the Company has an obligation to remove the asset or restore the site, an estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

The cost of replacing a part of an item is recognized in the carrying amount of the item of property, plant and equipment, if the following recognition criteria are met:

(a)	it is probable that future economic benefits associated with the item will flow to the Company, and

(b)	the cost can be measured reliably.

The carrying amount of the replaced part is derecognized at the time the replacement part is recognized. The costs of the day-to-day servicing of the item are recognized in profit or loss as incurred.

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

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

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

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

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


Buildings		5-60 years
Structures		4-50 years
Machinery and equipment		2-25 years
Vehicles		3-10 years
Tools		4-10 years
Furniture and fixtures		3-10 years
Lease assets		3-18 years

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

Borrowing costs

The Company capitalizes borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. Other borrowing costs are recognized in expense as incurred. A qualifying asset is an asset that requires a substantial period of time to get ready for its intended use or sale. Financial assets and inventories that are manufactured or otherwise produced over a short period of time are not qualifying assets. Assets that are ready for their intended use or sale when acquired are not qualifying assets.

To the extent that the Company borrows funds specifically for the purpose of obtaining a qualifying asset, the Company determines the amount of borrowing costs eligible for capitalization as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. The Company immediately recognizes other borrowing costs as an expense. To the extent that the Company borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the Company shall determine the amount of borrowing costs eligible for capitalization by applying a capitalization rate to the expenditures on that asset. The capitalization rate shall be the weighted average of the borrowing costs applicable to the borrowings of the Company that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs that the Company capitalizes during a period shall not exceed the amount of borrowing costs incurred during that period.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

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 costs		3-10 years
Port facilities usage rights		4-75 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 and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

Exploration for and evaluation of mineral resources

POSCO is engaged in exploration projects for mineral resources through subsidiaries, associates and joint ventures in the mines or other contractual arrangements. Expenditures related to the development of mineral resources are recognized as exploration or development intangible assets. The nature of these intangible assets are as follows:

(a)	Exploration and evaluation assets

Exploration and evaluation assets consist of expenditures for topographical studies, geophysical studies and trenching. These assets are reclassified as development assets when it is proved that the exploration has identified commercially viable mineral deposit.

(b)	Development assets

When proved reserves are determined and development is sanctioned, development expenditures incurred are capitalized. These expenditures include evaluation of oil fields, construction of oil/gas wells, drilling for viability and others. On completion of development and inception of extraction for commercial production of developed proved reserves, the development assets are reclassified as either property, plant and equipment or as intellectual property rights (mining rights) under intangible assets based on the nature of the capitalized expenditure.

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

Government grants

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

(a)	Grants related to assets

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

(b)	Grants related to income

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

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

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.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

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

Impairment for financial assets

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 financial assets are impaired includes:

(a)

significant financial difficulty of the issuer or obligor;

(b)

a breach of contract, such as a default or delinquency in interest or principal payments;

(c)

the lender, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider;

(d)

it becoming probable that the borrower will enter bankruptcy or other financial reorganization;

(e)

the disappearance of an active market for that financial asset because of financial difficulties; or

(f)

observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group.

In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

If there is objective evidence that financial assets are impaired, impairment losses are measured and recognized.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

(a)	Financial assets measured at amortized cost

An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of its estimated future cash flows discounted at the asset’s original effective interest rate. If it is not practicable to obtain the instrument’s estimated future cash flows, impairment losses would be measured by using prices from any observable current market transactions. The Company can recognize impairment losses directly or establish a provision to cover impairment losses. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss shall be reversed either directly or by adjusting an allowance account.

(b)	Financial assets carried at cost

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

(c)	Available-for-sale financial assets

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

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

Impairment for non-financial assets

The carrying amounts of the Company’s non-financial assets, other than assets arising from construction contracts, employee benefits, inventories, deferred tax assets and non-current assets held for sale, are reviewed at the end of the reporting period to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, irrespective of whether there is any indication of impairment, are tested for impairment annually by comparing their recoverable amount to their carrying amount.

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.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

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 and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

(b)	Other financial liabilities

Non-derivative financial liabilities other than financial liabilities at fair value through profit or loss are classified as other financial liabilities.

Financial guarantee liabilities are initially measured at their fair values and, if not designated as financial liabilities at fair value through profit or loss, they are subsequently measured at the higher of:

the amount of the best estimate of the expenditure required to settle the present obligation at the end of the reporting period; and

the amount initially recognized less, cumulative amortization recognized on a straight-line basis over the guarantee period

At the date of initial recognition, other financial liabilities are measured at fair value minus transaction costs that are directly attributable to the acquisition. Subsequent to initial recognition, other financial liabilities are measured at amortized cost using the effective interest method.

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

Construction work in progress

Construction work in progress represents the gross unbilled amount expected to be collected from customers for contract work performed to date. It is measured at cost plus profit recognized to date less progress billings and recognized losses. Cost includes all expenditures related directly to specific projects and an allocation of fixed and variable overheads incurred in the Company’s contract activities based on normal operating capacity.

Construction work in progress is presented as part of trade accounts and notes receivable in the consolidated statement of financial position for all contracts in which costs incurred plus recognized profits exceed progress billings. If progress billings exceed costs incurred plus recognized profits, then the difference is presented as amounts due to customers for contract work in the consolidated statement of financial position.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

Employee benefits

(a)	Short-term employee benefits

Short-term employee benefits are employee benefits that are due to be settled within twelve months after the end of the period in which the employees render the related service. When an employee has rendered service to the Company during an accounting period, the Company recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service as profit or loss. If the Company has a legal or constructive obligation which can be reliably measured, the Company recognizes the amount of expected payment for profit-sharing and bonuses payable as liabilities.

(b)	Other long-term employee benefits

Other long-term employee benefits include employee benefits that are settled beyond 12 months after the end of the period in which the employees render the related service, and are calculated at the present value of the amount of future benefit that employees have earned in return for their service in the current and prior periods, less the fair value of any related assets. The present value is determined by discounting the expected future cash flows using the interest rate of corporate bonds that have maturity dates approximating the terms of the Company’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. Any actuarial gains and losses are recognized in profit or loss in the period in which they arise.

(c)	Retirement benefits: Defined contribution plans

For defined contribution plans, when an employee has rendered service to the Company during a period, the Company recognizes the contribution payable to a defined contribution plan in exchange for that service as an accrued expense, after deducting any contributions already paid. If the contributions already paid exceed the contribution due for service before the end of the reporting period, the Company recognizes that excess as an asset (prepaid expense) to the extent that the prepayment will lead to a reduction in future payments or a cash refund.

(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 and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

The discount rate is the yield at the reporting date on corporate bonds that have maturity dates approximating the terms of the Company’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. The Company recognizes all actuarial gains and losses arising from actuarial assumption changes and experiential adjustments in other comprehensive income when incurred.

When the fair value of plan assets exceeds the present value of the defined benefit obligation, the Company recognizes an asset, to the extent of the present value of the total of cumulative any economic benefits available in the form of refunds from the plan or reduction in the future contributions to the plan.

Remeasurements of net defined benefit liabilities, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in other comprehensive income. The Company determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments, net interest expense and other expenses related to defined benefit plans are recognized in profit or loss.

When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss in curtailment is recognized immediately in profit or loss. The Company recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs.

Provisions

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

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

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

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

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

A provision for warranties is recognized when the underlying products are sold. The provision is based on historical warranty data and a weighting of all possible outcomes against their associated probabilities.

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

Equity instruments

(a)	Share capital

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

If the Company reacquires its own equity instruments, the amount of those instruments (“treasury shares”) are presented as a contra equity account. No gain or loss is recognized in profit or loss on the purchase, sale, issuance or cancellation of its own equity instruments. When treasury shares are sold or reissued subsequently, the amount received is recognized as an increase to equity, and the resulting surplus or deficit on the transaction is recorded in capital surplus.

(b)	Hybrid Bonds

Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of financial liability and an equity instrument. When the Company has an unconditional right to avoid delivering cash or another financial asset to settle a contractual obligation, the instruments are classified as equity instruments.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

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.

(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 is recognized as an expense immediately.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

(d)	Rental income

Rental income from investment property, net of lease incentives granted, is recognized in profit or loss on a straight-line basis over the term of the lease.

Finance income and finance costs

Finance income comprises interest income on funds invested (including available-for-sale financial assets), dividend income, gains on the disposal of available-for-sale financial assets and changes in the fair value of financial assets at fair value through profit or loss. Interest income is recognized as it accrues in profit or loss, using the effective interest rate method. Dividend income is recognized in profit or loss on the date that the Company’s right to receive payment is established.

Finance costs comprise interest expense on borrowings and changes in the fair value of financial assets at fair value through profit or loss. Borrowing costs are recognized in profit or loss using the effective interest rate method.

Income taxes

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.

(a)	Current income tax

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

(b)	Deferred income tax

The measurement of deferred income tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

The Company recognizes a deferred income tax liability for all taxable temporary differences associated with investments in subsidiaries, associates, and joint ventures, except to the extent that the Company is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The Company recognizes a deferred income tax asset for deductible temporary differences arising from investments in subsidiaries, associates and joint ventures, to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized. However, deferred income tax is not recognized for the following temporary differences: taxable temporary differences arising on the initial recognition of goodwill, or the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting profit or loss nor taxable income.

The carrying amount of a deferred income tax asset is reviewed at the end of each reporting period and is reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred income tax liabilities and deferred income tax assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period to recover or settle the carrying amount of its assets and liabilities.

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

Earnings per share

Management calculates basic earnings per share (“EPS”) data for the Company’s ordinary shares, which is presented at the end of the statement of comprehensive income. Basic EPS is calculated by dividing profit attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period, adjusted for own shares held.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

Operating segments

An operating segment is a component of the Company that : a) engages in business activities from which it may earn revenues and incur expenditures, including revenues and expenses that relate to transactions with any of the Company’s other components, b) whose operating results are regularly reviewed by the Company’s chief operating decision maker (“CODM”) to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available. Management has determined that the CODM of the Company is the CEO.

Segment profit and loss is determined the same way that consolidated net after tax profit for the period is determined under K-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 K-IFRS without any adjustment for corporate allocations. Also, segment assets and liabilities are based on the separate financial statements of the entities instead of on consolidated basis. In addition, there are varying levels of transactions amongst the reportable segments. These transactions include sales of property, plant and assets, and rendering of construction service and so on. Inter-segment transactions are accounted for on an arm’s length basis.

Segment results that are reported to the CEO include items directly attributable to a segment and do not include allocated items. Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets other than goodwill.

New standards and interpretations not yet adopted

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, 2014, 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)	Amendments to K-IFRS No. 1019 “Employee Benefits”

Amendments to K-IFRS No. 1019 introduced a practical expedient to accounting for defined benefit plan, when employees or third parties pay contributions if certain criteria are met. According to the amendments, the entity is permitted to recognize those contributions as a reduction of the service cost in the period in which the related service is rendered, instead of forecast future contributions from employees or third parties and attribute them to periods or service as negative benefits. This amendment is effective for the Company for annual periods beginning on or after January 1, 2015, with early adoption permitted.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

4. Financial risk management

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

•

credit risk

•

liquidity risk

•

market risk

•

capital risk

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

(a)	Financial risk management

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.

Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers and investment securities. In addition, credit risk arises from finance guarantees.

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

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

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.

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.

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 and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

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.

‚

Interest rate risk

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

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

Other market price risk

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

(b)	Management of capital risk

The fundamental goal of capital management is the maximization of shareholders’ value by means of the stable dividend policy and the retirement of treasury shares. The capital structure of the Company consists of equity and net debt, deducting cash and cash equivalents and current financial instruments from borrowings. The Company applied the same financial risk management strategy that was applied in the previous period.

Net borrowing-to-equity ratio as of December 31, 2014 and 2013 is as follows:


(in millions of Won)	2014			2013
Total borrowings	￦	27,428,257			26,246,605
Less: Cash and cash equivalents		3,811,202			4,208,562

Net borrowings		23,617,055			22,038,043
Total equity		45,291,364			45,822,030
Net borrowings-to-equity ratio		52.14	%		48.09	%

5. Cash and Cash Equivalents

Cash and cash equivalents as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014		2013
Cash	￦	2,100		12,575
Demand deposits and checking accounts		1,209,367		1,199,768
Time deposits		1,185,146		2,325,449
Other cash equivalents(*1)		1,414,589		670,770

	￦	3,811,202		4,208,562

(*1)	Mainly includes money market trust and others.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

6. Trade Accounts and Notes Receivable

(a)	Trade accounts and notes receivable as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014			2013
Current
Trade accounts and notes receivable	￦	10,814,600			10,299,826
Finance lease receivables		24,344			36,029
Unbilled due from customers for contract work		1,528,427			1,574,929
Less: Allowance for doubtful accounts		(581,316	)		(418,183	)

	￦	11,786,055			11,492,601

Non-current
Trade accounts and notes receivable	￦	60,583			50,639
Finance lease receivables		42,907			67,251
Less: Allowance for doubtful accounts		(24,154	)		(20,890	)

	￦	79,336			97,000

Trade accounts and notes receivable sold to financial institutions, for which the derecognition conditions were not met, amounted to ￦106,985 million and ￦73,956 million as of December 31, 2014 and 2013, respectively, and are included in short-term borrowings from financial institutions (Note 17).

(b)	Finance lease receivables are as follows:


(in millions of Won)
Customer	Contents	2014		2013

Korea Electric Power Corporation	Combined thermal power plant 1~4	￦	66,858		102,887
KC CHEMICAL Co., Ltd.	Machinery and equipment		393		393

		￦	67,251		103,280

(c)	The gross amount and present value of minimum lease payments as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014			2013

Less than 1 year	￦	32,302			48,112
1 year - 5 years		51,999			84,270
Unrealized interest income		(17,050	)		(29,102	)

Present value of minimum lease payment	￦	67,251			103,280

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

7. Other Receivables

Other receivables as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014			2013
Current
Short-term loans	￦	254,108			298,289
Other accounts receivable		1,523,659			1,322,352
Accrued income		76,393			74,968
Deposits		58,384			69,502
Others		227,192			275,892
Less: Allowance for doubtful accounts		(183,520	)		(150,580	)

		1,956,216			1,890,423

Non-current
Long-term loans		960,652			604,478
Long-term other accounts receivable		158,018			152,383
Accrued income		1,533			1,110
Deposits		189,120			111,482
Less: Allowance for doubtful accounts		(165,163	)		(71,998	)

	￦	1,144,160			797,455

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

8. Other Financial Assets

Other financial assets as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014		2013
Current
Derivatives assets held for trading	￦	77,182		44,082
Available-for-sale securities		25,512		10,772
Current portion of held-to-maturity securities (bonds)		15,297		2,232
Short-term financial instruments(*1,2)		1,344,929		2,913,579

	￦	1,462,920		2,970,665

Non-current
Derivatives assets held for trading	￦	19,084		34,140
Available-for-sale securities (equity instruments)(*3,4)		2,294,244		4,068,766
Available-for-sale securities (bonds)		33,350		32,456
Available-for-sale securities (others)		67,135		54,390
Held-to-maturity securities (bonds)		1,796		1,602
Long-term financial instruments(*2)		40,291		274,376

	￦	2,455,900		4,465,730

(*1)	As of December 31, 2014 and 2013, ￦5,465 million and ￦949 million, respectively, are restricted for the use in a government project.

(*2)	As of December 31, 2014 and 2013, financial instruments amounting to ￦177,014 million and ￦261,034 million, respectively, are restricted for use in financial arrangements, pledge and others.

(*3)

During the year ended December 31, 2014, there was objective evidence of impairment for shares such as HYUNDAI Heavy Industries and others due to the significant decline in the fair value of the shares for a prolonged period. As a result, an impairment loss of ￦369,723 million was recognized in profit or loss during the year ended December 31, 2014.

(*4)	As of December 31, 2014 and 2013, ￦173,632 million and ￦691,801 million of available-for-sale securities, respectively, have been provided as collateral for construction projects and borrowings.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

9. Inventories

(a)	Inventories as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014			2013

Finished goods	￦	1,647,331			1,406,297
Merchandise		902,347			711,802
Semi-finished goods		1,654,556			1,711,294
Raw materials		2,334,992			2,228,110
Fuel and materials		759,193			801,992
Construction inventories		1,129,370			1,183,390
Materials-in-transit		2,109,207			1,848,389
Others		96,274			96,389

		10,633,270			9,987,663

Less: Allowance for inventories valuation		(161,940	)		(189,282	)

	￦	10,471,330			9,798,381

(b)	The changes of allowance for inventories valuation for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014			2013

Beginning	￦	189,282			214,795
Loss on valuation of inventories		41,713			49,172
Write-off		(69,996	)		(73,220	)
Others		941			(1,465	)

Ending	￦	161,940			189,282

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

10. Assets Held for Sale

Details of assets held for sale and related liabilities as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014						2013
	Controlling company(1,6)		Subsidiaries (2,3,4,5,*6)		Total		Controlling company(*7)		*Subsidiaries(8)**		Total
Assets
Cash and cash equivalents	￦	—		210,934		210,934		—		—		—
Trade accounts and notes receivable and other receivables		—		90,811		90,811		—		—		—
Other financial assets		580,062		21,028		601,090		—		—		—
Inventories		—		289,716		289,716		—		—		—
Investments in associates		—		—		—		1,304		—		1,304
Investment property		—		22,067		22,067		—		—		—
Property, plant and equipment		2,672		895,391		898,063		—		1,190		1,190
Other assets		—		14,406		14,406		—		—		—

	￦	582,734		1,544,353		2,127,087		1,304		1,190		2,494

Liabilities
Trade accounts and notes payable and other payables	￦	—		225,403		225,403		—		—		—
Borrowings		—		330,059		330,059		—		—		—
Other liabilities		—		35,520		35,520		—		—		—

	￦	—		590,982		590,982		—		—		—

(*1)

In November 2014, Nacional Minerios S.A. (which was an available-for-sale investment of the Company) entered into a merger agreement with another entity through share exchange. The merger transaction was approved by the Company’s Board of Directors on December 12, 2014. Pursuant to the merger agreement, the Company will dispose of its equity interests in Nacional Minerios S.A. in exchange for equity interests in the new entity. Therefore, the Company reclassified the available-for-sale investment to assets held for sale. Before the reclassification, the Company recognized an impairment loss of ￦88,572 million in the investment due to a prolonged decline in the fair value of the shares below its cost.

(*2)

The Company agreed to sell 52.2% of its shares of POSCO Specialty Steel Co., Ltd. to SeAH Besteel Corp. by and entered into a disposal agreement. The agreement was approved by the Board of Directors on December 12, 2014, and the Company classified the related assets and liabilities as held for sale. Related assets and liabilities on POSCO Specialty Steel Co., Ltd. are current assets of ￦580,299 million, non-current assets of ￦795,295 million, current liabilities of ￦315,399 million and non-current liabilities of ￦210,696 million.

(*3)	The Company agreed to sell its shares of POSFINE Co., Ltd., an associate of the Company, to Hahn & Company PRIVATE EQUITY FUND No.1. The transaction was approved by the Board of Directors on November 7, 2014 and the Company classified the shares as assets held for sale.

(*4)

Daewoo International Corporation, a subsidiary of the Company, entered into a sales contract to dispose its Daewoo Department Store located in Masan in accordance with the Board of Directors’ resolution on August 18, 2014. Accordingly, the Company classified it as assets held for sale and recognized an impairment loss of ￦16,769 million.

(*5)	POSCO M-TECH, a subsidiary of the Company, determined to dispose of its rare metal department and some of its assets in the Molybdenum factory in Yeongwol, and classified them as assets held-for-sale.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

(*6)	The controlling company and POSCO-VIETNAM Co., Ltd., a subsidiary of the Company, determined to dispose of some tangible assets including land and disused facilities and classified them as assets held for sale.

(*7)

The Company determined to dispose of its shares in POSVINA Co., Ltd., an associate of the Company, and classified it as assets held for sale as of December 31, 2013. The Company completed the disposal of this investment during the year ended December 31, 2014 and recognized a loss of ￦14 million on disposal of assets held for sale.

(*8)	POSCO AST, a subsidiary of the Company, determined to dispose of its land and building for employee welfare and classified them as assets held for sale as of December 31, 2012. POSCO AST recognized a loss of ￦436 million on disposal of assets held for sale during the year ended December 31, 2014.

11. Investments in Associates and Joint ventures

(a)	Investments in associates and joint ventures as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014		2013
Investments in associates	￦	1,626,801		1,830,047
Investments in joint ventures		2,433,706		1,978,646

	￦	4,060,507		3,808,693

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

(b)	Details of investments in associates as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014								2013
Company	Number of shares		Ownership (%)		Acquisition cost		Book value		Book value
[Domestic]
EQP POSCO Global NO1 Natual Resources PEF		178,565		28.48	￦	178,566	￦	176,899		177,563
SNNC		18,130,000		49.00		90,650		131,671		123,969
POSCO PLANTEC Co., Ltd.(*1)		—		—		—		—		234,203
QSONE Co., Ltd.		200,000		50.00		84,395		83,849		84,096
Incheon-Gimpo Expressway Co., Ltd.(*2)		9,032,539		25.76		45,163		43,045		37,759
BLUE OCEAN Private Equity Fund		333		27.52		33,300		31,439		29,391
UITrans LRT Co., Ltd.(*2)		4,395,669		38.19		21,978		30,098		19,185
CHUNGJU ENTERPRISE CITY DEVELOPMENT Co., Ltd(*2)		2,008,000		25.10		10,040		19,801		23,733
KoFC POSCO HANWHA KB Shared Growth NO. 2. Private Equity Fund		11,862,500		12.50		11,863		12,268		6,685
KONES, Corp.		3,250,000		41.67		6,893		5,430		5,784
Gunggi Green Energy(*2)		2,880,000		19.00		14,400		4,642		4,996
Others (31 companies)(*2)								28,869		52,761

								568,011		800,125

[Foreign]
Eureka Moly LLC		—		20.00		240,123		228,004		217,513
South-East Asia Gas Pipeline Company Ltd.		135,219,000		25.04		150,779		172,805		140,202
7623704 Canada Inc.		114,452,000		10.40		124,341		117,100		119,516
Nickel Mining Company SAS		3,234,698		49.00		157,585		107,408		135,178
AES-VCM Mong Duong Power Company Limited		—		30.00		74,161		93,021		81,436
AMCI (WA) PTY LTD		49		49.00		209,664		88,050		98,467
KOREA LNG LTD.		2,400		20.00		135,205		72,089		64,453
CAML RESOURCES PTY LTD		3,239		33.34		40,388		38,240		43,820
NCR LLC		—		29.41		32,348		32,598		30,496
Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd		10,200,000		34.00		9,517		21,032		20,600
PT. Batutua Tembaga Raya		128,285		24.10		14,785		14,653		—
VSC POSCO Steel Corporation		1,000,000		50.00		9,014		7,621		9,464
PT. Wampu Electric Power(*1)		7,800,000		20.00		9,028		7,611		7,237
POSCO SeAH Steel Wire(Nantong) Co., Ltd.		50		25.00		4,723		6,969		6,083
Others (23 companies)								51,589		55,457

								1,058,790		1,029,922

							￦	1,626,801		1,830,047

(*1)	During the year ended December 31, 2014, the investment in associates was reclassified from associate to subsidiary due to increase in percentage of ownership through capital increase.

(*2)	As of December 31, 2014, investment in associates amounting to ￦110,721 million is provided as collateral related to associates’ borrowings.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

(c)	Details of investments in joint ventures as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014								2013
Company	Number of shares		Ownership (%)		Acquisition cost		Book value		Book value
[Domestic]
POSCO MITSUBISHI CARBON TECHNOLOGY		11,568,000		60.00	￦	115,680	￦	112,837		115,708
POSCO ES MATERIALS		1,000,000		50.00		43,000		38,021		40,386

								150,858		156,094

[Foreign]
Roy Hill Holdings Pty Ltd(*1)		13,117,972		12.50		1,528,672		1,268,678		825,901
POSCO-NPS Niobium LLC		325,050,000		50.00		364,609		357,874		343,590
CSP - Compania Siderurgica do Pecem		827,771,230		20.00		469,891		260,906		263,419
DMSA/AMSA(*2)		—		4.00		193,182		165,094		180,355
KOBRASCO		2,010,719,185		50.00		32,950		99,787		95,233
BX STEEL POSCO Cold Rolled Sheet Co., Ltd.		—		25.00		61,961		98,893		96,309
Others (11 companies)								31,616		17,745

								2,282,848		1,822,552

							￦	2,433,706		1,978,646

(*1)	As of December 31, 2014, investment in joint ventures amounting to ￦1,268,678 million is provided as collateral in relation to loan from project financing of Roy Hill Holdings Pty Ltd.

(*2)	As of December 31, 2014, investment in joint ventures amounting to ￦165,094 million is provided as collateral for the joint venture’s guarantees.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

(d)	The movements of investments in associates and joint ventures for the years ended December 31, 2014 and 2013 were as follows:

For the year ended December 31, 2014


(in millions of Won)
Company	December 31, 2013 Book value		Acquisition		Dividends			Share of profits (losses)			Other increase (decrease)(*1)			December 31, 2014 Book value
[Domestic]
EQP POSCO Global NO1 Natual Resources PEF	￦	177,563		—		—			(664	)		—			176,899
SNNC		123,969		—		(5,149	)		13,873			(1,022	)		131,671
POSCO PLANTEC Co., Ltd.(*2)		234,203		25,356		—			(210,616	)		(48,943	)		—
QSONE Co., Ltd.		84,096		—		—			(247	)		—			83,849
Incheon-Gimpo Expressway Co., Ltd.		37,759		8,331		—			(340	)		(2,705	)		43,045
BLUE OCEAN Private Equity Fund		29,391		—		—			2,193			(145	)		31,439
UITrans LRT Co., Ltd.		19,185		2,330		—			8,583			—			30,098
CHUNGJU ENTERPRISE CITY DEVELOPMENT Co., Ltd		23,733		—		—			(3,714	)		(218	)		19,801
KoFC POSCO HANWHA KB Shared Growth NO. 2. Private Equity Fund		6,685		6,113		—			(530	)		—			12,268
KONES, Corp.		5,784		—		—			(378	)		24			5,430
Gunggi Green Energy		4,996		—		—			(354	)		—			4,642
POSCO MITSUBISHI CARBON TECHNOLOGY		115,708		—		—			(2,835	)		(36	)		112,837
POSCO ES MATERIALS		40,386		—		—			(2,229	)		(136	)		38,021
Others (31 companies)		52,761		12,875		—			(24,284	)		(12,483	)		28,869

		956,219		55,005		(5,149	)		(221,542	)		(65,664	)		718,869

[Foreign]
Eureka Moly LLC		217,513		—		—			(37	)		10,528			228,004
South-East Asia Gas Pipeline Company Ltd.		140,202		—		—			25,638			6,965			172,805
7623704 Canada Inc.		119,516		—		(5,505	)		(1,678	)		4,767			117,100
Nickel Mining Company SAS		135,178		—		—			(17,391	)		(10,379	)		107,408
AES-VCM Mong Duong Power Company Limited		81,436		—		—			(3,845	)		15,430			93,021
AMCI (WA) PTY LTD		98,467		—		—			(6,477	)		(3,940	)		88,050
KOREA LNG LTD.		64,453		—		(18,668	)		18,613			7,691			72,089
CAML RESOURCES PTY LTD		43,820		—		—			(2,191	)		(3,389	)		38,240
NCR LLC		30,496		—		—			(3,984	)		6,086			32,598
Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd		20,600		—		(352	)		378			406			21,032
PT. Batutua Tembaga Raya		—		14,785		—			—			(132	)		14,653
VSC POSCO Steel Corporation		9,464		—		(1,850	)		7			—			7,621
PT. Wampu Electric Power		7,237		—		—			134			240			7,611
POSCO SeAH Steel Wire(Nantong) Co., Ltd.		6,083		—		—			679			207			6,969
Roy Hill Holdings Pty Ltd		825,901		530,492		—			(14,783	)		(72,932	)		1,268,678
POSCO-NPS Niobium LLC		343,590		—		(16,414	)		16,370			14,328			357,874
CSP - Compania Siderurgica do Pecem		263,419		75,966		—			(57,127	)		(21,352	)		260,906
DMSA/AMSA		180,355		—		—			(21,793	)		6,532			165,094
KOBRASCO		95,233		—		(18,429	)		30,356			(7,373	)		99,787
BX STEEL POSCO Cold Rolled Sheet Co., Ltd.		96,309		—		—			943			1,641			98,893
Others (34 companies)		73,202		50,605		(858	)		(42,163	)		2,419			83,205

		2,852,474		671,848		(62,076	)		(78,351	)		(42,257	)		3,341,638

	￦	3,808,693		726,853		(67,225	)		(299,893	)		(107,921	)		4,060,507

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

(*2)

As of December 31, 2014, there is objective evidence of impairment due to the prolonged decline in the fair value of the investment below its cost. As a result, the Company recognized an impairment loss of ￦88,600 million as the carrying value was higher than its recoverable amount as of December 31, 2014.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

For the year ended December 31, 2013


(in millions of Won)
Company	December 31, 2012 Book value		Acquisition		Dividends			Share of profits (losses)			Other increase (decrease)(*1)			December 31, 2013 Book value
[Domestic]
EQP POSCO Global NO1 Natual Resources PEF	￦	—		178,566		—			(1,017	)		14			177,563
SNNC		147,539		—		(27,685	)		2,183			1,932			123,969
POSCO PLANTEC Co., Ltd.		181,361		101,210		—			(49,065	)		697			234,203
QSONE Co., Ltd.		—		84,395		—			(299	)		—			84,096
Incheon-Gimpo Expressway Co., Ltd.		13,680		24,521		—			(441	)		(1	)		37,759
BLUE OCEAN Private Equity Fund		33,839		—		—			(2,015	)		(2,433	)		29,391
UITrans LRT Co., Ltd.		16,444		1,967		—			668			106			19,185
CHUNGJU ENTERPRISE CITY DEVELOPMENT Co., Ltd		29,414		—		—			(5,535	)		(146	)		23,733
KoFC POSCO HANWHA KB Shared Growth NO. 2. Private Equity Fund		—		7,013		—			(327	)		(1	)		6,685
KONES, Corp.		6,476		—		—			(740	)		48			5,784
Gunggi Green Energy		7,353		5,475		—			(8,213	)		381			4,996
POSCO MITSUBISHI CARBON TECHNOLOGY		28,060		86,760		—			888			—			115,708
POSCO ES MATERIALS		42,388		—		—			(1,963	)		(39	)		40,386
Others (34 companies)		104,445		11,325		—			(6,585	)		(56,424	)		52,761

		610,999		501,232		(27,685	)		(72,461	)		(55,866	)		956,219

[Foreign]
Eureka Moly LLC		213,136		—		—			—			4,377			217,513
South-East Asia Gas Pipeline Company Ltd.		144,831		—		—			(2,585	)		(2,044	)		140,202
7623704 Canada Inc.		—		124,341		—			(1	)		(4,824	)		119,516
Nickel Mining Company SAS		146,699		—		—			(16,617	)		5,096			135,178
AES-VCM Mong Duong Power Company Limited		48,636		—		—			(12,841	)		45,641			81,436
AMCI (WA) PTY LTD		123,018		—		—			(6,283	)		(18,268	)		98,467
KOREA LNG LTD.		99,976		—		(21,999	)		21,898			(35,422	)		64,453
CAML RESOURCES PTY LTD		62,227		—		(12,428	)		17,984			(23,963	)		43,820
NCR LLC		39,303		—		—			(9,609	)		802			30,496
Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd		19,045		—		—			1,304			251			20,600
VSC POSCO Steel Corporation		9,347		—		(433	)		760			(210	)		9,464
PT. Wampu Electric Power		7,414		—		—			—			(177	)		7,237
POSCO SeAH Steel Wire(Nantong) Co., Ltd.		5,274		—		(62	)		717			154			6,083
Roy Hill Holdings Pty Ltd		527,129		446,201		—			(37,781	)		(109,648	)		825,901
POSCO-NPS Niobium LLC		348,646		—		(16,188	)		16,079			(4,947	)		343,590
CSP - Compania Siderurgica do Pecem		214,761		128,185		—			(34,410	)		(45,117	)		263,419
DMSA/AMSA		124,326		58,374		—			31			(2,376	)		180,355
KOBRASCO		113,847		—		(26,482	)		21,948			(14,080	)		95,233
BX STEEL POSCO Cold Rolled Sheet Co., Ltd.		92,888		—		—			2,400			1,021			96,309
Others (35 companies)		87,759		7,439		(11,953	)		(70,342	)		60,299			73,202

		2,428,262		764,540		(89,545	)		(107,348	)		(143,435	)		2,852,474

	￦	3,039,261		1,265,772		(117,230	)		(179,809	)		(199,301	)		3,808,693

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

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

(e)	Summarized financial information of associates and joint ventures as of and for years ended December 31, 2014 and 2013 is as follows:

December 31, 2014


(in millions of Won)
Company	Assets		Liabilities		Equity (deficit)			Sales		Net income (loss)
[Domestic]
EQP POSCO Global NO1 Natual Resources PEF	￦	621,960		1,044		620,916			—		(576	)
SNNC		826,597		528,246		298,351			345,836		41,117
QSONE Co., Ltd.		247,590		79,891		167,699			13,674		(603	)
Incheon-Gimpo Expressway Co., Ltd.		337,639		172,464		165,175			—		(1,148	)
BLUE OCEAN Private Equity Fund		361,810		247,573		114,237			574,476		8,489
UITrans LRT Co., Ltd.		169,574		117,996		51,578			—		(887	)
CHUNGJU ENTERPRISE CITY DEVELOPMENT Co., Ltd		256,207		208,960		47,247			5,240		(14,789	)
KoFC POSCO HANWHA KB Shared Growth NO. 2. Private Equity Fund		100,063		1,917		98,146			1,932		(4,238	)
KONES, Corp.		3,756		3,155		601			7,269		(907	)
Gunggi Green Energy		328,976		264,278		64,698			124,181		(4,720	)
POSCO MITSUBISHI CARBON TECHNOLOGY		405,387		218,275		187,112			—		(4,725	)
POSCO ES MATERIALS		64,088		19,602		44,486			13,403		(4,459	)
[Foreign]
South-East Asia Gas Pipeline Company Ltd.		1,997,068		1,306,957		690,111			353,439		102,385
7623704 Canada Inc.		1,138,126		4		1,138,122			—		(612	)
Nickel Mining Company SAS		410,230		140,860		269,370			133,975		(24,800	)
KOREA LNG LTD.		393,581		45		393,536			94,936		93,067
CAML RESOURCES PTY LTD		159,281		38,591		120,690			172,093		(6,570	)
Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd		148,077		80,538		67,539			186,733		1,112
PT. Batutua Tembaga Raya		100,142		151,591		(51,449	)		1,309		(2,110	)
VSC POSCO Steel Corporation		38,388		26,942		11,446			103,877		73
PT. Wampu Electric Power		172,950		138,012		34,938			43,184		670
POSCO SeAH Steel Wire(Nantong) Co., Ltd.		66,097		38,572		27,525			80,059		2,636
Roy Hill Holdings Pty Ltd		6,809,416		3,431,438		3,377,978			—		(118,264	)
POSCO-NPS Niobium LLC		715,546		—		715,546			—		32,741
CSP - Compania Siderurgica do Pecem		3,060,008		1,467,004		1,593,004			—		(90,649	)
DMSA/AMSA		8,938,860		5,918,665		3,020,195			695,505		(544,837	)
KOBRASCO		234,595		35,021		199,574			99,677		60,712
BX STEEL POSCO Cold Rolled Sheet Co., Ltd.		816,813		448,854		367,959			1,290,490		3,771

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

December 31, 2013


(in millions of Won)
Company	Assets		Liabilities		Equity (deficit)		Sales		Net income (loss)
[Domestic]
EQP POSCO Global NO1 Natual Resources PEF	￦	652,849		1,034		651,815		—		(3,684	)
SNNC		504,351		235,830		268,521		405,419		8,458
POSCO PLANTEC Co., Ltd.		900,409		765,481		134,928		597,561		(98,435	)
QSONE Co., Ltd.		247,592		79,399		168,193		882		(597	)
Incheon-Gimpo Expressway Co., Ltd.		157,082		32,691		124,391		—		(1,473	)
BLUE OCEAN Private Equity Fund		341,118		234,321		106,797		425,678		(7,321	)
UITrans LRT Co., Ltd.		102,828		56,438		46,390		—		(925	)
CHUNGJU ENTERPRISE CITY DEVELOPMENT Co., Ltd		284,290		222,246		62,044		10,224		(15,924	)
KoFC POSCO HANWHA KB Shared Growth NO. 2. Private Equity Fund		55,195		1,712		53,483		1,064		(1,116	)
KONES, Corp.		3,748		2,296		1,452		7,442		(1,612	)
Gunggi Green Energy		333,027		263,608		69,419		21,577		(5,526	)
POSCO MITSUBISHI CARBON TECHNOLOGY		243,644		51,747		191,897		—		89
POSCO ES MATERIALS		59,807		10,590		49,217		5,759		(3,926	)
[Foreign]
South-East Asia Gas Pipeline Company Ltd.		1,755,847		1,195,935		559,912		19,878		(10,323	)
7623704 Canada Inc.		1,161,363		15		1,161,348		—		(10	)
Nickel Mining Company SAS		416,878		91,851		325,027		120,324		(39,686	)
KOREA LNG LTD.		381,437		98		381,339		111,602		109,495
CAML RESOURCES PTY LTD		185,465		52,782		132,683		238,296		53,950
Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd		133,554		67,202		66,352		205,453		3,859
VSC POSCO Steel Corporation		33,116		17,860		15,256		110,059		1,766
PT. Wampu Electric Power		122,733		89,862		32,871		27,042		(3,496	)
POSCO SeAH Steel Wire(Nantong) Co., Ltd.		63,304		38,951		24,353		79,578		3,134
Roy Hill Holdings Pty Ltd		2,703,533		244,437		2,459,096		—		(302,248	)
POSCO-NPS Niobium LLC		686,978		—		686,978		—		32,158
CSP - Compania Siderurgica do Pecem		1,520,989		78,847		1,442,142		—		(16,915	)
DMSA/AMSA		8,636,317		5,190,558		3,445,759		—		(473	)
KOBRASCO		203,467		13,001		190,466		70,428		42,852
BX STEEL POSCO Cold Rolled Sheet Co., Ltd.		776,557		418,958		357,599		1,479,765		5,359

12. Joint Operations

Details of significant joint operations that the Company is participating in as a party to a joint arrangement as of December 31, 2014 are as follows:


Joint operations	Operation	Ownership (%)		Location
Myanmar A-1/A-3 mine	Mine development		51.00	Myanmar
Offshore midstream	Mine development		51.00	Myanmar
Greenhills mine	Mine development		20.00	Canada
Actos Anthracite coal project	Mine development		20.00	Canada
Mt. Thorley J/V	Mine development		20.00	Australia
POSMAC J/V	Mine development		20.00	Australia
CD J/V	Mine development		5.00	Australia
Intergra Coal J/V	Mine development		2.35	Australia
RUM J/V	Mine development		10.00	Australia
Camberwell Coal J/V	Mine development		8.39	Australia

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

13. Investment Property, Net

(a)	Investment property as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014							2013
	Acquisition cost		Accumulated depreciation and impairment loss			Book value		Acquisition cost		Accumulated depreciation and impairment loss			Book value

Land	￦	447,350		(31,838	)		415,512		200,468		(38,966	)		161,502
Buildings		681,924		(90,277	)		591,647		399,998		(160,805	)		239,193
Structures		4,058		(1,998	)		2,060		6,836		(3,237	)		3,599
Construction-in-progress		46,373		—			46,373		20,935		—			20,935

	￦	1,179,705		(124,113	)		1,055,592		628,237		(203,008	)		425,229

As of December 31, 2014, the fair value of investment property is ￦1,288,080 million, among which the Company evaluated the investment property of 6 subsidiaries, including DONG FANG JIN HONG, as its book value since it is believed that the book value of ￦812,591 million approximates fair value. Also, the Company used the prior year’s fair value for some of the investment property since it is believed to be approximately the same.

(b)	Changes in the carrying value of investment property for the years ended December 31, 2014 and 2013 were as follows:

For the year ended December 31, 2014


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

Land	￦	161,502		97,883		13		(20,500	)		—			176,614			415,512
Buildings		239,193		195,722		208		(19,212	)		(12,858	)		188,594			591,647
Structures		3,599		—		—		—			(413	)		(1,126	)		2,060
Construction-in-progress		20,935		112,998		—		—			—			(87,560	)		46,373

	￦	425,229		406,603		221		(39,712	)		(13,271	)		276,522			1,055,592

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

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

For the year ended December 31, 2013


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

Land	￦	211,382		—		12,625		(4,410	)		—			(58,095	)		161,502
Buildings		304,503		10		8,432		(3,129	)		(12,008	)		(58,615	)		239,193
Structures		5,306		—		—		—			(314	)		(1,393	)		3,599
Construction-in-progress		—		20,935		—		—			—			—			20,935

	￦	521,191		20,945		21,057		(7,539	)		(12,322	)		(118,103	)		425,229

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

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

14. Property, Plant and Equipment, Net

(a)	Property, plant and equipment as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014										2013
	Acquisition cost		Accumulated depreciation and impairment loss			Government grants			Book value		Acquisition cost		Accumulated depreciation and impairment loss			Government grants			Book value

Land	￦	2,801,288		—			—			2,801,288		2,719,989		(11,979	)		—			2,708,010
Buildings		8,824,462		(3,460,858	)		(4,280	)		5,359,324		8,112,980		(3,223,992	)		(153	)		4,888,835
Structures		5,106,863		(2,076,499	)		(201	)		3,030,163		4,649,271		(1,864,574	)		(110	)		2,784,587
Machinery and equipment		43,972,182		(22,771,455	)		(842	)		21,199,885		40,685,986		(21,242,212	)		(938	)		19,442,836
Vehicles		304,346		(247,611	)		(40	)		56,695		284,113		(233,080	)		—			51,033
Tools		360,625		(296,517	)		(39	)		64,069		346,018		(283,120	)		(45	)		62,853
Furniture and fixtures		577,126		(433,330	)		(14	)		143,782		568,313		(394,958	)		(203	)		173,152
Finance lease assets		162,154		(82,073	)		—			80,081		151,219		(50,695	)		—			100,524
Construction-in-progress		2,511,009		—			(5,101	)		2,505,908		5,553,322		—			(5,033	)		5,548,289

	￦	64,620,055		(29,368,343	)		(10,517	)		35,241,195		63,071,211		(27,304,610	)		(6,482	)		35,760,119

(b)	Changes in the carrying value of property, plant and equipment for the years ended December 31, 2014 and 2013 were as follows:

For the year ended December 31, 2014


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

Land	￦	2,708,010		92,645		146,755		(10,410	)		(1,839	)		(133,873	)		2,801,288
Buildings		4,888,835		97,701		72,483		(18,968	)		(372,445	)		691,718			5,359,324
Structures		2,784,587		42,341		15,525		(3,517	)		(223,487	)		414,714			3,030,163
Machinery and equipment		19,442,836		372,448		26,998		(45,777	)		(2,194,014	)		3,597,394			21,199,885
Vehicles		51,033		17,665		614		(2,136	)		(20,166	)		9,685			56,695
Tools		62,853		29,351		4,210		(578	)		(33,480	)		1,713			64,069
Furniture and fixtures		173,152		41,113		1,599		(2,291	)		(70,938	)		1,147			143,782
Finance lease assets		100,524		2,710		—		(31	)		(29,825	)		6,703			80,081
Construction-in-progress		5,548,289		2,804,568		19,156		(14,088	)		—			(5,852,017	)		2,505,908

	￦	35,760,119		3,500,542		287,340		(97,796	)		(2,946,194	)		(1,262,816	)		35,241,195

(*1)	Impairment losses of property, plant and equipment amounting to ￦64,833 million are included.

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

For the year ended December 31, 2013


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

Land	￦	2,646,422		23,404		23,108		(24,548	)		—			39,624			2,708,010
Buildings		4,168,802		72,168		7,352		(48,278	)		(308,084	)		996,875			4,888,835
Structures		2,320,181		29,338		18,568		(7,633	)		(189,740	)		613,873			2,784,587
Machinery and equipment		16,532,204		740,682		9,634		(88,565	)		(1,867,408	)		4,116,289			19,442,836
Vehicles		60,154		10,326		700		(2,356	)		(19,402	)		1,611			51,033
Tools		69,851		20,638		304		(1,811	)		(33,494	)		7,365			62,853
Furniture and fixtures		183,380		31,578		1,087		(4,837	)		(72,062	)		34,006			173,152
Finance lease assets		57,224		670		—		(712	)		(12,766	)		56,108			100,524
Construction-in-progress		6,238,161		5,931,141		—		(10,369	)		—			(6,610,644	)		5,548,289

	￦	32,276,379		6,859,945		60,753		(189,109	)		(2,502,956	)		(744,893	)		35,760,119

(*1)	Impairment losses of property, plant and equipment amounting to ￦9,742 million are included.

(*2)	Includes reclassification for changing purpose of use, adjustments of foreign currency translation differences and others.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

(c)	Borrowing costs capitalized and the capitalized interest rate for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014			2013

Weighted average expenditure	￦	1,772,492			6,442,564
Borrowing costs capitalized		76,566			290,117
Capitalization rate		4.32	%		4.50	%

(d)	Property, plant and equipment and investment property pledged as collateral as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	Collateral right holder	2014		2013

Land(*1)	Korean Development Bank and others	￦	1,040,850		767,004
Buildings and structures(*1)	Korean Development Bank and others		1,324,597		1,112,855
Machinery and equipment	Korean Development Bank and others		3,594,331		3,343,747
Tools	Korean Development Bank		104		7,300
Construction-in-progress	The Export-Import Bank of Korea		—		382,339

		￦	5,959,882		5,613,245

(*1)	Investment property is included.

15. Goodwill and Other Intangible Assets, Net

(a)	Goodwill and other intangible assets as of December 31, 2014 and 2013 are as follows:


	2014										2013
(in millions of Won)	Acquisition cost		Accumulated amortization and impairment			Government grants			Book value		Acquisition cost		Accumulated amortization and impairment			Government grants			Book value

Goodwill	￦	1,932,065		(136,921	)		—			1,795,144		1,741,562		(125,624	)		—			1,615,938
Intellectual property rights		2,910,143		(146,544	)		(920	)		2,762,679		1,551,898		(76,026	)		(1,013	)		1,474,859
Premium in rental		150,438		(19,496	)		—			130,942		148,295		(17,028	)		—			131,267
Development expense		330,365		(161,263	)		(356	)		168,746		158,228		(95,780	)		(1,346	)		61,102
Port facilities usage rights		506,125		(349,681	)		—			156,444		504,331		(337,220	)		—			167,111
Exploratation and evaluation assets		123,025		(30,566	)		—			92,459		389,601		(29,853	)		—			359,748
Mining development assets		—		—			—			—		968,191		—			—			968,191
Customer relationships		859,023		(217,398	)		—			641,625		856,308		(163,428	)		—			692,880
Other intangible assets		1,698,979		(562,014	)		(15	)		1,136,950		843,705		(384,960	)		(1	)		458,744

	￦	8,510,163		(1,623,883	)		(1,291	)		6,884,989		7,162,119		(1,229,919	)		(2,360	)		5,929,840

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

(2)	The changes in carrying value of goodwill and other intangible assets for the years ended December 31, 2014 and 2013 were as follows:

For the year ended December 31, 2014


(in millions of Won)	Beginning		Acquisitions		Business combination (note 42)		Disposals			Amortization			Impairment loss			*Others(3)**			Ending

Goodwill(*1)	￦	1,615,938		—		187,285		—			—			(11,297	)		3,218			1,795,144
Intellectual property rights		1,474,859		199,850		32		(218	)		(143,548	)		(27,720	)		1,259,424			2,762,679
Premium in rental(*2)		131,267		8,775		1,661		(4,484	)		(265	)		(2,609	)		(3,403	)		130,942
Development expense		61,102		18,032		2,659		(3,484	)		(56,453	)		(9,366	)		156,256			168,746
Port facilities usage rights		167,111		433		—		—			(12,462	)		—			1,362			156,444
Exploratation and evaluation assets		359,748		32,191		—		—			—			(718	)		(298,762	)		92,459
Mining development assets		968,191		1,484		—		—			—			—			(969,675	)		—
Customer relationships		692,880		—		—		—			(53,969	)		—			2,714			641,625
Other intangible assets(*4)		458,744		262,076		628,213		(665	)		(77,243	)		(717	)		(133,458	)		1,136,950

	￦	5,929,840		522,841		819,850		(8,851	)		(343,940	)		(52,427	)		17,676			6,884,989

(*1)	Business combination amounts include goodwill amounting to ￦180,418 million related to the acquisition of POSCO Plantec Co., Ltd.

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

(*3)	Includes translation adjustment and reclassification.

(*4)

For the year ended December 31, 2014, POSCO ENGINEERING & CONSTRUCT ION., LTD. recognized other intangible assets and other provisions amounting to ￦169,000 million in relation to project financing agreements on the Urban Development Project in Gaepo-dong, Seoul. POSCO ENERGY CO., LTD. recognized other intangible assets amounting to ￦539,405 million in relation to operation permit for electricity business when acquiring POSPOWER CO., Ltd.

For the year ended December 31, 2013


(in millions of Won)	Beginning		Acquisitions		Business combination		Disposals			Amortization			Impairment loss			*Others(3)**			Ending

Goodwill(*1)	￦	1,713,691		—		2,668		—			—			(103,436	)		3,015			1,615,938
Intellectual property rights		275,146		54,182		—		(291	)		(35,532	)		(10,313	)		1,191,667			1,474,859
Premium in rental(*2)		137,733		4,089		1,605		(4,382	)		(211	)		(4,457	)		(3,110	)		131,267
Development expense		60,931		13,717		2,032		—			(23,166	)		(5,675	)		13,263			61,102
Port facilities usage rights		83,122		—		—		—			(10,318	)		—			94,307			167,111
Exploratation and evaluation assets		479,728		4,669		—		—			—			—			(124,649	)		359,748
Mining development assets		1,643,306		289,016		—		—			—			—			(964,131	)		968,191
Customer relationships		750,732		—		—		—			(51,944	)		—			(5,908	)		692,880
Other intangible assets		517,971		211,627		684		(1,102	)		(58,843	)		(1,435	)		(210,158	)		458,744

	￦	5,662,360		577,300		6,989		(5,775	)		(180,014	)		(125,316	)		(5,704	)		5,929,840

(*1)	Business combination amounts include goodwill amounting to ￦2,668 million related to the acquisition of POSCO YongXin Rare Earth Metal Co., Ltd.

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

(*3)	Includes translation adjustment and reclassification.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

(c)	For the purpose of impairment testing, goodwill is allocated to individually operating entities which are determined to be CGUs. The goodwill amounts as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	Total number of CGUs
Reporting segments	2014		2013		CGUs	2014		2013
Steel		10		10	POSCO Thainox Public Company Limited	￦	16,206		18,624
					POSCO VST CO., LTD.		36,955		36,955
					Others		13,623		14,084
Trading		3		3	Daewoo International Corporation(*1)		1,163,922		1,163,922
					Others		9,918		9,711
E&C		5		4	POSCO Engineering Co., Ltd.(*2)		194,637		194,637
					EPC EQUITIES LLP		44,719		44,412
					POSCO PLANTEC Co., Ltd. (*3)		180,418		—
					Others		14,802		11,119
Others		9		10	PONUTech Co., Ltd		77,298		77,298
					POSCO ENERGY Co., LTD.		26,471		26,471
					Others		16,175		18,705

Total		27		27		￦	1,795,144		1,615,938

(*1)

Recoverable amounts of Daewoo International Corporation are determined based on its value-in-use. As of December 31, 2014, value-in-use is estimated by applying 7.17% discount rate and 2.5% terminal growth rate with 5 years, the period for the estimated future cash flows, based on management’s business plan. The key assumption for the estimated future cash flow projections for the next 5 years is the revenue growth rate. The average annual growth rate of 7.86% is used based on the average growth rate of revenue in the past 5 years ( 2010 through 2014) and the Company’s business plan for next 5 years. No impairment loss of goodwill recognized during the year ended December 31, 2014 as the recoverable amount exceeded the carrying value of the CGU.

The estimated recoverable amount of CGU exceeded the carrying value by ￦212,085 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 1%, value-in-use will be decreased by 9.17% and when the terminal growth rate decreases by 1%, value-in-use will be decreased by 5.36%.

Management believes that any reasonably possible change in the key assumption on which the recoverable amount is based would cause a change in impairment loss of goodwill.

(*2)

Recoverable amounts of POSCO Engineering Company are determined based on its value-in-use. As of December 31, 2014, value-in-use is estimated by applying 9.17% discount rate and 1% terminal growth rate with 5 years. The estimated future cash flows for the next 5 years are based on management’s approved business plan. The most significant assumption on the cash flow projections for the next 5 years is the cash flows from construction projects based on the business plan. No impairment loss of goodwill was recognized during the year ended December 31, 2014 as the recoverable amount exceeded the carrying value of the CGU.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

The estimated recoverable amounts of CGU exceeded the carrying value by ￦13,837 million. Value-in-use of the CGU was affected by the assumption such as discount rate and terminal growth used in discount cash flow model. When the discount rate increases by 0.25%, value-in-use will be decreased by 3.38% and when the terminal growth rate decreases by 0.25%, value-in-use will be decreased by 2.55%. The change has no effect on the impairment loss of the goodwill.

Management believes that any reasonably possible change in the key assumptions on which the recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the CGU.

(*3)	Recoverable amount of POSCO PLANTEC Co., Ltd. was determined based on fair value less cost to sell. No impairment loss of goodwill was recognized during the year ended December 31, 2014 as the recoverable amount exceeded the carrying value of the CGU.

16. Other Assets

Other current assets and other long-term assets as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014		2013
Current
Advance payments	￦	845,114		1,138,976
Prepaid expenses		129,914		130,272
Others		1,397		1,420

	￦	976,425		1,270,668

Non-current
Long-term advance payments	￦	3,454		3,090
Long-term prepaid expenses		243,933		204,449
Others(*1)		260,162		157,659

	￦	507,549		365,198

(*1)

As of December 31, 2014, the Company recognized assets amounting to ￦132,060 million in connection with the additional payment for prior years as a result of tax audits that were finalized in 2014 based on the Company’s best estimate of the tax amounts to be paid when the result of the Company’s appeal is finalized.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

17. Borrowings

(a)	Short-term borrowings and current portion of long-term borrowings as of December 31, 2014 and 2013 are as follows:

(in millions of Won)

Bank

Issuance date

Maturity date

Interest
rate(%)

2014

2013

Short-term borrowings

Bank overdrafts

Bank of America and others

January, 2014~

December, 2014

January, 2015~

December, 2015

0.1~6.0

￦

105,673

100,211

Short-term borrowings

HSBC and others

January, 2014~

December, 2014

January, 2015~

December, 2015

0.4~12.3

9,138,804

7,256,486

9,244,477

7,356,697

Current portion of long-term liabilities

Current portion of long-term borrowings

Korea exim bank and others

June, 2003~

December, 2014

January, 2015~

December, 2015

0.5~9.0

1,159,090

856,188

Less : Present value discount

—

(59

)

Current portion of foreign loan

NATIXIS

March, 1986

September, 2015

2.0

418

927

Current portion of debentures

Korean Development Bank and others

August, 2009~

March, 2014

February, 2015~

December, 2015

1.3~6.0

1,793,252

2,502,246

Less: Current portion of discount on debentures issued

(1,753

)

(2,353

)

2,951,007

3,356,949

￦

12,195,484

10,713,646

(b)	Long-term borrowings, excluding current portion as of December 31, 2014 and December 31, 2013 are as follows:


(in millions of Won)	Bank	Issuance date	Maturity date	Interest rate(%)	2014			2013
Long-term borrowings	Korea exim bank and others	January, 1983~ December, 2014	January, 2016~ December, 2099	0.5~10.0	￦	7,359,773			7,017,532
Less : Present value discount						(109,949	)		(43,897	)
Foreign loan(*1)	NATIXIS	March, 1986	March, 2017	2.0		627			1,140
Bonds	Korean Development Bank and others	August, 2006~ December, 2014	February, 2016~ October, 2023	0.9~6.3		8,009,547			8,590,965
Less: Discount on debentures issued						(27,225	)		(45,372	)
Add: Premium on debentures redemption						—			12,591

					￦	15,232,773			15,532,959

(*1)	Korea Development Bank has provided guarantees related to the foreign loan.

(c)

Property, plant and equipment, trade and notes receivables, financial assets, available-for-sale financial assets and inventories amounting to ￦5,950,260 million, ￦27,621 million (three hundred eleven sheets of notes receivables), ￦15,156 million, ￦6,726 million and ￦344,146 million, respectively, are provided as collateral related to short-term borrowings, long-term borrowings and debentures.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

18. Other Payables

Other payables as of December 31, 2014 and 2013 are as follows:


(in millions of Won)
	2014		2013
Current
Accounts payable	￦	1,082,676		914,288
Accrued expenses		740,250		873,613
Dividend payable		12,077		11,709
Finance lease liabilities		21,888		14,218
Withholdings		337,822		315,026

	￦	2,194,713		2,128,854

Non-current
Accounts payable	￦	81,344		116,160
Accrued expenses		25,886		25,358
Finance lease liabilities		24,815		39,257
Long-term withholdings		37,941		25,859

	￦	169,986		206,634

19. Other Financial Liabilities

Other financial liabilities as of December 31, 2014 and 2013 are as follows:


(in millions of Won)
	2014		2013
Current
Derivatives liabilities	￦	84,146		128,370
Financial guarantee liabilities		27,491		7,534

	￦	111,637		135,904

Non-current
Derivatives liabilities	￦	64,926		229,096
Financial guarantee liabilities		26,169		30,925

	￦	91,095		260,021

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

20. Provisions

(a)	Provisions as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014				2013
	Current		Non-current		Current		Non-current
Provision for bonus payments	￦	49,505		—		52,377		—
Provision for construction warranties		16,352		63,996		35,027		20,669
Provision for legal contingencies and claims(*1)		—		50,424		—		30,330
Provisions for the restoration(*2)		39,336		35,462		—		4,385
Others(*3)		44,837		73,357		19,925		90,888

	￦	150,030		223,239		107,329		146,272

(*1)	The Company recognized probable outflow of resources amounting to ￦44,309 million and ￦17,549 million as provisions for legal contingencies and asserted claims in relation to lawsuits against the Company as of December 31, 2014 and 2013, respectively.

(*2)

Due to contamination of land near the Company’s magnesium plant located in Gangneung, the Company recognized a provision of ￦89,433 million related to restoration costs. When estimating related costs, the Company has assumed that it would use all of technologies and materials available to restore the land. In addition, the Company has applied a discount rate of 3.04% to measure the present value of these costs.

(*3)	As of December 31, 2014 and 2013, the amount includes a provision of ￦23,600 million and ￦74,888 million, respectively, for expected outflows of resources in connection with the subrogation and financial joint guarantee for the construction projects of POSCO ENGINEERING & CONSTRUCTION Co., LTD.

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


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

(c)	Changes in provisions for the years ended December 31, 2014 and 2013 were as follows:

For the year ended December 31, 2014


(in millions of Won)	Beginning		Increase		Utilization			Reversal			*Others(1)**		Ending

Provision for bonus payments	￦	52,377		45,071		(46,761	)		(1,646	)		464		49,505
Provision for construction warranties		55,696		34,410		(15,719	)		(4,677	)		10,638		80,348
Provision for legal contingencies and claims		30,330		15,289		—			(7,716	)		12,521		50,424
Provisions for the restoration		4,385		89,565		(19,328	)		—			176		74,798
Others		110,813		282,406		(258,571	)		(19,523	)		3,069		118,194

	￦	253,601		466,741		(340,379	)		(33,562	)		26,868		373,269

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

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

For the year ended December 31, 2013


(in millions of Won)	Beginning		Increase		Utilization			Reversal			*Others(1)**			Ending

Provision for bonus payments	￦	42,904		48,362		(36,126	)		(2,058	)		(705	)		52,377
Provision for construction warranties		50,716		27,008		(15,356	)		(3,887	)		(2,785	)		55,696
Provision for legal contingencies and claims		30,920		5,090		(4,353	)		(1,327	)		—			30,330
Provisions for the restoration		4,371		130		—			—			(116	)		4,385
Others		49,018		85,947		(23,576	)		(1,597	)		1,021			110,813

	￦	177,929		166,537		(79,411	)		(8,869	)		(2,585	)		253,601

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

21. Employee Benefits

(a)	Defined contribution plans

The expenses related to post-employment benefit plans under defined contribution plans for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014		2013

Expense related to post-employment benefit under defined contribution plans	￦	23,414		19,126

(b)	Defined benefit plans

The amounts recognized in relation to net defined benefit liabilities in the statements of financial position as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014			2013
Present value of funded obligations	￦	1,713,074			1,515,426
Fair value of plan assets		(1,427,918	)		(1,247,483	)
Present value of non-funded obligations		5,169			5,217

Net defined benefit liabilities	￦	290,325			273,160

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

Changes in present value of defined benefit obligations for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014			2013
Defined benefit obligation at the beginning of period	￦	1,520,643			1,410,399
Current service costs		230,445			238,386
Interest costs		54,737			47,039
Remeasurements:		85,166			(12,615	)
- Gain from change in demographic assumptions		18,911			(5,624	)
- Loss from change in financial assumptions		54,131			7,667
- Others		12,124			(14,658	)
Business combinations		48,695			11,379
Benefits paid		(160,792	)		(129,038	)
Others		(60,651	)		(44,907	)

Defined benefit obligation at the end of period	￦	1,718,243			1,520,643

Changes in fair value of plan assets for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014			2013
Fair value of plan assets at the beginning of period	￦	1,247,483			1,064,711
Interest on plan assets		47,296			37,677
Remeasurement of plan assets		(11,236	)		(1,482	)
Contributions to plan assets(*1)		273,867			254,771
Business combinations		30,863			9,372
Benefits paid		(109,352	)		(82,624	)
Others		(51,003	)		(34,942	)

Fair value of plan assets at the end of period	￦	1,427,918			1,247,483

(*1)	The Company expects to make an estimated contribution of ￦272,767 million to the defined benefit plan assets in 2015.

The fair value of plan assets as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014		2013
Equity instruments	￦	43,010		35,364
Debt instruments		236,665		98,686
Deposits		997,414		958,509
Others		150,829		154,924

	￦	1,427,918		1,247,483

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

The amounts recognized in consolidated statements of comprehensive income for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)
	2014		2013
Current service costs	￦	230,445		238,386
Net interest costs(*1)		7,441		9,362

	￦	237,886		247,748

(*1)	The actual return on plan assets amounted to ￦36,060 million and ￦36,195 million for the years ended December 31, 2014 and 2013, respectively.

The above expenses by function were as follows:


(in millions of Won)	2014		2013
Cost of sales	￦	172,668		180,090
Selling and administrative expenses		64,960		66,327
Others		258		1,331

	￦	237,886		247,748

Accumulated actuarial gains (losses), net of tax recognized in other comprehensive income for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014			2013
Beginning	￦	(239,005	)		(245,229	)
Current actuarial gains (losses)		(75,101	)		6,224

Ending	￦	(314,106	)		(239,005	)

The principal actuarial assumptions as of December 31, 2014 and 2013 are as follows:


(%)	2014	2013
Discount rate	2.58~8.58	3.47~4.91
Expected future increase in salaries(*1)	1.00~10.22	1.07~5.75

(*1)	The expected future increase in salaries is based on the average salary increase rate for the 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 and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation by the amounts shown below:


(in millions of Won)	1% Increase						1% Decrease
	Amount			Percentage(%)			Amount			Percentage(%)
Discount rate	￦	(126,866	)		(7.4	)		143,406			8.3
Expected future increases in salaries		143,117			8.3			(107,206	)		(6.2	)

As of December 31, 2014 the maturity of the expected benefit payments are as follows:


(in millions of Won)	Within 1 year		1 year - 5 years		5 years - 10 years		10 years - 20 years		After 20 years		Total
Benefits paid	￦	49,514		292,921		747,429		959,413		283,963		2,333,240

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

22. Other Liabilities

Other liabilities as of December 31, 2014 and 2013 are as follows:


(in millions of Won)
	2014		2013
Current
Due to customers for contract work	￦	1,041,946		898,605
Advances received		763,168		1,176,621
Unearned revenue		21,627		29,217
Withholdings		167,002		192,497
Deferred revenue		—		202
Others(*1)		236,021		268,032

	￦	2,229,764		2,565,174

Non-current
Advances received	￦	108,496		201,432
Unearned revenue		1,170		1,465
Others(*1)		45,987		57,954

	￦	155,653		260,851

(*1)

Includes other current liabilities amounting to ￦214,731 million, ￦261,855 million and other long-term liabilities amounting to ￦8,819 million and ￦8,935 million as of December 31, 2014 and 2013, respectively, due to proportionate consolidation of joint operations which are owned by POSCO’s subsidiaries including MT. Thorley.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

23. Financial Instruments

(a)	Classification of financial instruments

Financial assets as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014		2013
Financial assets at fair value through profit or loss
Derivatives assets held for trading	￦	96,266		78,222
Available-for-sale financial assets		2,420,241		4,166,384
Held-to-maturity financial assets		17,093		3,834
Loans and receivables		19,501,763		21,206,326

	￦	22,035,363		25,454,766

Financial liabilities as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014		2013
Financial liabilities at fair value through profit or loss
Derivatives liabilities held for trading	￦	149,072		357,466

Financial liabilities evaluated as amortized cost
Trade accounts and note payable		4,039,255		4,231,881
Borrowings		27,428,257		26,246,605
Financial guarantee liabilities		53,660		38,459
Others		2,101,354		2,253,989

		33,622,526		32,770,934

	￦	33,771,598		33,128,400

Finance income and costs by category of financial instrument for the years ended December 31, 2014 and 2013 were as follows:

December 31, 2014


(in millions of Won)	Finance income and costs
	Interest income(cost)			Gain and loss on valuation			Gain and loss on foreign currency			Gain and loss on disposal			Impairment loss			Others			Total			Other comprehensive income(loss)
Financial assets at fair value through profit or loss	￦	—			72,466			—			256,941			—			—			329,407			—
Available-for-sale financial assets		309			—			—			181,774			(369,723	)		47,825			(139,815	)		(333,891	)
Held-to-maturity financial assets		260			—			—			—			—			(244	)		16			—
Loans and receivables		227,685			—			301,623			(20,912	)		—			(255	)		508,141			—
Financial liabilities at fair value through profit or loss		—			(98,003	)		—			(282,638	)		—			—			(380,641	)		—
Financial liabilities at amortized cost		(795,585	)		—			(288,513	)		(38,594	)		—			(19,641	)		(1,142,333	)		—

	￦	(567,331	)		(25,537	)		13,110			96,571			(369,723	)		27,685			(825,225	)		(333,891	)

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

‚

December 31, 2013


(in millions of Won)	Finance income and costs
	Interest income(cost)			Gain and loss on valuation			Gain and loss on foreign currency			Gain and loss on disposal			Impairment loss			Others			Total			Other comprehensive income(loss)
Financial assets at fair value through profit or loss	￦	549			67,951			—			348,126			—			—			416,626			—
Available-for-sale financial assets		4,010			—			—			101,842			(280,237	)		59,181			(115,204	)		412,346
Held-to-maturity financial assets		480			—			—			—			—			84			564			—
Loans and receivables		255,359			—			(49,541	)		(20,009	)		—			(145	)		185,664			—
Financial liabilities at fair value through profit or loss		—			(287,864	)		—			(264,739	)		—			—			(552,603	)		—
Financial liabilities at amortized cost		(657,681	)		—			285,922			—			—			(11,703	)		(383,462	)		—

	￦	(397,283	)		(219,913	)		236,381			165,220			(280,237	)		47,417			(448,415	)		412,346

(b)	Credit risk

Credit risk exposure

The carrying amount of financial assets represents the Company’s maximum exposure to credit risk. The maximum exposure to credit risk as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014		2013
Cash and cash equivalents	￦	3,811,202		4,208,562
Financial assets at fair value through profit or loss		96,266		78,222
Available-for-sale financial assets		125,486		97,618
Held-to-maturity financial assets		17,093		3,834
Loans and other receivables		3,825,170		5,408,163
Trade accounts and notes receivable, net		11,786,055		11,492,601
Long-term trade accounts and notes receivable, net		79,336		97,000

	￦	19,740,608		21,386,000

The Company provided financial guarantees for the repayment of loans of associates, joint ventures and third parties. As of December 31, 2014 and 2013, the maximum exposure to credit risk related to the financial guarantees amounted to ￦4,780,700 million and ￦4,520,052 million, respectively.

Impairment losses on financial assets

Allowance for doubtful accounts as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014		2013
Trade accounts and notes receivable	￦	605,470		439,073
Other accounts receivable		94,579		81,470
Loans		234,107		127,990
Other assets		19,997		13,118

	￦	954,153		661,651

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

‚

Impairment losses on financial assets for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014			2013
Bad debt expenses on trade receivables	￦	108,933			90,119
Impairment of available-for-sale financial assets		369,723			280,237
Other bad debt expenses(*1)		96,373			111,065
Impairment of held-to-maturity financial assets		319			—
Less: Recovery of impairment of held-to-maturity financial assets		(75	)		(84	)

	￦	575,273			481,337

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

The aging and impairment losses of trade accounts and notes receivable as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014				2013
	Trade accounts and notes receivable		Impairment		Trade accounts and notes receivable		Impairment
Not due	￦	8,721,366		53,093		8,465,892		48,147
Over due less than 1		1,867,838		7,171		1,849,829		12,675
1 month - 3 months		273,981		3,323		239,498		3,124
3 months - 12 months		201,213		16,893		503,171		10,681
over 12 months		1,406,463		524,990		970,284		364,446

	￦	12,470,861		605,470		12,028,674		439,073

„

Changes in the allowance for doubtful accounts for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014		2013
Beginning	￦	661,651		474,877
Bad debt expenses		108,933		90,119
Other bad debt expenses		96,373		111,065
Others		87,196		(14,410	)

Ending	￦	954,153		661,651

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

(c)	Liquidity risk

Contractual maturities for non-derivative financial liabilities, including estimated interest, are as follows:


(in millions of Won)	Book value		Contractual cash flow		Within 1 year		1 year - 5 years		After 5 years
Trade accounts payable	￦	4,039,255		4,039,255		3,950,786		88,469		—
Financial guarantee liabilities(*1)		53,660		4,780,700		4,780,700		—		—
Other financial liabilities		2,101,354		2,101,354		1,931,368		169,986		—
Borrowings		27,428,257		30,185,854		13,231,111		11,066,493		5,888,250

	￦	33,622,526		41,107,163		23,893,965		11,324,948		5,888,250

(*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.

The maturity analysis of derivative financial liabilities is as follows:


(in millions of Won)	Within 1 year		1 year - 5 years		After 5 years		Total
Currency forward	￦	29,080		13,115		—		42,195
Currency futures		54,102		—		—		54,102
Currency swaps		—		48,581		3,230		51,811
Interest swaps		349		—		—		349
Other forwards		615		—		—		615

	￦	84,146		61,696		3,230		149,072

(d)	Currency risk

The Company has exposure to the risk that the fair value or future cash flows of a financial instrument will fluctuate because of the changes in foreign exchange rates. The exposure to currency risk as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014				2013
	Assets		Liabilities		Assets		Liabilities
USD	￦	4,771,164		8,328,804		3,929,623		8,953,287
EUR		387,102		683,685		365,021		408,542
JPY		185,891		1,145,643		482,691		1,727,946
Others		140,699		45,414		372,715		212,287

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

As of December 31, 2014 and 2013, 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, 2014 and 2013 were as follows:


(in millions of Won)	2014					2013
	10% increase			10% decrease		10% increase			10% decrease
USD	￦	(355,764	)		355,764		(502,366	)		502,366
EUR		(29,658	)		29,658		(4,352	)		4,352
JPY		(95,975	)		95,975		(124,526	)		124,526

(e)	Interest rate risk

The carrying amount of interest-bearing financial instruments as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014			2013
Fixed rate
Financial assets	￦	6,250,418			8,195,153
Financial liabilities		(17,258,183	)		(15,633,891	)

	￦	(11,007,765	)		(7,438,738	)

Variable rate
Financial liabilities	￦	(10,170,074	)		(10,612,712	)

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

The Company does not account for any fixed rate financial assets and liabilities at fair value through profit or loss, and the Company does not designate derivatives (interest rate swaps) as hedging instruments under a fair value hedge accounting model. Therefore a change in interest rates at the reporting date would not affect profit or loss.

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

As of December 31, 2014 and 2013, provided that other factors remain the same and the interest rate of borrowings with floating rates increases or decreases by 1%, the changes in interest expense for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014					2013
	1% increase			1% decrease		1% increase			1% decrease
Variable rate financial instruments	￦	(101,701	)		101,701		(106,127	)		106,127

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

(f)	Fair value

Fair value and book value

The carrying amount and the fair value of financial instruments as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014				2013
	Book value		Fair value		Book value		Fair value
Assets measured at fair value
Available-for-sale financial assets(*1)	￦	1,963,289		1,963,289		3,560,515		3,560,515
Derivatives assets held for trading(*2)		96,266		96,266		78,222		78,222

		2,059,555		2,059,555		3,638,737		3,638,737

Assets measured amortized cost(*3)
Cash and cash equivalents		3,811,202		3,811,202		4,208,562		4,208,562
Trade accounts and notes receivable, net		11,865,391		11,865,391		11,589,601		11,589,601
Loans and other receivables, net		3,825,170		3,825,170		5,408,163		5,408,163
Held-to-maturity financial assets		17,093		17,093		3,834		3,834

		19,518,856		19,518,856		21,210,160		21,210,160

Liabilities measured at fair value
Derivatives liabilities held for trading(*2)		149,072		149,072		357,466		357,466
Liabilities measured amortized cost(*3)
Trade accounts and notes payable		4,039,255		4,039,255		4,231,881		4,231,881
Borrowings		27,428,257		27,756,615		26,246,605		26,550,721
Financial guarantee liabilities		53,660		53,660		38,459		38,459
Others		2,101,354		2,101,354		2,253,989		2,253,989

	￦	33,622,526		33,950,884		32,770,934		33,075,050

(*1)

The fair value of available-for-sale financial assets publicly traded is measured at the closing bid price quoted at the end of the reporting period. Meanwhile, the fair value of unquoted available-for-sale financial assets is calculated using the valuation results from an external pricing service in which weighted average cost of capital of evaluated companies is used as a discount rate. Available-for-sale financial assets which are not measured at fair value are excluded.

(*2)	The fair value of derivatives is measured using valuation models such as Black-Scholes model and others in which the market yields on government bonds are used as a discount rate.

(*3)

The fair value of financial assets and liabilities measured at amortized cost is determined at the present value of estimated future cash flows discounted at the current market interest rate. The fair value is calculated for the disclosures in the notes. On the other hand, the Company has not performed fair value measurement for the financial assets and liabilities measured at amortized cost except borrowings since their carrying amounts approximate fair value.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

Interest rates used for determining fair value

Interest rates used to discount estimated cash flows as of December 31, 2014 and 2013 are as follows:


	2014	2013
Interest rate of borrowings(%)	0.22~4.92	0.76~5.18

The fair value hierarchy

The fair values of financial instruments by fair value hierarchy as of December 31, 2014 and 2013 are as follows:

December 31, 2014


(in millions of Won)	Level 1		Level 2		Level 3		Total
Financial assets
Available-for-sale financial assets	￦	1,808,384		—		154,905		1,963,289
Derivatives assets held for trading		—		96,266		—		96,266

		1,808,384		96,266		154,905		2,059,555

Financial liabilities
Derivatives liabilities held for trading	￦	—		149,072		—		149,072

December 31, 2013


(in millions of Won)	Level 1		Level 2		Level 3		Total
Financial assets
Available-for-sale financial assets	￦	2,816,484		—		744,031		3,560,515
Derivatives assets held for trading		—		78,222		—		78,222

		2,816,484		78,222		744,031		3,638,737

Financial liabilities
Derivatives liabilities held for trading	￦	—		357,466		—		357,466

‚

Changes in fair value of financial instruments classified as Level 3 for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014			2013
Beginning	￦	744,031			758,673
Valuation		(60,445	)		(15,423	)
Acquisition and others(*1)		65,232			19,766
Disposal and others(*2)		(593,913	)		(18,985	)

Ending	￦	154,905			744,031

(*1)	Included transferred amount due to change in fair value hierarchy.

(*2)	Included ￦580,062 million transfer to assets held for sale for the year ended December 31, 2014.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

(g)	Offsetting financial assets and financial liabilities

As of December 31, 2014 and 2013, financial assets and financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements are as follows:

December 31, 2014


(in millions of Won)	Gross amounts of recognized financial instruments		Gross amounts of recognized financial instruments set off in the statement of financial position		Net amounts of financial instruments presented in the statement of financial position		Related amounts not set off in the statement of financial position						Net amount
							Financial instruments			Cash collateral received or pledged


Financial assets
Trade accounts and notes receivable	￦	106,985		—		106,985		(106,985	)		—			—
Derivatives(*1)		79,286		—		79,286		(79,286	)		—			—

Total		186,271		—		186,271		(186,271	)		—			—

Financial liabilities
Short-term borrowings		106,985		—		106,985		(106,985	)		—			—
Derivatives(*1)		128,980		—		128,980		(79,286	)		(6,912	)		42,782

Total	￦	235,965		—		235,965		(186,271	)		(6,912	)		42,782

(*1)

Some of the derivative contracts are made under International Swaps and Derivatives Association (ISDA) master netting agreements. In general, under such agreements the amounts owed by each counter party on a single day in respect of all transactions outstanding in the same currency are aggregated into a single net amount that is payable by one party to the other. In certain circumstances (i.e. when a default occurs), all standing transactions under the agreement are terminated, the termination value is assessed and only a single amount is payable in settlement of all transactions.

December 31, 2013


(in millions of Won)	Gross amounts of recognized financial instruments		Gross amounts of recognized financial instruments set off in the statement of financial position		Net amounts of financial instruments presented in the statement of financial position		Related amounts not set off in the statement of financial position						Net amount
							Financial instruments			Cash collateral received or pledged


Financial assets
Trade accounts and notes receivable	￦	73,956		—		73,956		(73,956	)		—			—
Derivatives		64,408		—		64,408		(64,408	)		—			—

Total		138,364		—		138,364		(138,364	)		—			—

Financial liabilities
Short-term borrowings		73,956		—		73,956		(73,956	)		—			—
Derivatives		108,405		—		108,405		(64,408	)		(3,410	)		40,587

Total	￦	182,361		—		182,361		(138,364	)		(3,410	)		40,587

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

24. Share Capital and Capital Surplus

(a)	Share capital as of December 31, 2014 and 2013 are as follows:


(Share, in Won)
	2014		2013
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, 2014, total shares of ADRs of 51,622,460 are equivalent to 12,905,615 of common stock.

(*2)	As of December 31, 2014, 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, 2014 and 2013 were as follows:


(share)	2014							2013
	Issued shares		Treasury shares			outstanding shares		Issued shares		Treasury shares			outstanding shares
Beginning		87,186,835		(7,403,211	)		79,783,624		87,186,835		(9,942,391	)		77,244,444
Disposal of treasury shares		—		209,404			209,404		—		2,539,180			2,539,180
Ending		87,186,835		(7,193,807	)		79,993,028		87,186,835		(7,403,211	)		79,783,624

(c)	Capital surplus as of December 31, 2014 and 2013 are as follows:


(in millions of Won)
	2014			2013
Share premium	￦	463,825			463,825
Gain on disposal of treasury shares		783,791			769,215
Other capital deficit		(163,898	)		(154,774	)

	￦	1,083,718			1,078,266

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

25. Hybrid Bonds

(a)	Hybrid bonds classified as equity as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	Date of issue	Date of maturity	Rate of interest (%)		2014			2013

Hybrid bond 1-1(*1)	2013-06-13	2043-06-13		4.30	￦	800,000			800,000
Hybrid bond 1-2(*1)	2013-06-13	2043-06-13		4.60		200,000			200,000
Issuance cost						(3,081	)		(3,081	)

					￦	996,919			996,919

(*1)	Details of hybrid bonds as of December 31, 2014 are as follows:


(in millions of Won)		Hybrid bond 1-1		Hybrid bond 1-2
Issue price	800,000		200,000

Maturity date	30 years (The Company has a right to extend the maturity date)		30 years (The Company has a right to extend the maturity date)

Interest rate	Issue date ~ 2018-06-12: 4.3%		Issue date ~ 2023-06-12: 4.6%
	reset every 5 years as follows;		reset every 10 years as follows;
	•	After 5 years: return on government bond (5 years) + 1.3%	•	After 10 years: return on government bond (10 years) + 1.4%
	•	After 10 years: additionally +0.25% according to Step-up clauses	•	After 10 years: additionally +0.25% according to Step-up clauses
	•	After 25 years: additionally +0.75%	•	After 30 years: additionally +0.75%

Interest payments condition	Quarterly		Quarterly
	(Optional deferral of interest payment is available to the Company)		(Optional deferral of interest payment is available to the Company)

Others	The Company can call the hybrid bond at year 5 and interest payment date afterwards		The Company can call the hybrid bond at year 10 and interest payment date afterwards

The Company holds the right to extend the maturity dates of the hybrid bonds and to defer interest payments for the hybrid bonds. If interest payments for the hybrid bonds are deferred, the Company cannot declare or pay dividends attributable to common stock. Since the Company has an unconditional right to avoid delivering cash or another financial asset to settle a contractual obligation, the hybrid bonds have been classified as equity instruments. The hybrid bond holders’ preference in the event of liquidation is higher than the common stock holders, but lower than other creditors. The interest accumulated but not paid on the hybrid bonds as of December 31, 2014 amounts to ￦2,301 million.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

(b)	POSCO ENERGY Co., Ltd., a subsidiary of the Company, issued hybrid bonds, which are classified as non-controlling interests in the consolidated financial statements. Hybrid bonds as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	Date of issue	Date of maturity	Interest rate(%)		2014			2013

Hybrid bond 1-1(*1)	2013-08-29	2043-08-29		4.66	￦	165,000			165,000
Hybrid bond 1-2(*1)	2013-08-29	2043-08-29		4.72		165,000			165,000
Hybrid bond 1-3(*1)	2013-08-29	2043-08-29		4.72		30,000			30,000
Hybrid bond 1-4(*1)	2013-08-29	2043-08-29		5.21		140,000			140,000
Issuance cost						(1,532	)		(1,532	)

					￦	498,468			498,468

(*1)	Details of hybrid bonds of POSCO ENERGY Co., Ltd. as of December 31, 2014 are as follows:

(in millions of Won)

Hybrid bond 1-1

Hybrid bond 1-2 and 1-3

Hybrid bond 1-4

Issue price

165,000

195,000

140,000

Maturity date

30 years (The Company has a right to extend the maturity date)

Interest rate

Issue date ~ 2018-08-29: 4.66%

Issue date ~ 2018-08-29: 4.72%

Issue date ~ 2018-08-29: 5.21%

reset every 5 years as follows;

•

After 5 years: return on government bond (5 years) + 1.39%

•

After 5 years: return on government bond (5 years) + 1.45%

•

After 5 years: return on government bond (5 years) + 1.55%

•

After 10 years: additionally +0.25% according to Step-up clauses

•

After 10 years: additionally +0.25% according to Step-up clauses

•

After 10 years: additionally +0.25% according to Step-up clauses

•

After 30 years: additionally +0.75%

•

After 30 years: additionally +0.75%

•

After 30 years: additionally +0.75%

Interest payments condition

Quarterly

(Optional deferral of interest payment is available to the Company)

Others

The Company can call the hybrid bond at year 5 and interest payment date afterwards

POSCO ENERGY CO., LTD., a subsidiary, holds the right to extend the maturity dates of the hybrid bonds and to defer interest payments for the hybrid bonds. If interest payments for the hybrid bonds are deferred, POSCO ENERGY CO., LTD. cannot declare or pay dividends attributable to common stock. Since the subsidiary has an unconditional right to avoid delivering cash or another financial asset to settle a contractual obligation, the hybrid bonds have been classified as equity (non-controlling interests) in the Company’s consolidated financial statements. The hybrid bond holders’ preference in the event of liquidation is higher than the common stock holders, but lower than other creditors. The interest accumulated but not paid on the hybrid bonds as of December 31, 2014 amounts to ￦2,063 million.

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

26. Reserves

(a)	Reserves as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014			2013
Accumulated comprehensive loss of investments in associates and joint ventures	￦	(344,942	)		(295,946	)
Changes in the unrealized fair value of available-for-sale investments		144,783			480,409
Currency translation differences		(187,740	)		(189,085	)
Others		(20,874	)		(18,454	)

	￦	(408,773	)		(23,076	)

(b)	Changes in fair value of available-for-sale investments for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014			2013
Beginning balance	￦	480,409			67,956
Changes in the unrealized fair value of available-for-sale investments		(411,671	)		312,196
Reclassification to profit of loss upon disposal		(176,124	)		(73,848	)
Impairment of avaible-for-sale investments		267,920			170,892
Others		(15,751	)		3,213

Ending balance	￦	144,783			480,409

27. Treasury Shares

Based on the Board of Directors’ resolution, the Company holds treasury shares for business purposes including price stabilization. The changes in treasury shares for the years ended December 31, 2014 and 2013 were as follows:


(shares, in millions of Won)	2014						2013
	Number of shares			Amount			Number of shares			Amount
Beginning		7,403,211		￦	1,579,124			9,942,391		￦	2,391,406
Disposal of treasury shares		(209,404	)		(44,667	)		(2,539,180	)		(812,282	)

Ending		7,193,807		￦	1,534,457			7,403,211		￦	1,579,124

100

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

28. Revenue

Details of revenue for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014		2013
Sales of goods	￦	53,636,957		50,921,090
Service sales		2,962,404		3,614,227
Construction sales		8,137,773		6,886,007
Rental income		18,876		24,735
Others		342,435		418,591

	￦	65,098,445		61,864,650

29. Construction Contracts

(a)	Construction contracts in progress as of December 31, 2014 and 2013 were as follows:


(in million of Won)	2014			2013
Aggregate amount of costs incurred	￦	12,235,027			10,380,202
Add: Recognized profits		801,060			950,010
Less: Recognized losses		(449,227	)		(467,023	)
Cumulative construction revenue		12,586,860			10,863,189
Less: Progress billing		(12,039,346	)		(10,145,691	)
Foreign currency gains and losses		(5,721	)		(1,379	)
Others		(55,312	)		(39,795	)

	￦	486,481			676,324

(b)	Unbilled amount due from customers and due to customers for contract work as of December 31, 2014 and 2013 are as follows:


(in million of Won)	2014			2013
Unbilled due from customers for contract work	￦	1,528,427			1,574,929
Due to customers for contract work		(1,041,946	)		(898,605	)

	￦	486,481			676,324

(c)

When the outcome of a construction contract can be estimated reliably, contract revenue is recognized in profit or loss in proportion to the stage of completion of the contract. The Company estimates the stage of completion of the contract based on the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs.

The estimated total contract costs are based on the nature and characteristics of an individual contract, historical costs of similar projects, and current circumstances. Only those contract costs that reflect work performed are included in costs incurred to date.

101

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

The following are the key assumptions for the estimated contract cost.


		Key assumptions for the estimation
Material		Estimations based on recent purchasing contracts, market price and quoted price
Labor cost		Estimations based on standard monthly and daily labor cost
Outsourcing cost		Estimations based on the historical costs of similar projects, market price and quoted price

Management continually reviews all estimates involved in such construction contracts and adjusts them as necessary.

30. Selling and Administrative Expenses

(a)	Administrative expenses

Administrative expenses for years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014		2013
Wages and salaries	￦	781,433		754,819
Expenses related to post-employment benefits		66,744		67,482
Other employee benefits		174,131		165,751
Travel		50,257		53,003
Depreciation and amortization		273,220		228,496
Communication		9,579		14,601
Electricity expenses		11,746		13,389
Taxes and public dues		55,647		55,177
Rental		137,366		110,191
Repairs		13,924		5,708
Entertainment		17,633		17,295
Advertising		104,485		105,663
Research & development		175,195		192,805
Service fees		215,974		240,034
Supplies		10,856		15,031
Vehicles maintenance		12,685		12,109
Industry association fee		11,856		11,924
Training		9,979		12,056
Conference		17,620		17,004
Contribution to provisions		16,056		19,075
Bad debt allowance		108,933		90,119
Others		34,437		30,073

	￦	2,309,756		2,231,805

102

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

(b)	Selling expenses

Selling expenses for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014		2013
Freight and custody expenses	￦	1,551,705		1,432,935
Operating expenses for distribution center		10,782		9,838
Sales commissions		66,359		73,922
Sales advertising		4,615		3,228
Sales promotion		25,777		27,129
Sample		3,477		4,751
Sales insurance premium		39,538		27,031
Contract cost		49,891		37,323
Others		7,974		15,963

	￦	1,760,118		1,632,120

31. Research and Development Expenditures Recognized as Expenses

Research and development expenditures recognized as expenses for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014		2013
Selling and administrative expenses	￦	175,195		192,805
Cost of sales		353,149		369,842

	￦	528,344		562,647

103

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

32. Reconciliation of Operating Profit

The operating profit in the Company’s consolidated statements of comprehensive income prepared in accordance with K-IFRS differs from that in its consolidated statements of comprehensive income prepared in accordance with IFRS as issued by IASB. The table below sets forth a reconciliation of the Company’s results from operating activities as presented in the Company’s consolidated statements of comprehensive income prepared in accordance with K-IFRS for the years ended December 31, 2014 and 2013 to the operating profit as presented in the Company’s consolidated statements of comprehensive income prepared in accordance with IFRS as issued by IASB for each of the corresponding years.


(in millions of Won)	2014			2013
Operating profits on the statement of comprehensive income (K-IFRS)(note 34)	￦	3,213,530			2,996,134

Add
Gains on disposals of assets held for sale		48,232			101,611
Gains on disposals of investment in associates		41,258			7,668
Gains on disposals of property, plant and equipment		15,039			14,177
Reversal of impairment loss on intangible assets		2,794			122
Reversal of other provision expenses		19,769			2,924
Rental revenues		1,743			1,588
Outsourcing income		14,200			25,428
Gain on disposals of wastes		11,357			16,541
Gain from claim compensation		29,171			14,525
Penalty income from early termination of contracts		34,606			16,477
Grant income		1,441			2,287
Others		49,796			25,725

		269,406			229,073

Deduct
Other bad debt expenses		(96,373	)		(111,065	)
Losses on disposals of assets held for sale		(14	)		(26,498	)
Impairment losses on assets held for sale		(17,205	)		(1,814	)
Losses on disposals of property, plant and equipment		(50,006	)		(121,133	)
Impairment losses on property, plant and equipment		(64,833	)		(9,742	)
Impairment losses on intangible assets		(55,220	)		(125,316	)
Idle tangible assets expenses		(12,214	)		(17,624	)
Impairment losses on other non-current assets		(38,137	)		(9,000	)
Other provision expenses		(126,601	)		(65,896	)
Donations		(69,544	)		(60,940	)
Loss on disposals of investment in associates		(2,556	)		(19,404	)
Loss on disposals of wastes		(16,386	)		(15,231	)
Penalty and additional tax payments		(352,173	)		(19,340	)
Others		(78,412	)		(47,803	)

		(979,674	)		(650,806	)

Operating profit (IFRS as issued by IASB)	￦	2,503,262			2,574,401

104

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

33. Finance Income and Costs

Details of finance income and costs for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014		2013

Finance income
Interest income	￦	228,254		260,398
Dividend income		47,825		59,181
Gain on foreign currency transactions		1,022,253		997,591
Gain on foreign currency translations		453,471		511,143
Gains on derivatives transactions		327,738		370,343
Gains on valuations of derivatives		73,279		72,297
Gains on disposals of available-for-sale financial assets		236,484		105,563
Others		7,458		4,322

	￦	2,396,762		2,380,838

Finance costs
Interest expenses	￦	795,585		657,681
Loss on foreign currency transactions		1,033,723		927,453
Loss on foreign currency translations		428,891		344,900
Loss on derivatives transactions		353,435		286,574
Loss on valuation of derivatives		101,330		291,465
Impairment loss on available-for-sale financial assets		369,723		280,237
Loss on disposals of available-for-sale financial assets		54,710		3,721
Loss on financial guarantee		10,077		5,880
Others		74,513		31,342

	￦	3,221,987		2,829,253

105

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

34. Other Non-Operating Income and Expenses

Details of other non-operating income and expenses for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014		2013

Other non-operating income
Gains on disposals of assets held for sale	￦	48,232		101,611
Gains on disposals of investment in associates		41,258		7,668
Gains on disposals of property, plant and equipment		15,039		14,177
Reversal of impairment loss on intangible assets		2,794		122
Reversal of other provision expenses		19,769		2,924
Retal revenues		1,743		1,588
Outsourcing income		14,200		25,428
Gain on disposals of wastes		11,357		16,541
Gain from claim compensation		29,171		14,525
Penalty income from early termination of contracts		34,606		16,477
Grant income		1,441		2,287
Others		49,796		25,725

	￦	269,406		229,073

Other non-operating expenses
Other bad debt expenses	￦	96,373		111,065
Losses on disposals of assets held for sale		14		26,498
Impairment losses on assets held for sale		17,205		1,814
Losses on disposals of property, plant and equipment		50,006		121,133
Impairment losses on property, plant and equipment		64,833		9,742
Impairment losses on intangible assets		55,220		125,316
Idle tangible assets expenses		12,214		17,624
Impariment losses on other non-current assets		38,137		9,000
Other provision expenses		126,601		65,896
Donations		69,544		60,940
Loss on disposals of investment in associates		2,556		19,404
Loss on disposals of wastes		16,386		15,231
Penalty and additional tax payments (*1)		352,173		19,340
Others		78,412		47,803

	￦	979,674		650,806

(*1)	As a result of Korea National Tax Service’s periodic audit of tax payments and refunds of the Company, the Company recognized additional tax payments amounting to ￦271,646 million, primarily related to VAT, during the year ended December 31, 2014.

106

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

35. Expenses by Nature

Expenses that are recorded by nature as cost of sales, selling, general and administrative expenses and other non-operating expenses in the statements of comprehensive income for the years ended December 31, 2014 and 2013 were as follows (excluding finance costs and income tax expense):


(in millions of Won)	2014		2013

Changes in inventories	￦	9,439,560		12,163,136
Cost of merchandises sold		30,899,849		25,909,164
Employee benefits expenses(*2)		3,197,902		3,174,316
Outsourced processing cost		9,294,977		9,462,946
Electricity expenses		1,370,390		1,109,765
Depreciation expenses(*1)		2,894,609		2,505,536
Amortization expenses		343,940		180,014
Freight and custody expenses		1,551,705		1,432,935
Sales commisions		66,359		73,922
Loss on disposal of property, plant and equipment		50,006		121,133
Donations		69,544		60,940
Other expenses		3,685,748		3,325,515

	￦	62,864,589		59,519,322

(*1)	Includes depreciation expense of investment property.

(*2)	The details of employee benefits expenses for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014		2013

Wages and salaries	￦	2,936,602		2,907,442
Expenses related to post-employment benefits		261,300		266,874

	￦	3,197,902		3,174,316

36. Income Taxes

(a)	Income tax expense for the years ended December 31, 2014 and 2013 was as follows:


(in millions of Won)	2014			2013

Current income taxes	￦	790,055			615,771
Deferred income taxes		(82,075	)		108,034
Items credited (charged) directly in equity		113,505			(132,808	)

Income tax expense	￦	821,485			590,997

107

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

(b)	The following table reconciles the calculated income tax expense based on POSCO’s statutory rates (24.2%) to the actual amount of taxes recorded by the Company for the years ended December 31, 2014 and 2013.


(in millions of Won)	2014			2013

Profit before income tax expense	￦	1,378,144			1,946,177
Income tax expense computed at statutory rate		333,049			470,975
Adjustments:
Tax credits		(49,615	)		(169,166	)
Adjustments on prior year tax from tax audit		56,257			—
Under(over) provision from prior years		(463	)		(1,178	)
Tax effects due to amendments to local income tax law		39,890			—
Investment in subsidiaries, associates and joint ventures		371,876			251,014
Tax effects due to permanent differences		69,998			7,703
Others		493			31,649

		488,436			120,022

Income tax expense	￦	821,485			590,997

Effective tax rate (%)		59.61	%		30.37	%

(c)	The income taxes credited (charged) directly to equity during the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014			2013

Net changes in the unrealized fair value of available-for-sale securities	￦	105,639			(139,679	)
Gain on sale of treasury shares		(4,654	)		(1,707	)
Others		12,520			8,578

	￦	113,505			(132,808	)

108

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

(d)	The movements in deferred tax assets (liabilities) for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014									2013
	Beginning			Inc. (Dec.)			Ending			Beginning			Inc. (Dec.)			Ending

Deferred income tax due to temporary differences
Reserve for special repairs	￦	(28,462	)		16,049			(12,413	)		(29,013	)		551			(28,462	)
Allowance for doubtful accounts		149,603			46,132			195,735			112,428			37,175			149,603
Reserve for technology developments		(380,665	)		121,632			(259,033	)		(375,930	)		(4,735	)		(380,665	)
PPE - Depreciation		(33,342	)		26,667			(6,675	)		(46,574	)		13,232			(33,342	)
Share of profit or loss of equity-accounted investees		(89,305	)		(7,388	)		(96,693	)		(96,374	)		7,069			(89,305	)
Reserve for inventory valuation		(1,522	)		3,513			1,991			(4,082	)		2,560			(1,522	)
PPE - Revaluation		(1,011,593	)		(211,006	)		(1,222,599	)		(799,932	)		(211,661	)		(1,011,593	)
Prepaid expenses		28,385			(10,924	)		17,461			31,240			(2,855	)		28,385
PPE - Impairment loss		25,518			(3,556	)		21,962			28,755			(3,237	)		25,518
Loss on foreign currency translation		(189,202	)		120,090			(69,112	)		(63,345	)		(125,857	)		(189,202	)
Defined benefit obligations		100,356			20,328			120,684			70,624			29,732			100,356
Plan assets		(58,666	)		5,631			(53,035	)		(46,421	)		(12,245	)		(58,666	)
Provision for construction losses		4,273			680			4,953			2,227			2,046			4,273
Provision for construction warranty		16,674			3,697			20,371			14,841			1,833			16,674
Accrued income		(2,915	)		(776	)		(3,691	)		(3,197	)		282			(2,915	)
Impairment loss on AFS		133,089			38,912			172,001			66,722			66,367			133,089
Difference in acquisition costs of treasury stocks		64,213			(2,074	)		62,139			20,378			43,835			64,213
Others		282,284			(148,968	)		133,316			222,471			59,813			282,284

		(991,277	)		18,639			(972,638	)		(895,182	)		(96,095	)		(991,277	)

Deferred income taxes recognized directly to equity
Loss (gain) on valuation of available-for-sale investments		(115,673	)		105,639			(10,034	)		24,006			(139,679	)		(115,673	)
Others		54,716			12,520			67,236			46,138			8,578			54,716

		(60,957	)		118,159			57,202			70,144			(131,101	)		(60,957	)

Deferred tax from tax credit
Tax credit carryforward and others		437,642			(137,276	)		300,366			339,108			98,534			437,642
Deferred tax from unrealized gain (loss)
Deferred tax effect due to unrealized gain (losses) and others		42,761			(64,388	)		(21,627	)		19,095			23,666			42,761


	￦	(571,831	)		(64,866	)		(636,697	)		(466,835	)		(104,996	)		(571,831	)

109

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

(e)	Deferred tax assets and liabilities for the years ended December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014								2013
	Assets		Liabilities			Net			Assets		Liabilities			Net

Deferred income tax due to temporary differences
Reserve for special repairs	￦	—		(12,413	)		(12,413	)		—		(28,462	)		(28,462	)
Allowance for doubtful accounts		197,159		(1,424	)		195,735			149,695		(92	)		149,603
Reserve for technology developments		—		(259,033	)		(259,033	)		—		(380,665	)		(380,665	)
PPE - Depreciation		39,412		(46,087	)		(6,675	)		23,265		(56,607	)		(33,342	)
Share of profit or loss of equity-accounted investees		—		(96,693	)		(96,693	)		—		(89,305	)		(89,305	)
Reserve for inventory valuation		7,294		(5,303	)		1,991			4,392		(5,914	)		(1,522	)
PPE - Revaluation		—		(1,222,599	)		(1,222,599	)		—		(1,011,593	)		(1,011,593	)
Prepaid expenses		17,461		—			17,461			28,385		—			28,385
PPE - Impairment loss		23,489		(1,527	)		21,962			25,518		—			25,518
Loss on foreign currency translation		83,521		(152,633	)		(69,112	)		243,772		(432,974	)		(189,202	)
Defined benefit obligations		125,758		(5,074	)		120,684			110,891		(10,535	)		100,356
Plan assets		—		(53,035	)		(53,035	)		22		(58,688	)		(58,666	)
Provision for construction losses		4,953		—			4,953			4,273		—			4,273
Provision for construction warranty		20,371		—			20,371			16,674		—			16,674
Accrued income		—		(3,691	)		(3,691	)		5		(2,920	)		(2,915	)
Impairment loss on AFS		172,001		—			172,001			133,089		—			133,089
Difference in acquisition costs of treasury stocks		62,139		—			62,139			64,213		—			64,213
Others		272,810		(139,494	)		133,316			308,989		(26,705	)		282,284

		1,026,368		(1,999,006	)		(972,638	)		1,113,183		(2,104,460	)		(991,277	)

Deferred income taxes recognized directly to equity
Loss (gain) on valuation of available-for-sale investments		238,489		(248,523	)		(10,034	)		128,938		(244,611	)		(115,673	)
Others		91,636		(24,400	)		67,236			70,441		(15,725	)		54,716

		330,125		(272,923	)		57,202			199,379		(260,336	)		(60,957	)

Deferred tax from tax credit
Tax credit carryforward and others		339,959		(39,593	)		300,366			481,256		(43,614	)		437,642
Deferred tax from unrealized gain (loss)
Deferred tax effect due to unrealized gain (losses) and others		601,265		(622,892	)		(21,627	)		530,823		(488,062	)		42,761


	￦	2,297,717		(2,934,414	)		(636,697	)		2,324,641		(2,896,472	)		(571,831	)

(f)

As of December 31, 2014, the Company did not recognize income tax effects associated with taxable temporary differences of ￦3,104,205 million (deferred tax liabilities of ￦751,218 million) mainly relating to increase in retained earnings of subsidiaries since it is probable that the temporary difference will not reverse in the foreseeable future.

110

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

37. Earnings per Share

(a)	Basic and diluted earnings per share for the years ended December 31, 2014 and 2013 were as follows:


(Won, except per share information)
	2014			2013

Profit attribute to controlling interest	￦	626,099,302,937			1,376,396,068,069
Interests of hybrid bonds		(33,048,799,997	)		(18,313,914,551	)
Weighted-average number of common shares outstanding(*1)		79,801,539			78,009,654

Basic and diluted earnings per share	￦	7,432			17,409

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


(shares)	2014			2013

Total number of common shares issued		87,186,835			87,186,835
Weighted-average number of treasury shares		(7,385,296	)		(9,177,181	)

Weighted-average number of common shares outstanding		79,801,539			78,009,654

As of December 31, 2014 and 2013, the Company has no potential dilutive common shares. Accordingly, diluted earnings per share is identical to basic earnings per share.

111

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

38. Related Party Transactions

(a)	Significant transactions with related parties for the years ended December 31, 2014 and 2013 were as follows:

For the year ended December 31, 2014


(in millions of Won)	*Sales and others(1)**						*Purchase and others(2)**
	Sales		Others		Total		Purchase of material		Purchase of fixed assets		Outsourced processing		Others		Total

*Subsidiaries(3)**
POSCO ENGINEERING & CONSTRUCTION., LTD.	￦	22,659		16,789		39,448		544,202		247,286		3,689		30,852		826,029
POSCO Processing & Service		1,075,567		8,649		1,084,216		785,943		—		—		1,681		787,624
POSCO COATED & COLOR STEEL Co., Ltd.		444,513		12		444,525		—		—		12,313		195		12,508
POSCO ICT(*5)		929		2,593		3,522		356		209,893		26,231		161,173		397,653
POSMATE		520		2,178		2,698		411		28		16,475		34,188		51,102
eNtoB Corporation		—		3		3		297,119		10,433		137		21,073		328,762
POSCO CHEMTECH		532,973		26,537		559,510		513,759		5,449		301,149		923		821,280
POSCO M-TECH		180		24		204		117,940		2,385		200,622		6,887		327,834
POSCO ENERGY CO., LTD.		177,517		1,230		178,747		—		2,263		—		20		2,283
POSCO TMC Co., Ltd.		240,318		9		240,327		—		—		1,056		1,611		2,667
POSCO AST		503,452		5		503,457		10,396		—		57,355		2,671		70,422
POSHIMETAL Co., Ltd.		11,261		3,660		14,921		166,442		—		—		—		166,442
Daewoo International Corporation		3,558,652		20,652		3,579,304		90,361		—		—		3,857		94,218
POSCO Specialty Steel Co., Ltd.		5,313		201,927		207,240		40,124		—		1,939		266		42,329
POSCO America Corporation		747,933		2		747,935		—		—		—		1,794		1,794
POSCO Canada Ltd.		—		—		—		141,767		—		—		—		141,767
POSCO Asia Co., Ltd.		2,167,148		89		2,167,237		169,945		—		10,006		1,969		181,920
POSCO (Thailand) Company Limited		55,221		46		55,267		—		—		—		8		8
Qingdao Pohang Stainless Steel Co., Ltd.		79,783		—		79,783		—		—		—		19		19
POSCO (Suzhou) Automotive Processing Center Co., Ltd.		136,836		—		136,836		—		—		—		5		5
POSCO JAPAN Co., Ltd.		1,329,947		4		1,329,951		15,165		2,269		3		2,279		19,716
POSCO-India Pune Processing Center. Pvt. Ltd.		107,587		74		107,661		—		—		—		—		—
POSCO MEXICO S.A. DE C.V.		287,468		929		288,397		—		—		—		—		—
POSCO Maharashtra Steel Private Limited		444,407		6,053		450,460		—		—		—		—		—
DAEWOO INTERNATIONAL SINGAPORE		—		—		—		57,742		—		—		11,513		69,255
Others		680,066		1,827		681,893		158,484		63,932		15,585		51,674		289,675

		12,610,250		293,292		12,903,542		3,110,156		543,938		646,560		334,658		4,635,312


*Associates and joint ventures(3)**
POSCO Plant Engineering Co., Ltd.(*4)		15,310		64		15,374		3,195		119,369		15,777		22,751		161,092
SNNC		3,077		5,716		8,793		339,991		—		—		5		339,996
POSCHROME (PROPRIETARY) LIMITED		—		—		—		59,241		—		—		—		59,241
PT. POSMI Steel Indonesia		6,061		30		6,091		—		—		—		—		—
POSK (Pinghu) Steel Processing Center Co., Ltd.		2,855		—		2,855		—		—		—		—		—
POSCO-SAMSUNG-Slovakia Processing Center		24,059		—		24,059		—		—		—		—		—
POSCO China Suzhou Processing Center Co., Ltd. (formerly, POSCO-SAMSUNG Suzhou Processing Center Co., Ltd.)		1,132		—		1,132		—		—		—		—		—
Others		737		41,873		42,610		3,668		—		—		—		3,668

		53,231		47,683		100,914		406,095		119,369		15,777		22,756		563,997


	￦	12,663,481		340,975		13,004,456		3,516,251		663,307		662,337		357,414		5,199,309

(*1)	Sales and others mainly consist of sales of steel products to subsidiaries, associates and joint ventures. These are priced on an arm’s length basis.

(*2)	Purchases and others mainly consist of subsidiaries’ purchases of construction services and purchases of raw materials to manufacture steel products. These are priced on an arm’s length basis.

(*3)	As of December 31, 2014, the Company provided guarantees to related parties (Note 39).

(*4)	It is reclassified from associate to subsidiary due to the additional acquisitions of its shares by the Company.

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

112

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

2)	For the year ended December 31, 2013


(in millions of Won)	Sales and others						Purchase and others
	Sales		Others		Total		Purchase of material		Purchase of fixed assets		Outsourced processing cost		Others		Total

Subsidiaries
POSCO ENGINEERING & CONSTRUCTION., LTD.	￦	16,439		3,421		19,860		3,042		2,235,798		5,855		9,242		2,253,937
POSCO Processing & Service		987,424		8		987,432		1,215,510		—		—		805		1,216,315
POSCO COATED & COLOR STEEL Co., Ltd.		472,353		25		472,378		—		—		10,648		98		10,746
POSCO PLANTEC Co., Ltd.(*1)		2,324		19		2,343		1,499		67,081		13,733		2,492		84,805
POSCO ICT		1,210		195		1,405		679		279,660		31,231		157,126		468,696
POSMATE		1,419		85		1,504		805		1,041		15,732		32,894		50,472
eNtoB Corporation		—		10		10		234,352		13,241		149		20,079		267,821
POSCO CHEMTECH		512,139		25,868		538,007		491,562		21,832		287,584		1,223		802,201
POSCO M-TECH		11,122		94		11,216		158,709		2,336		220,986		141		382,172
POSCO ENERGY CO., LTD.		104,209		915		105,124		—		5,178		—		7		5,185
POSCO TMC Co., Ltd.		188,915		15		188,930		—		—		1,051		1,298		2,349
POSCO AST		500,193		10		500,203		6,985		—		56,520		2,029		65,534
POSHIMETAL Co., Ltd.		18,922		137		19,059		166,042		—		—		5		166,047
Daewoo International Corporation		3,522,678		65		3,522,743		16,297		—		—		2,843		19,140
POSCO America Corporation		596,681		1		596,682		—		—		—		339		339
POSCO Canada Ltd.		—		—		—		144,329		—		—		—		144,329
POSCO Asia Co., Ltd.		2,068,965		221		2,069,186		64,434		182		—		1,673		66,289
POSCO (Thailand) Company Limited		56,210		56		56,266		—		—		—		85		85
Qingdao Pohang Stainless Steel Co., Ltd.		58,502		—		58,502		—		—		—		14		14
POSCO (Suzhou) Automotive Processing Center Co., Ltd.		129,345		1		129,346		—		—		—		—		—
POSCO JAPAN Co., Ltd.		1,270,325		—		1,270,325		19,978		2		—		2,972		22,952
POSCO-India Pune Processing Center. Pvt. Ltd.		119,503		7		119,510		—		—		—		—		—
POSCO MEXICO S.A. DE C.V.		256,014		693		256,707		—		—		—		621		621
POSCO Maharashtra Steel Private Limited		176,425		3,157		179,582		—		—		—		236		236
DAEWOO INTERNATIONAL SINGAPORE		—		—		—		108,179		—		—		—		108,179
Others		558,923		7,569		566,492		92,527		38,843		18,782		77,101		227,253

		11,630,240		42,572		11,672,812		2,724,929		2,665,194		662,271		313,323		6,365,717


Associates and joint ventures

SNNC		1,532		458		1,990		402,639		—		—		—		402,639
POSCO PLANTEC Co., Ltd. (formerly, Sungjin Geotec Co., Ltd.)		15,028		48		15,076		1,735		65,802		9,781		6,883		84,201
POSCHROME (PROPRIETARY) LIMITED		—		—		—		66,762		—		—		—		66,762
PT. POSMI Steel Indonesia		6,538		—		6,538		—		—		—		—		—
POSK (Pinghu) Steel Processing Center Co., Ltd.		3,786		—		3,786		—		—		—		—		—
POSCO-SAMSUNG-Slovakia Processing Center Co., Ltd.		19,906		—		19,906		—		—		—		—		—
POSCO China Suzhou Processing Center Co., Ltd. (formerly, POSCO-SAMSUNG Suzhou Steel Processing Center Co., Ltd.)		6,429		—		6,429		—		—		—		—		—
Others		546		165		711		3,937		—		—		176		4,113

		53,765		671		54,436		475,073		65,802		9,781		7,059		557,715


	￦	11,684,005		43,243		11,727,248		3,200,002		2,730,996		672,052		320,382		6,923,432

(*1)	Sungjin Geotec Co., Ltd. merged with POSCO Plant Engineering Co., Ltd. and changed its name to POSCO PLANTEC Co., Ltd. in 2013.

113

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

(b)	The related account balances of significant transactions with related companies as of December 31, 2014 and 2013 are as follows:

December 31, 2014


(in millions of Won)	Receivables						Payables
	Trade accounts and notes receivable		Others		Total		Trade accounts and notes payable		Accounts payable		Others		Total
Subsidiaries
POSCO ENGINEERING & CONSTRUCTION., LTD.	￦	42		71,967		72,009		—		41,878		—		41,878
POSCO Processing & Service		94,790		92		94,882		15,202		867		—		16,069
POSCO COATED & COLOR STEEL Co., Ltd.		69,314		67		69,381		—		5		1,936		1,941
POSCO ICT		13		103		116		920		70,823		5,425		77,168
POSMATE		—		1,673		1,673		600		2,007		4,828		7,435
eNtoB Corporation		—		—		—		12,564		28,432		43		41,039
POSCO CHEMTECH		49,456		4,283		53,739		57,610		9,890		17,864		85,364
POSCO M-TECH		—		37		37		7,311		12,231		22,703		42,245
POSCO ENERGY CO., LTD.		17,326		2,809		20,135		—		—		1,962		1,962
POSCO TMC Co., Ltd.		27,429		30		27,459		—		117		115		232
POSCO AST		44,281		54		44,335		—		2,458		3,364		5,822
POSHIMETAL Co., Ltd.		1,269		14		1,283		—		12,846		—		12,846
Daewoo International Corporation		164,029		3,178		167,207		8		210		1		219
POSCO Specialty Steel Co., Ltd.		822		201,823		202,645		4,800		140		184		5,124
POSCO America Corporation		57,164		—		57,164		—		1,511		—		1,511
POSCO Canada Ltd.		—		—		—		—		4,534		—		4,534
POSCO Asia Co., Ltd.		197,104		221		197,325		10,995		—		—		10,995
POSCO (Thailand) Company Limited		7,407		266		7,673		—		—		—		—
Qingdao Pohang Stainless Steel Co., Ltd.		14,748		41		14,789		—		—		—		—
POSCO JAPAN Co., Ltd.		42,692		89		42,781		344		1,552		—		1,896
POSCO-India Pune Processing Center. Pvt. Ltd.		6,401		5		6,406		—		—		—		—
POSCO MEXICO S.A. DE C.V.		96,800		—		96,800		—		—		—		—
POSCO Maharashtra Steel Private Limited		364,899		7,714		372,613		—		—		—		—
Others		126,474		56,788		183,262		7,239		54,727		1,545		63,511

		1,382,460		351,254		1,733,714		117,593		244,228		59,970		421,791


Associates and joint ventures
SNNC		219		125		344		7,017		—		—		7,017
POSCHROME (PROPRIETARY) LIMITED		—		—		—		1,162		—		—		1,162
LLP POSUK Titanium		—		4,235		4,235		—		—		—		—
Others		258		18		276		234		—		—		234

		477		4,378		4,855		8,413		—		—		8,413


	￦	1,382,937		355,632		1,738,569		126,006		244,228		59,970		430,204

114

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

December 31, 2013


(in millions of Won)	Receivables						Payables
	Trade accounts and notes receivable		Others		Total		Trade accounts and notes payable		Accounts payable		Others		Total

Subsidiaries
POSCO ENGINEERING & CONSTRUCTION., LTD.	￦	40		110,955		110,995		—		105,603		—		105,603
POSCO Processing & Service		103,400		73		103,473		17,914		683		—		18,597
POSCO COATED & COLOR STEEL Co., Ltd.		69,260		65		69,325		—		59		1,434		1,493
POSCO ICT		75		123		198		—		51,247		—		51,247
POSMATE		489		1,533		2,022		141		3,274		1,058		4,473
eNtoB Corporation		—		—		—		8,057		10,311		—		18,368
POSCO CHEMTECH		46,943		4,313		51,256		35,829		6,983		8,663		51,475
POSCO M-TECH		18		28		46		12,020		21,326		10,799		44,145
POSCO ENERGY CO., LTD.		14,733		2,894		17,627		—		421		—		421
POSCO TMC Co., Ltd.		20,510		26		20,536		—		16		50		66
POSCO AST		85,501		53		85,554		—		3,004		5,238		8,242
POSHIMETAL Co., Ltd.		1,721		12		1,733		—		12,624		—		12,624
Daewoo International Corporation		148,383		878		149,261		9,319		—		—		9,319
POSCO America Corporation		57,554		—		57,554		—		—		—		—
POSCO Canada Ltd.		—		—		—		12,323		—		—		12,323
POSCO Asia Co., Ltd.		134,602		142		134,744		2,063		—		—		2,063
POSCO (Thailand) Company Limited		6,052		7		6,059		—		—		—		—
Qingdao Pohang Stainless Steel Co., Ltd.		3,329		—		3,329		—		—		—		—
POSCO JAPAN Co., Ltd.		73,992		—		73,992		862		108		1		971
POSCO-India Pune Processing Center. Pvt. Ltd.		8,117		—		8,117		—		—		—		—
POSCO MEXICO S.A. DE C.V.		100,016		76		100,092		—		—		—		—
POSCO Maharashtra Steel Private Limited		55,392		3,218		58,610		—		—		—		—
Others		54,357		8,887		63,244		6,523		15,421		1,647		23,591

		984,484		133,283		1,117,767		105,051		231,080		28,890		365,021


Associates and joint ventures
SNNC		140		40		180		16,669		—		—		16,669
POSCO PLANTEC Co., Ltd. (formerly, Sungjin Geotec Co., Ltd.)		879		46		925		353		—		—		353
POSCHROME (PROPRIETARY) LIMITED		—		67		67		—		—		—		—
LLP POSUK Titanium		—		4,066		4,066		—		—		—		—
Others		—		17		17		319		2		—		321

		1,019		4,236		5,255		17,341		2		—		17,343


	￦	985,503		137,519		1,123,022		122,392		231,082		28,890		382,364

115

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

(c)	For the years ended December 31, 2014 and 2013, details of compensation to key management officers were as follows:


(in millions of Won)	2014		2013

Short-term benefits	￦	116,961		121,054
Retirement benefits		21,604		20,713
Long-term benefits		17,242		23,480

	￦	155,807		165,247

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

39. 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 for probable contingent losses including the estimate of legal expense to resolve the matters. Internal and external lawyers are used for these assessments. In making the decision regarding the need for a provision, management considers whether the Company has an obligation as a result of a past event, whether it is probable that an outflow or cash or other resources embodying economic benefits will be required to settle the obligation and the ability to make a reliable estimate of the amount of the obligation.

116

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

(b)	Details of guarantees

Contingent liabilities on outstanding guarantees provided by the Company as of December 31, 2014, are as follows.

(in millions of Won)

Guarantors

Guarantee beneficiary

Financial institution

Foreign currency

Won equivalent

[The Company]

POSCO

POSCO(Guangdong) Automotive Steel Co., Ltd.

SMBC and others

USD

65,000,000

71,448

POSCO Investment Co., Ltd.

BOA and others

USD

330,000,000

362,736

BOC

CNY

350,000,000

62,031

POSCO Maharashtra Steel Private Limited

Export-Import Bank of Korea and others

USD

566,069,000

622,223

POSCO VST CO., LTD.

ANZ and others

USD

65,000,000

71,448

POSCO MEXICO S.A. DE C.V.

HSBC and others

USD

284,725,000

312,970

POSCO-VIETNAM Co., Ltd.

Export-Import Bank of Korea and others

USD

242,000,000

266,006

Zhangjiagang Pohang Stainless Steel Co., Ltd.

MIZUHO and others

USD

130,000,000

142,896

POSCO ASSAN TST STEEL INDUSTRY

SMBC and others

USD

193,392,500

212,577

POSCO Electrical Steel India Private Limited

ING and others

USD

83,784,000

92,095

PT. KRAKATAU POSCO

Export-Import Bank of Korea and others

USD

1,350,300,000

1,484,249

Daewoo International Corporation

Daewoo Paper Manufacturing Co., Ltd.

HSBC

USD

12,500,000

13,740

DAEWOO TEXTILE BUKHARA LLC

Export-Import Bank of Korea

USD

16,000,000

17,587

DAEWOO INTERNATIONAL MEXICO S.A. DE C.V.

NOVA SCOTIA

USD

30,000,000

32,976

POSCO ASSAN TST STEEL INDUSTRY

ING and others

USD

18,839,300

20,708

Brazil Sao Paulo Steel Processing Center

HSBC and others

USD

52,000,000

57,158

Daewoo International INDIA Private Ltd.

Shinhan Bank

USD

48,772,000

53,610

PT. Bio Inti Agrindo

Export-Import Bank of Korea

USD

56,000,000

61,555

POSCO ENGINEERING & CONSTRUCTION CO., LTD.

HONG KONG POSCO E&C (CHINA) INVESTMENT Co., Ltd.

Woori Bank and others

USD

135,000,000

148,392

POSCO E&C Vietnam Co., Ltd.

Export-Import Bank of Korea

USD

16,500,000

18,137

SANTOSCMI S.A.

CITI Equador and others

USD

46,000,000

50,563

POSCO Engineering and Construction India Private Limited

Shinhan Bank

INR

383,201,941

6,645

POSCO Processing & Service

POSCO Canada Ltd.

Hana Bank

USD

12,484,500

13,723

POSCO Gulf SFC LLC

KEB Bank and others

USD

27,000,000

29,678

POSCO COATED & COLOR STEEL Co., Ltd.

Myanmar POSCO C&C Company, Limited.

POSCO Investment

USD

7,986,947

8,779

POSCO ICT

PT.POSCO ICT INDONESIA

POSCO Investment

USD

2,700,000

2,968

VECTUS LIMITED

POSCO Investment

USD

4,000,000

4,397

KEB Bank

GBP

3,500,000

5,987

POSCO ENERGY CO., LTD.

PT. KRAKATAU POSCO ENERGY

Export-Import Bank of Korea and others

USD

193,900,000

213,135

POSCO Engineering CO., Ltd

PT PEN INDONESIA

KEB Bank and others

USD

12,818,876

14,091

KEB Bank and others

IDR

145,244,014,735

12,825

POSCO ENGINEERING (THAILAND) CO., LTD.

CITI Bank

USD

15,300,000

16,818

Woori Bank and others

THB

6,347,013,800

212,244

POSCO-Japan Co., Ltd.

POSCO-JEPC Co., Ltd.

MIZUHO and others

JPY

1,021,811,730

9,402

POSCO-JKPC Co., Ltd.

Higo Bank and others

JPY

974,000,000

8,962

Xenesys Inc.

Aozora Bank

JPY

250,000,000

2,300

DAEWOO TEXTILE FERGANA LLC

DAEWOO TEXTILE BUKHARA LLC

Bukhara TEX

USD

2,691,513

2,959

DAEWOO TEXTILE BUKHARA LLC

DAEWOO TEXTILE FERGANA LLC

NBU

USD

6,127,060

6,735

117

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

(in millions of Won)

Guarantors

Guarantee beneficiary

Financial institution

Foreign currency

Won equivalent

POSCO E&C CHINA Co., Ltd.

HONG KONG POSCO E&C (CHINA) INVESTMENT Co., Ltd.

Woori Bank

USD

33,000,000

36,274

POSCO-China Holding Corp.

POSCO YongXin Rare Earth Metal Co., Ltd.

KEB Bank and others

CNY

71,820,000

12,729

DONG FANG JIN HONG

Bank of Communications and others

CNY

1,300,000,000

230,399

POSCO CHEMTECH

PT.Krakatau Posco Chemtech Calcination

KEB Bank

USD

42,000,000

46,166

KRAKATAU POS-CHEM DONG-SUH CHEMICAL

Hana Bank

USD

13,075,000

14,372

POSCO PLANTEC Co., Ltd.

POSCO PLANTEC Thailand CO. LTD

Woori Bank

THB

45,000,000

1,505

POSCO Specialty Steel Co., Ltd.

POSCO SS-VINA

Export-Import Bank of Korea

USD

354,409,800

389,567

SANTOSCMI S.A.

COMPANIADEAUTOMATIZACION & CONTROL, GENESYS S.A.

Banco de Guayaquil and others

USD

1,550,000

1,704

[Associates and joint ventures]

POSCO

LLP POSUK Titanium

KB Bank

USD

15,000,000

16,488

CSP - Compania Siderurgica do Pecem

KDB Bank

USD

56,666,667

62,288

Daewoo International Corporation

DMSA/AMSA

Export-Import Bank of Korea and others

USD

165,133,333

181,515

GLOBAL KOMSCO Daewoo LLC

Export-Import Bank of Korea and others

USD

11,112,500

12,214

POSCO ENGINEERING & CONSTRUCTION CO., LTD.

Posco e&c Songdo International Building

Others

KRW

356,600

New Songdo City Development, LLC

Others

KRW

340,000

CHUNGJU ENTERPRISE CITY DEVELOPMENT Co., Ltd

Others

KRW

28,226

POSCO Processing & Service

Sebang Steel

Shinhan Bank

JPY

245,000,000

2,254

POSCO ICT

UITrans LRT Co., Ltd.

KB Bank

KRW

76,000

Incheon-Gimpo Expressway Co., Ltd.

KDB Bank

KRW

100,000

CHUNGJU ENTERPRISE CITY DEVELOPMENT Co., Ltd

NH Bank

KRW

2,528

POSCO Engineering CO., Ltd

PT. Wampu Electric Power

Woori Bank

USD

7,996,848

8,790

Daewoo (China) Co., Ltd.

SHANGHAI LANSHENG DAEWOO CORP.

Bank of Communications and others

CNY

100,000,000

17,723

POSCO CHEMTECH

PT.INDONESIA POS CHEMTECH CHOSUN Ref

KEB Bank

USD

6,000,000

6,595

[Others]

Daewoo International Corporation

Ambatovy Project Investments Limited

Export-Import Bank of korea

USD

65,454,545

71,948

Sherritt International Corporation

Export-Import Bank of korea

USD

21,818,182

23,983

POSCO ENGINEERING & CONSTRUCTION CO., LTD.

The union of City environment improvement for Kukje building and others

Others

KRW

745,350

Gale International Korea, LLC

Others

USD

50,000,000

54,960

INTERNATIONAL BUSINESS CENTER CORPORATION

Export-Import Bank of korea

USD

20,000,000

21,984

POSCO ICT

BTL business and others

Kyobo Life Insurance Co., Ltd and others

KRW

2,055,936

SMS Energy and others

Hana Bank and others

KRW

158,860

POSCO Engineering CO., Ltd

Shinhan Bank

KRW

3,500

Kwanma Solar Co., Ltd. and others

Hana Bank

KRW

53,930

Beomeo Saint Western Hotel

Meritz Insurance and others

KRW

6,600

Hyundai ENG Co., Ltd.

Engineering Financial Cooperative

KRW

28,173

POSCO M-TECH

JMTECH CO., LTD and others

Seoul Guarantee Insurance Co., Ltd.

KRW

15,239

118

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued


(in millions of Won)
Guarantors	Guarantee beneficiary	Financial institution	Foreign currency		Won equivalent
POSCO PLANTEC Co., Ltd.	JGC	Export-Import Bank of korea	KRW	855		855
	AKER and others		USD	4,301,517		4,728
	Alstom Power Inc. and others	KDB Bank	USD	24,258,546		26,668
	Court and others		KRW	16,417		16,417
	GS Engineering & Construction Corp and others	Seoul Guarantee Insurance Co., Ltd.	USD	9,985,137		10,977
	SK Engineering & Construction co., ltd		CAD	889,882		843
	GYEONGSANGBUK-DO DEVELOPMENT CORPORATION		KRW	535		535
	GS Engineering & Construction Corp	KEB Bank	USD	10,064,925		11,065
	AKER		EUR	133,550		178
	Taipei Port Terminal Company Ltd		TWD	342,500,000		11,882
	Gyopo Wind Power Co., Ltd.	KB Bank	KRW	7,476		7,476
	Goam Sun energy Korea Co., Ltd. and others	Shinhan Bank	KRW	26,509		26,509
	HANWHA E&C		USD	240,000		264
	JAESAN ENERGY	Hana Bank	KRW	3,890		3,890
	POSCO PLANTEC Taiwan Branch		TWD	90,000,000		3,122
	HANJIN HEAVY INDUSTRIES & CONSTRUCTION CO., LTD	Gwangju Bank	KRW	99		99
	CAMERON JAPAN and others		USD	9,679,904		10,639
	Astara	Busan Bank	EUR	9,260		12
	NIHON		JPY	5,483,800		50
	SKY Calabria Co., Ltd.	NH Investment & Securities Co., Ltd.	KRW	149,922		149,922
	Incheon International Airport Corporation	Engineering Financial Cooperative	KRW	31,413		31,413
POSCO AUSTRALIA PTY LTD	Department of Trade and Investment (NSW Government)	Woori Bank	AUD	8,023,765		7,214
POSCO SS-VINA	EVN SPC	Shinhan Bank	VND	35,525,413,000		1,826
POS-NP PTY LTD	Regional Infrastructure and Service	Woori Bank	AUD	539,496		485
HUME COAL PTY LTD	Department of Trade and Investment (NSW Government)	Woori Bank	AUD	804,000		723
Plant Engineering service Technology Co., Ltd.	Future Environmental Energy CO., Ltd	Seoul Guarantee Insurance Co., Ltd.	KRW	1,213		1,213
POS-HiAL	Kumho Rent-a-car Co., Ltd.	Seoul Guarantee Insurance Co., Ltd.	KRW	11		11

			USD	4,948,637,600		5,439,546
			KRW	4,209,282		4,209,282
			CNY	1,821,820,000		322,882
			THB	6,392,013,800		213,749
			JPY	2,496,295,530		22,968
			TWD	432,500,000		15,004
			IDR	145,244,014,735		12,825
			AUD	9,367,261		8,422
			INR	383,201,941		6,645
			GBP	3,500,000		5,987
			VND	35,525,413,000		1,826
			CAD	889,882		843
			EUR	142,810		190

119

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

(c)

POSCO ENGINEERING & CONSTRUCTION Co., Ltd. has provided the completion guarantees for Samsung C&T Corporation amounting to ￦1,150,814 million while Samsung C&T Corporation has provided the construction guarantees or payment guarantees on customers’ borrowings on behalf of POSCO ENGINEERING & CONSTRUCTION Co., Ltd. amounting to ￦556,385 million as of December 31, 2014.

(d)	Other commitments

Details of other commitments of the Company as of December 31, 2014, are as follows:


POSCO		POSCO entered into long-term contracts to purchase iron ore, coal, nickel and others. The contracts of iron ore and coal generally have terms of more than three years and the contracts of nickel have terms of more than one year. These contracts provide for periodic price adjustments based on the market price. As of December 31, 2014, 137 million tons of iron ore and 32 million tons of coal remained to be purchased under such long-term contracts.

		POSCO entered into an agreement with Tangguh Liquefied Natural Gas (LNG) Consortium in Indonesia to purchase 550 thousand tons of LNG annually for 20 years commencing in August 2005. The purchase price is subject to change, based on changes of the monthly standard oil price (JCC) and with a price ceiling.

		As of December 31, 2014, POSCO entered into commitments with Korea National Oil Corporation for long-term foreign currency borrowings, which enable the Company to borrow up to the amount of USD 6.86 million, USD 6.58 million and USD 4.12 million. The borrowings are related to the Company’s 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 amount borrowed if the respective projects fail. POSCO has agreed to pay a certain portion of its profits under certain conditions, as defined by the borrowing agreements.

		POSCO has provided a supplemental funding agreement, as the largest shareholder, as requested from the creditors, including Norddeutsche Landesbank, for seamless funding to POSCO ENERGY Co., Ltd. under construction of new power plant.

POSCO ENGINEERING & CONSTRUCTION CO., LTD.		As of December 31, 2014, POSCO ENGINEERING & CONSTRUCTION CO., LTD. has comprehensive loan agreements of up to ￦283.5 billion and USD 268 million with Woori Bank and ￦98 billion and USD 843 million with KEB Bank. Also, POSCO ENGINEERING & CONSTRUCTION CO., LTD. has bank overdraft agreements of up to ￦20 billion with Woori Bank which is included in the limit of billion comprehensive loan agreements and 3 billion with Korea Exchange Bank. Comprehensive loan agreements include bank overdraft up to ￦20 billion and ￦30 billion of loans on checking account during the day with Woori Bank.

POSCO ICT		As of December 31, 2014, in relation to contract enforcement, POSCO ICT was provided with ￦62,164 million and ￦35,735 million guaranties from Korea Software Financial Cooperative and Seoul Guarantee Insurance, respectively.

POSCO Specialty Steel Co., Ltd.		As of December 31, 2014, POSCO Specialty Steel Co., Ltd. has agreements for a loan and import letter of credit with Korea Exchange Bank and others.

120

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

(e)	Litigation in progress

As of December 31, 2014, POSCO and certain subsidiaries are defendants in legal actions arising from the normal course of business.

1)	Civil lawsuits with Nippon Steel & Sumitomo Metal Corporation

During the year ended December 31, 2012, Nippon Steel & Sumitomo Metal Corporation filed a civil lawsuit in the Tokyo District Court of Japan against POSCO and POSCO Japan Co., Ltd., a subsidiary of POSCO, to prohibit production and sales of grain oriented electrical steel sheets using improperly acquired trade secrets and seeking compensation from the Company of ￦907.3 billion. Through trials up to December 31, 2014, the Company submitted its responses that the Japan court did not have jurisdiction on this lawsuit as it should be judged by Korean law and the Company developed grain oriented electrical steel sheets using the Company’s own technologies. As of December 31, 2014, the Japan court has not made any judgments on this matter. Since the Company does not believe that it has any present obligation, the Company has not recorded any provision for this lawsuit as of December 31, 2014.

2)	Other lawsuits and claims


(In millions of Won, in thousands of foreign currencies)
Company	Legal actions	Claim amount		Korean won equivalent		Description
POSCO	38	KRW	87,167		87,167	Lawsuit on claim for damages(*1)
Daewoo International Corporation	9	USD	47,788		52,529	Lawsuit on claim for payment(*1)
	5	KRW	2,312		2,312	Lawsuit on claim for payment
	1	INR	4,458,849		77,316	Lawsuit on claim for payment on guarantees(*1)
	1	EUR	3,270		4,370	Lawsuit on claim for payment
POSCO ENGINEERING & CONSTRUCTION CO., LTD.	72	KRW	118,567		118,567	Lawsuit on claim for payment on rent fees by PSIB
POSCO Processing & Service	3	KRW	770		770	Lawsuit on claim for payment
POSCO Engineering CO., Ltd	12	KRW	4,662		4,662	Lawsuit on claim for payment on construction by Samyanginnochem
POSCO COATED & COLOR STEEL Co., Ltd.	2	KRW	350		350	Lawsuit on claim for payment
POSCO ICT	19	KRW	15,287		15,287	Lawsuit on claim for payment on construction
POSCO America Corporation	2	USD	—		—	Lawsuit on claim for anti-trust
POSCO M-TECH	4	KRW	1,039		1,039	Lawsuit on claim for payment
POSCO PLANTEC Co., Ltd.	6	KRW	2,671		2,671	Lawsuit on claim for payment
	1	USD	4,304		4,730	Lawsuit on claim for payment on agent fees
	1	EUR	5,492		7,340	Lawsuit on claim for payment
POSCO E&C CHINA Co., Ltd.	1	CNY	37,000		6,558	Lawsuit on claim for failure on obtain of PF
Daewoo International (America) Corp.	2	USD	10,442		11,478	Lawsuit on claim clam for indemnification damages
POSPOWER Co., Ltd.	1	KRW	9,667		9,667	Lawsuit on claim for payment
POSCO RUS LLC	2	RUB	11,206		223	Lawsuit on claim for payment
SPFC Co, LTD.	1	KRW	150		150	Lawsuit on claim for payment
IT Engineering	1	KRW	21		21	Lawsuit on claim for payment

(*1)	The Company made a reliable estimate in 4 lawsuits by considering the possibility and amount of outflow of resources and recognized ￦44,309 million as provision for legal contingencies and claims.

For all the other lawsuits and claims, management does not believe the Company has any present obligations and therefore, the Company has not recognized any provisions as of December 31, 2014 for the matters.

121

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

(f)	Other contingencies


Company		Description
POSCO		POSCO has provided two blank checks to Korea Resources Corporation and six blank promissory notes and three blank checks to Korea National Oil Corporation as collateral for outstanding loans.
Daewoo International Corporation		As of December 31, 2014, Daewoo International Corporation has provided forty-five blank promissory notes and seventeen blank checks to Korea National Oil Corporation as collateral for the guarantee on performance for contracts and others.
POSCO ENGINEERING & CONSTRUCTION CO., LTD.		As of December 31, 2014, POSCO ENGINEERING & CONSTRUCTION CO., LTD. has provided nine blank promissory notes and thirty-five blank checks as collateral for agreements and outstanding loans.
POSCO ICT		As of December 31, 2014, POSCO ICT has provided two blank promissory notes and sixteen blank checks to financial institutions as collateral for the guarantee on performance for contracts and others.

40. Cash Flows from Operating Activities

Adjustments for operating cash flows for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014			2013

Trade accounts and notes receivable	￦	(239,214	)		(612,379	)
Other financial assets		(27,601	)		(98,420	)
Inventories		(780,582	)		582,287
Other current assets		242,170			181,755
Other long-term assets		(53,225	)		(23,412	)
Trade accounts and notes payable		(385,914	)		47,323
Other financial liabilities		201,191			194,419
Other current liabilities		(402,574	)		13,522
Provisions		(63,884	)		(42,052	)
Payments severance benefits		(160,792	)		(129,038	)
Plan assets		(164,515	)		(172,147	)
Other long-term liabilities		(79,032	)		(58,290	)

	￦	(1,913,972	)		(116,432	)

41. Non-Cash Transactions

Significant non-cash transactions for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014		2013

Construction-in-progress transferred to other accounts	￦	5,852,017		6,610,644
Reclassification as asset held for sale		2,213,673		—
Reclassification as liabilities of disposal group held for sale		621,303		—
Acquisition of short-term financial instruments through issuance of treasury stock		—		804,496

122

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

42. Business combination

(a)

On December 24, 2014, POSCO participated in a capital increase in POSCO PLANTEC Co., Ltd., an associate of the Company, to improve the financial structure and assist in investment funding of the associate to expand and strengthen its competencies in the plant engineering business. The Company has obtained control as its ownership of POSCO PLANTEC Co., Ltd. increased from 41.95% to 73.94% upon the capital increase.

(b)	Goodwill recognized in this business combination is as follows:


(in millions of Won)
	Amount

I. Consideration transferred
Fair value of existing equity interest(*1)	￦	106,423
Cash		290,000

Total		396,423


II. Non-controlling interests(*2)		76,183

Total		472,606


III. Acquired identified assets and liabilities
Assets
Cash and cash equivalents		4,623
Trade accounts and notes receivable		260,910
Other receivables and other financial assets		171,723
Inventories		20,570
Property, plant and equipment and intangible assets		360,576
Other assets		23,783

Total		842,185

Liabilities
Trade accounts and notes payable		77,063
Borrowings		342,279
Other payables and other financial liabilities		44,495
Other liabilities		86,160

Total		549,997

Total acquired net assets		292,188


IV. Goodwill recognized	￦	180,418

(*1)

Upon the acquisition of the business, a ￦57,480 million disposal gain on the Company’s existing investment in the acquiree prior to acquisition date (acquisition cost: ￦48,943 million) was recognized as finance income. The fair value of this existing investment was determined using quoted market price of shares on the acquisition date.

(*2)	The non-controlling interests at the acquisition date were measured using their proportionate shares in the recognized amounts of POSCO PLANTEC Co., Ltd’s identifiable net assets and preferred shares issued by POSCO PLANTEC Co., Ltd.

123

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

(c)

If the Company had acquired POSCO PLANTEC Co., Ltd. as of January 1, 2014, pro-forma consolidated revenues and pro-forma consolidated net profit for the year ended December 31, 2014 would have been ￦65,393,737 million and ￦553,063 million, respectively. There have been no revenues and net profit incurred by POSCO PLANTEC Co., Ltd. from the acquisition date to December 31, 2014.

43. Operating Segments

(a)

The Company’s operating businesses are organized based on the nature of markets and customers. The Company has four reportable operating segments— steel, construction, trading and others. The steel segment includes production of steel products and revenue of such products. The construction segment includes planning, designing and construction of industrial plants, civil engineering projects and commercial and residential buildings, both in Korea and overseas. The trading segment consists of exporting and importing a wide range of steel products and raw materials that are both obtained from and supplied to POSCO, as well as between other suppliers and purchasers in Korea and overseas. Other segments include power generation, liquefied natural gas production, network and system integration and logistics. The policies of classification and measurement on operating segments were the same as those that applied to the consolidated financial statements as of and for the year ended December 31, 2013.

(b)	Information about reportable segments as of and for the years ended December 31, 2014 and 2013 was as follows:

As of and for the year ended December 31, 2014


(in millions of Won)	Steel			Trading			Construction			Others			Total

External revenues	￦	31,841,748			21,165,806			8,119,207			3,971,684			65,098,445
Internal revenues		17,755,182			10,095,123			2,184,519			3,094,647			33,129,471
Including inter segment revenue		10,159,110			5,180,926			1,679,443			2,920,354			19,939,833
Total revenues		49,596,930			31,260,929			10,303,726			7,066,331			98,227,916
Interest income		148,288			47,905			27,297			18,694			242,184
Interest expenses		(524,735	)		(92,855	)		(61,954	)		(127,843	)		(807,387	)
Depreciation and amortization		(2,779,723	)		(121,163	)		(52,268	)		(331,444	)		(3,284,598	)
Impairment loss of property, plant and equipment and others		(137,708	)		(35,131	)		756			(50,085	)		(222,168	)
Impairment loss of available-for-sale financial assets		(352,830	)		(1,097	)		(24,588	)		(14,444	)		(392,959	)
Share of profit or loss of investment in associates and JVs		(217,491	)		(29,263	)		(53,226	)		(23,559	)		(323,539	)
Income tax expense		(691,030	)		(114,587	)		(45,147	)		(21,415	)		(872,179	)
Segment profit		857,148			181,243			13,085			8,536			1,060,012
Segment assets		74,138,707			13,597,301			10,396,691			10,742,877			108,875,576
Investment in associates		18,227,743			1,076,373			1,091,402			1,154,187			21,549,705
Acquisition of non-current assets		2,348,979			399,273			701,019			906,685			4,355,956
Segment liabilities		23,750,464			10,384,329			6,345,852			6,139,971			46,620,616

124

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

As of and for the year ended December 31, 2013


(in millions of Won)	Steel			Trading			Construction			Others			Total

External revenues	￦	31,794,574			18,307,888			6,896,838			4,865,350			61,864,650
Internal revenues		16,229,002			7,611,372			3,885,190			3,019,246			30,744,810
Including inter segment revenue		9,223,276			3,817,644			3,539,891			2,881,039			19,461,850
Total revenues		48,023,576			25,919,260			10,782,028			7,884,596			92,609,460
Interest income		162,149			46,064			47,070			19,892			275,175
Interest expenses		(412,142	)		(77,375	)		(48,030	)		(106,824	)		(644,371	)
Depreciation and amortization		(2,383,010	)		(43,775	)		(36,614	)		(235,365	)		(2,698,764	)
Impairment loss of property, plant and equipment and others		(34,153	)		(975	)		(4,058	)		(11,875	)		(51,061	)
Impairment loss of available-for-sale financial assets		(203,468	)		(435	)		(97,919	)		(10,172	)		(311,994	)
Share of profit or loss of investment in associates and JVs		(250,084	)		(131,534	)		(71,068	)		(26,326	)		(479,012	)
Income tax expense		(466,756	)		(27,549	)		(87,660	)		(73,371	)		(655,336	)
Segment profit		1,449,446			9,516			147,177			197,449			1,803,588
Segment assets		73,860,997			11,640,931			9,888,590			8,843,652			104,234,170
Investment in associates		16,863,991			1,019,252			1,090,089			598,775			19,572,107
Acquisition of non-current assets		5,955,799			242,413			150,469			1,191,243			7,539,924
Segment liabilities		23,774,850			8,649,557			6,068,059			5,059,440			43,551,906

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

Revenues


(in millions of Won)	2014			2013

Total revenue for reportable segments	￦	98,227,916			92,609,460
Elimination of inter-segment revenue		(33,129,471	)		(30,744,810	)

	￦	65,098,445			61,864,650

Profit


(in millions of Won)	2014			2013

Total profit for reportable segments	￦	1,060,012			1,803,588
Goodwill and Corporate FV adjustments		(122,015	)		(91,718	)
Elimination of inter-segment profits		(381,338	)		(356,690	)
Income tax expense		821,485			590,997

Profit before income tax expense	￦	1,378,144			1,946,177

125

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

Assets


(in millions of Won)	2014			2013

Total assets for reportable segments(*1)	￦	108,875,576			104,234,170
Equity-accounted investees		(17,487,024	)		(15,758,936	)
Goodwill and Corporate FV adjustments		4,282,455			3,560,873
Elimination of inter-segment assets		(10,418,834	)		(7,580,700	)

	￦	85,252,173			84,455,407

(*1)

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

Liability


(in millions of Won)	2014			2013

Total liabilities for reportable segments	￦	46,620,616			43,551,906
Corporate FV adjustments		507,073			337,442
Elimination of inter-segment liabilities		(7,166,880	)		(5,255,971	)

	￦	39,960,809			38,633,377

126

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

Other significant items

December 31, 2014


(in millions of Won)	Total Segment			Corporate FV adjustments			Elimination of inter-segment transactions			Consolidated

Interest income	￦	242,184			—			(13,930	)		228,254
Interest expenses		(807,387	)		(45,668	)		57,470			(795,585	)
Depreciation and amortization		(3,284,598	)		(111,263	)		157,312			(3,238,549	)
Share of profit or loss of investment in associates		(323,539	)		—			23,646			(299,893	)
Income tax expense		(872,179	)		33,473			17,221			(821,485	)
Impairment loss of property, plant and equipment and others		(222,168	)		—			47,838			(174,330	)
Impairment loss of available-for-sale financial assets		(392,959	)		—			23,236			(369,723	)

	￦	(5,660,646	)		(123,458	)		312,793			(5,471,311	)

December 31, 2013


(in millions of Won)	Total Segment			Corporate FV adjustments			Elimination of inter-segment transactions			Consolidated

Interest income	￦	275,175			—			(14,777	)		260,398
Interest expenses		(644,371	)		(34,814	)		21,504			(657,681	)
Depreciation and amortization		(2,698,764	)		(84,223	)		97,437			(2,685,550	)
Share of profit or loss of investment in associates		(479,012	)		—			299,203			(179,809	)
Income tax expense		(655,336	)		25,074			39,265			(590,997	)
Impairment loss of property, plant and equipment and others		(51,061	)		—			(97,424	)		(148,485	)
Impairment loss of available-for-sale financial assets		(311,994	)		—			31,757			(280,237	)

	￦	(4,565,363	)		(93,963	)		376,965			(4,282,361	)

(d)

Revenue by geographic area for years ended December 31, 2014 and 2013 was as follows:


(in millions of Won)	2014		2013

Domestic	￦	45,805,167		45,953,826
Japan		2,047,686		1,920,253
China		6,319,101		6,493,119
Asia-other		5,055,373		3,011,980
North America		2,199,418		1,720,895
Others		3,671,700		2,764,577

	￦	65,098,445		61,864,650

127

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2014 and 2013, Continued

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

(e)

Non-current assets by geographic area as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014		2013

Domestic	￦	33,837,971		33,116,006
Japan		177,322		203,241
China		1,745,125		1,632,490
Asia-other		4,867,569		4,703,943
North America		186,753		167,468
Others		2,367,036		2,292,040

	￦	43,181,776		42,115,188

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

(f)

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

128

POSCO

Separate Financial Statements

December 31, 2014 and 2013

(With Independent Auditors’ Report Thereon)

Table of Contents


	Page

Independent Auditors’ Report		1

Separate Financial Statements

Separate Statements of Financial Position		3

Separate Statements of Comprehensive Income		5

Separate Statements of Changes in Equity		6

Separate Statements of Cash Flows		7

Notes to the Separate Financial Statements		9

Independent Auditors’ Review Report on Internal Accounting Control System		85

Report on the Operations of Internal Accounting Control System		86

Independent Auditors’ Report

Based on a report originally issued in Korea

The Board of Directors and Shareholders

POSCO:

We have audited the accompanying separate financial statements of POSCO (“the Company”), which comprise the separate statements of financial position as of December 31, 2014 and 2013, the separate statements of comprehensive income, changes in equity and cash flows for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Separate Financial Statements

Management is responsible for the preparation and fair presentation of these separate financial statements in accordance with Korean International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of separate financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these separate financial statements based on our audits. We conducted our audits in accordance with Korean Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the separate financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the separate financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the separate financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the separate financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the separate financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the separate financial statements present fairly, in all material respects, the separate financial position of the Company as of December 31, 2014 and 2013, and its separate financial performance and its separate cash flows for the years then ended in accordance with Korean International Financial Reporting Standards.

Other Matters

The accompanying separate statement of financial position of the Company as of December 31, 2013, and the related statements of comprehensive income, changes in equity and cash flows for the year then ended, were audited by us in accordance with the previous auditing standards generally accepted in the Republic of Korea.

The procedures and practices utilized in the Republic of Korea to audit such separate financial statements may differ from those generally accepted and applied in other countries.

Seoul, Korea

February 25, 2015

This report is effective as of February 25, 2015, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying separate financial statements and notes thereto. Accordingly, the readers of the audit report should understand that the above audit report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

POSCO

Separate Statements of Financial Position

As of December 31, 2014 and 2013


(in millions of Won)	Notes	December 31, 2014		December 31, 2013

Assets

Cash and cash equivalents	4,5,22	￦	1,742,767		1,394,315
Trade accounts and notes receivable, net	6,22,37		3,157,266		3,393,444
Other receivables, net	7,22,37		562,930		281,161
Other short-term financial assets	8,22		693,729		2,318,816
Inventories	9,34		4,383,568		4,538,657
Assets held for sale	10		1,051,177		1,304
Other current assets	11		31,692		25,782


Total current assets			11,623,129		11,953,479


Long-term trade accounts and notes receivable, net	6,22		23,841		4,464
Other receivables, net	7,22		26,360		45,738
Other long-term financial assets	8,22		1,794,590		3,362,594
Investments in subsidiaries, associates and joint ventures	12		16,178,891		15,092,836
Investment property, net	13		90,137		92,879
Property, plant and equipment, net	14		22,323,215		23,240,603
Intangible assets, net	15		403,907		438,783
Other long-term assets	11		133,253		10,902


Total non-current assets			40,974,194		42,288,799


Total assets		￦	52,597,323		54,242,278

See accompanying notes to the separate financial statements.

POSCO

Separate Statements of Financial Position

As of December 31, 2014 and 2013, Continued


(in millions of Won)	Notes	December 31, 2014			December 31, 2013

Liabilities

Trade accounts and notes payable	22,37	￦	777,401			735,457
Short-term borrowings	4,6,16,22		1,236,290			1,931,283
Other payables	17,22,37		1,032,496			791,883
Other short-term financial liabilities	18,22		9,236			46,009
Current income tax liabilities	35		304,362			153,278
Provisions	19		47,759			8,501
Other current liabilities	21		108,508			38,109


Total current liabilities			3,516,052			3,704,520


Long-term borrowings	4,8,16,22		5,300,927			6,731,788
Other payables	17,22		88,807			124,679
Other long-term financial liabilities	18,22		50,574			231,539
Defined benefit liabilities, net	20		86,158			100,650
Deferred tax liabilities	35		1,047,666			1,034,102
Provisions	19		31,474			—
Other long-term liabilities	21		234			3,538


Total non-current liabilities			6,605,840			8,226,296


Total liabilities			10,121,892			11,930,816


Shareholders’ Equity

Share capital	23		482,403			482,403
Capital surplus	23		1,247,616			1,233,040
Hybrid bonds	24		996,919			996,919
Reserves	25		94,042			403,939
Treasury shares	26		(1,534,457	)		(1,579,123	)
Retained earnings	27		41,188,908			40,774,284


Total shareholders’ equity	4		42,475,431			42,311,462


Total liabilities and shareholders’ equity		￦	52,597,323			54,242,278

See accompanying notes to the separate financial statements.

POSCO

Separate Statements of Comprehensive Income

For the years ended December 31, 2014 and 2013


(in millions of Won, except per share information)	Notes	2014			2013

Revenue	28,37	￦	29,218,854			30,543,545
Cost of sales	9,20,30,34,37		(24,955,649	)		(26,494,617	)

Gross profit			4,263,205			4,048,928
Selling and administrative expenses
Administrative expenses	20,22,29,30,34		(933,984	)		(892,966	)
Selling expenses	29,34		(979,186	)		(940,829	)


Operating profit	31		2,350,035			2,215,133


Finance income and costs
Finance income	22,32		1,050,794			967,073
Finance costs	22,32		(1,014,269	)		(918,360	)

Other non-operating income and expenses
Other non-operating income	31,33,37		46,864			140,048
Other non-operating expenses	31,33,34,37		(712,031	)		(418,599	)


Profit before income tax			1,721,393			1,985,295
Income tax expense	35		(582,435	)		(402,699	)


Profit			1,138,958			1,582,596
Other comprehensive income (loss)
Items that will never be reclassified subsequently to profit or loss:
Remeasurements of defined benefit plans, net of tax	20		(42,464	)		(8,692	)
Items that are or may be reclassified subsequently to profit or loss:
Net changes in unrealized fair value of available-for-sale investments, net of tax	8,22,25		(309,897	)		400,577

Total comprehensive income, net of tax		￦	786,597			1,974,481


Basic and diluted earnings per share (in Won)	36	￦	13,858			20,052

See accompanying notes to the separate financial statements.

POSCO

Separate Statements of Changes in Equity

For the years ended December 31, 2014 and 2013


(in millions of Won)	Share capital		Capital surplus		Hybrid bonds		Reserves			Treasury shares			Retained earnings			Total
Balance as of January 1, 2013	￦	482,403		1,227,692		—		3,362			(2,391,406	)		39,842,497			39,164,548
Comprehensive income:
Profit		—		—		—		—			—			1,582,596			1,582,596
Other comprehensive income (loss)
Net changes in unrealized fair value of available-for-sale investments, net of tax		—		—		—		400,577			—			—			400,577
Remeasurements of defined benefit plans, net of tax		—		—		—		—			—			(8,692	)		(8,692	)
Transactions with owners of the Company, recognized directly in equity:
Year-end dividends		—		—		—		—			—			(463,467	)		(463,467	)
Interim dividends		—		—		—		—			—			(154,489	)		(154,489	)
Issuance of hybrid bonds		—		—		996,919		—			—			—			996,919
Interest of hybrid bonds		—		—		—		—			—			(24,161	)		(24,161	)
Disposal of treasury shares		—		5,348		—		—			812,283			—			817,631

Balance as of December 31, 2013	￦	482,403		1,233,040		996,919		403,939			(1,579,123	)		40,774,284			42,311,462


Balance as of January 1, 2014	￦	482,403		1,233,040		996,919		403,939			(1,579,123	)		40,774,284			42,311,462
Comprehensive income:
Profit		—		—		—		—			—			1,138,958			1,138,958
Other comprehensive loss
Net changes in unrealized fair value of available-for-sale investments, net of tax		—		—		—		(309,897	)		—			—			(309,897	)
Remeasurements of defined benefit plans, net of tax		—		—		—		—			—			(42,464	)		(42,464	)
Transactions with owners of the Company, recognized directly in equity:
Year-end dividends		—		—		—		—			—			(478,702	)		(478,702	)
Interim dividends		—		—		—		—			—			(159,568	)		(159,568	)
Interest of hybrid bonds		—		—		—		—			—			(43,600	)		(43,600	)
Disposal of treasury shares		—		14,576		—		—			44,666			—			59,242

Balance as of December 31, 2014	￦	482,403		1,247,616		996,919		94,042			(1,534,457	)		41,188,908			42,475,431

See accompanying notes to the separate financial statements.

POSCO

Separate Statements of Cash Flows

For the year ended December 31, 2014 and 2013


(in millions of Won)	Notes	2014			2013

Cash flows from operating activities
Profit		￦	1,138,958			1,582,596
Adjustments for:
Costs for defined benefit plans			114,372			122,656
Employee benefits			19,777			—
Depreciation			2,067,793			1,932,002
Amortization			74,112			38,067
Finance income			(773,099	)		(659,054	)
Finance costs			756,480			655,855
Valuation losses of inventories			24,867			4,532
Gain on disposal of property, plant and equipment			(8,882	)		(6,773	)
Loss on disposal of property, plant and equipment			57,777			94,533
Impairment loss on property, plant and equipment			30,334			5,697
Loss on disposal of investments in subsidiaries, associates and joint ventures			—			12,295
Impairment loss on investments in subsidiaries, associates and joint ventures			209,795			235,794
Gain on disposal of assets held for sale			—			(67,875	)
Other provision expense			89,844			—
Income tax expense			582,435			402,699
Others			86,716			(6,546	)

Changes in operating assets and liabilities	39		197,954			687,980

Interest received			97,441			109,073
Interest paid			(321,684	)		(390,175	)
Dividends received			151,150			232,281
Income taxes paid			(433,055	)		(222,111	)

Net cash provided by operating activities		￦	4,163,085			4,763,526

See accompanying notes to the separate financial statements.

POSCO

Separate Statements of Cash Flows

For the year ended December 31, 2014 and 2013, Continued


(in millions of Won)	Notes	2014			2013
Cash flows from investing activities	40
Proceeds from disposal of short-term financial instruments		￦	4,103,905			3,528,479
Proceeds from disposal of long-term financial instruments			—			5
Decrease in held-to-maturity investments			—			30,000
Proceeds from disposal of available-for-sale investments			41,740			194,820
Collection of long-term loans			19,751			14,441
Proceeds from disposal of investment in subsidiaries, associates and joint ventures			427			6,114
Proceeds from disposal of investment property			18			—
Proceeds from disposal of intangible assets			2,347			1,100
Proceeds from disposal of assets held for sale			1,291			—
Acquisition of short-term financial investments			(2,478,109	)		(4,144,157	)
Acquisition of available-for-sale investments			(30,727	)		(71,045	)
Increase in long-term loans			(26,451	)		(3,354	)
Acquisition of investment in subsidiaries, associates and joint ventures			(1,209,223	)		(1,193,501	)
Acquisition of investment property			(41	)		—
Acquisition of property, plant and equipment			(1,643,789	)		(3,013,628	)
Payment for cost of disposal of property, plant and equipment			(15,346	)		(14,297	)
Acquisition of intangible assets			(20,869	)		(103,041	)

Net cash used in investing activities			(1,255,076	)		(4,768,064	)

Cash flows from financing activities	40
Proceeds from borrowings			1,429,041			2,431,539
Increase in long-term financial liabilities			7,196			3,766
Receipt of government grants			—			5,000
Proceeds from disposal of treasury shares			43,188			14,019
Proceeds from issuance of hybrid bonds			—			996,919
Repayment of borrowings			(3,350,330	)		(3,132,803	)
Decrease in long-term financial liabilities			(7,125	)		(3,009	)
Decrease in derivative liabilities			—			(23,348	)
Payment of cash dividends			(637,927	)		(617,570	)
Payment of interest of hybrid bonds			(43,600	)		(21,860	)

Net cash used in financing activities			(2,559,557	)		(347,347	)

Effect of exchange rate changes on cash held			—			(6,360	)

Net increase (decrease) in cash and cash equivalents			348,452			(358,245	)
Cash and cash equivalents
Cash and cash equivalents at beginning of the year			1,394,315			1,752,560

Cash and cash equivalents at end of the year		￦	1,742,767			1,394,315

See accompanying notes to the separate financial statements.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013

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 seven of its overseas liaison offices.

As of December 31, 2014 and 2013, major shareholders are as follows:


	2014				2013
Shareholder’s name	Number of shares		Ownership(%)		Number of shares		Ownership(%)
National Pension Service		7,203,493		8.26		6,577,907		7.54
Nippon Steel & Sumitomo Metal Corporation(*1)		4,394,712		5.04		4,394,712		5.04
Saudi Arabia, Kingdom of Saudi Arabia		2,109,593		2.42		948,477		1.09
Hyundai Heavy Industries Co., Ltd. and subsidiaries(*2)		1,319,560		1.51		2,197,707		2.52
Pohang University of Science and Technology		1,905,000		2.18		1,905,000		2.18
KB Financial Group Inc. and subsidiaries(*2)		1,847,438		2.12		1,846,994		2.12
Others		68,407,039		78.47		69,316,038		79.51

		87,186,835		100.00		87,186,835		100.00

(*1)	Nippon Steel & Sumitomo Metal Corporation owns American Depository Receipts (ADRs) of the Company, each of which represents 0.25 share of POSCO’s common share which has par value of ￦5,000 per share.

(*2)	Includes shares held by subsidiaries pursuant to Articles of Incorporation.

As of December 31, 2014, 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 in the Republic of Korea.

These financial statements are separate financial statements prepared in accordance with K-IFRS No. 1027 “Separate Financial Statements” presented by a parent, an investor with joint control of, or significant influence over, an investee, in which the investments are accounted for at cost.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

The separate financial statements were authorized for issue by the Board of Directors on January 29, 2015, and will be submitted for approval at the shareholders’ meeting to be held on March 13, 2015.

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

(c)	Defined benefit liabilities are measured at the present value of the defined benefit obligation less the fair value of the plan asset.

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 judgments

The preparation of the separate 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 prospectively.

(a)	Judgements

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 8 - Other financial asset

•

Note 13 - Investment property, net

•

Note 14 - Property, plant and equipment, net

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

(b)	Assumptions and estimation uncertainties

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

•

Note 19 - Provisions

•

Note 20 - Employee benefits

•

Note 38 - Commitments and contingencies

(c)	Measurement of fair value


•	Level 1 –	unadjusted quoted prices in active markets for identical assets or liabilities.

•	Level 2 –	inputs other than quoted prices included in Level 1 that are observable for the assets or liability, either directly or indirectly.

•	Level 3 –	inputs for the assets or liability that are not based on observable market data.

Information about the assumptions made in measuring fair values is included in the following note:

•

Note 22 – Financial instruments

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

Changes in accounting policies

The Company has adopted the following amendments to standards and new interpretation with a date of initial application of January 1, 2014.

1)	K-IFRS No. 1032, “Financial Instruments: Presentation”

2)	K-IFRS No. 1036, “Impairment of Assets”

3)	K-IFRS No. 2121, “Levies”

The details of changes in accounting policies are as follows.

1)	Offsetting financial assets and financial liabilities

2)	Recoverable Amount Disclosures for Non-Financial Assets

Levies

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

Impact of changes in accounting policies

Upon adoption of amendments to K-IFRS No. 1032 and K-IFRS No. 2121, there is no impact on the Company’s prior year’s separate financial statements. Upon adoption of amendments to K-IFRS No. 1036, the Company has made the required disclosures in the annual financial statements as applicable (see note 12).

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, associates and joint ventures

These separate financial statements are prepared and presented in accordance with K-IFRS No. 1027 “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, associate or joint venture are recognized in profit or loss when the right to receive the dividend is established.

Foreign currency transactions and translation

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

Cash and cash equivalents

Non-derivative financial assets

The Company recognizes and measures non-derivative financial assets by the following four categories: financial assets at fair value through profit or loss, held-to-maturity financial assets, loans and receivables and available-for-sale financial assets. The Company recognizes financial assets in the separate statement of financial position when the Company becomes a party to the contractual provisions of the instrument.

(a)	Financial assets at fair value through 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

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

(d)	Available-for-sale financial assets

(e)	Derecognition of non-derivative financial assets

(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.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

Inventories

Non-current assets held for sale

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 Separate Financial Statements

As of December 31, 2014 and 2013, Continued

Investment property

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

The cost of replacing a part of an item is recognized in the carrying amount of the item of property, plant and equipment, if the following recognition criteria are met:

(a)	it is probable that future economic benefits associated with the item will flow to the Company and

(b)	the cost can be measured reliably.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

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

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

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


Buildings			5-40 years
Structures			5-40 years
Machinery and equipment			15 years
Vehicles			4-9 years
Tools			4 years
Furniture and fixtures			4 years
Lease assets			18 years

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

Borrowing costs

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 an having an indefinite useful life and not amortized.


Intellectual property rights			10 years
Development costs			4 years
Port facilities usage rights			4-75 years
Other intangible assets			4 years

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

Government grants

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

(a)	Grants related to assets

(b)	Grants related to income

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

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

Leases

(a)	Finance leases

(b)	Operating leases

Leases 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

Objective evidence that a financial asset or group of financial assets are impaired includes:

(a)	significant financial difficulty of the issuer or obligor

(b)	a breach of contract, such as a default or delinquency in interest or principal payments

(c)	the lender, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider

(d)	it becoming probable that the borrower will enter bankruptcy or other financial reorganization

(e)	the disappearance of an active market for that financial asset because of financial difficulties

(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.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

If there is objective evidence that financial assets are impaired, impairment losses are measured and recognized.

(a)	Financial assets measured at amortized cost

(b)	Financial assets carried at cost

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

(c)	Available-for-sale financial assets

Impairment 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 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.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

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.

(a)	Embedded derivatives

(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 or designated as 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 Separate Financial Statements

As of December 31, 2014 and 2013, Continued

(b)	Other financial liabilities

Non-derivative financial liabilities other than financial liabilities at fair value through profit or loss are classified as other financial liabilities.

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

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).

Employee benefits

(a)	Short-term employee benefits

(b)	Other long-term employee benefits

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

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

(d)	Retirement benefits: Defined benefit plans

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 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, 2014 and 2013, Continued

Provisions

Provision for restoration related to contaminated area is recognized when the area meets the Company’s policy and legal standards of contamination.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

Equity instruments

(a)	Share capital

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

(b)	Hybrid bonds

Revenue

(a)	Sale of goods

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

(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 method. Dividend income is recognized in profit or loss on the date that the Company’s right to receive payment is established.

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.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

(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.

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. 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 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 Separate Financial Statements

As of December 31, 2014 and 2013, Continued

Earnings per share

New standards and interpretations not yet adopted

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

Management believes the impact of the amendments on the Company’s separate financial statements is not significant.

(b)	Amendments to K-IFRS No. 1027 “Separate Financial Statements”

Amendments to K-IFRS No. 1027 introduced equity accounting as a third option in the entity’s separate financial statements, in addition to the existing cost and fair value options. This amendment is effective for annual periods beginning on or after January 1, 2016, with early adoption permitted.

Management is in the progress of evaluating the impact of the amendments on the Company.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

4. Risk Management

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

•

credit risk

•

liquidity risk

•

market risk

•

capital risk

(a)	Financial risk management

1)	Risk management framework

2)	Credit risk

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

3)	Liquidity risk management

The Company’s cash flow from business, borrowing or financing is sufficient to meet the cash requirements for the Company’s strategy 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.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

4)	Market risk management

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.

‚

Interest rate risk

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

Other market risk

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

(b)	Management of capital risk

Net borrowing-to-equity ratio as of December 31, 2014 and 2013 is as follows:


(in millions of Won)	2014			2013
Total borrowings	￦	6,537,217			8,663,071
Less: Cash and cash equivalents		1,742,767			1,394,315

Net borrowings		4,794,450			7,268,756
Total equity	￦	42,475,431			42,311,462

Net borrowings-to-equity ratio		11.29	%		17.18	%

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

5. Cash and Cash Equivalents

Cash and cash equivalents as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014		2013
Demand deposits and checking accounts	￦	867		302,434
Time deposits		545,000		549,381
Other cash equivalents(*1)		1,196,900		542,500

	￦	1,742,767		1,394,315

(*1)	Mainly includes money market trust and others.

6. Trade Accounts and Notes Receivable

Trade accounts and notes receivable as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014			2013
Current
Trade accounts and notes receivable	￦	3,166,238			3,403,316
Less: Allowance for doubtful accounts		(8,972	)		(9,872	)

	￦	3,157,266			3,393,444

Non-current
Trade accounts and notes receivable	￦	32,247			7,806
Less: Present value discount		(7,396	)		(3,114	)
Less: Allowance for doubtful accounts		(1,010	)		(228	)

	￦	23,841			4,464

Trade accounts and notes receivable sold to financial institutions, for which the derecognition conditions were not met, amounted to ￦203,138 million as of December 31, 2013 (2014: nil), and were included in short-term borrowings.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

7. Other Receivables

Other receivables as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014			2013
Current
Short-term loans	￦	4,748			—
Other accounts receivable(*1)		564,765			281,667
Others		3,950			10,065
Less: Allowance for doubtful accounts		(10,533	)		(10,571	)

	￦	562,930			281,161

Non-current
Long-term loans	￦	21,229			54,945
Long-term other accounts receivable		2,334			2,723
Others		2,797			2,523
Less: Allowance for doubtful accounts		—			(14,453	)

	￦	26,360			45,738

(*1)	Included dividends receivable amounting to ￦200,824 million from POSCO Specialty., Co. Ltd.

8. Other Financial Assets

(a)	Other financial assets as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014		2013
Current
Short term derivatives assets held for trading	￦	708		—
Short-term financial instruments(*1)		609,584		2,317,867
Cash deposits(*2,3)		83,437		949

	￦	693,729		2,318,816

Non-current
Long-term derivatives assets held for trading	￦	9,525		7,788
Available-for-sale securities (equity instruments)		1,767,621		3,333,915
Available-for-sale securities (others)		17,408		20,855
Cash deposits(*4)		36		36

	￦	1,794,590		3,362,594

(*1)	Short-term financial instruments amounting to ￦5,200 million and ￦4,700 million are provided as collateral in relation to long term borrowings from National Forestry Cooperatives Federation as of December 31, 2014 and 2013, respectively.

(*2)	Deposits amounting to ￦5,465 million and ￦949 million as of December 31, 2014 and 2013, respectively, are restricted in relation to government assigned project.

(*3)	As of December 31, 2014, ￦77,972 million of deposits have been provided as collateral for disposal of investments in subsidiaries.

(*4)	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, 2014 and 2013, Continued

(b)	Available-for-sale equity securities as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014																2013
	Number of shares		Ownership (%)		Acquisition cost		Fair value		Net changes in fair value of available-for- sale investments(*7)			Accumulated impairment loss			Book value		Book value
Marketable equity securities
Nippon Steel & Sumitomo Metal Corporation		238,352,000		2.51	￦	719,622		659,926		(59,696	)		—			659,926		842,909
SK Telecom Co., Ltd.(*1)		—		—		—		—		—			—			—		419,933
KB Financial group Inc.		11,590,550		3.00		536,516		418,998		22,602			(140,120	)		418,998		489,701
Hyundai Heavy Industries Co., Ltd.(*2)		1,477,000		1.94		343,506		169,855		—			(173,651	)		169,855		379,589
Shinhan Financial group Inc.		4,369,881		0.92		228,778		194,241		71,605			(106,142	)		194,241		206,695
Hana Financial group Inc.		2,430,498		0.84		15,633		77,776		62,143			—			77,776		106,699
Others (13 companies)(*2,3)						155,940		99,594		29,731			(86,077	)		99,594		108,895

						1,999,995		1,620,390		126,385			(505,990	)		1,620,390		2,554,421

Non-marketable equity securities
The Siam United Steel		—		—		—		—		—			—			—		57,643
Nacional Minerios S.A.(*4)		—		—		—		—		—			—			—		517,193
Dongbu Metal Co., Ltd.(*2,5)		3,000,000		10.00		98,242		17,295		—			(80,947	)		17,295		85,371
Others (41 companies)(*6)						141,049		129,936		(2,318	)		(8,795	)		129,936		119,287

						239,291		147,231		(2,318	)		(89,742	)		147,231		779,494

					￦	2,239,286		1,767,621		124,067			(595,732	)		1,767,621		3,333,915

(*1)	During the year ended December 31, 2014, exchange bonds on American Depository Receipts (“ADRs”) of SK Telecom Co., Ltd. were exercised. Accordingly, the Company recognized a gain on disposal of available-for-sale securities amounting to ￦198,671 million.

(*2)

During the year ended December 31, 2014, the Company recognized ￦173,651 million, ￦729 million, ￦60 million and ￦80,947 million of impairment loss on securities of Hyundai Heavy Industries Co., Ltd., Dgenx Co., Ltd., TONGYANG NETWORKS Co., Ltd., and Dongbu Metal Co., Ltd., respectively, due to the significant decline in the fair value of the shares.

(*3)

During the year ended December 31, 2014, the Company recognized an additional impairment loss of ￦1,105 million, ￦1,005 million, ￦1,251 million and ￦4,720 million on securities of UNION STEEL CO., LTD., Seoul Semiconductor Co., Ltd., PT.Krakatau Steel and Steel Flower Co., Ltd., respectively, due to the continued prolonged decline in the fair value of the shares.

(*4)

The Company recognized ￦88,572 million of impairment loss on investment in Nacional Minerios S.A. for the year ended December 31, 2014, due to the prolonged decline in the fair value of the shares. As of December 31, 2014, the Company classified the securities as assets held for sale based on the merger agreement of Nacional Minerios S.A. with other shareholders (note 10).

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

(*6)	Non-marketable equity securities whose fair values cannot be reliably measured are recorded at cost.

(*7)	Represents the amount of cumulative amounts that is recorded in accumulated other comprehensive income as of December 31, 2014

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

9. Inventories

(a)	Inventories as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014			2013
Finished goods	￦	901,524			755,286
Semi-finished goods		1,207,143			1,259,390
By-products		21,439			13,793
Raw materials		822,273			983,902
Fuel and materials		510,508			520,236
Materials-in-transit		944,966			1,009,996
Others		582			586

		4,408,435			4,543,189
Less: Allowance for inventories valuation		(24,867	)		(4,532	)

	￦	4,383,568			4,538,657

(b)	The changes of allowance for inventories valuation for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014			2013
Beginning	￦	4,532			370
Loss on valuation of inventories		24,867			4,532
Write-off		(4,532	)		(370	)

Ending	￦	24,867			4,532

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

10. Assets Held for Sale

Assets held for sale as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014		2013
Available-for-sale securities(*1)	￦	580,062		—
Investments in subsidiaries(*2,3)		468,443		—
Investment in associates(*4)		—		1,304
Property, plant and equipment (land)		2,672		—

	￦	1,051,177		1,304

(*1)

In November 2014, Nacional Minerios S.A. (which was an available-for-sale investment of the Company) entered into a merger agreement with another entity through share exchange. The merger transaction was approved by the Company’s Board of Directors on December 12, 2014. Pursuant to the merger agreement, the Company will dispose of its equity interests in Nacional Minerios S.A. in exchange for equity interests in the new entity. Accordingly, the Company classified its investment in Nacional Minerios S.A. as assets held for sale after recording impairment loss on the investment.

(*2)

The Company determined to dispose of 52.2% of shares of POSCO Specialty Co., Ltd to SeAH Besteel Corp. by and entered into a disposal agreement. The agreement was approved by the Board of Directors on December 12, 2014, and the Company classified the investment in subsidiaries of ￦454,943 million as assets held for sale.

(*3)	The Company determined to dispose of the shares of POSFINE Co., Ltd, an associate of the Company, to Hahn & Company PRIVATE EQUITY FUND No. 1, and classified the accompanying investment in the subsidiary of ￦13,500 million as assets held for sale.

(*4)

The Company determined to dispose of the shares of POSVINA Co., Ltd., a subsidiary of the Company during the year ended December 31, 2013. Disposal of the asset held-for-sale was completed during the year ended December 31, 2014, and the Company recognized an impairment loss for asset held for sale of ￦14 million.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

11. Other Assets

Other current assets and other long-term assets as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014		2013
Current
Advance payments	￦	9,828		4,871
Prepaid expenses		21,864		20,911

	￦	31,692		25,782

Non-current
Long-term prepaid expenses	￦	6,344		6,980
Others(*1)		126,909		3,935
Less : Allowance for doubtful accounts		—		(13	)

	￦	133,253		10,902

(*1)

As of December 31, 2014, the Company recognized assets amounting to ￦123,110 million in connection with the additional payment for prior years as a result of tax audits that were finalized in 2014 based on the Company’s best estimate of the tax amounts to be paid when the result of the Company’s appeal is finalized.

12. Investments in Subsidiaries, Associates and Joint ventures

(a)	Investments in subsidiaries, associates and joint ventures as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014		2013
Subsidiaries	￦	13,257,282		12,316,564
Associates		647,973		825,197
Joint ventures		2,273,636		1,951,075

	￦	16,178,891		15,092,836

There are no restrictions on the ability of subsidiaries, associates and joint ventures to transfer funds to the controlling company, such as in the form of cash dividends, repayment of loans or payment of advances.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

(b)	Details of subsidiaries and carrying values as of December 31, 2014 and 2013 are as follows:


(in millions of Won)			2014											2013
	Country	Principal operations	Number of shares		Ownership		Acquisition cost		Net asset value			Book value		Book value
[Domestic]
Daewoo International Corporation	Korea	Trading		68,681,566		60.31	￦	3,371,481		2,343,917			3,371,481		3,371,481
POSCO ENGINEERING & CONSTRUCTION., LTD.	Korea	Engineering and construction		32,876,418		89.53		1,510,716		2,972,450			1,510,716		1,510,716
POSCO Green Gas Technology	Korea	Gas production and sales		13,652		100.00		682,600		679,311			682,600		—
POSCO ENERGY CO., LTD.	Korea	Generation of electricity		40,234,508		89.02		658,176		1,584,491			658,176		658,176
POSCO Processing & Service	Korea	Steel sales and service		20,340,136		96.01		624,678		871,481			624,678		421,927
POSCO PLANTEC Co., Ltd.(*1,2)	Korea	Other structural metal product manufacturing		110,027,475		60.84		520,588		215,859			341,293		—
POSCO Specialty Steel Co., Ltd.(*3)	Korea	Manufacture and sale of specialty steel		26,000,000		72.09		173,899		948,735			173,899		628,842
POSCO COATED & COLOR STEEL Co., Ltd.	Korea	Coated steel manufacturing		3,412,000		56.87		108,421		166,468			108,421		108,421
POSCO Venture Capital Co., Ltd.	Korea	Investment in venture companies		19,700,000		95.00		103,780		111,011			103,780		103,780
POSCO CHEMTECH	Korea	Manufacturing and Sales		3,544,200		60.00		100,535		507,448			100,535		100,535
POSMATE	Korea	Computer hardware and software distribution		902,946		57.30		72,804		178,969			72,804		63,222
POSCO ICT	Korea	Business facility maintenance		99,403,282		65.38		70,990		422,288			70,990		70,990
POSCO M-TECH(*4,5)	Korea	Steel manufacturing and Sales		20,342,460		48.85		107,278		49,286			66,067		107,278
POSCO Family Strategy Fund	Korea	Investment in venture companies		400		60.79		40,000		53,144			40,000		40,000
Busan E&E Co,. Ltd.(*6)	Korea	Municipal solid waste fuel and power generation		6,029,660		70.00		30,148		40,456			30,148		30,148
POSHIMETAL Co., Ltd.(*8)	Korea	Steel manufacturing and sales		10,023,000		65.00		49,452		(5,420	)		—		49,452
Others (10 companies)(*9)								136,245		306,515			134,196		354,873

								8,361,791		11,446,409			8,089,784		7,619,841

[Foreign]
PT. KRAKATAU POSCO	Indonesia	Steel manufacturing and sales		739,900		70.00		813,431		823,714			855,110		808,492
POSCO WA PTY LTD	Australia	Mine development		589,035,511		100.00		611,248		450,299			611,248		446,093
POSCO Maharashtra Steel Private Limited	India	Steel manufacturing and sales		214,649,818		100.00		456,065		197,562			465,788		355,987
POSCO AUSTRALIA PTY LTD	Australia	Steel Sales and mine development		761,775		100.00		330,623		660,815			330,623		330,623
POSCO Thainox Public Company Limited(*7)	Thailand	Stainless steel manufacturing		6,620,532,219		84.93		500,740		298,946			329,756		340,249
Zhangjiagang Pohang Stainless Steel Co., Ltd.	China	Stainless steel manufacturing		—		58.60		283,845		516,449			284,392		284,753
POSCO-China Holding Corp.	China	Investment management		—		100.00		240,430		257,961			240,430		240,430
POSCO-India Private Limited	India	Steel manufacturing and sales		764,999,999		99.99		184,815		116,897			184,815		184,815
POSCO MEXICO S.A. DE C.V.	Mexico	Plate steel manufacturing		2,686,705,272		84.84		180,069		208,429			182,110		182,080
POSCO America Corporation	USA	Trading-Steel		415,530		99.45		167,285		63,571			167,285		140,381
POSCO-VIETNAM Co., Ltd.	Vietnam	Steel manufacturing		—		85.00		154,691		26,775			156,778		157,295
POSCO VST CO., LTD.	Vietnam	Stainless steel manufacturing		—		95.65		144,573		24,477			145,049		145,288
POSCO(Guangdong) Automotive Steel Co., Ltd.	China	Plate steel manufacturing		117,187,089		83.64		130,751		126,283			131,051		131,291
POSCO ASSAN TST STEEL INDUSTRY	Turkey	Steel manufacturing and sales		144,579,160		60.00		92,800		28,925			95,213		95,710
POSCO COATED STEEL (THAILAND) CO., LTD.	Thailand	Plate steel manufacturing		27,000,000		100.00		90,012		90,450			90,012		6,020
POSCO Investment Co., Ltd.	Hong Kong	Finance		4,999,999		99.99		85,521		109,805			86,775		87,211
POSCO JAPAN Co., Ltd.	Japan	Trading-Steel		90,438		100.00		68,436		110,322			68,436		68,436
Qingdao Pohang Stainless Steel Co., Ltd.	China	Stainless steel manufacturing		—		70.00		65,982		84,984			65,982		65,982
POSCO(Suzhou) Automotive Processing Center Co., Ltd.	China	Steel manufacturing and sales		—		90.00		62,494		124,852			62,494		62,494
POSCO Electrical Steel India Private Limited	India	Electrical steel manufacturing and sales		24,120,664		100.00		57,119		32,234			58,441		58,662
POSCO AFRICA (PROPRIETARY) LIMITED	South Africa	Trading		1,390		100.00		50,297		40,755			50,297		50,297
POSCO-Malaysia SDN. BHD.	Malaysia	Steel manufacturing and sales		144,772,000		81.79		45,479		(10,693	)		45,479		31,027

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued


(in millions of Won)			2014										2013
	Country	Principal operations	Number of shares		Ownership		Acquisition cost		Net asset value		Book value		Book value
POSCO China Dalian Plate Processing Center Co., Ltd.	China	Heavy plate processing and marketing		—		80.00		32,992		13,321		32,992		32,992
POSCO Asia Co., Ltd.	Hong Kong	Steel transit trade		9,360,000		100.00		32,189		46,664		32,189		32,189
POSCO(Guangdong) Steel Co., Ltd.	China	Plate steel sheet manufacturing		—		87.04		31,299		42,740		31,299		31,299
POSCO-Uruguay S.A	Uruguay	Wood manufacturing and sales		558,592,496		98.11		30,243		21,240		30,243		29,341
Others (31 companies)(*9)								333,615		507,590		333,211		297,286

								5,277,044		5,015,367		5,167,498		4,696,723

							￦	13,638,835		16,461,776		13,257,282		12,316,564

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

(*1)

As of December 31, 2014, there is objective evidence of impairment due to the prolonged decline in the fair value of the investment below cost. Recoverable amount was determined based on fair value less cost to sell, which was calculated by adding a 8.8% control premium and disposal cost to the stock price as of December 31, 2014. As a result, the Company recognized an impairment loss of ￦103,993 million as the carrying value was higher than its recoverable amount as of December 31, 2014.

(*2)	During the year ended December 31, 2014, it is classified as subsidiary from associate due to increase in percentage of ownership through capital increase.

(*3)	The Company determined to dispose of 52.2% of POSCO Specialty Steel Co., Ltd.’s share and classified the investment in a subsidiary of ￦454,943 million as assets held for sale.

(*4)	It 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.

(*5)

As of December 31, 2014, there is objective evidence of impairment due to the prolonged decline in the fair value of the investment below cost. Recoverable amount was determined based on fair value less cost to sell, which was calculated by adding a 13.7% control premium and disposal cost to the stock price as of December 31, 2014. As a result, the Company recognized an impairment loss of ￦41,211 million as the carrying value was higher than its recoverable amount as of December 31, 2014.

(*6)	As of December 31, 2014, the investments in subsidiaries amounting to ￦30,148 million were provided as collateral in relation to the loan agreements of Busan E&E Co,. Ltd.

(*7)

As of December 31, 2014, there is objective evidence of impairment due to the prolonged decline in the fair value of the investment below cost. Recoverable amount was determined based on fair value less cost to sell, which was calculated by adding a 13.7% control premium and disposal cost to the stock price as of December 31, 2014. As a result, the Company recognized an impairment loss of ￦10,493 million as the carrying value was higher than its recoverable amount as of December 31, 2014.

(*8)

As of December 31, 2014, there is objective evidence of impairment due to the prolonged decline in the fair value of the investment below cost. The recoverable amount was determined based on value-in-use, which was calculated by applying 7.4% discount rate. As a result, the Company recognized impairment loss of ￦49,452 million as the carrying value was higher than its recoverable amount as of December 31, 2014.

(*9)	The Company recognized an impairment loss of ￦2,049 million and ￦404 million on POSCO LED Co., Ltd. and Motta Resources Indonesia, respectively, as the carrying value was higher than its recoverable amount as of December 31, 2014.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

(c)	Details of associates and carrying values as of December 31, 2014 and 2013 are as follows:


(in millions of Won)			2014										2013
	Country	Principal operations	Number of shares		Ownership (%)		Acquisition cost		Net asset value		Book value		Book value
[Domestic]
POSCO PLANTEC Co.,	Korea	—		—		—	￦	—		—		—		185,786
EQP POSCO Global 1st Fund	Korea	Mine investment		169,106,080,000		26.97		169,106		620,916		169,106		169,106
SNNC Co., Ltd.	Korea	Storage of materials		18,130,000		49.00		100,655		298,351		100,655		100,655
Others (4 companies)(*2)								21,867		110,468		21,867		18,921

								291,628		1,029,735		291,628		474,468

[Foreign]
Nickel Mining Company SAS	New Caledonia	Raw material manufacturing and Sales		3,234,698		49.00		189,197		269,371		189,197		189,197
7623704 Canada Inc.	Canada	Mine investment		114,452,000		10.40		124,341		1,138,122		124,341		124,341
Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd	China	Tinplate manufacturing and sales		—		24.00		11,003		67,539		11,003		11,003
Others (9 companies)								31,700		44,092		31,804		26,188

								356,241		1,519,124		356,345		350,729

							￦	647,869		2,548,859		647,973		825,197

(*1)	During the year ended December 31, 2014, it was reclassified from associate to subsidiary due to increase in percentage of ownership through capital increase.

(*2)	The Company has recognized an impairment loss of ￦2,193 million on Hyundai Investment Network No.1 Private Equity Fund due to the prolonged decline in the market value of the shares.

(d)	Details of joint ventures and carrying values as of December 31, 2014 and 2013 are as follows:


(in millions of Won)			2014										2013
	Country	Principal operations	Number of shares		Ownership (%)		Acquisition cost		Net asset value		Book value		Book value
Roy Hill Holdings Pty Ltd(*1)	Australia	Mine development		10,494,377		10.00	￦	1,225,464		3,377,978		1,225,464		983,569
CSP - Compania Siderurgica do Pecem	Brazil	Steel manufacturing		827,771,230		20.00		469,891		1,593,004		469,891		393,925
POSCO-NPS Niobium LLC	USA	Mine development		325,050,000		50.00		364,609		715,546		364,609		364,609
KOBRASCO	Brazil	Facilities lease		2,010,719,185		50.00		98,962		199,573		98,962		98,962
Others (5 companies)								114,710		463,668		114,710		110,010

							￦	2,273,636		6,349,769		2,273,636		1,951,075

(*1)	As of December 31, 2014, the investments in joint ventures amounting to ￦1,225,464 million were provided as collateral in relation to loan from project financing of Roy Hill Holdings Pty Ltd.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

13. Investment Property, Net

(a)	Investment property as of December 31, 2014 and 2013 are as follows:


(in millions of Won)
	2014							2013
	Acquisition cost		Accumulated depreciation			Book value		Acquisition cost		Accumulated depreciation			Book value
Land	￦	36,020		—			36,020		36,020		—			36,020
Buildings		95,568		(45,456	)		50,112		95,564		(42,882	)		52,682
Structures		7,009		(3,004	)		4,005		7,009		(2,832	)		4,177

	￦	138,597		(48,460	)		90,137		138,593		(45,714	)		92,879

The fair value of investment property as of December 31, 2014 is ￦287,210 million.

(b)	Changes in the carrying value of investment property for the years ended December 31, 2014 and 2013 were as follows:

For the year ended December 31, 2014


(in millions of Won)
	Beginning		Acquisitions		Disposals			*Depreciation(1)**			*Transfer(2)**			Ending
Land	￦	36,020		—		—			—			—			36,020
Buildings		52,682		41		(18	)		(2,404	)		(189	)		50,112
Structures		4,177		—		—			(160	)		(12	)		4,005

	￦	92,879		41		(18	)		(2,564	)		(201	)		90,137

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

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

For the year ended December 31, 2013


(in millions of Won)
	Beginning		*Depreciation(1)**			*Transfer(2)**			Ending
Land	￦	41,811		—			(5,791	)		36,020
Buildings		63,697		(2,793	)		(8,222	)		52,682
Structures		5,018		(186	)		(655	)		4,177

	￦	110,526		(2,979	)		(14,668	)		92,879

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

(*2)	Mainly includes assets transferred to 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, 2014 and 2013, Continued

14. Property, Plant and Equipment, Net

(a)	Property, plant and equipment as of December 31, 2014 and 2013 are as follows:

(in millions of Won)


	2014													2013
	Acquisition cost		Accumulated depreciation			Accumulated impairment			Government grants			Book value		Acquisition cost		Accumulated depreciation			Accumulated impairment			Government grants			Book value
Land	￦	1,420,994		—			—			—			1,420,994		1,397,271		—			—			—			1,397,271
Buildings		5,801,650		(3,036,496	)		(4,312	)		—			2,760,842		5,433,167		(2,794,762	)		(631	)		—			2,637,774
Structures		4,617,918		(1,996,823	)		(8,542	)		—			2,612,553		4,277,603		(1,808,087	)		(470	)		—			2,469,046
Machinery and equipment		35,056,496		(20,530,303	)		(22,927	)		—			14,503,266		32,428,259		(19,221,165	)		(4,384	)		—			13,202,710
Vehicles		197,467		(184,514	)		—			—			12,953		189,666		(178,897	)		—			—			10,769
Tools		187,712		(164,388	)		—			—			23,324		188,204		(162,524	)		—			—			25,680
Furniture and fixtures		261,846		(223,942	)		(320	)		—			37,584		254,663		(206,987	)		(282	)		—			47,394
Finance lease assets		11,466		(5,096	)		—			—			6,370		11,466		(4,459	)		—			—			7,007
Construction-in-progress		950,329		—			—			(5,000	)		945,329		3,447,952		—			—			(5,000	)		3,442,952

	￦	48,505,878		(26,141,562	)		(36,101	)		(5,000	)		22,323,215		47,628,251		(24,376,881	)		(5,767	)		(5,000	)		23,240,603

(b)	Changes in the carrying value of property, plant and equipment for the years ended December 31, 2014 and 2013 were as follows:

For the year ended December 31, 2014


(in millions of Won)	Beginning		Acquisitions		Disposals			Depreciation			*Impairment(1)**			*Others(2)**			Ending
Land	￦	1,397,271		39		(392	)		—			—			24,076			1,420,994
Buildings		2,637,774		5,941		(1,912	)		(249,792	)		(3,681	)		372,512			2,760,842
Structures		2,469,046		11,239		(1,750	)		(194,088	)		(8,072	)		336,178			2,612,553
Machinery and equipment		13,202,710		125,297		(29,430	)		(1,574,903	)		(18,543	)		2,798,135			14,503,266
Vehicles		10,769		792		(8	)		(7,884	)		—			9,284			12,953
Tools		25,680		5,795		(54	)		(15,996	)		—			7,899			23,324
Furniture and fixtures		47,394		7,150		(5	)		(21,929	)		(38	)		5,012			37,584
Finance lease assets		7,007		—		—			(637	)		—			—			6,370
Construction-in-progress		3,442,952		1,628,325		—			—			—			(4,125,948	)		945,329

	￦	23,240,603		1,784,578		(33,551	)		(2,065,229	)		(30,334	)		(572,852	)		22,323,215

(*1)	The Company has recognized an impairment loss since the recoverable amounts of FINEX 1 plant and STS 1 steelmaking plant were lower than their book value.

(*2)	Represents assets transferred from construction-in-progress to investment to subsidiary (KRW 558,915 million), property, plant and equipment, from investment property, to intangible assets, and to assets held-for-sale.

For the year ended December 31, 2013


(in millions of Won)	Beginning		Acquisitions		Disposals			Depreciation			*Others(1)**			Ending
Land	￦	1,367,822		—		(627	)		—			30,076			1,397,271
Buildings		2,734,839		7,034		(8,628	)		(241,678	)		146,207			2,637,774
Structures		2,113,750		16,624		(5,519	)		(181,725	)		525,916			2,469,046
Machinery and equipment		12,888,614		113,921		(57,800	)		(1,456,354	)		1,714,329			13,202,710
Vehicles		13,039		794		(4	)		(8,682	)		5,622			10,769
Tools		29,693		4,006		(9	)		(15,118	)		7,108			25,680
Furniture and fixtures		67,431		2,819		(875	)		(24,829	)		2,848			47,394
Finance lease assets		7,644		—		—			(637	)		—			7,007
Construction-in-progress		2,943,903		3,009,545		—			—			(2,510,496	)		3,442,952

	￦	22,166,735		3,154,743		(73,462	)		(1,929,023	)		(78,390	)		23,240,603

(*1)	Represents assets transferred from construction-in-progress to property, plant and equipment, investment property and intangible assets.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

(c)	Borrowing costs capitalized and the capitalized interest rate for the years ended December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014			2013
Weighted average expenditure	￦	1,227,496			2,894,479
Borrowing costs capitalized		51,428			137,221
Capitalization rate		4.19	%		4.74	%

15. Intangible Assets, Net

(a)	Intangible assets as of December 31, 2014 and 2013 are as follows:

(in millions of Won)


	2014										2013
	Acquisition cost		Accumulated amortization			Accumulated impairment			Book value		Acquisition cost		Accumulated amortization			Accumulated impairment			Book value
Intellectual property rights	￦	24,829		(7,235	)		—			17,594		18,970		(5,158	)		—			13,812
Membership		59,949		—			(6,795	)		53,154		55,672		—			(6,795	)		48,877
Development expense		242,747		(114,806	)		—			127,941		95,514		(66,046	)		—			29,468
Port facilities usage rights		511,212		(349,184	)		—			162,028		509,375		(337,166	)		—			172,209
Construction-in-progress		16,756		—			—			16,756		153,719		—			—			153,719
Other intangible assets		296,112		(269,678	)		—			26,434		280,804		(260,106	)		—			20,698

	￦	1,151,605		(740,903	)		(6,795	)		403,907		1,114,054		(668,476	)		(6,795	)		438,783

(b)	Changes in the carrying value of intangible assets for the years ended December 31, 2014 and 2013 were as follows:

For the year ended December 31, 2014

(in millions of Won)


	Beginning		Acquisitions		Disposals			Amortization			*Impairment(2)**		*Transfer(3)**			Ending
Intellectual property rights	￦	13,812		—		(217	)		(2,261	)		—		6,260			17,594
Membership(*1)		48,877		5,896		(2,209	)		—			590		—			53,154
Development expense		29,468		381		—			(48,766	)		—		146,858			127,941
Port facilities usage rights		172,209		—		—			(12,018	)		—		1,837			162,028
Construction-in-progress		153,719		16,414		—			—			—		(153,377	)		16,756
Other intangible assets		20,698		13,577		—			(11,067	)		—		3,226			26,434

	￦	438,783		36,268		(2,426	)		(74,112	)		590		4,804			403,907

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

(*2)	The Company reversed accumulated impairment loss up to the carrying value before recognition of any impairment loss since recoverable amounts of some memberships exceeded the carrying value, either.

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

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

For the year ended December 31, 2013

(in millions of Won)


	Beginning		Acquisitions		Disposals			Amortization			*Impairment(2)**			*Transfer(3)**			Ending
Intellectual property rights	￦	8,904		—		(291	)		(1,625	)		—			6,824			13,812
Membership(*1)		49,560		1,022		(1,124	)		—			(581	)		—			48,877
Development expense		30,092		1,902		—			(16,156	)		—			13,630			29,468
Port facilities usage rights		87,983		—		—			(10,265	)		—			94,491			172,209
Construction-in-progress		96,035		98,459		—			—			—			(40,775	)		153,719
Other intangible assets		21,267		1,658		—			(10,021	)		—			7,794			20,698

	￦	293,841		103,041		(1,415	)		(38,067	)		(581	)		81,964			438,783

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

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

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

16. Borrowings

(a)	Borrowings as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014			2013
Short-term borrowings
Short-term borrowings	￦	—			203,138
Current portion of long-term borrowings		236,553			188,381
Current portion of loans from foreign financial institutions		418			927
Current portion of debentures		1,000,000			1,540,109
Less: Current portion of discount on debentures issued		(681	)		(1,272	)

	￦	1,236,290			1,931,283

Long-term borrowings
Long-term borrowings	￦	447,437			648,251
Loans from foreign financial institutions		627			1,140
Debentures		4,871,627			6,107,973
Less: Discount on debentures issued		(18,764	)		(38,167	)
Add: Premium on debentures redemption		—			12,591

	￦	5,300,927			6,731,788

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

(b)	Short-term borrowings as of December 31, 2014 and 2013 are as follows:


(in millions of Won)
Lenders	2014		2013
Transfers of account receivables that do not qualify for derecognition	￦	—		203,138

(c)	Current portion of long-term borrowings as of December 31, 2014 and 2013 are as follows:

(in millions of Won)

Issuance

Maturity

Annual

Lenders

date

interest rate (%)

2014

2013

Borrowings

Woori Bank and others

2006.10.31~

2011.04.28

2017.03.15~

2024.06.15

0.75~1.75

￦

15,532

14,969

Borrowings

Export-Import Bank of korea

2010.02.18~

2011.03.23

2015.09.23~

2017.07.26

4.09~4.50

221,021

173,412

Loans from foreign financial institutions

NATIXIS(*1)

1986.03.31

2017.03.31

2.00

418

927

Debentures

Domestic debentures 294 and another

2010.08.04~

2010.11.16

2015.08.04~

2015.11.16

4.38~4.81

999,319

499,975

Debentures

Global fund 1 and another

—

1,038,862

￦

1,236,290

1,728,145

(*1)	As of December 31, 2014, Korea Development Bank has provided guarantees to the Company for loans from foreign financial institutions.

(d)	Long-term borrowings excluding current portion, as of December 31, 2014 and 2013 are as follows:

(in millions of Won)

Issuance

Maturity

Annual

Lenders

date

interest rate (%)

2014

2013

Borrowings

Woori Bank and others(*1)

2006.10.31~

2013.05.08

2017.03.15~

2041.05.08

0.75~1.75

￦

55,662

71,194

Borrowings

Korea National Oil Corporation

2007.12.27~

2013.12.30

2022.06.25~

2026.12.29

3year

Government bond

14,159

13,593

Borrowings

Export-Import Bank of korea

2010.07.26~

2013.07.03

2017.07.26~

2018.03.23

4.09~4.50

377,616

563,464

Loans from foreign financial institutions

NATIXIS(*2)

1986.03.31

2017.03.31

2.00

627

1,140

Debentures

Domestic debentures 297 and others

2011.03.04~

2013.10.04

2016.03.04~

2023.10.04

3.35~4.65

2,295,585

3,292,417

Debentures

Samurai Bond 11 and others

2006.08.10~

2013.12.11

2016.08.20~

2021.12.22

0.93~5.88

2,557,278

2,789,980

￦

5,300,927

6,731,788

(*1)	Short-term financial instruments amounting to ￦5,200 million and ￦4,700 million as of December 31, 2014 and 2013, respectively, are collateralized for long-term borrowings from the National Forestry Cooperative Federation.

(*2)	As of December 31, 2014, Korea Development Bank has provided guarantees to the Company for loans from foreign financial institutions.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

17. Other Payables

Other payables as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014		2013
Current
Accounts payable	￦	627,337		463,196
Accrued expenses		386,014		306,723
Dividend payable		9,523		9,180
Finance lease liabilities		1,218		1,124
Withholdings		8,404		11,660

	￦	1,032,496		791,883

Non-current
Long-term accounts payable	￦	54,131		91,827
Accrued expenses		22,767		22,922
Finance lease liabilities		4,006		5,042
Long-term withholdings		7,903		4,888

	￦	88,807		124,679

18. Other Financial Liabilities

Other financial liabilities as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014		2013
Current
Derivative liabilities	￦	—		36,964
Financial guarantee liabilities		9,236		9,045

	￦	9,236		46,009

Non-current
Derivative liabilities	￦	—		175,463
Financial guarantee liabilities		50,574		56,076

	￦	50,574		231,539

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

19. Provisions

(a)	Provisions as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014				2013
	Current		Non-current		Current		Non-current
Estimated allowance(*1)	￦	8,423		—		8,501		—
Provision for restoration(*2)		39,336		31,063		—		—
Provision for litigation(*3)		—		411		—		—

	￦	47,759		31,474		8,501		—

(*1)	Represents the provision for bonuses for executives.

(*2)

Due to contamination of the land near the Company’s magnesium plant located in Gangneung, the Company recognized a provision of ￦89,433 million related to restoration costs. When estimating the related costs, the Company has assumed that it would use all of technologies and materials available to restore the land. In addition, the Company has applied a discount rate of 3.04% to measure the present value of these costs.

(*3)	The Company has recognized a provision for several litigations based on the Company’s estimates.

(b)	Changes in provisions for the years ended December 31, 2014 and 2013 were as follows:

1)	For the year ended December 31, 2014


(in millions of Won)	Beginning		Increase		Utilization			Ending
Estimated allowance at the end of period	￦	8,501		10,643		(10,721	)		8,423
Provision for restoration at the end of period		—		89,433		(19,034	)		70,399
Provision for litigation at the end of period		—		411		—			411

	￦	8,501		100,487		(29,755	)		79,233

2)	For the year ended December 31, 2013


(in millions of Won)	Beginning		Increase		Utilization			Ending
Estimated allowance at the end of period	￦	6,239		12,428		(10,166	)		8,501

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

20. Employee Benefits

(a)	Defined contribution plans

The expense related to post-employment benefit plans under defined contribution plans for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014		2013
Expense related to post-employment benefit plans under defined contribution plans	￦	18,229		15,903

(b)	Defined benefit plans

1)	The amounts recognized in relation to net defined benefit liabilities in the statements of financial position as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014			2013
Present value of funded obligations	￦	1,017,164			905,918
Fair value of plan assets		(931,006	)		(805,268	)

Net defined benefit liabilities	￦	86,158			100,650

2)	Changes in present value of defined benefit obligations for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014			2013
Defined benefit obligation at the beginning of period	￦	905,918			817,618
Current service costs		113,688			118,975
Interest costs		32,595			27,942
Remeasurement:		47,604			11,553
- Loss from change in financial assumptions		36,238			13,555
- Loss (Gain) from change in demographic assumptions		11,366			(2,002	)
Transfer-in		1,959			—
Benefits paid		(84,600	)		(70,170	)

Defined benefit obligation at the end of period	￦	1,017,164			905,918

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

3)	Changes in the fair value of plan assets for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014			2013
Fair value of plan assets at the beginning of period	￦	805,268			677,362
Interest on plan assets		31,911			24,261
Remeasurement of plan assets		(8,417	)		86
Contributions to plan assets		146,000			140,000
Transfer-in		1,959			—
Benefits paid		(45,715	)		(36,441	)

Fair value of plan assets at the end of period	￦	931,006			805,268

The Company expects to make an estimated contribution of 146,000 million to the defined benefit plan assets in 2015.

4)	The fair value of plan assets as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014		2013
Debt instruments	￦	125,353		—
Deposits		749,749		805,202
Others		55,904		66

Total	￦	931,006		805,268

5)	The amounts recognized in the statements of comprehensive income for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014		2013
Current service costs	￦	113,688		118,975
Net interest costs(*1)		684		3,681

	￦	114,372		122,656

(*1)	The actual return on plan assets amounted to ￦23,494 million and ￦24,347 million for the years ended December 31, 2014 and 2013, respectively.

The above expenses by function were as follows:


(in millions of Won)	2014		2013
Cost of sales	￦	90,993		97,490
Selling and administrative expenses		23,121		23,834
Others		258		1,332

Total	￦	114,372		122,656

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

6)	Actuarial gains (losses), net of tax recognized in other comprehensive income for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014			2013
Beginning	￦	(158,462	)		(149,770	)
Current actuarial losses		(56,021	)		(11,467	)
Tax effects		13,557			2,775

Ending	￦	(200,926	)		(158,462	)

7)	The principal actuarial assumptions as of December 31, 2014 and 2013 are as follows:


	2014			2013
Discount rate		2.96	%		3.95	%
Expected future increases in salaries(*1)		2.80	%		3.30	%

(*1)	The expected future increases in salaries are based on the average salary increase rate for the past three years.

8)	Reasonably possible changes at the reporting date to one of the relevant actuarial assumption, holding other assumptions constant, would have affected the defined benefit obligation by the amounts shown below:


(in millions of Won)	1% Increase						1% Decrease
	Amount			Percentage (%)			Amount			Percentage (%)
Discount rate	￦	(73,296	)		(7.2	)		91,644			9.0
Expected future increases in salaries		90,883			8.9			(74,078	)		(7.3	)

9)	As of December 31, 2014 the maturity of the expected benefit payments are as follows:


(in millions of Won)	Within 1 year		1 year - 5 years		5 years - 10 years		10 years - 20 years		After 20 years		Total
Benefits paid	￦	201		69,783		379,347		670,110		190,989		1,310,430

The maturity analysis of the defined benefit obligation were nominal amounts of defined benefit obligations using expected remaining working lives of employees.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

21. Other Liabilities

Other liabilities as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014		2013
Current
Advances received	￦	88,880		20,912
Withholding		18,417		15,905
Unearned revenue		1,211		1,292

		108,508		38,109

Non-current
Unearned revenue		234		538
Others		—		3,000

	￦	234		3,538

22. Financial Instruments

(a)	Classification of financial instruments

Financial assets as of December 31, 2014 and 2013 are as follows:


(in millions of Won)
	2014		2013
Financial assets at fair value through profit or loss
Derivatives assets held for trading	￦	10,233		7,788
Available-for-sale financial assets		1,785,029		3,354,770
Loans and receivables		6,024,798		7,263,709

	￦	7,820,060		10,626,267

Financial liabilities as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014		2013
Financial liabilities at fair value through profit or loss
Derivatives liabilities held for trading	￦	—		212,427

Financial liabilities measured at amortized cost
Trade accounts and notes payable		777,401		735,457
Borrowings		6,537,217		8,663,071
Financial guarantee liabilities(*1)		59,810		65,121
Others		1,036,487		916,562

		8,410,915		10,380,211

	￦	8,410,915		10,592,638

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

(*1)	Financial liabilities were recognized in connection with financial guarantee contracts as of December 31, 2014. The details of the amount of guarantees provided are as follows:


(in millions of Won)
Guarantee beneficiary	Financial institution	Foreign currency		Won equivalent
POSCO(Guangdong)	BOA	USD	30,000,000		32,976
Automotive Steel Co., Ltd.	SMBC	USD	35,000,000		38,472
Zhangjiagang Pohang	BTMU	USD	30,000,000		32,976
Stainless Steel Co., Ltd.	Credit Agricole	USD	50,000,000		54,960
	Mizuho	USD	50,000,000		54,960
POSCO Maharashtra	Citi	USD	60,000,000		65,952
Steel Private Limited	DBS	USD	100,000,000		109,920
	HSBC	USD	80,000,000		87,936
	ING	USD	30,000,000		32,976
	KDB	USD	30,000,000		32,976
	Export-Import Bank of Korea	USD	193,000,000		212,146
	SCB	USD	73,069,000		80,317
POSCO ASSAN TST	KDB	USD	50,000,000		54,960
STEEL INDUSTRY	SMBC	USD	71,392,500		78,475
	ING	USD	45,000,000		49,464
	HSBC	USD	27,000,000		29,678
POSCO Electrical Steel	SCB	USD	33,784,000		37,135
India Private Limited	ING	USD	50,000,000		54,960
POSCO Investment Co., Ltd.	BOC	CNY	350,000,000		62,031
	BOA	USD	45,000,000		49,464
	BTMU	USD	30,000,000		32,976
	HSBC	USD	50,000,000		54,960
	ING	USD	30,000,000		32,976
	JP Morgan	USD	50,000,000		54,960
	SCB	USD	45,000,000		49,464
	SMBC	USD	30,000,000		32,976
	Mizuho	USD	50,000,000		54,960
POSCO MEXICO S.A. DE C.V.	BOA	USD	40,000,000		43,968
	HSBC	USD	40,000,000		43,968
	KDB	USD	50,000,000		54,960
	Mizuho	USD	45,000,000		49,464
	SMBC	USD	109,725,000		120,610
POSCO-VIETNAM Co., Ltd.	Export-Import Bank of Korea	USD	196,000,000		215,443
	HSBC	USD	30,000,000		32,976
	Mizuho	USD	16,000,000		17,587
POSCO VST CO., LTD.	ANZ	USD	25,000,000		27,480
	HSBC	USD	20,000,000		21,984
	Mizuho	USD	20,000,000		21,984
LLP POSUK Titanium	Kookmin Bank	USD	15,000,000		16,488
PT. KRAKATAU POSCO	ANZ	USD	73,500,000		80,791
	BOA	USD	35,000,000		38,472
	BTMU	USD	119,000,000		130,805
	Credit Suisse AG	USD	91,000,000		100,027
	HSBC	USD	91,000,000		100,027
	Export-Import Bank of Korea	USD	567,000,000		623,246
	Mizuho	USD	105,000,000		115,416
	SCB	USD	107,800,000		118,494
	SMBC	USD	140,000,000		153,888
	CTBC	USD	21,000,000		23,083
CSP - Compania	KDB	USD	56,666,667		62,288
Siderurgica do Pecem

		USD	3,381,937,167		3,717,424
		CNY	350,000,000		62,031

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

Finance income and costs by category of financial instrument for the years ended December 31, 2014 and 2013 were as follows:

For the year ended December 31, 2014


(in millions of Won)	Finance income and costs																				Other comprehensive income (loss)
	Interest income (cost)			Dividend income		Gain and loss on foreign currency			Gain and loss on disposal			Impairment loss			Others			Total			Other comprehensive income (loss)
Financial assets at fair value through profit or loss	￦	—			—		—			—			—			2,445			2,445			—
Available-for-sale financial assets		298			41,342		—			226,215			(352,040	)		—			(84,185	)		(309,897	)
Loans and receivables		92,774			—		65,667			—			—			(648	)		157,793			—
Financial liabilities at fair value through profit or loss		—			—		—			(24,123	)		—			—			(24,123	)		—
Financial liabilities at amortized cost		(256,636	)		—		(26,749	)		(38,596	)		—			(257	)		(322,238	)		—

	￦	(163,564	)		41,342		38,918			163,496			(352,040	)		1,540			(270,308	)		(309,897	)

Finance income in the statement of comprehensive income includes the dividends from subsidiaries, associates, and joint ventures of ￦306,833 million for the year ended December 31, 2014.

‚

For the year ended December 31, 2013


(in millions of Won)	Finance income and costs																					Other comprehensive income (loss)
	Interest income (cost)			Gain and loss on valuation			Gain and loss on foreign currency			Gain and loss on disposal			Impairment loss			Others			Total			Other comprehensive income (loss)
Financial assets at fair value through profit or loss	￦	—			1,773			—			8,869			—			—			10,642			—
Available-for-sale financial assets		4,568			—			—			97,013			(170,805	)		45,829			(23,395	)		400,577
Held-to-maturity investments		367			—			—			—			—			—			367			—
Loans and receivables		101,737			—			(19,619	)		(80	)		—			(898	)		81,140			—
Financial liabilities at fair value through profit or loss		—			(195,719	)		—			—			—			—			(195,719	)		—
Financial liabilities at amortized cost		(271,020	)		—			304,629			—			—			(314	)		33,295			—

	￦	(164,348	)		(193,946	)		285,010			105,802			(170,805	)		44,617			(93,670	)		400,577

Finance income in the statement of comprehensive income includes the dividends from subsidiaries, associates, and joint ventures of ￦142,383 million for the year ended December 31, 2013.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

(b)	Credit risk

Credit risk exposure

The carrying amount of financial assets represents the Company’s maximum exposure to credit risk. The maximum exposure to credit risk as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014		2013
Cash and cash equivalents	￦	1,742,767		1,394,315
Financial assets at fair value through profit or loss		10,233		7,788
Available-for-sale financial assets		17,408		20,855
Loans and other receivables		1,100,924		2,471,486
Trade accounts and notes receivable		3,157,266		3,393,444
Long-term trade accounts and notes receivable		23,841		4,464

	￦	6,052,439		7,292,352

The Company provided financial guarantee for the repayment of loans of subsidiaries, associates, and joint ventures. As of December 31, 2014 and 2013, the maximum exposure to credit risk caused by financial guarantee amounted to ￦3,779,455 million and ￦3,579,693 million, respectively.

Impairment losses on financial assets

Allowance for doubtful accounts as of December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014		2013
Trade accounts and note receivable	￦	9,982		10,100
Other accounts receivable		10,533		10,571
Long-term loans		—		14,453
Other assets		—		13

	￦	20,515		35,137

‚

Impairment losses on financial assets for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014		2013
Bad debt expenses	￦	19,605		3,980
Impairment loss on available-for-sale securities		352,040		170,805

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

The aging and impairment losses of trade accounts and notes receivable as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014				2013
	Trade accounts and notes receivable		Impairment		Trade accounts and notes receivable		Impairment
Not due	￦	3,025,296		—		3,072,283		—
Over due less than 1 month		46,656		57		68,759		58
1 month - 3 months		12,468		212		26,657		674
3 months - 12 months		8,061		46		174,479		1,241
Over 12 months		98,608		9,667		65,830		8,127

	￦	3,191,089		9,982		3,408,008		10,100

„

Changes in the allowance for doubtful accounts for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014			2013
Beginning	￦	35,137			37,241
Bad debt expenses		19,605			3,980
Others		(34,227	)		(6,084	)

Ending	￦	20,515			35,137

(c)	Liquidity risk

Contractual maturities for non-derivate financial liabilities, including estimated interest, are as follows:


(in millions of Won)	Book value		Cash flow for contracts		Not later than 3 month		3 month - 6 months		6 months - 1 year		1 year - 5 years		After 5 years
Trade accounts payable	￦	777,401		777,401		777,401		—		—		—		—
Borrowings		6,537,217		7,489,767		171,824		83,008		1,248,159		4,447,408		1,539,368
Financial guarantee liabilities(*1)		59,810		3,779,455		3,779,455		—		—		—		—
Other financial liabilities		1,036,487		1,038,275		938,357		303		9,020		90,595		—

	￦	8,410,915		13,084,898		5,667,037		83,311		1,257,179		4,538,003		1,539,368

(*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.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

(d)	Currency risk


(in millions of Won)	2014				2013
	Assets		Liabilities		Assets		Liabilities
USD	￦	988,023		2,839,040		701,159		3,815,529
JPY		56,037		721,588		450,938		1,370,603
CNH		—		—		76,678		—
INR		365,705		—		34,513		—
Others		15,677		1,725		11,032		3,357

	￦	1,425,442		3,562,353		1,274,320		5,189,489

As of December 31, 2014 and 2013, provided that functional currency against foreign currencies other than functional currency hypothetically strengthens or weakens by 10%, the changes in gain or loss for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014						2013
	10% increase			10% decrease			10% increase			10% decrease
USD	￦	(185,102	)		185,102			(311,437	)		311,437
JPY		(66,555	)		66,555			(91,967	)		91,967
CNH		—			—			7,668			(7,668	)
INR		36,571			(36,571	)		3,451			(3,451	)

(e)	Interest rate risk

The carrying amount of interest-bearing financial instruments as of December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014			2013
Fixed rate
Financial assets	￦	2,478,673			3,773,978
Financial liabilities		(6,469,632	)		(8,580,517	)

	￦	(3,990,959	)		(4,806,539	)

Variable rate
Financial liabilities	￦	(67,585	)		(82,554	)

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

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

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


(in millions of Won)	2014					2013
	1% increase			1% decrease		1% increase			1% decrease
Variable rate financial instruments	￦	(676	)		676		(826	)		826

(f)	Fair value

Fair value and book value

The carrying amount and the fair value of financial instruments as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014				2013
	Book value		Fair value		Book value		Fair value
Assets measured at fair value
Available-for-sale financial assets(*1)	￦	1,648,567		1,648,567		3,224,711		3,224,711
Derivatives assets held for trading(*2)		10,233		10,233		7,788		7,788

		1,658,800		1,658,800		3,232,499		3,232,499

Assets measured amortized cost(*3)
Cash and cash equivalents		1,742,767		1,742,767		1,394,315		1,394,315
Trade accounts and note receivable, net		3,181,107		3,181,107		3,397,908		3,397,908
Loans and other receivables		1,100,924		1,100,924		2,471,486		2,471,486

		6,024,798		6,024,798		7,263,709		7,263,709

Liabilities measured at fair value
Derivatives liabilities held for trading(*2)		—		—		212,427		212,427

Liabilities measured amortized cost(*3)
Trade accounts and notes payable		777,401		777,401		735,457		735,457
Borrowings		6,537,217		6,918,972		8,663,071		8,943,063
Financial guarantee liabilities		59,810		59,810		65,121		65,121
Others		1,036,487		1,036,487		916,562		916,562

	￦	8,410,915		8,792,670		10,380,211		10,660,203

(*1)

(*2)	The fair value of derivatives is measured using valuation models such as Black-Scholes model and others in which the market yields on government bonds are used as a discount rate.

(*3)

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

Interest rate for determining fair value

Interest rates used to discount the estimated cash flows as of December 31, 2014 and 2013 are as follows:


	2014	2013
Borrowings	0.74%~3.69%	0.76%~4.08%

The fair value hierarchy

The fair value of financial instruments by fair value hierarchy as of December 31, 2014 and 2013 are as follows:

December 31, 2014


(in millions of Won)	Level 1		Level 2		Level 3		Total
Financial assets
Available-for-sale financial assets	￦	1,620,390		—		28,177		1,648,567
Derivatives assets held for trading		—		10,233		—		10,233

	￦	1,620,390		10,233		28,177		1,658,800

December 31, 2013


(in millions of Won)	Level 1		Level 2		Level 3		Total
Financial assets
Available-for-sale financial assets	￦	2,554,421		—		670,290		3,224,711
Derivatives assets held for trading		—		7,788		—		7,788

		2,554,421		7,788		670,290		3,232,499

Financial liabilities
Derivatives liabilities held for trading	￦	—		212,427		—		212,427

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

‚

Changes in financial assets classified as level 3 for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014			2013
Beginning	￦	670,290			671,025
Acquisition		2,675			6,857
Other comprehensive income (loss)		117,804			(4,015	)
Impairment		(169,519	)		(3,577	)
Disposal and others(*1)		(593,073	)		—

Ending	￦	28,177			670,290

(*1)	Included ￦580,062 million transfer to assets held for sale for the year ended December 31, 2014.

23. Share Capital and Capital Surplus

(a)	Share capital as of December 31, 2014 and 2013 are as follows:


(Share, Won)	2014		2013
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, 2014, total numbers of ADRs of 51,622,460 are equivalent to 12,905,615 shares of common stock.

(*2)	As of December 31, 2014 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, 2014 and 2013 were as follows:


(Share)	2014							2013
	Issued shares		Treasury shares			Number of outstanding shares		Issued shares		Treasury shares			Number of outstanding shares
Beginning	￦	87,186,835		(7,403,211	)		79,783,624		87,186,835		(9,942,391	)		77,244,444
Disposal of treasury shares		—		209,404			209,404		—		2,539,180			2,539,180
Ending		87,186,835		(7,193,807	)		79,993,028		87,186,835		(7,403,211	)		79,783,624

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

(c)	Capital surplus as of December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014		2013
Additional paid in capital	￦	463,825		463,825
Gain on disposal of treasury shares		783,791		769,215

	￦	1,247,616		1,233,040

24. Hybrid Bonds

(a)	Hybrid bonds classified as equity as of December 31, 2014 were as follows:


(in millions of Won)	Date of issue	Date of maturity	Rate of interest (%)		2014			2013
Hybrid bond 1-1(*1)	2013-06-13	2043-06-13		4.30	￦	800,000			800,000
Hybrid bond 1-2(*1)	2013-06-13	2043-06-13		4.60		200,000			200,000
Issuance cost						(3,081	)		(3,081	)

					￦	996,919			996,919

(*1)	Details of hybrid bonds as of December 31, 2014 are as follows:


(in millions of Won)	Hybrid bond 1-1	Hybrid bond 1-2
Issue price	800,000	200,000
Maturity date	30 years (The Company has a right to extend the maturity date)	30 years (The Company has a right to extend the maturity date)
Interest rate	Issue date ~ 2018-06-12: 4.3% reset every 5 years as follows;	Issue date ~ 2023-06-12: 4.6% reset every 10 years as follows;
	• After 5 years: return on government bond (5 years) + 1.3%	• After 10 years: return on government bond (10 years) + 1.4%
	• After 10 years: additionally + 0.25% according to Step-up clauses	• After 10 years: additionally + 0.25% according to Step-up clauses
	• After 25 years: additionally + 0.75%	• After 30 years: additionally + 0.75%
Interest payments condition	Quarterly (Optional deferral of interest payment is available to the Company)	Quarterly (Optional deferral of interest payment is available to the Company)
Others	The Company can call the hybrid bond at year 5 and interest payment date afterwards	The Company can call the hybrid bond at year 10 and interest payment date afterwards

The Company holds the right to extend the maturity dates of the hybrid bonds and to defer interest payments for the hybrid bonds. If interest payments for the hybrid bonds are deferred, the Company cannot declare or pay dividends attributable to common stock. Since the Company has an unconditional right to avoid delivering cash or another financial asset to settle a contractual obligation, the hybrid bonds have been classified as equity instruments. The interest accumulated but not paid on the hybrid bonds as of December 31, 2014 amounts to ￦2,301 million.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

25. Reserves

(a)	Reserves as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014		2013
Accumulated changes in the unrealized fair value of available-for-sale investments, net of tax	￦	94,042		403,939

(b)	Changes in the accumulated unrealized fair value of available-for-sale investments for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014			2013
Beginning balance	￦	403,939			3,362
Changes in unrealized fair value of available-for-sale investments		(523,168	)		467,942
Reclassification to profit or loss upon disposal		(237,708	)		(93,976	)
Impairment of available-for-sale securities		352,040			170,805
Tax effects		98,939			(144,194	)

Ending balance	￦	94,042			403,939

26. 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, 2014 and 2013 were as follows:


(shares, in millions of Won)	2014						2013
	Number of shares			Amount			Number of shares			Amount
Beginning		7,403,211		￦	1,579,124			9,942,391		￦	2,391,406
Disposal of treasury shares		(209,404	)		(44,667	)		(2,539,180	)		(812,283	)

Ending		7,193,807		￦	1,534,457			7,403,211		￦	1,579,123

27. Retained Earnings

(a)	Retained earnings as of December 31, 2014 and 2013 are summarized as follows:


(in millions of Won)	2014		2013
Legal reserve	￦	241,202		241,202
Reserve for business rationalization		918,300		918,300
Reserve for research and manpower development		1,600,000		1,573,333
Appropriated retained earnings for business expansion		35,510,500		34,310,500
Appropriated retained earnings for dividends		1,806,570		2,044,113
Unappropriated retained earnings		1,112,336		1,686,836

	￦	41,188,908		40,774,284

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

(b)	Statements of appropriation of retained earnings as of December 31, 2014 and 2013 are as follows:


(in millions of Won)	2014			2013
Retained earnings before appropriation
Unappropriated retained earnings carried over from prior year	￦	219,010			291,582
Actuarial losses		(42,464	)		(8,692	)
Interests of Hybrid bonds		(43,600	)		(24,161	)
Interim dividends		(159,568	)		(154,489	)
Dividends (ratio) per share
￦2,000 (40%) in 2014
￦2,000 (40%) in 2013
Profit for the period		1,138,958			1,582,596

		1,112,336			1,686,836
Transfer from discretionary reserve
Reserve for research and manpower development		493,333			383,333
Appropriated retained earnings for dividends		354,787			237,543

		848,120			620,876
Appropriation of retained earnings
Cash dividends
Dividends (ratio) per share		479,958			478,702
￦6,000 (120%) in 2014
￦6,000 (120%) in 2013
Reserve for research and manpower development		—			410,000
Appropriated retained earnings for business expansion		1,200,000			1,200,000

		1,679,958			2,088,702

Unappropriated retained earnings carried forward to subsequent year	￦	280,498			219,010

28. Revenue

Details of revenue for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014		2013
Revenues
Sales of goods	￦	29,105,087		30,436,474
Others		113,767		107,071

	￦	29,218,854		30,543,545

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

29. Selling and Administrative Expenses

(a)	Administrative expenses

Administrative expenses for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014		2013
Wages and salaries	￦	204,989		198,726
Expenses related to post-employment benefits		24,224		23,994
Other employee benefits		53,388		44,630
Travel		13,599		14,906
Depreciation		23,430		25,074
Amortization		52,923		18,126
Rental		68,859		54,931
Repairs		10,918		13,623
Advertising		85,486		89,584
Research & development		137,433		150,786
Service fees		184,215		183,053
Vehicles maintenance		7,046		7,012
Industry association fee		7,252		7,710
Training		10,157		9,593
Conference		5,209		4,956
Bad debt expenses		7,976		3,980
Others		36,880		42,282

	￦	933,984		892,966

(b)	Selling expenses

Selling expenses for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014		2013
Freight and custody expenses	￦	872,594		842,424
Operating expenses for distribution center		9,823		9,370
Sales commissions		79,091		70,397
Sales advertising		4,698		3,145
Sales promotion		5,161		6,375
Sample		1,649		1,247
Sales insurance premium		6,170		7,871

	￦	979,186		940,829

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

30. Research and Development Expenditures Recognized as Expense

Research and development expenditures recognized as expenses for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014		2013
Selling and administrative expenses	￦	137,433		150,786
Cost of sales		343,516		364,876

	￦	480,949		515,662

31. Reconciliation of Operating Profit

The operating profit in the Company’s separate statements of comprehensive income prepared in accordance with K-IFRS differs from that in its separate statements of comprehensive income prepared in accordance with IFRS as issued by IASB. The table below sets forth a reconciliation of the Company’s results from operating activities as presented in the Company’s separate statements of comprehensive income prepared in accordance with K-IFRS for each of the years ended December 31, 2014 and 2013 to the operating profit as presented in the Company’s separate statements of comprehensive income prepared in accordance with IFRS as issued by IASB for each of the corresponding years.


(in millions of Won)	2014			2013
Operating profits on the statement of comprehensive income (K-IFRS) (Note 33)	￦	2,350,035			2,215,133

Add
Gain on disposals of property, plant and equipment		8,882			6,773
Reversal of impairment loss on intangible assets		2,256			—
Gain on disposals of investment in subsidiaries, associates and joint ventures		—			14,544
Gain on disposals of assets held for sale		—			67,875
Reversal of allowance for doubtful accounts		14,453			—
Others		21,273			50,856

		46,864			140,048

Deduct
Loss on disposals of property, plant and equipment		(57,777	)		(94,533	)
Impairment loss on property, plant and equipment		(30,334	)		(5,697	)
Loss on disposals of intangible assets		(367	)		(315	)
Impairment loss on intangible assets		(1,666	)		(581	)
Loss on disposals of investment in subsidiaries, associates and joint ventures		—			(12,295	)
Impairment loss on investment in subsidiaries, associates and joint ventures		(209,795	)		(235,794	)
Impairment loss on assets held for sale		—			(1,814	)
Other bad debt expenses		(26,082	)		—
Contribution to provisions		(89,844	)		—
Donations		(50,654	)		(40,319	)
Others		(245,512	)		(27,251	)

		(712,031	)		(418,599	)

Operating profit (IFRS as issued by IASB)	￦	1,684,868			1,936,582

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

32. Finance Income and Costs

Details of finance income and costs for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014		2013
Finance income
Interest income	￦	93,072		106,672
Dividend income		348,175		188,212
Gain on derivative transactions		22,973		9,144
Gain on foreign currency transactions		276,374		299,574
Gain on foreign currency translations		79,956		264,614
Gain on disposals of available-for-sale investment		226,299		97,085
Others		3,945		1,772

	￦	1,050,794		967,073

Finance costs
Interest expenses	￦	256,636		271,020
Loss on foreign currency transactions		209,787		261,019
Loss on foreign currency translations		107,625		18,159
Loss on valuation of derivatives		—		195,719
Impairment loss on available-for-sale investment		352,040		170,805
Others		88,181		1,638

	￦	1,014,269		918,360

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

33. Other Non-Operating Income and Expenses

Details of other non-operating income and expenses for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014		2013
Other non-operating income
Gain on disposals of property, plant and equipment	￦	8,882		6,773
Reversal of impairment loss on intangible assets		2,256		—
Gain on disposals of investment in subsidiaries, associates and joint ventures		—		14,544
Gain on disposals of assets held for sale		—		67,875
Reversal of allowance for doubtful accounts		14,453		—
Others		21,273		50,856

		46,864		140,048

Other non-operating expenses
Loss on disposals of property, plant and equipment		57,777		94,533
Impairment loss on property, plant and equipment		30,334		5,697
Loss on disposals of intangible assets		367		315
Impairment loss on intangible assets		1,666		581
Loss on disposals of investment in subsidiaries, associates and joint ventures		—		12,295
Impairment loss on investment in subsidiaries, associates and joint ventures		209,795		235,794
Impairment loss on assets held for sale		—		1,814
Other bad debt expenses		26,082		—
Contribution to provisions		89,844		—
Donations		50,654		40,319
Others(*1)		245,512		27,251

	￦	712,031		418,599

(*1)	As a result of Korea National Tax Service’s periodic audit of tax payments and refunds of the Company, the Company recognized additional tax payments amounting to ￦202,739 million, primarily related to VAT, for the year ended December 31, 2014.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

34. Expenses by Nature

Expenses that are recorded by nature as cost of sales, selling and administrative expenses and other non-operating expenses in the statements of comprehensive income for the years ended December 31, 2014 and 2013 were as follows (excluding finance costs and income tax expenses):


(in millions of Won)	2014			2013
Changes in inventories(*1)	￦	(81,303	)		304,068
Raw materials and consumables used		17,648,525			19,380,227
Employee benefits expenses(*3)		1,462,675			1,425,008
Outsourced processing cost		2,204,385			2,078,917
Depreciation(*2)		2,067,793			1,932,002
Amortization		74,112			38,067
Electricity and water expenses		1,019,769			836,199
Service fees		240,493			243,954
Rental		87,466			76,152
Advertising		85,486			89,584
Freight and custody expenses		872,594			842,424
Sales commissions		79,091			70,397
Loss on disposals of property, plant and equipment		57,777			94,533
Impairment loss on investments in subsidiaries, associates and joint ventures		209,795			235,794
Contribution to provisions		89,844			—
Other expenses		1,462,348			1,099,685

	￦	27,580,850			28,747,011

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

(*2)	Includes depreciation of investment property.

(*3)	The details of employee benefits expenses for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014		2013
Wages and salaries	￦	1,330,074		1,286,449
Expenses related to post-employment benefits		132,601		138,559

	￦	1,462,675		1,425,008

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

35. Income Taxes

(a)	Income tax expense for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014		2013
Current income taxes	￦	461,029		291,035
Deferred income taxes		13,564		254,790
Items credited directly to shareholders’ equity		107,842		(143,126	)

Income tax expense	￦	582,435		402,699

(b)	The calculated income tax expense based on statutory rates compared to the actual amount of taxes recorded by the Company for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014			2013
Profit before income tax expense	￦	1,721,393			1,985,295
Income tax expense computed at statutory rate		416,115			480,441
Adjustments:
Tax credit		(31,947	)		(134,670	)
Adjustments on prior year tax from tax audit		15,572			—
Under(over) provision from prior years		(2,957	)		2,253
Tax effects due to amendments to local income tax law		38,249			—
Investment in subsidiaries, associates and joint ventures		118,993			57,823
Tax effect due to permanent differences		31,132			(11,071	)
Others		(2,722	)		7,923

		166,320			(77,742	)

Income tax expense	￦	582,435			402,699

Effective tax rate (%)		33.8	%		20.3	%

(c)	The income taxes credited (charged) directly to equity for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014			2013
Net changes in the unrealized fair value of available-for-sale securities	￦	98,939			(144,194	)
Defined benefit plan actuarial losses		13,557			2,775
Gain on disposal of treasury shares		(4,654	)		(1,707	)

	￦	107,842			(143,126	)

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

(d)	The movements in deferred tax assets (liabilities) for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014									2013
	December 31, 2013			Increase (decrease)			December 31, 2014			December 31, 2012			Increase (decrease)			December 31, 2013
Deferred income tax due to temporary differences
Reserve for special repairs	￦	(28,462	)		16,049			(12,413	)		(29,013	)		551			(28,462	)
Reserve for technology developments		(375,100	)		119,387			(255,713	)		(368,647	)		(6,453	)		(375,100	)
PPE - Depreciation		(48,133	)		8,982			(39,151	)		(56,394	)		8,261			(48,133	)
Prepaid expenses		27,680			(10,253	)		17,427			29,781			(2,101	)		27,680
PPE - Revaluation		(1,002,798	)		(210,911	)		(1,213,709	)		(789,056	)		(213,742	)		(1,002,798	)
Loss on foreign currency translation		(174,930	)		126,516			(48,414	)		(52,508	)		(122,422	)		(174,930	)
Defined benefit obligations		184,389			31,757			216,146			157,559			26,830			184,389
Plan assets		(194,925	)		(26,291	)		(221,216	)		(161,152	)		(33,773	)		(194,925	)
Accrued revenue		(1,932	)		1,054			(878	)		(2,575	)		643			(1,932	)
Impairment loss on AFS		81,816			23,095			104,911			40,482			41,334			81,816
Difference in acquisition costs of treasury stocks		64,213			(2,074	)		62,139			20,378			43,835			64,213
Others		144,399			(49,229	)		95,170			101,809			42,590			144,399

		(1,323,783	)		28,082			(1,295,701	)		(1,109,336	)		(214,447	)		(1,323,783	)

Deferred tax from tax credit
Tax credit carry-forward		368,053			(154,142	)		213,911			266,977			101,076			368,053

		368,053			(154,142	)		213,911			266,977			101,076			368,053

Deferred income taxes recognized directly to equity
Loss (gain) on valuation of available-for-sale securities		(128,962	)		98,939			(30,023	)		15,232			(144,194	)		(128,962	)
Defined benefit plan actuarial losses		50,590			13,557			64,147			47,815			2,775			50,590

		(78,372	)		112,496			34,124			63,047			(141,419	)		(78,372	)

	￦	(1,034,102	)		(13,564	)		(1,047,666	)		(779,312	)		(254,790	)		(1,034,102	)

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

(e)	Deferred tax assets (liabilities) as of December 31, 2014, December 31, 2013 are as follows:


(in millions of Won)	2014								2013
	Assets		Liabilities			Net			Assets		Liabilities			Net
Deferred income tax due to temporary differences
Reserve for special repairs	￦	—		(12,413	)		(12,413	)		—		(28,462	)		(28,462	)
Reserve for technology developments		—		(255,713	)		(255,713	)		—		(375,100	)		(375,100	)
PPE - Depreciation		12,688		(51,839	)		(39,151	)		12,961		(61,094	)		(48,133	)
Prepaid expenses		17,427		—			17,427			27,680		—			27,680
PPE - Revaluation		—		(1,213,709	)		(1,213,709	)		—		(1,002,798	)		(1,002,798	)
Loss on foreign currency translation		74,104		(122,518	)		(48,414	)		60,196		(235,126	)		(174,930	)
Defined benefit obligations		216,146		—			216,146			184,389		—			184,389
Plan assets		—		(221,216	)		(221,216	)		—		(194,925	)		(194,925	)
Accrued revenue		—		(878	)		(878	)		—		(1,932	)		(1,932	)
Impairment loss on AFS		104,911		—			104,911			81,816		—			81,816
Difference in acquisition costs of treasury stocks		62,139		—			62,139			64,213		—			64,213
Others		186,164		(90,994	)		95,170			157,303		(12,904	)		144,399

		673,579		(1,969,280	)		(1,295,701	)		588,558		(1,912,341	)		(1,323,783	)

Deferred tax from tax credit
Tax credit carry-forward		213,911		—			213,911			368,053		—			368,053

Deferred income taxes recognized directly to equity
Loss (gain) on valuation of available-for-sale securities		15,509		(45,532	)		(30,023	)		40,404		(169,366	)		(128,962	)
Defined benefit plan actuarial losses		64,147		—			64,147			50,590		—			50,590

		79,656		(45,532	)		34,124			90,994		(169,366	)		(78,372	)

	￦	967,146		(2,014,812	)		(1,047,666	)		1,047,605		(2,081,707	)		(1,034,102	)

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

36. Earnings per Share

Basic and diluted earnings per share for the years ended December 31, 2014 and 2013 are as follows:


(in millions of Won except per share information)	2014			2013
Profit for the period	￦	1,138,958			1,582,596
Interests of hybrid bonds		(33,049	)		(18,314	)
Weighted-average number of common shares outstanding(*1)		79,801,539			78,009,654
Basic and diluted earnings per share		13,858			20,052

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


(in share)	2014			2013
Total number of common shares issued		87,186,835			87,186,835
Weighted-average number of treasury shares		(7,385,296	)		(9,177,181	)

Weighted-average number of common shares outstanding		79,801,539			78,009,654

Since there were no potential shares of common stock which had dilutive effects as of December 31, 2014 and 2013, diluted earnings per share is equal to basic earnings per share.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

37. Related Party Transactions

(a)	Significant transactions with related companies for the years ended December 31, 2014 and 2013 were as follows:

For the year ended December 31, 2014


(in millions of Won)	*Sales and others(1)**						*Purchase and others(2)**
	Sales		Others		Total		Purchase of material		Purchase of fixed assets		Outsourced processing		Others		Total
*Subsidiaries(3)**
POSCO ENGINEERING & CONSTRUCTION., LTD.	￦	22,659		16,789		39,448		544,202		247,286		3,689		30,852		826,029
POSCO Processing & Service		1,075,567		8,649		1,084,216		785,943		—		—		1,681		787,624
POSCO COATED & COLOR STEEL Co., Ltd.		444,513		12		444,525		—		—		12,313		195		12,508
POSCO ICT(*5)		929		2,593		3,522		356		209,893		26,231		161,173		397,653
POSMATE		520		2,178		2,698		411		28		16,475		34,188		51,102
eNtoB Corporation		—		3		3		297,119		10,433		137		21,073		328,762
POSCO CHEMTECH		532,973		26,537		559,510		513,759		5,449		301,149		923		821,280
POSCO M-TECH		180		24		204		117,940		2,385		200,622		6,887		327,834
POSCO ENERGY CO., LTD.		177,517		1,230		178,747		—		2,263		—		20		2,283
POSCO TMC Co., Ltd.		240,318		9		240,327		—		—		1,056		1,611		2,667
POSCO AST		503,452		5		503,457		10,396		—		57,355		2,671		70,422
POSHIMETAL Co., Ltd.		11,261		3,660		14,921		166,442		—		—		—		166,442
Daewoo International Corporation		3,558,652		20,652		3,579,304		90,361		—		—		3,857		94,218
POSCO Specialty Steel Co., Ltd.		5,313		201,927		207,240		40,124		—		1,939		266		42,329
POSCO America Corporation		747,933		2		747,935		—		—		—		1,794		1,794
POSCO Canada Ltd.		—		—		—		141,767		—		—		—		141,767
POSCO Asia Co., Ltd.		2,167,148		89		2,167,237		169,945		—		10,006		1,969		181,920
POSCO (Thailand) Company Limited		55,221		46		55,267		—		—		—		8		8
Qingdao Pohang Stainless Steel Co., Ltd.		79,783		—		79,783		—		—		—		19		19
POSCO (Suzhou) Automotive Processing Center Co., Ltd.		136,836		—		136,836		—		—		—		5		5
POSCO JAPAN Co., Ltd.		1,329,947		4		1,329,951		15,165		2,269		3		2,279		19,716
POSCO-India Pune Processing Center. Pvt. Ltd.		107,587		74		107,661		—		—		—		—		—
POSCO MEXICO S.A. DE C.V.		287,468		929		288,397		—		—		—		—		—
POSCO Maharashtra Steel Private Limited		444,407		6,053		450,460		—		—		—		—		—
DAEWOO INTERNATIONAL SINGAPORE		—		—		—		57,742		—		—		11,513		69,255
Others		680,066		1,827		681,893		158,484		63,932		15,585		51,674		289,675

		12,610,250		293,292		12,903,542		3,110,156		543,938		646,560		334,658		4,635,312


*Associates and joint ventures(3)**
POSCO Plant Engineering Co., Ltd.(*4)		15,310		64		15,374		3,195		119,369		15,777		22,751		161,092
SNNC		3,077		5,716		8,793		339,991		—		—		5		339,996
POSCHROME (PROPRIETARY) LIMITED		—		—		—		59,241		—		—		—		59,241
PT. POSMI Steel Indonesia		6,061		30		6,091		—		—		—		—		—
POSK (Pinghu) Steel Processing Center Co., Ltd.		2,855		—		2,855		—		—		—		—		—
POSCO-SAMSUNG-Slovakia Processing Center		24,059		—		24,059		—		—		—		—		—
POSCO China Suzhou Processing Center Co., Ltd. (formerly, POSCO-SAMSUNG Suzhou Processing Center Co., Ltd.)		1,132		—		1,132		—		—		—		—		—
Others		737		41,873		42,610		3,668		—		—		—		3,668

		53,231		47,683		100,914		406,095		119,369		15,777		22,756		563,997

	￦	12,663,481		340,975		13,004,456		3,516,251		663,307		662,337		357,414		5,199,309

(*1)	Sales and others are mainly consist of sales of steel products to subsidiaries, associates and joint ventures. These are priced on an arm’s length basis.

(*2)	Purchases and others are mainly consist of subsidiaries’ purchases of construction services and purchases of raw materials to manufacture steel products. These are priced on an arm’s length basis.

(*3)	As of December 31, 2014, the Company provided guarantees to related parties (note 22).

(*4)	It is reclassified from associate to subsidiary due to the additional acquisition of its shares by the Company.

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

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

For the year ended December 31, 2013


(in millions of Won)	Sales and others						Purchase and others
	Sales		Others		Total		Purchase of material		Purchase of fixed assets		Outsourced processing		Others		Total
Subsidiaries
POSCO ENGINEERING & CONSTRUCTION., LTD.	￦	16,439		3,421		19,860		3,042		2,235,798		5,855		9,242		2,253,937
POSCO Processing & Service		987,424		8		987,432		1,215,510		—		—		805		1,216,315
POSCO COATED & COLOR STEEL Co., Ltd.		472,353		25		472,378		—		—		10,648		98		10,746
POSCO Plant Engineering Co., Ltd.		2,324		19		2,343		1,499		67,081		13,733		2,492		84,805
POSCO ICT		1,210		195		1,405		679		279,660		31,231		157,126		468,696
POSMATE		1,419		85		1,504		805		1,041		15,732		32,894		50,472
eNtoB Corporation		—		10		10		234,352		13,241		149		20,079		267,821
POSCO CHEMTECH		512,139		25,868		538,007		491,562		21,832		287,584		1,223		802,201
POSCO M-TECH		11,122		94		11,216		158,709		2,336		220,986		141		382,172
POSCO ENERGY CO., LTD.		104,209		915		105,124		—		5,178		—		7		5,185
POSCO TMC Co., Ltd.		188,915		15		188,930		—		—		1,051		1,298		2,349
POSCO AST		500,193		10		500,203		6,985		—		56,520		2,029		65,534
POSHIMETAL Co., Ltd.		18,922		137		19,059		166,042		—		—		5		166,047
Daewoo International Corporation		3,522,678		65		3,522,743		16,297		—		—		2,843		19,140
POSCO America Corporation		596,681		1		596,682		—		—		—		339		339
POSCO Canada Ltd.		—		—		—		144,329		—		—		—		144,329
POSCO Asia Co., Ltd.		2,068,965		221		2,069,186		64,434		182		—		1,673		66,289
POSCO (Thailand) Company Limited		56,210		56		56,266		—		—		—		85		85
Qingdao Pohang Stainless Steel Co., Ltd.		58,502		—		58,502		—		—		—		14		14
POSCO (Suzhou) Automotive Processing Center Co., Ltd.		129,345		1		129,346		—		—		—		—		—
POSCO JAPAN Co., Ltd.		1,270,325		—		1,270,325		19,978		2		—		2,972		22,952
POSCO-India Pune Processing Center. Pvt. Ltd.		119,503		7		119,510		—		—		—		—		—
POSCO MEXICO S.A. DE C.V.		256,014		693		256,707		—		—		—		621		621
POSCO Maharashtra Steel Private Limited		176,425		3,157		179,582		—		—		—		236		236
DAEWOO INTERNATIONAL SINGAPORE		—		—		—		108,179		—		—		—		108,179
Others		558,923		7,569		566,492		92,527		38,843		18,782		77,101		227,253

		11,630,240		42,572		11,672,812		2,724,929		2,665,194		662,271		313,323		6,365,717


Associates and joint ventures

SNNC		1,532		458		1,990		402,639		—		—		—		402,639
POSCO PLANTEC Co., Ltd. (formerly, Sungjin Geotec Co., Ltd.)(*1)		15,028		48		15,076		1,735		65,802		9,781		6,883		84,201
POSCHROME (PROPRIETARY) LIMITED		—		—		—		66,762		—		—		—		66,762
PT. POSMI Steel Indonesia		6,538		—		6,538		—		—		—		—		—
POSK (Pinghu) Steel Processing Center Co., Ltd.		3,786		—		3,786		—		—		—		—		—
POSCO-SAMSUNG-Slovakia Processing Center Co., Ltd.		19,906		—		19,906		—		—		—		—		—
POSCO China Suzhou Processing Center Co., Ltd. (formerly, POSCO-SAMSUNG Suzhou Steel Processing Center Co., Ltd.)		6,429		—		6,429		—		—		—		—		—
Others		546		165		711		3,937		—		—		176		4,113

		53,765		671		54,436		475,073		65,802		9,781		7,059		557,715

	￦	11,684,005		43,243		11,727,248		3,200,002		2,730,996		672,052		320,382		6,923,432

(*1)	Sungjin Geotec Co., Ltd. merged with POSCO Plant Engineering Co., Ltd. and changed its name to POSCO PLANTEC Co., Ltd. in 2013.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

(b)	The related account balances of significant transactions with related companies as of December 31, 2014 and 2013 are as follows:

December 31, 2014


(in millions of Won)	Receivables						Payables
	Trade accounts and notes receivable		Others		Total		Trade accounts and notes payable		Accounts payable		Others		Total
Subsidiaries
POSCO ENGINEERING & CONSTRUCTION., LTD.	￦	42		71,967		72,009		—		41,878		—		41,878
POSCO Processing & Service		94,790		92		94,882		15,202		867		—		16,069
POSCO COATED & COLOR STEEL Co., Ltd.		69,314		67		69,381		—		5		1,936		1,941
POSCO ICT		13		103		116		920		70,823		5,425		77,168
POSMATE		—		1,673		1,673		600		2,007		4,828		7,435
eNtoB Corporation		—		—		—		12,564		28,432		43		41,039
POSCO CHEMTECH		49,456		4,283		53,739		57,610		9,890		17,864		85,364
POSCO M-TECH		—		37		37		7,311		12,231		22,703		42,245
POSCO ENERGY CO., LTD.		17,326		2,809		20,135		—		—		1,962		1,962
POSCO TMC Co., Ltd.		27,429		30		27,459		—		117		115		232
POSCO AST		44,281		54		44,335		—		2,458		3,364		5,822
POSHIMETAL Co., Ltd.		1,269		14		1,283		—		12,846		—		12,846
Daewoo International Corporation		164,029		3,178		167,207		8		210		1		219
POSCO Specialty Steel Co., Ltd.		822		201,823		202,645		4,800		140		184		5,124
POSCO America Corporation		57,164		—		57,164		—		1,511		—		1,511
POSCO Canada Ltd.		—		—		—		—		4,534		—		4,534
POSCO Asia Co., Ltd.		197,104		221		197,325		10,995		—		—		10,995
POSCO (Thailand) Company Limited		7,407		266		7,673		—		—		—		—
Qingdao Pohang Stainless Steel Co., Ltd.		14,748		41		14,789		—		—		—		—
POSCO JAPAN Co., Ltd.		42,692		89		42,781		344		1,552		—		1,896
POSCO-India Pune Processing Center. Pvt. Ltd.		6,401		5		6,406		—		—		—		—
POSCO MEXICO S.A. DE C.V.		96,800		—		96,800		—		—		—		—
POSCO Maharashtra Steel Private Limited		364,899		7,714		372,613		—		—		—		—
Others		126,474		56,788		183,262		7,239		54,727		1,545		63,511

		1,382,460		351,254		1,733,714		117,593		244,228		59,970		421,791


Associates and jointventures
SNNC		219		125		344		7,017		—		—		7,017
POSCHROME (PROPRIETARY) LIMITED		—		—		—		1,162		—		—		1,162
LLP POSUK Titanium		—		4,235		4,235		—		—		—		—
Others		258		18		276		234		—		—		234

		477		4,378		4,855		8,413		—		—		8,413

	￦	1,382,937		355,632		1,738,569		126,006		244,228		59,970		430,204

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

December 31, 2013


(in millions of Won)	Receivables						Payables
	Trade accounts and notes receivable		Others		Total		Trade accounts and notes payable		Accounts payable		Others		Total
Subsidiaries
POSCO ENGINEERING & CONSTRUCTION., LTD.	￦	40		110,955		110,995		—		105,603		—		105,603
POSCO Processing & Service		103,400		73		103,473		17,914		683		—		18,597
POSCO COATED & COLOR STEEL Co., Ltd.		69,260		65		69,325		—		59		1,434		1,493
POSCO ICT		75		123		198		—		51,247		—		51,247
POSMATE		489		1,533		2,022		141		3,274		1,058		4,473
eNtoB Corporation		—		—		—		8,057		10,311		—		18,368
POSCO CHEMTECH		46,943		4,313		51,256		35,829		6,983		8,663		51,475
POSCO M-TECH		18		28		46		12,020		21,326		10,799		44,145
POSCO ENERGY CO., LTD.		14,733		2,894		17,627		—		421		—		421
POSCO TMC Co., Ltd.		20,510		26		20,536		—		16		50		66
POSCO AST		85,501		53		85,554		—		3,004		5,238		8,242
POSHIMETAL Co., Ltd.		1,721		12		1,733		—		12,624		—		12,624
Daewoo International Corporation		148,383		878		149,261		9,319		—		—		9,319
POSCO America Corporation		57,554		—		57,554		—		—		—		—
POSCO Canada Ltd.		—		—		—		12,323		—		—		12,323
POSCO Asia Co., Ltd.		134,602		142		134,744		2,063		—		—		2,063
POSCO (Thailand) Company Limited		6,052		7		6,059		—		—		—		—
Qingdao Pohang Stainless Steel Co., Ltd.		3,329		—		3,329		—		—		—		—
POSCO JAPAN Co., Ltd.		73,992		—		73,992		862		108		1		971
POSCO-India Pune Processing Center. Pvt. Ltd.		8,117		—		8,117		—		—		—		—
POSCO MEXICO S.A. DE C.V.		100,016		76		100,092		—		—		—		—
POSCO Maharashtra Steel Private Limited		55,392		3,218		58,610		—		—		—		—
Others		54,357		8,887		63,244		6,523		15,421		1,647		23,591

		984,484		133,283		1,117,767		105,051		231,080		28,890		365,021


Associates and jointventures
SNNC		140		40		180		16,669		—		—		16,669
POSCO PLANTEC Co., Ltd. (formerly, Sungjin Geotec Co., Ltd.)		879		46		925		353		—		—		353
POSCHROME (PROPRIETARY) LIMITED		—		67		67		—		—		—		—
LLP POSUK Titanium		—		4,066		4,066		—		—		—		—
Others		—		17		17		319		2		—		321

		1,019		4,236		5,255		17,341		2		—		17,343

	￦	985,503		137,519		1,123,022		122,392		231,082		28,890		382,364

(c)	For the years ended December 31, 2014 and 2013, details of compensation to key management officers were as follows:


(in millions of Won)	2014		2013
Short-term benefits	￦	31,984		31,332
Long-term benefits		12,387		8,004
Retirement benefits		6,354		6,296

	￦	50,725		45,632

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

38. Commitments and Contingencies

(a)	Contingent liabilities

The 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.

The management regularly analyzes current information about these matters and provides for probable contingent losses including the estimate of legal expense to resolve the matters. Internal and external lawyers are used for these assessments. In making the decision regarding the need for provisions, management considers whether the Company has an obligation as a result of a past event, whether it is probable that an outflow or cash or other resources embodying economic benefits will be required to settle the obligation and the ability to make a reliable estimate of the amount of obligation.

(b)	Commitments

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, 2014, 137 million tons of iron ore and 32 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, 2014, the Company entered into commitments with Korea National Oil Corporation for long-term foreign currency borrowings, which enables the Company to borrow up to the amount of USD 6.86 million, USD 6.58 million and USD 4.12 million. The borrowings are related to the Company’s 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 amount 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.

(c)

As of December 31, 2014, the Company has provided two blank checks 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.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

(d)	Litigation in progress

1)	Civil lawsuits with Nippon Steel & Sumitomo Metal Corporation

During the year ended December 31, 2012, Nippon Steel & Sumitomo Metal Corporation filed a civil lawsuit in the Tokyo District Court of Japan against POSCO and POSCO Japan Co., Ltd., a subsidiary of POSCO, to prohibit production and sales of grain oriented electrical steel sheets using improperly acquired trade secrets and seeking compensation from the Company of ￦907.3 billion. Through trials up to December 31, 2014, the Company submitted its responses that the Japan court did not have jurisdiction on this lawsuit as it should be judged by Korean law and the Company developed grain oriented electrical steel sheets using the Company’s own technologies. As of December 31, 2014, the court has not made any judgments on this matter. Since the Company does not believe that it has any present obligation, the Company has not recorded any provision for this lawsuit as of December 31, 2014.

2)	Other lawsuits and claims

The Company is involved in 38 other lawsuits and claims for alleged damages aggregating to ￦87.2 billion as defendant as of December 31, 2014, which arose in the ordinary course of business. The Company has recognized provisions amounting to ￦400 million for 1 lawsuit based on its reliable estimate of outflow of resources. However, the Company has not recognized any provisions for other 38 lawsuits and claims since the Company believes that it does not have a present obligation as of December 31, 2014.

(e)	The Company has provided a supplemental funding agreement, as the largest shareholder, as requested from the creditors, including Norddeutsche Landesbank, for seamless funding to the construction of new power plant by POSCO Energy Co., Ltd.

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

39. Cash Flows from Operating Activities

Changes in operating assets and liabilities for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014			2013
Trade accounts and notes receivable, net	￦	213,875			679,054
Other accounts receivable		(84,958	)		68,281
Advance payments		(4,956	)		1,162
Prepaid expenses		(317	)		18,502
Inventories		136,875			860,472
Long-term guarantee deposits		(297	)		(616	)
Other long-term assets		—			(1,120	)
Trade accounts payable and notes payable		42,711			(242,871	)
Other accounts payable		(65,758	)		(367,521	)
Accrued expenses		104,423			(119,505	)
Advances received		67,968			(23,575	)
Withholdings		2,513			(5,058	)
Unearned revenue		(385	)		(4,427	)
Other long-term liabilities		8,109			(1,069	)
Derivatives liabilities		(36,964	)		—
Payment severance benefits		(84,600	)		(70,170	)
Plan assets		(100,285	)		(103,559	)

	￦	197,954			687,980

40. Non-Cash Transactions

Significant non-cash transactions for the years ended December 31, 2014 and 2013 were as follows:


(in millions of Won)	2014		2013
Construction-in-progress transferred to other accounts	￦	3,562,232		2,501,603
Acquisition of short-term financial statements through issuance of treasury stocks		—		804,496
Financial guarantee liabilities		7,730		20,812
Investment in subsidiaries transferred to assets held for sale		468,443		1,304
Available-for-sale investment transferred to assets held for sale		580,062		—
Investments in subsidiary by contribution of property, plant and equipment		558,915		—

POSCO

Notes to the Separate Financial Statements

As of December 31, 2014 and 2013, Continued

Notice to Readers

This report is annexed in relation to the audit of the separate financial statements as of December 31, 2014 and the review of internal accounting control system pursuant to Article 2-3 of the Act on External Audit for Joint-stock Companies of the Republic of Korea.

Independent Auditors’ Review Report on Internal Accounting Control System

English Translation of a Report Originally Issued in Korean

To the President of

POSCO:

We have reviewed the accompanying Report on the Operations of Internal Accounting Control System (“IACS”) of POSCO (the “Company”) as of December 31, 2014. The Company’s management is responsible for designing and maintaining effective IACS and for its assessment of the effectiveness of IACS. Our responsibility is to review management’s assessment and issue a report based on our review. In the accompanying report of management’s assessment of IACS, the Company’s management stated: “Based on the assessment on the operations of the IACS, the Company’s IACS has been effectively designed and is operating as of December 31, 2014, in all material respects, in accordance with the IACS Framework issued by the Internal Accounting Control System Operation Committee.”

We conducted our review in accordance with IACS Review Standards, issued by the Korean Institute of Certified Public Accountants. Those Standards require that we plan and perform the review to obtain assurance of a level less than that of an audit as to whether Report on the Operations of Internal Accounting Control System is free of material misstatement. Our review consists principally of obtaining an understanding of the Company’s IACS, inquiries of company personnel about the details of the report, and tracing to related documents we considered necessary in the circumstances. We have not performed an audit and, accordingly, we do not express an audit opinion.

A company’s IACS is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in conformity with Korean International Financial Reporting Standards. Because of its inherent limitations, however, IACS may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based on our review, nothing has come to our attention that Report on the Operations of Internal Accounting Control System as of December 31, 2014 is not prepared in all material respects, in accordance with IACS Framework issued by the Internal Accounting Control System Operation Committee.

This report applies to the Company’s IACS in existence as of December 31, 2014. We did not review the Company’s IACS subsequent to December 31, 2014. This report has been prepared for Korean regulatory purposes, pursuant to the External Audit Law, and may not be appropriate for other purposes or for other users.

Seoul, Korea

February 25, 2015

Report on the Operations of Internal Accounting Control System

English Translation of a Report Originally Issued in Korean

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