Hanjin Heavy Industries & Construction Co., Ltd

Hanjin Heavy Industries& Construction Co., Ltd.Non-Consolidated Financial Statements

December 31, 2009 and 2008

Hanjin Heavy Industries & Construction Co., Ltd.IndexDecember 31, 2009 and 2008

Page(s)

Report of Independent Auditors ..................................................................................................... 1-2

Non-Consolidated Financial Statements

Statements of Financial Position ........................................................................................................ 3-5

Statements of Income ........................................................................................................................... 6

Statements of Appropriations of Retained Earnings.............................................................................. 7

Statements of Changes in Shareholders’ Equity ................................................................................... 8

Statements of Cash Flows ............................................................................................................... 9-10

Notes to the Financial Statements ..................................................................................................11-46

Report of the Independent Accountants’ Review of Internal Accounting Control System ........ 47

Report on the Operations of the Internal Accounting Control System ........................................ 48

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LS Yongsan Tower, 191, Hangangno 2-ga, Yongsan-gu, Seoul 140-702, Korea (Yongsan P.O Box 266, 140-600) www.samil.com

Samil PricewaterhouseCoopers is the Korean network firm of PricewaterhouseCoopers International Limited (PwCIL). "PricewaterhouseCoopers" and "PwC" refer to thenetwork of member firms of PwCIL. Each member firm is a separate legal entity and does not act as an agent of PwCIL or any other member firm.

Report of Independent Auditors

To the Board of Directors and Shareholders of

Hanjin Heavy Industries & Construction Co., Ltd.

We have audited the accompanying non-consolidated statements of financial position of Hanjin Heavy

Industries & Construction Co., Ltd. (the “Company”) as of December 31, 2009 and 2008, and the

related non-consolidated statements of income, appropriations of retained earnings, changes in

shareholders’ equity and cash flows for the years then ended, expressed in Korean won. These

financial statements are the responsibility of the Company's management. Our responsibility is to

express an opinion on these financial statements based on our audits. We did not audit the financial

statements of HHIC-Hong Kong Limited and certain other subsidiaries, the investments in which are

reflected in the accompanying financial statements using the equity method of accounting. The

investments in those subsidiaries represent 4.7% and 5.3% of the Company’s total assets as of

December 31, 2009 and 2008, respectively, and the equity in their net loss represents negative 83%

and negative 87% of the Company’s income before income taxes for the years then ended,

respectively. These statements were audited by other auditors whose reports have been furnished us

and our opinion, insofar as it relates to the amounts included for the subsidiaries, is based solely on the

reports of the other auditors.

We conducted our audits in accordance with auditing standards generally accepted in the Republic of

Korea. Those standards require that we plan and perform the audits to obtain reasonable assurance

about whether the financial statements are free of material misstatement. An audit includes examining,

on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit

also includes assessing the accounting principles used and significant estimates made by

management, as well as evaluating the overall financial statement presentation. We believe that our

audits and the reports of other auditors provide a reasonable basis for our opinion.

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In our opinion, based on our audits and the reports of other auditors, the non-consolidated financial

statements referred to above present fairly, in all material respects, the financial position of Hanjin

Heavy Industries & Construction Co., Ltd. as of December 31, 2009 and 2008, and the results of its

operations, the changes in its retained earnings and its shareholders’ equity, and its cash flows for

the years then ended in conformity with accounting principles generally accepted in the Republic of

Korea.

Accounting principles and auditing standards and their application in practice vary among countries.

The accompanying non-consolidated financial statements are not intended to present the financial

position, results of operations, changes in shareholders’ equity and cash flows in conformity with

accounting principles and practices generally accepted in countries and jurisdictions other than the

Republic of Korea. In addition, the procedures and practices used in the Republic of Korea to audit

such financial statements may differ from those generally accepted and applied in other countries.

Accordingly, this report and the accompanying non-consolidated financial statements are for use by

those who are informed about Korean accounting principles or auditing standards and their

application in practice.

Seoul, Korea

March 11, 2010

This report is effective as of March 11, 2010, 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 non-consolidated financial statements and notes

thereto. Accordingly, the readers of the audit report should understand that there is a possibility that

the above audit report may have to be revised to reflect the impact of such subsequent events or

circumstances, if any.

Hanjin Heavy Industries and Construction Co., Ltd.Non-Consolidated Statements of Financial PositionDecember 31, 2009 and 2008

3

(In millions of Korean won) 2009 2008

Assets

Current assets

Cash and cash equivalents \ 1,126,751 \ 394,333

Short-term financial instruments (Notes 3 and 12) - 37,633Trade accounts and notes receivable, net (Notes 4, 5 and 25) 1,770,498 1,634,884Short-term loans receivable, net (Notes 5 and 9) 19,180 30,095Other accounts receivable, net (Note 5) 83,852 56,961Accrued income, net (Note 5) 9,895 6,681

Advance payments, net (Note 5) 208,781 210,433Prepaid expenses 26,029 41,101Current deferred income tax assets (Note 22) 58,187 40,278Current firm commitment assets (Note 16) 9,039 27,762Inventories (Notes 6 and 10) 266,468 434,874

Total current assets 3,578,680 2,915,035

Property, plant and equipment, net (Notes 10, 12 and 28) 2,588,285 2,625,203Long-term available-for-sale securities (Notes 7 and 12) 160,375 109,413Equity-method investments (Note 8) 360,325 355,842Long-term financial instruments (Note 3) 48 48Long-term loans receivable, net (Notes 5, 9 and 25) 71,836 75,242Guarantee deposits, net (Note 5) 133,043 107,432

Firm commitment assets (Note 16) - 43,020Other non-current assets, net (Note 5) 2,376 4,760

Total assets \ 6,894,968 \ 6,235,995


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Liabilities and Shareholders' Equity

Current liabilities

Trade accounts and notes payable (Note 25) \ 231,688 \ 427,554

Short-term borrowings (Note 13) 569,899 303,919Current portion of long-term debts, net (Note 14) 1,018,930 406,957Advance receipts (Note 4) 515,100 451,991Other accounts payable 209,301 109,923Accrued expenses 52,124 67,837

Income taxes payable (Note 22) 5,062 129,525Provision for losses from construction contracts (Notes 4 and 16) 19,186 23,251Short-term guarantee deposits received 21,543 31,309Short-term warranty provision (Note 16) 2,999 4,128Current forward exchange contract liabilities (Note 16) 30,606 27,762Other current liabilities 15,247 9,061

Total current liabilities 2,691,685 1,993,217

Debentures, net (Note 14) 1,497,422 1,288,126Long-term debts (Note 14) 305,308 342,853Long-term advance receipts (Note 4) 20,617 137,743Guarantee deposits received 13,758 13,067Accrued severance benefits, net (Note 15) 14,314 58,835

Warranty provision (Note 16) 15,555 12,568Other long-term liabilities (Note 14) - 1Forward exchange contract liabilities (Note 16) - 43,020Deferred income tax liabilities (Note 22) 255,050 241,720

Total liabilities 4,813,709 4,131,150

Commitments and contingencies (Note 16)


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Shareholders' equity

Capital stock

Common stock (Notes 1 and 17) \ 239,053 \ 236,687

Capital surplus

Paid-in capital in excess of par value (Note 18) 644,385 644,398Capital adjustments

Treasury stock (Note 19) (1,209) (926)Accumulated other comprehensive income and expense

Unrealized gain on valuation ofavailable-for-sale securities (Note 7) (2,898) (11,105)

Accumulated other comprehensive income ofequity-method investees (Note 8) 76,339 121,413

Accumulated other comprehensive expense ofequity-method investees (Note 8) (29) -

Translation gain of foreign currency financial statements (Note 20) 61,981 90,720Assets revaluation reserves (Note 10) 948,722 953,548

Retained earnings (Note 21)

Legal reserve 2,603 2,130

Discretionary reserve 59,500 4,500Unappropriated retained earnings 52,812 63,480

Total shareholders' equity 2,081,259 2,104,845

Total liabilities and shareholders' equity \ 6,894,968 \ 6,235,995

The accompanying notes are an integral part of these non-consolidated financial statements.

Hanjin Heavy Industries and Construction Co., Ltd.Non-Consolidated Statements of IncomeYears ended December 31, 2009 and 2008

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(In millions of Korean won, except per share amounts) 2009 2008

Sales (Notes 4, 25 and 28) \ 3,227,619 \ 3,848,033

Cost of sales (Note 25) 2,635,434 3,182,744

Gross profit 592,185 665,289

Selling and administrative expenses (Notes 11 and 26) 131,279 154,922

Operating profit 460,906 510,367

Non-operating income

Interest and dividend income 41,575 40,688Realized and unrealized foreign exchange gains (Note 27) 112,613 110,398

Gain on valuation of equity-method investments (Note 8) 5,880 -Realized and unrealized gain from firm commitments (Note 16) 4,227 70,782Realized and unrealized gain from forward exchange

contracts (Note 16) 15,640 -Others 49,779 22,414

Non-operation income 229,714 244,282

Non-operating expenses

Interest expense 179,550 104,517Realized and unrealized foreign exchange losses (Note 27) 214,961 280,413Loss on valuation of property, plant and equipment (Note 10) - 7,952Loss on valuation of equity-method investments (Note 8) 89,381 118,230Loss on impairment of available-for-sale securities 5,496 -Realized and unrealized loss from firm commitments (Note 16) 7,202 -Realized and unrealized loss from forward exchange

contracts (Note 16) 4,227 70,782Loss on suspension of firm commitment fair value hedge

accounting (Note 16) 45,176 -Others_ 41,286 36,865

Non-operation expenses 587,279 618,759

Income before income taxes 103,341 135,890

Income tax expenses (Note 22) 51,437 72,892

Net income \ 51,904 \ 62,998

Basic earnings per share (Note 24) (in Korean won) \ 1,086 \ 1,331

Diluted earnings per share (Note 24) (in Korean won) \ 1,086 \ 1,331


Hanjin Heavy Industries and Construction Co., Ltd.Non-Consolidated Statements of Appropriations of Retained EarningsYears ended December 31, 2009 and 2008

(Dates of Appropriations: March 19, 2010 and March 20, 2009 for the years endedDecember 31, 2009 and 2008, respectively)

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(In millions of Korean won, except per share amounts) 2009 2008

Retained earnings before appropriations

Unappropriated retained earnings carried over from prior year\ 908 \ 482

Net income 51,904 62,998

52,812 63,480

Appropriations of retained earnings

Legal reserve 1,195 473Discretionary reserve 39,000 55,000Dividends

Cash dividends (Note 21)Dividends (ratio) per shareCommon stock:￦250 (5%) in 2009 and ￦100 (2%) in 2008 11,947 4,733

Stock dividends (Note 21)Dividend (ratio) per shareCommon stock:

Nil in 2009 and ￦50 (1%) in 2008 - 2,366

52,142 62,572

Unappropriated retained earningscarried forward to subsequent year \ 670 \ 908


Hanjin Heavy Industries and Construction Co., Ltd.Non-Consolidated Statements of Changes in Shareholders’ EquityYears ended December 31, 2009 and 2008

8

(In millions of Korean won)CapitalStock

CapitalSurplus

CapitalAdjustments

Accumulated OtherComprehensive

Income and ExpenseRetainedEarnings Total

Balances as of January 1, 2008 \ 236,687 \ 644,398 \ (926) \ 27,866 \ 28,408 \ 936,433

Dividends - - - - (21,296) (21,296)

Retained earnings after appropriation 236,687 644,398 (926) 27,866 7,112 915,137

Net income - - - - 62,998 62,998Unrealized gain(loss) on valuation of

available-for-sale securities - - - (22,385) - (22,385)

Changes in equity-method investees withaccumulated other comprehensive income - - - 121,410 - 121,410

Changes in equity-method investees withaccumulated other comprehensive expense - - - 4,338 - 4,338

Translation gain of foreign currency financialstatements - - - 69,799 - 69,799

Assets revaluation reserves - - - 953,548 - 953,548

Balances as of December 31, 2008 \ 236,687 \ 644,398 \ (926) \ 1,154,576 \ 70,110 \ 2,104,845

Balances as of January 1, 2009 \ 236,687 \ 644,398 \ (926) \ 1,154,576 \ 70,110 \ 2,104,845

Dividends 2,366 (13) - - (7,099) (4,746)

Retained earnings after appropriation 239,053 644,385 (926) 1,154,576 63,011 2,100,099

Net income - - - - 51,904 51,904

Acquisition of treasury stock - - (283) - - (283)

Unrealized gain(loss) on valuation ofavailable-for-sale securities

- - - 8,207 - 8,207

Changes in equity-method investees withaccumulated other comprehensive income

- - - (45,074) - (45,074)

Changes in equity-method investees withaccumulated other comprehensive expense

- - - (29) - (29)

Translation gain of foreign currency financialstatements

- - - (28,739) - (28,739)

Assets revaluation reserves - - - (4,826) - (4,826)

Balances as of December 31, 2009 \ 239,053 \ 644,385 \ (1,209) \ 1,084,115 \ 114,915 \ 2,081,259


Hanjin Heavy Industries and Construction Co., Ltd.Non-Consolidated Statements of Cash FlowsYears ended December 31, 2009 and 2008

9


Cash flows from operating activities

Net income \ 51,904 \ 62,998

Adjustments to reconcile net income to net cashused in operating activities

Provision for severance benefits 25,670 31,831Depreciation and amortization 54,307 51,393Bad debt expense 6,949 142Other bad debt expense 480 -Loss(Gain) on disposal of available-for-sale securities - (1,165)Loss(Gain) on disposal of property, plant and equipment (10,860) (446)Loss on valuation of property, plant and equipment - 7,952Loss(Gain) on foreign currency translation (7,850) 118,532

Amortization of discounts on debentures andpresent value discounts 2,203 1,595

Loss(Gain) on valuation of equity-method investments, net 83,501 118,230Warranty provision 6,926 6,616Provision of construction contracts loss (4,065) 12,309

Realized and unrealized loss(gain) fromforward exchange contracts (14,341) 70,782

Realized and unrealized loss(gain) from firm commitments 6,558 (70,782)Loss on suspension of firm commitment fair value

hedge accounting 45,176 -Others_ 7,199 8,751

201,853 355,740

Changes in operating assets and liabilities

Trade accounts and notes receivable (212,253) (629,087)Other accounts receivable (30,073) 129,017Inventories 171,303 (131,056)Accrued income (3,404) 438Advance payments (2,318) 108,544Prepaid expenses 15,073 8,466Deferred income tax assets and liabilities (5,723) (63,389)Trade accounts and notes payable (194,798) 215,604Other accounts payable 99,511 2,335Advance receipts (94,228) (395,049)Accrued expenses (13,974) 2,726Income taxes payable (124,463) 121,584Short-term guarantee deposits received (9,600) 3,218Long-term advance receipts 30,717 87,273Payment of severance benefits (53,878) (25,382)Translation gain of foreign currency financial statements (2,917) 5,700Forward exchange contract liabilities (3,358) -Others__ (15,184) (3,481)

(449,567) (562,539)

Net cash used in operating activities (195,810) (143,801)

Hanjin Heavy Industries and Construction Co., Ltd.Non-Consolidated Statements of Cash FlowsYears ended December 31, 2009 and 2008

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Cash flows from investing activities

Decrease in short-term financial instruments \ 37,633 \ 40,764Disposal of available-for-sale securities - 34,991Acquisition of available-for-sale securities (45,936) (9,356)Acquisition of equity-method investments (132,887) (335,110)Proceeds from disposal of property, plant and equipment 15,357 3,405Acquisition of property, plant and equipment (30,512) (156,678)Decrease in short-term loans receivable 39,124 5,954Decrease in guarantee deposits 11,771 35,848Increase in short-term loans receivable (28,084) (19,175)Increase in long-term loans receivable - (7,121)Increase in guarantee deposits (42,901) (44,144)Others___ 2,487 772

Net cash used in investing activities (173,948) (449,850)

Cash flows from financing activities

Proceeds from short-term borrowings 268,106 86,096Issuance of debentures 933,017 502,137Proceeds from long-term debts 135,610 112,814Increase of long-term guarantee deposits received 1,202 3,757Repayment of current maturities of long-term debts (230,219) (343,792)Decrease of long-term guarantee deposits received (510) (829)Repayment of other long-term debts (1) -Acquisition of treasury stock (283) -Payment of dividends (4,733) (21,296)Stock issuance cost (13) -

Net cash provided by financing activities 1,102,176 338,887

Net increase(decrease) in cash and cash equivalents 732,418 (254,764)

Cash and cash equivalents

Beginning of year 394,333 649,097

End of year \ 1,126,751 \ 394,333


Hanjin Heavy Industries and Construction Co., Ltd.Notes to the Non-Consolidated Financial StatementsDecember 31, 2009 and 2008

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1. Organization

Hanjin Heavy Industries and Construction Co., Ltd. (the “Company”) was established on August 1,

2007, from the spin-off of the shipbuilding, construction and other business divisions of the Hanjin

Heavy Industries & Construction Holdings Co., Ltd. (HHIC Holdings). The Company’s shares were

refloated in the Korea Exchange on August 31, 2007.

The Company is engaged primarily in shipbuilding, ship repair, manufacturing of heavy machinery

and construction. The Company operates three shipbuilding yards located in Busan and Ulsan,

Korea, and facilities for manufacturing heavy machinery located in Busan and Incheon, Korea. In

addition, the Company is currently performing construction activities at 113 domestic construction

sites and eight construction sites in the Philippines.

As of December 31, 2009, the Company’s capital stock amounts to ￦239,053 million and the

largest shareholder is HHIC Holdings with 36.54% ownership.

2. Summary of Significant Accounting Policies

Basis of Presentation

The Company maintains its accounting records in Korean won and prepares its statutory financial

statements in the Korean language (Hangul) in conformity with accounting principles generally

accepted in the Republic of Korea. Certain accounting policies applied by the Company that

conform with financial accounting standards and accounting principles in the Republic of Korea may

not conform with generally accepted accounting principles in other countries. Accordingly, these

financial statements are intended for use by those who are informed about Korean accounting

principles and practices. The accompanying non-consolidated financial statements have been

condensed, restructured and translated into English from the Korean language non-consolidated

financial statements.

The following is a summary of significant accounting policies applied by the Company in the

preparation of its financial statements. These policies have been consistently applied to all the years

presented, unless otherwise stated.

Revenue Recognition

Revenue is the gross inflow of economic benefits arising from the ordinary course of the Company’s

activities and is measured as the fair value of the consideration received or receivable for the sale of

goods and services in the said ordinary course of the Company’s activities. Revenue is shown as

net of value-added tax, sales discounts and sales returns. The Company recognizes revenue when

the amount of revenue can be reliably measured, and it is probable that future economic benefits

will flow into the Company.

Revenue from the sale of goods is recognized when the significant risks and rewards of ownership

of goods are transferred to the buyer. Revenue from the rendering of services is recognized under

the percentage-of-completion method, under which revenue is generally recognized based on the

costs incurred to date as a percentage of the total estimated costs to be incurred.


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Interest income is recognized using the effective interest method. Dividend income is recognized

when the rights to receive such dividends and amounts thereof are determined. Royalty income is

recognized on an accrual basis in accordance with the substance of relevant contracts.

Revenues from Construction Contracts

The Company recognizes revenues from construction contracts using the percentage-of-completion

method to determine the amounts to be recognized as revenues in a given period. The stage of

completion is measured using the percentage of the total contract costs incurred up to the end of

each reporting period over the total estimated costs for each contract. When the outcome of a

construction contract cannot be estimated reliably, the contract revenue is recognized only to the

extent of contract costs incurred that are likely to be recoverable, and contract costs incurred for the

period are recognized as expenses.

Costs incurred for prospective construction projects are accounted for as prepaid construction

expense, provided that they are identifiable and can be measured reliably, and when it is probable

that the contract for such project will be finalized. These prepaid construction expenses are

reclassified to contract costs after construction starts.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and in banks, and financial instruments with

maturity of three months or less at the time of purchase. These financial instruments are readily

convertible into cash without significant transaction costs and bear low risks from changes in value

due to interest rate fluctuations.

Allowance for Doubtful Accounts

The Company provides an allowance for doubtful accounts and notes receivable at the amount

calculated based on the estimates made through a reasonable and objective method.

Inventories

The quantities of inventories are determined using the perpetual method and periodic inventory

count, while the costs of inventories are determined using the specific identification method, except

for raw materials for shipbuilding and plant-building which are determined using the moving-average

method, temporary frame materials which are determined using diminishing balance method, and

other raw materials and supplies which are determined using the first-in first-out method. Inventories

are stated at the lower of cost or net realizable value. Net realizable value is the estimated selling

price in the ordinary course of business, less applicable variable selling expense. Replacement cost

is used for the estimate of net realizable value of raw materials. If, however, the circumstances

which caused the valuation loss cease to exist, the valuation loss is reversed up to the original

carrying amount before valuation. The said reversal is deducted from cost of sales.

Investments in Securities

Costs of securities are determined using the moving-weighted average method. Investments in

equity securities or debt securities are classified into trading securities, available-for-sale securities

and held-to-maturity securities, depending on the acquisition and holding purpose. Investments in

equity securities of companies, over which the Company exercises a significant control or influence,


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are recorded using the equity-method of accounting. Trading securities are classified as current

assets while available-for-sale securities and held-to-maturity securities are classified as long-term

investments, excluding those securities that mature or are certain to be disposed of within one year,

which are then classified as current assets.

Held-to-maturity securities are measured at amortized cost while available-for-sale and trading

securities are measured at fair value. However, non-marketable securities, classified as available-

for-sale securities, are carried at cost when the fair values are not readily determinable.

Gains and losses related to trading securities are recognized in the income statement, while

unrealized gains and losses of available-for-sale securities are recognized as accumulated other

comprehensive income and expense. Realized gains and losses of available-for-sale securities are

recognized in the income statement at the time of disposition or recognition of impairment loss.

Equity-Method Investments

The Company reflects any changes in the equity of its equity-method investments after the initial

purchase date. Under the equity-method accounting, the Company records changes in its

proportionate ownership in the book value of the investee in current operations, as capital

adjustments or as adjustments to retained earnings, depending on the nature of the underlying

change in the book value of the investee. All other changes in equity should be accounted for under

accumulated other comprehensive income and expense.

In case the investee is also a subsidiary of the parent company, the net income and net assets of

the investee in its non-consolidated financial statements should be equal to the corresponding share

of the parent company presented in the consolidated financial statements, unless the equity method

of accounting has been discontinued on the said investee.

Property, Plant and Equipment

Land is shown at fair value, based on periodic, but at least triennial, valuations by independent

appraisers. All other property, plant and equipment excluding land are stated at cost, which includes

acquisition cost, production cost and other costs required to prepare the asset for its intended use. It

also includes the present value of the estimated cost of dismantling and removing the asset, and

restoring the site after the termination of the asset's useful life, provided it meets the criteria for

recognition of provisions.

An increase as a result of a revaluation is credited directly to equity under accumulated other

comprehensive income and expense. However, the decrease as a result of a revaluation is

deducted directly from equity under accumulated other comprehensive income and expense to the

extent of any balance existing in the revaluation surplus in respect of that asset and the residual is

recognized as profit or loss.

Property, plant and equipment are stated net of accumulated depreciation calculated based on the

following depreciation method and estimated useful lives:


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Estimated Useful Lives Depreciation Method

Buildings 30 years Straight-Line Method

Structures 30 years Straight-Line Method

Machinery and equipment 5 ~ 8 years Straight-Line Method

Ships 9 years Straight-Line Method

Construction equipment 5 years Straight-Line Method

Vehicles 4 years Straight-Line Method

Tools, furniture and fixtures 4 years Straight-Line Method

Expenditures incurred after the acquisition or completion of assets are capitalized if they enhance

the value of the related assets over their recently appraised value or extend the useful life of the

related assets. Routine maintenance and repairs are charged to expense as incurred.

Capitalization of Interest Expense

The Company capitalizes interest it incurs on borrowings used to finance the cost of manufacturing,

acquisition and construction of inventory and property, plant and equipment that require more than

one year to complete from the initial date of manufacture, acquisition and construction.

Impairment of Assets

When the book value of an asset is significantly greater than its recoverable value due to

obsolescence, physical damage or an abrupt decline in the market value of the asset, the said

decline in value is deducted from the book value to agree with recoverable amount and is

recognized as an asset impairment loss for the period. When the recoverable value subsequently

exceeds the book value, the impairment amount is recognized as gain for the period to the extent

that the revised book value does not exceed the book value that would have been recorded without

the impairment. Impairment of goodwill is not reversed once it has been recognized.

Derivatives

All derivative instruments are accounted for at their fair value according to the rights and obligations

associated with the derivative contracts, and the resulting changes in fair value of derivative

instruments are recognized as current operations. However, the effective portion of changes in the

fair value of derivatives that are designated and qualify as cash flow hedges is recognized in

accumulated other comprehensive income and expense. Additionally, changes in the fair value of

derivatives that are designated and qualify as fair value hedges are recorded in the income

statement, together with any changes in the fair value of the hedged asset or liability that are

attributable to the hedged risk.

Income Tax and Deferred Income Tax

Income tax expenses include the current income tax under the relevant income tax law and the

changes in deferred income tax assets or liabilities. Deferred income tax assets and liabilities

represent temporary differences between financial reporting and the tax bases of assets and

liabilities. Deferred income tax assets are recognized for temporary differences which will decrease

future taxable income or operating loss to the extent that it is probable that future taxable income will

be available against which the temporary differences or the operating loss can be utilized.


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Deferred income tax effects applicable to items in the shareholders’ equity are directly reflected in

the shareholders’ equity.

Discounts on Debentures

Discounts on debentures are amortized over the term of the debentures using the effective interest

rate method. Amortization of the discount is recorded as part of interest expense.

Valuation of Assets and Liabilities at Present Value

Receivables and payables resulting from long-term installment transactions, long-term cash loans or

other similar borrowings are valued at their present values, discounted at an appropriate discount

rate when the difference between the nominal value and present value is material. The present

value discounts are amortized or recovered using the effective interest rate method and are

recognized as interest income or expense over the term of the contract.

Accrued Severance Benefits

Employees and directors with at least one year of service are entitled to receive a lump-sum

payment upon termination of their employment with the Company based on their length of service

and rate of pay at the time of termination. Accrued severance benefits represent the amount which

would be payable assuming all eligible employees and directors were to terminate their employment

at the end of the reporting period.

The Company has partially funded accrued severance benefits through severance insurance

deposits with financial companies. Deposits made by the Company are recorded as deduction from

accrued severance benefits. The excess portion of deposits over accrued severance benefits is

recorded as long-term financial instruments.

The Company deposits certain portion of accrued severance benefits to the National Pension

Service according to the National Pension Law of Korea. The deposit amount is recorded as a

deduction from accrued severance benefits.

Provisions and Contingent Liabilities

When there is a probability that an outflow of economic benefits will occur due to a present

obligation resulting from a past event, and whose amount is reasonably estimable, a corresponding

amount of provision is recognized in the financial statements. However, when such outflow is

dependent upon a future event, is not certain to occur, or cannot be reliably estimated, a disclosure

regarding the contingent liability is made in the notes to the financial statements.

Translation of Assets and Liabilities Denominated in Foreign Currencies

Monetary assets and liabilities denominated in foreign currencies are translated into Korean won at

the rates of exchange in effect at the end of the reporting period, and the resulting translation gains

and losses are recognized in current operations.

Currency Translation for Foreign Operations

Assets and liabilities of a foreign branch or company subject to the equity-method of accounting for

investments are translated into Korean won at the rates of exchange in effect at the end of the


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reporting period, while their equity is translated at the exchange rate at the time of transaction, and

income statement accounts at the average rate over the period. Resulting translation gains and

losses are recorded as accumulated other comprehensive income and expense. Corresponding

gains and losses are recognized as gain or loss when the foreign branch or company is liquidated or

sold.

3. Restricted Financial Instruments

As of December 31, 2009, there is no short-term financial instrument (2008: ￦233 million) which is

subject to withdrawal restrictions in relation to short-term and long-term borrowings. Certain long-

term financial instruments amounting to ￦48 million (2008: ￦48 million) are restricted to maintain

checking accounts.

4. Construction Contracts

The Company’s contract balances and the related revenues recognized thereon for the years ended

December 31, 2009 and 2008, are as follows:

2009

(In millions ofKorean won)

BeginningBalance

of Contracts

Increase(Decrease)1

ConstructionRevenue

Recognized

Ending Balanceof Contracts

Shipbuilding ￦ 4,022,988 ￦ (346,503) ￦ 1,610,832 ￦ 2,065,653Plant-building 3,293 413 3,706 -Construction 2,054,348 2,072,040 890,826 3,235,562Overseas construction 393,968 (63,176) 166,640 164,152Construction for pre-sale 226,136 (1,591) 68,552 155,993Others 28,450 8,364 22,997 13,817

￦ 6,729,183 ￦ 1,669,547 ￦ 2,763,553 ￦ 5,635,177

2008


BeginningBalance

of Contracts

Increase(Decrease)1

ConstructionRevenue

Recognized

Ending Balanceof Contracts

Shipbuilding ￦ 3,738,183 ￦ 2,285,274 ￦ 2,000,469 ￦ 4,022,988Plant-building 8,473 11,681 16,861 3,293Construction 1,608,927 1,221,820 776,399 2,054,348Overseas construction 342,072 676,283 624,387 393,968Construction for pre-sale 251,129 36,299 61,292 226,136Others 47,878 4,276 23,704 28,450

￦ 5,996,662 ￦ 4,235,633 ￦ 3,503,112 ￦ 6,729,1831 The increase(decrease) columns include new and additional contracts as well as amendments to

existing contracts.


17

Details of the Company’s contracts on the ongoing projects are as follows:

2009


CumulativeContract

Costs

CumulativeProfits

TradeAccountsand NotesReceivable

forContracts


Invoicedfor

Contracts

TradeAccountsand NotesUnbilledAmounts

AdvanceReceipts

forContracts

ExpectedLosses ofContracts

Shipbuilding ￦2,296,015 ￦ 497,169 ￦ 580,413 ￦ 4,145 ￦576,268 ￦419,936 ￦ -

Plant-building 51,278 11,313 - - - - -

Construction 2,680,906 194,230 197,193 65,844 131,349 95,631 19,186

Overseas construction 1,189,146 252,459 308,148 130,662 177,486 16,157 -

Construction for pre-sale 113,829 45,390 8,248 - 8,248 1,184 -Others 27,966 15,944 33,720 - 33,720 - -

￦6,359,140 ￦ 1,016,505 ￦ 1,127,722 ￦ 200,651 ￦927,071 ￦532,908 ￦ 19,186

2008


CumulativeContract

Costs

CumulativeProfits


forContracts


Invoicedfor

Contracts

TradeAccountsand NotesUnbilledAmounts

AdvanceReceipts

forContracts

ExpectedLosses ofContracts

Shipbuilding ￦2,181,061 ￦ 475,591 ￦ 588,452 ￦ - ￦588,452 ￦536,765 ￦ -

Plant-building 53,945 10,778 2,337 1,860 477 - -

Construction 2,541,249 229,754 182,567 45,378 137,189 41,620 23,251

Overseas construction 1,335,556 10,691 300,874 290,985 9,889 5,991 -

Construction for pre-sale 66,790 23,878 34,851 - 34,851 659 -Others 18,613 9,744 23,822 - 23,822 - -

￦6,197,214 ￦ 760,436 ￦ 1,132,903 ￦ 338,223 ￦794,680 ￦585,035 ￦ 23,251

The expected construction losses as of December 31, 2009 and 2008, are as follows:

(In millions of Korean won) 2009

Projects

Expected

Construction Revenue

Expected

Construction Cost Expected Loss

Gimchun-Gyori road construction ￦ 44,310 ￦ 51,262 ￦ 6,952

Gijang-Jangahn road construction 47,254 53,237 5,983

Gwirae-Mokgae road construction 23,633 26,419 2,786

Dolsan-Hwatae bridge construction 43,177 45,297 2,120

Kunnam flood control dam 31,270 32,615 1,345

￦ 189,644 ￦ 208,830 ￦ 19,186


18


Projects

Expected

Construction Revenue

Expected

Construction Cost Expected Loss

Gimchun-Gyori road construction ￦ 43,508 ￦ 50,335 ￦ 6,827

Gijang-Jangahn road construction 49,048 55,258 6,210

Gwirae-Mokgae road construction 35,718 39,929 4,211

Dolsan-Hwatae bridge construction 57,726 60,560 2,834

Kunnam flood control dam 33,766 35,218 1,452

Others 27,512 29,229 1,717

￦ 247,278 ￦ 270,529 ￦ 23,251

As of December 31, 2009, the Company has provided guarantees of up to ￦337,754 million (2008:

18 construction contracts, ￦537,519 million) for the execution of 13 construction contracts of other

companies. The Company is provided with guarantees of up to ￦1,601,930 million (2008:

￦2,116,161 million) by other construction companies and ￦1,612,196 million (2008: ￦1,312,383

million) by the Construction Guarantee for the execution of the construction contracts.

In addition, as of December 31, 2009, the Company is guaranteed for up to ￦340,866 million

(2008: ￦845,027 million) by the Seoul Guarantee Insurance and another company for the warranty

after completion of the construction contracts.

As of December 31, 2009, the Company has entered into insurance agreements with the Meritz Fire

and Marine Insurance Co., Ltd. amounting to ￦1,390,539 million (2008: ￦2,078,000 million) for

the execution of construction contracts.

In addition to guarantees described above, the Company is guaranteed by financial companies as of

December 31, 2009 and 2008, as follows:

(In millions of Korean won and

thousands of other currencies)

Financial Companies 2009 2008

Guarantees for refund Korea Export-Import US$ 1,345,536 US$ 1,149,891

of advance receipts1

Bank and others ￦ 29,937 -

Guarantees for Shinhan Bank

US$ 3,377 -contract biddings and others

Guarantees for letter of credit Hana Bank and others US$ 10,897 US$ 38,412

Other payment guarantees Korea Development US$ 974 US$ 6,968

Bank and others EUR 215 -

Guarantees for investments in

Yong-in electric railway

Woori Bank ￦ 2,462 ￦ 2,602

1 Ships under construction and others are pledged as collaterals for the guarantees for refund of

advance receipts.


19

5. Receivables and Allowance for Doubtful Accounts

Trade accounts and notes receivable including receivables from construction contracts and

construction for pre-sale, and their allowance for doubtful accounts as of December 31, 2009 and

2008, consist of the following:


Trade accounts and notes receivable ￦ 594,805 ￦ 414,067

Less: Allowance for doubtful accounts 4,248 102

590,557 413,965

Receivables from construction contracts 1,188,989 1,202,169

Less: Allowance for doubtful accounts 16,121 16,100

1,172,868 1,186,069

Receivables from construction for pre-sale 8,248 34,851


7,073 34,850

￦ 1,770,498 ￦ 1,634,884

Other accounts receivable and other assets, and their allowance for doubtful accounts as of

December 31, 2009 and 2008, consist of the following:


Other accounts receivable ￦ 86,097 ￦ 57,142


￦ 83,852 ￦ 56,961

Accrued income ￦ 10,022 ￦ 6,808

Less: Allowance for doubtful accounts 127 127

￦ 9,895 ￦ 6,681

Advance payments ￦ 208,979 ￦ 210,631Less: Allowance for doubtful accounts 198 198

￦ 208,781 ￦ 210,433

Short-term loans receivable ￦ 19,193 ￦ 34,027Less: Allowance for doubtful accounts 13 3,932

￦ 19,180 ￦ 30,095

Long-term loans receivable ￦ 71,879 ￦ 75,285Less: Allowance for doubtful accounts 43 43

￦ 71,836 ￦ 75,242


20

Guarantee deposits ￦ 133,512 ￦ 107,901Less: Allowance for doubtful accounts 469 469

￦ 133,043 ￦ 107,432

Other non-current assets ￦ 3,417 ￦ 3,417Less: Allowance for doubtful accounts 3,417 3,417

￦ - ￦ -

6. Inventories

Inventories as of December 31, 2009 and 2008, consist of the following:


Finished houses and merchandise ￦ 137,495 ￦ 151,313

Semi-finished houses 2,521 8,076

Building lots 20,448 86,019

Raw materials 84,984 106,522

Materials in-transit 17,385 79,996Others 3,635 2,948

￦ 266,468 ￦ 434,874

7. Available-for-Sale Securities

Available-for-sale securities as of December 31, 2009 and 2008, consist of the following:


Marketable equity securities ￦ 28,211 ￦ 14,884Non-marketable equity securities 1, 2 103,229 71,903

Other equity investments 3 21,580 21,579

Government and public bonds 4 7,355 1,047

￦ 160,375 ￦ 109,4131The fair value of non-marketable equity securities for Korea Housing Guarantee Co., Ltd. was valued

by an independent appraiser using the discounted cash flow model. The five-year financial statements,

projected based on past performance, were used in measuring the fair value assuming that the

operational structure will remain as is for the next five years. Income and expense from operations were

estimated based on the past performance, business plan and expected market conditions. Upon

measuring the fair value, the acquisition cost of the securities is ￦12,842 million, while the book value

is ￦2,513 million (2008: ￦2,557 million).

2The fair value of non-marketable equity securities for Pusan NewPort Co., Ltd. which started normal

operating activities in 2006 could not be reliably estimated due to the lack of financial information of

the said company. Accordingly, it is presented at its acquisition cost of ￦53,908 million. The fair

values of non-marketable equity securities for BTIH Inc., Ulsan I-Port Co., Ltd. and Bukhang I’bridge

Co., Ltd. which were established at most seven years ago could not be reliably estimated due to the

lack of financial information of the said companies. Accordingly, these securities are presented at

their acquisition cost of ￦10,340 million, ￦4,569 million and ￦16,701 million, respectively.


21

3 Equity investments in the Construction Guarantee and others are presented at their acquisition cost.

4Government and public bonds classified as available-for-sale were valued at a market value

published by bond appraiser companies such as Korea Information Service Inc., and others.

Changes in unrealized gain(loss) on valuation of available-for-sale securities for the years ended

December 31, 2009 and 2008, are summarized as follows:


Balance at beginning of year ￦ (14,237) ￦ 15,558Gain on valuation of available-for-sale securities 10,522 (33,044)

Realized gain - 3,249

(3,715) (14,237)

Deferred income tax assets 817 3,132

Balance at end of year \ (2,898) \ (11,105)

As of December 31, 2009 and 2008, the details of maturity date of government and public bonds are

as follows:

(In millions of Korean won)

Maturities 2009 2008

Within 1 year \ 47 \ -1~5 years 6,302 846

5~10 years 1,006 201

\ 7,355 \ 1,047

8. Equity-Method Investments

Equity-method investments as of December 31, 2009 and 2008, consist of the following:

(In millions of Korean won, except for number of shares and percentage information)

2009

InvesteesNumber of

SharesPercentage ofOwnership (%)

AcquisitionCost

Net AssetValue

BookValue

HHIC-Hong Kong Ltd. 618,850,001 100.00 \ 641,812 \ 601,986 \ 318,666

Hanjin Phil Corp.1 74,998 25.00 139 (845) -

HHIC-Tech Inc.1 21,995 99.99 47 (333) -

HHIC-Mindanao Inc. 1,090,995 99.99 24,240 27,353 27,353

HHIC-Shipping Ltd. 2,000,000 100.00 2,029 5,987 5,624

Daeryun Energy Ltd. 1,443,600 80.20 7,218 6,736 6,736

Daeryun Power Co., Ltd. 404,000 40.40 2,020 1,946 1,946

\ 677,505 \ 642,830 \ 360,3251 The book value of Hanjin Phil Corp. and HHIC-Tech Inc. have dropped below zero. Accordingly,

changes in equity-method investments of \845 million and \334 million were not reflected on the

financial statements as of December 31, 2009.


22

(In millions of Korean won, except for number of shares and percentage information)

2008

Investees

Number ofShares

Percentage ofOwnership (%)

AcquisitionCost

Net AssetValue

BookValue

HHIC-Hong Kong Ltd. 518,850,001 100.00 \ 517,922 \ 581,750 \ 327,190

Hanjin Phil Corp. 74,998 25.00 139 (823) -

HHIC-Tech Inc. 21,995 99.99 47 (1,200) 47

HHIC-Mindanao Inc. 1,090,995 99.99 24,240 26,335 26,335

HHIC-Shipping Ltd. 2,000,000 100.00 2,029 4,431 2,029

Daeryun Energy Ltd. 48,120 80.20 241 104 241

\ 544,618 \ 610,597 \ 355,842

Changes in equity–method investments for the years ended December 31, 2009 and 2008, are as

follows:


InvesteesBeginningBalance

Acquisition(Disposition)

ValuationGain(Loss)

OtherIncrease

(Decrease)EndingBalance

HHIC-Hong Kong Ltd. \ 327,190 \ 123,890 \ (88,815) \ (43,599) \ 318,666

Hanjin Phil Corp. - - - - -HHIC-Tech Inc. 47 - (47) - -HHIC-Mindanao Inc. 26,335 - 2,343 (1,325) 27,353HHIC-Shipping Ltd. 2,029 - 3,537 58 5,624Daeryun Energy Ltd. 241 6,977 (445) (37) 6,736Daeryun Power Co., Ltd. - 2,020 (74) - 1,946

\ 355,842 \ 132,887 \ (83,501) \ (44,903) \360,325

The Company calculated its accumulated other comprehensive income and expense by recognizing

cumulative other increase and decrease in equity-method investments amounting to ￦76,339

million and ￦-29 million, respectively, excluding income tax effects, as of December 31, 2009.


InvesteesBeginningBalance

Acquisition(Disposition)

ValuationGain(Loss)

OtherIncrease

(Decrease)EndingBalance

HHIC-Hong Kong Ltd. \ 13,167 \ 308,600 \ (118,156) \ 123,579 \ 327,190

Hanjin Phil Corp. - - - - -HHIC-Tech Inc. 47 - - - 47HHIC-Mindanao Inc. - 24,240 (74) 2,169 26,335HHIC-Shipping Ltd. - 2,029 - - 2,029Daeryun Energy Ltd. - 241 - - 241

\ 13,214 \ 335,110 \ (118,230) \ 125,748 \355,842


23

The Company calculated its accumulated other comprehensive income and expense by recognizing

cumulative other increase in equity-method investments amounting to ￦121,413 million as of

December 31, 2008.

As of December 31, 2009 and 2008, eliminations of unrealized gains or losses from intercompany

transactions in the valuation of equity-method investments are as follows:

2009

(In millions of Korean won)CurrentAssets

Non-CurrentAssets Total

HHIC-Hong Kong Ltd. \ - \ 283,320 \ 283,320

HHIC-Shipping Ltd. - 364 364

\ - \ 283,684 \ 283,684

2008

(In millions of Korean won)CurrentAssets

Non-CurrentAssets Total

HHIC-Hong Kong Ltd. \ - \ 254,560 \ 254,560

Summary of financial information of the above investees as of December 31, 2009 and 2008, and

for the years ended December 31, 2009 and 2008, is as follows:


Investees Total AssetsTotal

Liabilities Revenue Net Loss

HHIC-Hong Kong Ltd. \ 799,868 \ 197,882 \ 331,552 \ (60,073)

Hanjin Phil Corp. 71,701 75,079 - (249)HHIC-Tech Inc. 34,214 34,547 21,825 477HHIC-Mindanao Inc. 27,356 3 - 2,343HHIC-Shipping Ltd. 6,142 155 23,232 1,822Daeryun Energy Ltd. 8,515 116 - (380)Daeryun Power Co., Ltd. 7,186 2,368 - (182)

\ 954,982 \ 310,150 \ 376,609 \ (56,242)


Investees Total AssetsTotal

Liabilities Revenue Net Loss

HHIC-Hong Kong Ltd. \ 881,568 \ 299,818 \ 708,113 \ (20,213)

Hanjin Phil Corp. 75,266 78,558 176 (2,833)HHIC-Tech Inc. 17,964 19,164 18,964 (1,173)HHIC-Mindanao Inc. 26,335 - - (74)HHIC-Shipping Ltd. 5,102 671 15,295 1,680Daeryun Energy Ltd. 217 87 - (170)

\ 1,006,452 \ 398,298 \ 742,548 \ (22,783)


24

9. Short-Term and Long-Term Loans Receivable

Short-term and long-term loans receivable as of December 31, 2009 and 2008, consist of the

following:


Annual InterestRates (%) as ofDecember 31,

2009 2009 2008

Loans to employees - \ 264 \ 156

Loans to associated companies Libor 71,836 75,242Loans to cooperative enterprises - 348 391Loans to redevelopment association - 18,624 33,523

91,072 109,312Less: Short-term loans receivable (19,193) (34,027)

\ 71,879 \ 75,285

10. Property, Plant and Equipment

Changes in property, plant and equipment for the years ended December 31, 2009 and 2008, are as

follows:

2009


BeginningBalance Acquisition Transfer Disposal Depreciation

ForeignExchangeGain(Loss)

EndingBalance

Land \ 2,078,243 \ - \ 103 \ (9,389) \ - \ - \ 2,068,957

Buildings 221,025 96 4,676 (985) (10,068) - 214,744

Structures 102,672 8 1,604 (50) (6,194) - 98,040

Machinery andequipment 67,378 2,601 371 (14) (14,330) - 56,006

Ships 45,411 - 222 - (3,670) - 41,963

Constructionequipment 25,413 308 - - (9,304) (604) 15,813

Vehicles 3,515 7,273 784 (121) (3,816) (17) 7,618

Tools, furnitureand fixtures 16,199 1,857 155 (125) (6,925) (9) 11,152

Constructionin-progress 65,347 18,369 (9,724) - - - 73,992

\2,625,203 \ 30,512 \ 1,809 \(10,684) \ (54,307) \ (630) \ 2,588,285


25

2008


BeginningBalance

Acquisition(Revaluation

2) Transfer

1Disposal Depreciation

ForeignExchangeGain(Loss)

EndingBalance

Land \ 852,831 \ 1,214,546 \ 12,116 \ (1,250) \ - \ - \ 2,078,243

Buildings 179,203 3,308 48,336 (656) (9,166) - 221,025

Structures 97,200 312 11,734 (720) (5,854) - 102,672

Machinery andequipment 65,382 7,153 9,260 (146) (14,271) - 67,378

Ships 6,709 - 41,176 - (2,474) - 45,411

Constructionequipment 21,822 8,776 - - (8,300) 3,115 25,413

Vehicles 6,124 1,005 - (4) (3,741) 131 3,515

Tools, furnitureand fixtures 15,779 7,836 303 (183) (7,587) 51 16,199

Constructionin-progress 55,825 128,288 (118,766) - - - 65,347

\1,300,875 \ 1,371,224 \ 4,159 \ (2,959) \ (51,393) \ 3,297 \ 2,625,203

1 Inventories amounting to \11,294 million were reclassified to land, while land amounting to \2,306

million was reclassified as inventories.

2 The increase of land in this column resulted from revaluation of land.

The value of land based on the posted price issued by the Korean government as of December 31,

2009 and 2008, are as follows:

2009


Area(in Square

Meters)Carrying

ValuePostedPrice

Building lots (inventory) 165,304 \ 20,448 \ 29,217

Land (property, plant and equipment) 3,790,933 2,068,957 2,122,527

3,956,237 \ 2,089,405 \ 2,151,744

2008


Area(in Square

Meters)Carrying

ValuePostedPrice

Reclaimed land (inventory) 191,472 \ 3,043 \ 113,083

Building lots (inventory) 478,672 86,019 80,312

Land (property, plant and equipment) 3,795,288 2,078,243 1,599,160

4,465,432 \2,167,305 \ 1,792,555


26

The changes in accumulated other comprehensive income and expense due to the revaluation are

as follows:


Beginning balance ￦ 1,222,498 ￦ -

Increase due to revaluation - 1,222,498

Decrease due to disposal (6,188) -

1,216,310 1,222,498

Effect of deferred income taxes (267,588) (268,950)

Ending balance ￦ 948,722 ￦ 953,548

The Company’s land was revalued on December 31, 2008, by independent appraisers. Valuations

were made on the basis of recent market transactions made on arm’s length terms. The revaluation

surplus net of applicable deferred income taxes was credited to accumulated other comprehensive

income and expense. The revaluation decrement of ￦7,952 million was charged against income.

11. Research and Development Expenses

Research and development expenses charged to operations for the years ended December 31,

2009 and 2008, consist of the following:


Research expenses \ 104,379 \ 89,298

Ordinary development expenses 4,342 5,027

\ 108,721 \ 94,325

12. Assets Pledged as Collaterals

As of December 31, 2009 and 2008, a certain portion of the Company’s assets is pledged as

collaterals for the Company’s various borrowings and guarantees of indebtedness of others as

follows:

(In millions of Korean won and thousands of U.S. dollars)

Pledged to Assets 2009 2008

\ 88,584 \ 88,584Korea Development Bank Land and buildings US$ 98,892 US$ 98,892Korea Development Bank Available-for-sale securities

(Kimchun Mulgil Jikimi Co., Ltd.) 499 -Korea Development Bank

and othersAvailable-for-sale securities(Miraeseum Co., Ltd.) 321 -

Korea Development Bankand others

Available-for-sale securities(Bukhang I’Bridge Co., Ltd.) 16,701 -

Hana Bank Short-term financial instruments(Time deposits) - 233


27

Kookmin Bank Land and buildings 5,172 9,228Available-for-sale securities(Ulsan I-Port Co.,Ltd.) 4,569 4,513

Woori Bank Land and buildings 334 334

Available-for-sale securities(Government and public bonds) 48 48

Available-for-sale securities(Pusan NewPort Co., Ltd.) 53,908 43,880

Woori Bank and others Available-for-sale securities (BTIH) 10,768 9,765Shinhan Bank Available-for-sale securities

(Masan Sewage Pipe Co., Ltd.) 147 74SK Co., Ltd. Land, buildings and structures - 1,230Korean National

Red CrossLand and buildings 100 100

Industrial Bank of Korea Available-for-sale securities(Seoul Lite Tower Co., Ltd.) 3,080 -

Industrial Bank of Koreaand others

Available-for-sale securities(Bupyeong C&A Co., Ltd.) 440 -

Korea HousingGuarantee Co.,Ltd.

Available-for-sale securities(Korea Housing Guarantee Co., Ltd.) 12,842 12,842

ConstructionGuarantee

Available-for-sale securities(Construction Guarantee) 19,922 19,922

Electric Contractors'Financial Cooperative

Available-for-sale securities(Electric Contractors' Financial Cooperative) 105 105

Korea ElectricEngineers Association

Available-for-sale securities(Korea Electric Engineers Association) 20 20

Engineering FinancialCooperative

Available-for-sale securities(Engineering Financial Cooperative) 58 58

Machinery FinancialCooperative

Available-for-sale securities(Machinery Financial Cooperative) 1,219 1,219

\ 218,837 \ 192,155

US$ 98,892 US$ 98,892

13. Short-Term Borrowings

Short-term borrowings as of December 31, 2009 and 2008, consist of the following:



2009 2009 2008

Foreign currency loansKorea Export-Import Bank and others

3.56~3.69 \ 52,676 \ 98,487

Local currency loansConstruction Guarantee and others

4.79~6.98 517,223 205,432

\ 569,899 \ 303,919


28

14. Long-Term Borrowings

Debentures

Debentures as of December 31, 2009 and 2008, consist of the following:

(In millions of Korean won) Maturities


20092009 2008

Publicly offeredJan. 2010~March 2013

5.04 ~ 8.83M LIBOR+3.55 \ 1,205,056 \ 775,450

Privately placedFeb. 2009 ~May 2012

5.28 ~ 8.86M LIBOR+1.40

1,006,760 715,750

2,211,816 1,491,200

Less : Current portion (711,816) (200,000)

Discounts on debentures issued (2,578) (3,074)

\ 1,497,422 \ 1,288,126

The Company’s debentures were issued at discount rates ranging from 0.05% to 0.49%.

Long-term Debts

Long-term debts as of December 31, 2009 and 2008, consist of the following:


Local currency loans \ 32,657 \ 20,940

Foreign currency loans (in Korean won equivalents) 580,055 528,732

Others 65 129

612,777 549,801

Less: Current portion (307,469) (206,948)

\ 305,308 \ 342,853

Long-term debts denominated in local currencies as of December 31, 2009 and 2008, consist of

the following:

(In million of Koreanwon) Maturities


2009 2009 2008

Kookmin Bank Jan. 2010~Feb. 2021

3.00 \ 4,018 \ 4,301

Korea HousingGuarantee Co., Ltd.

Jan. 2010~Sep.2015

1.00 8,639 8,639

Korea Development Bank Nov. 2010~June 2011

6.59 ~ 8.55 20,000 8,000

\ 32,657 \ 20,940

Long-term debts denominated in foreign currencies as of December 31, 2009 and 2008, consist of

the following:


29



2009 2009 2008

Korea Development Bank Aug. 2014 3M LIBOR+0.73 \ 110,922 \ 125,750

Korea Development Bank May 2010 8.95 116,760 -Woori Bank Jan. 2010 3M LIBOR+0.79 52,542 62,875Woori Bank May 2010 3M LIBOR+2.20 35,028 37,725

Hana Bank May 2010 3M LIBOR+0.32 58,380 62,875Kookmin Bank June 2010 3M LIBOR+0.32 52,542 62,875Kookmin Bank March 2010 3M LIBOR+1.60 58,380 62,875

Korea Export-ImportBank

Oct. 2014 6M LIBOR+0.67 52,542 62,875

National AgriculturalCooperative Federation

Jan. 2010~April 2018

3M LIBOR+0.37 20,938 24,790

March. 2010~Dec. 2018

3M LIBOR+0.37 22,021 26,092

\ 580,055 \ 528,732

Other long-term debts as of December 31, 2009 and 2008, consist of the following:



2009 2009 2008Korea Ocean Research &Development Institute and others

Nov. 2010 6.00 ~ 9.25 \ 65 \ 129

Other Long-term Liabilities

Other long-term liabilities as of December 31, 2009 and 2008, consist of the following:

(In millions of Korean won) 2009 2008Interest payable incurred before reorganization

proceedings\ 1 \ 91

Less: Current portion (1) (90)

\ - \ 1


30

The maturities of long-term debts outstanding, excluding discounts on debentures and present

value discounts, as of December 31, 2009, are as follows:


Maturities Debentures Long-term DebtsOther Long-term

Liabilities

2010 \ 711,816 \ 307,469 \ 1

2011 1,120,000 196,638 -2012 310,000 29,172 -

Thereafter 70,000 79,498 -

\ 2,211,816 \ 612,777 \ 1

15. Accrued Severance Benefits

Changes in accrued severance benefits for the years ended December 31, 2009 and 2008, consist

of the following:


Balance at beginning of year \ 194,421 \ 187,972

Provision for severance benefits 25,670 31,831

Actual severance payments (53,878) (25,382)

166,213 194,421

Less: Severance insurance deposits (149,417) (132,453)Cumulative deposits to the National Pension Fund (2,482) (3,133)

Balance at end of year \ 14,314 \ 58,835

The Company funded 89.9% of accrued severance benefits through severance insurance deposits

with the Meritz Fire & Marine Insurance Co., Ltd. and others.

16. Liability Provision, Commitments and Contingencies

Liability Provisions

Liability provisions as of December 31, 2009 and 2008, are as follows:

2009

(In millions of Korean won)BeginningBalance

Increase DecreaseEndingBalance

Warranty provision \ 16,696 \ 8,874 \ 7,016 \ 18,554

Provision for losses fromconstruction contracts 23,251 2,371 6,436 19,186

2008

(In millions of Korean won)BeginningBalance

Increase DecreaseEndingBalance

Warranty provision \ 16,200 \ 8,305 \ 7,809 \ 16,696

Provision for losses fromconstruction contracts 10,942 19,131 6,822 23,251


31

Subject to sales contracts, the Company is liable to repair certain defects in its products during the

warranty period. The Company provides, at the end of the reporting period, a provision for warranty

to cover the obligations which may arise during the warranty period. Any unused warranty

provision is recognized as a non-operating income.

When foreseeable losses are expected from short-term and long-term contracts in progress, the

Company recognizes the total expected loss from the contracts as a provision for losses from

construction contracts.

Contingencies

As of December 31, 2009 and 2008, the Company is contingently liable for guarantees of

indebtedness of other companies, as follows:


Sangdo-dong Reconstruction Association \ 30,603 \ 154,103Pusan Newport Co., Ltd. - 42,813

HHIC-PHIL Inc.1 1,750,220 1,946,672

HHIC-Hong Kong Ltd. 87,570 119,463

Pyung-taek station 104,000 104,000

Kwang-Yuk Reconstruction Association 70,000 70,000

Pyung-taek Yong-yi dong APT Development 207,967 -

Songdo Internationalization Complex 128,700 -

\ 2,379,060 \ 2,437,0511

As of December 31, 2009, the payment guarantees for HHIC-PHIL Inc. include actual balance

utilized for refund of advance receipts amounting to ￦989,110 million (2008: ￦1,070,658 million).

As of December 31, 2009, the maximum limit of guarantees in relation to HHIC-PHIL Inc. is

￦2,796,318 million (2008: ￦3,356,455 million).

As of December 31, 2009, the Company is named as a defendant in ￦59 (2008: ￦47) legal

actions arising from the ordinary course of business. The aggregate amounts of claims as the

defendant amounted to ￦136,944 million (2008: ￦89,807million). The ultimate effect of these

matters cannot presently be determined.

Main legal actions are as follows:


Legal Actions in Relation to

Sinmunro Bersium loan and others \ 38,405 \ 38,910

Claims for Dongsomun redevelopment project and others 3,956 22,467

Claims for Hwagog reconstruction apartment and others 9,000 9,020

Claims for Busan typhoon damage and others 45,309 8,469

Claims for removing equipment 14,298 -

Reimbursement of deposit of Cheong-ra district 5,300 -

Issuance of stocks of Daehan Dredging Co., Ltd. 5,064

\ 121,332 \ 78,866


32

As of December 31, 2009, the Company has placed deposits amounting to ￦556 million (2008:

￦2,300 million) in relation to certain claims described above. The Company believes that the

outcome of these matters is uncertain but, in any event, they would not result in a material ultimate

loss for the Company.

As of December 31, 2009, the Company has filed ￦22 (2008: ￦16) lawsuits with claims

amounting to ￦12,752 million (2008: ￦21,100 million).

As of December 31, 2009, the Company has provided four (2008: three) blank notes, four (2008:

five) blank checks and eight (2008: eight) notes amounting to ￦13,859 million (2008: ￦13,859

million) to several financial and other companies as collaterals for the Company’s borrowings and

business contracts.

Commitments

The Company maintains credit lines with various financial companies as of December 31, 2009

and 2008, as follows:

(In millions of Korean won and in thousands of U.S. dollars)

Financial Companies 2009 2008

Bank overdrafts Woori Bank and others ￦ 18,700 ￦ 18,700

General credit Korea Export-Import Bank and others ￦ 780,000 ￦ 400,000Korea Export-Import Bank US$ 30,000 US$ 30,000

Foreign trade financing Korea Export-Import Bank and others US$ 3,514,580 US$ 4,998,000

Korea Export-Import Bank ￦ 420,000 ￦ 300,000

Foreign currency swap Korea Exchange Bank and others - US$ 30,000

B2B borrowing credit Woori Bank and others ￦ 105,000 ￦ 75,000

Derivatives

As of December 31, 2009, the Company has forward exchange contracts with the Kookmin Bank

and two other banks to hedge foreign exchange fluctuation risk related to the advance receipts of

the long-term foreign currency contracts. The Company applies fair value hedge accounting when

a long-term foreign currency contract satisfies the criteria of firm commitments. When the foreign

currency contracts fail to meet the criteria of firm commitments, the Company accounts for the

relevant forward exchange contract as normal foreign exchange transactions.


33

Summarized below are the details of the Company’s accounting for the derivatives for the years

ended December 31, 2009 and 2008:

(In millions of Korean won and in thousands of U.S. dollars)

2009

ShortPosition

LongPosition

UnrealizedLoss

on ForwardExchange

UnrealizedLoss onForward

Exchange forHedgingPurpose

UnrealizedGain on FirmCommitmentfor Hedging

PurposeFirm

Commitment

ForwardExchangeContractLiabilities

USD 195,853 KRW 199,516 \ 7,783 \ 6,558 \ 6,558 \ 9,039 \ 30,606

2008

ShortPosition

LongPosition

UnrealizedLoss

on ForwardExchange

UnrealizedLoss onForward

Exchange forHedgingPurpose

UnrealizedGain on FirmCommitmentfor Hedging

PurposeFirm

Commitment

ForwardExchangeContractLiabilities

USD 313,365 KRW 311,273 \ - \ 70,782 \ 70,782 \ 70,782 \ 70,782

The Company applies fair value hedge accounting and is exposed to risks in fluctuations in fair

value until November 30, 2010. The realized loss from forward exchange contracts and the

realized gain from firm commitments on derivative transactions recognized upon the expiration of

contracts for the year ended December 31, 2009, amounted to ￦2,928 million and ￦3,583

million, respectively. As of December 31, 2009, certain hedging transactions do not qualify for

hedge accounting due to the amendment of foreign currency construction contracts, and are thus

accounted for as trading derivatives. In relation to these transactions, the Company recognized

loss on suspension of firm commitment fair value hedge accounting amounting to ￦ 45,176

million.

17. Capital Stock

Under the Articles of Incorporation, the Company is authorized to issue 140,000,000 shares of

common stock and 40,000,000 shares of preferred stock with a par value of ￦5,000. As of

December 31, 2009, the Company has 47,810,582 shares of common stock issued and

outstanding.

In addition, the Company is authorized to issue convertible bonds and bonds with stock warrant

with a face value up to ￦400,000 million each. No such convertible bond and bond with stock

warrant have been issued as of December 31, 2009.


34

18. Capital Surplus

Paid-in Capital in Excess of Par Value

Paid-in capital in excess of par value represents the excess of the book value of net assets

transferred from HHIC Holdings over the total of the par value of capital stock issued and the

capital adjustments directly related to the assets transferred. Under the Korean Commercial Code,

this paid-in capital in excess of par value can only be appropriated to offset against accumulated

deficit, if any, and to transfer to capital stock.

19. Capital Adjustments

As of December 31, 2009, the Company holds 22,235 shares (2008: 11,509 shares) of its common

stock amounting to ￦1,209 million (2008: ￦926 million) received from the spin-off and as stock

dividends. The treasury stock is recorded as capital adjustments.

20. Translation Gain of Foreign Currency Financial Statements

As of December 31, 2009, the Company recognized translation gain of foreign currency financial

statements amounting to ￦61,981 million (2008: ￦90,720 million) due to foreign exchange

translation of the Philippine branch.

21. Retained Earnings

Legal Reserve

The Korean Commercial Code requires the Company to appropriate, as a legal reserve, an

amount equal to a minimum of 10% of annual cash dividends declared, until such reserve equals

50% of its capital stock. This reserve is not available for payment of cash dividends but may be

transferred to capital stock or used to reduce accumulated deficit, if any.

Dividends

Cash Dividends

Details of cash dividends declared for the years ended December 31, 2009 and 2008, are as

follows:

2009 2008


Dividend Dividend Dividend Dividend

Ratio Amount Ratio Amount

Common stock 5% \11,947 2% \4,733


35

The Company’s dividend payout ratios for the years ended December 31, 2009 and 2008, are as

follows:

The Company’s dividend yield ratios for the years ended December 31, 2009 and 2008, are as

follows:

(In Korean won) 2009 2008

Dividend per share (A) \ 250 \ 100

Market price at end of reporting period (B) 22,650 28,600

Dividend yield ratio (A/B) 1.1% 0.4%

Stock Dividends

Details of stock dividends for the year ended December 31, 2008, are as follows:

2008

Dividend shares (A) 473,258

Total outstanding shares (B) 47,325,815

Dividend ratio (A/B) 1.0%

22. Income Taxes

Income tax expenses for the years ended December 31, 2009 and 2008, consists of:

(in millions of Korean won) 2009 2008

Current income taxes \ 54,737 \ 134,023

Deferred income taxes due to temporary differences (4,578) 198,149Additional income taxes paid 2,422 2,259

Deferred income taxes charged to equity (1,144) (261,539)

Income tax expenses \ 51,437 \ 72,892


Total dividends (A) \ 11,947 \ 4,733

Net income (B) 51,904 62,998

Dividend payout ratio (A/B) 23.0% 7.5%


36

Reconciliation between income before income taxes and income tax expenses for for the years

ended December 31, 2009 and 2008, is as follows:


Income before income taxes \ 103,341 \ 135,890

Income taxes based on statutory rate \ 24,984 \ 37,339

Adjustments

Permanent differences and others 2,813 1,683

Tax deduction 917 (1,119)

Effects of change in statutory tax rate (919) 9,234

Additional income taxes paid 2,422 2,259

Unrecognized tax assets from temporary differences 21,220 23,496

Income tax expenses \ 51,437 \ 72,892

Effective tax rate 49.8% 53.6%

Changes in the temporary differences and related deferred tax assets and liabilities are as follows:

2009 Temporary Differences Deferred TaxAssets(Liabilities)


BeginningBalance

TaxReconciliation

Differences

Increase(Decrease)

EndingBalance

Current Non-current

Trade accounts and notes receivable \ (5) \ - \ 29,181 \ 29,176 \ 7,061 \ -

Accrued income 8,254 (278) 12,100 20,076 4,857 -

Other accounts receivable - - - - - -

Allowance for doubtful accounts 5,672 (1,834) 1,950 5,788 1,380 19

Other investments 19,087 - (9,562) 9,525 2,305 -

Available-for-sale securities 12,896 - (5,361) 7,535 (2,094) 3,561

Equity-method investments 190,948 - 126,232 317,180 - 7,924

Derivatives 70,782 - (40,176) 30,606 7,407 -

Property, plant and equipment 9,259 (232) (534) 8,493 - 1,868

Land (1,706,818) (65) 8,731 (1,698,152) - (266,885)

Accrued expenses 12,072 - (8,883) 3,189 1,406 (633)

Other accounts payable 2,260 - (2,260) - - -

Other long-term liabilities (8) - 8 - - -

Warranty provision 16,696 - 1,858 18,554 725 3,542

Provision for losses from constructioncontracts 23,250 - (4,065) 19,185 4,643 -

Accrued severance benefits 18,987 (740) (18,248) (1) - -

Firm commitment (70,782) - 61,742 (9,040) (2,188) -

Reserve for research andhuman resource development (5,000) - (15,000) (20,000) - (4,400)

Monetary assets and liabilitiesdenominated in foreign currencies 119,186 - (1,194) 117,992 28,555 -

Others 2,910 1,976 11,968 16,854 4,130 (46)

\ (1,270,354) \ (1,173) \ 148,487 \ (1,123,040) \58,187 \ (255,050)

The tax effect of cumulative temporary difference was calculated based on future tax rate of the

fiscal year when temporary differences are expected to reverse. The 24.2% tax rate was used for

temporary differences expected to reverse in 2010 and 2011, and 22% tax rate was used for

temporary differences expected to reverse in 2012 and thereafter, respectively.


37

2008 Temporary Differences Deferred TaxAssets(Liabilities)


BeginningBalance

TaxReconciliation

Differences

Increase(Decrease)

EndingBalance

Current Non-current

Trade accounts and notes receivable \ (16,675) \ (41) \ 16,711 \ (5) \ (1) \ -

Accrued income (4,456) - 12,710 8,254 1,997 -

Other accounts receivable (1,216) 1,148 68 - - -

Allowance for doubtful accounts 10,911 37 (5,276) 5,672 1,118 231

Other investments 21,753 (1,718) (948) 19,087 - 4,199

Available-for-sale securities (18,820) (393) 32,109 12,896 (2,013) 4,667

Equity-method investments 196,297 - (5,349) 190,948 - 9,129

Derivatives - - 70,782 70,782 17,129 -

Property, plant and equipment (31,891) (13) 41,163 9,259 - 2,037

Land (494,024) - (1,212,794) (1,706,818) - (268,247)

Accrued expenses 3,592 154 8,326 12,072 3,605 (621)

Other accounts payable 7,200 - (4,940) 2,260 547 -

Other long-term liabilities (41) - 33 (8) (2) -

Warranty provision 16,200 - 496 16,696 999 2,765

Provision for losses from constructioncontracts 10,942 - 12,308 23,250 5,627 -

Accrued severance benefits 3,739 2,178 13,070 18,987 - 4,177

Firm commitment - - (70,782) (70,782) (17,129) -

Reserve for research andhuman resource development (10,000) - 5,000 (5,000) (1,210) -

Monetary assets and liabilitiesdenominated in foreign currencies - - 119,186 119,186 28,843 -

Others 1,543 1,149 218 2,910 768 (57)

\(304,946) \ 2,501 \ (967,909) \ (1,270,354) \40,278 \ (241,720)

Deferred income taxes charged directly to the shareholders’ equity are as follows:


Temporary Deferred Temporary Deferred

Differences Income Taxes Differences Income Taxes

\ 3,715 \ 817 \ 14,237 \ 3,132Available-for-sale securities

(863) (190) - -Equity-method Investments

Loss on revaluation of

(1,216,310) (267,588) (1,222,498) (268,950)Land (revaluation surplus)

\(1,213,458) \ (266,961) \(1,208,261) \ (265,818)

Temporary Difference not Recognized as Deferred Tax Assets(Liabilities)

Deferred tax assets(liabilities) were not recognized for the deductible temporary difference of

￦75,642 million resulting from equity-method investments and the taxable temporary difference of

￦485,037 million resulting from the land used in business.


38

Recognition of Deferred Income Tax Assets Based on Future Realizability

Realization of the future tax benefits related to the deferred tax assets is dependent on many

factors, including the Company’s ability to generate taxable income within the period during which

the temporary differences reverse, the outlook of the Korean economic environment, and the

overall future industry outlook. Management periodically considers these factors in reaching its

conclusion and recognized the deferred income tax asset since all the future (deductible) tax

benefits excluding the above noted, are predicted to be realizable as of December 31, 2009.

23. Comprehensive Income

Comprehensive income(expense) for the years ended December 31, 2009 and 2008, consists of:


Net income \ 51,904 \ 62,998

Other comprehensive income and expense

Unrealized gain on valuation of available-for-salesecurities, net of income tax of\(-)2,315 million

(2008:\7,411million) 8,207 (22,385)

Accumulated other comprehensive income of equity-method investees, net of income taxof\(-)207 million (2008: Nil) (45,074) 121,410

Accumulated other comprehensive expense ofequity-method investees, net of income taxof\ 8 million (2008: Nil) (29) 4,338

Translation gain of foreign currency financialstatements (28,739) 69,799

Assets revaluation reserves, net of income tax of\ 1,361 million (2008: \(-)268,949 million)

(4,826) 953,548

Comprehensive income(expense) \ (18,557) \ 1,189,708

24. Earnings Per Share

Basic earnings per share for the years ended December 31, 2009 and 2008, is calculated as

follows:

(In millions of Korean won, except per share amount)

2009 2008

Net income available for common stock \ 51,904 \ 62,998

Weighted average number of common stock 47,791,462 47,325,815

Earnings per share in Korean won \ 1,086 \ 1,331

For the years ended December 31, 2009 and 2008, basic earnings per share is identical to diluted

earnings per share due to the absence of common shares having dilutive effects.


39

25. Related Party Transactions

Details of the parent, subsidiaries, subsidiaries of the parent, and equity-method investee are as

follows:

Parent Company Hanjin Heavy Industries & Construction Holdings Co., Ltd.

Subsidiaries HHIC-Hong Kong Ltd.,HHIC-Tech Inc.,HHIC-Mindanao Inc.,HHIC-Shipping Ltd.Daeryun Energy Co., Ltd.Daeryun Power Co., Ltd.Subsidiaries of HHIC-Hong Kong Ltd. HHIC-Denmark Aps.,

HHIC-Cyprus Ltd.,

HHIC-PHIL Inc.

Subsidiaries ofParent Company

Korea Engineering Consultants Corp.,Hanil Leisure Co., Ltd.,Hanjin City Gas Co., Ltd., Hacor Inc.

Subsidiary of Hacor Inc. Hacor Phil Corp.

Equity-methodInvestee

Hanjin Phil Corp.

Significant transactions with related parties for the years ended December 31, 2009 and 2008, and

the related account balances as of December 31, 2009 and 2008, are as follows:

2009

(In millions of Korean won) Sales Purchases Receivables Payables

Parent Company

HHIC Holdings \ 63 \ 1,076 \ 2,548 \ 247

Subsidiaries

HHIC-PHIL Inc. 342,309 352 941,432 91,923

HHIC-Hong Kong Ltd. 3,908 79,777 675 5,755

HHIC-Tech 18,149 - 35,948 -

HHIC-Shipping Ltd. 8,716 631 - 34

Daeryun Energy Co., Ltd. 2,949 - 42 45

Daeryun Development Co., Ltd. 1,563 - 1,719 -

377,594 80,760 979,816 97,757

Subsidiaries of Parent Company

Korea Engineering Consultants Corp. 4,166 10,258 1,788 5,881

Hanil Leisure Co.,Ltd. 94 504 7,229 2,026

Hanjin City Gas Co., Ltd. 27 29 10 11

Hacor Inc. - - - 37

Hacor Phil Corp. 565 - 142 10

4,852 10,791 9,169 7,965

Equity-method Investee

Hanjin Phil Corp. 525 - 77,406 224

Key Management - 2,058 - -

\ 383,034 \ 94,685 \ 1,068,939 \ 106,193


40

2008

(In millions of Korean won) Sales Purchases Receivables Payables

Parent company

HHIC Holdings \ 65 \ 1,233 \ 3,246 \ 247Subsidiaries

HHIC-PHIL Inc. 800,375 - 719,258 -

HHIC-Hong Kong Ltd. 8,164 308,532 715 37,165

HHIC-Tech 19,080 - 19,292 -HHIC-Shipping Ltd. 2,707 1,437 - 955

830,326 309,969 739,265 38,120Subsidiaries of parent company

Korea Engineering Consultants Corp. 2,848 11,133 199 8,717Hanil Leisure Co., Ltd. 375 489 7,261 18

Hanjin City Gas Co., Ltd. 30 3 14 -

Hacor Inc. - - - 2,8533,253 11,625 7,474 11,588

Equity-method investee

Hanjin Phil Corp. 1,768 - 77,792 -Key management - 1,782 - -

\ 835,412 \ 324,609 \ 827,777 \ 49,955

Key Management Compensation

Key management compensation for the years ended December 31, 2009 and 2008, consists of

the following:


Salaries and incentives \ 1,192 \ 1,215

Provision for severance benefits 866 567

\ 2,058 \ 1,782

Key management consists of registered executive officers (directors and internal auditors) who

have authority and responsibility in the planning, directing and controlling of the operations of the

Company.

26. Selling and Administrative Expenses

Selling and administrative expenses for the years ended December 31, 2009 and 2008, consist of

the following:


Salaries \ 38,844 \ 40,479

Provision for severance benefits 5,259 4,938

Employee benefits 9,595 10,477

Taxes and dues 10,476 6,721

Advertising expense 3,712 4,937

Bad debt expense 6,949 999

Service fees 13,681 15,649

Service contract expense 14,321 16,971


41

Warranty expense 5,432 24,597

Others 23,010 29,154

\ 131,279 \ 154,922

27. Assets and Liabilities Denominated in Foreign Currencies

As of December 31, 2009 and 2008, assets and liabilities denominated in foreign currencies and

related gains and losses on foreign currency translation for the years ended December 31, 2009

and 2008, are as follows:

2009 ForeignCurrencies

KoreanWon

EquivalentTranslation

GainTranslation

Loss

(in millions of Korean won)

Foreign Currency Assets

Cash andcash equivalents

USD 212,306,010 \ 247,888 \ 794 \ 11,904

EUR 13,586,526 22,748 - 735

JPY 4,758,220 6,009 1 1

AED 36,261 11 - 1

Trade accountsand notes receivable

USD 486,156,713 567,637 310 47,695

Other accounts receivable USD 75,191,902 87,794 9 7,878

\ 932,087 \ 1,114 \ 68,214

Foreign Currency Liabilities

Trade accountsand notes payable

USD 9,905,864 \ 11,566 \ 285 \ 25

EUR 56,500 95 1 -

JPY 5,757,500 73 2 -

NOK 445,000 90 4 2

Short-term borrowings USD 32,636,404 38,106 1,420 24

EUR 6,741,841 11,288 529 -

JPY 259,820,350 3,281 136 -

SAR 2,815,447 876 67 -

Other accounts payable USD 78,759,594 91,960 2,097 -

Accrued expenses USD 19,189,246 22,405 1,725 -

Long-term debts1

USD 496,792,445 580,055 42,522 -

Debentures1

USD 159,811,334 186,589 14,384 17

\ 946,384 \ 63,172 \ 68

¹ Include current maturities of long-term debts and debentures.


42

2008 ForeignCurrencies

KoreanWon

EquivalentTranslation

GainTranslation

Loss

(in millions of Korean won)

Foreign Currency Assets

Cash andcash equivalents

USD 73,995,470 \ 93,049 \ 1,831 \ 2,532

JPY 609,424,470 8,495 63 16

Trade accounts and notesreceivable

USD 285,754,742 359,337 57,554 2,980

Other accounts receivable USD 291,625 367 34 2

\ 461,248 \ 59,482 \ 5,530

Foreign Currency Liabilities

Trade accountsand notes payable

EUR 82,263 \ 146 \ 7 \ 1

GBP 2,767,080 5,030 955 -

JPY 6,375,000 89 11 -

USD 43,579,647 54,802 4,003 243

Short-term borrowings DKK 6,072,527 1,447 - 116

EUR 22,078,026 39,215 295 1,853

GBP 395,000 718 128 -

JPY 519,920,350 7,247 88 1,375

USD 37,435,548 47,075 1,086 5,670

NOK 1,316,000 237 23 -

CAD 1,544,816 1,604 136 -

SAR 2,815,447 943 - 239

Other accounts payable USD 1,825,108 2,295 - 583

Accrued expenses USD 30,315,851 38,122 - 9,339

Long-term debts1

USD 420,463,502 528,732 420 124,298

Debentures1

USD 159,058,580 200,012 242 36,816

\ 927,714 \ 7,394 \ 180,533

¹ Include current maturities of long-term debts and debentures.

28. Segment Information

A summary of information of the Company’s operations by business and geographical segments

for the years ended December 31, 2009 and 2008, are as follows:

General Information by Business Segments

Segment Items

Shipbuilding Merchant ships, special ships and vessels, ship repair

Construction Engineering works, construction, reconstruction, infrastructure, plant-building

Others Terminal, petroleum, others


43

Financial Data by Business Segments

2009 Shipbuilding Construction Others Total(In millions of Koreanwon)

Sales \ 1,614,538 \ 1,126,018 \ 487,063 \ 3,227,619

Gross profit 282,763 136,505 172,917 592,185

Operating profit 250,240 56,135 154,531 460,906Property, plant and

equipment 1,042,930 1,545,220 135 2,588,285

Depreciation 36,297 17,982 28 54,307

2008 Shipbuilding Construction Others Total(In millions of Koreanwon)

Sales \ 2,017,330 \ 1,462,078 \ 368,625 \ 3,848,033

Gross profit 431,763 160,010 73,516 665,289

Operating profit 396,780 50,517 63,070 510,367Property, plant and

equipment 1,063,190 1,552,568 9,445 2,625,203

Depreciation 34,924 16,373 96 51,393

General Information by Geographical Segments

Segment Items

Korea Shipbuilding, construction, infrastructure, others

Asia Construction, infrastructure, others

Financial Data by Geographical Segments

2009 Korea Asia Total


Sales \ 3,060,980 \ 166,639 \ 3,227,619

Gross profit 550,090 42,095 592,185

Operating profit 425,588 35,318 460,906

Property, plant and equipment 2,572,067 16,218 2,588,285

Depreciation 44,558 9,749 54,307

2008 Korea Asia Total


Sales \ 3,223,646 \ 624,387 \ 3,848,033

Gross profit 584,033 81,256 665,289

Operating profit 444,828 65,539 510,367

Property, plant and equipment 2,598,981 26,222 2,625,203

Depreciation 43,065 8,328 51,393


44

29. Supplementary Information for Computation of Value Added

Details of accounts included in the computation of value added for the years ended December 31,

2009 and 2008, are as follows:

2009

(In millions of Korean won)Manufacturing

Costs

Selling andAdministrative

Expenses Total

Salaries \ 186,314 \ 38,844 \ 225,158

Provision for severance benefits 20,411 5,259 25,670

Employee benefits 54,017 9,595 63,612

Rent 41,590 2,596 44,186

Depreciation 49,269 5,038 54,307

Taxes and dues 16,774 10,476 27,250

\ 368,375 \ 71,808 \ 440,183

2008

(In millions of Korean won)Manufacturing

Costs

Selling andAdministrative

Expenses Total

Salaries \ 223,204 \ 40,479 \ 263,683

Provision for severance benefits 26,893 4,938 31,831

Employee benefits 53,190 10,477 63,667

Rent 72,896 4,040 76,936

Depreciation 46,785 4,608 51,393

Taxes and dues 17,954 6,721 24,675

\ 440,922 \ 71,263 \ 512,185

30. Supplemental Cash Flows Information

Significant transactions not affecting cash flows for the years ended December 31, 2009 and 2008,

are as follows:


Reclassification of current maturities of debentures \ 726,200 \ 200,000

Reclassification of construction in-progressto other property, plant and equipment accounts 7,916 113,937

Reclassification of current maturities of long-termdebts 153,448 153,996

Reclassification of current maturities oflong-term advance receipts 117,125 211,173

Reclassification of inventories to land - 11,294Reclassification of land to inventories - 2,306Revaluation of property, plant and equipment - 1,214,546Reclassification of current maturities of

forward exchange contract liabilities 43,020 -


45

31. Social Contribution

Employee Welfare

The Company provides its employees with financial aids for housing purchases or rent, and living

expenses through its employee welfare fund. The Company also provides scholarships to support

education expenses of employees’ dependents and after-work activity supports.

Environment Policy

The Company has established environmental management standards for the purpose of

preventing environmental pollution, increasing productivity and minimizing related losses through

improved work environment. For these purposes, a quality environment team has been set up to

enforce the environmental management standards. Detailed enforcement policies consist of

promoting at the corporate level environmental standards such as continuous reduction in negative

environmental effects, provision of optimal technology, continuous improvement in construction

environment, etc.

32. Final Interim Period

Financial information for the three-month periods ended December 31, 2009 and 2008, is as

follows:

(In millions of Korean won,except per share amounts)

Three-Month PeriodEnded December 31,

2009

Three-Month PeriodEnded December 31,

2008

Sales \ 747,722 \ 1,141,566

Cost of sales 605,214 941,586Operating profit 100,344 145,987Net loss (53,764) (1,659)Loss per share(in Korean won) (1,125) (35)

33. Spin-off

The Company was spun off in accordance with Articles 530-2 through 530-11 of the Korean

Commercial Code.

According to the provisions in the Korean Commercial Code, the Company and HHIC Holdings

have the joint responsibility to pay for the liabilities that existed as of the date of spin-off.

In addition, the Company and HHIC Holdings have the joint responsibility to pay for the contingent

liabilities incurred before the spin-off.


46

34. Subsequent Events

Issuance of Debentures

The Company has issued debentures in February, 2010, as follows:

Face ValueIssuedDate

MaturityDate

InterestRate

Conditions ofRedemption

123th debentures \280,000 millionFebruary 12,

2010February 12,

20136.2%

Lump sumat the maturity

date

Debt Guarantee for Subsidiary

The Company has provided a guarantee for the indebtedness of HHIC Phil Inc. amounting to

￦175,170 million on February 2, 2010.

35. Approval of Financial Statements

The financial statements as of and for the year ended December 31, 2009, were approved by the

Board of Directors on February 24, 2010.

36. Work Plan for Implementation and the Progress of IFRS Adoption in Korea

The Company is required to prepare its financial statements in accordance with the Korean

International Financial Reporting Standards (K-IFRS) starting 2011, based on the roadmap on the

adoption of International Financial Reporting Standards announced in March 2007.

The Company organized a task force in order to manage the Company’s K-IFRS implementation

process and which regularly reports the developments to the management.

Since 2008, the Company has engaged an external advisory firm and completed an analysis on

the significant differences between K-IFRS and the Company’s current accounting policies based

on the Korean Financial Accounting Standards. The Company is currently reconciling the

accounting policies where significant differences have been identified.

47

Report of Independent Accountants'

Review of Internal Accounting Control System

To the Representative Director of


We have reviewed the accompanying management’s report on the operations of the Internal

Accounting Control System (“IACS”) of Hanjin Heavy Industries & Construction Co., Ltd. (the

“Company”) as of December 31, 2009. The Company’s management is responsible for designing and

operating IACS and for its assessment of the effectiveness of IACS. Our responsibility is to review the

management’s report on the operations of the IACS and issue a report based on our review. The

management’s report on the operations of the IACS of the Company states that “based on its

assessment on the operations of the IACS, the Company’s IACS has been effectively designed and is

operating as of December 31, 2009, in all material respects, in accordance with the IACS standards

established by the Internal Accounting Control System Operations Committee (IACSOC) of the Korea

Listed Companies Association.”

Our review was conducted in accordance with the IACS review standards established by the Korean

Institute of Certified Public Accountants. Those standards require that we plan and perform, in all

material respects, the review of management’s report on the operations of the IACS to obtain a lower

level of assurance than an audit. A review is to obtain an understanding of a company’s IACS and

consists principally of inquiries of management and, when deemed necessary, a limited inspection of

underlying documents, which is substantially less in scope than an audit.

A company’s IACS is a system to monitor and operate those policies and procedures designed to

provide reasonable assurance regarding the reliability of financial reporting and the preparation of

financial statements for external purposes in accordance with accounting principles generally accepted

in the Republic of Korea. Because of its inherent limitations, IACS may not prevent or detect a material

misstatement of the financial statements. 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 causes us to believe that management’s

report on the operations of the IACS, referred to above, is not presented fairly, in all material respects,

in accordance with the IACS standards established by IACSOC.

Our review is based on the Company’s IACS as of December 31, 2009, and we did not review

management’s assessment on its IACS subsequent to December 31, 2009. This report has been

prepared pursuant to the Act on External Audit of Stock Companies in Korea and may not be

appropriate for other purposes or for other users.

Samil PricewaterhouseCoopers

March 11, 2010

48

Report on the Operations of the Internal Accounting Control System

To the Board of Directors and Audit Committee of


I, as the Internal Accounting Control Officer (“IACO”) of Hanjin Heavy Industries & Construction Co.,

Ltd. (the “Company”), assessed the status of the design and operations of the Company’s internal

accounting control system (“IACS”) for the year ended December 31, 2009.

The Company’s management including IACO is responsible for designing and operating IACS. I, as

the IACO, assessed whether the IACS has been effectively designed and is operating to prevent and

detect any error or fraud which may cause any misstatement of the financial statements, for the

purpose of establishing the reliability of financial reporting and the preparation of financial statements

for external purposes. I, as the IACO, applied the IACS standards for the assessment of design and

operations of the IACS.

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, 2009, in all material respects, in accordance with the

IACS standards established by the Internal Accounting Control System Operation Committee

(IACSOC) of the Korea Listed Companies Association.

Sung Moon Choi, Internal Accounting Control Officer

Hwa Young Song, Representative Director

February 24, 2010

Documents

Hanjin Heavy Industries & Construction Co., Ltd